SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FIRST 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 MARCH 31, 2001
[ ] 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 June 5, 2001, there
were 24,989,845 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 March 31, 2001, and was
originally filed with the Commission on June 16, 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 MARCH 31, 2001
(a Development Stage Company)
ASSETS
------
MARCH 31 MARCH 31
2001 2000
------------ -----------
CURRENT ASSETS
- ---------------------------------------------------------
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . (91) 92,701
Prepaid Expense . . . . . . . . . . . . . . . . . . . . 1,444 7,438,425
Accounts receivable from related parties. . . . . . . . 1,793 -
Accounts receivable . . . . . . . . . . . . . . . . . . 18,693 51,500
------------ -----------
Total Current Assets. . . . . . . . . . . . . . . . . $ 21,839 $7,582,626
------------ -----------
PROPERTY AND EQUIPMENT
- ---------------------------------------------------------
Furniture, equipment and software . . . . . . . . . . . 116,792 4,937
Less: accumulated depreciation. . . . . . . . . . . . . (10,982) (2,896)
- --------------------------------------------------------- ------------ -----------
Total Other Assets. . . . . . . . . . . . . . . . . . $ 105,810 $ 2,041
------------ -----------
OTHER ASSETS
- ---------------------------------------------------------
Investments . . . . . . . . . . . . . . . . . . . . . . $ 15,700 $ -
------------ -----------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . $ 143,349 $7,584,667
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------------------------
CURRENT LIABILITIES
- ---------------------------------------------------------
Accounts payable. . . . . . . . . . . . . . . . . . . . 168,216 73,179
Accrued liabilities . . . . . . . . . . . . . . . . . . 9,624 20,000
Stock Payable . . . . . . . . . . . . . . . . . . 730,800 -
Accrued interest on bonds . . . . . . . . . . . . . . . 13,377 -
Payable - related party . . . . . . . . . . . . . . . . 338,654 409,000
Demand Note Payable . . . . . . . . . . . . . . . . . . 1,000 6,450
------------ -----------
Total current liabilities . . . . . . . . . . . . . . $ 1,261,671 $ 508,629
------------ -----------
LONG TERM LIABILITIES
- ---------------------------------------------------------
Convertible debenture bonds . . . . . . . . . . . . . . 240,000 -
------------ -----------
Total long term liabilities . . . . . . . . . . . . . $ 240,000 $ -
------------ -----------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . $ 1,501,671 $ 508,629
------------ -----------
STOCKHOLDERS' EQUITY
- ---------------------------------------------------------
STOCKHOLDERS' EQUITY (DEFICIT)
- ---------------------------------------------------------
Common stock, $.0001 par value, 100,000,000 authorized
and 24,989,845 shares issued and outstanding. . . . 24,990 23,599
Additional paid in capital. . . . . . . . . . . . . . . 10,171,229 8,266,502
Deficit accumulated during the development stage. . . . (11,020,241) -
Accumulated Other Losses (534,300) (964,063)
Less Treasury Stock . . . . . . . . . . . . . . . . . . - (250,000)
------------ -----------
Total stockholders' equity. . . . . . . . . . . . . . $ (1,358,322) $ 7,076,038
------------ -----------
TOTAL LIABILITIES AND EQUITY (DEFICIT). . . . . . . $ 143,349 $ 7,584,667
============ ===========
See accompanying notes to the financial statements
4
E-REX, INC.
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDING MARCH 31, 2001 AND 2000
(a Development Stage Company)
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31 MARCH 31 FROM
2001 2000 INCEPTION
-------------- -------------- --------------
REVENUE . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,966 $ - $ 43,942
- ------------------------------------------------------------- --------------
COST OF SALES . . . . . . . . . . . . . . . . . . . . . . . . 14,042 - 24,649
- ------------------------------------------------------------- --------------
GROSS PROFIT. . . . . . . . . . . . . . . . . . . . . . . . . (6,076) - 19,293
- ------------------------------------------------------------- --------------
EXPENSES
- -------------------------------------------------------------
General and administrative. . . . . . . . . . . . . . . . . 1,687,521 175,084 10,948,740
Research and development. . . . . . . . . . . . . . . . . . 29,792 - 181,521
-------------- -------------- -------------
Total expenses. . . . . . . . . . . . . . . . . . . . . . . 1,717,313 175,084 11,130,261
-------------- -------------- -------------
LOSS FROM OPERATIONS. . . . . . . . . . . . . . . . . . . . . (1,723,389) (175,084) (11,110,968)
- ------------------------------------------------------------- -------------- -------------- -------------
OTHER INCOME
- -------------------------------------------------------------
Interest income - - 1,439
Interest Expense. . . . . . . . . . . . . . . . . . . . . . (15,020) - (31,438)
Recovery From Lawsuit - - 120,726
-------------- -------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES . . . . . . . . . . . . . . $ (1,738,409) $ (175,084) $ (11,020,241)
- -------------------------------------------------------------
Income Taxes. . . . . . . . . . . . . . . . . . . . . . . . - - -
-------------- -------------- ------------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . . . . . . $ (1,738,409) $ (175,084) $ (11,020,241)
- ------------------------------------------------------------- ============== ============== ============
EARNINGS PER SHARE
Weighted average
Number of shares Outstanding. . . . . . . . . . . . . . . . 24,122,005 13,276,859
Basic EPS . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.07) $ (0.01)
============== ==============
Weighted average
Number of shares on a Fully Diluted Basis . . . . . . . . . 24,122,005 13,276,859
Fully Diluted EPS . . . . . . . . . . . . . . . . . . . . . $ (0.07) $ (0.01)
============== ==============
See accompanying notes to the financial statements
5
E-REX, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (AUGUST 26, 1986) TO MARCH 31, 2001
(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. 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)
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
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)
6
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 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
Accrued
stock compensation (1,258,045) (1,258,045)
Common shares issued in
exchange of shares as
an investment 1,000,000 1,000 399,000 400,000
Common share purchased
as treasury stock (6,977,616) (6,978) (143,022) (150,000)
Accumulated Other Comprehensive losses, net of tax
Net unrealized gains (losses) on marketable equity securities (487,400)
Net loss for the period (8,492,853) (8,492,853)
----------- -------- ------------ ----------- ----------- -----------
Balance, December 31, 2000 23,808,816 $ 23,809 (1,258,045) 9,936,204 (9,281,832) (1,067,264)
Common shares issued
for consulting services 461,029 461 91,745 92,206
Common shares issued
in Satisfaction of debt 600,000 600 119,400 120,000
Common shares issued
for Software Development 120,000 120 23,880 24,000
Charge for prepaid Stock Compensation 1,258,045 1,258,045
Accumulated other Losses, net of tax
Net unrealized gains (losses) on marketable equity securities (46,900)
Net loss for the period (1,738,409) (1,738,409)
----------- -------- ------------ ----------- ----------- -----------
Balance, March 31, 2001 24,989,845 $ 24,990 $ - $ 10,171,229 $(11,020,241) $ (1,358,322)
=========== ======== ============ =========== =========== ===========
See accompanying notes to the financial statements
7
E-REX, INC.
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDING MARCH 31, 2001 AND 2000
(A Development Stage Company)
THREE MONTHS THREE MONTHS
ENDED ENDED FROM
CASH FLOWS FROM (FOR) . . . . . . . . . . . . . . . . . . . . MARCH 31 MARCH 31 INCEPTION
OPERATING ACTIVITIES. . . . . . . . . . . . . . . . . . . . . 2001 2000 TO DATE
- ------------------------------------------------------------- -------------- -------------- --------------
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . $ (1,738,409) $ (175,084) (11,020,241)
Adjustments to reconcile net income to
to net cash provided by (used in )
operating activities:
Stock issued for Services . . . . . . . . . . . . . . . . . 1,350,251 127,175 8,814,799
Stock issued in conversion of debt. . . . . . . . . . . . . 120,000 - 120,000
Stock Issued for Research & Development . . . . . . . . . . - - 124,595
Warrants issued for Services 280,800 - 730,800
Depreciation expense. . . . . . . . . . . . . . . . . . . . 3,182 - 10,982
(Increase) Decrease in
Accounts receivable . . . . . . . . . . . . . . . . . . . 2,271 (51,500) (20,486)
(Increase) Decrease in
Employee advance. . . . . . . . . . . . . . . . . . . . . 298 -
Increase (Decrease) in
Accounts payable. . . . . . . . . . . . . . . . . . . . . (82,692) (8,896) 168,216
Increase (Decrease) in
Accrued liabilities . . . . . . . . . . . . . . . . . . . 4,703 9,624
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,444) 20,000 11,932
-------------- -------------- --------------
Total adjustments to net income . . . . . . . . . . . . . . 1,677,369 86,779 9,970,462
Net cash provided by (used in)
operating activities. . . . . . . . . . . . . . . . . . . . (61,040) (88,305) (1,049,779)
CASH FLOWS FROM (FOR)
- -----------------------
INVESTING ACTIVITIES
- -----------------------
Purchase of furniture, Equipment & Software . . . . . . . . - - (34,654)
-------------- -------------- --------------
Net cash flows provided by (used in)
investing activities. . . . . . . . . . . . . . . . . . . . - - (34,654)
CASH FLOWS FROM (FOR)
- ------------------------
FINANCING ACTIVITIES
- ------------------------
Proceeds from loan. . . . . . . . . . . . . . . . . . . . . 41,001 409,000 664,655
Proceeds from issuance of stock - - 854,687
Payment on loan - - (325,000)
Purchase of treasury stock. . . . . . . . . . . . . . . . . - (250,000) (150,000)
Issuance of Conv. Debentures - - 40,000
-------------- -------------- --------------
Net cash provided by (used in) financing. . . . . . . . . . 41,001 159,000 1,084,342
CASH RECONCILIATION
- -----------------------
Net increase (decrease) in cash . . . . . . . . . . . . . . (20,039) 70,695 (91)
Cash at beginning of year . . . . . . . . . . . . . . . . . 19,948 22,006 0
-------------- -------------- --------------
CASH BALANCE AT END OF YEAR . . . . . . . . . . . . . . . . . $ (91) $ 92,701 $ (91)
- ------------------------------ ============== ============== ==============
See accompanying notes to the financial statements
8
E-REX, INC.
FORM 10-QSB/A
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 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
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.
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.
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 March 31, 2001, 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 March 31, 2001. 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.
9
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.
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.
10
Since the Company has not generated cumulative taxable income since inception,
no provision for income taxes has been provided. At March 31, 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 March 31, 2001 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 March 31, 2001, 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 1999 Plantech
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, 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:
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. If finalized, the Company will issue to Crusader
Capital Group, Inc. a total of 166,667 shares of restricted common stock.
11
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 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:
In the year 2000 the company purchased 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.
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 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 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 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.
12
On February 22, 2001 the board of Directors issued 75,000 free trading shares
under Regulation S to Jeffrey Harvey, a director and officer, under Regulation S
in exchange for legal services valued at $15,000.
On February 22, 2001 the board of Directors issued 75,000 free trading shares
under Regulation S to Carl Dilley, an employee, director and officer, under
Regulation S in exchange for management services valued at $28,500.
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, that was 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.
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 exemption. In addition to the shares
issued were 3,290,000 options to purchase shares of the Company's common stock
at an exercise price of $1.00 that expire on November 21, 2002. The Company's
management disagreed with the assertion, but decided to settle with the relevant
shareholders through the issuance of additional shares and options as noted
above. 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 agreed in principal to accept the 166,667 shares
which have been issued and accounted for. There remains uncertainty regarding
the outcome of the Crusader Capital Group, Inc. claim.
13
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.
500,000 options were issued to Crusader Capital Group as an inducement to settle
the suit detailed in Footnote 6. The options are exercisable at $1.00 during
the 24 months from date of issue.
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.
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:
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.
14
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.
On February 22nd the board of Directors issued 223,529 free trading shares under
Regulation S in exchange for services valued at $44,706.
On February 22nd the board of Directors issued 75,000 free trading shares under
Regulation S to Jeffrey Harvey, a director and officer, under Regulation S in
exchange for legal services valued at $15,000.
On February 22, 2001 the board of Directors issued 75,000 free trading shares
under Regulation S to Carl Dilley, an employee, director and officer, under
Regulation S in exchange for management services valued at $28,500.
On February 22, 2001 the board of Directors issued 120,000 free trading shares
under Regulation S in exchange for Software Research and development valued at
$24,000.
On February 28, 2001 the board of Directors issued 600,000 restricted shares
under Regulation D to IIBI in satisfaction of debt valued at $120,000.
On March 1, 2001 the board of Directors issued 100,000 free trading shares under
Regulation S valued at $20,000 and 100,000 options which terms are to be decided
by the board of directors upon implementation of the employee stock option plan
to Jeffrey Harvey, a director and officer, pursuant to an agreement for legal
services.
Per a one year investor relations contract dated March 23, 2000 6,000,000 shares
of stock were issued to Stockbroker Relations, Inc. At December 31, 2000 an
unexpensed balance of $1,258,045 in prepaid stock compensation for services was
carried in the equity of the company. This amount was expensed during the first
quarter of 2000 and subsequently removed from the stockholders equity of the
company.
15
Subsequent events
On April 2, 2001 the board of Directors issued 346,153 restricted shares to
Action Stocks, Inc and James Williams under Regulation D in exchange for
investor relations services valued at $58,846. Under terms of the 12 month
agreement Action Stocks, Inc. will provide services to the company including
website marketing, email services, direct client promotion, investor relations,
affiliate promotions, research reports, and promotional spots on radio shows.
On May 1st the board of Directors issued 1,100,000 restricted shares to Big
Apple Consulting U.S.A., Inc. under Regulation D in exchange for investor
relations services valued at $209,000. The agreement requires a further 100,000
restricted shares to be issued on the first of every month for the next 5 months
of the agreement. Under terms of the 6 month agreement Big Apple Consulting
U.S.A., Inc. will provide stock broker relations services to the company
including, direct broker promotion, investor relations including conference
calls, and investor lead management.
On May 25th the board of Directors issued 195,000 restricted shares to Big Apple
Consulting U.S.A., Inc. under Regulation D in exchange for marketing services
valued at $39,000. Under terms of the 6 month agreement Big Apple Consulting
U.S.A., Inc. will 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 manufacturing the Dragonfly. The agreement calls for the payment
of pre-approved expenses and a 5% commission on sales effected by the
consultant.
10. Other Agreements
On March 1st the company entered into an engagement agreement with Riotech, LLC.
to provide internet website development, on line marketing services, e-commerce
services and back office systems services. Under the terms of this 24 month
agreement Riotech, LLC. will be compensated at the rate of 70% of the gross
amount of any services provided to end customers of E-Rex, Inc. Riotech will
also manage and provide project managers and development staff on an exclusive
basis for all projects undertaken during the term of the agreement. Riotech
will also supply 300 hours of work towards the development of E-rex proprietary
websites and systems.
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 operation.
12. Investments
The company has written down the value of the investment in Ultimate Franchise
Systems, Inc. to $15,600.00 reflecting the closing market price of the stock at
as of March 31, 2001.
The adjustment in the carrying value in investments in DiveDepot.Com, Inc and
Ultimate Franchise Systems, Inc. resulted in a decrease in the book value of
investment assets of $46,900.00 for the period ending March 31, 2001. 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.
16
13. Required Cash Flow Disclosure:
The Company had no interest income and income taxes paid for the quarter.
The Company entered into agreements for non-cash exchanges of stock for services
totaling $92,206
The Company entered into agreements for non-cash exchanges of free trading
shares stock for Software Research and development valued at $24,000.
17
ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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.
RESULTS OF OPERATIONS
The Company had significant losses of $1,738,409 for the quarter ended
March 31, 2001. Losses have been funded by the sale of additional securities
and the issuance of stock for services. We expect losses to continue and have no
firm commitments or sources of long-term capital.
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 web site design 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, there can be no
assurance that the Company will be able to obtain the needed additional equity
or debt financing in the future.
The Company is presently completing the initial prototypes of the
"Dragonfly" after two "Dragonfly" mock-up prototypes were successfully
demonstrated at the Java One conference at the Moscone Centre in San Francisco
sponsored by Sun MicroSystems. There have been unexpected delays in producing
the prototypes and although the technology has been tested and is proven
operational it is anticipated that the approximate time frame for completion of
the prototypes including testing will be 45 to 90 days. As soon as the initial
prototypes are fully operational, demonstrations with major OEM corporations
will be arranged.
The Company will not establish its own manufacturing plant, however, it
will provide quality control personnel at these plants and will also maintain
research and development programs through the Canadian engineering firm of
Valcom, Ltd. to secure development of products presently in the planning stage.
The Company does not expect to purchase any significant plant or equipment
within the next twelve months.
Other than described above, the Company does not expect significant changes
in the number of employees during the next twelve months and anticipates
expansion of the web site design division by utilizing sub contractors and
independent commission-based sales personnel.
18
Revenue
The Company's total revenue for the quarter ended March 31, 2001 was
$7,966, all of which were earned from web site design and consulting services
rendered by the Company. The cost of sales for this period was $14,042,
resulting in gross profit of ($6,076) for the quarter. 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.
General and Administrative
The Company's general and administrative expenses totaled $1,687,521 for
the quarter ended March 31, 2001, as compared to $175,084 for the period ended
March 31, 2000. Of the total general and administrative expenses, $1,378,045 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 $29,792
in research and development expenses related to its Dragonfly product.
Net Losses
Net losses for the quarter ended March 31, 2001 were $1,738,409 as compared
to $175,084 for the period ended March 31, 2000. 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, based on a weighted average number of shares of
24,122,005 was $0.07 per share, compared with the loss per share of $0.01 for
the period ended March 31, 2000.
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
advances from the Company's Investment Banker, International Investment Banking,
Inc. and the private placement of common stock. The web design, hosting and
consulting 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 $150,000 and an estimated additional
$300,000 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.
19
It is anticipated that the short-term credit line extended by International
Investment Banking, Inc., in addition to an 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 a registration
statement with the SEC, and then only if certain conditions are met and certain
conditions precedent exist. The Company does not currently have a registration
statement on file. 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 loans of $41,001.00 for the quarter
ended March 31, 2001 resulting in net cash provided by financing activities of
$41,001.00.
The Company invested $24,000.00 in development of an on-line ordering
system for the fast food franchise industry during the three months ended March
31, 2001. This investment was a non cash transaction made through the issuance
of stock.
Investments and effect on Financial Position
The Company made two investments during the prior year. 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 $15,6.00 reflecting the closing market price of the stock at as
of March 31, 2001.
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
$46,900.00 for the period ending March 31, 2001. 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.
20
PART II
ITEM 1 LEGAL PROCEEDINGS
There have been no material developments to the reportable events in the
Company's Form 10-KSB filed with the SEC on May 18, 2001.
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
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.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
There have been no events which are required to be reported under this
Item.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders during the
applicable period.
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.
21
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: April 4, 2002 E-Rex, Inc.
/s/ Carl E. Dilley
______________________________
By: Carl E. Dilley
Its: President and
Chief Financial Officer
22