<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 JUNE 30, 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 Incorporation or           (I.R.S. Employer
                  Organization)                           Identification No.)

    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 August 14, 2000, there are 4,546,875 shares of the registrant's
Common Stock, par value $.001, outstanding.
<PAGE>

STATEMENT ON INTERPRETATION OF FORWARD-LOOKING STATEMENTS

This Quarterly Report contains forward-looking statements relating to future
events or the projected future financial performance of the Company. Such
forward-looking statements are within the meaning of that term in Section 27A of
the Securities Act and Section 21E of the Exchange Act. When used herein, the
words "anticipate," "intend," "plan," "believe," "in our opinion," "hope,"
"estimate" and "expect," and any similar words or phrases as they relate to the
Company or its operations, are intended to identify these forward-looking
statements. These statements may include, but not be limited to, projections of
revenues, income or loss, capital expenditures, plans for growth and future
operations, financing needs, sources or potential sources of capital, or plans
or intentions relating to acquisitions by the Company, as well as assumptions
relating to the foregoing. Forward-looking statements are inherently subject to
risks and uncertainties, some of which cannot be predicted or quantified. Future
events and actual results could differ materially from those assumptions and
projections set forth in, contemplated by or underlying the forward-looking
statements. Investors are cautioned not to place undue reliance upon the
forward-looking statements contained herein.
<PAGE>

                                 DEOTEXIS, INC.
                                    FORM 10-Q
                       FOR THE QUARTER ENDED JUNE 30, 2000

                                      INDEX

                                                                            PAGE
                                                                            ----

PART I.           FINANCIAL INFORMATION........................................1

         ITEM 1.  FINANCIAL STATEMENTS.........................................1

         ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS..........................1

         ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...1

PART II.          OTHER INFORMATION............................................1

         ITEM 1.  LEGAL PROCEEDINGS............................................1

         ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS....................1

         ITEM 3.  DEFAULTS UPON SENIOR SECURITIES..............................1

         ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..........1

         ITEM 5.  OTHER INFORMATION............................................1

         ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.............................8


                                       i
<PAGE>

                                     PART I.
                              FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

                  See the Index to Financial Statements, and the Financial
Statements and Notes thereto appearing at the end of this Quarterly Report.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

                  See Part II, Item 5 -- Other Information, below.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

                  Not Applicable.

                                    PART II.
                                OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

                  Not Applicable.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS.

                  Not Applicable.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

                  Not Applicable.

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

                  Not Applicable.

ITEM 5.  OTHER INFORMATION.

                  The following discussion of the Company's financial condition,
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.
<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 June
30, 2000, the Company had current assets of $1,125,860, and current liabilities
of $82,997.

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 and 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 the Company's investment in Medisana GmbH ("Medisana"), 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.

                  On June 13, 2000, Medisana consummated an initial public
offering ("IPO") of its securities on the SMAX exchange in Germany. During June
2000, the Company sold 10,000 shares of Medisana's stock for approximately
$140,000 and recognized a gain on the sale in the amount of $95,432. The Company
is restricted from selling any of its remaining shares for one year from the
date the IPO was consummated and is allowed to sell only a limited amount of
such shares for an additional 24 months thereafter. At June 30, 2000, the
Company owned approximately 171,000 shares of restricted stock in Medisana. At
such date, the market price for unrestricted shares of Medisana stock was
approximately 13.50 Euros per share (equivalent to U.S. $12.85 per share) and
the aggregate market value for a similar number of unrestricted shares was in
excess of the Company's cost of such shares.

                  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.

                  If the Company does not consummate the acquisition, the
Company will reassess its goals and consider other possibilities for the
direction of the Company.


                                       4
<PAGE>

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.

                  Though the purchase was to be completed by May 31, 2000, as of
August 7, 2000, the Company is still in the process of negotiating the
completion of the purchase and is continuing due diligence with respect to NTW,
including studying 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.


                                       5
<PAGE>

                  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 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


                                       6
<PAGE>

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 strategic alliances and potential joint ventures,
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 June 30,
2000, the Company and its subsidiary had $887,330 of liquid assets, working
capital of $1,042,863 and shareholders' equity of $936,304. 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 June 30, 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 $465,000) to the Company. The Company invested these funds in
Hecking Deotexis GmbH, its German subsidiary.

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 next twelve (12) 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 next twelve (12) 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: August 14, 2000


                                       9
<PAGE>

                          DEOTEXIS, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)

                                    INDEX TO
                   CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                                                            Page
                                                                            ----

Condensed Consolidated Balance Sheets at December 31, 1999
and June 30, 2000 (unaudited)                                                F-2

Condensed Consolidated Statements of Operations for the six
months ended June 30, 1999 and 2000 (unaudited) and
cumulative since March 6, 1992 (inception) to June 30, 2000
(unaudited)                                                                  F-3

Condensed Consolidated Statements of Operations for the
three months ended June 30, 1999 and 2000 (Unaudited)                        F-4

Consolidated Statement of Stockholders' Equity for the
period March 6, 1992 (inception) to December 31, 1995, and
for the years ended December 31, 1996, 1997, 1998 and 1999
and for the six months ended June 30, 2000 (unaudited)                     F 5-6

Condensed Consolidated Statements of Cash Flows for the six
months ended June 30, 1999 and 2000 (unaudited) and
cumulative since March 6, 1992 (inception) to June 30, 2000
(unaudited)                                                                F 7-8

Notes to Condensed Consolidated Financial Statements                         F-9


                                      F-1
<PAGE>

                          DEOTEXIS, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)

                      CONDENSED CONSOLIDATED BALANCE SHEETS

                                     ASSETS

<TABLE>
<CAPTION>
                                                         DECEMBER 31, 1999  JUNE 30, 2000
                                                         -----------------  -------------
                                                                             (Unaudited)
<S>                                                          <C>            <C>
Current assets:
   Cash and cash equivalents                                 $   936,339    $   887,330
   Restricted cash                                                              151,354
   Prepaid taxes                                                   7,016          5,016
   Prepaid expenses                                                              82,160
                                                             -----------    -----------
           Total current assets                                  943,355      1,125,860

Investment in a company                                          810,926        766,178

Deferred financing costs                                                         24,300
                                                             ===========    ===========
           Total assets                                      $ 1,754,281    $ 1,916,338
                                                             ===========    ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Accounts payable and accrued expenses                     $    77,167    $    82,997
                                                             -----------    -----------
              Total current liabilities                           77,167         82,997
                                                             -----------    -----------

   Due to officer                                                291,765        897,037
                                                             -----------    -----------

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)    (3,181,365)
   Accumulated other comprehensive loss - foreign
    currency translation adjustment                                             (43,563)
                                                             -----------    -----------

           Total stockholders' equity                          1,385,349        936,304
                                                             -----------    -----------

           Total liabilities and stockholders' equity        $ 1,754,281    $ 1,916,338
                                                             ===========    ===========
</TABLE>

                             SEE ACCOMPANYING NOTES


                                      F-2
<PAGE>

                          DEOTEXIS, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                   Six Months
                                                  Ended June 30,                 March 6, 1992
                                                  --------------            (Date of Inception) to
                                              1999             2000               JUNE 30, 2000
                                          ------------      -----------       --------------------
<S>                                        <C>              <C>                  <C>
Income:
   Interest and other income                  $50,360          $ 10,936           $  352,479
   Gain on sale of investment                                    95,432               95,432
                                           ----------         ---------          -----------

          Total income                         50,360           106,368              447,911
                                             --------          --------           ----------

Expenses :
   Directors fees                              70,000            70,000              350,000
   Interest on obligation to officer            8,400            28,600               67,200
   Consulting                                                                         38,125
   Rent                                         2,099             2,333               53,848
   Corporation franchise taxes                  3,634             2,000               36,063
   Filing fees                                 17,954            19,094              156,095
   Amortization                                                                          500
   Bank charges                                                                        2,329
   Insurance                                   69,410            69,410              349,300
   Office                                      25,703            41,331              256,414
   Professional fees                          370,912           279,082            2,319,402
                                           ----------        ----------         ------------
         Total expenses                       568,112           511,850            3,629,276
                                           ----------        ----------         ------------

Net loss                                    $(517,752)        $(405,482)         $(3,181,365)
                                            =========         =========          ===========

Basic loss per share                            $(.11)            $(.09)
                                                =====             =====

Weighted average number of
   shares outstanding                       4,546,875         4,546,875
                                           ==========        ==========
</TABLE>

                             SEE ACCOMPANYING NOTES


                                      F-3
<PAGE>

                          DEOTEXIS, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                           Three Months
                                                           Ended June 30,
                                                   ----------------------------
                                                       1999             2000
                                                   -----------      -----------
<S>                                                <C>              <C>
Income:
   Interest                                        $    21,912      $     4,438
   Gain on sale of investment                                            95,432
                                                   -----------      -----------
                                                        21,912           99,870
                                                   -----------      -----------

Expenses:
   Directors fees                                       35,000           35,000
   Interest on obligation to officer                     2,000           17,100
   Rent                                                  1,129            1,168
   Corporation franchise taxes                           1,600            1,000
   Filing fees                                           1,985           13,148
   Insurance                                            34,705           34,705
   Office                                               14,408           17,945
   Professional fees                                   156,622          107,458
                                                   -----------      -----------
         Total expenses                                247,449          227,524
                                                   -----------      -----------

Net loss                                           $  (225,537)     $  (127,654)
                                                   ===========      ===========

Basic loss per share                               $      (.05)     $      (.03)
                                                   ===========      ===========

Weighted average number of
   shares outstanding                                4,546,875        4,546,875
                                                   ===========      ===========
</TABLE>

                             SEE ACCOMPANYING NOTES


                                      F-4
<PAGE>

                          DEOTEXIS, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                              Deficit
                                                                                            Accumulated
                                                             Common Stock      Additional   During the    Accumulated      Total
                                           Comprehensive  -----------------     Paid-In     Development  Comprehensive Stockholders'
                                               Loss       Shares     Amount     Capital        Stage          Loss        Equity
                                           -------------  ------     ------    ----------   -----------  ------------- -------------
<S>                                        <C>            <C>        <C>       <C>          <C>          <C>           <C>
Issuance of 160,000 common shares on
  September 4, 1992 at par value ($.001
  per share) for cash ($.01 per share)                    160,000       $ 160     $ 1,440                                    $1,600

Sale of 18,750 shares for cash in July
  1992 ($1.60 per share)                                   18,750          19      29,981                                    30,000

Net loss inception to December 31, 1992                                                        $   (62)                         (62)

Net loss - December 31, 1993                                                                    (1,766)                      (1,766)

Sale of 100,000 shares - January 31, 1994
  ($6.25 per share)                                       100,000         100     624,900                                   625,000

Deferred offering costs charged to paid-in
  capital                                                                         (31,461)                                  (31,461)

Net loss - December 31, 1994                                                                   (27,184)                     (27,184)

Net loss - December 31, 1995                                                                   (35,005)                     (35,005)
                                                                      -------  ----------   ----------                   ----------

Balance - December 31, 1995                                               279     624,860      (64,017)                     561,122

Net loss                                                                                       (43,737)                     (43,737)
                                                                      -------  ----------   ----------                   ----------

Balance - December 31, 1996                                               279     624,860     (107,754)                     517,385

Distributions                                                                    (475,750)                                 (475,750)
</TABLE>

                                   (CONTINUED)


                                      F-5
<PAGE>

                          DEOTEXIS, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                              Deficit
                                                                                            Accumulated
                                                             Common Stock      Additional   During the    Accumulated      Total
                                           Comprehensive  -----------------     Paid-In     Development  Comprehensive Stockholders'
                                               Loss       Shares     Amount     Capital        Stage          Loss        Equity
                                           -------------  ------     ------    ----------   -----------  ------------- -------------
<S>                                        <C>            <C>        <C>       <C>          <C>          <C>           <C>
Sale of 4,183,125 shares for cash ($.96
  per share)                                             4,183,125       4,183    3,995,817                               4,000,000

Issuance of 85,000 shares for services
  rendered ($.48 per share)                                 85,000          85          (85)                                -

Capital contributed by principal stockholder                                         10,643                                  10,643

Net loss                                                                                         (239,901)                 (239,901)
                                                       -----------    --------  -----------  ------------               -----------

Balance - December 31, 1997                              4,546,875       4,547    4,155,485      (347,655)                3,812,377

Capital contributed by principal stockholder                                          1,200                                   1,200

Net loss                                                                                       (1,367,161)               (1,367,161)
                                                       -----------    --------  -----------  ------------               -----------

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

Net loss                                                                                       (1,061,067)               (1,061,067)
                                                       -----------    --------  -----------  ------------               -----------

Balance - December 31, 1999                              4,546,875       4,547    4,156,685    (2,775,883)                1,385,349

Net loss (unaudited)                        $(405,482)                                           (405,482)                 (405,482)

Other comprehensive loss:
   Foreign currency translation adjustment
   (unaudited)                                (43,563)                                                      $(43,563)       (43,563)
                                            ---------  -----------   ---------  -----------  ------------   --------    -----------

Comprehensive loss (unaudited)              $(449,045)
                                            =========
Balance - June 30, 2000 (unaudited)                     4,546,875      $4,547   $4,156,685    $(3,181,365)  $(43,563)   $   936,304
                                                       ==========    ========   ==========   ============   ========    ===========
</TABLE>


                                      F-6
<PAGE>

                          DEOTEXIS, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                    Six Months                         March 6, 1992
                                                                   Ended June 30,                   (Inception) through
                                                               1999              2000                  June 30, 2000
                                                          -------------      ------------           --------------------
<S>                                                        <C>                  <C>                      <C>
Cash flows from operating activities:
   Net loss                                                $  (517,752)         $(405,482)               $(3,181,365)
   Adjustments to reconcile net
     loss to net cash used in operating activities:
        Amortization                                                                                             500
        Services paid for by principal stockholder                                                             1,200
        Gain on sale of investment                                                (95,432)                   (95,432)
   Changes in operating assets and liabilities:
     Restricted cash                                                             (151,354)                  (151,354)
     Prepaid taxes                                              (5,211)             2,000                     (5,016)
     Prepaid expenses                                          (69,410)           (82,160)                   (82,160)
     Accounts payable and accrued expenses                      (1,324)             5,830                     82,497
     Due to officer, net                                      (286,880)           140,177                    431,942
                                                          ------------       ------------              -------------
Cash used in operating activities                             (880,577)          (586,421)                (2,999,188)
                                                          ------------       ------------               ------------

Cash flows from investing activities:
   Purchase of investment                                                                                   (810,926)
   Proceeds from sale of investment                                               140,180                    140,180
                                                                             ------------              -------------
Cash provided by (used in) investing activities                                   140,180                   (670,746)
                                                                             ------------              -------------

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
   Payment of deferred financing costs                                            (24,300)                   (24,300)
                                                                            -------------              -------------
Cash provided by financing activities                                             440,795                  4,600,827
                                                                            -------------                -----------

Effect of foreign exchange rate changes on cash                                   (43,563)                   (43,563)
                                                          ------------       ------------              -------------

Net (decrease) increase in cash
   and cash equivalents                                       (880,577)           (49,009)                   887,330

Cash and cash equivalents -
   beginning of year/period                                  2,956,090            936,339
                                                           -----------        -----------            ---------------

Cash and cash equivalents -
   end of period                                            $2,075,513         $  887,330                   $887,330
                                                            ==========         ==========                   ========
</TABLE>

                                   (CONTINUED)


                                      F-7
<PAGE>

<TABLE>
<CAPTION>
                                                                    Six Months                         March 6, 1992
                                                                   Ended June 30,                   (Inception) through
                                                               1999              2000                  June 30, 2000
                                                          -------------      ------------           --------------------
<S>                                                        <C>                  <C>                      <C>
Supplemental disclosure of cash flow information:
   Cash paid during the period for:
     Interest                                                  $22,000                                       $22,000
                                                               =======                                       =======
     Income taxes                                               $8,995                                       $41,079
                                                                ======                                       =======

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>


                                      F-8
<PAGE>

                             SEE ACCOMPANYING NOTES
                          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.


                                      F-9
<PAGE>

                          DEOTEXIS, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


       These financial statements should be read in conjunction with the Annual
       Report filed with the Securities and Exchange Commission on Form 10-K.

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 June 30, 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 in a company referred to in Note 5 is recorded at cost.


                                      F-10
<PAGE>

                          DEOTEXIS, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


       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
       applicators 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.


                                      F-11
<PAGE>

                          DEOTEXIS, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


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 believes it 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 June 30, 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. In addition, the Company has agreed to grant
       to Medisana a license to use and exploit the Company's controlled-release
       delivery system. Since the terms of this license have yet to be
       negotiated, no cost has been ascribed to such obligation.

       On June 13, 2000, Medisana filed its initial public offering ("IPO") on
       the SMAX exchange in Germany. During June 2000, the Company sold 10,000
       Medisana shares for approximately $140,000 and recognized a gain on the
       sale in the amount of $95,432. The Company is restricted from selling any
       of its remaining shares for one year from the IPO date and will be
       limited in its selling of such shares for an additional 24 months. At
       June 30, 2000, the Company owned approximately 171,000 shares of
       restricted Medisana shares. At such date, the market price for
       unrestricted shares of Medisana was approximately 13.50 Euros per share
       (equivalent to U.S. $12.85 per share) and the aggregate market value for
       a similar number of unrestricted shares was in excess of the Company's
       cost of such shares.


                                      F-12
<PAGE>

                          DEOTEXIS, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


       Prior to Medisana's IPO, there was no readily determinable fair value for
       its securities, and the current existence of the restriction on the
       shares held by the Company, resulted in the Company's investment not
       being subject to the accounting guidelines set forth in Statement of
       Financial Accounting Standards No. 115 ("Accounting for Certain
       Investments in Debt and Equity Securities"). Upon the expiration (or
       reduction to one year) of the restricted period, the investment will be
       classified as an available-for-sale security and, accordingly, will be
       carried at fair value.

6.     DEFERRED COSTS:

       The Company paid DM50,000 (US $24,300) to Nordrhein-Westfalen, a State
       government in Germany, to obtain a guarantee (DM16 Million) to be
       presented to a bank as a condition for its financing the purchase of NTW
       (See Note 9).

7.     DUE TO OFFICER:

       Due to officer consists of approximately $292,000 and $897,000 at
       December 31, 1999 and June 30, 2000, respectively, bears interest at 8%
       per annum and is due July 1, 2001 or earlier if other sources of
       financing are obtained. Included in the advances by the officer to the
       Company during the six months ended June 30, 2000 was approximately
       $465,000 which was invested in the subsidiary. Included in due to officer
       at December 31, 1999 and June 30, 2000 is approximately $16,600 and
       $45,200, respectively, relating to interest expense accrued on the debt.

8.     RELATED PARTY TRANSACTIONS:

       The Company engages the services of a professional consulting firm; a
       director of the Company is a partner in the consulting firm. During the
       six months ended June 30, 1999 and 2000, the Company incurred expenses of
       approximately $108,000 and $71,000. As of June 30, 1999 and 2000,
       approximately $14,500 and $-0- was owed to this related party.


                                      F-13
<PAGE>

                          DEOTEXIS, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


9.     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 DM27.5 million (US $13.4
       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 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 was
       to be completed by May 31, 2000. As of August 7, 2000, the Company is
       still in the process of negotiating the completion of the purchase.


                                      F-14