<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended SEPTEMBER 30, 1999
OR
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from _______________ to _______________
Commission file number 2844975-1
Deotexis, Inc.
(Exact Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
Nevada 13-3666344
- ----------------------------------- ----------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
855 Third Avenue, Suite 2900
New York, New York 10022-4834
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including area code (212) 829-5698
- N/A -
- --------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
As of November 12, 1999, there were 4,546,875 shares of the
registrant's Common Stock, par value $.001, outstanding.
<PAGE>
STATEMENT ON INTERPRETATION OF FORWARD-LOOKING STATEMENTS
This Quarterly Report contains forward-looking statements relating to future
events or the projected future financial performance of the Company. Such
forward-looking statements are within the meaning of that term in Section 27A of
the Securities Act and Section 21E of the Exchange Act. When used herein, the
words "anticipate," "intend," "plan," "believe," "in our opinion," "hope,"
"estimate" and "expect," and any similar words or phrases as they relate to the
Company or its operations, are intended to identify these forward-looking
statements. These statements may include, but not be limited to, projections of
revenues, income or loss, capital expenditures, plans for growth and future
operations, financing needs, sources or potential sources of capital, or plans
or intentions relating to acquisitions by the Company, as well as assumptions
relating to the foregoing. Forward-looking statements are inherently subject to
risks and uncertainties, some of which cannot be predicted or quantified. Future
events and actual results could differ materially from those assumptions and
projections set forth in, contemplated by or underlying the forward-looking
statements. Investors are cautioned not to place undue reliance upon the
forward-looking statements contained herein.
<PAGE>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION................................................1
ITEM 1. FINANCIAL STATEMENTS............................................1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS......................................................1
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK...............................................1
PART II. OTHER INFORMATION....................................................1
ITEM 1. LEGAL PROCEEDINGS...............................................1
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.......................1
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.................................1
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............1
ITEM 5. OTHER INFORMATION...............................................1
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................8
i
<PAGE>
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
See the Index to Financial Statements, and the Financial Statements and
Notes thereto appearing at the end of this Quarterly Report.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
See Part II, Item 5 -- Other Information, below.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.
Not Applicable.
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not Applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
ITEM 5. OTHER INFORMATION.
The following discussion of the Company's financial condition and
results of operations should be read in conjunction with the Financial
Statements and Notes thereto appearing at the end of this Quarterly Report.
<PAGE>
RESULTS OF OPERATIONS
Deotexis, Inc. (the "COMPANY") has not generated any revenue from
operations and is in the development stage. At September 30, 1999, the Company
had current assets of $1,948,933, and current liabilities of $264,720.
PLAN OF OPERATIONS
GENERAL OVERVIEW
The Company was incorporated in Nevada on March 6, 1992, has no
operating history, has not generated or recognized any revenues, and is in the
development stage. The Company was originally organized with the sole purpose of
identifying a suitable candidate to acquire or with which to merge, and, until
September 1997, its existence had been maintained since its formation with that
objective in mind. On September 30, 1997, the Company, then known by its former
name, Zeron Acquisitions II, Inc. ("ZERON"), and Zeron's two controlling
stockholders at the time, entered into a Stock Purchase Agreement (the "STOCK
PURCHASE AGREEMENT") with Mr. Gerold Tebbe and Overton Holdings Limited, a Turks
& Caicos Islands corporation wholly beneficially owned and controlled by Mr.
Tebbe ("OHL"), pursuant to which OHL agreed to buy 4,183,125 newly-issued and
non-registered shares of Common Stock, $.001 par value per share, of the
Company, in exchange for (i) $4,000,000 in cash from OHL, and (ii) the
contribution to the Company by Mr. Tebbe, or entities owned or controlled by
him, of certain patents, patent applications and associated intellectual
property, in return for nominal consideration and a reservation of a 1% royalty
by Mr. Tebbe on all net income recognized by the Company from the commercial
exploitation of such rights.
The Company is engaged in the business of developing and
commercializing certain patented controlled-release delivery systems for
consumer products in certain sectors of the toiletries, cosmetics, apparel,
household products, personal care products, pharmaceutical, and other markets.
The Company's goal is to expand and build on its patented "know-how," and to
acquire access to manufacturing and marketing resources to become a profitable
developer and supplier of controlled-release delivery systems to a wide range of
industry sectors. Ultimately, the Company plans to become a business owning or
holding the rights to a wide range of products in the area of controlled-release
technology.
The Company's first controlled-release delivery system was developed by
Mr. Tebbe in 1987, and he filed a patent application for the technology relating
thereto in that same year. The application was opposed in the European patent
courts by The Procter & Gamble Company, one of the world's largest manufacturers
and distributors of household and consumer products. In late 1996, the European
Patent Office dismissed Procter & Gamble's challenge in favor of Mr. Tebbe's
patent claims. Following the patent ruling in his favor, Mr. Tebbe has been
taking steps to capitalize on his patented processes and technology.
Over the course of the next three (3) years, the Company anticipates
that it will (a) enter into licensing agreements providing for the use by
licensees of the Company's patents and manufacturing technology in exchange for
sales-based royalty payments to the Company, (b) initiate joint ventures and
strategic alliances with business partners the Company feels can utilize or
promote the Company's products and technology, (c) enter into one or more
distribution agreements with one or more major drug and pharmaceutical wholesale
distributors, (d) either
2
<PAGE>
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, (e) 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 (f) commence an image building advertising and
public relations campaign in the pharmaceutical and personal care products
industries. There can be no assurance that any or all of these goals will be
achieved by the Company.
PRODUCTS
The Company's core patent covers rate-controlled delivery systems for
chemicals which are microencapsulated and bonded onto flexible textiles. In
these systems, the active substances or compounds, including anti-bacterial
compounds, perfumes and emollients, are enclosed in micro-capsules and bonded
onto textiles. Depending on the thickness of their walls and the material used
to make them, the tiny capsules can be engineered to rupture and release their
contents at pre-programmed intervals, or in response to changes in specific
conditions (such as heat, humidity, pressure, etc.), enabling the user to
benefit from timely, correctly-dosed applications of personal care,
pharmaceutical or other compounds. Textile-based "controlled-release delivery
systems" have recently come into widespread use in certain female hygiene
products (sanitary pads) and in baby's diapers, where the use of
microencapsulated anti-bacterial compounds has permitted the manufacturers to
reduce the volume and thickness of the material and, most importantly, increase
the flexibility and therefore the comfort and convenience of these products
without reducing their effectiveness.
Based on its textile-based controlled-release delivery system, the
Company has developed and patented a number of consumer products, including the
"Cold Scarf," a disposable scarf impregnated with herbal substances for use by
people seeking relief from the symptoms of colds and congestion. In addition,
the Company has developed and patented controlled-release systems which can be
integrated with adhesive plasters, latex gloves and other "carriers" to deliver
micro-encapsulated substances in new ways. The Company's business plan envisions
business ventures with other companies which have know-how in mature basic
technologies such as adhesive plaster manufacturing, and are seeking new ideas
for innovative products that the Company's delivery system technology may help
to provide.
TARGET MARKETS; MANUFACTURING AND DISTRIBUTION STRATEGY
Potential end-users of the Company's systems are consumers of personal
care, household products and pharmaceutical products worldwide. In order to
reach these end-users, the Company intends to license its systems to
corporations which manufacture, sell and distribute consumer products to the
personal care, pharmaceutical and household products markets. The ability to use
the Company's technology by virtue of a license, in the Company's opinion,
should offer licensees a unique opportunity to diversify and expand their sales.
RETENTION OF SENIOR MANAGEMENT
The Company's seven member Board of Directors has extensive experience
in a wide array of business sectors. Mr. Gerold Tebbe will serve as the
President, Chief Executive Officer and a Director of the Company, with overall
responsibility for operations. Mr. Tebbe
3
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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, Mr. Tebbe has been appointed Acting Chief Financial
Officer, to execute the duties of Chief Financial Officer until such time as the
Company's level of operations warrants the retention of a full-time permanent
Chief Financial Officer.
COMPANY STRUCTURE AND SUBSIDIARIES
The Company formed a wholly-owned subsidiary in Germany in March 1999
to establish a local presence and serve as a holding company for any joint
venture or equity interests which may materialize through cooperation agreements
with licensees. The German holding company will initially have an independent
professional manager who will serve as interim CEO of that subsidiary on a
part-time basis while licenses are negotiated and joint ventures formed. Once
the Company's operations have progressed to the joint venture stage, the Company
expects to engage full-time management to monitor its German relationships and
investments, and to identify and negotiate new business opportunities. Assuming
that this approach is successful, the Company intends to set up additional
"technology holding companies" in other countries (including the United States)
and to follow the same strategy. As the volume of the Company's business
activity increases, to support Mr. Tebbe, the Company expects to appoint a
seasoned financial executive at the parent company level, who will be
responsible for accounting, consolidations, finance, cash management, regulatory
and securities law compliance, and other parent company functions.
As stated above, the Company may acquire an operating company with
manufacturing capabilities in Europe or the United States within the next one to
three (1-3) years, and thereafter use products based on the Company's technology
to diversify and expand the acquired company's existing product offerings and
revenue base. In addition, the Company hopes that, if it is able to consummate
an acquisition, officers and employees of the acquired company will be able to
assist in licensing activities and new product development, thereby increasing
the Company's management depth and strengthening its product management and
marketing skills.
LICENSING
To avoid the typically large costs of advertising and promoting new
consumer products (currently estimated at $15-20 million for a single new
product in Germany alone), the Company plans to primarily follow a licensing
strategy to market and distribute its delivery systems.
The Company anticipates that a majority of its potential customers will
enter into license agreements with the Company, in return for sales-based
royalty payments to the Company. It is the Company's intention to grant
extendable, multi-year licenses to corporations in the apparel, cosmetics,
toiletries, household products, personal care products and pharmaceutical
industries. In return for the licensing fee paid to the Company, licensees will
be granted the right to use the Company's patents, patent applications and the
related intellectual property necessary to manufacture and distribute products
employing the Company's delivery systems.
4
<PAGE>
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.
There can be no assurance that any license or distribution agreements
with the types of companies described above will be consummated on terms
favorable to the Company, if at all. The Company's failure to effect such
arrangements to license and distribute its products and delivery systems will
severely limit the Company's ability to produce and distribute its products and
introduce them into the market in any significant way.
PUBLIC RELATIONS; ADVERTISING
The Company has begun a public relations campaign to establish the
presence and build the image of the Company, initially in Germany, with the
intention to eventually expand this activity to all its primary target markets
in Europe and the United States. The public relations campaign has been designed
to present the Company as a technology-driven developer and supplier of quality,
innovative, economical controlled-release products. This campaign currently
utilizes the services of an independent public relations firm selected by the
Company.
The Company's anticipated advertising campaign, which is scheduled to
commence after the first licenses have been signed, will highlight the
convenience and economy of the Company's products. The Company intends to place
its print advertisements in periodicals and newspapers with readership
demographics consistent with the Company's core consumer target markets.
On an ongoing basis, the Company is also considering ways to enhance
communications with its shareholders and ensure that information on important
Company developments and opportunities continues to reach them on a timely
basis.
PATENTS
The Company currently owns the patents and patent rights that were
previously owned by Mr. Tebbe, and/or entities owned and controlled by him, and
were transferred to the Company in connection with the consummation of the
transactions contemplated by the Stock Purchase Agreement. Such patents and
related intellectual property constitute all of the technology necessary to
manufacture the Company's textile-based controlled-release delivery systems. It
is the Company's intention to commercially exploit the patents for its
controlled-release delivery systems technology through the introduction and
licensing of the Company's systems, initially in the European market. In
exchange for the transfer to the Company of the patents, patent rights and
related intellectual property, the Company has agreed to pay Mr. Tebbe a 1%
royalty per annum of all net income recognized by the Company in connection with
the commercial exploitation of these patents and patent rights. There are no
assurances that the Company will ever achieve net income as a result of the
commercial exploitation of these intellectual property rights. Furthermore, if
the occasion arises, the Company will have to defend against and/or institute
patent infringement suits in order to protect its proprietary rights
5
<PAGE>
to the patents. Prosecution of any type of patent litigation or dispute may
result in significant expenses for the Company.
LIQUIDITY
Since its incorporation on March 6, 1992, the Company has had no
business activity other than its capital raising activities, activities relating
to its corporate organization, negotiations with potential licensees and joint
venture/strategic partners, and activities relating to the transfer to the
Company by Mr. Tebbe and/or entities owned and controlled by him of the patents
and other intellectual property necessary to produce the Company's products and
develop its delivery systems. On September 30, 1999, the Company had $1,907,814
of liquid assets, working capital of $1,684,213 and shareholders' equity of
$1,684,213. The Company has not manufactured any of its delivery
systems since inception. The Company has entered into a Joint Venture with
Medisana GmbH pursuant to which the Company would grant to Medisana a license
to use the Company's technology, though the terms of this license have yet to
be negotiated. The Company has realized no revenues from its licensing
activities to date, including the prospective license to be granted to
Medisana. See "Recent Developments--Joint Venture with Medisana," below.
CAPITAL RESOURCES
Following commencement of its operations, the Company's cash
requirements will be significant. While the Company currently has cash on
hand sufficient to finance its proposed business during the first twelve (12)
to eighteen (18) months 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 two (1-2) years of operations or that, thereafter, it
will be able to generate sufficient cash flow and/or secure sufficient
borrowings to meet the Company's working capital requirements.
YEAR 2000 DISCLOSURE
The Company has assessed its exposure to the "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.
RECENT DEVELOPMENTS
1. JOINT VENTURE WITH MEDISANA.
At the end of October 1999, the Company finalized a participation
agreement (the "PARTICIPATION AGREEMENT") with Medisana GmbH ("MEDISANA"), a
marketer and distributor of medical devices and wellness supplies located in
Meckenheim, Germany. In return for a cash investment by the Company, and an
agreement by the Company to grant to Medisana a license to use and exploit
the Company's controlled-release delivery system technology in Medisana's
6
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business (the terms of which license have yet to be negotiated), the Company
received a 7.4% equity stake in Medisana (the "MEDISANA SHARES").
The Participation Agreement, which provides for the conversion of
Medisana to a publicly held stock corporation immediately following the
investment by the Company, to facilitate a possible initial public offering of
Medisana stock in 2000, provides that the Company may transfer the Medisana
Shares at any time to an affiliate. The Participation Agreement also contains a
12-month "lock-up" on the Medisana Shares in the event that the anticipated
initial public offering occurs.
In the event that the anticipated initial public offering of
Medisana does not occur by December 31, 2004, then the shareholders of
Medisana prior to the investment by the Company shall have the right to call,
and the Company shall have the right to put to those shareholders the
Medisana Shares, at a price equal to the original purchase price therefor,
plus interest at 10% per annum, less any dividends received with respect to
the Medisana Shares since their purchase. Further, the Participation
Agreement provides that all corporate actions that require, by statute, the
approval of 75% or more of Medisana's stockholders shall not be taken unless
the Company approves. Finally, the Participation Agreement provides that the
Company has the right to nominate one member to Medisana's six-member
Supervisory Board, and the other shareholders of the Company will vote for
the Company's nominee.
Medisana intends to look for ways to integrate the Company's technology
into its existing product line, and to work jointly with the Company under the
Participation Agreement to develop new products that will utilize the Company's
controlled-release delivery system. The Company feels that Medisana, which has
experienced rapid growth in its business over the last three years, is an
important partner in the Company's initiatives to develop new products, and to
drive sales of existing products utilizing the Company's technology.
2. DEVELOPMENT AGREEMENT WITH HERLITZ.
On October 15, 1999, the Company signed a Preliminary Agreement (the
"HERLITZ AGREEMENT") with Herlitz PBS AG ("HERLITZ"), a supplier of stationary,
office supplies and writing materials based in Berlin, Germany.
Pursuant to the Herlitz Agreement a research team is to be formed,
consisting of Mr. Tebbe for the Company, and representatives of Herlitz, to
evaluate, using each party's unique know-how, the feasibility and potential
commercial viability of integrating the Company's controlled-release delivery
system into Herlitz existing and proposed products.
As with the Participation Agreement with Medisana, the Company feels
the Herlitz Agreement will generate promising new product ideas and applications
using the Company's processes, and raise the Company's profile in the
marketplace.
7
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBITS.
27. Financial Data Schedule.
REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K during the period covered by
this Quarterly Report on Form 10-Q.
8
<PAGE>
DEOTEXIS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
INDEX TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Condensed Consolidated Balance Sheets at September 30, 1999
(unaudited) and December 31, 1998 F-2
Condensed Consolidated Statements of Operations for the nine months ended
September 30, 1998 and 1999 (unaudited) and cumulative since
March 6, 1992 (inception) to September 30, 1999 (unaudited) F-3
Condensed Consolidated Statements of Operations for the three months
ended September 30, 1998 and 1999 (unaudited) F-4
Consolidated Statement of Stockholders' Equity for the period March 6, 1992
(inception) to December 31, 1994, and for the years ended December 31, 1995,
1996, 1997 and 1998 and for the nine months
ended September 30, 1999 (unaudited) F-5
Condensed Consolidated Statements of Cash Flows for the nine months ended
September 30, 1998 and 1999 (unaudited) and cumulative since
March 6, 1992 (inception) to September 30, 1999 (unaudited) F-6
Notes to Condensed Consolidated Financial Statements F-8
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
DEOTEXIS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
DECEMBER 31, 1998 SEPTEMBER 30, 1999
----------------- ------------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,956,090 $ 1,907,814
Prepaid taxes 6,414
Prepaid insurance 34,705
----------- -----------
Total assets (all current) $ 2,956,090 $ 1,948,933
=========== ===========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $ 80,015 $ 69,946
Due to officer/director 429,659 194,774
----------- -----------
Total current liabilities 509,674 264,720
----------- -----------
Commitments and other matters
Stockholders' equity:
Preferred stock, par value $.001;
authorized 15,000,000 shares, none
issued and outstanding
Common stock, par value $.001;
authorized 75,000,000 shares, issued
and outstanding 4,546,875 shares 4,547 4,547
Additional paid-in capital 4,156,685 4,156,685
Deficit accumulated during the
development stage (1,714,816) (2,477,019)
----------- -----------
Total stockholders' equity 2,446,416 1,684,213
----------- -----------
Total liabilities and stockholders' equity $ 2,956,090 $ 1,948,933
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES
F-2
<PAGE>
<TABLE>
<CAPTION>
DEOTEXIS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine Months March 6, 1992
ENDED SEPTEMBER 30, (Date of Inception) to
1998 1999 SEPTEMBER 30, 1999
------------ ----------- ----------------------
<S> <C> <C> <C>
Interest and other income $ 132,719 $ 69,737 $ 327,830
----------- ----------- -----------
Expenses:
Directors fees 105,000 105,000 245,000
Interest 11,700 33,700
Consulting 38,125
Rent 2,761 3,192 45,039
Corporation franchise taxes 16,846 5,234 31,863
Filing fees 77,725 21,586 137,869
Amortization 500
Bank charges 2,310
Insurance 105,802 104,115 245,185
Office 43,925 56,644 205,338
Professional fees 733,941 524,469 1,819,920
----------- ----------- -----------
Total expenses 1,086,000 831,940 2,804,849
----------- ----------- -----------
Net loss $ (953,281) $ (762,203) $(2,477,019)
=========== =========== ===========
Basic loss per share $ (.21) $ (.17)
=========== ===========
Weighted average number of
shares outstanding 4,546,875 4,546,875
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES
F-3
<PAGE>
<TABLE>
<CAPTION>
DEOTEXIS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months
ENDED SEPTEMBER 30,
--------------------------
1998 1999
--------- ---------
<S> <C> <C>
Interest and other income $ 48,426 $ 19,377
--------- ---------
Expenses:
Directors fees 35,000 35,000
Interest 3,300
Rent 2,761 1,094
Corporation franchise taxes 7,646 1,600
Filing fees 4,317 3,632
Insurance 35,266 34,705
Office 19,762 30,941
Professional fees 191,722 153,556
--------- ---------
Total expenses 296,474 263,828
--------- ---------
Net loss $(248,048) $(244,451)
========= =========
Basic loss per share $(.05) $(.05)
========= ==========
Weighted average number of
shares outstanding 4,546,875 4,546,875
========= =========
</TABLE>
SEE ACCOMPANYING NOTES
F-4
<PAGE>
<TABLE>
<CAPTION>
DEOTEXIS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Deficit
Accumulated
Common Additional During the Total
STOCK Paid-In Development Stockholders'
SHARES AMOUNT CAPITAL STAGE EQUITY
<S> <C> <C> <C> <C> <C>
Issuance of 160,000 common shares on
September 4, 1992 at par value ($.001
per share) for cash ($.01 per share) 160,000 $ 160 $ 1,440 $1,600
Sale of 18,750 shares for cash in July
1992 ($1.60 per share) 18,750 19 29,981 30,000
Net loss inception to December 31, 1992 $ (62) (62)
Net loss - December 31, 1993 (1,766) (1,766)
Sale of 100,000 shares - January 31, 1994
($6.25 per share) 100,000 100 624,900 625,000
Deferred offering costs charged to
paid-in capital (31,461) (31,461)
Net loss - December 31, 1994 (27,184) (27,184)
------ ---------- ----------- ----------
Balance - December 31, 1994 279 624,860 (29,012) 596,127
Net loss (35,005) (35,005)
------ ---------- ----------- ----------
Balance - December 31, 1995 279 624,860 (64,017) 561,122
Net loss (43,737) (43,737)
------ ---------- ----------- ----------
Balance - December 31, 1996 279 624,860 (107,754) 517,385
Distributions (475,750) (475,750)
Sale of 4,183,125 shares for cash
($.96 per share) 4,183,125 4,183 3,995,817 4,000,000
Issuance of 85,000 shares for services
rendered ($.48 per share) 85,000 85 (85) -
Capital contributed by principal
stockholder 10,643 10,643
Net loss (239,901) (239,901)
---------- ------ ---------- ----------- ----------
Balance - December 31, 1997 4,546,875 4,547 4,155,485 (347,655) 3,812,377
Capital contributed by principal
stockholder 1,200 1,200
Net loss (1,367,161) (1,367,161)
---------- ------ ---------- ----------- ----------
Balance - December 31, 1998 4,546,875 4,547 4,156,685 (1,714,816) 2,446,416
Net loss (unaudited) (762,203) (762,203)
---------- ------ ---------- ----------- ----------
Balance - September 30, 1999 (unaudited) 4,546,875 $4,547 $4,156,685 $(2,477,019) $1,684,213
========== ====== ========== =========== ==========
</TABLE>
SEE ACCOMPANYING NOTES
F-5
<PAGE>
<TABLE>
<CAPTION>
DEOTEXIS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months March 6, 1992
ENDED SEPTEMBER 30, (Inception) through
1998 1999 SEPTEMBER 30 1999
----------- ---------- --------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (953,281) $(762,203) $(2,477,019)
Adjustments to reconcile net
loss to net cash used in operating
activities:
Amortization 500
Services paid for by principal stockholder 1,200 1,200
Changes in operating assets and liabilities:
Interest receivable (25,514)
Prepaid taxes (536) (6,414) (6,414)
Prepaid insurance (35,268) (34,705) (34,705)
Accounts payable and accrued expenses (11,297) (10,069) 69,446
Due to officer, net 175,868 (234,885) 194,774
----------- ---------- ----------
Cash used in operating activities (848,828) (1,048,276) (2,252,218)
----------- ---------- ----------
Cash flows from investing activities:
Purchase of treasury bills (1,911,754)
-----------
Cash flows from financing activities:
Issuance of common stock - net of costs 4,625,139
Capital contributed by principal stockholder 10,643
Distributions (475,750)
----------- ---------- ----------
4,160,032
----------
Net (decrease) increase in cash
and cash equivalents (2,760,582) (1,048,276) 1,907,814
Cash and cash equivalents -
beginning of year/period 4,034,700 2,956,090
----------- ---------- ----------
Cash and cash equivalents -
end of period $1,274,118 $1,907,814 $1,907,814
=========== ========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes $17,382 $11,798 $20,180
=========== ========== ==========
Noncash financing activities:
The Company issued 85,000 shares to
a consultant for services
rendered. The Company recorded
the fair market value of those
securities at $.48 per share. $40,800
==========
</TABLE>
(CONTINUED)
F-6
<PAGE>
<TABLE>
<CAPTION>
DEOTEXIS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(CONCLUDED)
Nine Months March 6, 1992
ENDED SEPTEMBER 30, (Inception) through
1998 1999 SEPTEMBER 30, 1999
------------ ----------- ---------------------
<S> <C> <C>
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-7
<PAGE>
DEOTEXIS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. THE COMPANY AND STOCKHOLDERS' EQUITY:
Background:
Deotexis, Inc. (the "COMPANY") was organized under the laws of the State
of Nevada on March 6, 1992. Its purpose is the development of a consumer
products company focusing on the marketing of personal care consumer
products. Since the Company has not yet begun operations, it is
considered to be in the development stage.
On October 10, 1997, the Stock Purchase Agreement dated September 30,
1997 among Overton Holdings Limited, a corporation formed under the laws
of the Turks & Caicos Islands, British West Indies ("OHL"), Gary Takata,
Shigeru Masuda and Gerold Tebbe, closed. Pursuant to the terms of the
Stock Purchase Agreement, the Company issued 4,183,125 newly-issued and
nonregistered shares of common stock, $.001 par value (the "NEW SHARES")
to OHL, in return for a cash payment to the Company of $4 million from
OHL, and the transfer to the Company for nominal consideration, plus
future royalties tied to the revenues recognized by the Company from the
commercial exploitation thereof, of certain patents, patent applications
and related intellectual property owned by Gerold Tebbe or entities owned
and controlled by him. OHL is 100% beneficially owned by Gerold Tebbe.
The Company intends to develop and market these patents and the products
produced utilizing this intellectual property.
The Company organized a wholly-owned subsidiary, D-Tex GmbH, under the
laws of Germany, in March 1999.
Basis of Presentation:
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although management of the Company believes that the
disclosures are adequate to make the information presented not
misleading. These condensed consolidated financial statements should be
read in conjunction with the condensed notes thereto. In the opinion of
management of the Company, the accompanying unaudited condensed
consolidated financial statements include all adjustments, consisting of
only normal recurring adjustments, necessary to fairly present the
results for the interim periods to which these financial statements
relate.
These financial statements should be read in conjunction with the Annual
Report filed with the Securities and Exchange Commission on Form 10-K.
F-8
<PAGE>
DEOTEXIS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation:
The consolidated financial statements include the accounts of the Company
and its subsidiary. All material intercompany accounts and transactions
have been eliminated.
Foreign Currency Translation:
Assets and liabilities of the foreign subsidiary are translated into U.S.
dollars at current exchange rates, and income statement items are
translated at average exchange rates for the period.
Cash and Equivalents:
Cash and equivalents are stated at cost plus accrued interest. Cash
equivalents consist of short-term treasury bills. The Company considers
all highly liquid investments with a maturity of three months or less
when purchased to be cash equivalents.
Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Earnings (loss) per common share:
Basic earnings (loss) per share excludes dilution and is computed by
dividing earnings available to common stockholders by the
weighted-average number of common shares outstanding for the period.
Diluted earnings (loss) per share is computed by dividing earnings (loss)
available to common shareholders by the weighted average number of common
shares outstanding for the period, adjusted to reflect potentially
dilutive securities. Due to the loss from operations, options granted to
the Board of Directors were not included in the computation of diluted
earnings per share because the result of the exercise of such
securities would be antidilutive.
F-9
<PAGE>
DEOTEXIS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. RELATED PARTY TRANSACTIONS:
The Company engages the services of a professional consulting firm; a
director of the Company is a partner in the consulting firm. During the
nine and three months ended September 30, 1999, the Company incurred
expenses of approximately $150,000 and $41,000, respectively, with
respect to these consulting services. As of September 30, 1999,
approximately $20,000 was owed to this related party.
4. SUBSEQUENT EVENT:
On October 28, 1999, the Company purchased a 7.4% interest in Medisana,
Medizinalbedarfsgesellschaft mit beschrankter Haftung ("MEDISANA").
Medisana is a German corporation, which develops, manufactures and sells
home health care products. This purchase will be recorded under the cost
method of accounting. Pursuant to the agreement, if an initial public
offering of Medisana does not take place by December 31, 2004, then the
original investors of Medisana have a call option to buy from the Company
and the Company has a put option to sell to the original investors of
Medisana, the shares held by the Company. The call and put option are for
the acquisition price plus interest at 10% per annum, less any dividends
received. In addition, the Company has agreed to grant to Medisana a
license to use and exploit the Company's controlled-release delivery
system. The terms of this license have yet to be negotiated.
F-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DEOTEXIS, INC.
By: /S/ GEROLD TEBBE
-----------------------------------------
President, Chief Executive Officer, Acting
Chief Financial Officer, Secretary and
Treasurer
Dated: November 15,1999
<PAGE>
EXHIBIT INDEX
EXHIBIT PAGE NUMBER
27. Financial Data Schedule -------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DEOTEXIS
INC. AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,907,814
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,948,933
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,948,933
<CURRENT-LIABILITIES> 264,720
<BONDS> 0
0
0
<COMMON> 4,547
<OTHER-SE> 1,679,666
<TOTAL-LIABILITY-AND-EQUITY> 1,684,213
<SALES> 0
<TOTAL-REVENUES> 69,737
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 831,940
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,700
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (762,203)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (762,203)
<EPS-BASIC> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
