AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 31, 2001
REGISTRATION NO. ___-_______

U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

E-REX, INC.
(Name of small business issuer in its charter)

NEVADA 9995 88-0292890
(State or jurisdiction (Primary Standard (I.R.S. Employer
of incorporation Industrial Classification Identification No.)
or organization Code Number)

11645 BISCAYNE BOULEVARD
SUITE 210
MIAMI, FLORIDA 33181 (305) 895-3350
(Address of principal executive offices
and intended principal place of business) (Telephone number)

Carl E. Dilley, President
11645 Biscayne Boulevard, Suite 210
Miami, Florida 33181
(305) 895-3350
(Name, address, and telephone
number of agent for service)

COPIES TO:

Brian A. Lebrecht, Esq.
The Lebrecht Group, APLC
22342 Avenida Empresa, Suite 230
Rancho Santa Margarita, California 92688
(949) 635-1240

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ X ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]

CALCULATION OF REGISTRATION FEE

TITLE OF EACH PROPOSED PROPOSED
CLASS OF. . . . . . . . . . AMOUNT MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO BE. . . . . . TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED. . . . . . . . . REGISTERED PER UNIT (1) OFFERING PRICE FEE
--------------------------- --------------- ---------------- --------------- -------------

Common Stock 30,000,000 (2) $ 0.0275 $ 825,000.00 $ 217.80
--------------- ---------------- --------------- -------------

Common Stock
2,700,000 (3) $ 0.041 $ 110,700.00 $ 29.23
--------------- ---------------- --------------- -------------

Total Registration Fee $ 247.03
--------------------------- --------------

(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, as amended
(the "Act"), based on the average of the closing bid and ask prices for
our common stock as reported on the OTC Electronic Bulletin Board on
October 24, 2001.
(2) Includes up to an aggregate of 30,000,000 shares of our common stock
issuable as put shares to Swartz Private Equity, LLC pursuant to the
Investment Agreement.
(3) Includes 2,700,000 shares of our common stock issuable upon exercise of
warrants issued to Swartz.

The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

PROSPECTUS

Up to 32,700,000 shares of common stock

E-REX, INC.

E-Rex is registering up to 32,700,000 shares for sale by:

- Swartz Private Equity, LLC, who may acquire up to 30,000,000 shares under
the equity line agreement with E-Rex. Swartz is an underwriter with
respect to these shares.

- Swartz Private Equity, LLC, who may acquire up to 2,700,000 shares upon
the exercise of warrants issued to them.

INVESTING IN THE COMMON STOCK INVOLVES RISKS. E-REX IS A DEVELOPMENT STAGE
COMPANY WITHOUT ANY SIGNIFICANT OPERATIONS, IS IN UNSOUND FINANCIAL CONDITION,
AND YOU SHOULD NOT INVEST UNLESS YOU CAN AFFORD TO LOSE YOUR ENTIRE INVESTMENT.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

All of the common stock registered by this prospectus will be sold by the
selling shareholders on their own behalf at the prevailing market price when
they are sold. We will receive no proceeds from the sale of the shares by the
selling shareholders.

Based upon the formula set forth in our investment agreement with Swartz,
current market prices, and our daily trading volume, we may be able to access up
to $15,000,000 from the future sale of our shares to Swartz under our equity
line, and may receive up to $110,700 upon the exercise of all warrants issued to
Swartz. We are not required to sell any shares to Swartz under the equity line,
and we may decide not to do so. A description of this formula and the investment
agreement is found beginning on page 11 of this prospectus.

Our common stock is quoted on the over-the-counter electronic bulletin
board under the symbol "EREX." On October 24, 2001, the average of the bid and
asked prices of our common stock was $0.0275 per share.

THE DATE OF THIS PROSPECTUS IS _______, 2001

PROSPECTUS SUMMARY

This summary highlights information found in greater detail elsewhere in
this prospectus. This summary is not complete and does not contain all of the
information you should consider before investing in our common stock. You
should read the entire prospectus carefully, including the "Risk Factors."

ABOUT OUR COMPANY

We were incorporated in Nevada on August 26, 1986 as P.R. Stocks, Inc.
Since that time, we have had three name changes and been the surviving
corporation in one merger:

- On February 26, 1992, we changed our name to National Health & Safety
Corporation;

- On November 12, 1992, we changed our name to Medgain International
Corporation;

- On June 20, 1994, we changed our name to E-Rex, Inc.; and

- On February 20, 1999, we merged with Plantech Communications Systems,
Inc., a British Columbia, Canada corporation. Plantech was a
development stage company in the software, computer, and Internet
business that had no revenues.

We are a development stage company with an $11,422,153 accumulated deficit
as of December 31, 2000. We do not have any significant operating history or
revenues, and our independent accountant has qualified his report, noting that
our significant losses raise substantial doubt about our ability to continue in
business.

Our primary product is the Dragonfly, a portable, multi-function color
printer, copier, fax and scanner with Internet and e-mail capabilities. We are
presently completing the initial prototypes of the Dragonfly. We are not
currently generating any revenues from the sale of the Dragonfly product, and do
not expect to generate any revenues from it during this fiscal year. We
currently generate a limited amount of income from our Internet consulting
business, which is not our primary business.

Our executive offices are located at 11645 Biscayne Boulevard, Suite 210,
Miami, Florida 33181. Our telephone number is (305) 895-3350 and our website
address is www.e-rex.net. Information contained on our website or on any other
website does not constitute a part of this prospectus.

ABOUT OUR INVESTMENT AGREEMENT WITH SWARTZ

We have entered into an investment agreement with Swartz Private Equity,
LLC to raise up to $15 million through a series of sales of our common stock.
The dollar amount of each sale is limited by our common stock's price, trading
volume, and a minimum period of time that must elapse between each sale. Each
sale will be to Swartz. In turn, Swartz will either hold our stock in its own
portfolio, sell our stock in the open market, or place our stock through
negotiated transactions with other investors. This prospectus covers the resale
of our stock by Swartz either in the open market or to other investors. The
investment agreement provides, in summary:

- from time to time at our request, Swartz will purchase from us that
number of shares of our common stock equal to 15% of the number of
shares traded in the market in the 20 business days immediately before
the date of the requested purchase, excluding certain block trades, or
15% of the number of shares traded in the 20 business days preceding
the date of our advance notice of our put right, excluding certain block
trades, whichever is less;

- the purchase price per share is the lesser of 91% of the lowest closing
bid price per share during the 20 Business days after our request, or
that closing bid price minus $0.075, but in no event will the purchase
price be less than the minimum price we select in our sole
discretion;

- Swartz will not be required to purchase at any one time shares having a
value in excess of $2,000,000;

- we may make additional requests at intervals of approximately 30 days;

- as a commitment fee, we granted to Swartz commitment warrants to
purchase 2,700,000 shares of our common stock, which warrants can be
exercised at $0.041 per share (subject to potential future adjustment)
through September 22, 2007.

- the commitment warrants exercise price is reset to the lowest closing
price of our common stock during the five trading days ending on the
six month anniversary of the warrant issuance date, if the lowest price
is lower than the then-current exercise price;

- Swartz can only exercise its commitment warrants to the extent that,
after exercise, Swartz does not own more than 4.99% of our
outstanding shares;

- the commitment warrants are subject to antidilution provisions, in the
case of stock splits.

Our agreement with Swartz is not a convertible debenture, convertible
preferred stock, or similar type of investment instrument. In addition, we are
not borrowing from Swartz as with a conventional cash line of credit. Rather,
subject to the limitations set forth above, our agreement with Swartz permits us
to decide, in our sole discretion (subject to penalties for non-use), whether
and the extent to which we wish to require that Swartz purchase our stock.
Until our registration statement is declared effective, we have no plans to sell
shares to Swartz, and we are currently in compliance with the terms of the
investment agreement.

THE OFFERING

Common stock outstanding
prior to this offering 32,296,890 shares (1)

Common stock offered for
resale to the public 32,700,000 shares (2)

Common stock outstanding
after this offering 64,996,890 shares

Percentage of common stock outstanding
after this offering represented by shares
offered for resale to the public 50.3%

(1) Does not include 2,700,000 shares underlying commitment warrants issued
to Swartz.

(2) Includes up to 30,000,000 shares that may be issued to Swartz pursuant
to the Investment Agreement, and 2,700,000 shares underlying
commitment warrants issued to Swartz.

RISK FACTORS

Any investment in our common stock involves a high degree of risk. You
should consider carefully the following information, together with the other
information contained in this prospectus, before you decide to buy our common
stock. If any of the following events actually occurs, our business, financial
condition or results of operations would likely suffer. In this case, the
market price, if any, of our common stock could decline, and you could lose all
or part of your investment in our common stock.

We have a history of operating losses and limited product revenues, we
expect these losses to continue, and we may never become profitable.

We have a limited operating history upon which potential investors may
evaluate our performance. To date, we have generated an accumulated deficit of
more than $11,472,153. For the years ended December 31, 2000 and 1999, we
incurred net losses of $8,042,853 and $464,436, respectively, and for the six
months ended June 30, 2001, our net loss was $1,912,721. We expect that our
operating expenses will increase over the next few years as we continue to
develop and market our Dragonfly product, and as a result we expect losses to
continue. In addition, our future operations may not be profitable. We must
consider the likelihood of our success relative to the problems, difficulties,
complications, and delays frequently encountered in connection with the
development and operation of a new business.

If we do not obtain adequate financing to fund our future operations and to
complete development of our Dragonfly product, we may not be able to
successfully implement our business plan.

We do not yet have a prototype of our Dragonfly product, and as a result we
have not generated any revenues from the sale of the Dragonfly, and do not
expect to during this fiscal year. We have funded a large portion of our
operations through the issuance of stock to employees and consultants, and
unless we are successful in obtaining financing through our investment agreement
with Swartz, we will continue to do so. If we do not obtain adequate financing,
we cannot continue the development of our Dragonfly product. If we are
successful in obtaining financing from Swartz, we estimate that our net proceeds
from this offering will satisfy our capital requirements for at least the next
24 months.

Although it is difficult to estimate the amount of additional financing we
will require, we anticipate that over the next two years we will need
approximately $300,000 to complete the development of the Dragonfly, $2,500,000
for marketing and sales expenses, and $3,200,000 for general working capital
expenses. We anticipate that our cash requirements for the next two years may
need to come primarily from the proceeds of the investment agreement with
Swartz. However, our ability to raise funds under the investment agreement is
subject to certain conditions. These conditions include the continuing
effectiveness of a registration statement covering the resale of the shares sold
under agreement, and a limitation on the number of shares we may issue based on
the volume of trading in our common stock. If we are not able to satisfy these
conditions, we will not be able to implement our business plan.

We have not generated any revenues from our Dragonfly product and do not
expect to be profitable for several more years.

For the year ended December 31, 2000, we generated a total of $7,524 in
revenues, all of which was consulting fees related to our Internet consulting
division. For the six months ended June 30, 2000, our consulting division
generated $37,038 in revenues, representing all of our revenues for the period.
We do not expect to generate any revenues from our Dragonfly product this fiscal
year, and when we do begin to generate revenues from the product, we do not
expect to be profitable for several years, if at all.

If our primary product, the Dragonfly, does not obtain widespread market
acceptance, our sales and profitability will suffer.

We are relying on the success of one primary product, the Dragonfly. If
this product is not widely accepted by the marketplace, we may not generate
sufficient revenues to sustain operations, and may not be profitable.

We do not have a patent on our product, and as a result it may be
duplicated by a competitor.

We have conducted a patent study on the hardware and operating system of
the Dragonfly, and have determined that it is unlikely that some or all of the
product may be able to be protected by patents. Although the operating system,
circuit boards, control systems, and Internet interface are proprietary to
E-Rex, we cannot be certain that others will not independently develop or market
substantially similar products in competition with the Dragonfly.

There is intense competition for our product from substantially larger and
more established companies, which may make it impossible for us to compete.

We believe that no other company manufacturers a product exactly like the
Dragonfly. If released, the Dragonfly will compete with other portable devices
from well-known companies such as Hewlett-Packard, Cannon, Brother, Docuport,
Palm, and Xerox. Although our management believes that our product is superior
in functionality, those companies, as well as future competitors, have
substantially more financial and technical resources than us and have
established a reputation in the industry. As a result of intense competition
from larger, well-known and well-financed companies, we may not be able to
successfully market our product.

We have limited personnel and we must attract and retain qualified
employees to succeed in our business plan.

We currently have only three employees. In order to finish the development
of our Dragonfly, and market it, we need to recruit and retain professional and
technical staff. Unless we are successful in obtaining the financing in this
offering, we will not have the resources to attract the necessary personnel, and
we will not be successful in implementing our business plan.

Our auditors have expressed substantial doubt about our ability to continue
as a going concern, which ability is dependent on the net proceeds of this
offering.

Our auditors, in their independent auditors' report, have expressed
substantial doubt about our ability to continue as a going concern based on
significant operating losses we have incurred since inception. Our financial
statements include an accumulated deficit of $11,422,153 as of December 31, 2000
and other indications of weakness in our present financial position. Without
the net proceeds from this offering, our ability to remain in business will be
in jeopardy.

The substantial number of shares of our common stock that are eligible for
future sale in the public market could adversely affect prevailing market prices
of our common stock or limit our ability to raise additional capital.

Future sales of substantial amounts of our common stock in the public
market, or the perception that these sales might occur, could adversely affect
the prevailing market price of our common stock or limit our ability to raise
additional capital. We currently have 32,296,890 shares of our common stock
issued and outstanding, and over 11,838,000 shares of our common stock are
reserved for issuance upon the exercise of outstanding options and warrants.
Upon effectiveness of the registration statement of which this prospectus is a
part, we may issue up to an additional 30,000,000 shares of common stock,
representing an increase of over 92% in the issued and outstanding shares.

Our stock price will fluctuate after this offering, which could result in
substantial losses for investors.

The market price for our common stock may fluctuate significantly in
response to a number of factors, some of which are beyond our control. These
factors include:

- Quarterly variations in operating results;
- Changes in financial estimates by securities analysts;
- Announcements by us or our competitors of new products, significant
contracts, acquisitions or strategic relationships;
- Disputes concerning our technology proprietary rights;
- Publicity about our company, management, products or our competitors;
- Additions or departures of key personnel;
- Any future sales of our common stock or other securities; and
- Stock market price and volume fluctuations of publicly-traded companies.

These and other external factors have caused and may continue to cause the
market price and demand for our common stock to fluctuate substantially, which
may limit or prevent investors from readily selling their shares of common stock
and may otherwise negatively affect the liquidity of our common stock.

In the past, securities class action litigation has often been brought
against companies following periods of volatility in the market price of their
securities. If securities class action litigation is brought against us it
could result in substantial costs and a diversion of our management's attention
and resources, which could hurt our business.

The exercise of our put rights may lower the market price of our common
stock and substantially dilute the interests of other holders of our common
stock.

As we exercise our put rights, we will be required to issue shares of our
common stock to Swartz at a price below the prevailing market price of our
common stock.

The shares issuable to Swartz upon exercise of our put rights will be
issued at a price equal to the lesser of (a) the market price for our common
stock minus $0.075 or (b) 91% of the market price for our common stock.
Accordingly, we will issue the shares issuable to Swartz upon exercise of our
put rights at a rate that will be below the market price of our common stock.

The sale of material amounts of our common stock could reduce the price of
our common stock and encourage short sales.

As we sell shares of our common stock to Swartz pursuant to our put rights
and if, and to the extent that Swartz sells our common stock, our common stock
price may decrease due to the additional shares in the market. As the price of
our common stock decreases, and if we decide to exercise our right to put shares
to Swartz, we will be required to issue more shares of our common stock upon
exercise of our put rights for any given dollar amount invested by Swartz,
subject to a designated minimum put price specified by us and a minimum
designated number of shares to be purchased. This may encourage short sales,
which could place further downward pressure on the price of our common stock.

The exercise of our put rights may substantially dilute the interests of
other holders.

The shares of our common stock issuable upon exercise of our put rights
will be available for sale immediately upon issuance. Accordingly, subject to
(a) any designated minimum put price we may specify, (b) any minimum number of
shares which we choose to put and (c) any volume limitations, as further
described under "Selling Shareholders," the exercise of our put rights may
result in substantial dilution to the interests of the other holders of our
common stock and the price of our common stock may decrease which would entitle
the selling shareholder to receive a greater number of shares of our common
stock upon exercise of our put rights.

The exercise of outstanding options and warrants may adversely affect our
stock price and your percentage ownership.

There are currently outstanding options and warrants to purchase at least
11,838,000 shares of our common stock, (including the 2,700,000 warrants already
issued to Swartz in connection with the investment agreement). In the future,
we may grant more warrants or options under stock option plans or otherwise.
The exercise of stock options and warrants that are presently outstanding or may
be issued in the future will dilute the percentage ownership of our other
shareholders.

Because we are subject to the "penny stock" rules, the level of trading
activity in our stock may be reduced.

Our common stock is traded on the OTC Electronic Bulletin Board.
Broker-dealer practices in connection with transactions in "penny stocks" are
regulated by certain penny stock rules adopted by the Securities and Exchange
Commission. Penny stocks, like shares of our common stock, generally are equity
securities with a price of less than $5.00, other than securities registered on
certain national securities exchanges or quoted on Nasdaq. The penny stock
rules require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from the rules, to deliver a standardized risk disclosure
document that provides information about penny stocks and the nature and level
of risks in the penny stock market. The broker-dealer also must provide the
customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction, and,
if the broker-dealer is the sole market maker, the broker-dealer must disclose
this fact and the broker-dealer's presumed control over the market, and monthly
account statements showing the market value of each penny stock held in the
customer's account. In addition, broker-dealers who sell these securities to
persons other than established customers and "accredited investors" must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written agreement to the transaction.
Consequently, these requirements may have the effect of reducing the level of
trading activity, if any, in the secondary market for a security subject to the
penny stock rules, and investors in our common stock may find it difficult to
sell their shares.

Forward Looking Statements. Except for historical information, the
discussion in this registration statement contains some forward-looking
statements that involve risks and uncertainties. These statements may refer to
our future plans, objectives, expectations and intentions. These statements may
be identified by the use of the words such as "expect," "anticipate," "believe,"
"intend," "plan" and similar expressions. Our actual results could differ
materially from those anticipated in such forward-looking statements.

USE OF PROCEEDS

We will not receive any proceeds from the resale of our common stock by the
selling shareholders. We may, however, receive proceeds from the sale of our
common stock to Swartz pursuant to the Investment Agreement and, if exercised,
we will receive proceeds from the sale of shares to Swartz upon their exercise
of warrants. If all shares of common stock in this offering to Swartz are sold,
and the warrants are exercised, we estimate that we will receive net proceeds of
approximately $15,110,700.

We intend to use the net proceeds from this offering as follows:

Offering Costs $ 214,250
Completion of Dragonfly Prototype $ 300,000
Payment of Accounts Payable $ 800,000
Marketing and Advertising $ 6,000,000
Research and Development $ 2,775,000
Other Working Capital Requirements $ 5,021,450
Total $15,110,700
-----------

Pending the use of any proceeds as discussed above, we intend to invest
these funds in short term, interest bearing, investment-grade obligations.

SELLING SECURITY HOLDERS

The following table sets forth certain information as of the date of this
prospectus, with respect to Swartz and the other selling shareholders for whom
we are registering shares for resale to the public. Swartz and the other
selling shareholders propose selling all of their shares, in which case each
would beneficially own no shares after the offering. Except as set forth below,
none of the selling shareholders currently is an affiliate of ours, and none of
them has had a material relationship with us during the past three years. None
of the selling shareholders are or were affiliated with registered
broker-dealers. An asterisk indicates that their common stock ownership is less
than one percent.

Name Shares Owned Prior Shares to be Sold Shares to be Owned % Owned After
to the Offering in the Offering After the Offering the Offering (1)
-------------------------- ------------------ ----------------- -------------------- ----------------
Swartz Private Equity, LLC 32,700,000 (2) 32,700,000 (2) -0- -0-

------------------ ----------------- -------------------- ----------------
Totals 32,700,000 32,700,000 -0- -0-

(1) Based on 32,296,890 shares of our common stock issued and outstanding
as of October 24, 2001.

(2) Represents up to 30,000,000 shares of our common stock that we may
sell to Swartz pursuant to the Investment Agreement and 2,700,000
shares of our common stock that we may issued to Swartz upon their
exercise of warrants. It is expected that Swartz will not own
beneficially more than 9.9% of our outstanding common stock at any
time. The Manager of Swartz is Eric S. Swartz.

Swartz Investment Agreement

On December 22, 2000, we entered into an Investment Agreement with Swartz,
on March 3, 2001 we entered into an Amended and Restated Investment Agreement
with Swartz, and on September 27, 2001 we entered into a Second Amended and
Restated Investment Agreement with Swartz. The investment agreement entitles us
to issue and sell our common stock to Swartz for up to an aggregate of $15
million from time to time during a three-year period beginning on the date that
this registration statement is declared effective. Each election by us to sell
stock to Swartz is referred to as a put right.

Put Rights. In order to invoke a put right, we must have an effective
registration statement on file with the SEC registering the resale of shares of
our common stock that may be issued as a consequence of the exercise of our put
right. We must also give at least ten but no more than 20 business days advance
notice to Swartz of the date on which we intend to exercise a particular put
right and we must indicate the maximum number of shares of our common stock that
we intend to sell to Swartz. At our option, we may also designate a maximum
dollar amount of our common stock (not to exceed $2 million) that we will sell
under the put and/or a minimum purchase price per common share at which Swartz
may purchase shares under the put. The number of shares of our common stock
sold to Swartz in a put may not exceed the lesser of

- 1.5 million shares;
- 15% of the aggregate daily reported trading volume of our common stock,
excluding certain block trades of our common stock, during the 20
business days after the date of our put notice, excluding any trading
days in which the common stock trades below a minimum price, if any,
that we specify in our put notice;
- 15% of the aggregate daily reported trading volume of our common stock
during the 20 business days before the put date, excluding certain
block trades; or
- a number of shares that, when added to the current number of shares
acquired by Swartz under the investment agreement during the 61
days preceding the put date, would exceed 9.99% of the total number of
shares of our common stock outstanding.

For each share of our common stock, Swartz will pay us the lesser of:

- The market price for such share, minus $0.075; or
- 91% of the market price for the shares;

provided, however, that Swartz may not pay us less than the designated minimum
per share price, if any, that we indicate in our notice. We estimate that we
will make no more than twelve puts per year to Swartz. We estimate that we will
put to Swartz up to a total of 30,000,000 shares of our common stock over the
next three years, subject to restrictions based upon trading volume.

Market price is defined as the lowest closing bid price for our common
stock on its principal market during the pricing period. The pricing period is
defined as the 20 business days immediately following the date we exercise the
put right.

The following is an example of the calculation of a put we would issue to
Swartz in connection with that put based on hypothetical assumptions:

Sample drawdown amount calculation:

For purposes of this example, suppose for our first put we provide a put
notice to Swartz, and that we set the threshold price at $0.20 per share, below
which we will not sell any shares to Swartz during this purchase period.
Suppose further that the total daily trading volume for the 20 trading days
immediately preceding the put date is 3,000,000 shares with no block trades
exceeding 20,000 or more shares. Under these hypothetical numbers, the maximum
amount of shares that could be sold to Swartz is as follows:

- the total trading volume for the 20 days prior to our put notice
(3,000,000 shares) multiplied by 15% equals 450,000

If the total daily trading volume for the 20 trading days during the actual
purchase period was greater than 3,000,000 (like our example that follows) then
the maximum amount of shares that could be sold will be 450,000.

Sample calculation of number of shares:

For example, for the first trading day in the example in the table below,
the calculation is as follows: multiply 15% times the total shares traded
(500,000) to get 75,000 shares. Perform this calculation for each of the 20
trading days during the purchase period, excluding any days on which daily
trading price traded below the $0.20 threshold price set by us. In the table
below there are no days which must be excluded.

Closing Bid Total Number of
Trading Day Price ($) (1) Shares Traded Shares Sold
----------- ------------- ------------- -----------
1 . . . . . 0.25 500,000 75,000
----------- ------------- ------------- -----------
2 . . . . . 0.25 213,000 31,950
3 . . . . . 0.27 276,000 41,400
4 . . . . . 0.27 145,000 21,750
5 . . . . . 0.25 180,000 27,000
6 . . . . . 0.22 399,000 59,850
7 . . . . . 0.25 120,000 18,000
8 . . . . . 0.22 55,000 8,250
9 . . . . . 0.22 129,000 19,350
10. . . . . 0.23 72,000 10,800
11. . . . . 0.28 9,000 1,350
12. . . . . 0.28 2,000 300
13. . . . . 0.25 51,000 7,650
14. . . . . 0.27 11,000 1,650
15. . . . . 0.27 24,000 3,600
16. . . . . 0.25 48,000 7,200
17. . . . . 0.27 343,000 51,450
18. . . . . 0.28 412,000 61,800
19. . . . . 0.30 25,000 3,750
20. . . . . 0.30 85,000 12,750
Totals: 3,099,000 464,850
------------- -----------

(1) The share prices are illustrative only and should not be
interpreted as a forecast of share prices or the expected or historical
volatility of the share prices of our common stock.

The total number of shares that we would issue to Swartz for this put would
be 450,000 shares, which was previously calculated as the maximum of shares that
could have been sold based on multiplying 15% by the total trading volume for
the 20 trading days prior to the put date (even though 15% multiplied by the
total shares traded during the purchase period equals 464,850). Swartz will
purchase the shares at a purchase price equal to the lesser of: the market price
for the applicable pricing period (market price is defined as the lowest closing
bid price during the pricing period) minus $0.075 or 91% of the market price.
In this case Swartz would pay $.145 per share for 450,000 shares equaling
$65,250. There is no placement agent involved in this transaction to receive
any other fees.

We are registering 30,000,000 shares to be sold to Swartz in puts.
Therefore, in order for the Company to receive $15,000,000, the average sale
price of these shares would need to be $.50. Unless our share price increases
drastically, we will need to register additional shares in order to access the
$15,000,000 maximum.

Limitation and Conditions Precedent to Our Put Rights. We may not initiate
a put if, as of the proposed date of such put:

- we have issued shares of our common stock that have been paid for by
Swartz and is equal to the maximum offering amount;
- the registration statement covering the resale of the shares becomes
ineffective or unavailable for use;

- our common stock is not actively trading on the OTC Bulletin Board, the
Nasdaq Small Cap Market, the Nasdaq National Market, the American Stock
Exchange, or the New York Stock Exchange, or is suspended or delisted
with respect to the trading on such market or exchange.

If any of the following events occur during the pricing period for a put,
the volume accrual shall cease. For the put, the pricing period shall be
adjusted to end 10 business days after the date that we notify Swartz of the
event, and any minimum price per share we specified shall not apply to the put
if:

- we have announced or implemented a stock split or combination of our
common stock between the advanced put notice date and the end of
the pricing period;

- we have paid a common stock dividend or made any other distribution of
our common stock between the advanced put notice date and the end of
the pricing period;

- we have made a distribution to the holders of our common stock or of all
or any portion of our assets or evidences of indebtedness between the
put notice date and the end of the pricing period;

- we have consummated a major transaction (including a transaction which
constitutes a change of control) between the advance put notice date
and the end of the pricing period, the registration statement covering
the resale of the shares becomes ineffective or unavailable for use,
or our stock becomes delisted for trading on our then primary
exchange; or

- we discover the existence of facts that cause us to believe that the
registration statement of which this prospectus is a part contains
an untrue statement or omits to state a material fact.

Short Sales. Swartz and its affiliates are prohibited from engaging in
short sales of our common stock unless Swartz has received a put notice under
which shares have not yet been issued and the amount of shares involved in the
short sale does not exceed the number of shares specified in the put notice.

Cancellation of Puts. We must cancel a particular put between the date of
the advance put notice and the last day of the pricing period if:

- We discover an undisclosed material fact which would cause the
registration statement not to be current and effective until the
registration statement was amended or supplemented to incorporate such
fact;

- The registration statement registering the resale of our common stock
becomes ineffective; or

- Our common stock is de-listed from the then-primary exchange.

Shareholder Approval. Under the investment agreement, we may sell Swartz a
number of shares that is more than 20% of our shares outstanding on the date of
this prospectus. If we become listed on the NASDAQ Small Cap Market or NASDAQ
National Market, we may be required to obtain shareholder approval to issue some
or all of the shares to Swartz. As our common stock is currently traded on the
OTC Bulletin Board, we do not need shareholder approval.

Termination of Investment Agreement. We may terminate our right to initiate
further puts or terminate the investment agreement at any time by providing
Swartz with notice of such intention to terminate; however, any such termination
will not affect any other rights or obligations we have concerning the
investment agreement, the Commitment Warrants, or any related agreement.

Commitment and Termination Fees

If we do not put at least $1,000,000 worth of common stock to Swartz during
each six month period following the effective date of the Swartz investment
agreement, we must pay Swartz a semi-annual non-usage fee. This fee equals the
difference between $100,000 and 10% of the value of the shares of common stock
we put to Swartz during the six month period.

If the Swartz investment agreement is terminated, we must pay Swartz the
greater of (i) the non-usage fee described above, or (ii) the difference between
$200,000 and 10% of the value of the shares of common stock put to Swartz during
all puts to date.

Restrictive Covenants. During the term of the investment agreement and for
a period of sixty days after the investment agreement is terminated, we are
prohibited from engaging in certain transactions. These include the issuance of
any equity securities, or debt securities convertible into equity securities, in
an amount exceeding $3,000,000 in a private transaction without the prior
written approval of Swartz. We are also prohibited from entering into any
private equity line-type agreements similar to the investment agreement without
obtaining Swartz's prior written approval.

Right of First Refusal. Swartz has a right of first refusal to participate
in any private capital raising transaction of equity securities that closes on
or prior to sixty days after the termination of the investment agreement.

Swartz's Right of Indemnification. We have agreed to indemnify Swartz
(including its stockholders, officers, directors, employees, investors and
agents) from all liability and losses resulting from any misrepresentations or
breaches we make in connection with the investment agreement, our registration
rights agreement, other related agreements, or the registration statement.

PLAN OF DISTRIBUTION

Each selling shareholder is free to offer and sell his or her shares of our
common stock at such times, in such manner and at such prices as he or she may
determine. The types of transactions in which the shares of our common stock
are sold may include transactions in the over-the-counter market (including
block transactions), negotiated transactions, the settlement of short sales of
our common stock, or a combination of such methods of sale. The sales will be
at market prices prevailing at the time of sale or at negotiated prices. Such
transactions may or may not involve brokers or dealers. The selling
shareholders have advised us that they have not entered into agreements,
understandings or arrangements with any underwriters or broker-dealers regarding
the sale of their shares. The selling shareholders do not have an underwriter
or coordinating broker acting in connection with the proposed sale of our common
stock.

The selling shareholders may sell their shares directly to purchasers or to
or through broker-dealers, which may act as agents or principals. These
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the selling shareholders. They may also receive compensation
from the purchasers of our common stock for whom such broker-dealers may act as
agents or to whom they sell as principal, or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions).

Swartz is, and each remaining selling shareholder and any broker-dealer
that assists in the sale of our common stock may be deemed to be, an
"underwriter" within the meaning of Section 2(a)(11) of the Securities Act of
1933. Any commissions received by such broker-dealers and any profit on the
resale of the shares of our common stock sold by them while acting as principals
might be deemed to be underwriting discounts or commissions. The selling
shareholders may agree to indemnify broker-dealers for transactions involving
sales of our common stock against certain liabilities, including liabilities
arising under the Securities Act.

Because Swartz is, and each remaining selling shareholder may be deemed to
be, an underwriter within the meaning of Section 2(a)(11) of the Securities Act,
the selling shareholders will be subject to prospectus delivery requirements.

We have informed Swartz that the anti-manipulation rules of the SEC,
including Regulation M promulgated under the Securities Exchange Act of 1934,
will apply to its sales in the market, and we have informed the other selling
shareholders that these anti-manipulation rules may apply to their sales in the
market. We have provided all of the selling shareholders with a copy of such
rules and regulations.

Regulation M may limit the timing of purchases and sales of any of the
shares of our common stock by the selling shareholders and any other person
distributing our common stock. The anti-manipulation rules under the Securities
Exchange Act may apply to sales of shares of our common stock in the market and
to the activities of the selling shareholders and their affiliates.
Furthermore, Regulation M of the Securities Exchange Act may restrict the
ability of any person engaged in the distribution of shares of our common stock
to engage in market-making activities with respect to the particular shares of
common stock being distributed for a period of up to five business days prior to
the commencement of such distribution. All of the foregoing may affect the
marketability of our common stock and the ability of any person or entity to
engage in market-making activities with respect to our common stock.

Rules 101 and 102 of Regulation M under the Securities Exchange Act, among
other things, generally prohibit certain participants in a distribution from
bidding for or purchasing for an account in which the participant has a
beneficial interest, any of the securities that are the subject of the
distribution. Rule 104 of Regulation M governs bids and purchases made to
stabilize the price of a security in connection with a distribution of the
security.

The selling shareholders, other than Swartz, also may resell all, or a
portion, of the common shares in open market transactions in reliance upon Rule
144 under the Securities Act, provided they meet the criteria and conform to the
requirements of such Rule. Swartz may not rely upon Rule 144 since Swartz is an
underwriter within the meaning of Section 2(a)(11) of the Securities Act and the
safe-harbor provided by Rule 144 is not available to underwriters of our common
stock.

Swartz and the other selling stockholders will pay all commissions,
transfer taxes and other expenses associated with their sales. The shares
offered hereby are being registered pursuant to our contractual obligations, and
we have agreed to pay the expenses of the preparation of this prospectus.

LEGAL PROCEEDINGS

We are not a party to or otherwise involved in any legal proceedings of the
type required to be disclosed in this Item.

DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS

The following table sets forth the names and ages of the current directors
and executive officers of the Company, the principal offices and positions with
the Company held by each person and the date such person became a director or
executive officer of the Company. The executive officers of the Company are
elected annually by the Board of Directors. The directors serve one-year terms
until their successors are elected. The executive officers serve terms of one
year or until their death, resignation or removal by the Board of Directors.
Unless described below, there are no family relationships among any of the
directors and officers.

NAME AGE POSITION(S)
---- --- -----------

Donald A. Mitchell 67 Chairman of the Board (2000)

Carl E. Dilley 46 Chief Executive Officer, President,
Secretary and Director (2000)

Joseph Pacheco 42 Director (2001)

DONALD A. MITCHELL has served as Chairman of the Board since March 15,
2000. Mr. Mitchell has served as the Chairman and President of International
Investment Banking, Inc. since its inception in June 1999. Mr. Mitchell is
also the Chairman of the Board and CEO of Grant Douglas Acquisition Corp, Inc.,
an Idaho corporation engaged in the publication of various print media. For the
past 25 years, Mr. Mitchell has been engaged as a private consultant to
numerous companies in the areas of corporate finance and marketing. Mr.
Mitchell attended Bridgewater College in Bridgewater, Virginia and advanced
study programs at New York University and Columbia University.

CARL E. DILLEY has served as CEO and as a director of the Company since
April 1, 2000, and has been with the Company since 1999. From 1997 to 1999, Mr.
Dilley served as President and CEO of DiveDepot.com, Inc. Prior to that Mr.
Dilley served in management positions with the Canadian Investment Firm RBC
Dominion Securities, and a variety of other executive and consulting positions
in several industries including chemical, timber, transportation, trust
company, and dot.com enterprises. Mr. Dilley attended college in Canada at
Fraser Valley College and College of New Caledonia, specializing in finance and
business management. He is a fellow of the Canadian Securities Institute and
has completed the first year CFA program.

JOSEPH PACHECO joined the Board of Directors on October 9, 2001. From 1987
through the present, Mr. Pacheco has been the principal of Financial Management
Services, an accounting and tax business management firm. From 1984 to 1987, he
was Controller, and later Chief Financial Officer, of Sarabande and Company and
CFW and Company. Mr. Pacheco received his Bachelor of Science in Accounting from
California Business College, his Bachelor of Science in Business Administration
from the University of Redlands, and has completed some post-graduate studies in
Federal taxation.

SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of the date of this prospectus, certain
information with respect to our common stock owned of record or beneficially by
(i) each of our officers and directors; (ii) each person known to us to
beneficially own more than 5% of each class of our stock; and (iii) all
directors and officers as a group. Except as otherwise noted, each person
listed below is the sole beneficial owner of the shares and has sole investment
and voting power over such shares. Unless otherwise indicated, the address of
each named beneficial owner is the same as that of our principal executive
offices located at 11645 Biscayne Boulevard, Suite 210, Miami, Florida 33181.

Name and Address of Amount and Nature of Percentage of Class (1)
Beneficial Owner Beneficial Ownership
-------------------- ----------------------- -----------------------

Donald A. Mitchell 966,667 (2)(3) 3.0%

Carl E. Dilley 698,864 (2) 2.2%

Joseph Pacheco 140,000 (4) *

Roy Meadows
207 Jasmine Lane
Longwood, FL 32779 1,849,131 (5) 5.7%

Chris Ford (6)
9564 Karmont Avenue
Southgate, CA 90280 1,861,748 5.8%

Big Apple Consulting USA, Inc.
2234 East Semoran Blvd
Apopka, FL 32703 1,983,970 (7) 6.1%

Mistral International Ltd. (8)
207 Jasmine Lane
Longwood, FL 32779 2,040,000 6.3%

Swartz Private Equity, LLC
300 Colonial Center Parkway, Suite 300
Roswell, Georgia 30076 2,700,000 (9) 7.7%

All directors and officers
as a group (3 persons) 1,805,531 (2)(3)(4) 5.2%

* Represents less than 1%.

(1) Based on 32,296,890 shares outstanding.

(2) Includes options issued to each of Mr. Dilley and Mr. Mitchell to
acquire 100,000 shares of common stock at $0.40 and 100,000 shares at
$0.75 per share.

(3) Includes 600,000 shares held of record by International Investment
Banking, Inc., of which Mr. Mitchell is the Chairman and
controlling shareholder.

(4) Includes 140,000 shares held of record by Capricorn Investments, of
which Mr. Pacheco is the controlling member.

(5) Includes 1,612,500 shares held of record by Corporate Service Providers,
Inc., and 236,631 shares held of record by Stockbroker Presentations,
Inc. Mr. Meadows is believed to be the controlling shareholder of
both entities.

(6) Mr. Ford is the executor for and controls the voting of shares held by
the Carol J. Gamble Trust and those of other family members that
comprise the total shares under his control.

(7) Includes 1,523,970 shares held of record by Big Apple Consulting USA,
Inc., plus another 460,000 shares held by employees of Big Apple.
Marc Jablon is believed to be the controlling shareholder of Big
Apple.

(8) The Company does not have knowledge of the beneficial owner of shares
held by Mistral International, Inc.

(9) Includes 2,700,000 shares issuable upon exercise of the outstanding
warrant issued to Swartz in connection with the investment agreement.
Swartz has the right to acquire up to an additional 30,000,000 shares
of our common stock under certain circumstances. It is expected that
Swartz will not own beneficially more than 9.99% of our outstanding
common stock at any one time.

DESCRIPTION OF SECURITIES

Our authorized capital stock consists of 100,000,000 shares of common
stock, par value $0.001. As of October 24, 2001, there are 32,296,890 shares of
our common stock issued and outstanding. We are not authorized to issue
preferred stock.

COMMON STOCK. Each shareholder of our common stock is entitled to a pro
rata share of cash distributions made to shareholders, including dividend
payments. The holders of our common stock are entitled to one vote for each
share of record on all matters to be voted on by shareholders. There is no
cumulative voting with respect to the election of our directors or any other
matter. Therefore, the holders of more than 50% of the shares voted for the
election of those directors can elect all of the directors. The holders of our
common stock are entitled to receive dividends when and if declared by our Board
of Directors from funds legally available therefore. Cash dividends are at the
sole discretion of our Board of Directors. In the event of our liquidation,
dissolution or winding up, the holders of common stock are entitled to share
ratably in all assets remaining available for distribution to them after payment
of our liabilities and after provision has been made for each class of stock, if
any, having any preference in relation to our common stock. Holders of shares
of our common stock have no conversion, preemptive or other subscription rights,
and there are no redemption provisions applicable to our common stock.

DIVIDEND POLICY. We have never declared or paid a cash dividend on our
capital stock. We do not expect to pay cash dividends on our common stock in the
foreseeable future. We currently intend to retain our earnings, if any, for use
in our business. Any dividends declared in the future will be at the discretion
of our Board of Directors and subject to any restrictions that may be imposed by
our lenders.

STOCK OPTION PLAN. On July 9, 2001, our directors approved the E-Rex, Inc.
2001 Stock Option Plan, effective July 9, 2001. The plan offers selected
employees, directors, and consultants an opportunity to acquire our common
stock, and serves to encourage such persons to remain employed by us and to
attract new employees. The plan allows for the award of stock and options, up
to 2,500,000 shares of our common stock. We have not issued any options or
stock awards under the plan. The plan was not approved by our shareholders at
the last annual shareholders meeting, and as a result no awards will be made
under the plan.

TRANSFER AGENT. The transfer agent for our common stock is Nevada Agency &
Trust Company, 50 West Liberty, Suite 880, Reno, Nevada 89501, telephone number
(775) 322-0626.

INTERESTS OF NAMED EXPERTS AND COUNSEL

Brian A. Lebrecht is the President of The Lebrecht Group, APLC, which
serves as our legal counsel. As of October 24, 2001, Mr. Lebrecht is the owner
of 425,000 shares of our common stock, as well as a warrant to acquire up to
$20,000 worth of our common stock at a price equal to 50% of the stock's market
value.

DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES

Article XI of our Bylaws provides that, to the fullest extent permitted by
law, the Corporation shall indemnify and hold harmless its directors and
officers for reasonable damages suffered by him in connection with his
relationship with the Corporation. In addition, the Corporation shall have the
power to buy, at this Corporation's expense, policies of insurance.

Our Articles of Incorporation do not further address indemnification, and
there are no resolutions of our shareholders or directors which address
indemnification.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.

DESCRIPTION OF BUSINESS

ABOUT OUR COMPANY

We were incorporated in Nevada on August 26, 1986 as P.R. Stocks, Inc.
Since that time, we have had three name changes and been the surviving
corporation in one merger:

- On February 26, 1992, we changed our name to National Health & Safety
Corporation;

- On November 12, 1992, we changed our name to Medgain International
Corporation;

- On June 20, 1994, we changed our name to E-Rex, Inc.; and

In January 2000, our management believed that our financial condition had
deteriorated to the point where it was going to discontinue operations. In an
attempt to salvage the value of the technology, management entered into an
agreement with International Investment Banking, Inc. (IIBI) whereby IIBI would
provide consulting services, introduce management personnel to us, and assist us
in raising necessary capital. In January 2000, our founder, Dr. Bauer, resigned
and was replaced with our current management.

OUR PRIMARY PRODUCT

We intend to market the Dragonfly, a portable, multi-function color
printer, copier, fax and scanner with Internet and e-mail capabilities. The
Dragonfly incorporates Microsoft's Windows CE operating system which supports a
variety of connectivity options, ranging from satellite uplink to ordinary and
cellular modems and Ethernet networks. Pricing of this product has not yet been
determined.

We are presently completing the initial prototype of the Dragonfly, but do
not have the necessary capital to do so. It is anticipated that following
completion of the prototype, production could begin within six months of
obtaining the necessary capital and/or entering into a relationship with a third
party for manufacturing. We have not entered into any agreements for the
manufacture of the Dragonfly. We anticipate that as soon as the initial
prototypes are fully operational, demonstrations with potential manufacturers
can be arranged.

The Dragonfly is designed so that is can be integrated with other
information appliances and computers including digital cameras, photo-printers
and network servers. When bundled with these items, the unit provides a
complete solution for the small, home or mobile office market.

The Dragonfly operating system can be enhanced with related products
designed by third parties. For example, a software enhancement for drawing and
handwriting could permit stored documents to be annotated on-screen using a pen.
These would appeal to students, and homemakers. The addition of a card reader
could permit the unit to act as a point of sale terminal that manages purchases
in a portable kiosk. This would appeal to artists and others at weekend craft
festivals, etc. We have not entered into any agreements or discussion with
third parties regarding the design or production of any related products.

MARKETING AND SALES

We anticipate that the Dragonfly will be most desirable to current laptop
users that require access to several communication mechanisms in a mobile
environment, and will purchase the unit for its portability, ease of use,
convenience, and power. We also anticipate that the Dragonfly will be
attractive to current non-computer users who, once they decide to purchase a
computer, will want an all-in-one piece of equipment rather than several
difference products. Finally, we anticipate that older users who desire a range
of functions without the necessity and complication of using a fully functional
computer will be potential users of the Dragonfly.

We have not yet developed our marketing plan. We anticipate that we will
initially sell the Dragonfly in the United States and Canada, and over the
Internet. We anticipate that the product will be offered directly by us, and
through electronics distributors and marketing representatives. After initial
sales begin in the United States and Canada, we anticipate expanding sales
worldwide within a year.

MANUFACTURING

The Dragonfly uses products commonly manufactured by Intel, Microsoft,
Fujitsu and Cannon, among others. We do not intend to establish our own
manufacturing plant, but instead intends to contract with third party
manufacturers. We do not have any agreements, and have not entered into
discussions, with any potential manufacturers.

RESEARCH AND DEVELOPMENT

Our Dragonfly product was originally created by Plantech, and we acquired
all of the rights to the product and its technology when we acquired Plantech in
1999. Plantech utilized the research and testing facilities at the British
Columbia Institute of Technology to produce our mock-prototype.

Since that time, we have contracted with Valcom, Ltd. of Guelph Ontario,
Canada, to produce our first prototype, including the associated software and
hardware. Valcom has estimated that the cost of producing the prototype will be
approximately $395,000, of which we still need to pay approximately $245,000
before the prototype can be completed and released.

COMPETITION

There is significant competition in the computer peripheral, software,
hardware and Internet industries. Computer peripheral and print-scan equipment
manufacturers such as Hewlett-Packard, Cannon, Xerox, Epson, Palm Computing and
others have the engineering, manufacturing and marketing expertise to produce
similar devices and the financial resources to design and distribute a product
similar in functionality to the Dragonfly. At present these manufacturers
produce products that we believe offer some but not all of the functionality of
the Dragonfly, but with appropriate engineering and licensing could produce a
similar product. Any new developments in printing, scanning or document
handling technology could cause the obsolescence of the product to be
accelerated. Almost all of the companies with which we will compete are
substantially larger, have more substantial histories, backgrounds, experience
and records of successful operations, greater financial, technical, marketing
and other resources, more employees and more extensive facilities than us. It
is also likely that other competitors offering similar products will emerge in
the near future. There is no assurance that we will compete successfully with
other established computer software and Internet companies. We hope to compete
on the basis of functionality, quality and price.

INTELLECTUAL PROPERTY

We regard our copyrights, service marks, trademarks, trade secrets and
similar intellectual property as critical to our success, and rely on trademark
and copyright law, trade secret protection and confidentiality and/or license
agreements with our employees, customers, partners and others to protect our
proprietary rights. We have no registered trademarks or service marks to date.
It may be possible for unauthorized third parties to copy certain portions of
our products or reverse engineer or obtain and use information that we regard as
proprietary. There can be no assurance that our means of protecting our
proprietary rights in the United States or abroad will be adequate.

Other parties may assert, from time to time, infringement claims against
us. We may also be subject to legal proceedings and claims from time to time in
the ordinary course of our business, including claims of alleged infringement of
the trademarks and other intellectual property rights of third parties by us and
our licensees, if any. Such claims, even if not meritorious, could result in
the expenditure of significant financial and managerial resources.

E-REX CONSULTING

We currently generate a limited amount of revenue from our consulting
business, which operates as E-tech Design. This division of E-Rex provides
services to its clients in the areas of Internet website design and development.
Once the Dragonfly product is ready to market, we do not anticipate that our
consulting business will constitute a material part of our operations, but will
support and develop applications and customized services for the Dragonfly.

WEBULATE

In August 2000, we acquired the assets of Webulate, LLC. These assets
include an Internet service provider located at the Denver Technology Center, a
suite of proprietary e-commerce and business-to-business application software
systems, rights to a developmental stage peripheral computer device, and the
ongoing client base of Webulate, LLC. Our management is currently evaluating
the compatibility of these operations with our Dragonfly product.

EMPLOYEES

We currently have three full-time employees. Each of our full-time
employees devotes all of their time to company. The Company currently
subcontracts research and development as required for production of the
Dragonfly prototype. The Company intends to add full-time executives in sales
and marketing, finance and distribution as it moves closer to production of the
Dragonfly. In the E-tech Design division there is one full time employee and it
is anticipated that several staff will be added in the coming months in the
areas of project management, sales and web site design and programming.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

QUALIFIED REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Our independent accountant has qualified his report. They state that the
audited financial statements of E-Rex, Inc. for the period ending December 31,
2000 have been prepared assuming the company will continue as a going concern.
They note that the significant losses of our company as of December 31, 2000
raise substantial doubt about our ability to continue in business.

YEARS ENDED DECEMBER 31, 2000 AND 1999

Results of Operations

We had significant losses of $8,042,853 for the year ended December 31,
2000. We have funded losses by the sale of additional securities and the
issuance of stock for services. We expect losses to continue. Other than the
Swartz financing, we have no sources of long-term capital. To the extent losses
continue and we are unable to fund them, we may have to curtail aspects of our
operations or cease operations altogether.

The Company intends to pursue its business plan and meet its reporting
requirements utilizing cash made available from the private and future public
sale of its securities as well as income for the Internet consulting division of
the Company. The Company's management is aggressively pursuing relationships
and markets for this division and is of the opinion that revenues from the sales
of its securities will be sufficient to pay its expenses until its business
operations create positive cash flow. The Company does not currently have
sufficient capital to continue operations for the next twelve months and will
have to raise additional capital to meet its business objectives as well as 1934
Act reporting requirements.

On a long-term basis, the Company's liquidity is dependent on revenue
generation, additional infusions of capital and potential debt financing.
Company management believes that additional capital and debt financing in the
short term will allow it to pursue it's business plan and thereafter result in
revenue and greater liquidity in the long term. However, we currently have no
arrangements for such financing and there can be no assurance that the Company
will be able to obtain the needed additional equity or debt financing in the
future.

Revenue

The Company's total revenue for the year ended December 31, 2000 was
$35,976, all of which were earned from web site design and consulting services
rendered by the Company. The cost of sales for this period was $10,607,
resulting in gross profit of $25,369 for the year. The Company did not have any
revenues for the years ended December 31, 1999 and 1998.

General and Administrative

The Company's general and administrative expenses totaled $7,900,075 for
the year ended December 31, 2000, as compared to $464,436 for the previous year,
an increase of over seventeen times. Of the total general and administrative
expenses, $7,398,467, or 93.6%, is attributable to stock issued for services to
various consultants, advisors, employees, and service providers to the Company.
Because the Company does not have sufficient revenues or current assets to pay
these providers in cash, it has continued to issue common stock for services,
and anticipates that this pattern will continue throughout the current fiscal
year. The Company also recorded $151,729 in research and development expenses
related to its Dragonfly product.

Net Losses

Net losses for the year ended December 31, 2000 were $8,042,853, as
compared to $464,436 for the prior year, an increase of over 17 times. As
described in General and Administrative, above, the primary component of the net
loss was stock issued for services ($7,398,467). The Company expects that it
will continue to incur large operating and net losses as a result of its
insufficient revenue and continued issuance of stock for services.

The loss per share, based on a weighted average number of shares of
18,841,966, was $0.43 per share, an increase of over ten times from the loss per
share of $0.04 for the previous year.

Liquidity and Capital Requirements

The Company requires substantial capital in order to meet its ongoing
corporate obligations and in order to continue and expand its current and
strategic business plans. Working capital has been primarily obtained through
the private placement of common stock. The web design and hosting business of
the Company is in its infancy and is a minor part of the overall business. It
is not expected that revenues from this area of the business will be sufficient
in the near term to fund ongoing operations and development and the bringing to
market of the Dragonfly.

The Company's plans for manufacturing, sales and distribution of the
Dragonfly are focused on establishing an OEM licensing agreement with one or
more electronics manufacturers who have the available resources and wholesale
and retail distribution channels to satisfactorily bring the product to market.
The Company will therefore need available capital to complete the Dragonfly
prototypes estimated at approximately $125,000 and an estimated additional
$325,000 for product testing, packaging and consumer research prior to
manufacturing. Capital to promote the product and accomplish the sales and
marketing to the OEM entities is estimated at $1,000,000 over the next 12
months. Head office and corporate operations including salaries, rent,
miscellaneous office expenses, investor relations, legal and accounting for the
next 12 months is estimated at $650,000. The total capital requirement is
therefore estimated at $2,100,000.

It is anticipated that equity line from Swartz Private Equity, LLC, will be
sufficient to meet those needs, however, there can be no assurance that the
Company will be able to obtain the needed additional equity or debt financing in
the future. In addition, the Swartz line of credit can only be utilized by the
Company upon the effectiveness of this registration statement with the SEC, and
then only if certain conditions are met and certain conditions precedent exist.
It is possible that the company may not have sufficient capital to meet its
short term requirements prior to the funding from the Swartz equity line
becoming available and there is the potential due to market conditions that the
amount of funding available under the Swartz financing agreement may be limited
and not necessarily cover all operating and research and development expenses.
The company may also raise additional operating capital through other equity
and/or debt offerings. However there can be no assurances that it will be
successful in its endeavors.

The Company received proceeds from the sale of common stock of $329,000.00
for the year ended December 31, 2000 resulting in net cash provided by financing
activities of $436,654.00. The Company received proceeds from the sale of
common stock of $80,833.00 for the year ended December 31, 1999 resulting in net
cash provided by financing activities of $80,833.00.

In an exchange of stock and services agreement with Ultimate Franchise
Systems, Inc., the Company acquired securities valued at $400,000.00 for the
twelve months ended December 31, 2000.

The Company purchased fixed assets of $47,971.00 and invested $150,000.00
in a company named DiveDepot.Com, Inc. during the twelve months ended December
31, 2000.

THREE AND SIX MONTHS ENDED JUNE 30, 2001

Results of Operations

The Company had significant losses of $455,112 for the three month period
ended June 30, 2001, as compared to $2,023,162 for the three month period ended
June 30, 2000, and losses of $1,912,721 for the six month period ended June 30,
2001. The reduction in losses for this quarter as compared to the same quarter
of last year is due primarily to the reduction in general and administrative
expenses associated with restructuring and changing management. Losses have
been funded by the sale of additional securities and the issuance of stock for
services. We expect losses to continue.

Revenue

The Company's total revenue for the three month period ended June 30, 2001
was $29,072, all of which was earned from web site design and consulting
services rendered by the Company. The cost of sales for this period was
$23,228, resulting in gross profit of $5,844 for the three month period. The
Company did not report any revenues for the same period in 2000. The company
reported revenue of $35,976 for the year ended December 31, 2000 and did not
have any revenues for the years ended December 31, 1999 and 1998.

The Company's total revenue for the six month period ended June 30, 2001
was $37,038, all of which were earned from web site design and consulting
services rendered by the Company. The cost of sales for this period was $37,270,
resulting in gross profit of ($232). The Company did not report any revenues for
the same period in 2000.

General and Administrative

The Company's general and administrative expenses totaled $403,687 for the
three month period ended June 30, 2001, as compared to $2,023,162 for the three
month period ended June 30, 2000. Of the total general and administrative
expenses, $358,569 is attributable to stock issued for services to various
consultants, advisors, employees, and service providers to the Company. The
substantial decline in operating expenses in the June 2001 quarter is due to
final amortizing of accrued management fees expenses in the first quarter of
2001 in the amount of $1,258,045. These fees were related to the restructuring
of the management team in early 2000 and are non-recurring. Because the Company
does not have sufficient revenues or current assets to pay these providers in
cash, it has continued to issue common stock for services, and anticipates that
this pattern will continue during the coming year. The Company also recorded
$41,397 in research and development expenses related to its Dragonfly product.
No research and development expenses were recorded in the three month period
ended June 30, 2000.

The Company's general and administrative expenses totaled $1,810,408 for
the six month period ended June 30, 2001. Of the total general and
administrative expenses, $450,775 is attributable to stock issued for services
to various consultants, advisors, employees, and service providers to the
Company. Because the Company does not have sufficient revenues or current assets
to pay these providers in cash, it has continued to issue common stock for
services, and anticipates that this pattern will continue during the coming
year. The Company also recorded $71,189 in research and development expenses
related to its Dragonfly product for the period.

Net Losses

Net losses for the three month period ended June 30, 2001 were $455,112 as
compared to $2,023,162 for the three month period ended June 30, 2000, as a
result of the change in general and administrative expenses as described above.
The Company expects that it will continue to incur operating and net losses as a
result of its insufficient revenue and continued issuance of stock for services.

The loss per share for the quarter, based on a weighted average number of
shares of 26,178,872 was $0.02 per share, compared with the loss per share of
$0.11 based on a weighted average number of shares of 17,973,048 for the quarter
ended June 30, 2000.

Net losses for the six months ended June 30, 2001 were $1,912,721. The loss
per share, based on a weighted average number of shares of 25,217,878 was $0.08
per share for the period.

Liquidity and Capital Resources

The Company received proceeds from loans of $41,785.00 for the quarter
ended June 30, 2001 resulting in net cash provided by financing activities of
$41,785.00. The Company received proceeds from loans of $81,785.00 during the
six month period ended June 30, 2001 resulting in net cash provided by financing
activities of $81,785.00.

The Company invested $31,275.00 in development of an on-line ordering
system for the fast food franchise industry during the six months ended June 30,
2001.

The Company invested $7,275.00 in development of an on-line ordering system
for the fast food franchise industry during the three months ended June 30,
2001.

DESCRIPTION OF PROPERTY

We currently lease office space located at 11645 Biscayne Boulevard, Suite
210, Miami, Florida 33181-3138. This space covers approximately 1,050 square
feet and is leased under an agreement that expires January 1, 2003 and requires
us to pay $1,441.00 per month in rent. We believe that the current facilities
are adequate to meet our needs into the immediate future.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In May, 2000 the Company entered into an oral contract for design and
integration work with Valcom, Ltd., a West Vancouver, British Columbia,
controlled by Paul R. MacPherson, a former Director of the Company. Under the
terms of this agreement, Valcom, Ltd. will supply six prototypes of the
Dragonfly for the approximate sum of $268,000, including work done prior to May
2000. The work is to be done on an ongoing basis. To date, the Company has paid
Valcom, Ltd. the sum of U.S. $150,000 on account, and the estimated total cost
has been revised to $395,000, leaving a balance due of $245,000.

In connection with the merger with Plantech Communication Systems, Inc. on
February 20, 1999, the Company assumed a promissory note dated March 15, 1997 in
the amount of $6,450 with no interest payable to Valcom, Ltd. The note remains
outstanding.

The Company entered into an agreement on January 21, 2000 with
International Investment Banking, Inc. ("IIBI") whereby IIBI, among other
things, was to serve as senior management of the Company for an initial term of
two years unless further extended by mutual agreement of the parties (management
is now the responsibility of Carl E. Dilley, President and Chief Executive
Officer of the Company). Donald A. Mitchell, the former Chairman of the
Company, controls IIBI. Pursuant to the agreement, IIBI received $10,000 per
month and reimbursement of normal business expenses that it incurs on behalf of
the Company and certain expenses of individual consultants assigned to the
Company by IIBI. Thereafter the annual compensation increased at a rate of 20%
per year. In addition to monthly compensation, IIBI or Mr. Mitchell was
entitled to receive an annual bonus as determined by the Company's Board of
Directors payable in common stock or cash. Mr. Mitchell was granted 2,000,000
shares of common stock representing 1,000,000 common shares for each year of
IIBI's engagement. The agreement was terminated on June 30, 2001.

IIBI has also loaned the Company money from time to time to cover the
Company's short-term cash flow needs. The amounts borrowed accrue interest at
the rate of the Wall Street Journal "Money Rates" Prime plus 4% per annum and is
due and payable on demand. Currently, the outstanding balance due to IIBI under
this arrangement is approximately $381,000, after giving effect to the
conversion of $120,000 in principal amount into 600,000 shares of our common
stock in February 2001.

In March 2000, the Company issued 2,000,000 shares of common stock to
Donald A. Mitchell for services rendered to the Company. The issuance was
registered on Form S-8.

In August and November 2000, the Company issued 20,000 shares of common
stock to Jeffrey M. Harvey and 200,000 to Carl E. Dilley, restricted in
accordance with Rule 144, for services rendered to the Company. The issuances
were exempt from registration pursuant to Section 4(2) of the Securities Act of
1933 and the shareholders were accredited.

In November 2000, the Company issued 76,786 shares of common stock to Carl
E. Dilley for services rendered to the Company. The issuance was registered on
Form S-8.

In August 2000, the Company issued options to acquire 3,000,000 shares of
common stock to Ultimate Franchise Systems, Inc. The options expire on July 27,
2002. The issuance was exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933 and the shareholder was accredited.

In September 2000, the Company issued 1,000,000 shares of common stock to
Ultimate Franchise Systems, Inc., restricted in accordance with Rule 144, as
part of a stock exchange. The issuance was exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933 and the shareholder was accredited.

In November 2000, the Company issued 80,000 shares of common stock to
Jeffrey M. Harvey for services rendered to the Company. The issuance was
registered on Form S-8.

In November 2000, the Company issued options to acquire a total of 650,000
shares of common stock to Donald A. Mitchell, Jeffrey M. Harvey, Carl E. Dilley,
and Janet Williams in exchange for services rendered to the Company. One-half
of the options have an exercise price of $0.40 per share, and the other half
have an exercise price of $0.75 per share. All options expire on November 21,
2002. The issuances were exempt from registration pursuant to Section 4(2) of
the Securities Act of 1933 and the shareholders were accredited.

In February 2001, the Company issued 75,000 shares of common stock to
Jeffrey M. Harvey, 142,500 shares of common stock to Carl E. Dilley, 119,720
shares to Ben Grocock, 61,935 shares to Byron Rambo, 53,958 shares to J. Knigin,
53,958 shares to S. Niakan, and 53,958 shares to A. Sikorski for services
rendered to the Company. The issuances were registered on Form S-8.

In May and June 2001, the Company issued 185,714 shares of common stock to
Jeffrey M. Harvey, 162,857 shares of common stock to Carl E. Dilley, 58,824
shares to Ben Grocock, 70,000 shares to Byron Rambo, 57,143 shares to J. Knigin,
57,143 shares to S. Niakan, 57,143 shares to A. Sikorski, 115,000 shares to
Brian A. Lebrecht, 77,143 shares to J. Keane, and 77,143 shares to P. Storti for
services rendered to the Company. The issuances were registered on Form S-8.

In August 2001, the Company issued 166,667 shares of common stock to
Jeffrey M. Harvey, 166,667 shares to Donald A. Mitchell, 279,167 shares to Carl
E. Dilley, 107,812 shares to A. Balduzzi, 78,125 shares to J. Knigin, 78,125
shares to S. Niakan, 78,125 shares to A. Sikorski, 125,000 to S. Marinkovitch,
280,000 shares to F. Horwich, and 250,000 shares to Brian A. Lebrecht for
services rendered to the Company. The issuances were registered on Form S-8.

MARKET FOR COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS

Our common stock is traded on the OTC Bulletin Board under the symbol EREX.
Our common stock is only traded on a limited or sporadic basis and should not be
deemed to constitute an established public trading market. There is no
assurance that there will be liquidity in the common stock.

Below is a table indicating the range of high and low transaction price for
the common stock for each quarterly period within the most recent two fiscal
years. The information reflects inter-dealer prices, without retail, markup,
markdown or commission and may not represent actual transactions.

PRICES
YEAR PERIOD HIGH LOW
---- ------ ---- ----
2001 First Quarter 0.53 0.16
Second Quarter 0.56 0.03
Third Quarter 0.44 0.03
Fourth Quarter 0.07 0.02
(through October 24, 2001)

2000 First Quarter 2.44 0.15
Second Quarter 1.56 0.38
Third Quarter 1.25 0.34
Fourth Quarter 0.91 0.25

1999 First Quarter 1.00 0.25
Second Quarter 1.69 0.69
Third Quarter 1.06 0.44
Fourth Quarter 1.00 0.14

HOLDERS

As of October 24, 2000, there were approximately 236 holders of record of
the common stock.

DIVIDEND POLICY

We have never declared or paid cash dividends on the common stock and
anticipate that all future earnings will be retained as working capital and
business expansion. The payment of any future dividends will be at the sole
discretion of the board of directors and will depend upon, among other things,
future earnings, capital requirements, our financial condition and general
business conditions. Therefore, there can be no assurance that any dividends on
the common stock will be paid in the future.

EXECUTIVE COMPENSATION

Executive Officers and Directors
-----------------------------------

For the year ended December 31, 2000, the executive officers of the Company
received salaries, in aggregate, equal to approximately $204,867.00 and received
the benefit of automobile allowances for an aggregate $4,500.00.

All officers and directors are reimbursed for expenses incurred on behalf
of Company.

Members of the Board of Directors may receive an amount yet to be
determined annually for their participation and will be required to attend a
minimum of four meetings per fiscal year. All expenses for meeting attendance
or out of pocket expenses connected directly with their Board representation
will be reimbursed by the Corporation. Director liability insurance may be
provided to all members of the Board of Directors. No differentiation is made
in the compensation of "outside directors" and those officers of the Corporation
serving in that capacity.

There is no plan or arrangement with respect to compensation received or
that may be received by the executive officers in the event of termination of
employment or in the event of a change in responsibilities following a change in
control.

Summary Compensation Table
----------------------------

The Summary Compensation Table shows certain compensation information for
services rendered in all capacities for the fiscal years ended December 31, 2000
and 1999. We did not pay any executive compensation in the year ended December
31, 1998. Other than as set forth herein, no executive officer's salary and
bonus exceeded $100,000 in any of the applicable years. The following
information includes the dollar value of base salaries, bonus awards, the number
of stock options granted and certain other compensation, if any, whether paid or
deferred.

SUMMARY COMPENSATION TABLE

Annual Compensation Long Term Compensation
-------------------------------- ------------------------------------
Awards Payouts
--------------------------------------

OTHER ANNUAL RESTRICTED SECURITIES LTIP ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION STOCK UNDERLYING Payouts COMPENSATION
POSITION YEAR ($) ($) ($) AWARDS($) OPTIONS SARS(#) ($) ($)

Donald A. Mitchell
(Chairman) . . . . . . 2000 -0- -0- $126,850 2,000,000 200,000 -0- -0-

Carl E. Dilley
(CEO, Director). . . . 2000 $51,017 $27,000 4,500 276,786 200,000 -0- -0-

Kenneth Blake
(President, Director,. 2000 -0- -0- -0- -0- -0- -0- -0-
Resigned April 2000) . 1999 -0- -0- -0- -0- -0- -0- -0-

Jeffrey M. Harvey
(Treasurer, Director). 2000 -0- -0- -0- 80,000 200,000 -0- -0-

Ronald K. Gooding
(Director, . . . . . . 2000 -0- -0- -0- -0- -0- -0- -0-
Resigned April 2000) 1999 -0- -0- -0- -0- -0- -0- -0-

OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)

NUMBER OF SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS/SAR'S GRANTED
OPTIONS/SAR'S GRANTED TO EMPLOYEES IN FISCAL EXERCISE OF
(#) YEAR BASE PRICE
($/SH) EXPIRATION DATE

NAME

Donald A. Mitchell 100,000 15.4 $0.40 11/21/02

100,000 15.4 $0.75 11/21/02

Carl E. Dilley . . 100,000 15.4 $0.40 11/21/02

100,000 15.4 $0.75 11/21/02

Kenneth Blake. . . -0- -0- -0- -0-

Jeffrey M. Harvey. 100,000 15.4 $0.40 11/21/02

100,000 15.4 $0.75 11/21/02

Ronald K. Gooding. -0- -0- -0- -0-

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES

NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-
SECURITIES UNDERLYING MONEY OPTION/SARs
SHARES ACQUIRED ON OPTIONS/SARS AT FY-END(#) AT FY-END ($)
NAME EXERCISE(#) VALUE REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE

Donald A. Mitchell -0- -0- -0- -0-

Carl E. Dilley . . -0- -0- -0- -0-

Kenneth Blake. . . -0- -0- -0- -0-

Jeffrey M. Harvey. -0- -0- -0- -0-

Ronald K. Gooding. -0- -0- -0- -0-

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE

On May 17, 2001, Gately & Associates, LLC, Independent Certified Public
Accountants, the independent accountant previously engaged as the principal
accountant to audit the financial statements of E-Rex, Inc., resigned as
auditors for the Company. As Gately & Associates, LLC resigned, the decision to
change accountants was not approved by the Board of Directors of the Company or
by any audit or similar committee thereof.

The audit report of Gately & Associates, LLC on the financial statements of
E-Rex, Inc. as of December 31, 2000 and the related consolidated statements of
operations, shareholders' equity and cash flows for the year ended December 31,
2000, as well as the audit report of Varma and Associates on the financial
statements of E-Rex, Inc. for the year ended December 31, 1999, the year ended
December 31, 1998, the year ended December 31, 1997 and for the period from
inception (August 26, 1986) to December 31,1999 (the "Audit Period") did not
contain any adverse opinion or disclaimer of opinion, nor were they qualified or
modified as to audit scope or accounting principles, except the reports were
modified to include an explanatory paragraph wherein they expressed substantial
doubt about the Company's ability to continue as a going concern. During the
Audit Period, and the period up to their resignation, there were no
disagreements with the former accountant on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure,
which disagreements, if not resolved to the satisfaction of the former
accountant, would have caused it to make reference to the subject matter of the
disagreements in connection with its report. E-Rex, Inc. has provided a copy of
this disclosure to its former accountants, and requested that the former
accountants furnish them with letters addressed to the Securities and Exchange
Commission stating whether they agree with the statements made by the
Registrant, and, if not, stating the respects in which they do not agree. A
copy of the former accountants' responses indicating agreement is included as an
exhibit to this registration statement.

Upon Gately & Associates, LLC's resignation, the board of directors
approved the engagement of Perez-Abreu, Aguerrebere, Sueiro LLC as the principal
accountant to audit the financial statements of the Company.

AVAILABLE INFORMATION

We have filed with the Securities and Exchange Commission a registration
statement on Form SB-2, together with all amendments and exhibits thereto, under
the Securities Act of 1933 with respect to the common stock offered hereby.
This prospectus does not contain all of the information set forth in the
registration statement and the exhibits and schedules thereto. Statements
contained in this prospectus as to the contents of any contract or other
document referred to are not necessarily complete and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the registration statement, each such statement being qualified in all respects
by such reference.

Copies of all or any part of the registration statement may be inspected
without charge or obtained from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549 and its public reference
facilities in New York, New York and Chicago, Illinois, upon the payment of the
fees prescribed by the Commission. The registration statement is also available
through the Commission's web site at the following address: http://www.sec.gov.

We mail a copy of our Annual Report on Form 10-KSB along with a proxy
statement to our shareholders prior to our annual shareholders meeting.

EXPERTS

Our financial statements as of December 31, 1999 and for the year then
ended included in the prospectus which is part of a registration statement have
been so included in reliance on the report of Varma and Associates, Certified
Public Accountants, given on the authority of said firm as experts in auditing
and accounting. Our financial statements as of December 31, 2000 and for the
year then ended included in the prospectus which is part of a registration
statement have been so included in reliance on the report of Gately &
Associates, LLC, Certified Public Accountants, given on the authority of said
firm as experts in auditing and accounting.

FINANCIAL STATEMENTS

Index to Financial Statements

For the Fiscal Year Ended December 31, 2000
--------------------------------------------------

Independent Auditors' Report F-1

Balance Sheet as of December 30, 2000 F-2

Statement of Operations for the Periods Ended
December 31, 2000, 1999, and 1998 F-3

Statement of Changes in Stockholders Equity
for the Period Ended December 31, 2000 F-4

Statement of Cash Flows for the Periods Ending
December 31, 2000, 1999, and 1999 F-5

Notes to the Financial Statements F-6 - F-9

For the Fiscal Year Ended December 31, 1999
--------------------------------------------------

Independent Auditors' Report F-10

Balance Sheet as of December 30, 1999 F-11

Statement of Operations for the Period from Inception
(August 26, 1986) to December 31, 1999 F-12

Statement of Changes in Stockholders Equity
for the Period from Inception (August 26, 1986) to
December 31, 1999 F-13

Statement of Cash Flows for the Period from Inception
(August 26, 1986) to December 31, 1999 F-16

Notes to the Financial Statements F-17 - F-20

For the Six Months Ended June 30, 2001
---------------------------------------------

Balance Sheet as of June 30, 2001 F-21
and December 31, 2000

Statement of Operations for the Six Months Ending
June 30, 2001 and 2000, and for the Three Months
Ending June 30, 2001 and 2000 F-22

Statement of Changes in Stockholders Equity
for the Period Ending June 30, 2001 F-23

Statement of Cash Flows for the Six Months
Ending June 30, 2001 and June 30, 2000 F-24

Notes to the Financial Statements F-25 - F-32

INDEPENDENT AUDITORS REPORT ON FINANCIAL STATEMENTS

To the Board of Directors and Stockholders
E-REX, INC.

We have audited the accompanying balance sheet of E-REX, Inc. as of December 31,
2000, and the related statement of operations, stockholders' equity, and cash
flows for the two years ended December 31, 2000. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of E-Rex, Inc., as of December 31,
2000 and the results of its operations and its cash flows for each of the two
years in the period ended December 31, 2000 in conformity with generally
accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
company will continue as a going concern. As discussed in the notes to the
financial statements, the Company has experienced a loss. The Company's
financial position and operating results raise substantial doubt about its
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

/s/Gately & Associates, LLC
Gately & Associates, LLC
Certified Public Accountants
Orlando, Florida
May 11, 2001

F-1

E-REX, INC.
BALANCE SHEET
AS OF DECEMBER 31, 2000

ASSETS
------

CURRENT ASSETS
---------------

Cash. . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,948
Accounts receivable . . . . . . . . . . . . . . . . . . 22,757
Employee advance. . . . . . . . . . . . . . . . . . . . 298
------------

Total Current Assets. . . . . . . . . . . . . . . . . 43,003 $ 43,003

PROPERTY AND EQUIPMENT
----------------------

Furniture, equipment and software . . . . . . . . . . . 92,792
Less: accumulated depreciation. . . . . . . . . . . . . (7,800)
------------

Total Other Assets. . . . . . . . . . . . . . . . . . 84,992 84,992

OTHER ASSETS
------------

Investments . . . . . . . . . . . . . . . . . . . . . . 550,000 550,000
--------------------------------------------------------- ----------

TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . $ 677,995
============

LIABILITIES AND STOCKHOLDERS' EQUITY
---------------------------------------------------------

CURRENT LIABILITIES
-------------------

Accounts payable. . . . . . . . . . . . . . . . . . . . $ 250,907
Accrued liabilities . . . . . . . . . . . . . . . . . . 10,838
Accrued interest on bonds . . . . . . . . . . . . . . . 7,460
Payable - related party . . . . . . . . . . . . . . . . 298,654
------------

Total current liabilities . . . . . . . . . . . . . . 567,859 $ 567,859

LONG TERM LIABILITIES
---------------------

Convertible debenture bonds . . . . . . . . . . . . . . 240,000
------------

Total long term liabilities . . . . . . . . . . . . . 240,000 240,000
----------

TOTAL LIABILITIES . . . . . . . . . . . . . . . . . 807,859

STOCKHOLDERS' EQUITY
---------------------

STOCKHOLDERS' EQUITY (DEFICIT)
------------------------------

Common stock, $.0001 par value, 100,000,000 authorized
and 23,808,816 shares issued and outstanding. . . . 23,809
Additional paid in capital. . . . . . . . . . . . . . . 9,936,204
Prepaid service fees in the form of stock . . . . . . . (1,258,045)
Deficit accumulated during the development stage. . . . (6,203,269)
Retained earnings . . . . . . . . . . . . . . . . . . . (2,628,563)
------------

Total stockholders' equity. . . . . . . . . . . . . . (129,864) (129,864)
----------

TOTAL LIABILITIES AND EQUITY (DEFICIT). . . . . . . $ 677,995
============

See accompanying notes to the financial statements

F-2

E-REX, INC.
STATEMENT OF OPERATIONS
FOR THE PERIODS ENDED DECEMBER 31,

2000 1999 1998
------------ ------------ -----------

REVENUE . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 35,976 $ - $ -
------- ------------

COST OF SALES . . . . . . . . . . . . . . . . . . . . . . . . 10,607 - -
------------- ------------

GROSS PROFIT. . . . . . . . . . . . . . . . . . . . . . . . . 25,369 - -
------------ ------------

EXPENSES
---------

General and administrative. . . . . . . . . . . . . . . . . 7,900,075 464,436 27,703
Research and development. . . . . . . . . . . . . . . . . . 151,729
------------ -------- ---------

Total expenses. . . . . . . . . . . . . . . . . . . . . . . 8,051,804 464,436 27,703

LOSS FROM OPERATIONS. . . . . . . . . . . . . . . . . . . . . (8,026,435) (464,436) (27,703)
--------------------

OTHER INCOME
------------

Interest income . . . . . . . . . . . . . . . . . . . . . . 1,210
Interest Expense. . . . . . . . . . . . . . . . . . . . . . (16,418)

INCOME (LOSS) BEFORE INCOME TAXES . . . . . . . . . . . . . . (8,042,853) (464,436) (26,493)
---------------------------------

Income Taxes. . . . . . . . . . . . . . . . . . . . . . . . - - -
------------ ------------ -----------

NET INCOME (LOSS) . . . . . . . . . . . . . . . . . . . . . . $(8,042,853) $ (464,436) $ (26,493)
------------------- ============ ============ ===========

Weighted average
Number of shares. . . . . . . . . . . . . . . . . . . . . . 18,841,966 13,439,674 1,178,841

Basic EPS . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.43) $ (0.04) $ (0.02)

See accompanying notes to the financial statements

F-3

E-REX, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD ENDED DECEMBER 31, 2000

ADDITIONAL
COMMON STOCK PAID-IN INCOME
SHARES AMOUNT CAPITAL (LOSS) TOTAL
----------- ------------ ----------- ------------ ----------

Balance, December 31, 1996 788,716 789 339,472 (350,301) (10,040)

Common stock issued for
services Sep., 1997. . . . 30,000 30 30

Net income for the year
ended Dec. 31, 1997. . . . 52,251 52,251
----------- ------------

Balance, December 31, 1997 818,716 819 339,472 (298,050) 42,241

Common stock issued for
services Sep., 1998. . . . 1,682,000 1,682 1,000 2,682

Common shares issued
in Rule 504 offering
Nov. and Dec., 1998. . . . 1,539,500 1,539 152,410 153,949

Common stock issued for
services Dec., 1998. . . . 100,000 100 9,900 10,000

Net (loss) for the year
ended Dec. 31, 1998. . . . (26,493) (26,493)
----------- ------------

Balance December 31, 1998. 4,140,216 4,140 502,782 (324,543) 182,379

Common shares issued . . . 424,000 424 113,076 113,500
for cash

Common shares issued
for acquisition. . . . . . 8,137,616 8,138 8,138

Common shares issued
for services . . . . . . . 3,000,000 3,000 92,941 95,941

Net loss for the period. . (464,436) (464,436)
----------- ------------

Balance, December 31, 1999 15,701,832 15,702 708,799 (788,979) (64,478)

Common shares issued
for cash . . . . . . . . . 3,290,000 3,290 325,710 329,000

Common shares issued for
services and compensation. 9,386,667 9,387 8,069,873 8,079,260

Common shares issued
for consulting services. . 311,263 311 127,307 127,618

Common shares issued
as Settlement Agreement. . 1,096,670 1,097 448,537 449,634

Allowance for prepaid
stock compensation . . . . (1,258,045)

Common shares issued in
exchange of shares as
an investment. . . . . . . 1,000,000 1,000 399,000 400,000

Common shares purchased
as treasury stock. . . . . (6,977,616) (6,978) (143,022) (150,000)

Net loss for the period. . (8,042,853) (8,042,853)
----------- ------------

Balance, December 31, 2000 23,808,816 $ 23,809 $9,936,204 $(8,831,832) $(129,864)
=========== ============ =========== ============ ==========

See accompanying notes to the financial statements

F-4

E-REX, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIODS ENDING DECEMBER 31,

CASH FLOWS FROM (FOR)
------------------------
OPERATING ACTIVITIES. . . . . . . . . . . 2000 1999 1998
--------------------- ------------ ---------- ---------

Net income. . . . . . . . . . . . . . . $(8,042,853) $(464,436) $(26,493)

Adjustments to reconcile net income to
to net cash provided by (used in )
operating activities:

Stock issued for services . . . . . . . 7,398,467 128,608 12,682
Stock Issued for Reasearch. . . . . . . 25,000
Depreciation expense. . . . . . . . . . 7,800
(Increase) Decrease in
Accounts receivable . . . . . . . . . (22,757)
(Increase) Decrease in
Employee advance. . . . . . . . . . . (298)
Increase (Decrease) in
Accounts payable. . . . . . . . . . . 168,832 71,940 (366)
Increase (Decrease) in
Accrued liabilities . . . . . . . . . 75,068
Other . . . . . . . . . . . . . . . . . 29,014 (16,467)
------------ ----------

Total adjustments to net income . . . . 7,652,112 229,562 (4,151)

Net cash provided by (used in)
operating activities. . . . . . . . . . (390,741) (234,874) (30,644)

CASH FLOWS FROM (FOR)
---------------------
INVESTING ACTIVITIES
--------------------

Purchase of furniture & equipment . . . (47,971)

Net cash flows provided by (used in)
investing activities. . . . . . . . . . (47,971) - -

See accompanying notes to the financial statements

E-REX, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIODS ENDING DECEMBER 31,

CASH FLOWS FROM (FOR)
---------------------
FINANCING ACTIVITIES. . . . . . . . . . . . 2000 1999 1998
--------------------- ---------- ---------- --------

Proceeds from loan. . . . . . . . . . . . 662,654
Proceeds from issuance of stock . . . . . 329,000 80,833 153,950
Payment on loan . . . . . . . . . . . . . (325,000)
Cash paid on treasury stock . . . . . . . (150,000)
Offering costs. . . . . . . . . . . . . . (80,000)
----------

Net cash provided by (used in) financing. 436,654 80,833 153,950

CASH RECONCILIATION
--------------------

Net increase (decrease) in cash . . . . . (2,058) (154,041) 123,306
Cash at beginning of year . . . . . . . . 22,006 176,047 52,741
---------- ---------- --------

CASH BALANCE AT END OF YEAR . . . . . . . . $ 19,948 $ 22,006 $176,047
------------------------------------------- ========== ========== ========

See accompanying notes to the financial statements

F-5

E-REX, INC.

NOTES TO THE FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

1. Summary of significant accounting policies:

Nature of Operations - E-Rex, Inc. (the "Company"), a Nevada corporation, was
incorporated on August 26, 1986 as P.R. Stocks, Inc. On February 26, 1992, the
Company changed its name to National Health & Safety Corporation. On November
12, 1992, the Company changed its name to Medgain International Corporation. On
June 20, 1994 the Company changed its name to E-Rex, Inc. On February 20, 1999
the Company entered into a business combination (see Note 5). Until September of
the year 2000, the Company had no material revenues and was considered to be in
the development stage. The Company now operates an internet web hosting
service. The Company continues its development of computer hardware and
software products that it intends to sell.

Cash Equivalents - The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.

Earnings (Loss) Per Share - Basic earnings per share ("EPS") is computed by
dividing earnings available to common shareholders by the weighted-average
number of common shares outstanding for the period as required by the Financial
Accounting Standards Board (FASB) under Statement No. 128, "Earnings per
Shares". Diluted EPS reflects the potential dilution of securities that could
share in the earnings.

Basis of Accounting - The Company's financial statements are prepared in
accordance with generally accepted accounting principles.

Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Income Taxes - The Company records its income tax provision in accordance with
Statement of Financial Accounting Standard No. 109, "Accounting for Income
Taxes."

Functional Currency - All amounts in the Company's financial statements and
related footnotes are stated in US dollars. The Company had no significant gain
or losses from foreign currency conversions. The Company has closed its foreign
bank accounts during the year 2000 and now operates using U.S. currency.

Property and Equipment - Depreciation and amortization is computed by the
straight line method with the following recovery periods:

Office equipment and software 3-5 Years
Furniture 5-7 Years

Maintenance and repairs, as incurred, are charged to expense; betterments and
renewals are capitalized in plant and equipment accounts. Cost and accumulated
depreciation applicable to items replaced or retired are eliminated from the
related accounts; gain or loss on the disposition thereof is included as income.
No depreciation is recorded on property and plant left idle.

2. Basis of Presentation as a Going Concern:

The Company's financial statements have been presented on the basis that it is a
going concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company incurred a net
loss for the period from inception (August 26, 1986) to September 30, 2000 (the
Company's development stage). The Company continues to operate at a loss. This
factor, among others, raises substantial doubt as to the Company's ability to
continue as a going concern.

The Company's management intends to raise additional operating funds through
equity and/or debt offerings and revenue from its new operation. However, there
can be no assurance management will be successful in its endeavors.

3. Income Taxes:

The Company records its income tax provision in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" which
requires the use of the liability method of accounting for deferred income
taxes.

Since the Company has not generated cumulative taxable income since inception,
no provision for income taxes has been provided. At December 31, 2000, the
Company did not have significant tax net operating loss carry forwards (tax
benefits resulting from losses for tax purposes have been fully reserved due to
the uncertainty of a going concern). At December 31, 2000 the Company did not
have any significant deferred tax liabilities or deferred tax assets.

4. Development Stage Company:

During the year 2000, the Company's management has determined that the Company
is no longer in the development stage. It continues to develop computer
hardware and software components, but has added the service of internet web
hosting as its current operations.

A development stage company is one for which principal operations have not
commenced or principal operations have generated an insignificant amount of
revenue. Management of a development stage company devotes most of its
activities to establishing a new business. Operating losses have been incurred
through September 30, 2000, and the company continues to use, rather than
provide, working capital for the development of computer hardware and software.
Although management believes that it is pursuing a course of action that will
provide successful future operations, the outcome of these matters is
uncertain. The Company continues this development and has now started
operations in the internet web hosting industry.

5. Business Combination:

On February 20, 1999 the Company entered into a merger agreement with Plantech
Communications Systems, Inc. ("Plantech"), a privately held British Columbia,
Canada, Corporation. Plantech is a development stage enterprise in the software,
computer and internet area. From inception in 1992 to date Plantech has had no
revenues.

Under the terms of the merger agreement, Plantech shareholders received one
share of the Company's common stock for each outstanding share of Plantech
stock. The Company issued 8,137,616 shares of its common stock in exchange for
all the Plantech common shares outstanding as of February 20, 1999.

F-6

The above business combination was accounted for under the purchase method.
There was no significant difference between the purchase cost and the fair value
of net assets/liabilities acquired, thus no goodwill was recorded. Plantech's
results of operations are included in the Company's statement of operations from
the date of merger, February 20, 1999, until the Company survived during that
year as the surviving corporation. The following table sets forth certain
results of operations for the periods presented as if the Plantech business
combination had been consummated on the same terms at the Plantech inception in
1992.

Inception
Jan. 1, 1999 (8/26/86)
To Feb. 20, To Dec. 31,
1999 1999
----------------- --------------

Revenues $ -- $ --
Net (Loss) $ (230,954) $ (616,086)

6. Litigation:

In January, 2000 the Board of Directors resolved to settle a British Columbia
Supreme Court action brought against the Company for an unpaid vendor bill for
$25,000.00. The Company also accepted from the same vendor a return of 50,000
shares of the Company stock that the vendor held.

In 1993 the Company initiated legal action against a former merger candidate,
and several of its principals, primarily to the Company when the merger was not
consummated.

In October, 1997 a settlement agreement relating to the above action was entered
into. In November, 1997 the Company received, net of attorney's fees,
$120,726.00 to settle this matter.

The company believes the claims made in the complaint are without merit and
intends to defend itself vigorously in this matter.

7. Related Party Transactions:

The Company made two investments in related companies.

The Company made an investment in Ultimate Franchise Systems, Inc. (USFI) on
August 1, 2000 in an exchange of 1,000,000 shares of the Company's stock valued
at $400,000 for stock in USFI. Further to the agreement the Company will
develop a home delivery web site and on-line ordering system for a fee of $75.00
per unit per month in approximately 300 restaurants, plus a royalty of 5% of
on-line gross sales.

The second investment the Company made on September 1, 2000 was a purchase of
assets from Webulate LLC. The assets include software, equipment and stock in
DiveDepot.Com, Inc. The transaction was completed with $40,000 cash and
$200,000 in convertible note payables valued for a total of $240,000. The
President of the Company, Mr. Dilley, is also on the Board of Directors of
DiveDepot.Com, Inc.

F-7

The Company entered into an agreement on January 21, 2000 with International
Investment Banking, Inc. ("IIBI") whereby IIBI will serve as senior management
of the Company for an initial term of two years unless further extended by
mutual agreement of the parties. The Chief Executive Officer, Donald A.
Mitchell, of the Company also controls IIBI. Pursuant to the agreement, IIBI
receives $10,000 per month and reimbursement of normal business expenses that it
incurs on behalf of the Company and certain expenses of individual consultants
that IIBI assigns to carry out the duties and responsibilities of IIBI.
Thereafter the annual compensation shall increase at a rate of 20% per year.
In addition to monthly compensation, IIBI OR Mr. Mitchell may be entitled to
receive an annual bonus as determined by the Company's Board of Directors
payable in common stock or cash. Mr. Mitchell was granted 2,000,000 shares of
common stock representing 1,000,000 common shares for each year of IIBI's
engagement. As an addendum of this agreement, IIBI was directed on the Company's
behalf the following: Purchase 8,237,616 shares of stock from two of the
Company's former directors for $250,000; issue 6,000,000 shares of stock to
Stockholder Presentations, Inc. per an investor relations contract; and issue
IIBI 1,000,000 shares of restricted common stock.

The Company continues an ongoing relationship with Valcom Ltd. in that the
Company uses Valcom Ltd. as its resource for research and development of its
computer hardware and software product development along with a company by the
name of Riotech.

8. Convertible Debenture Bonds:

Refer to Footnote 7 with regard to bonds issued to related parties.

9. Stockholders' Equity:

Refer to Footnote 7 with regard to equity changes with related parties.

On November 20, 2000, the board of directors declared 1,096,670 restricted
common shares to be issued, a value of $449,537, for the purpose of settling
with shareholders that had asserted that the Company had originally issued the
shareholders stock that was stated to be free trading shares. The shares were
issued under a Regulation D section 144 filing. In addition to the shares
issued were 3,290,000 options to purchase shares of the Company's common stock
at an excercies price at $1.00 that expire on November 21, 2002. The Company's
management disagreed with the assertion, but decided to settle with the
agreement. As noted in Footnote 6, Crusader Capital Group, Inc., one of the
shareholders representing about 15% of all shareholders which has asserted a
claim against the Company, has not accepted the settlement at this time,
however, the shares have been accounted for as issued. There is uncertainty
regarding the outcome of the Crusader Capital Group, Inc. claim.

F-8

Stock options have been granted by the Company to directors and officers with an
expiration date of November 21, 2002. The stock options were issued November
21, 2000 with 325,000 options excercisable at $.40 per share and 325,000 options
excercisable at $.75 per share.

Stock options have been granted by the Company to Ultimate Franchise Systems
Inc., to purchase 3,000,000 shares of E-Rex common stock at an exercise price
equal to the average of the closing ask price plus $.01, as quoted on the NASD
over-the counter bulletin board for the five trading days immediately preceding
the closing.

700,000 options were issued to Corporate Service Providers Inc. for the purpose
of providing investment banking services to the company. Terms as per corporate
resolution dated 8/1/00 as follows:

Exercisable at $1.00 during the 1st 12 months from date of issue.
Exercisable at $1.50 during the 2nd 12 months from date of issue.
Options are callable with a 21 day notification by the company if the stock
trades for 20 consecutive business days at a 50% premium to the
exercise price.

E-Rex has also offered $1,000,000 in units of the company's securities pursuant
to its Memorandum of terms dated June 21, 2000. The units consist of either a
Series A 10% Convertible Debenture or a Series B 10% Convertible Debenture
together with 50,000 attached warrants to purchase common stock at an exercise
price of $1.00 per share and a two year expiration. The Company has issued
$240,000 of these bonds, $200,000 of which were in exchange for assets purchased
in the Webulate LLC transaction. The transaction is not a public offering as
defined in section 4(2) of the Securities Act of 1933, and accordingly, the
units will not be registered under the Act or laws of any state but are being
offered pursuant to exemptions from registration.

10. Concentrations of risk:

The Company relies on operating revenue from one service, internet web hosting.
Development of computer hardware and software products continues, but is not
funded by the Company's current operation.

11. Required Cash Flow Disclosure:

The Company had no interest and income taxes paid for the year. The Company
entered into agreements with non-cash exchanges of stock and bonds as detailed
in Footnote 7.

F-9

VARMA & ASSOCIATES
===================================================================
Bob A. Varma, CPA 610 Crown Oak Centre Drive
James P. Gately, CPA Longwood, Florida 32750
Mark A. Haas, CPA Office (407) 834-7344 Fax (407)
834-7814

INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS
---------------------------------------------------------------

To the Board of Directors and Stockholders
E-Rex, Inc.
Orlando, FL

We have audited the accompanying balance sheet of E-Rex, Inc. (a
development stage company), as of December 31, 1999, and the related
statement of operations, stockholders' equity and cash flows for the
year ended December 31, 1999, the year ended December 31, 1998, the
year ended December 31, 1997 and for the period from inception (August
26, 1986) to December 31,1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of E-Rex,
Inc. (a development stage company) as of December 31, 1999, and the
results of its operations and its cash flows for the year ended
December 31, 1999, the year ended December 31, 1998, the year ended
December 31, 1997 and for the period from inception (August 26, 1986)
to December 31, 1999 in conformity with generally accepted accounting
principles.

The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2
to the financial statements, the Company has suffered recurring losses
from operations that raises substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these
matters are also described in note 2. The Financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.

Varma and Associates
Certified Public Accountants
Longwood, FL
March 30, 2000

F-10

E-REX, INC.
BALANCE SHEET
As of December 31, 1999

ASSETS
--------

CURRENT ASSETS
- --------------

Cash $ 22,006
--------------
Total Current Assets 22,006 $ 22,006

OTHER ASSETS
- ------------
Furniture and equipment 4,937
Less: accumulated depreciation (2,896)
-------------
Total Other Assets 2,041 2,041
------------
TOTAL ASSETS $ 24,047
=============

LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------

CURRENT LIABILITIES
- -------------------
Accounts payable $ 82,075
Demand note payable 6,450
--------------
Total current liabilities 88,525 $ 88,525
-------------
TOTAL LIABILITIES 88,525

STOCKHOLDERS' EQUITY
--------------------

STOCKHOLDERS' EQUITY (DEFICIT)
- -----------------------------
Common stock, $.0001 par value,
100,000,000 authorized
and 15,663,164 shares issued and outstanding. 15,539
Additional paid in capital 708,962
Retained earnings (788,979)
------------
Total stockholders' equity (64,478) (64,478)
------------
TOTAL LIABILITIES AND EQUITY (DEFICIT) $ 24,047
=============

See accompanying notes to the financial statements

F-11

E-REX, INC.
STATEMENT OF OPERATIONS
For the Period from Inception
(August 26, 1986) to December 31, 1999

From
1999 1998 1997 Inception

REVENUE $ - $ - $ - $ -

EXPENSES

General and
administrative 464,436 27,703 68,704 911,144
---------- ---------- ----------- -----------
LOSS FROM OPERATIONS (464,436) (27,703) (68,704) (911,144)

OTHER INCOME

Interest income 1,210 229 1,439

Recovery from lawsuit - - 120,726 120,726
--------- ---------- ----------- ----------
INCOME (LOSS) BEFORE
INCOME TAXES (464,436) (26,493) 52,251 (788,979)

Income Taxes - - - -

NET INCOME (LOSS) $ (464,436) $ (26,493) $ 52,251 $ (788,979)
============ ============ ============== ============

Weighted average
Number of shares 13,439,674 1,178,841 803,195

Basic EPS $ (0.04) $ (0.02) $ 0.06

See accompanying notes to the financial statements

F-12

E-REX, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Period from Inception
(August 26, 1986) to December 31, 1999

ADDITIONAL
COMMON STOCK PAID-IN INCOME
SHARES AMOUNT CAPITAL (LOSS) TOTAL
------- --------- ------------ --------- ------

Issuance of shares of
common stock on Aug. 26,
1986, for $.044 per share 250,000 $ 250 $ 10,750 $ - $ 11,000

Net (loss) from inception
on Aug. 26, 1986, through
Dec. 31, 1986 (15,354) (15,354)

Balance, December 31, 1986 250,000 250 10,750 (15,354) (4,354)

Issuance of shares of
common stock to the public
for $1.00 per share 93,215 93 93,122 93,215

Deferred offering cost
offset against additional
paid-in capital (7,663) (7,663)

Net (loss) for the year
ended Dec. 31, 1987 (80,103) (80,103)

Balance, December 31, 1987 343,215 343 96,209 (95,457) 1,095

Net (loss) for the four
year period ended
Dec. 31, 1991 (4,072) (4,072)

Balance, December 31, 1991 343,215 343 96,209 (99,529) (2,977)

Issuance of shares of
stock on Feb. 4, 1992, for
$1.00 per share 166,716 167 166,549 166,716

Deferred offering cost
offset against additional
paid-in capital (26,125) (26,125)

Common stock issued
on Feb. 4, 1992 for services 136,785 137 27,220 27,357

Net (loss) for the year
ended Dec. 31, 1992 (179,027) (179,027)

Balance, December 31, 1992 646,716 647 263,853 (278,556) (14,056)

See accompanying notes to the financial statements

F-13

E-REX, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
continued
For the Period from Inception
(August 26, 1986) to December 31, 1999

ADDITIONAL
COMMON STOCK PAID-IN INCOME
SHARES AMOUNT CAPITAL (LOSS) TOTAL
--------- --------- --------- -------- --------

Balance, December 31, 1992 646,716 647 263,853 (278,556) (14,056)

Issuance of shares of
common stock to the public
on Feb. 3, 1993 for $4.00
per share 32,000 32 127,968 128,000

Deferred offering cost
offset against additional
paid-in capital (74,239) (74,239)

Common stock issued for
legal services on April
29, 1993 110,000 110 21,890 22,000

Net (loss) for the year
ended Dec. 31, 1993 (39,703) (39,703)

Balance, December 31, 1993 788,716 789 339,472 (318,259) 22,002

Net (loss) for the year
ended Dec. 31, 1994 (8,357) (8,357)

Balance, December 31, 1994 788,716 789 339,472 (326,616) 13,645

Net (loss) for the year
ended Dec. 31, 1995 (19,185) (19,185)

Balance, December 31, 1995 788,716 789 339,472 (345,801) (5,540)

Net (loss) for the year
ended Dec. 31, 1996 (4,500) (4,500)

Balance, December 31, 1996 788,716 789 339,472 (350,301) (10,040)

Common stock issued for
services Sep., 1997 30,000 30 30

Net income for the year
ended Dec. 31, 1997 52,251 52,251

Balance, December 31, 1997 818,716 819 339,472 (298,050) 42,241

See accompanying notes to the financial statements

F-14

E-REX, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
continued
For the Period from Inception
(August 26, 1986) to December 31, 1999

ADDITIONAL
COMMON STOCK PAID-IN INCOME
SHARES AMOUNT CAPITAL (LOSS) TOTAL

Balance, December 31, 1997 818,716 819 339,472 (298,050) 42,241

Common stock issued for
services Sep., 1998 1,682,000 1,682 1,000 2,682

Common shares issued
in Rule 504 offering
Nov. and Dec., 1998 1,539,500 1,539 152,410 153,949

Common stock issued for
services Dec., 1998 100,000 100 9,900 10,000

Net (loss) for the year
ended Dec. 31, 1998 (26,493) (26,493)

Balance December 31, 1998 4,140,216 $ 4,140 $ 502,782 $ (324,543) $ 182,379

Common shares issued 323,332 197 80,636 80,833
for cash

Common shares issued
for acquisition 8,137,616 8,138 8,138

Common shares issued
for directors' fees 1,332,000 1,332 74,700 76,032

Common shares issued
for services 1,730,000 1,732 50,844 52,576

Net loss for the period (464,436) (464,436)

Balance, December 31, 1999 15,663,164 $ 15,539 $ 708,962 $ (788,979) $ (64,478)

See accompanying notes to the financial statements

F-15

E-REX, INC.
STATEMENT OF CASH FLOWS
For the Period from Inception (August 26, 1986)
to December 31, 1999

CASH FLOWS FROM (FOR) From
OPERATING ACTIVITIES 1999 1998 1997 Inception
----------- ---------- --------- ------------

Net income $ (464,436) $ (26,493) $ 52,251 $ (788,979)

Adjustments to reconcile net income to
to net cash provided by (used in )
operating activities:

Stock issued for services 128,608 12,682 30 190,676
Accounts payable 71,940 (366) 460 82,075
Other 29,014 (16,467) 12,547
----------- ---------- ---------- ---------
Total adjustments to net income 229,562 (4,151) 490 285,298

Net cash provided by (used in)
operating activities (234,874) (30,644) 52,741 (503,681)

CASH FLOWS FROM (FOR)
INVESTING ACTIVITIES

None
--------- --------- -------- ---------
Net cash flows provided by (used in)
investing activities - - - -

CASH FLOWS FROM (FOR)
FINANCING ACTIVITIES

Proceeds from issuance of stock,
including paid-in capital 80,833 153,950 - 633,714
- - - (108,027)
--------- --------- ------- ---------
Net cash provided by (used in)
financing 80,833 153,950 - 525,687

CASH RECONCILIATION

Net increase (decrease) in cash (154,041) 123,306 52,741 22,006
Cash at beginning of year 176,047 52,741 - -
--------- --------- -------- ---------
CASH BALANCE AT END OF YEAR $ 22,006 $ 176,047 $ 52,741 $ 22,006
========= ========== ========== ==========

See accompanying notes to the financial statements

F-16

E-REX, INC.

NOTES TO THE FINANCIAL STATEMENTS

(See Independent Auditors Report)

1. Summary of significant accounting policies:

Nature of Operations - E-Rex, Inc. (the "Company"), a Nevada
corporation, was incorporated on August 26, 1986 as P.R. Stocks, Inc.
On February 26, 1992, the Company changed its name to National Health
& Safety Corporation. On November 12, 1992, the Company changed its
name to Medgain International Corporation. On June 20, 1994 the
Company changed its name to E-Rex, Inc. On February 20, 1999 the
Company entered into a business combination (see Note 5). To date,
the Company has had no revenues. The Company is in the development
stage.

Cash Equivalents - The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash
equivalents.

Earnings (Loss) Per Share - Basic earnings per share ("EPS") is
computed by dividing earnings available to common shareholders by the
weighted-average number of common shares outstanding for the period as
required by the Financial Accounting Standards Board (FASB) under
Statement No. 128, 'Earnings per Shares". Diluted EPS reflects the
potential dilution of securities that could share in the earnings.

Basis of Accounting - The Company's financial statements are prepared
in accordance with generally accepted accounting principles.

Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.

Income Taxes - The Company records its income tax provision in
accordance with Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes."

F-17

E-REX, INC.

NOTES TO THE FINANCIAL STATEMENTS

(See Independent Auditors Report)

Property and Equipment - Depreciation and amortization is computed by
the straight line method with the following recovery periods:

Organization costs 5 Years
Office equipment and software 3-5 Years
Furniture 5-7 Years

Maintenance and repairs, as incurred, are charged to expense;
betterments and renewals are capitalized in plant and equipment
accounts. Cost and accumulated depreciation applicable to items
replaced or retired are eliminated from the related accounts; gain or
loss on the disposition thereof is included as income. No
depreciation is recorded on property and plant left idle.

2. Basis of Presentation as a Going Concern:

The Company's financial statements have been presented on the basis
that it is a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of
business. The Company incurred a net loss of $812,952 for the period
from inception (August 26, 1986) to December 31, 1999. This factor,
amoung others, raises substantial doubt as to the Company's ability to
continue as a going concern.

The Company's management intends to raise additional operating funds
through equity and/or debt offerings. However, there can be no
assurance management will be successful in its endeavers.

3. Income Taxes:

The Company records its incoem tax provision in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" which requires the use of the liability method of
accounting for deferred incoem taxes.

Since the Company has not generated cumulative taxable income since
inception, no provision for income taxes has been provided. At
December 31, 1999, the Company did not have any significant tax net
operating loss carryforwards ( tax benefits resulting from losses for
tax purposes have been fully reserved due to the uncertainty of a
going concern). At December 31, 1999, the Company did not have any
significant deferred tax liabilities or deferred tax assets.

F-18

E-REX, INC.

NOTES TO THE FINANCIAL STATEMENTS

(See Independent Auditors Report)

4. Development Stage Company:

A development stage company is one for which principal operations have
not commenced or pricipal operations have generated an insignificant
amount of revenue. Management of a development stage company devotes
most of its activities to establishing a new business. Operating
losses have been incurred through December 31, 1999, and the company
continues to use, rather than provide, working capital in this
operation. Although management believes that it is pursuing a course
of action that will provide successful future operations, the outcome
of these matters is uncertain. Basic earnings per share ("EPS") is
computed by dividing earnings available to common shareholders by the
weighted-average number of common shares outstanding for the period as
required by the Financial Accounting Standards Board (FASB) under
Statement No. 128, 'Earnings per Shares". Diluted EPS reflects the
potential dilution of securities that could share in the earnings.

5. Business Combination:

On February 20, 1999 the Company entered into a merger agreement with
Plantech Communications Systems, Inc. ("Plantech"), a privately held
British Columbia, Canada, Corporation. Plantech is a development
stage enterprise in the software, computer and internet area. From
inception in 1992 to date Plantech has had no revenues.

Under the terms of the merger agreement, Plantech shareholders
received one share of the Company's common stock for each outstanding
share of Plantech stock. The Company issued 8,137,616 shares of its
common stock in exchange for all the plantech common shares
outstanding as of February 20, 1999.

F-19

E-REX, INC.

NOTES TO THE FINANCIAL STATEMENTS

(See Independent Auditors Report)

Plantech's results of operations are included in the Company's
statement of operations from the date of merger, February 20, 1999,
forward. The following table sets forth certain results of operations
for the periods presented as if the Plantech business combination had
been consumated on the same terms at the Plantech inception in 1992.

Inception
Jan. 1, 1999 (8/26/86)
to Feb. 20, to Dec. 31,
1999 1998

Revenues $ - $ -
Net (Loss) $ (230,954) $ (616,086)

6. Litigation and subsequent events:

In January, 2000 the Board of Directors resolved to settle a British
Columbia Supreme Court action brought against the Company for an unpaid
vendor bill for $25,000. The Company also accepted from the same
vendor a return of 50,000 shares of the Company stock that the vendor
held.

In 1993 the Company initiated legal action against a former merger
candidate, and several of its principals, primarily to the Company when
the merger was not consummated.

In October, 1997 a settlement agreement relating to the above action
was entered into. In November, 1997 the Company received, net of
attorney's fees, $120,726 to settle this matter.

7. Related Party Transactions:

The Company entered into a an agreement for design and integration
work with an entity controlled by one of the Company's
director/shareholders named Valcom Ltd., a West Vancouver, British
Columbia company.

8. Required Cash Flow Disclosure:

The Company had no interest and income taxes paid for the year. The
Company entered into a non-cash merger transaction as noted in
footnote 5.

F-20

E-REX, INC.
BALANCE SHEET
AS OF JUNE 30, 2001 AND DEC 31, 2000.

ASSETS
------

JUNE 30 DEC 31
2001 2000
------- -------

CURRENT ASSETS
--------------

Cash 12,365 19,948
Prepaid Expense 64,259 -
Accounts receivable from related parties 4,129 298
Accounts receivable 14,966 22,757
------------ ------------

Total Current Assets $ 95,719 $ 43,003
------------ ------------

PROPERTY AND EQUIPMENT
----------------------

Furniture, equipment and software 127,282 92,792
Less: accumulated depreciation (21,375) (7,800)
------------ ------------

Total Other Assets $ 105,907 $ 84,992
------------ ------------

OTHER ASSETS
------------

Investments $ 164,000 $ 550,000
------------ ------------

$ 365,626 $ 677,995
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------

CURRENT LIABILITIES
-------------------

Accounts payable 211,759 250,907
Accrued liabilities 17,400 10,838
Accrued interest on bonds 19,295 7,460
Payable - related party 380,439 298,654
Work In Progress Deposits 29,102 -
Stock Subscription Deposits 15,000 -
------------ ------------

Total current liabilities $ 672,995 $ 567,859
------------ ------------

LONG TERM LIABILITIES
---------------------

Convertible debenture bonds 240,000 240,000
------------ ------------

Total long term liabilities $ 240,000 $ 240,000
------------ ------------

$ 912,995 $ 807,859
------------ ------------

STOCKHOLDERS' EQUITY
--------------------

STOCKHOLDERS' EQUITY (DEFICIT)
------------------------------

Common stock, $.0001 par value, 100,000,000 authorized
Shares issued and outstanding as of Dec 31-2000. . . . . . . . 23,808,816 27,649 23,809
Shares issued and outstanding as of June 30, 2001. . . . . . . 27,649,108
Additional paid in capital 10,898,357 9,936,204
Allowance for prepaid Stock Compensation (342,822) (1,258,045)
Accumulated Other Comprehensive Income, net of tax
Net unrealized gains (losses) on marketable equity securities (386,000) -
Deficit accumulated during the development stage (6,203,269) (6,203,269)
Retained earnings (4,541,284) (2,628,563)

Total stockholders' equity $ (547,369) $ (129,864)
------------ ------------

$ 365,626 $ 677,995
============ ============
See accompanying notes to the financial statements

F-21

E-REX, INC.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDING JUNE 30, 2001 AND 2000
AND FOR THE THREE MONTHS ENDING JUNE 30, 2001 AND 2000

SIX MONTHS SIX MONTHS THREE MONTHS THREE MONTHS
ENDED ENDED ENDED ENDED
JUNE 30 JUNE 30 JUNE 30 JUNE 30
2001 2000 2001 2000
----------- ------------ ------------ --------------

REVENUE . . . . . . . . . . . . . . . . . . . . . . $ 37,038 $ - $ 29,072 $ -
--------------------------------------------------- ------------ ------------ ------------ --------------

COST OF SALES . . . . . . . . . . . . . . . . . . . (37,270) - (23,228) -
--------------------------------------------------- ------------ ------------ ------------ --------------

GROSS PROFIT. . . . . . . . . . . . . . . . . . . . (232) - 5,844 -
--------------------------------------------------- ------------ ------------ ------------ --------------
EXPENSES
---------------------------------------------------

General and administrative. . . . . . . . . . . . . (1,810,408) (3,187,584) (403,687) (2,023,162)
Research and development. . . . . . . . . . . . . . (71,189) - (41,397)
------------ ------------ ------------ --------------

Total expenses. . . . . . . . . . . . . . . . . . . (1,881,597) (3,187,584) (445,084) (2,023,162)
------------ ------------ ------------ --------------

LOSS FROM OPERATIONS. . . . . . . . . . . . . . . . (1,881,829) (3,187,584) (439,240) (2,023,162)
--------------------------------------------------- ------------ ------------ ------------ --------------

OTHER INCOME
---------------------------------------------------

Interest Expense. . . . . . . . . . . . . . . . . . (30,892) (5,608) (15,872) -
------------ ------------ ------------ --------------

INCOME (LOSS) BEFORE INCOME TAXES . . . . . . . . . $(1,912,721) $(3,193,192) $ (455,112) $(2,023,162)
---------------------------------------------------
Income Taxes. . . . . . . . . . . . . . . . . . . . - - - -
------------ ------------ ------------ --------------

NET INCOME (LOSS) . . . . . . . . . . . . . . . . . $(1,912,721) $(3,193,192) $ (455,112) $(2,023,162)
--------------------------------------------------- ============ ============ ============ ==============

EARNINGS (LOSS) PER SHARE
Weighted average
Number of shares Outstanding. . . . . . . . . . . . 25,217,878 17,973,048 26,178,872 17,973,048

Basic EPS . . . . . . . . . . . . . . . . . . . . . $ (0.08) $ (0.18) $ (0.02) $ (0.11)
============ ============ ============ ==============

Weighted average
Number of shares on a Fully Diluted Basis . . . . . 25,217,878 17,973,048 26,178,872 17,973,048

Fully Diluted EPS . . . . . . . . . . . . . . . . . $ (0.08) $ (0.18) $ (0.02) $ (0.11)
============ ============ ============ ==============

See accompanying notes to the financial statements

F-22

E-REX, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD ENDING JUNE 30, 2001

ADDITIONAL
COMMON STOCK PAID-IN INCOME
SHARES AMOUNT CAPITAL (LOSS) TOTAL
----------- -------- ----------- ---------- -----------

Balance, December 31, 1999. . . . . . . . . . . . . . . . . . 15,701,832 15,702 708,799 (788,979) (64,478)
----------- -------- ------------ ----------- ------------

Common shares issued
for cash. . . . . . . . . . . . . . . . . . . . . . . . . . . 3,290,000 3,290 325,710 329,000

Common shares issued for
services and compensation . . . . . . . . . . . . . . . . . . 9,386,667 9,387 8,069,873 8,079,260

Common shares issued
for consulting services . . . . . . . . . . . . . . . . . . . 311,263 311 127,307 127,618

Common shares issued
as Settlement Agreement . . . . . . . . . . . . . . . . . . . 1,096,670 1,097 448,537 449,634

Allowance for prepaid
stock compensation (1,258,045)

Common shares issued in
exchange of shares as
an investment . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 1,000 399,000 400,000

Common shares purchased
as treasury stock . . . . . . . . . . . . . . . . . . . . . . (6,977,616) (6,978) (143,022) (150,000)

Net loss for the period (8,042,853) (8,042,853)
----------- -------- ----------- ----------- ------------

Balance, December 31, 2000. . . . . . . . . . . . . . . . . . 23,808,816 $23,809 $ 9,936,204 $(8,831,832) $ (129,864)
----------- -------- ------------ ------------ ------------

Common shares issued. . . . . . . . . . . . . . . . . . . . . 461,029 461 91,745 92,206
for consulting services

Common shares issued. . . . . . . . . . . . . . . . . . . . . 600,000 600 119,400 120,000
in Conversion of Accounts Payable

Common shares issued. . . . . . . . . . . . . . . . . . . . . 120,000 120 23,880 24,000
for Software Research & Development

Charge for prepaid Stock Compensation 1,258,045

Common shares issued
for consulting services . . . . . . . . . . . . . . . . . . . 2,642,346 2,642 719,870 722,512

Common shares issued
for Software Research & Development . . . . . . . . . . . . . 16,917 17 7,258 7,275

Accumulated Other Comprehensive losses, net of tax
Net unrealized gains (losses) on marketable equity securities (386,000) (386,000)

Net loss for the period (1,912,721) (1,912,721)
----------- -------- ----------- ----------- -------------

Balance, June 30, 2001. . . . . . . . . . . . . . . . . . . . 27,649,108 27,649 10,898,357 (11,130,553) (204,547)
=========== ======== ============ =========== ============

See accompanying notes to the financial statements

F-23

E-REX, INC.
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDING JUNE 30, 2001 AND JUNE 30, 2000

SIX MONTHS SIX MONTHS
ENDED ENDED
CASH FLOWS FROM (FOR) JUNE 30 JUNE 30
OPERATING ACTIVITIES 2001 2000
-------------------- ------------ -----------

Net Income (Loss). . . . . . . . . . . . . . . . . . . . . $(1,912,721) $(3,193,192)

Adjustments to reconcile net income (loss) to
to net cash provided by (used in )
operating activities:

Stock issued for Services. . . . . . . . . . . . . . . . . 591,471 2,942,258
Stock Issued for Research & Development. . . . . . . . . . 31,275 -
Amortization of stock issued for services in prior period. 1,258,470 (11,667)
Depreciation expense . . . . . . . . . . . . . . . . . . . 13,575 -
(Increase) Decrease in
Accounts receivable. . . . . . . . . . . . . . . . . . . 3,662 (2,680)
Employee advances. . . . . . . . . . . . . . . . . . . . (9,638) -
Prepaid professional Fees and Expenses . . . . . . . . . (21,122) -
Deposits & Retainers . . . . . . . . . . . . . . . . . . (33,202) -
Increase (Decrease) in
Accounts payable . . . . . . . . . . . . . . . . . . . . (39,148) 120,657
Accrued liabilities. . . . . . . . . . . . . . . . . . . 6,562 -
Accrued Bond Interest. . . . . . . . . . . . . . . . . . 11,835
Work In Progress Deposits. . . . . . . . . . . . . . . . 29,103 -
Deposits & Retainers . . . . . . . . . . . . . . . . . . 15,000 -
Other. . . . . . . . . . . . . . . . . . . . . . . . . . - (34)
------------ ------------

Total adjustments to net income (loss) . . . . . . . . . . 1,857,843 3,048,534

Net cash provided by (used in)
operating activities . . . . . . . . . . . . . . . . . . . (54,878) (144,658)

CASH FLOWS FROM (FOR)
INVESTING ACTIVITES
---------------------

Purchase of furniture, Equipment & Software. . . . . . . . (34,490) (5,511)
------------ ------------
Net cash flows provided by (used in)
investing activities . . . . . . . . . . . . . . . . . . . (34,490) (5,511)

CASH FLOWS FROM (FOR)
FINANCING ACTIVITIES
----------------------

Proceeds from loan . . . . . . . . . . . . . . . . . . . . 81,785 409,000
Proceeds from issuance of stock. . . . . . . . . . . . . . - 249,000
Payment on loan. . . . . . . . . . . . . . . . . . . . . . - (314,000)
Purchase of treasury stock . . . . . . . . . . . . . . . . - (150,000)
------------ ------------

Net cash provided by (used in) financing . . . . . . . . . 81,785 194,000

CASH RECONCILIATION
-------------------

Net increase (decrease) in cash. . . . . . . . . . . . . . (7,583) 43,831
Cash at beginning of period. . . . . . . . . . . . . . . . 19,948 22,006
------------ ------------

CASH BALANCE AT END OF PERIOD. . . . . . . . . . . . . . . $ 12,365 $ 65,837
------------------------------- ============ ============

See accompanying notes to the financial statements

F-24

E-REX, INC.
FORM 10-QSB

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

JUNE 30, 2001

1. Summary of Significant Accounting Policies:

Nature of Operations - E-Rex, Inc. (the "Company"), a Nevada corporation, was
incorporated on August 26, 1986 as P.R. Stocks, Inc. On February 26, 1992, the
Company changed its name to National Health & Safety Corporation. On November
12, 1992, the Company changed its name to Medgain International Corporation. On
June 20, 1994 the Company changed its name to E-Rex, Inc. On February 20,
1999 the Company entered into a business combination (see Note 5). Until
September of the year 2000, the Company had no material revenues and was
considered to be in the development stage. The Company now operates an internet
web hosting service. The Company continues its development of computer hardware
and software products that it intends to sell.

Cash Equivalents - The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.

Earnings (Loss) Per Share - Basic earnings per share ("EPS") is computed by
dividing earnings available to common shareholders by the weighted-average
number of common shares outstanding for the period as required by the Financial
Accounting Standards Board (FASB) under Statement No. 128, "Earnings per Share".
Diluted EPS reflects the potential dilution of securities that could share in
the earnings.

Basis of Accounting - The Company's financial statements are prepared in
accordance with generally accepted accounting principles.

Income Taxes - The Company records its income tax provision in accordance with
Statement of Financial Accounting Standard No. 109, "Accounting for Income
Taxes."

Functional Currency - All amounts in the Company's financial statements and
related footnotes are stated in U.S. dollars. The Company had no significant
gain or losses from foreign currency conversions. The Company has closed its
foreign bank accounts during the year 2000 and now operates using U.S. currency.

Property and Equipment - Depreciation and amortization is computed by the
straight line method with the following recovery periods:

Office equipment and software 3-5 Years
Furniture 5-7 Years

F-25

2. Basis of Presentation as a Going Concern:

3. Income Taxes:

Since the Company has not generated cumulative taxable income since inception,
no provision for income taxes has been provided. At June 30, 2001, the Company
did not have significant tax net operating loss carry forwards (tax benefits
resulting from losses for tax purposes have been fully reserved due to the
uncertainty of a going concern). At June 30, 2001 the Company did not have any
significant deferred tax liabilities or deferred tax assets.

4. Development Stage Company:

During the year 2000, the Company's management determined that the Company is no
longer in the development stage. It continues to develop computer hardware and
software components, but has added the service of internet web hosting, design
and consulting as part of its current and ongoing operations.

A development stage company is one for which principal operations have not
commenced or principal operations have generated an insignificant amount of
revenue. Management of a development stage company devotes most of its
activities to establishing a new business. Operating losses have been incurred
through June 30, 2001, and the company continues to use, rather than provide,
working capital for the development of computer hardware and software. Although
management believes that it is pursuing a course of action that will provide
successful future operations, the outcome of these matters is uncertain. The
Company continues this development and has now started operations in the
internet web hosting, design and consulting industry.

5. Business Combination:

On February 20, 1999 the Company entered into a merger agreement with Plantech
Communications Systems, Inc. ("Plantech"), a privately held British Columbia,
Canada, Corporation. Plantech is a development stage enterprise in the
software, computer and internet area. From inception in 1992 to date Plantech
has had no revenues.

F-26

The above business combination was accounted for under the purchase method.
There was no significant difference between the purchase cost and the fair value
of net assets/liabilities acquired, thus no goodwill was recorded. Plantech's
results of operations are included in the Company's statement of operations from
the date of merger, February 20, 1999. The Company survived during that year as
the surviving corporation. The following table sets forth certain results of
operations for the periods presented as if the Plantech business combination had
been consummated on the same terms at the Plantech inception in 1992.

Inception
Jan. 1, 1999 (8/26/86)
To Feb. 20, To Dec. 31,
1999 1999
------------- ------------

Revenues $ -- $ --
Net (Loss) $ (230,954) $ (616,086)

6. Litigation:

On August 4, 2000, Crusader Capital Group, Inc. filed a complaint against the
company in civil action number CV-N-411-DWH-RAM in the United States District
Court for the district of Nevada. The company was served with this complaint on
or about August 10, 2000. This complaint alleges undetermined damages for
misrepresentations, omissions, breach of contract and unjust enrichment related
to Crusaders purchase of restricted stock in the company during the first
quarter of 2000. The case is in the discovery phase of litigation, however, a
settlement agreement has been reached in principal, subject to execution of the
final settlement documents. The Company has issued a total of 166,667 shares of
restricted common stock that will be delivered to Crusader Capital Group, Inc.
upon execution of the final settlement agreement.

7. Related Party Transactions:

The Company made an investment in Ultimate Franchise Systems, Inc. (USFI) on
August 1, 2000 in an exchange of 1,000,000 shares of the Company's stock valued
at $400,000 for 1,000,000 shares of common stock in USFI and other
consideration, valued at $400,000. Further to the agreement the Company will
develop a home delivery web site and on-line ordering system for a fee of $75.00
per unit per month in approximately 300 restaurants, plus a royalty of 5% of
on-line gross sales. At the time of the transaction, Donald A. Mitchell was a
director of both E-Rex and UFSI.

F-27

On September 1, 2000 the Company completed the purchase of assets from Webulate
LLC. The assets include software, equipment and stock in DiveDepot.Com, Inc.
The transaction was completed with $40,000 cash and $200,000 in convertible note
payables valued for a total of $240,000. The President of the Company, Mr.
Dilley, and the Chairman, Mr. Mitchell, are also on the Board of Directors of
DiveDepot.Com, Inc.

The Company entered into an agreement on January 21, 2000 with International
Investment Banking, Inc. ("IIBI") whereby IIBI will serve as senior management
of the Company for an initial term of two years unless further extended by
mutual agreement of the parties. The Chairman of the Company, Donald A.
Mitchell, also controls IIBI. Pursuant to the agreement, IIBI receives $10,000
per month and reimbursement of normal business expenses that it incurs on behalf
of the Company and certain expenses of individual consultants that IIBI assigns
to carry out the duties and responsibilities of IIBI. Thereafter the annual
compensation shall increase at a rate of 20% per year. In addition to monthly
compensation, IIBI or Mr. Mitchell may be entitled to receive an annual bonus as
determined by the Company's Board of Directors payable in common stock or cash.
Mr. Mitchell was granted 2,000,000 shares of common stock representing 1,000,000
common shares for each year of IIBI's engagement. As an addendum to this
agreement, IIBI was directed on the Company's behalf to execute the following:
Purchase 8,237,616 shares of stock from two of the Company's former directors
for $250,000; issue 6,000,000 shares of stock to Stockbroker Relations, Inc. per
an investor relations contract; and issue IIBI 1,000,000 shares of restricted
common stock. On February 28, 2001 the board of Directors issued 600,000
restricted shares under Regulation D to IIBI in satisfaction of an outstanding
debt of $120,000.

On February 22, 2001 the Company issued 75,000 shares of common stock to Jeffrey
Harvey, a director and officer, for legal services valued at $15,000, and 75,000
shares of common stock to Carl Dilley, for management services valued at
$28,500. The issuances were registered on Form S-8.

The Company assumed a promissory note payable to Valcom Ltd, a West Vancouver,
British Columbia Company, dated March 15, 1997 in the amount of $6,450 with no
interest stated. This note was assumed by the Company from the merger as
described in footnote 5. The Company has also entered into an agreement for
design and integration work with Valcom Ltd, an entity controlled by a
shareholder of the Company, Paul R. Macpherson, who was also a director of the
Company at the time the agreement was entered into. The Company continues an
ongoing relationship with Valcom Ltd. in that the Company uses Valcom Ltd. as
its resource for research and development of its computer hardware and software
product development along with a company by the name of Riotech.

8. Convertible Debenture Bonds:

Refer to Footnote 7 with regard to bonds issued to related parties. These
convertible debentures accrue interest at the rate of 10% per annum.

9. Stockholders' Equity:

Refer to Footnote 7 with regard to equity changes with related parties.

In February 2000, the Company issued an aggregate of 170,000 shares of common
stock, restricted in accordance with Rule 144, to nine individuals, each at a
price of $0.10 per share for total consideration to the Company of $17,000. The
issuances were exempt from registration pursuant to Rule 504 promulgated under
Regulation D of the Securities Act of 1933.

F-28

In March 2000, the Company issued 60,000 shares of common stock to Brenda
Hamilton and 6,000,000 shares to Stockbroker Presentations, Inc., all restricted
in accordance with Rule 144, for services rendered to the Company. The
issuances were exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933 and the shareholders were accredited.

In March 2000, the Company issued 2,000,000 shares of common stock to Donald A.
Mitchell without restrictive legend in accordance with Regulation S, for
services rendered to the Company.

In April 2000, the Company issued an aggregate of 3,290,000 shares of common
stock, restricted in accordance with Rule 144, to nineteen individuals, each at
a price of $0.10 per share for total consideration to the Company of $329,000.
The issuances were exempt from registration pursuant to Rule 506 promulgated
under Regulation D of the Securities Act of 1933. In November 2000, the Company
issued an aggregate of 930,003 shares of common stock, restricted in accordance
with Rule 144, and options to acquire a total of 2,790,000 shares of common
stock at an exercise price of $1.00 per share which expire on July 1, 2002, to
eighteen of these individuals. The issuances were exempt from registration
pursuant to Rule 506 promulgated under Regulation D of the Securities Act of
1933. The issuances were made as additional consideration for delays related to
misunderstandings and representations made to the investors by prior management.

In July 2000 the Company issued a convertible debenture to Dale Sawyer in the
face amount of $20,000. The debenture is convertible into 32,000 shares of
common stock of the Company until July 1, 2002. The issuance was exempt from
registration pursuant to Rule 506 promulgated under Regulation D of the
Securities Act of 1933.

From July to November 2000, the Company issued options to acquire 790,000 shares
of common stock at an exercise price of $1.00 per share to twelve individuals in
exchange for services rendered to the Company. The options all expire on July
1, 2001. The issuances were exempt from registration pursuant to Section 4(2)
of the Securities Act of 1933 and the shareholders were accredited.

In August and September 2000, the Company issued 1,000,000 shares of common
stock to Corporate Service Providers, 100,000 shares to Ben Grocock, and 6,667
shares to K. Soderstrom, all restricted in accordance with Rule 144, for
services rendered to the Company. The issuances were exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933 and the shareholders were
accredited.

In August and November 2000, the Company issued 20,000 shares of common stock to
Jeffrey M. Harvey and 200,000 to Carl E. Dilley, restricted in accordance with
Rule 144, for services rendered to the Company. The issuances were exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933 and the
shareholders were accredited.

In November 2000, the Company issued 76,786 shares of common stock to Carl E.
Dilley for services rendered to the Company. The issuance was registered on
Form S-8.

In November 2000, the Company issued 75,893 shares of common stock to Ben
Grocock, 32,923 shares to Byron Rambo, 12,582 shares to J. Walker, 15,000 shares
to S. Owlett, and 18,079 shares to R. Patterson for services rendered to the
Company. The issuances were registered on Form S-8.

F-29

In August 2000, the Company issued options to acquire 3,000,000 shares of common
stock to Ultimate Franchise Systems, Inc. The options expire on July 27, 2002.
The issuance was exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933 and the shareholder was accredited.

In September 2000 the Company issued a convertible debenture to Webulate, LLC in
the face amount of $200,000. The debenture is convertible into 400,000 shares
of common stock of the Company until July 1, 2002. The issuance was exempt from
registration pursuant to Rule 506 promulgated under Regulation D of the
Securities Act of 1933.

In November 2000, the Company issued 80,000 shares of common stock to Jeffrey M.
Harvey for services rendered to the Company. The issuance was registered on
Form S-8.

In November 2000, the Company issued 166,667 shares of common stock, restricted
in accordance with Rule 144, to Crusader Capital as consideration for the
settlement of a lawsuit. The issuance was exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933 and the shareholder was accredited.

In November 2000 the Company issued a convertible debenture to Ruth Beiler in
the face amount of $20,000. The debenture is convertible into 40,000 shares of
common stock of the Company until July 1, 2002. The issuance was exempt from
registration pursuant to Rule 506 promulgated under Regulation D of the
Securities Act of 1933.

In December 2000 the Company issued options to acquire 2,700,000 shares of
common stock to Swartz Private Equity, LLC as consideration for the equity line
of credit provided by Swartz. The exercise price on the options is determined
in accordance with a formula, and expire on September 22, 2007.

In February 2001, the Company issued 75,000 shares of common stock to Jeffrey M.
Harvey, 142,500 shares of common stock to Carl E. Dilley, 119,720 shares to Ben
Grocock, 61,935 shares to Byron Rambo, 53,958 shares to J. Knigin, 53,958 shares
to S. Niakan, and 53,958 shares to A. Sikorski for services rendered to the
Company. The issuances were registered on Form S-8.

In February 2001, the Company issued 20,000 shares of common stock, restricted
in accordance with Rule 144, to M. Wilson, an employee of the Company. The
issuance was exempt from registration pursuant to Section 4(2) of the Securities
Act of 1933.

F-30

In February 2001, the Company issued 600,000 shares of common stock, restricted
in accordance with Rule 144, to International Investment Banking, Inc. as
consideration for investment banking services rendered to the Company. The
issuance was exempt from registration pursuant to Section 4(2) of the Securities
Act of 1933.

In April 2001, the Company issued 320,153 shares of common stock to Action
Stocks, Inc. and 26,000 shares of common stock to James Williams, all restricted
in accordance with Rule 144, to as consideration for services rendered to the
Company. The issuances were exempt from registration pursuant to Section 4(2)
of the Securities Act of 1933.

In May and June 2001, the Company issued 1,395,000 shares of common stock,
restricted in accordance with Rule 144, to Big Apple Consulting U.S.A., Inc. as
consideration under the Business Development Agreement. The issuance was exempt
from registration pursuant to Section 4(2) of the Securities Act of 1933.

10. Other Agreements

On June 15, 2001 the company entered into an agreement with Anne Balduzzi to
develop a sales and marketing plan for the Dragonfly and strategy for
introducing the Dragonfly into the marketplace. The study will include
researching overall consumer sales and distribution markets (wholesale, retail,
OEM and otherwise) for the Dragonfly, and preparing a report of its research
results and a strategic plan for introducing and distributing the Dragonfly into
and throughout appropriate markets and market segments. The agreement calls for
the payment of pre-approved expenses.

On May 25, 2001, the Company entered into an agreement with Big Apple Consulting
U.S.A., Inc., to provide marketing services to the Company in order to introduce
the Dragonfly product into the Northern European market. The services rendered
will include a market study and analysis, introduction to major wireless and
other telecom entities that may have an interest in purchasing, distributing,
and manufacturing the Dragonfly. The agreement calls for the payment of
pre-approved expenses and a 5% commission on sales effected by the consultant.

11. Concentrations of risk:

Other than capital financing, the Company relies principally on operating
revenue from internet web hosting, design, and consulting services. Development
of computer hardware and software products continues, but is not funded by the
Company's current operations.

12. Required Cash Flow Disclosure:

The Company had no interest income and income taxes paid for the three month
period ending June 30, 2001.

F-31

For the six months ending June 30, 2001, the Company entered into agreements for
non-cash exchanges of stock for services totaling $814,718.

For the six months ending June 30, 2001, the Company entered into agreements for
non-cash exchanges of free trading shares stock for software research and
development valued at $31,275.

F-32

YOU MAY RELY ON THE INFORMATION Dealer Prospectus Delivery
CONTAINED IN THIS PROSPECTUS. WE Obligation. Until ________, 2002;
HAVE NOT AUTHORIZED ANYONE TO all dealers that effect transactions
PROVIDE INFORMATION DIFFERENT FROM in these securities, whether or not
THAT CONTAINED IN THIS PROSPECTUS. participating in this offering, may
NEITHER THE DELIVERY OF THIS be required to deliver a prospectus.
PROSPECTUS NOR SALE OF COMMON STOCK This is in addition to the dealers'
MEANS THAT INFORMATION CONTAINED IN obligation to deliver a Prospectus
THIS PROSPECTUS IS CORRECT AFTER when acting as underwriters and with
THE DATE OF THIS PROSPECTUS. THIS respect to their unsold allotments
PROSPECTUS IS NOT AN OFFER TO SELL or subscriptions.
OR A SOLICITATION OF AN OFFER TO
BUY THESE SHARES OF THE COMMON
STOCK IN ANY CIRCUMSTANCES UNDER
WHICH THE OFFER OR SOLICITATION IS
UNLAWFUL.

_________________

TABLE OF CONTENTS 32,700,000 SHARES

Page
----

Prospectus Summary 2
Risk Factors 5 E-REX, INC.
Use of Proceeds 10
Selling Security Holders 11
Plan of Distribution 16
Legal Proceedings 17
Directors, Executive Officers, Promoters
and Control Persons 18
Security Ownership of Certain Beneficial
Owners and Management 19
Description of Securities 21
Interests of Experts and Counsel 21
Disclosure of Commission Position on
Indemnification For Securities ---------------
Act Liabilities 22 PROSPECTUS
Description of Business 23 ---------------
Management's Discussion and Analysis
or Plan of Operation 27
Description of Property 31
Certain Relationships
and Related Transactions 31
Market for Common Equity _________, 2001
and Related Stockholder Matters 33
Executive Compensation 34
Changes in Accountants 37
Available Information 37
Experts 38
Index to Consolidated Financial
Statements 38

PART II - INFORMATION NOT REQUIRED IN PROSPECTUS

INDEMNIFICATION OF DIRECTORS AND OFFICERS

Our Articles of Incorporation do not further address indemnification, and
there are no resolutions of our shareholders or directors which address
indemnification.

OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

We will pay all expenses in connection with the registration and sale of
the common stock by the selling security holders. The estimated expenses of
issuance and distribution are set forth below:

Registration Fees . . . . . . . Approximately $ 250.00
Transfer Agent Fees . . . . . . Approximately $ 1,500.00
Costs of Printing and Engraving Approximately $ 5,000.00
Legal Fees. . . . . . . . . . . Approximately $200,000.00
Accounting Fees . . . . . . . . Approximately $ 7,500.00
Total $214,250.00
-----------

RECENT SALES OF UNREGISTERED SECURITIES

In February 2000, the Company issued an aggregate of 170,000 shares of
common stock, restricted in accordance with Rule 144, to nine individuals, each
at a price of $0.10 per share for total consideration to the Company of $17,000.
The issuances were exempt from registration pursuant to Rule 504 promulgated
under Regulation D of the Securities Act of 1933.

In March 2000, the Company issued 2,000,000 shares of common stock to
Donald A. Mitchell without restrictive legend in accordance with Regulation S,
for services rendered to the Company.

In April 2000, the Company issued an aggregate of 3,290,000 shares of
common stock, restricted in accordance with Rule 144, to nineteen individuals,
each at a price of $0.10 per share for total consideration to the Company of
$329,000. The issuances were exempt from registration pursuant to Rule 506
promulgated under Regulation D of the Securities Act of 1933. In November 2000,
the Company issued an aggregate of 930,003 shares of common stock, restricted in
accordance with Rule 144, and options to acquire a total of 2,790,000 shares of
common stock at an exercise price of $1.00 per share which expire on July 1,
2002, to eighteen of these individuals. The issuances were exempt from
registration pursuant to Rule 506 promulgated under Regulation D of the
Securities Act of 1933. The issuances were made as additional consideration for
delays related to misunderstandings and representations made to the investors by
prior management.

II-1

In July 2000 the Company issued a convertible debenture to Dale Sawyer in
the face amount of $20,000. The debenture is convertible into 32,000 shares of
common stock of the Company until July 1, 2002. The issuance was exempt from
registration pursuant to Rule 506 promulgated under Regulation D of the
Securities Act of 1933.

From July to November 2000, the Company issued options to acquire 790,000
shares of common stock at an exercise price of $1.00 per share to twelve
individuals in exchange for services rendered to the Company. The options all
expire on July 1, 2001. The issuances were exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933 and the shareholders were accredited.

In November 2000, the Company issued 76,786 shares of common stock to Carl
E. Dilley for services rendered to the Company. The issuance was registered on
Form S-8.

In September 2000 the Company issued a convertible debenture to Webulate,
LLC in the face amount of $200,000. The debenture is convertible into 400,000
shares of common stock of the Company until July 1, 2002. The issuance was
exempt from registration pursuant to Rule 506 promulgated under Regulation D of
the Securities Act of 1933.

II-2

In November 2000, the Company issued 80,000 shares of common stock to
Jeffrey M. Harvey for services rendered to the Company. The issuance was
registered on Form S-8.

In November 2000, the Company issued 166,667 shares of common stock,
restricted in accordance with Rule 144, to Crusader Capital as consideration for
the settlement of a lawsuit. The issuance was exempt from registration pursuant
to Section 4(2) of the Securities Act of 1933 and the shareholder was
accredited.

In November 2000, the Company issued a convertible debenture to Ruth Beiler
in the face amount of $20,000. The debenture is convertible into 40,000 shares
of common stock of the Company until July 1, 2002. The issuance was exempt from
registration pursuant to Rule 506 promulgated under Regulation D of the
Securities Act of 1933.

In February 2001, the Company issued 20,000 shares of common stock,
restricted in accordance with Rule 144, to M. Wilson, an employee of the
Company. The issuance was exempt from registration pursuant to Section 4(2) of
the Securities Act of 1933.

In April 2001, the Company issued 320,153 shares of common stock to Action
Stocks, Inc. and 26,000 shares of common stock to James Williams, all restricted
in accordance with Rule 144, as consideration for services rendered to the
Company. The issuances were exempt from registration pursuant to Section 4(2)
of the Securities Act of 1933.

II-3

In July 2001, the Company issued 200,000 shares of common stock, restricted
in accordance with Rule 144, to Big Apple Consulting U.S.A., Inc. as
consideration under the Business Development Agreement. The issuance was exempt
from registration pursuant to Section 4(2) of the Securities Act of 1933.

In August 2001, the Company issued 20,000 shares of common stock,
restricted in accordance with Rule 144, to each of M. Balduzzi and A. Balduzzi
as consideration under a services agreement. The issuances were exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933.

In August 2001, the Company issued 280,000 shares of common stock,
restricted in accordance with Rule 144, to Frank Horwich as consideration for
the conversion of debt. The issuance was exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933.

In September 2001, the Company issued 928,572 shares of common stock,
restricted in accordance with Rule 144, to Terry Shores as consideration under a
settlement agreement. The issuance was exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933.

In October 2001, the Company issued 50,000 shares of common stock,
restricted in accordance with Rule 144, to T. Prochnow as consideration for
services rendered to the Company. The issuance was exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933.

Exhibits

Exhibit No. Description
----------- --------------------------------------------------------------------------------------------------

3.1 . . . . Articles of Incorporation of P.R. Stock, Inc.

3.2 . . . . Amendment to the Articles of Incorporation of P.R. Stocks, Inc.

3.3 . . . . Articles of Merger of Medgain International Corporation into National Health & Safety Corporation

3.4 . . . . Amendment to the Articles of Incorporation of Medgain International Corporation

3.5 . . . . Bylaws of P.R. Stocks, Inc.

4.1 . . . . Second Amended and Restated Investment Agreement

4.2 . . . . Second Amended and Restated Registration Rights Agreement

II-4

4.3 . . . . Warrant to Purchase Common Stock of E-Rex, Inc.

5.1*. . . . Legal Opinion of The Lebrecht Group, APLC

23.1. . . . Consent of Gately & Associates, LLC

23.2. . . . Consent of Varma and Associates

23.2. . . . Consent of The Lebrecht Group, APLC (included in Exhibit 5.1)

* to be filed by amendment

UNDERTAKINGS

A. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by us of expenses incurred or paid by
our director, officer or controlling person in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, we will, unless in
the opinion of our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.

B. We hereby undertake:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement
to:

(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would
not exceed that which was registered) any deviation from the low
or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) (Section 230.424(b) of Regulation S-B)
if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the
effective Registration Statement; and

(iii) Include any additional or changed material information on
the plan of distribution.

II-5

(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time
to be the initial bona fide offering.

(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.

II-6

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorizes this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Miami, State of Florida, on October 30, 2001.

E-Rex, Inc.,
a Nevada corporation

/s/ Carl Dilley
________________________________
By: Carl Dilley
Its: President

In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.

/s/ Carl Dilley
__________________________ October 30, 2001
By: Carl Dilley
Its: President, Secretary, Treasurer,
principal financial officer,
principal accounting officer,
and Director

/s/ Donald A. Mitchell
__________________________ October 30, 2001
By: Donald A. Mitchell
Its: Director

/s/ Joseph Pacheco
__________________________ October 30, 2001
By: Joseph Pacheco
Its: Director

II-7