<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                ----------------

                                    FORM 10-Q

(Mark One)

|X|  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 
     ACT OF 1934.

For the quarterly period ended  September 30, 1998
                               --------------------

                                       OR

| |  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 
     ACT OF 1934.

For the transition period from _______________ to _______________

                       Commission file number    2844975-1


                                DEOTEXIS, INC.
--------------------------------------------------------------------------------
              (Exact Name of Registrant as Specified in Its Charter)

            NEVADA                                         13-3666344
-------------------------------                  -------------------------------
(State or Other Jurisdiction of                          (I.R.S. Employer
 Incorporation or Organization)                          Identification No.)

885 Third Ave., Suite 2900
New York, New York                                         10022-4834
-------------------------------                  -------------------------------
(Address of Principal Executive Offices)                   (Zip Code)

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


                                     -N/A-
--------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report

         Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes    X    No
    -----      -----

         As of November 11, 1998, 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 
such forward-looking statements. Such statements may include, but not be 
limited to, projections of revenues, income or loss, capital expenditures, 
acquisitions, plans for growth and future operations, financing needs, 
sources or potential sources or capital, or plans or intentions relating to 
acquisitions by the Company, as well as assumptions relating to the 
foregoing. Forward-looking statements are inherently subject to risks and 
uncertainties, some of which cannot be predicted or quantified. Future events 
and actual results could differ materially from those assumptions and 
projections set forth in, contemplated by or underlying the forward-looking 
statements. Investors are cautioned not to place undue reliance upon such 
forward-looking statements contained herein.


                                     -2-

<PAGE>
                                       
                                  DEOTEXIS, INC.
                                   FORM 10-Q

                     FOR THE QUARTER ENDED SEPTEMBER 30, 1998

                                     INDEX

                                                                            PAGE

PART I

                              FINANCIAL INFORMATION..........................  4
    ITEM 1.  FINANCIAL STATEMENTS............................................  4
             INDEX TO FINANCIAL STATEMENTS...................................F-1

             CONDENSED BALANCE SHEETS AT DECEMBER 31, 1997 AND 
             SEPTEMBER 30, 1998 (UNAUDITED)..................................F-2

             CONDENSED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED
             SEPTEMBER 30, 1997 AND 1998 (UNAUDITED) AND CUMULATIVE
             SINCE MARCH 6, 1992 (INCEPTION) TO SEPTEMBER 30, 1998
             (UNAUDITED).....................................................F-3

             CONDENSED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED 
             SEPTEMBER 30, 1997 AND 1998 (UNAUDITED).........................F-4

             STATEMENT OF STOCKHOLDERS' EQUITY FOR THE PERIOD
             MARCH 6, 1992 (INCEPTION) TO DECEMBER 31, 1994, AND
             FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
             AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
             (UNAUDITED).....................................................F-5

             CONDENSED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED
             SEPTEMBER 30, 1997 AND 1998 (UNAUDITED) AND CUMULATIVE SINCE
             MARCH 6, 1992 (INCEPTION) TO SEPTEMBER 30, 1998
             (UNAUDITED).....................................................F-6

             NOTES TO CONDENSED FINANCIAL STATEMENTS.........................F-8

    ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 
             CONDITION AND RESULTS OF OPERATIONS.............................  5
    ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK......  5

PART II
                                OTHER INFORMATION............................  6
    ITEM 1.  LEGAL PROCEEDINGS...............................................  6
    ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS.......................  6
    ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.................................  6
    ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............  6
    ITEM 5.  OTHER INFORMATION...............................................  6
    ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K................................ 11

SIGNATURES................................................................... 12


                                       3
<PAGE>

                                     PART I
                               FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS.



                                       4
<PAGE>


                                 DEOTEXIS, INC.
                          (A Development Stage Company)

                          INDEX TO FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                                                                 Page
                                                                                                 ----
<S>                                                                                              <C>

Condensed Balance Sheets at December 31, 1997 and September 30, 1998 (unaudited) ............... F-2

Condensed Statements of Operations for the nine months ended September 30, 1997
   and 1998 (unaudited) and cumulative since March 6, 1992 (inception)
   to September 30, 1998 (unaudited) ........................................................... F-3

Condensed Statements of Operations for the three months ended
   September 30, 1997 and 1998 (unaudited) ..................................................... F-4

Statement of Stockholders' Equity for the period March 6, 1992 (inception) to
   December 31, 1994, and for the years ended December 31, 1995, 1996 and 1997
   and for the nine months ended September 30, 1998 (unaudited) ................................ F-5

Condensed Statements of Cash Flows for the nine months ended September 30, 1997
   and 1998 (unaudited) and cumulative since March 6, 1992 (inception)
   to September 30, 1998 (unaudited) ........................................................... F-6

Notes to Condensed Financial Statements ........................................................ F-8

</TABLE>


                                     F-1
<PAGE>
                                                  DEOTEXIS, INC.
                                           (A Development Stage Company)

                                             CONDENSED BALANCE SHEETS

                                                      ASSETS

<TABLE>
<CAPTION>

                                                                 December 31, 1997            September 30, 1998
                                                                 -----------------            ------------------
                                                                                                  (Unaudited)

<S>                                                                 <C>                            <C>
Current assets:
   Cash and cash equivalents ..................................     $4,034,700                     $1,274,118
   Treasury bills .............................................                                     1,937,268
   Prepaid taxes ..............................................          1,561                          2,097
   Prepaid insurance ..........................................                                        35,268
                                                                    ----------                     ----------

              Total assets (all current) ......................     $4,036,261                     $3,248,751
                                                                    ----------                     ----------
                                                                    ----------                     ----------


                                       LIABILITIES AND STOCKHOLDERS' EQUITY


Current liabilities:
   Accounts payable and accrued expenses ......................    $    73,097                   $     61,800
   Due to officer/director ....................................        150,787                        326,655
                                                                    ----------                     ----------
              Total current liabilities .......................        223,884                        388,455
                                                                    ----------                     ----------

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 .................................      4,155,485                      4,156,685
   Deficit accumulated during the development stage ...........       (347,655)                    (1,300,936)
                                                                    ----------                     ----------
              Total stockholders' equity ......................      3,812,377                      2,860,296
                                                                    ----------                     ----------

              Total liabilities and stockholders' equity ......     $4,036,261                    $ 3,248,751
                                                                    ----------                     ----------
                                                                    ----------                     ----------
</TABLE>

                                              See accompanying notes


                                     F-2
<PAGE>

                                                    DEOTEXIS, INC.
                                            (A Development Stage Company)

                                          CONDENSED STATEMENTS OF OPERATIONS
                                                     (Unaudited)

<TABLE>
<CAPTION>
                                                             Nine Months                        March 6, 1992
                                                           Ended September 30,              (Date of Inception) to
                                                     ---------------------------            ----------------------
                                                        1997             1998                 September 30, 1998
                                                      --------        ----------              ------------------

<S>                                                   <C>             <C>                   <C>

Interest and other income ....................        $ 16,230        $  132,719                 $   224,117
                                                      --------        ----------                 -----------

Expenses:
   Directors fees                                                        105,000                     105,000
   Consulting ................................           7,500                                        38,125
   Rent ......................................           7,500             2,761                      40,886
   Corporation franchise taxes ...............             300            16,846                      24,382
   Filing fees ...............................           2,642            77,725                      99,008
   Amortization ..............................              17                                           500
   Bank charges ..............................             268                                         2,310
   Insurance .................................                           105,802                     105,802
   Office ....................................              12            43,925                      62,077
   Professional fees .........................          11,953           733,941                   1,046,963
                                                      --------        ----------                 -----------
         Total expenses ......................          30,192         1,086,000                   1,525,053
                                                      --------        ----------                 -----------

Net loss .....................................        $(13,962)      $  (953,281)                $(1,300,936)
                                                      --------        ----------                 -----------
                                                      --------        ----------                 -----------

Basic loss per share .........................           $(.05)            $(.21)
                                                      --------        ----------
                                                      --------        ----------

Weighted average number of
   shares outstanding ........................         278,750         4,546,875
                                                      --------        ----------
                                                      --------        ----------

</TABLE>

                             See accompanying notes

                                     F-3
<PAGE>

                                                    DEOTEXIS, INC.
                                            (A Development Stage Company)

                                          CONDENSED STATEMENTS OF OPERATIONS
                                                     (Unaudited)

<TABLE>
<CAPTION>
                                                            Three Months
                                                         Ended September 30,
                                                         -------------------
                                                         1997           1998
                                                         ----           ----

<S>                                                   <C>            <C>

Interest and other income .......................     $  3,299      $  48,426
                                                      --------      ---------

Expenses:
   Directors fees ...............................                      35,000
   Rent .........................................                       2,761
   Corporation franchise taxes ..................         (195)         7,646
   Filing fees ..................................          425          4,317
   Bank charges .................................           38
   Insurance ....................................                      35,266
   Office .......................................                      19,762
   Professional fees ............................       10,253        191,722
                                                      --------      ---------
         Total expenses .........................       10,521        296,474
                                                      --------       --------

Net loss ........................................     $ (7,222)     $(248,048)
                                                      --------      ---------
                                                      --------      ---------

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

Weighted average number of
   shares outstanding ...........................      278,750      4,546,875
                                                      --------      ---------
                                                      --------      ---------
</TABLE>

                             See accompanying notes


                                    F-4
<PAGE>

                                  DEOTEXIS, INC.
                          (A Development Stage Company)

                        STATEMENTS OF STOCKHOLDERS' EQUITY

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

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

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

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

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

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

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

Net loss ..................................................                                             (35,005)       (35,005)
                                                                           -----     ---------      -----------     ----------

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

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

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

Distributions .............................................                            (475,750)                      (475,750)

Sale of 4,183,125 shares for cash
   ($.96 per share) .......................................   4,183,125     4,183     3,995,817                      4,000,000

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

Capital contributed by principal stockholder ..............                              10,643                         10,643

Net loss ..................................................                                            (239,901)      (239,901)
                                                              ---------    ------    ----------     -----------     ----------
Balance--December 31, 1997 ................................   4,546,875     4,547     4,155,485        (347,655)     3,812,377

Capital contributed by principal stockholder
   (unaudited) ............................................                               1,200                          1,200

Net loss (unaudited) ......................................                                            (953,281)      (953,281)
                                                              ---------    ------    ----------     -----------     ----------

Balance--September 30, 1998 (unaudited) ...................   4,546,875    $4,547    $4,156,685     $(1,300,936)    $2,860,296
                                                              ---------    ------    ----------     -----------     ----------
                                                              ---------    ------    ----------     -----------     ----------
</TABLE>



                             See accompanying notes


                                     F-5
<PAGE>

                                                      DEOTEXIS, INC.
                                               (A Development Stage Company)
                                            CONDENSED STATEMENTS OF CASH FLOWS
                                                        (Unaudited)

<TABLE>
Caption

                                                                     Nine Months
                                                                  Ended September 30,                    March 6, 1992
                                                           -------------------------------           (Inception) through
                                                               1997               1998                September 30, 1998
                                                           ------------       ------------           -------------------

<S>                                                        <C>               <C>                     <C>

Cash flows from operating activities:
   Net loss ..........................................     $ (13,962)        $  (953,281)               $(1,300,936)
   Adjustments to reconcile net loss
     to net cash used in operating activities:
        Amortization .................................            17                                            500
        Services paid for by principal stockholder                                 1,200                      1,200
   Changes in operating assets and liabilities:
     Interest receivable .............................                           (25,514)                   (25,514)
     Escrow ..........................................       (50,000)                                        (2,597)
     Prepaid taxes ...................................        (1,561)               (536)
     Prepaid insurance ...............................                           (35,268)                   (35,268)
     Accounts payable and accrued expenses ...........        12,200             (11,297)                    61,800
     Due to officer, net .............................                           175,868                    326,655
                                                           ---------         -----------                 ----------
Cash used in operations ..............................       (53,306)           (848,828)                  (974,160)

Cash flows from investing activities:
   Purchase of treasury bills ........................                        (1,911,754)                (1,911,754)
Cash flows from financing activities:
   Issuance of common stock--net of costs ............                                                    4,625,139
   Capital contributed by principal stockholder ......                                                       10,643

   Distributions .....................................      (475,750)                                      (475,750)
                                                           ---------         -----------                 ----------

Net increase (decrease) in cash
   and cash equivalents .............................       (529,056)         (2,760,582)                 1,274,118

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

Cash and cash equivalents--
   end of period ....................................      $   1,281         $ 1,274,118                 $1,274,118
                                                           ---------         -----------                 ----------
                                                           ---------         -----------                 ----------


Supplemental disclosure of cash flow information:
   Cash paid during the period for:
     Income taxes                                                                $17,382                 $   17,382
                                                                             -----------                 ----------
                                                                             -----------                 ----------

Noncash financing activities:
   The Company issued 85,000 shares to a consultant
     for services rendered. The Company recorded
     the fair market value of those securities
     at $.48 per share.                                                                                  $   40,800
                                                                                                         ----------
                                                                                                         ----------

</TABLE>

                                  (Continued)

                                     F-6
<PAGE>

                                                      DEOTEXIS, INC.
                                               (A Development Stage Company)
                                            CONDENSED STATEMENTS OF CASH FLOWS
                                                        (Unaudited)

                                                        (Concluded)


<TABLE>
Caption

                                                                     Nine Months
                                                                  Ended September 30,                    March 6, 1992
                                                           -------------------------------           (Inception) through
                                                               1997               1998                September 30, 1998
                                                           ------------       ------------           -------------------

<S>                                                        <C>                <C>                    <C>

The principal stockholder of the Company
  transferred 2,500 shares of common stock owned
  by him to two consultants for services rendered.
  The Company recorded the fair market value of
  those securities at $.48 per share                                             $1,200                    $1,200
                                                                                 ------                    ------
                                                                                 ------                    ------

</TABLE>

                             See accompanying notes


                                     F-7
<PAGE>

                                 DEOTEXIS, INC.
                         (A Development Stage Company)

                   NOTES TO CONDENSED 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 income 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 New Shares account for 92% of the issued and outstanding common 
     stock of the Company and, accordingly, the Company is a subsidiary of 
     OHL. Prior to the closing of the Stock Purchase Agreement, Gary Takata, 
     then President, Secretary and a Director of the Company, and Shigeru 
     Masuda, then Chairman of the Board of Directors of the Company, together 
     beneficially owned 55.2% of the common stock of the Company and 
     controlled the Company. Upon the closing of the Stock Purchase Agreement 
     and in accordance with the provisions thereof, Mr. Masuda resigned as a
     Director of the Company, and Mr. Takata resigned his officerships and 
     directorship with the Company and appointed Gerold Tebbe sole director, 
     who then appointed himself President, Treasurer and Secretary of the 
     Company.


                                     F-8
<PAGE>

                                 DEOTEXIS, INC.
                         (A Development Stage Company)

                   NOTES TO CONDENSED FINANCIAL STATEMENTS
                                  (Unaudited)


     On October 13, 1997, by action by written consent without a meeting, 
     OHL, as majority stockholder and parent of the Company, acted to amend 
     the Company's Articles of Incorporation to change the Company's 
     corporate name to "Deotexis, Inc." An amendment to the Company's 
     Articles of Incorporation was prepared and filed with the Secretary of 
     State of Nevada on October 15, 1997.

     Basis of Presentation:

     The condensed 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 financial 
     statements should be read in conjunction with the condensed notes 
     thereto. In the opinion of management of the Company, the accompanying 
     unaudited condensed 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.

2.   SIGNIFICANT ACCOUNTING POLICIES:

     Cash and Equivalents:

     Cash and equivalents are stated at cost plus accrued interest. The
     Company considers all highly liquid investments with a maturity date of
     three months or less to be cash equivalents.

     At September 30, 1998, Treasury Bills included on the balance sheet are
     for terms in excess of three months and are stated at cost plus accrued
     interest.

     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.


                                     F-9
<PAGE>

                                 DEOTEXIS, INC.
                         (A Development Stage Company)

                   NOTES TO CONDENSED FINANCIAL STATEMENTS
                                  (Unaudited)

     Earnings (Loss) Per 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. There were
     no dilutive securities outstanding during any of the periods.

     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 these acquired patents are not being amortized as the consideration 
     was nominal. These patents involve textile-based controlled-release 
     delivery systems, with product applications in the toiletries, 
     cosmetics, apparel, household products and personal care products 
     markets as well as applications in the pharmaceutical industry.

3.   STOCKHOLDERS' EQUITY:

     The Company is authorized to issue 75,000,000 common shares with a par 
     value of $.001, and 15,000,000 blank check preferred shares with a par 
     value of $.001. On September 4, 1992, the Company issued a total of 
     160,000 shares of its common stock to its officers for a total 
     consideration of $1,600 ($.01 per share).

     On June 4, 1992, the Board of Directors authorized the sale, through a 
     self-underwritten initial public offering of a minimum of 100,000 common 
     shares and a maximum of 200,000 common shares at $6.25 per share.

     During the period of July 1, 1992 through July 15, 1992, the Company 
     issued a total of 18,750 shares of its common stock ($.001 par value) to 
     various individuals for a total consideration of $30,000 ($1.60 per 
     share).

     On January 14, 1994, the Company closed on the minimum of 100,000 shares
     in its initial public offering for a total consideration of $625,000.

     In October 1997, the Company distributed $475,750, of which $454,000 or 
     $4.54 per share was distributed to the holders of 100,000 common shares 
     issued in connection with the initial public offering, and $21,750 or 
     $1.16 per share, was distributed to holders of 18,750 common shares 
     issued prior to the initial public offering.


                                     F-10
<PAGE>

                                 DEOTEXIS, INC.
                         (A Development Stage Company)

                   NOTES TO CONDENSED FINANCIAL STATEMENTS
                                  (Unaudited)

     On October 10, 1997, pursuant to the Stock Purchase Agreement dated 
     September 30, 1997, the Company issued 4,183,125 newly issued and 
     nonregistered shares of common stock, $.001 par value to OHL in exchange 
     for a cash payment of $4 million and the transfer to the Company for 
     nominal consideration, plus future royalties tied to the income 
     generated by products sold that employ certain patents, patent 
     applications and related intellectual property contributed to the 
     Company by the Company's principal stockholder. In addition, the 
     principal stockholder contributed capital in the amount of $10,643.

     On October 10, 1997, the Company issued 85,000 shares of common stock to 
     a consultant in connection with his work on behalf of the Company in 
     arranging and facilitating the consummation of the Stock Purchase 
     Agreement. The Company recorded the estimated fair market value of those 
     securities at $.48 per share by a charge to additional paid-in capital.

     On April 16, 1998, the principal stockholder of the Company transferred 
     2,500 shares of his common stock to two companies for professional 
     services rendered in connection with the Company being listed on the 
     Bermuda Stock Exchange.  This was recorded as an increase in additional 
     paid-in capital and professional services.  The Company recorded the 
     estimated fair market value of those securities at $.48 per share.

4.   STOCK OPTION PLAN:

     Effective May 20, 1998, the Company adopted the 1998 Director Stock 
     Option Plan ("the Plan"). All non employee Directors are eligible to 
     participate in the Plan. The Plan shall terminate on May 19, 2008. The 
     Company has reserved 200,000 shares of common stock for issuance of 
     shares under the Plan. Under the Plan, eligible Directors shall be 
     granted on May 20, 1999 and each year thereafter, an option to purchase
     $20,000 worth of common stock. Each option granted shall be fully vested 
     on the date of grant and shall be immediately exercisable. The price per 
     share shall be the fair market value on the date of grant. The life of 
     the option is ten years from grant date; or three years following 
     retirement, non-reelection or death or disability; or six months 
     following resignation. No options have been granted under the Plan.


                                     F-11
<PAGE>

                                 DEOTEXIS, INC.
                         (A Development Stage Company)

                   NOTES TO CONDENSED FINANCIAL STATEMENTS
                                  (Unaudited)

5.   COMMITMENTS AND OTHER MATTERS:

     On April 9, 1998, the Company entered into a nonexclusive licensing 
     agreement with Kuw Hummel Vertriebs GmbH ("Hummel"), to manufacture and 
     sell certain products in Germany. The agreement is for a term of one 
     year and shall be automatically renewed. Hummel is owned 49.2% by Gerold 
     Tebbes' wife.

     Due to officer/director relates to expenses paid by Gerold Tebbe on
     behalf of the Company to another director of the Company for services.


                                      F-12

<PAGE>

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.

                                      -5-
<PAGE>

                                    PART II
                                OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

         Not Applicable.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS.

         Not Applicable.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

         Not Applicable.

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

         Not Applicable.

ITEM 5.  OTHER INFORMATION.

         The following discussion of the Company's financial condition and 
results of operations should be read in conjunction with the Financial 
Statements and Notes thereto appearing elsewhere in this Quarterly Report.

RESULTS OF OPERATIONS

         Deotexis,  Inc. (the  "Company") has not generated any revenue from  
operations and is in the  development  stage.  At September 30, 1998, the 
Company had current assets of $3,248,751, and current liabilities of 
$388,455.

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 its existence had, until October, 1997, 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, 

                                       6
<PAGE>

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 Stock Purchase Agreement closed on October 10, 1997.

         The Company develops and plans to commercialize delivery systems for 
the controlled-release and administration of drugs, cosmetics, toiletries and 
other substances. These systems are based on textiles permeated with 
microencapsulated active substances. These microencapsulated substances are 
released at a controlled rate over an extended period of time. The Company's 
goal is to become a profitable licensor of a broad array of textile-based 
controlled release delivery systems for a wide range of applications. 

          The Company's original controlled-release delivery system was 
developed by Gerold Tebbe, who filed a patent application for it in 1987. The 
application was opposed in the European patent courts by The Procter & Gamble 
Company, a leading international producer of household products. The European 
Patent Office dismissed Procter & Gamble's challenge in favor of Mr. Tebbe's 
patent claims. Following this decision, Mr. Tebbe contributed his patent to 
the Company, together with several other related patents and patent 
applications.

          To capitalize on these patents and patent applications, the Company 
is seeking to establish relationships with leading companies in each of its 
target markets. Over the next two (2) years, the Company anticipates it will 
conclude licensing agreements with a number of concerns in a wide range of 
industries, leading to profitable commercialization of its controlled-release 
delivery systems. There can be no guarantee that this goal will be achieved 
by the Company, or if achieved, will be realized in the time frame discussed
above.


DEOTEXIS TECHNOLOGIES AND PRODUCTS

         The Company's controlled-release delivery technology may be used in 
the form of adhesive patches, plasters, or cloths suffused with 
microencapsulated active substances. The Company intends to license its 
technology to corporations which are seeking new systems to deliver their 
existing products, including drugs, cosmetics, toiletries and other household 
and consumer products.

         During the past 5 years the Company has successfully developed the 
manufacturing technology required to produce, for test-marketing purposes, 
limited quantities of the "Deotexis Cold Scarf" and other proprietary 
textile-based controlled-release delivery systems. In the course of 
commercializing its patents and patent applications in the related area of 
patch and plaster technology, which has seen rapid change in recent years, 
the Company may decide it needs to license other technology from third 
parties and undertake an acquisition program to expand its manufacturing 
capabilities and stay abreast of the competition.

TARGET MARKETS AND COMPETITION

         The Company's systems have applications in a wide range of 
industries. Potential licensees of the Company's systems are corporations 
with operations in the healthcare, drug, household products, 
toiletries/cosmetics, apparel, textile, footwear and other areas. These 
companies sell their products to consumers domestically and internationally, 
in large, diverse and highly competitive markets.

         Consumers generally differentiate between controlled-release 
delivery systems on the basis of performance characteristics and price. All 
of the Company's current and future systems will face competition from 
traditional forms of delivery systems and from advanced delivery systems 
being developed by other companies. A large number of companies are involved 
in the development and commercialization of products incorporating advanced 
or new delivery systems. The field is highly competitive and the Company 
believes that competition will substantially increase in the future.

                                      7
<PAGE>

LICENSING

         To avoid the typically large costs of product development, 
manufacturing, obtaining regulatory approvals, marketing and distributing its 
products, the Company plans to follow a licensing strategy to bring its 
systems to market. Target licensees are corporations in the healthcare, drug, 
household products, toiletries/cosmetics, apparel, textile, footwear and 
other industries.

         The Company anticipates that the large majority of its potential 
customers will enter into license agreements with the Company. The Company 
anticipiates that, in return for a sales-based 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 the Company's systems. There can be no assurance 
that any license agreements with the type 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 its systems will severely 
limit the Company's ability to introduce them into the market in any 
significant way.


MANUFACTURING

         It is anticipated that the majority of the Company's future 
customers will license manufacturing rights from the Company and will 
manufacture their product requirements in their own manufacturing facilities. 
However, the Company further anticipates that a minority of potential 
licensees, while willing to enter into marketing, development and 
distribution agreements with the Company, may be unwilling or unable to 
manufacture the Company's systems themselves. To supply the requirements of 
this latter category of licensees, the Company may consider setting up or 
acquiring the facilities needed for manufacturing the Company's systems 
itself. Alternatively, the Company may sub-contract production to third party 
manufacturers. Depending on a licensee's specific requirements for 
manufactured product, the Company may seek to obtain supplies by entering 
into cooperation agreements, supply contracts, joint ventures or other 
strategic alliances with third party manufacturers. The Company has had 
preliminary discussions with several companies fitting the above 
descriptions, but there can be no assurance that any contracts or agreements 
will be consummated.

MARKETING, SALES AND DISTRIBUTION

          The Company's primary marketing, sales and distribution channel 
will be its licensees, who are expected to be large and mid-sized 
corporations in the healthcare, drug, household products, 
toiletries/cosmetics, apparel, textile, footwear and other industries.

          However, should it appear to be in the Company's best interests to 
do so, the Company may decide to manufacture certain of the products 
utilizing its proprietary controlled-release delivery systems itself, and 
distribute them through independent wholesale and retail distributors, 
pursuant to distribution agreements. If the Company decides to pursue this 
strategy, there can be no assurance that any 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 
distribute its systems will severely limit the Company's ability to introduce 
them into the market in any significant way.

                                      8
<PAGE>

MANAGEMENT

          The Company's stockholders have elected a seven-member Board of 
Directors with considerable business experience in a variety of fields. Mr. 
Gerold Tebbe will serve as the President, Chief Executive Officer and a 
director of the Company, with overall responsibility for operations. Mr. 
Tebbe will also serve as the Company's Secretary and Treasurer until such 
time as suitable personnel are retained to serve in those positions. 
Additional management and employees are to be recruited as the Company 
finalizes its corporate organization and structure, and begins to license its 
technology.

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 which 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 are believed to constitute all of 
the technology required to mass produce the Company's proprietary 
textile-based controlled-release delivery systems, including the "Deotexis 
Cold Scarf." 

          It is the Company's intention to commercially exploit its patents 
through the licensing of the Company's systems, primarily in the European 
market. In exchange for the transfer to the Company of the patents, patent 
rights and related intellectual property, the Company has agreed to pay 
Mr. Tebbe a 1% royalty per annum of all net income recognized by the Company in 
connection with the commercial exploitation of the patents and patent rights. 

          There are no assurances that the Company will ever achieve net 
income as a result of the exploitation of these intellectual property rights. 
Furthermore, if the occasion arises, the Company will have to defend against 
and/or 

                                      9
<PAGE>

institute patent infringement suits in order to protect its proprietary 
rights to the patents. Prosecution of any type of patent litigation or 
dispute may result in significant expenses for the Company.

LIQUIDITY

         Since its incorporation on March 6, 1992, the Company has had no 
business activity other than its capital raising activities, activities 
relating to its corporate organization, negotiations with potential 
licensees, partners and distributors, 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 
textile-based controlled-release delivery systems. On September 30, 1998, the 
Company had $3,248,751 of liquid assets, working capital of $2,860,296 and 
shareholders' equity of $2,860,296. The Company has not manufactured or 
licensed any of its products since inception. The Company signed an agreement 
with KuW Hummel Vertriebs GmbH, Germany, in mid-1998 that provides for Hummel 
to produce, for test-marketing in Germany, small quantities of the "Deotexis 
Cold Scarf." Hummel has yet to produce any products for the Company under 
this Agreement, as the Company continues to evaluate and assess proper 
positioning and entrance into its target markets.

CAPITAL RESOURCES

         The Company currently has cash on hand sufficient to finance the 
operation of its proposed textile-based delivery systems business, based on 
the Company's current business plan and excluding the costs of any planned 
joint venture or acquisition, for the next one to three (1-3) years. 
Thereafter, the Company anticipates meeting its working capital needs through 
internally-generated cash flow and a working capital line of credit to 
finance its operations. There can be no assurance that the Company will be 
able to maintain its business and operations without additional financing 
during the next one to three (1-3) years of operations, or that, thereafter, 
the Company will be able to generate sufficient cash flow, or secure a 
working capital line of credit in an amount sufficient to finance its 
anticipated needs or on acceptable terms.

                                     10
<PAGE>


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

(a) EXHIBITS.

         27       Financial Data Schedule.

(b) REPORTS ON FORM 8-K

         The Company filed no reports on Form 8-K during the period covered by
this Quarterly Report on Form 10-Q.











                                     11
<PAGE>

                                 SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934, 
the Registrant has duly caused this report to be signed on its behalf by the 
undersigned, thereunto duly authorized.

                                     DEOTEXIS, INC.

                                     By: /s/ Gerold Tebbe
                                        ------------------------------
                                        President, Chief Executive Officer,
                                        Secretary and Treasurer

Dated:  November 13, 1998




                                     12
<PAGE>

                                EXHIBIT INDEX



EXHIBIT                                              PAGE NUMBER
-------                                              -----------

27. Financial Data Schedule                          __