<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended MARCH 31, 2000
---------------------------
OR
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from _______________ to _______________
Commission file number 2844975-1
---------
Deotexis, Inc.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Nevada 13-3666344
- ---------------------------------------- -------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
855 Third Avenue, Suite 2900
New York, New York 10022-4082
- ---------------------------------------- -------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including area code (212) 829-5698
-----------------------------
- N/A -
- --------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------ ------
As of May 10, 2000, there were 4,546,875 shares of the registrant's
Common Stock, par value $.001, outstanding.
<PAGE>
STATEMENT ON INTERPRETATION OF FORWARD-LOOKING STATEMENTS
This Quarterly Report contains forward-looking statements relating to future
events or the projected future financial performance of the Company. Such
forward-looking statements are within the meaning of that term in Section 27A of
the Securities Act and Section 21E of the Exchange Act. When used herein, the
words "anticipate," "intend," "plan," "believe," "in our opinion," "hope,"
"estimate" and "expect," and any similar words or phrases as they relate to the
Company or its operations, are intended to identify these forward-looking
statements. These statements may include, but not be limited to, projections of
revenues, income or loss, capital expenditures, plans for growth and future
operations, financing needs, sources or potential sources of capital, or plans
or intentions relating to acquisitions by the Company, as well as assumptions
relating to the foregoing. Forward-looking statements are inherently subject to
risks and uncertainties, some of which cannot be predicted or quantified. Future
events and actual results could differ materially from those assumptions and
projections set forth in, contemplated by or underlying the forward-looking
statements. Investors are cautioned not to place undue reliance upon the
forward-looking statements contained herein.
<PAGE>
DEOTEXIS, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION.........................................................................1
ITEM 1. FINANCIAL STATEMENTS..........................................................................1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.........1
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....................................1
PART II. OTHER INFORMATION.............................................................................1
ITEM 1. LEGAL PROCEEDINGS.............................................................................1
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.....................................................1
ITEM 3. DEFAULTS UPON SENIOR SECURITIES...............................................................1
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...........................................1
ITEM 5. OTHER INFORMATION.............................................................................1
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..............................................................8
</TABLE>
<PAGE>
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
See the Index to Financial Statements, and the Financial Statements and
Notes thereto appearing at the end of this Quarterly Report.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
See Part II, Item 5 -- Other Information, below.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not Applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
ITEM 5. OTHER INFORMATION.
The following discussion of the Company's financial condition, results
of operations and plan of operations should be read in conjunction with the
Financial Statements and Notes thereto appearing at the end of this Quarterly
Report.
1
<PAGE>
RESULTS OF OPERATIONS
Deotexis, Inc., and its subsidiary (the "COMPANY") has not generated
any revenue from operations and is in the development stage. At March 31,
2000, the Company had current assets of $1,237,584, and current liabilities
of $145,263.
PLAN OF OPERATIONS
GENERAL OVERVIEW
The Company was incorporated in Nevada on March 6, 1992, has no
operating history, has not generated or recognized any revenues, and is in the
development stage. The Company was originally organized with the sole purpose of
identifying a suitable candidate to acquire or with which to merge, and, until
September 1997, its existence had been maintained since its formation with that
objective in mind. On September 30, 1997, the Company, then known by its former
name, Zeron Acquisitions II, Inc. ("ZERON"), and Zeron's two controlling
stockholders at the time, entered into a Stock Purchase Agreement (the "STOCK
PURCHASE AGREEMENT") with Mr. Gerold Tebbe and Overton Holdings Limited, a Turks
& Caicos Islands corporation wholly beneficially owned and controlled by Mr.
Tebbe ("OHL"), pursuant to which OHL agreed to buy 4,183,125 newly-issued and
non-registered shares of Common Stock, $.001 par value per share, of the
Company, in exchange for (i) $4,000,000 in cash from OHL, and (ii) the
contribution to the Company by Mr. Tebbe, or entities owned or controlled by
him, of certain patents, patent applications and associated intellectual
property, in return for nominal consideration and a reservation of a 1% royalty
by Mr. Tebbe on all net income recognized by the Company from the commercial
exploitation of such rights.
The Company is engaged in the business of developing and
commercializing certain patented controlled-release delivery systems for
consumer products in certain sectors of the toiletries, cosmetics, apparel,
household products, personal care products, medical, paper, industrial or
technical textiles, pharmaceutical, and other markets. The Company's goal is to
expand and build on its patented "know-how," and to acquire access to
manufacturing and marketing resources to become a profitable developer and
supplier of controlled-release delivery systems to a wide range of industry
sectors. Ultimately, the Company plans to become a business owning or holding
the rights to a wide range of products in the area of controlled-release
technology.
The Company's first controlled-release delivery system was developed by
Mr. Tebbe in 1987, and he filed a patent application for the technology relating
thereto in that same year. The application was opposed in the European patent
courts by The Procter & Gamble Company, one of the world's largest manufacturers
and distributors of household and consumer products. In late 1996, the European
Patent Office dismissed Procter & Gamble's challenge in favor of Mr. Tebbe's
patent claims. Following the patent ruling in his favor, Mr. Tebbe has commenced
taking steps to capitalize on his patented processes and technology.
Over the course of the next three (3) years, the Company anticipates
that it will (a) enter into licensing agreements providing for the use by
licensees of the Company's patents and manufacturing technology in exchange for
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
2
<PAGE>
agreements with one or more major drug and pharmaceutical wholesale
distributors, (d) either hire additional senior management necessary to operate
the Company, or acquire an operating company with an existing management team,
or pursue a combination of these strategies, (e) acquire an operating company in
Europe or the United States to manufacture or to oversee the sub-contracted
manufacture and the distribution of its products, and (f) commence an image
building advertising and public relations campaign in the pharmaceutical and
personal care products industries. There can be no assurance that any or all of
these goals will be achieved by the Company.
PRODUCTS
The Company's core patent covers rate-controlled delivery systems for
chemicals which are microencapsulated and 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.
TARGET MARKETS; MANUFACTURING AND DISTRIBUTION STRATEGY
Potential end-users of the Company's systems are consumers worldwide.
In order to reach these end-users, the Company intends to license its systems to
corporations which manufacture, sell and distribute consumer products to the
personal care, pharmaceutical, 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.
RETENTION OF SENIOR MANAGEMENT
The Company's seven member Board of Directors has extensive experience
in a wide array of business sectors. Mr. Gerold Tebbe serves as the President,
Chief Executive Officer and a Director of the Company, with overall
responsibility for operations. Mr. Tebbe
3
<PAGE>
also serves as the Company's Secretary and Treasurer and will do so until
such time as the Board of Directors determines that it is appropriate to hire
suitable personnel to serve in those positions. In addition, Mr. Tebbe has
been appointed Acting Chief Financial Officer, to execute the duties of Chief
Financial Officer until such time as the Board of Directors determines that
the Company's level of operations warrants the retention of a full-time
permanent Chief Financial Officer.
COMPANY STRUCTURE AND SUBSIDIARIES
The Company formed a wholly-owned subsidiary in Germany in March 1999,
Hecking Deotexis GmbH (formerly D-Tex Technologie Holding GmbH)("Deotexis
Germany"), to establish a local presence and serve as a holding company for
Deotexis's investment in Medisana GmbH, a marketer and distributor of medical
devices and wellness supplies located in Meckenheim, Germany, 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 described below, 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 product offerings and revenue base. In
addition, the Company hopes that, if it is able to consummate an acquisition,
officers and employees of NTW 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, 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 is 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 arrangement 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.
4
<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 financing 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 final
agreements.
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.
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
5
<PAGE>
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 and the Company has set up
its distribution channels to service the consumer market, will highlight the
convenience and economy of the Company's products. The Company intends to place
its print advertisements in periodicals and newspapers with readership
demographics consistent with the Company's core consumer target markets.
On an ongoing basis, the Company is also considering ways to enhance
communications with its shareholders and ensure that information on important
Company developments and opportunities continues to reach them on a timely
basis.
PATENTS
The Company currently owns the patents and patent rights that were
previously owned by Mr. Tebbe, and/or entities owned and controlled by him, and
were transferred to the Company in connection with the consummation of the
transactions contemplated by the Stock Purchase Agreement. Such patents and
related intellectual property constitute all of the technology necessary to
manufacture the Company's textile-based controlled-release delivery systems. It
is the Company's intention to commercially exploit the patents for its
controlled-release delivery systems technology through the introduction and
licensing of the Company's systems, initially in the European market. In
exchange for the transfer to the Company of the patents, patent rights and
related intellectual property, the Company has agreed to pay Mr. Tebbe a 1%
royalty per annum of all net income recognized by the Company in connection with
the commercial exploitation of these patents and patent rights. There are no
assurances that the Company will ever achieve net income as a result of the
commercial exploitation of these intellectual property rights. Furthermore, if
the occasion arises, the Company will have to defend against and/or institute
patent infringement suits in order to protect its proprietary rights to the
patents. Prosecution of any type of patent litigation or dispute may result in
significant expenses for the Company.
LIQUIDITY
Since its incorporation on March 6, 1992, the Company has had no
business activity other than its capital raising activities, negotiations
relating to potential joint ventures, strategic 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 and develop its delivery
systems. On March 31, 2000, the Company and its subsidiary had $959,099 of
liquid assets, working capital of $1,092,321 and shareholders' equity of
$1,068,744. The Company has not manufactured or licensed any of its delivery
systems since inception, except that the Company's investment in Medisana
GmbH contemplates the grant of a license to Medisana by the Company to enable
Medisana to study the integration of the Company's technology into its
existing products, and to explore the development of new products utilizing
the Company's technology. The terms of the Medisana license, and the
compensation the Company is to receive with respect thereto, have not yet
been finalized.
During the period ended March 31, 2000, Mr. Tebbe, the President,
Chief Executive Officer, Secretary, Treasurer and Acting Chief Financial
Officer, and a Director of the Company, loaned 450,000 Euro (approximately
$450,000) to Deotexis. Deotexis invested these funds in Hecking Deotexis
GmbH, its German subsidiary.
6
<PAGE>
CAPITAL RESOURCES
Following commencement of its operations, the Company's cash
requirements will be significant. While the Company currently has cash on hand
sufficient to finance its proposed business during the first twelve to eighteen
(12-18) months of its operations, excluding the costs of any potential
acquisitions, the Company is dependent on internally generated cash flow and
upon securing a working capital line of credit to implement its business plan
thereafter. There can be no assurance that the Company will be able to maintain
its business and operations without additional financing after the first twelve
to eighteen (12-18) months 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.
7
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBITS.
27. Financial Data Schedule.
REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K during the period covered by
this Quarterly Report on Form 10-Q.
8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DEOTEXIS, INC.
By: /S/ GEROLD TEBBE
-----------------------------------------
President, Chief Executive Officer, Acting
Chief Financial Officer, Secretary and
Treasurer
Dated: May 15, 2000
<PAGE>
DEOTEXIS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
INDEX TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Condensed Consolidated Balance Sheets at December 31, 1999 and March 31, 2000 (unaudited) F-2
Condensed Consolidated Statements of Operations for the three months ended March
31, 1999 and 2000 (unaudited) and cumulative since March 6, 1992 (inception)
to March 31, 2000 (unaudited) F-3
Consolidated Statement of Stockholders' Equity for the period March 6, 1992
(inception) to December 31, 1995, and for the years ended December 31, 1996,
1997, 1998 and 1999 and for the three months ended March 31, 2000 (unaudited) F-4
Condensed Consolidated Statements of Cash Flows for the three months ended March
31, 1999 and 2000 (unaudited) and cumulative since March 6, 1992 (inception)
to March 31, 2000 (unaudited) F-6
Notes to Condensed Consolidated Financial Statements F-8
</TABLE>
F-1
<PAGE>
DEOTEXIS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, 1999 MARCH 31, 2000
----------------- --------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 936,339 $ 959,099
Restricted cash 151,354
Prepaid taxes 7,016 6,016
Prepaid expenses 121,115
-------------- -----------
Total current assets 943,355 1,237,584
Investment in a company 810,926 810,926
----------- -----------
Total assets $1,754,281 $2,048,510
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 77,167 $ 145,263
------------ ------------
Total current liabilities 77,167 145,263
------------ ------------
Due to officer 291,765 834,503
------------ ------------
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 (2,775,883) (3,053,712)
Accumulated other comprehensive loss - foreign currency
translation adjustment (38,776)
------------ ------------
Total stockholders' equity 1,385,349 1,068,744
----------- -----------
Total liabilities and stockholders' equity $1,754,281 $ 2,048,510
========== ===========
</TABLE>
SEE ACCOMPANYING NOTES
F-2
<PAGE>
DEOTEXIS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months
Ended March 31, March 6, 1992
--------------------------------- (Date of Inception) to
1999 2000 March 31, 2000
----------- ----------- -----------
<S> <C> <C> <C>
Interest and other income $ 28,448 $ 6,497 $ 348,040
----------- ----------- -----------
Expenses:
Directors fees 35,000 35,000 315,000
Interest 6,400 11,500 50,100
Consulting 38,125
Rent 970 1,165 52,680
Corporation franchise taxes 2,034 1,000 35,063
Filing fees 15,969 5,946 142,947
Amortization 500
Bank charges 2,329
Insurance 34,705 34,705 314,595
Office 11,295 23,386 238,469
Professional fees 214,290 171,624 2,211,944
----------- ----------- -----------
Total expenses 320,663 284,326 3,401,752
----------- ----------- -----------
Net loss $ (292,215) $ (277,829) $(3,053,712)
=========== =========== ===========
Basic loss per share $ (.06) $ (.06)
=========== ===========
Weighted average number of
shares outstanding 4,546,875 4,546,875
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES
F-3
<PAGE>
DEOTEXIS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Comprehensive Common Stock Paid-In
Loss Shares Amount Capital
------------------- --------- ------ -----------
<S> <C> <C> <C> <C>
Issuance of 160,000 common shares on
September 4, 1992 at par value ($.001 per
share) for cash ($.01 per share) 160,000 $ 160 $ 1,440
Sale of 18,750 shares for
cash in July 1992 ($1.60
per share) 18,750 19 29,981
Net loss inception to
December 31, 1992
Net loss - December 31, 1993
Sale of 100,000 shares -
January 31, 1994 ($6.25
per share) 100,000 100 624,900
Deferred offering costs
charged to paid-in capital (31,461)
Net loss - December 31, 1994
Net loss - December 31, 1995
------- ------------
Balance - December 31, 1995 279 624,860
Net loss
------- ------------
Balance - December 31, 1996 279 624,860
Distributions (475,750)
</TABLE>
(CONTINUED)
<TABLE>
<CAPTION>
Deficit
Accumulated
During the Accumulated Total
Development Comprehensive Stockholders'
Stage Loss Equity
--------------- ------------------- ------------
<S> <C> <C> <C>
Issuance of 160,000 common shares on
September 4, 1992 at par value ($.001 per
share) for cash ($.01 per share) $1,600
Sale of 18,750 shares for
cash in July 1992 ($1.60
per share) 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 ($6.25
per share) 625,000
Deferred offering costs
charged to paid-in capital (31,461)
Net loss - December 31, 1994 (27,184) (27,184)
Net loss - December 31, 1995 (35,005) (35,005)
---------- ----------
Balance - December 31, 1995 (64,017) 561,122
Net loss (43,737) (43,737)
---------- ----------
Balance - December 31, 1996 (107,754) 517,385
Distributions (475,750)
</TABLE>
F-4
<PAGE>
DEOTEXIS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Comprehensive Common Stock Paid-In
Loss Shares Amount Capital
-------------------- ------------ ------ -----------
<S> <C> <C> <C> <C>
Sale of 4,183,125 shares for
cash ($.96 per share) 4,183,125 4,183 3,995,817
Issuance of 85,000 shares
for services rendered
($.48 per share) 85,000 85 (85)
Capital contributed by
principal stockholder 10,643
Net loss
--------- --------- ---------------
Balance - December 31, 1997 4,546,875 4,547 4,155,485
Capital contributed by principal
stockholder 1,200
Net loss --------- --------- ---------------
Balance - December 31, 1998 4,546,875 4,547 4,156,685
Net loss
--------------- -------- ---------------
Balance - December 31, 1999 4,546,875 4,547 4,156,685
Net loss (unaudited) $(277,829)
-
Other comprehensive loss:
Foreign currency
translation adjustment
(unaudited) (38,776)
---------- ---------------- --------- ---------------
Comprehensive loss
(unaudited) $(316,605)
==========
Balance - March 31, 2000
(unaudited) 4,546,875 $4,547 $4,156,685
========= ====== ==========
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated
During the Accumulated Total
Development Comprehensive Stockholders'
Stage Loss Equity
--------------- ------------------- ------------
<S> <C> <C> <C>
Sale of 4,183,125 shares for
cash ($.96 per share) 4,000,000
Issuance of 85,000 shares
for services rendered
($.48 per share) --
Capital contributed by
principal stockholder 10,643
Net loss (239,901) (239,901)
------------ -------------------
Balance - December 31, 1997 (347,655) 3,812,377
Capital contributed by principal
stockholder 1,200
Net loss (1,367,161) (1,367,161)
------------ -----------
Balance - December 31, 1998 (1,714,816) 2,446,416
Net loss (1,061,067) (1,061,067)
------------ ------------
Balance - December 31, 1999 (2,775,883) 1,385,349
Net loss (unaudited) (277,829) (277,829)
Other comprehensive loss:
Foreign currency
translation adjustment
(unaudited) $(38,776) (38,776)
---------------- -------- ------------
Comprehensive loss
(unaudited)
Balance - March 31, 2000
(unaudited) $(3,053,712) $(38,776) $1,068,744
=========== ======== ==========
</TABLE>
F-5
<PAGE>
DEOTEXIS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months
Ended March 31, March 6, 1992
------------------------------- (Inception) through
1999 2000 March 31, 2000
------------- ------------ ---------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (292,215) $(277,829) $(3,053,712)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Amortization 500
Services paid for by principal stockholder 1,200
Changes in operating assets and liabilities:
Restricted cash (151,354) (151,354)
Prepaid taxes (4,008) 1,000 (6,016)
Prepaid expenses (104,115) (121,115) (121,115)
Accounts payable and accrued expenses 80,924 73,076 144,763
Due to officer, net (376,069) 72,663 369,408
------------ ----------- -----------
Cash used in operating activities (695,483) (403,559) (2,816,326)
------------ ----------- -----------
Cash flows from investing activities:
Purchase of investment (810,926)
-----------
Cash flows from financing activities:
Issuance of common stock - net of costs 4,625,139
Capital contributed by principal stockholder 10,643
Distributions (475,750)
Borrowings from Officer 465,095 465,095
------------ ------------
Cash provided by financing activities 465,095 4,625,127
------------ ------------
Effect of foreign exchange rate changes on cash (38,776) (38,776)
------------ ------------ ------------
Net (decrease) increase in cash
and cash equivalents (695,483) 22,760 959,099
Cash and cash equivalents -
beginning of year/period 2,956,090 936,339
----------- ----------- ---------------
Cash and cash equivalents -
end of period $ 2,260,607 $ 959,099 $ 959,099
=========== ========== ===========
Supplemental disclosure of cash flow
information: Cash paid during the period
for:
Interest $ 22,000 $ 22,000
=========== ===========
Income taxes $ 41,079
-----------
</TABLE>
(CONTINUED)
F-6
<PAGE>
DEOTEXIS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(CONCLUDED)
<TABLE>
<CAPTION>
Three Months
Ended March 31, March 6, 1992
------------------------------ (Inception) through
1999 2000 March 31, 2000
------------ ----------- ------------------
<S> <C>
Noncash financing activities:
The Company issued 85,000 shares to a consultant
for services rendered. The Company recorded the fair
market value of those securities at $.48 per share. $40,800
=======
The principal stockholder of the Company transferred
2,500 shares of common stock owned by him to two consultants
for services rendered to the Company. The Company
recorded the fair market value of those securities at $.48 per share $ 1,200
=======
</TABLE>
SEE ACCOMPANYING NOTES
F-7
<PAGE>
DEOTEXIS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. THE COMPANY AND STOCKHOLDERS' EQUITY:
Background:
Deotexis, Inc. (the "Company") was organized under the laws of the
State of Nevada on March 6, 1992. Its purpose is the development of a
consumer products company focusing on the marketing of personal care
consumer products. Since the Company has not yet begun operations, it
is considered to be in the development stage.
On October 10, 1997, the Stock Purchase Agreement dated September 30,
1997 among Overton Holdings Limited, a corporation formed under the laws
of the Turks & Caicos Islands, British West Indies ("OHL"), Gary Takata,
Shigeru Masuda and Gerold Tebbe, closed. Pursuant to the terms of the
Stock Purchase Agreement, the Company issued 4,183,125 newly-issued and
nonregistered shares of common stock, $.001 par value (the "New Shares")
to OHL, in return for a cash payment to the Company of $4 million from
OHL, and the transfer to the Company for nominal consideration, plus
future royalties tied to the revenues recognized by the Company from the
commercial exploitation thereof, of certain patents, patent applications
and related intellectual property owned by Gerold Tebbe or entities owned
and controlled by him. OHL is 100% beneficially owned by Gerold Tebbe.
The Company intends to develop and market these patents and the products
produced utilizing this intellectual property.
The Company organized a wholly-owned subsidiary, Hecking Deotexis GmbH
(formerly, D-Tex Technologie Holding GmbH), under the laws of Germany, in
March 1999.
Basis of Presentation:
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although management of the Company believes that the
disclosures are adequate to make the information presented not
misleading. These condensed consolidated financial statements should be
read in conjunction with the condensed notes thereto. In the opinion of
management of the Company, the accompanying unaudited condensed
consolidated financial statements include all adjustments, consisting of
only normal recurring adjustments, necessary to fairly present the
results for the interim periods to which these financial statements
relate.
These financial statements should be read in conjunction with the Annual
Report filed with the Securities and Exchange Commission on Form 10-K.
F-8
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation:
The consolidated financial statements include the accounts of the Company
and its subsidiary. All material intercompany accounts and transactions
have been eliminated.
Foreign Currency Translation:
Assets and liabilities of the foreign subsidiary are translated into U.S.
dollars at period-end exchange rates, and statement of operations items
are translated at average exchange rates for the period. Translation
gains or losses are recorded in stockholders' equity and transaction
gains and loses are reflected in operations.
Cash and Cash Equivalents:
Cash and cash equivalents are stated at cost plus accrued interest. Cash
equivalents consist of short-term treasury bills. The Company considers
all highly liquid investments with a maturity of three months or less
when purchased to be cash equivalents.
Concentration of Credit Risk:
At March 31, 2000, 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.
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.
3. COMPREHENSIVE INCOME:
The Company reports comprehensive income in accordance with Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income,"
which requires the components of comprehensive income to be disclosed in
the financial statements. Comprehensive income consists of net income
(loss) and foreign currency translation adjustments and is presented in
the consolidated statement of stockholders' equity. The adoption of
Statement No. 130 had no impact on total stockholders' equity.
F-9
<PAGE>
4. RESTRICTED CASH:
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
(see Note 5 below). 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. To attempt to resolve the dispute, the Company has
paid into escrow, with Knorr's attorneys, the sum of DM 307,869.55
(approximately $151,000 at March 31, 2000). 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.
5. 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.
6. DUE TO OFFICER:
Amounts due to officer of approximately $292,000 and $835,000 at December
31, 1999 and March 31, 2000, respectively, bear interest at 8% per
annum, and are due from April 1, 2001 or earlier if other sources of
financing are obtained. During the three month period ending March 31,
2000, approximately $465,000 was advanced to the Company by the officer.
This amount was subsequently invested in the Subsidiary. Included in
due to officer at December 31, 1999 and March 31, 2000 is approximately
$16,600 and $28,100, respectively, relating to interest expense on the
debt.
7. RELATED PARTY TRANSACTIONS:
The Company engages the services of a professional consulting firm; a
director of the Company is a partner in the consulting firm. During the
three months ended March 31, 1999 and 2000, the Company incurred expenses
of approximately $55,000 and $62,000. As of March 31, 1999 and 2000,
approximately $32,000 and $30,000 was due to this related party.
8. OTHER MATTERS:
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") for approximately DM 27.5 million (US
$13.415 million). 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
F-10
<PAGE>
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.
Furthermore, the Company entered into an agreement with NTW.
The Company is in nominal control of the assets and operations of NTW
until the asset purchase is finalized. Under the terms of the
agreement, the purchase is to be completed by May 31, 2000.
F-11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DEOTEXIS
INC. AND SUBSIDIARY CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE
MONTHS ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 959,099
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,237,584
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,048,510
<CURRENT-LIABILITIES> 145,263
<BONDS> 0
0
0
<COMMON> 4,547
<OTHER-SE> 1,064,197
<TOTAL-LIABILITY-AND-EQUITY> 2,048,510
<SALES> 0
<TOTAL-REVENUES> 6,497
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 272,826
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,500
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (277,829)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (277,829)
<EPS-BASIC> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
