DEOTEXIS INC, 10-K, 2000-03-30

DEOTEXIS INC
10-K, 2000-03-30
BLANK CHECKS

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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, 1999
-----------------

|_| 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 10022-4082
- ----------------------------- ------------------------
(Address of Principal Executive (Zip Code)
Offices)

Registrant's Telephone Number, including area code (212) 829-5698
--------------

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

Name of Each Exchange
on Which Registered
--------------------------------

Title of Each Class
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 27, 2000, 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 27, 2000 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 27, 2000, 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 27, 2000, 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, 1999

INDEX

Page
----

Part I.................................................................. 1
ITEM 1. BUSINESS.............................................. 1
ITEM 2. PROPERTIES............................................ 7
ITEM 3. LEGAL PROCEEDINGS..................................... 7
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................................................................ 27
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS

ON FORM 8-K......................................... 27
SIGNATURES.............................................................. 28
<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 through two main
avenues: (1) by executing licensing agreements with corporations in the personal
care products markets and later, in other industries, and (2) by providing bulk
microencapsulated fabrics, plasters, adhesives and other "delivery system"
substances to manufacturers in the medical, paper, fleece and "industrial" or
"technical" textiles markets, for incorporation into those customers existing
and newly-developed products.

With respect to the Company's potential customers described in (1)
above, the Company anticipates that these 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. The Company's
recent investment in Medisana GmbH is an example of this hybrid license/joint
venture/equity investment arrangement. See "Joint Venture with Medisana;" below.
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, other than Medisana, or
that may be interested in cooperating with the Company in some other type of
business venture to market the Company's controlled-release delivery

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systems in return for an investment by the Company, there can be no assurance
that the Company will be able to identify additional suitable companies as joint
venture partners or businesses in which to invest in the United States, Europe,
or any other location or, if such entities are identified, that the Company will
be able to complete such transactions on favorable terms. In the event the
Company does not succeed in entering into licensing agreements or other
strategic alliances 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 coated onto flexible textiles. In
these systems, the active substances or compounds, including anti-bacterial
compounds, perfumes and emollients, are enclosed in micro-capsules and coated
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 paper products, and are
seeking new ideas for innovative products that the Company's delivery system
technology may help to provide. The Company's recent Development Agreement with
Herlitz PBS AG is an example of this portion of the Company's marketing
strategy. See "Development Agreement with Herlitz;" below.

2
<PAGE>

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 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, medical, paper, industrial or technical
textile 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, medical, paper,
industrial or technical textile 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

3
<PAGE>

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 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,
medical, paper, industrial or technical textile 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

4
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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 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 discussions with Neuenkirchener Textilwerke Hecking GmbH & Co. KG
("NTW") that would provide the Company with the textile finishing capacity to do
small to medium scale microencapsulation, the Company has not entered into any
definitive acquisition agreements with NTW or any other company, and the Company
currently has no commitments to finance such an acquisition. See "Agreements
with NTW;" below. 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.

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

5
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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.

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.

6
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ITEM 2. PROPERTIES.

The Company maintains temporary offices in New York, New York, as
its corporate headquarters, at an annual cost of approximately $3,000. 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.

Knorr Capital Partner AG, a former consultant and advisor to the
Company, has made a claim against the Company for DM 307,869.55 in connection
with a Consulting Agreement between the parties, which has since been
terminated. Knorr claims it is owed this amount for consulting services, and a
contingency fee for brokering the Company's investment in Medisana. The Company
maintains that Knorr is owed only a fraction of the contingency fee it is
claiming, and is owed nothing under the Consulting Agreement because it
ultimately provided no services to the Company with respect thereto. The Company
therefore has counterclaims against Knorr in excess of the amounts Knorr has
claimed from the Company. Nevertheless, to attempt to resolve the dispute
quickly, the Company has paid into escrow, with Knorr's attorneys, the sum of DM
307,869.55.

The Company strongly feels Knorr's claims are without merit, and
that the dispute will be resolved in the Company's favor without material cost
to the Company.

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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 is 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, developed to
help smokers quit smoking.

An emerging future market has been identified by independent market
researchers in the area of enhanced or technical 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, and this will be a primary
focus of the Company's marketing efforts.

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

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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
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 27, 2000, the Company had no paid employees. Mr. Gerold
Tebbe is serving as President, Chief Executive Officer, Acting Chief Financial
Officer, Secretary and Treasurer of the Company, and providing his services and
expertise to the Company, without compensation.

9
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Not Applicable.

10
<PAGE>

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, 1999, June 30, 1999, September 30, 1999 and December 31,
1999, are listed below:

Common Stock*
------------

Quoted Bid Price
----------------

Quarter Ended High Low
- ------------- ---- ---

March 31, N/A(1) N/A
1999

June 30, 1999 N/A N/A

September 30,
1999 N/A N/A

December 31,
1999 N/A N/A

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

* 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 27, 2000, 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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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,
December 31, 1998, and December 31, 1999 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 1997, 1998 and 1999,
and for the period from inception, March 6, 1992, to December 31, 1999,
including the notes thereto, appearing elsewhere in this Annual Report.

March 6, 1992
(inception) March 6, 1992
to December Year Ended December 31, (inception to)
31, 1992 --------------------------------------------------------------------------------------- December 31,
----------- 1993 1994 1995 1996 1997 1998 1999 1999
----------- -------- --------- --------- -------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of
Operations
Revenue-interest $ 190 $ 147 $ 12,614 $ 16,268 $ 23,426 $ 38,753 $ 166,695 $ 83,450 $ 341,543
income
Expenses:
General and
administrative 252 1,913 39,798 51,273 67,163 278,654 1,533,856 1,144,517 3,117,426
------ -------- --------- --------- -------- ----------- ----------- ----------- ------------

Net Loss $ (62) $ (1,766) $ (27,184) $ (35,005) $(43,737) $ (239,901) $(1,367,161) $(1,061,067) $(2,775,883)
====== ======== ========= ========= ======== =========== =========== =========== ===========
Basic Loss $ (.35) $ (9.87) $ (.10) $ (.13) $ (.16) $ (.19) $ (.30) $ (.23)
====== ======== ========= ========= ======== =========== =========== =========== ===========
per common
share
Weighted
average 179 179 278,750 278,750 278,750 1,237,618 4,546,875 4,546,875
====== ======== ========= ========= ======== =========== =========== ===========

number of
shares
outstanding
</TABLE>

As of December 31,
1998 1999
---- ----

Balance Sheet Data:

Current Assets $2,956,090 $943,355
Working Capital 2,446,416 866,188
Total Assets 2,956,090 1,754,281
Total Liabilities 509,674 368,932
Stockholders' Equity 2,446,416 1,385,349

12
<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, medical, paper, industrial or
technical textiles 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) 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.

13
<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, Mr. Tebbe 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.

14
<PAGE>

Company Structure and Subsidiaries

The Company formed a wholly-owned subsidiary in Germany in March of
1999, Hecking Deotexis GmbH (formerly D-Tex Technologie Holding GmbH) ("Deotexis
Germany") to establish a local presence and serve as a holding company for the
Medisana investment and any other joint venture or equity interests which may
materialize through cooperation agreements with additional licensees. Deotexis
Germany 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 has an option to acquire the assets of
NTW (subject to certain contingencies, including the securing of suitable
financing), and thereafter use products based on the Company's technology to
diversify and expand NTW'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.

Agreements with NTW

In January of 2000, the Company's German subsidiary, Hecking
Deotexis GmbH ("Deotexis Germany") entered into agreements that, in essence,
give Deotexis Germany an option, until May 31, 2000, to acquire the assets of
Neuenkirchener Textilwerke Hecking GmbH & Co. KG ("NTW"), for approximately DM
27.5 million (US $13.415 million). NTW is a long-established weaving and textile
finishing business based near Munster, Germany. It was forced into bankruptcy
proceedings in 1999 when its parent company became insolvent. NTW possesses
coating and finishing machinery that would be well-suited to performing
microencapsulation procedures on a wide range of fabrics.

Deotexis Germany is in nominal control of the assets and operations
of NTW, and is forwarding orders to NTW for fulfillment. This agreement was
reached in an attempt to assure NTW's creditors and suppliers that NTW would
remain a going concern. Deotexis Germany receives no compensation for
administering NTW's operations, and is indemnified for all liabilities and costs
that could potentially be associated therewith.

15
<PAGE>

During this interim period, the Company is continuing due diligence
with respect to NTW, and continuing to study its operations and prospects. In
addition, the Company is evaluating financial alternatives that would enable it
to complete the acquisition. Pursuant to the documentation that is already in
place, the Company is permitted to abandon the acquisition (a) if NTW's results
of operations for the first half of 2000 are below the results for the second
half of 1999, (b) if it is unable to arrange satisfactory financing, (c) upon
unsatisfactory due diligence results, or (d) failure to negotiate a final
agreement.

Assuming a satisfactory resolution of all of the foregoing, the
Company feels that NTW's coating and finishing operations would provide it with
significant microencapsulation capacity to enable the Company to capitalize on
existing and potential business opportunities, and to quickly grow the Company's
revenues.

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 initially follow a licensing
strategy to market and distribute its delivery systems.

The Company anticipates that a large portion 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, medical, paper,
industrial or technical textile 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
that are not manufactured for a specific customer, 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.

16
<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 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 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, negotiations
relating to potential strategic

17
<PAGE>

alliances and potential acquisitions, activities relating to its corporate
organization, 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. On December
31, 1999, the Company had $943,355 of liquid assets, working capital of $866,188
and shareholders' equity of $1,385,349. The Company has not manufactured or
licensed (with the exception of the Medisana transaction, the terms of which
license agreement have not yet been formalized), any of its delivery systems
since inception. The Company currently maintains temporary offices in New York
City, the annual cost of which is approximately $3,000. With the exception of
the foregoing, the Company has paid no rent since its inception and has paid no
salaries. The Company expects to secure permanent office space in New Jersey,
Connecticut or Westchester County, New York State to serve as its United States
headquarters in the near future. 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 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.

18
<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.

19
<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
- ---- --- -------------

Robert F. Wright 74 Chairman of the Board;
Chairman, Executive Committee;
Member, Nominating Committee;
Member, Compensation Committee

Gerold Tebbe 50 Vice Chairman of the Board;
Chief Executive Officer;
President, Secretary and Treasurer;
Acting Chief Financial Officer;
Member, Executive Committee;
Member, Nominating Committee

David F. Bolger 67 Director;
Member, Audit and Governance
Committee;
Member; Compensation Committee

Aubrey L. Cole 76 Director;
Chairman, Audit and Governance
Committee

Michael J. Rosenberg 71 Director;
Member, Audit and Governance
Committee

Ira T. Wender 73 Director;
Chairman, Compensation Committee

Tony Kirk 56 Director;
Chairman, Nominating Committee;
Member, Executive Committee

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

20
<PAGE>

There is currently one executive officer of the Company, Mr. Tebbe,
who is President and Chief Executive 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. Tebbe 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. In addition, Mr. Tebbe has been
Acting Chief Financial Officer since July 1999. 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 34
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

21
<PAGE>

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.

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. Since August 1990, Mr. Kirk has been a partner in Kirk & Maeder, a
management consulting

22
<PAGE>

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
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, 1999, all filing requirements applicable to directors and executive
officers were complied with.

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 cash compensation to Mr. Tebbe, 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.

23
<PAGE>

Contingent Compensation

The Company has an agreement with Gerold Tebbe, the President, Chief
Executive Officer, Acting Chief Financial 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 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 when the recognition of net income from the patents or
patent rights appears imminent. 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, Acting Chief Financial 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 with a fair value of $20,000. 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, as determined by the Board of

24
<PAGE>

Directors. 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 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.

25
<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
27, 2000, 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

=========================================================================
Beneficial Owner Number of Shares
of Common Stock Percent of Class
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Overton Holdings Limited, a Turks and 2,731,443 59.89%
Caicos Islands corporation, 100%
beneficially owned by Gerold Tebbe(1)

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(1)

Address:
Poststrasse 9
CH-6300
Zug, Switzerland 50,000 1.10%
=========================================================================

(1) The aggregate beneficial ownership of Company Common Stock by
Gerold Tebbe, President, Chief Executive Officer, Acting Chief Financial
Officer, Secretary, Treasurer and 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: 60.99%

26
<PAGE>

- -------------------------------------------------------------------------
Tony Kirk(2) 52,300 1.15%
Address:
Kirk & Maeder
Sagenstrasse 14
CH-6318 Walchwil
Switzerland
- -------------------------------------------------------------------------
David F. Bolger(3)(4) 2,300 *(5)
- -------------------------------------------------------------------------
Aubrey L. Cole(3)(4) 2,300 *(5)
- -------------------------------------------------------------------------
Michael J. Rosenberg(3)(4) 2,300 *(5)
- -------------------------------------------------------------------------
Ira T. Wender(3)(4) 2,300 *(5)
- -------------------------------------------------------------------------
Robert F. Wright(3)(4) 2,300 *(5)
=========================================================================

(2) Includes options to purchase 2,300 shares of the Company's Common Stock
at $37.725 per share, granted pursuant to the Company's 1998 Director Stock
Option Plan.

(3) Amount beneficially owned consists of options to purchase 2,300 shares
of the Company's Common Stock at $37.725 per share, granted pursuant to the
Company's 1998 Director Stock Option Plan.

(4) The address for each of these individuals is: c/o The Company, 885
Third Avenue, Suite 2900, New York, NY 10022.

(5) Less than 1%.

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

27
<PAGE>

expects to formalize this royalty agreement with Mr. Tebbe when the recognition
of net income from the patents or patent rights appears imminent. 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, Acting Chief
Financial 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
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. In the near future, the Company
expects to enter into a consulting agreement with Tony Kirk, a Director 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

28
<PAGE>

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,
1999 to December 31, 1999, Tony Kirk, who became a Director of the Company on
January 19, 1998, performed consulting and other services for the Company, for
which the Company paid him $213,000. 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 1999
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.

29
<PAGE>

PART IV

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

(a) Exhibits.

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.

30
<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,
Acting Chief Financial 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/ Robert F. Wright
- ---------------------
Robert F. Wright Chairman of the Board March 29, 2000

/s/ Gerold Tebbe President, Chief Executive
- --------------------- Officer (principal
Gerold Tebbe executive officer); March 29, 2000
Secretary, Treasurer,
Acting Chief Financial
Officer (principal
financial and accounting
officer); Vice Chairman
of the Board

/s/ David F. Bolger
- ---------------------
David F. Bolger Director March 29, 2000

/s/ Aubrey L. Cole
- ---------------------
Aubrey L. Cole Director March 29, 2000

/s/ Tony Kirk
- ---------------------
Tony Kirk Director March 29, 2000

/s/ Michael J. Rosenberg
- ---------------------
Michael J. Rosenberg Director March 29, 2000

/s/ Ira T. Wender
- ---------------------
Ira T. Wender Director March 29, 2000

31
<PAGE>

DEOTEXIS, INC. AND SUBSIDIARY
(A Development Stage Company)

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page
----

Independent Auditors' Reports F-2

Consolidated Balance Sheets at December 31, 1998 and 1999 F-3

Consolidated Statements of Operations
for the years ended December 31, 1997, 1998 and
1999 and cumulative since March 6, 1992 (inception)
to December 31, 1999 F-4

Consolidated Statement of Stockholders' Equity for the
period March 6, 1992 (inception) to December 31, 1996,
and for the years ended December 31, 1997, 1998 and 1999 F-5

Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999 and cumulative since
March 6, 1992 (inception) to December 31, 1999 F-7

Notes to Consolidated Financial Statements F-9

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying consolidated balance sheets of Deotexis, Inc.
and subsidiary as of December 31, 1998 and 1999 and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
ended December 31, 1997, 1998 and 1999 and the 1997, 1998 and 1999 amounts
included in the cumulative period March 6, 1992 (inception) through December 31,
1999. 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 March 6, 1992 (inception) through December
31, 1996 amounts included in the cumulative period March 6, 1992 (inception)
through December 31, 1999 of Deotexis, Inc. 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. and subsidiary
as of December 31, 1998 and 1999, and the results of its operations and cash
flows for years ended December 31, 1997, 1998 and 1999 and the 1997, 1998 and
1999 amounts included in the cumulative period from March 6, 1992 (inception)
through December 31, 1999, in conformity with generally accepted accounting
principles.

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

New York, New York
March 13, 2000

F-2
<PAGE>

DEOTEXIS, INC. AND SUBSIDIARY
(A Development Stage Company)

CONSOLIDATED BALANCE SHEETS

ASSETS
<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1999
----------- -----------
<S> <C> <C>
Current assets:
Cash and equivalents $ 2,956,090 $ 936,339
Prepaid taxes -- 7,016
----------- -----------
Total current assets 2,956,090 943,355

Investment in a company 810,926
----------- -----------

Total assets $ 2,956,090 $ 1,754,281
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable and accrued expenses $ 80,015 $ 77,167
Due to officer 429,659
----------- -----------
Total current liabilities 509,674 77,167
----------- -----------

Due to officer 291,765
-----------

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) (2,775,883)
----------- -----------
Total stockholders' equity 2,446,416 1,385,349
----------- -----------

Total liabilities and stockholders' equity $ 2,956,090 $ 1,754,281
=========== ===========
</TABLE>

The accompanying notes are an integral part of these
consolidated financial statements.

F-3
<PAGE>

DEOTEXIS, INC. AND SUBSIDIARY
(A Development Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Years Ended December 31, March 6, 1992
---------------------------------------- (Date of Inception) to
1997 1998 1999 December 31, 1999
----------- ----------- ----------- -----------------
<S> <C> <C> <C> <C>
Interest and other income $ 38,753 $ 166,695 $ 83,450 $ 341,543
----------- ----------- ----------- -----------

Expenses:
Directors' fees 140,000 140,000 280,000
Interest expense 22,000 16,600 38,600
Consulting (6,250) 38,125
Rent (6,250) 3,722 9,669 51,515
Corporation franchise taxes 300 19,093 7,434 34,063
Filing fees 10,164 95,001 20,717 137,001
Amortization 17 500
Bank charges 375 19 2,329
Insurance 141,070 138,820 279,890
Office 16,312 130,541 66,390 215,083
Professional fees 263,986 982,429 744,868 2,040,320
----------- ----------- ----------- -----------
Total expenses 278,654 1,533,856 1,144,517 3,117,426
----------- ----------- ----------- -----------

Net loss $ (239,901) $(1,367,161) $(1,061,067) $(2,775,883)
=========== =========== =========== ===========

Basic and diluted loss per share $ (.19) $ (.30) $ (.23)
=========== =========== ===========

Weighted average number of
shares outstanding 1,237,618 4,546,875 4,546,875
=========== =========== ===========

</TABLE>

The accompanying notes are an integral part of these
consolidated financial statements.

F-4
<PAGE>

DEOTEXIS, INC. AND SUBSIDIARY
(A Development Stage Company)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Common Deficit
Stock Accumulated
------------------------- Additional During the Total
Paid-In Development Stockholders'
Shares Amount Capital Stage Equity
----------- ----------- ----------- ----------- -----------
<S> <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)

Net loss - December 31, 1996 -- -- -- (43,737) (43,737)
----------- ----------- ----------- -----------

Balance - December 31, 1997 -- 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)
----------- ----------- ----------- ----------- -----------
</TABLE>

(Continued)

F-5
<PAGE>

DEOTEXIS, INC. AND SUBSIDIARY
(A Development Stage Company)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Concluded)
<TABLE>
<CAPTION>

<S> <C> <C> <C> <C> <C>
Balance - December 31, 1998 4,546,875 4,547 4,156,685 (1,714,816) 2,446,416

Net loss -- -- -- (1,061,067) (1,061,067)
----------- ----------- ----------- ----------- -----------
Balance - December 31, 1999 4,546,875 $ 4,547 $ 4,156,685 $(2,775,883) $ 1,385,349
=========== =========== =========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these
consolidated financial statements.

F-6
<PAGE>

DEOTEXIS, INC. AND SUBSIDIARY
(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Years Ended December 31, March 6, 1992
----------------------------------------- (Inception) through
1997 1998 1999 December 31, 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (239,901) $(1,367,161) $(1,061,067) $(2,775,883)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Services paid by stockholder 1,200 1,200
Amortization 17 500
Changes in operating assets and liabilities:
Loan receivable 2,331
Prepaid taxes (1,561) 1,561 (7,016) (7,016)
Accounts payable and
accrued expenses 57,797 6,918 (2,848) 76,667
Due to officer 150,787 278,872 (137,894) 291,765
----------- ----------- ----------- -----------
Cash used in operations (30,530) (1,078,610) (1,208,825) (2,412,767)
----------- ----------- ----------- -----------

Cash flows from investment activities:
Purchase of investment (810,926) (810,926)
----------- -----------

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 increase (decrease) in cash
and cash equivalents 3,504,363 (1,078,610) (2,019,751) 936,339

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

Cash and cash equivalents -
end of year / period $ 4,034,700 $ 2,956,090 $ 936,339 $ 936,339
=========== =========== =========== ===========

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes $ 1,861 $ 17,382 $ 14,600
=========== =========== ===========

Interest $ 22,000
===========
</TABLE>

(Continued)

F-7
<PAGE>

DEOTEXIS, INC. AND SUBSIDIARY
(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Concluded)

Years Ended December 31, March 6, 1992
------------------------------ (Inception) through
1997 1998 1999 December 31, 1999
---------- ---------- ----------- ------------------

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
====== ======

The accompanying notes are an integral part of these
consolidated financial statements.

F-8
<PAGE>

DEOTEXIS, INC. AND SUBSIDIARY
(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, 1998, the Stock Purchase Agreement dated September 30, 1998
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, Hecking Deotexis GmbH
(formerly D-Tex Technologie Holding GmbH) under the laws of Germany, in
March 1999.

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.

F-9
<PAGE>

DEOTEXIS, INC. AND SUBSIDIARY
(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, 1999, the Company maintained its cash in certain financial
institutions. Certain institutions are insured by the Federal Deposit
Insurance Corporation up to $100,000.

Investment in a Company:

The investment referred to in Note 5 is recorded at cost.

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.

F-10
<PAGE>

DEOTEXIS, INC. AND SUBSIDIARY
(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 to
reduce the loss per share.

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 and 1999.

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 $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).

F-11
<PAGE>

DEOTEXIS, INC. AND SUBSIDIARY
(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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 nonemployee 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 with a fair value of $20,000. 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, as determined by the Board of Directors. The
life of the option is ten years from grant date, or three years following
retirement, nonreelection or death or disability; or six months following
resignation.

F-12
<PAGE>

DEOTEXIS, INC. AND SUBSIDIARY
(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On May 20, 1999, the Company granted options to purchase 13,800 shares of
common stock to all nonemployee Directors at an exercise price of $37.725
per share, which approximates fair market value on the date of grant.
These options are outstanding at December 31, 1999 and are exercisable at
such date.

The Company does not recognize compensation expense for stock options
granted at or above fair market value, as permitted by the accounting
standards. The fair value of the options granted during 1999 was
approximately $120,000 as provided for under the Plan. Fair value is
estimated based on the Black-Scholes option-pricing model with the
following assumptions for grants in 1999: expected volatility of 0%;
risk-free interest rate of 5.44% and expected lives of 5 years. Had
compensation expense been determined based on the fair value of the
options on the grant dates, the Company's net loss would have been
increased by $120,000 ($.03 per share).

DUE TO OFFICER:

Due to officer consist of approximately $430,000 and $292,000 for 1998 and
1999, 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 at December 31, 1998 were due on demand with interest at 8% per
annum and were repaid in 1999. The amounts in due to officer for 1999 bear
interest at 8% per annum and are due after January 1, 2001 or earlier if
other sources of financing are obtained. Included in due to officer at
December 31, 1998 and 1999 is approximately $22,000 and $16,600,
respectively, relating to interest expense on the debt.

INVESTMENT IN A COMPANY:

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. 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-13
<PAGE>

DEOTEXIS, INC. AND SUBSIDIARY
(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INCOME TAXES:

The Company has available at December 31, 1999 approximately $2,570,000 of
unused operating loss carryforwards that may be applied against future
taxable income, if any, and that expire in various years from 2012 to
2019. Since the "more likely than not" criteria of FAS 109 was not met at
December 31, 1999, the valuation allowance was equal to the deferred
income tax asset.

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.

RELATED PARTY TRANSACTIONS:

The Company engaged the services of a professional consulting firm; a
director of the Company is a partner in the consulting firm. During 1998
and 1999, the Company incurred expenses of approximately $398,000 and
$213,000, respectively; such amounts are included in professional fees in
the accompanying consolidated statement of operations. As of December 31,
1998 and 1999, approximately $26,000 and $16,000, respectively, was owed
to this related party.

LITIGATION:

The Company is from time to time, a party to routine litigation arising in
the normal course of its business. The Company believes that none of these
actions will have a material adverse effect on the business, financial
condition or operating results of the Company.

Knorr Capital Partner AG, a former consultant and advisor to the Company,
has made a claim against the Company for DM 307,869.55 in connection with
a Consulting Agreement between the parties, which has since been
terminated. Knorr claims it is owed this amount for consulting services,
and a contingency fee for brokering the Company's investment in Medisana.
The Company maintains that Knorr is owed only a fraction of the
contingency fee it is claiming, and is owed nothing under the Consulting
Agreement because it ultimately provided no services to the Company with
respect thereto. The Company therefore has counterclaims against Knorr in
excess of the amounts Knorr has claimed from the Company. Nevertheless, to
attempt to resolve the dispute quickly, the Company has paid into escrow,
with Knorr's attorneys, the sum of DM 307,869.55.

The Company strongly feels Knorr's claims are without merit, and that the
dispute will be resolved in the Company's favor without material cost to
the Company.

SUBSEQUENT EVENTS:

During January 2000, the Company entered into a letter of intent to
purchase the principal operating assets of Neuenkirchener Textilwerke
Hecking GmbH & Co. KG ("NTW"). The operating assets include among other
assets, all land and buildings, other fixed assets, inventory, customer
lists, and sales agreements of NTW. The Company is permitted to abandon
the acquisition (a) if NTW's results of operations for the first half of
2000 are below the results for the second half of 1999, (b) if it is
unable to arrange satisfactory financing, (c) upon unsatisfactory due
diligence results, or (d) failure to negotiate a final agreement.

F-14
<PAGE>

Furthermore, the Company entered into an operating agreement with NTW. The
Company is in nominal control of the assets and Operations of NTW until
the asset purchase is finalized. The purchase is to be completed by May
31, 2000.

F-15

EXHIBIT 21

SUBSIDIARIES OF THE REGISTRANT

Hecking Deotexis GmbH (formerly D-Tex Technologie Holding GmbH), incorporated
in Germany in March 1999, wholly-owned by Deotexis, Inc.

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
DEOTEXIS, INC. FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
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<SECURITIES> 0
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0
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