<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, 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 August 10, 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.


<PAGE>




                                 DEOTEXIS, INC.
                                    FORM 10-Q
                       FOR THE QUARTER ENDED JUNE 30, 1998

                                      INDEX
<TABLE>
<CAPTION>
                                                                                                                            Page
                                                                                                                            ----

<S>                         <C>                                                                                           <C>
PART I
                                                      FINANCIAL INFORMATION..................................................  1
         ITEM 1.           FINANCIAL STATEMENTS..............................................................................  1

                                    Index to Financial Statements..........................................................  F-1

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

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

                                    Statements of Operations for the three months ended
                                    June 30, 1998 and 1997 (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 six months ended June 30, 1998 (unaudited).................................  F-5

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

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


         ITEM 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                           FINANCIAL CONDITION AND RESULTS OF OPERATIONS.....................................................  1
         ITEM 3.           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
                           MARKET RISK.......................................................................................  1

PART II
                                                        OTHER INFORMATION....................................................  1
         ITEM 1.           LEGAL PROCEEDINGS.................................................................................  1
         ITEM 2.           CHANGES IN SECURITIES AND USE OF PROCEEDS.........................................................  1
         ITEM 3.           DEFAULTS UPON SENIOR SECURITIES...................................................................  1
         ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY
                           HOLDERS...........................................................................................  1
         ITEM 5.           OTHER INFORMATION.................................................................................  2
         ITEM 6.           EXHIBITS AND REPORTS ON FORM 8-K..................................................................  7

SIGNATURES...................................................................................................................  8
</TABLE>






                                        i

<PAGE>


                                 DEOTEXIS, INC.
                          (A Development Stage Company)

                          INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                 Page
                                                                                                 ----
<S>                                                                                                <C>
Balance Sheets at December 31, 1997 and June 30, 1998 (unaudited)                                F-2

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

Statements of Operations for the three months ended June 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 six
    months ended June 30, 1998 (unaudited)                                                       F-5

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

Notes to Financial Statements                                                                    F-8

</TABLE>



                                      F-1


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

                                 BALANCE SHEETS

                                                      ASSETS

<TABLE>
<CAPTION>

                                                                 December 31, 1997        June 30, 1998
                                                                 -----------------        -------------
                                                                                           (Unaudited)
<S>                                                                 <C>                     <C>       
Current assets:
   Cash and cash equivalents                                        $4,034,700              $1,455,359
   Treasury bills                                                                            1,911,754
   Prepaid taxes                                                         1,561                   1,561
   Prepaid insurance                                                                            70,534
                                                              ----------------            ------------
              Total assets (all current)                            $4,036,261              $3,439,208
                                                              ----------------            ------------
                                                              ----------------            ------------


                                       LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Accounts payable and accrued expenses                           $    73,097            $     93,685
   Due to officer                                                      150,787                 237,179
                                                              ----------------            ------------
              Total current liabilities                                223,884                 330,864
                                                              ----------------            ------------

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)             (1,052,888)
                                                              ----------------            ------------
              Total stockholders' equity                             3,812,377               3,108,344
                                                              ----------------            ------------

              Total liabilities and stockholders'
                equity                                              $4,036,261             $ 3,439,208
                                                              ----------------            ------------
                                                              ----------------            ------------
</TABLE>



                             See accompanying notes

                                      F-2
<PAGE>

                                 DEOTEXIS, INC.
                          (A Development Stage Company)

                            STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                      Six Months                 March 6, 1992
                                                                    Ended June 30,           (Date of Inception) to
                                                                 1997                1998         June 30, 1998
                                                          -----------         -----------         -----------

<S>                                                       <C>                 <C>                 <C>        
Interest and other income                                 $    12,931         $    84,293         $   175,691
                                                          -----------         -----------         -----------
Expenses:
   Directors fees                                                                   70,000             70,000
   Consulting                                                   7,500                                  38,125
   Rent                                                         7,500                                  38,125
   Corporation franchise taxes                                    495               9,200              16,736
   Filing fees                                                  2,217              73,408              94,691
   Amortization                                                    17                                     500
   Bank charges                                                   230                                   2,310
   Insurance                                                                       70,536              70,536
   Office                                                          12              24,163              42,315
   Professional fees                                            1,700             542,219             855,241
                                                          -----------         -----------         -----------
         Total expenses                                        19,671             789,526           1,228,579
                                                          -----------         -----------         -----------
Net loss                                                  $    (6,740)        $  (705,233)        $(1,052,888)
                                                          -----------         -----------         -----------
                                                          -----------         -----------         -----------
Basic loss per share                                      $      (.02)        $      (.15)
                                                          -----------         -----------         
                                                          -----------         -----------        
Weighted average number of
   shares outstanding                                         278,750           4,546,875
                                                          -----------         -----------         
                                                          -----------         -----------        
</TABLE>





                             See accompanying notes



                                      F-3
<PAGE>


                                 DEOTEXIS, INC.
                          (A Development Stage Company)

                            STATEMENTS OF OPERATIONS
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                          Three Months
                                                          Ended June 30,
                                                -------------------------------
                                                    1997                1998
                                                -----------         -----------
<S>                                             <C>                 <C>        
Interest and other income                       $     6,743         $    62,322
                                                -----------         -----------
Expenses:
   Directors fees                                                        70,000
   Consulting                                         3,750
   Rent                                               3,750
   Corporation franchise taxes                           64
   Filing fees                                        1,439               3,107
   Bank charges                                         155
   Insurance                                                             35,268
   Office                                                12              13,553
   Professional fees                                    650             229,468
                                                -----------         -----------
         Total expenses                               9,820             351,396
                                                -----------         -----------

Net loss                                        $    (3,077)        $  (289,074)
                                                -----------         -----------
                                                -----------         -----------

Basic loss per share                            $      (.01)        $      (.06)
                                                -----------         -----------
                                                -----------         -----------

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

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

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

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

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

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

Net loss - December 31, 1994                                                              (27,184)         (27,184)
                                             ---------- ---------   ------------     ------------     ------------
Balance - December 31, 1994                                   279        624,860          (29,012)         596,127

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

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

Net loss                                                                                  (43,737)         (43,737)
                                             ---------- ---------   ------------     ------------     ------------
Balance - December 31, 1996                                   279        624,860         (107,754)         517,385

Distributions                                                           (475,750)                         (475,750)

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

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

Capital contributed by principal
   stockholder                                                            10,643                            10,643

Net loss                                                                                 (239,901)        (239,901)
                                             ---------- ---------   ------------     ------------     ------------
Balance - December 31, 1997                   4,546,875     4,547      4,155,485         (347,655)       3,812,377
Capital contributed by
   principal stockholder (unaudited)                                       1,200                             1,200
Net loss (unaudited)                                                                     (705,233)        (705,233)
                                             ---------- ---------   ------------     ------------     ------------

Balance - June 30, 1998 (unaudited)           4,546,875    $4,547     $4,156,685      $(1,052,888)      $3,108,344
                                             ---------- ---------   ------------     ------------     ------------
                                             ---------- ---------   ------------     ------------     ------------
</TABLE>

                                                See accompanying notes



                                      F-5
<PAGE>


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

<TABLE>
<CAPTION>
                                                                     Six Months                      March 6, 1992
                                                                    Ended June 30,                (Inception) through
                                                               1997               1998               June 30, 1998
                                                           ------------       --------------      -------------------
<S>                                                        <C>                <C>                        <C>         
Cash flows from operating activities:
   Net loss                                                $ (6,740)          $  (705,233)               $(1,052,888)
   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:
       Prepaid taxes                                           (870)                                          (2,061)
       Prepaid insurance                                                          (70,534)                   (70,534)
       Accounts payable and accrued
          expenses                                           13,500                20,588                     93,685
       Due to officer, net                                                         86,392                    237,179
                                                        -----------          ------------                 ----------
Cash (used in) provided by operations                         5,907              (667,587)                  (792,919)

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)
                                                        -----------          ------------                 ----------
Net increase (decrease) in cash
   and cash equivalents                                       5,907            (2,579,341)                 1,455,359

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

Cash and cash equivalents -
   end of period                                           $536,244            $1,455,359                 $1,455,359
                                                        -----------          ------------                 ----------
                                                        -----------          ------------                 ----------

Supplemental disclosure of cash flow information: 
Cash paid during the period for:
     Income taxes                                                                  $9,200                     $9,200
                                                                             ------------                 ----------
                                                                             ------------                 ----------

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)
                            STATEMENTS OF CASH FLOWS
                                   (Unaudited)

                                   (Concluded)


<TABLE>
<CAPTION>
                                                                     Six Months                      March 6, 1992
                                                                    Ended June 30,                (Inception) through
                                                               1997               1998               June 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)

                     CONDENSED NOTES TO 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)

                     CONDENSED NOTES TO 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 June 30, 1998, Treasury Bills included on the balance sheet are for
         terms in excess of three months.

         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)

                     CONDENSED NOTES TO 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 June 4, 1992, the Company issued a total of 160,000
         shares of its common stock to its officers for a total consideration of
         $1,600 ($.01 per share).

         On June 4, 1992, the Board of Directors authorized the sale, through a
         self-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)

                     CONDENSED NOTES TO 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)

                     CONDENSED NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)



5.       COMMITMENTS AND OTHER MATTERS:

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

         During the six months ended June 30, 1998, the Company accrued expenses
         of approximately $237,179 for services provided to the Company by a
         director of the Company.


                                      F-12

<PAGE>




                                     PART I
                              FINANCIAL INFORMATION

ITEM 1.           FINANCIAL STATEMENTS.
                  See pages F-1 to F-12.

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

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

ITEM 3.           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

                  Not Applicable.


                                     PART II
                                OTHER INFORMATION


ITEM 1.           LEGAL PROCEEDINGS.

                  Not Applicable.

ITEM 2.           CHANGES IN SECURITIES AND USE OF PROCEEDS.

                  Not Applicable.

ITEM 3.           DEFAULTS UPON SENIOR SECURITIES.

                  Not Applicable.

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

                  Pursuant to proper notice duly given to each stockholder, the
Company held its 1998 Annual Meeting of Stockholders on July 17, 1998. The
following items were included in the notice as on the meeting's agenda for
stockholder action:

                  1. Election of the Company's Board of Directors. The seven
nominees for the seven-member Board were: David F. Bolger, Aubrey L. Cole, Tony
Kirk, Michael J. Rosenberg, Gerold Tebbe, Ira T. Wender and Robert F. Wright.

                  2. Ratification and approval of the 1998 Director Stock Option
Plan, the provisions of which call for the grant to each director of $20,000
worth of stock options for the Company's Common Stock each year, commencing May
20, 1999.

                  3. Ratification and approval of M.R. Weiser & Co. LLP
("Weiser") as the Company's independent accountants and auditors for the fiscal
year ending December 31, 1998.

                  The results of the voting by the stockholders with respect to
the above-described items was as follows:

                  1. Out of a total of 4,546,875 shares of Common Stock of the
Company issued and outstanding, and available to vote, each nominee for director
received 3,287,917 votes in favor, and no votes against, his nomination to the
Board of Directors of the Company.


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                  2. Out of the total of 4,546,875 shares of Common Stock of the
Company issued and outstanding, and available to vote, on the ratification and
approval of the 1998 Director Stock Option Plan, 3,282,515 votes were cast in
favor thereof, no votes were cast against, and there were 5,402 abstentions.

                  3. Out of the total of 4,546,875 shares of Common Stock of the
Company issued and outstanding, and available to vote, on the ratification and
approval of Weiser as the Company's independent accountants and auditors for the
fiscal year ending December 31, 1998, 3,284,443 votes were cast in favor
thereof, no votes were cast against, and there were 3,474 abstentions.

ITEM 5.           OTHER INFORMATION.

                  The following discussion of the Company's financial condition
and results of operations should be read in conjunction with the Financial
Statements and Notes thereto appearing 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 June 30, 1998, the Company
had current assets of $3,439,208, and current liabilities of $330,864.

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, 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 is engaged in the business of developing and
commercializing certain patented, textile-based controlled-release delivery
systems for consumer products in certain sectors of the toiletries, cosmetics,
apparel, household products and personal care products markets. The Company's
goal is to build on its patented "know-how" in research and development, and to
acquire manufacturing and marketing resources, to become a profitable supplier
of textile-based, controlled-release delivery systems to a wide range of
industry sectors. 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) enter into one or
more distribution agreements with one or more major drug and pharmaceutical
wholesale distributors, (c) either

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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, (d) 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 (e) commence an image building advertising and
public relations campaign in the personal care products industry. There can be
no assurance that any or all of these goals will be achieved by the Company.

Products

                  The products the Company is currently developing and plans 
to test-market include: (1) the "Deotexis Deodorant Patch," a small, 
disposable adhesive patch which is designed for quick and easy attachment 
to any type of clothing, for use as a controlled-release anti-perspirant 
and deodorant; (2) the "Deotexis Perfume Patch," a small, disposable adhesive 
patch designed for easy and unobtrusive attachment to the inner surface of 
clothes, for controlled-release of perfume; and (3) the "Deotexis Cold Scarf," 
a disposable scarf impregnated with herbal substances for use by persons 
seeking relief from the symptoms of colds and congestion. These three 
products are collectively referred to herein as the "Products." The Products 
will be sold as over-the-counter items and not as prescription medications. 
The Company's research and development and marketing strategy will be to 
avoid marketing any products requiring resource-intensive Food and Drug 
Administration-type approvals.

Target Markets; Manufacturing and Distribution Strategy

                  Potential customers for the Company's products are consumers
worldwide. To reach consumer markets, the Company intends to sell its products
through two separate channels. The primary channel will be distribution through
licensees, which are expected to be large and mid-sized corporations in the
toiletries, cosmetics, apparel, household products and personal care products
industries. To attempt to meet the demand that the Company anticipates will
result from customers unable or unwilling to manufacture the products
themselves, the Company hopes to acquire manufacturing capability to supply the
secondary channel of distribution: the wholesale distributors that supply
drugstores and pharmacies. The Company has had preliminary discussions with
several major companies in both categories, though there can be no assurance
that any contracts or agreements will be consummated. In addition, the Company
has recently executed a formal agreement with the German distributor, KuW Hummel
Vertriebs GmbH ("Hummel"), the company that has been manufacturing and
distributing the Deotexis Cold Scarf during the test-marketing phase of
operations, pursuant to which Hummel will continue to manufacture and distribute
the Deotexis Cold Scarf in the near term, in return for payment of licensing
fees and royalties to the Company.

Retention of Senior Management

                  Seven directors have been elected to the Company's Board of
Directors by the Company's stockholders. Mr. Gerold Tebbe will serve as the
President, Chief Executive Officer and a Director of the Company, with overall
responsibility for operations. Mr. Tebbe will also serve as the Company's
Secretary and Treasurer until such time as suitable personnel can be retained to
serve in those positions. Additional senior management of the Company to be
recruited over the course of the next six to twelve (6-12) months as the Company
finalizes its corporate organization and structure, are:

                  Parent Company Staff. To support Mr. Tebbe, the Company
expects to appoint a seasoned financial executive who will be responsible
(assuming the strategic acquisition, discussed below, occurs) at the parent
company level for accounting, consolidations, finance, cash management,
regulatory and securities law compliance, and other parent company functions.

                  Management of to-be Acquired Operating Company. To enable the
Company to supply its Products to potential customers who do not plan to license
the Company's technology to manufacture the Products themselves, it is the
Company's intention, within the next six to twelve (6-12) months, to acquire an
operating company in Europe or the United States. In addition to gaining
manufacturing capability, the Company also anticipates acquiring management
expertise through such an acquisition by employing the management of the
acquired company. If the Company succeeds in closing such an acquisition, it
plans to operate the acquired company as a subsidiary of the Company.

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                  Product Managers. As stated above, the Company intends to
acquire an operating company with manufacturing capabilities in Europe or the
United States within the next six to twelve (6-12) months, and thereafter use
the Company's Products to diversify and expand the acquired company's existing
revenue base. To manage sales of the Company's Products, the Company anticipates
hiring Product Managers. In addition, the Company hopes that, if it is able to
consummate an acquisition, as discussed above, officers and other employees of
the acquired company will have expertise in licensing products of the type the
Company plans to sell, and that the Company will be able to exploit this
expertise by placing one or more of these individuals in the position of Product
Manager for the Company's Products. It is anticipated that initially there will
be two (2) Senior Product Managers, based in Europe and the United States,
respectively, with responsibility for negotiating and completing sales and
licensing agreements with potential customers in their respective geographical
areas. The Product Managers will be selected based on their experience in the
areas of sales of consumer and personal care products, and the licensing of
technology and patents.

Licensing

                  To avoid the typically large costs of advertising and
promoting new consumer products, the Company plans to primarily follow a
licensing strategy to market and distribute its Products.

                  The Company anticipates that a large majority 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 five (5) year licenses (extendable to ten (10) years), to large and
mid-sized corporations in the apparel, cosmetics, toiletries, household products
and personal care products 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 the Company's Products.

                  To provide the Company's Products with efficient and effective
distribution channels, and also to open up additional market penetration
possibilities with respect to those potential customers who are unable or
unwilling to license the Company's technology to manufacture the Products
themselves, the Company anticipates that it will enter into agreements with drug
and pharmaceutical wholesale distributors to distribute the Company's Products
through those companies' distribution networks, specifically to pharmacies and
drugstores that purchase their over-the-counter products from the 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 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

                  Following the employment of senior management and other staff
and the finalization of its corporate organization and staffing, the Company
intends to begin a public relations campaign to build the image of the Company
in a number of its markets in Europe. The public relations campaign will be
designed to present the Company as a developer and supplier of quality,
innovative, economical controlled release products. This campaign, which the
Company anticipates will utilize the services of independent public relations
firms selected by the Company, 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.


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<PAGE>







Potential Pharmaceutical Applications for the Company's Technology

                  The Company's patented processes and proprietary technology
(known as "sustained," "programmed," "prolonged" or "timed" release systems in
the pharmaceutical industry), may have wide application for new products in the
pharmaceutical industry, particularly in the areas of diagnostic and drug
delivery systems. Controlled-release drug delivery systems are designed to
reduce the required frequency of effective drug administration, decrease dosage
quantities, and permit concentrated treatment of a specific area or organ,
without the necessity of medicating the entire body.

                  If the potential pharmaceutical applications for the Company's
Products appear promising, the Company intends to license its technology to
these companies for use in their controlled-release and diagnostic systems, in
return for a sales-based royalty payment. The Company continues to closely
follow and assess developments in this field, and intends to capitalize on any
opportunities to incorporate the Company's technology into these systems. There
can, however, be no assurance that any applications for the Company's technology
in the pharmaceutical area will be developed, and if developed, that such
products will receive the necessary regulatory approvals. Moreover, even if any
products developed using the Company's technology gain the required regulatory
approvals, there can be no assurance that any such products will be marketed by
the pharmaceutical companies, and if marketed, will prove to be profitable.

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 Products. It is the Company's intention to
commercially exploit the patents through the introduction and sale of the
Company's Products, primarily into the European market. In exchange for the
transfer to the Company of the patents, patent rights and related intellectual
property, the Company has agreed to pay Mr. Tebbe a 1% royalty per annum of all
net income recognized by the Company in connection with the commercial
exploitation of the patents and patent rights. There are no assurances that the
Company will ever achieve net income as a result of the commercial exploitation
of these intellectual property rights. Furthermore, if the occasion arises, the
Company will have to defend against and/or institute patent infringement suits
in order to protect its proprietary rights to the patents. Prosecution of any
type of patent litigation or dispute may result in significant expenses for the
Company.

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, negotiation and execution of the Hummel
license, negotiations with other potential licensees 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 Products. On June 30, 1998, the Company 
had $3,439,208 of liquid assets, working capital of $3,108,344 and 
shareholders' equity of $3,108,344. The Company has not manufactured or 
licensed any of its Products since inception; however, as stated above, 
the Company has arranged for Hummel to manufacture and distribute
small quantities of the Company's Products in connection with test-marketing and
promotional activities, and the Company has executed a Licensing Agreement with
Hummel to continue producing Products for the Company to meet anticipated demand
over the next six to twelve (6-12) months.


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<PAGE>







Capital Resources

                  The Company currently has cash on hand sufficient to finance
the operation of its proposed personal care products business, based on the
Company's current business plan and excluding the costs of any planned
acquisitions, 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 first 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.


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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.



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                                   SIGNATURES

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



DEOTEXIS, INC.


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

Dated:  August 14, 1998



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                                 EXHIBIT INDEX
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EXHIBIT                                                      PAGE NUMBER
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27. Financial Data Schedule                                  --