SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SECOND AMENDED
FORM 10-QSB/A
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________ to _______________.
COMMISSION FILE NUMBER O-27319
E-REX, INC.
(Exact name of registrant as specified in its charter)
NEVADA 88-0292890
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11645 BISCAYNE BOULEVARD, SUITE 210
MIAMI, FLORIDA 33181
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (305) 895-3350
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No.
----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes No.
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. As of September 30, 2000,
there were 22,400,883 shares of common stock issued and outstanding.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT
(check one):
Yes _____ No X
-----
E-REX, INC.
TABLE OF CONTENTS
-----------------
PART I
Item 1 Financial Statements
Item 2 Management's Discussion and Analysis or Plan of Operations
PART II
Item 1 Legal Proceedings
Item 2 Changes in Securities and Use of Proceeds
Item 3 Defaults Upon Senior Securities
Item 4 Submission of Matters to a Vote of Security Holders
Item 5 Other Information
Item 6 Exhibits and Reports on Form 8-K
2
PART I
EXPLANATORY NOTE
In response to comments from the United States Securities and Exchange
Commission, E-Rex, Inc. has restated its Quarterly Statement on Form 10-QSB.
This Quarterly Statement is for the quarter ended September 30, 2000, and was
originally filed with the Commission on November 20, 2000, and was amended on
March 22, 2001. References throughout this Quarterly Statement are accurate as
of the date originally filed. The Company has not undertaken to update all of
the information in this Quarterly Report, but instead has updated only those
areas requested by the Commission. Please read all of the Company's filings
with the Commission in conjunction with this Quarterly Report.
This Quarterly Report includes forward-looking statements within the meaning of
the Securities Exchange Act of 1934 (the "Exchange Act"). These statements are
based on management's beliefs and assumptions, and on information currently
available to management. Forward-looking statements include the information
concerning possible or assumed future results of operations of the Company set
forth under the heading "Management's Discussion and Analysis of Financial
Condition or Plan of Operation." Forward-looking statements also include
statements in which words such as "expect," "anticipate," "intend," "plan,"
"believe," "estimate," "consider" or similar expressions are used.
Forward-looking statements are not guarantees of future performance. They
involve risks, uncertainties and assumptions. The Company's future results and
shareholder values may differ materially from those expressed in these
forward-looking statements. Readers are cautioned not to put undue reliance on
any forward-looking statements.
ITEM 1 FINANCIAL STATEMENTS
3
E-REX, INC.
BALANCE SHEET
AS OF SEPTEMBER 30, 2000 AND DECEMBER 31, 1999.
(A Development Stage Company)
ASSETS
------
SEPTEMBER 30 DECEMBER 31
2000 1999
------- -------
CURRENT ASSETS
- --------------
Cash 2,051 22,006
Accounts receivable 7,524 -
------------ ------------
Total Current Assets $ 9,575 $ 22,006
------------ ------------
OTHER ASSETS
- ------------
Furniture and equipment $ 21,855 $ 4,937
Software $ 67,060 $ -
Less: accumulated depreciation $ (207) $ (2,896)
Investment in Ultimate Franchise Systems, Inc. $ 200,000 $ -
Investment in DiveDepot.Com, Inc. $ 100 $ -
------------ ------------
Total Other Assets $ 288,808 $ 2,041
------------ ------------
TOTAL ASSETS $ 298,383 $ 24,047
============ ============
LIABILITIES AND STOCKHOLDERS' DEFECIT
--------------------------------------
CURRENT LIABILITIES
- -------------------
Accounts payable 140,184 82,075
Accrued management fee payable 60,000 -
Accrued wages and salaries payable 13,465 -
Loan payable - 6,450
Stock payable 280,800 -
Demand note payable 25,781 -
Other accrued liabilities 500 -
------------ ------------
Total current liabilities $ 520,730 $ 88,525
------------ ------------
LONG TERM LIABILITIES
- ---------------------
Long term debt 220,000 -
Other long term liabilities 147,232 -
------------ ------------
Total long term liabilities $ 367,232 $ -
------------ ------------
TOTAL LIABILITIES $ 887,962 $ 88,525
------------ ------------
STOCKHOLDERS' EQUITY
--------------------
STOCKHOLDERS' EQUITY
- ----------------------
Common stock, $.001 par value, 100,000,000 authorized, 22,401 15,702
22,400,883 and 15,701,832 shares issued
and outstanding respectively.
Accrued stock compensation (3,138,045) -
Additional paid in capital 9,360,034 708,799
Defecit accumulated during the development stage (6,484,069) (788,979)
Accumulated other loses (349,900) -
Total stockholders' Equity $ (589,579) $ (64,478)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 298,383 $ 24,047
============ ============
See accompanying notes to the financial statements
4
E-REX, INC.
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDING SEPTEMBER 30, 2000 AND 1999
THE NINE MONTHS ENDING SEPTEMBER 30, 2000 AND 1999
FROM INCEPTION (AUGUST 26, 1986) TO SEPTEMBER 30, 2000
(A Development Stage Company)
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
30-SEP 30-SEP 30-SEP 30-SEP FROM
2000 1999 2000 1999 INCEPTION
----------- ------------ ------------ -------------- -----------
REVENUE
- -------
Operating Revenue $ 7,524 $ - $ 7,524 $ - $ 7,524
------------ ------------ ------------ -------------- -----------
Total revenue 7,524 - 7,524 - 7,524
============ ============ ============ ============== ===========
EXPENSES
- --------
General and administrative 2,509,422 122,115 5,702,614 426,453 6,613,758
Research and development costs - - - -
------------ ------------ ------------ -------------- -----------
Total expenses and adjustments 2,509,422 122,115 5,702,614 426,453 6,631,758
------------ ------------ ------------ -------------- -----------
LOSS FROM OPERATIONS (2,501,898) (122,115) (5,695,090) (426,453) (6,606,234)
- --------------------
OTHER INCOME
- ------------
Interest income - - - - 1,439
Recovery from lawsuit - - - - 120,726
------------ ------------ ------------ -------------- -----------
INCOME (LOSS) BEFORE INCOME TAXES $(2,501,898) $ (122,115) $(5,695,090) $ (426,453) $(6,484,069)
- ---------------------------------
Income Taxes - - - (1,463) -
------------ ------------ ------------ -------------- -----------
NET INCOME (LOSS) $(2,501,898) $ (122,115) $(5,695,090) $ (427,916) $(6,484,069)
- ----------------- ============ ============ ============ ============== ===========
Weighted average
Number of shares 18,607,310 15,231,832 18,607,310 15,331,832
Basic and diluted EPS $ (0.13) $ (0.01) $ (0.31) $ (0.03)
5
E-REX, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (AUGUST 26, 1986) TO SEPTEMBER 30, 2000
(A Development Stage Company)
DEFECIT
ACCRUED ADDITIONAL ACCUMULATED
COMMON STOCK STOCK PAID-IN DURING
SHARES AMOUNT COMPENSATION CAPITAL DEV. STAGE TOTAL
----------- -------- ------------ ----------- ----------- -----------
Issuance of shares of common
stock on Aug. 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)
Issuance of shares of common
stock to the public on Feb. 3,
1933 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
6
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
Common stock issued for
services Sep. , 1998 1,682,000 1,682 1,000 2,682
Common shares issued
in Reg D-504 exempt 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
for cash 424,000 424 113,076 113,500
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 9,386,667 9,387 8,069,547 8,078,934
Accrued
stock compensation (3,138,045) (3,138,045)
Common shares issued in
exchange of shares as
an investment 1,000,000 1,000 399,000 400,000
7
Common share purchased
as treasury stock and retired (6,977,616) (6,978) (143,022) (150,000)
Accumulated Other Comprehensive losses, net of tax
Net unrealized gains (losses) on marketable equity securities (349,900)
Net loss for the period (5,695,090) (5,695,090)
----------- -------- ------------ ----------- ----------- -----------
Balance, September 30, 2000 22,400,883 $ 22,401 (3,138,045) 9,360,034 (6,484,069) (589,579)
=========== ======== ============ =========== =========== ===========
See accompanying notes to the financial statements
8
E-REX, INC.
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDING SEPTEMBER 30, 2000 AND 1999
THE TWELVE MONTHS ENDING DECEMBER 31, 1999 AND
FROM INCEPTION (AUGUST 26, 1986) TO SEPTEMBER 30, 2000
(A Development Stage Company)
NINE MONTHS NINE MONTHS TWELVE MONTHS FROM
ENDED ENDED ENDED INCEPTION
30-SEP 30-SEP 31-DEC TO
2000 1999 1999 DATE
----------- ------------ ------------ --------------
CASH FLOWS FROM (FOR)
OPERATING ACTIVITIES
- ---------------------
Net income (Loss) (5,695,090) (427,916) (464,436) (6,484,069)
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Stock issued for research and
development expense 124,595 124,595
Stock issued for services 4,816,294 25,072 128,608 5,006,970
Depreciation (2,863) (2,863)
Warrants issued for Services 280,800 280,800
Increase (decrease) receivables 7,524 7,524
Increase (decrease) accrued expenses 125,624 97,851 71,940 191,232
Other 0 14,940 29,014 29,014
------------ ------------ ------------ --------------
Total adjustments to net loss $ 5,351,974 $ 137,863 $ 229,562 $ 5,637,272
------------ ------------ ------------ --------------
Net cash provided by (used in)
operating activities (343,116) (290,053) (234,874) (846,797)
------------ ------------ ------------ --------------
CASH FLOWS FROM (FOR)
INVESTING ACTIVITIES
- ---------------------
Purchase of equipment (21,281) (21,281)
Purchase of furniture (5,511) (2,403) (5,511)
Purchase of Software (22,060) (22,060)
------------ ------------ ------------ --------------
Net cash provided in (used in)
investing activities (48,852) (2,403) - (48,852)
------------ ------------ ------------ --------------
CASH FLOWS FROM (FOR
FINANCING ACTIVITIES
- --------------------
Purchase of treasury stock (150,000) (150,000)
Proceeds of Conv Debt Issue 20,000 20,000
Proceeds from loan 487,013 487,013
Payment on loan (314,000) (314,000)
Proceeds from issuance of stock 329,000 121,666 80,833 854,687
------------ ------------ ------------ --------------
Net cash provided by (used in)
financing activities 372,013 121,666 80,833 897,700
------------ ------------ ------------ --------------
CASH RECONCILIATION
- -------------------
Net increase (decrease) in cash (19,955) (170,790) (154,041) 2,051
Beginning cash balance 22,006 176,047 176,047 0
------------ ------------ ------------ --------------
CASH BALANCE AT END OF PERIOD $ 2,051 $ 5,257 $ 22,006 $ 2,051
- --------------------------------- ============ ============ ============ ==============
See accompanying notes to the financial statements
9
E-REX, INC.
FORM 10-QSB
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
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.
Revenue Recognition - The Company performs all services or delivers all products
prior to recognizing revenue. Monthly services are considered to be performed
ratably over the term of the arrangement. Professional consulting services are
considered to be performed when the services are complete. Fees for certain
monthly services, including certain portions of networking, web hosting, and
e-mail services, are variable based on an objectively determinable factor such
as usage. Such factors are included in the written contract such that the
customer's fee is determinable. The customer's fee is negotiated at the outset
of the arrangement and is not subject to refund or subject to adjustment during
the initial term of the arrangement.
The Company determines that collectibility is reasonably assured prior to
recognizing revenue. Collectibility is assessed on a customer by customer basis
based on criteria outlined by management. New customers are subject to a credit
review process, which evaluates the customer's financial position and ultimately
its ability to pay. The Company does not enter into arrangements unless
collectibility is reasonably assured at the outset. Existing customers are
subject to ongoing credit evaluations based on payment history and other
factors. If it is determined during the arrangement that collectibility is not
reasonably assured, revenue is recognized on a cash basis.
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.
10
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.
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.
The Company accounts for marketable securities in accordance with Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." This statement requires securities which are
available-for-sale to be carried at fair value, with changes in fair value
recognized as a separate component of stockholders' equity.
Realized gains and losses are determined on the basis of specific
identification. Declines in the fair value of individual available-for-sale
securities below their cost that are other than temporary result in write-downs
of the individual securities to their fair value. The related write-downs are
included in earnings as realized losses.
Non-marketable securities - The Company accounts for investments for which the
Company does not have the ability to exercise significant influence or for which
there is not a readily determinable market value, under the cost method of
accounting. Additionally, certain securities are restricted and are not
transferable.
The Company periodically evaluates the carrying value of its investments
accounted for under the cost method of accounting and as of September 30, 2000,
such investments were recorded at the lower of cost or estimated net realizable
value.
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.
This factor, among others, raises substantial doubt as to the Company's ability
to continue as a going concern.
11
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 endeavors.
E-Rex has 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.
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.
12
Since the Company has not generated cumulative taxable income since inception,
no provision for income taxes has been provided. At September 30, 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 September 30, 2000 the Company did not
have any significant deferred tax liabilities or deferred tax assets.
4. Development Stage Company:
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 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.
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.
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, 2999, forward. 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 company believes the claims made in the complaint are
without merit and intends to defend itself vigorously in this matter.
13
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.
In February 2002, the Company was served with a lawsuit brought by a group of
ten (10) plaintiffs, namely Carol Gamble Trust 86, June L. Blackwell, June L.
Blackwell and Christopher Ford, as joint tenants, Terry Shores, Steve Rigg, Karl
Weinacker, Ressoyia Anderson, Mel Goodman, Slawomir Kownacki, and John
Bussjeager, in the United States District Court, District of Nevada. The
defendants in the action are the Company, its Board of Directors, a former
Director, the Company's legal counsel, and two corporate entities.
The Complaint alleges, among other things, that the plaintiffs are shareholders
of the Company, that they acquired stock of the Company based on
misrepresentations, that management of the Company misappropriated assets of the
Company, and further alleges violations of the Securities Act of 1933 and the
Securities Exchange Act of 1934. The Complaint requests an unspecified amount
of damages, that the Board of Directors and officers of the Company be removed,
and that a receiver or custodian be appointed to operate the business, as well
as a judicial determination that the action be maintained as a class action. A
hearing has been set for March 7, 2002, on plaintiff's motion for appointment of
a receiver and/or custodian, or in the alternative for call of a special meeting
of shareholders.
The Company is vigorously defending this lawsuit although the Company believes
that the action lacks merit. The case is at a stage where no discovery has been
taken and no prediction can be made as to the outcome of this case.
7. Related Party Transactions:
The Company made two investments during the period. The first investment was in
Ultimate Franchise Systems, Inc. in an exchange of 1,000,000 shares of the
Company's stock valued at $400,000. The second investment was a purchase of
software, equipment and 100,000 shares of DiveDepot.com, Inc. stock from
Webulate LLC. The transaction was completed with cash of $40,000 and
convertible notes payable valued at $200,000. The President of the Company Mr.
Dilley, and the director Mr. Mitchell, are also on the Board of Directors of
DiveDepot.Com, Inc.
The company has written down the value of the investment in Ultimate Franchise
Systems, Inc. to $200,000.00 reflecting the closing market price of the stock at
as of Sept 30, 2000.
DiveDepot.Com, Inc has restated it's earnings for this period reflecting a
substantial write off of it's investment in internet related projects resulting
in negative shareholders equity as of Sept 30, 2000. DiveDepot.com, Inc is not
publicly traded and therefore the company has written down the value of the
investment in DiveDepot.Com, Inc. to $100.00 reflecting the par value of the
stock at as of Sept 30, 2000.
14
The write-downs in investments in DiveDepot.Com, Inc and Ultimate Franchise
Systems, Inc. resulted in a decline in the book value of investment assets of
$349,900.00 for the period ending Sept 30, 2000. These write-downs are deemed to
be temporary in nature as investments in both entities have substantial
operating revenues and it is anticipated that their respective share values may
increase in the future.
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 6,977,616 shares of stock from two of
the Company's former directors for $150,000; 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 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 that was a director of the Company at the time the
agreement was entered into.
8. Stockholders' Equity from January 1, 2000 through September 30, 2000
Stock options have been granted by E-Rex 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 entered into an investment financing agreement with Swartz private
equity LLC. The agreement is subject to SEC approval and as part of this
agreement the company has issued 900,000 warrants to acquire the common stock of
E-Rex at the exercisable for seven (7) years at a price of $.50 per share. The
agreement also provides for the repricing of these warrants as per the following
formula:
15
The Exercise Price per share ("Exercise Price") shall initially equal (the
"Initial Exercise Price") the lowest Closing Price for the five (5) trading days
immediately preceding September 22, 2000, which is $0.50. If the lowest Closing
-----
Price of the Company's Common Stock for the five (5) trading days immediately
preceding the date, if any, that Swartz Private Equity, LLC executes an
Investment Agreement pursuant to the Letter of Agreement (the "Closing Market
Price") is less than the Initial Exercise Price, the Exercise Price shall be
reset to equal the Closing Market Price, or, if the Date of Exercise is more
than six (6) months after the Date of Issuance, the Exercise Price shall be
reset to equal the lesser of (i) the Exercise Price then in effect, or (ii) the
"Lowest Reset Price," as that term is defined below. The Company shall
calculate a "Reset Price" on each six-month anniversary date of the Date of
Issuance which shall equal the lowest Closing Price of the Company's Common
Stock for the five (5) trading days ending on such six-month anniversary date of
the Date of Issuance. The "Lowest Reset Price" shall equal the lowest Reset
Price determined on any six-month anniversary date of the Date of Issuance
preceding the Date of Exercise, taking into account, as appropriate, any
adjustments made pursuant to Section 5 hereof. Notwithstanding the above if all
of the following are true on the date of an Exercise of this Warrant, then the
Exercise Price with respect to that Exercise only shall be $.50 (subject to any
adjustments required under Section 5 of this Warrant), notwithstanding any price
resets that would otherwise apply pursuant to this Section 3: (A) the Company
has not completed a reverse stock split anytime after the Date of Issuance
through and including the date of such Exercise, (B) the lowest Closing Price of
the Company's Common Stock for the five (5) trading days immediately preceding
the date of such Exercise is $3.00 or greater.
For purposes hereof, the term "Closing Price" shall mean the closing price on
the Nasdaq Small Cap Market, the National Market System ("NMS"), the New York
Stock Exchange, or the O.T.C. Bulletin Board, or if no longer traded on the
Nasdaq Small Cap Market, the National Market System ("NMS"), the New York Stock
Exchange, or the O.T.C. Bulletin Board, the "Closing Price" shall equal the
closing price on the principal national securities exchange or the
over-the-counter system on which the Common Stock is so traded and, if not
available, the mean of the high and low prices on the principal national
securities exchange on which the Common Stock is so traded.
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 an attached warrant to purchase common stock. 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.
9. Required Cash Flow Disclosure:
The Company had no interest and income taxes paid for the year. The Company
entered into a management agreement, as noted in footnote 7, in which the
Company issued for common stock for services. The Company has issued shares of
common stock for services in prior years.
10. Significant Equity Investments:
As of December 31, 2000 the company held an investment in Ultimate Franchise
Systems Inc. comprising in excess of 20% of the company's total assets.
16
The condensed Balance Sheet and Earnings Statement for the year ended September
30, 2000 for Ultimate Franchise Systems, Inc. follows:
Ultimate Franchise Systems, Inc.
For the Year Ended Sep 30-2000
BALANCE SHEET
Assets
Cash 148,072
Other Current Assets 698,497
Total Current Assets $ 846,569
-------------
Other Assets 10,484,315
Total assets $ 11,330,884
-------------
Liabilities
Current Liabilities 2,336,870
Other Liabilities 2,772,108
Total Liabilities $ 5,108,978
-------------
Redeemable common stock 293,000
Redeemable Series F preferred stock 2,468,750
Stockholders Equity
Preferred Stock 120,000
Common Stock 26,830,014
Accumulated Deficit (22,885,674)
Less: Stock sub receivable (687,500)
Accumulated Other Comp Income (loss) 83,316
Total Stockholders Equity 3,460,156
-------------
Total Liabilities and Stockholders Equity. . . $ 11,330,884
INCOME STATEMENT
Revenue 4,491,940
Operating Costs 6,434,978
Loss from Operations (1,943,038)
-------------
Other Income (Expense) (1,275,755)
Net Loss ($3,218,793)
Weighted Average of common shares outstanding. 22,796,417
Net Loss per common share. . . . . . . . . . . ($0.08)
17
ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Trends and Uncertainties.
Demand for the Company's products and services will be dependent on, among other
things, market acceptance of the Company's concept, its proposed operations and
general economic conditions that are cyclical in nature. Inasmuch as a major
portion of the Company's activities will be the receipt of revenues from the
sales of its products and services, the Company's business operations, upon
commencement, may be adversely affected by the Company's inability to obtain the
necessary financing, competitors and prolonged recessionary periods.
Capital and Source of Liquidity.
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. Initial working capital has been primarily obtained through
advances from the Company's chief executive officer.
The Company received proceeds from the issuance of Common Stock of $0 for the
three months ended September 30, 2000 resulting in net cash provided by
financing activities of $0.
In an exchange of stock and services agreement with Ultimate Franchise Systems,
Inc., the Company acquired securities valued at $400,000 for the three months
ended September 30, 2000.
The Company purchased fixed assets of $18,404 and invested $150,000 in a company
named DiveDepot.Com, Inc. for the three months ended September 30, 2000.
Investments and effect on Financial Position.
The Company made two investments during the period. The first investment was in
Ultimate Franchise Systems, Inc. in a non cash exchange of 1,000,000 shares of
the Company's stock valued at $400,000. The second investment was a purchase of
software, equipment and 100,000 shares of DiveDepot.com, Inc. stock from
Webulate LLC. The transaction was completed with cash of $40,000 and
convertible notes payable valued at $200,000. The President of the Company, Mr.
Dilley, and the director Mr. Mitchell, are also on the Board of Directors of
DiveDepot.Com, Inc.
The company has written down the value of the investment in Ultimate Franchise
Systems, Inc. to $200,000.00 reflecting the closing market price of the stock at
as of Sept 30, 2000.
DiveDepot.Com, Inc has restated it's earnings for this period reflecting a
substantial write off of it's investment in internet related projects resulting
in negative shareholders equity as of Sept 30, 2000. DiveDepot.com, Inc is not
publicly traded and therefore the company has written down the value of the
investment in DiveDepot.Com, Inc. to $100.00 reflecting the par value of the
stock at as of Sept 30, 2000.
The write-downs in investments in DiveDepot.Com, Inc and Ultimate Franchise
Systems, Inc. resulted in a decline in the book value of investment assets of
$349,900.00 for the period ending Sept 30, 2000. These write-downs are deemed to
be temporary in nature as investments in both entities have substantial
operating revenues and it is anticipated that their respective share values may
increase in the future.
18
Results of Operations.
During the third quarter of this year, the company purchased the ISP assets and
software of Webulate, LLC. With this acquisition, the company initiated
activities in the E-Tech design division of the company. This division provides
commercial web site design and consulting services to small business. For the
three months ending September 30, 2000, the company had gross revenues of
$7,524. For the three months ended September 30, 2000, the company had a net
loss of $2,501,898. The Company had a depreciation expense of $207 and issued
common stock valued at $913,384 for services for the three month period ended
September 30, 2000. The Company had an increase in loan payable to private
company of $52,232, an increase in accounts payable of $94,318, and an increase
in management fees payable of $30,000.
General and administrative expenses were $2,509,422 and consisted primarily of
accounting and legal of $50,275, rent of $1,737, wages of $55,426, management
fees of $1,984,800, travel expenses of $7,729,office supplies of $383, for the
three months ended September 30, 2000.
Plan of Operation.
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 E-Tech Design division of the
company. The Company's management is aggressively pursuing relationships/markets
for the E-Tech Design 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 continues its efforts
to raise capital. 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, there can be no
assurance that the Company will be able to obtain the needed additional equity
or debt financing in the future.
19
PART II
ITEM 1 LEGAL PROCEEDINGS
The only legal proceeding is a civil action filed by Crusader Capital
Group, Inc. as discussed in Item #6 - Litigation.
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
During the quarter ended September 30, 2000, the Company issued in a series
of private placements approximately 2,326,667 shares of restricted common stock
at a average price of $.392 per share. These shares were issued in exchange for
management services provided, and as part of a stock swap (share per share) with
UFSI Corp.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders during the
quarter.
ITEM 5 OTHER INFORMATION
Not applicable.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
20
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: March 28, 2002 E-Rex, Inc.
/s/ Carl E. Dilley
____________________________
By: Carl E. Dilley
Its: President and Chief
Financial Officer
21