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 June 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
Incorporation or Organization) Identification No.)
855 Third Avenue, Suite 2900
New York, New York 10022-4834
- ---------------------------------------- -------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including
area code (212) 829-5698
-------------------------------------
- N/A -
- --------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
As of August 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>
DEOTEXIS, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1999
INDEX
Page
----
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..............................................2
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...............................8
(a) Exhibits.....................................................8
(b) Reports on Form 8-K..........................................8
SIGNATURES....................................................................9
<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.
Pursuant to proper notice duly given to each stockholder of record,
the Company held its 1999 Annual Meeting of Stockholders on July 21, 1999. The
following items were included in the notice as on the meeting's agenda for
stockholder action:
1. Election of the Company's Board of Directors. The seven nominees
for the seven-member Board were: David F. Bolger, Aubrey L. Cole, Tony Kirk,
Michael J. Rosenberg, Gerold Tebbe, Ira T. Wender and Robert F. Wright.
2. Ratification and approval of M.R. Weiser & Co. LLP ("Weiser") as
the Company's independent accountants and auditors for the fiscal year ending
December 31, 1999.
1
<PAGE>
The results of the voting by the stockholders with respect to the
above-described items was as follows:
1. Out of a total of 4,546,875 shares of Common Stock of the Company
issued and outstanding, and available to vote, each nominee for director
received 3,409,200 votes in favor, and 100 votes against, his nomination to the
Board of Directors of the Company.
2. Out of the total of 4,456,875 shares of Common Stock of the
Company issued and outstanding, and available to vote, on the ratification and
approval of Weiser as the Company's independent accountants and auditors for the
fiscal year ending December 31, 1999, 3,409,300 votes were cast in favor
thereof, no votes were cast against, and there were no abstentions.
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.
Results of Operations
Deotexis, Inc. (the "Company") has not generated any revenue from
operations and is in the development stage. At June 30, 1999, the Company had
current assets of $2,150,134, and current liabilities of $221,470.
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
2
<PAGE>
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 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
3
<PAGE>
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 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
4
<PAGE>
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.
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.
5
<PAGE>
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 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 June 30, 1999, the Company had $2,075,513 of
liquid assets, working capital of $1,928,664 and shareholders' equity of
$1,928,664. The Company has not manufactured or licensed any of its delivery
systems since inception.
Capital Resources
Following commencement of its operations, the Company's cash
requirements will be significant. While the Company currently has cash on hand
sufficient to finance its proposed business during the first one to two (1-2)
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 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.
6
<PAGE>
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.
7
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
27. Financial Data Schedule.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the period covered
by this Quarterly Report on Form 10-Q.
8
<PAGE>
DEOTEXIS, INC. AND SUBSIDIARY
(A Development Stage Company)
INDEX TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Condensed Consolidated Balance Sheets at June 30, 1999
(unaudited) and December 31, 1998 F-2
Condensed Consolidated Statements of Operations for the six
months ended June 30, 1999 and 1998 (unaudited) and cumulative
since March 6, 1992 (inception) to June 30, 1999 (unaudited) F-3
Condensed Consolidated Statements of Operations for the three
months ended June 30, 1999 and 1998 (unaudited) F-4
Consolidated Statement of Stockholders' Equity for the period
March 6, 1992 (inception) to December 31, 1995, and for the
years ended December 31, 1996, 1997 and 1998 and for the six
months ended June 30, 1999 (unaudited) F-5
Condensed Consolidated Statements of Cash Flows for the six
months ended June 30, 1999 and 1998 (unaudited) and cumulative
since March 6, 1992 (inception) to June 30, 1999 (unaudited) F-6
Notes to Condensed Consolidated Financial Statements F-8
<PAGE>
DEOTEXIS, INC. AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
December 31, 1998 June 30, 1999
----------------- -------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,956,090 $ 2,075,513
Prepaid taxes 5,211
Prepaid insurance 69,410
----------- -----------
Total assets (all current) $ 2,956,090 $ 2,150,134
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 80,015 $ 78,691
Due to officer/director 429,659 142,779
----------- -----------
Total current liabilities 509,674 221,470
----------- -----------
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) (2,232,568)
----------- -----------
Total stockholders' equity 2,446,416 1,928,664
----------- -----------
Total liabilities and stockholders' equity $ 2,956,090 $ 2,150,134
=========== ===========
</TABLE>
See accompanying notes
F-2
<PAGE>
DEOTEXIS, INC. AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended June 30, March 6, 1992
-------------------------- (Date of Inception) to
1998 1999 June 30, 1999
----------- ----------- -----------
<S> <C> <C> <C>
Interest and other income $ 84,293 $ 50,360 $ 308,453
----------- ----------- -----------
Expenses:
Directors fees 70,000 70,000 210,000
Interest 8,400 30,400
Consulting 38,125
Rent 2,099 43,946
Corporation franchise taxes 9,200 3,634 30,263
Filing fees 73,408 17,954 134,237
Amortization 500
Bank charges 2,310
Insurance 70,536 69,410 210,480
Office 24,163 25,703 174,396
Professional fees 542,219 370,912 1,666,364
----------- ----------- -----------
Total expenses 789,526 568,112 2,541,021
----------- ----------- -----------
Net loss $ (705,233) $ (517,752) $(2,232,568)
=========== =========== ===========
Basic loss per share $ (.15) $ (.11)
=========== ===========
Weighted average number of
shares outstanding 4,546,875 4,546,875
=========== ===========
</TABLE>
See accompanying notes
F-3
<PAGE>
DEOTEXIS, INC. AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months
Ended June 30,
--------------------------------
1998 1999
----------- -----------
Interest and other income $ 62,322 $ 21,912
----------- -----------
Expenses:
Directors fees 70,000 35,000
Interest 2,000
Rent 1,129
Corporation franchise taxes 1,600
Filing fees 3,107 1,985
Insurance 35,268 34,705
Office 13,553 14,408
Professional fees 229,468 156,622
----------- -----------
Total expenses 351,396 247,449
----------- -----------
Net loss $ (289,074) $ (225,537)
=========== ===========
Basic loss per share $ (.06) $ (.05)
=========== ===========
Weighted average number of
shares outstanding 4,546,875 4,546,875
=========== ===========
See accompanying notes
F-4
<PAGE>
DEOTEXIS, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Deficit
Common Accumulated
Stock Additional During the Total
------------------------- Paid-In Development Stockholders'
Shares Amount Capital Stage Equity
--------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Issuance of 160,000 common shares on
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) (517,752) (517,752)
--------- ----------- ----------- ----------- -----------
Balance - June 30, 1999 (unaudited) 4,546,875 $ 4,547 $ 4,156,685 $(2,232,568) $ 1,928,664
========= =========== =========== =========== ===========
</TABLE>
See accompanying notes
F-5
<PAGE>
DEOTEXIS, INC. AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended June 30, March 6, 1992
---------------------------- (Inception) through
1998 1999 June 30, 1999
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (705,233) $ (517,752) $(2,232,568)
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:
Prepaid taxes (5,211) (5,211)
Prepaid insurance (70,534) (69,410) (69,410)
Accounts payable and accrued expenses 20,588 (1,324) 78,191
Due to officer, net 86,392 (286,880) 142,779
----------- ----------- -----------
Cash used in operations (667,587) (880,577) (2,084,519)
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)
----------- ----------- -----------
Net (decrease) increase in cash
and cash equivalents (2,579,341) (880,577) 2,075,513
Cash and cash equivalents -
beginning of year/period 4,034,700 2,956,090 --
----------- ----------- -----------
Cash and cash equivalents -
end of period $ 1,455,359 $ 2,075,513 $ 2,075,513
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes $ 9,200 $ 8,995 $ 17,382
=========== =========== ===========
Noncash financing activities:
The Company issued 85,000 shares to a consultant for
services rendered. The Company recorded the fair
market value of those securities at $.48 per share $ 40,800
===========
</TABLE>
(Continued)
F-6
<PAGE>
DEOTEXIS, INC. AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Concluded)
<TABLE>
<CAPTION>
Six Months
Ended June 30, March 6, 1992
---------------------------- (Inception) through
1998 1999 June 30, 1999
----------- ----------- -----------
<S> <C> <C> <C>
The principal stockholder of the Company transferred
2,500 shares of common stock owned by him to two
consultants for services rendered 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 June 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. There were no dilutive securities outstanding during any of
the periods.
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
six and three months ended June 30, 1999, the Company incurred expenses of
approximately $108,000 and $54,000, respectively. As of June 30, 1999,
approximately $14,500 was owed to this related party.
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,
Secretary and Treasurer
Dated: August 12,1999
9
<PAGE>
EXHIBIT INDEX
EXHIBIT PAGE NUMBER
- ------- -----------
27. Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DEOTEXIS
INC. AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED
JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 2,075,513
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,150,134
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,150,134
<CURRENT-LIABILITIES> 221,470
<BONDS> 0
0
0
<COMMON> 4,547
<OTHER-SE> 1,924,117
<TOTAL-LIABILITY-AND-EQUITY> 2,150,134
<SALES> 0
<TOTAL-REVENUES> 50,360
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 568,112
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (517,752)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (517,752)
<EPS-BASIC> (.11)
<EPS-DILUTED> (.11)
</TABLE>
