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 JUNE 30, 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 August 6, 2001, there
were 27,849,108 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

PART I

EXPLANATORY NOTE

E-Rex, Inc. has restated its Quarterly Report on Form 10-QSB. This Quarterly
Report is for the quarter ended June 30, 2001, was originally filed with the
Commission on August 8, 2001, and an amended Quarterly Report was filed with the
Commission on April 9, 2002. References throughout this Quarterly Report 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 where changes were deemed necessary. Please read all of the
Company's filings with the Commission in conjunction with this Quarterly Report.

The financial statements have been revised to present the ongoing financial
information as a development stage enterprise as well as provide more detailed
information regarding the Swartz funding agreement and the inclusion of related
charges, policies regarding revenue recognition, and the policies, treatment,
and charges related to investments the Company holds to better comply with U.S.
GAAP standards.

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

E-REX, INC.
BALANCE SHEET
AS OF JUNE 30, 2001 AND DEC 31, 2000.
(a Development Stage Company)

ASSETS
------

JUNE 30 DEC 31
2001 2000
(Restated) (Restated)
------- -------

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

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

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

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

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

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

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

Investments $ 10,100 $ 62,600
------------ ------------

$ 211,726 $ 190,595
============ ============

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

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

Accounts payable 127,274 95,440
Accrued liabilities 17,400 10,838
Accrued interest on bonds 19,295 7,460
Stock Payable 730,800 450,000
Payable - related party 84,484 155,467
Work In Progress Deposits 29,102 -
Demand Loan-related party 380,439 298,654
Stock Subscription Deposits 15,000 -
------------ ------------

Total current liabilities $ 1,403,794 $ 1,017,859
------------ ------------

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

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

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

$ 1,643,794 $ 1,257,859
------------ ------------

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

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

Common stock, $.0001 par value, 100,000,000 authorized
Shares issued and outstanding as of Dec 31-2000. . . . . . . . 23,808,816 23,809
Shares issued and outstanding as of June 30, 2001. . . . . . . 27,756,920 27,757 -
Additional paid in capital 10,752,023 9,936,204
Accrued Stock Compensation (235,491) (1,258,045)
Accumulated Other Comprehensive Income, net of tax
Net unrealized gains (losses) on marketable equity securities (539,900) (487,400)
Deficit accumulated during the development stage (11,436,457) (9,281,832)

Total stockholders' equity $ (1,432,068) $ (1,067,264)
------------ ------------

Total Liabilities and Equity (Deficit) $ 211,726 $ 190,595
============ ============
See accompanying notes to the financial statements

E-REX, INC.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDING JUNE 30, 2001 AND 2000
AND FOR THE THREE MONTHS ENDING JUNE 30, 2001 AND 2000
(A Development Stage Company)

SIX MONTHS SIX MONTHS THREE MONTHS THREE MONTHS
ENDED ENDED ENDED ENDED
JUNE 30 JUNE 30 JUNE 30 JUNE 30 FROM
2001 2000 2001 2000 INCEPTION
(Restated) (Restated) (Restated) (Restated) (Restated)
----------- ------------ ------------ -------------- --------------

REVENUE . . . . . . . . . . . . . . . . . . . . . . $ 37,518 $ - $ 29,072 $ - $ 73,494
- ---------------------------------------------------

COST OF SALES . . . . . . . . . . . . . . . . . . . 37,750 - 23,228 - 48,357
- ---------------------------------------------------

GROSS PROFIT. . . . . . . . . . . . . . . . . . . . (232) - 5,844 - 25,137
- ---------------------------------------------------
EXPENSES
- ---------------------------------------------------

General and administrative. . . . . . . . . . . . . (2,052,312) (3,187,584) (364,791) (2,023,162) 11,313,531
Research and development. . . . . . . . . . . . . . (71,189) - (41,397) 222,918
------------ ------------ ------------ -------------- --------------

Total expenses. . . . . . . . . . . . . . . . . . . (2,123,501) (3,187,584) (406,188) (2,023,162) 11,536,449
------------ ------------ ------------ -------------- --------------

LOSS FROM OPERATIONS. . . . . . . . . . . . . . . . (2,123,733) (3,187,584) (400,344) (2,023,162) (11,511,312)
- --------------------------------------------------- ------------ ------------ ------------ -------------- --------------

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

Interest Income - - - - 1,439
Interest Expense. . . . . . . . . . . . . . . . . . (30,892) (5,608) (15,872) - (47,310)
Recovery From Lawsuit 120,726
------------ ------------ ------------ -------------- --------------

INCOME (LOSS) BEFORE INCOME TAXES . . . . . . . . . $(2,154,625) $(3,193,192) $ (416,216) $(2,023,162) $ (11,436,457)
- ---------------------------------------------------
Income Taxes. . . . . . . . . . . . . . . . . . . . - - - - -
------------ ------------ ------------ -------------- --------------

NET INCOME (LOSS) . . . . . . . . . . . . . . . . . $(2,154,625) $(3,193,192) $ (416,216) $(2,023,162) (11,436,457)
- --------------------------------------------------- ============ ============ ============ ============== ==============

EARNINGS (LOSS) PER SHARE
Weighted average
Number of shares Outstanding. . . . . . . . . . . . 25,293,366 17,973,048 26,425,681 17,973,048

Basic EPS . . . . . . . . . . . . . . . . . . . . . $ (0.09) $ (0.18) $ (0.02) $ (0.11)
============ ============ ============ ==============

Weighted average
Number of shares on a Fully Diluted Basis . . . . . 25,293,366 17,973,048 26,425,681 17,973,048

Fully Diluted EPS . . . . . . . . . . . . . . . . . $ (0.09) $ (0.18) $ (0.02) $ (0.11)
============ ============ ============ ==============

See accompanying notes to the financial statements

E-REX, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (AUGUST 26, 1986) TO JUNE 30, 2001
(A Development Stage Company)

DEFECIT
ACCRUED ADDITIONAL ACCUMULATED
COMMON STOCK STOCK PAID-IN DURING
SHARES AMOUNT COMPENSATION CAPITAL DEV. STAGE TOTAL
(Restated) (Restated) (Restated) (Restated) (Restated) (Restated)
----------- -------- ------------ ----------- ----------- -----------

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)

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

Accumulated Other Comprehensive losses, net of tax
Net unrealized gains (losses) on marketable equity securities (487,400)

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

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 3,221,187 3,221 665,271 668,492

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

Common shares issued
for Software Development Investment 126,917 127 31,148 31,275

Accrued Stock Compensation 1,022,554 1,022,554

Accumulated other Losses, net of tax
Net unrealized gains (losses) on marketable equity securities (52,500)

Net loss for the period (2,154,625) (2,154,625)
----------- -------- ------------ ----------- ----------- -----------
Balance, June 30, 2001 27,756,920 $ 27,757 $ (235,491) $ 10,752,023 $(11,436,457) $ (1,432,068)
=========== ======== ============ =========== =========== ===========

See accompanying notes to the financial statements

E-REX, INC.
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDING JUNE 30, 2001 AND JUNE 30, 2000
(A Development Stage Company)

SIX MONTHS SIX MONTHS
ENDED ENDED FROM
CASH FLOWS FROM (FOR) . . . . . . . . . . . . . . . . . . . . JUNE 30 JUNE 30 INCEPTION
OPERATING ACTIVITIES. . . . . . . . . . . . . . . . . . . . . 2001 2000 TO DATE
(Restated) (Restated) (Restated)
- ------------------------------------------------------------- -------------- -------------- --------------

Net Income. . . . . . . . . . . . . . . . . . . . . . . . . $ (2,154,625) $ (3,193,192) (11,436,457)

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

Stock issued for Services . . . . . . . . . . . . . . . . . 668,492 2,942,258 8,133,040
Stock Issued for Research & Development . . . . . . . . . . - - 124,595
Warrants issued for Services 280,800 - 730,800
Amortization of stock issued for services in prior period 1,022,554 (11,667) 1,022,554
Depreciation expense. . . . . . . . . . . . . . . . . . . . 13,575 - 21,375
(Increase) Decrease in
Accounts receivable . . . . . . . . . . . . . . . . . . . 7,791 (2,680) (14,966)
Accounts receivable-related parties (13,767) - (14,065)
Prepaid Professional Fees and Expenses (21,122) - (21,122)
Deposits and Retainers (33,201) - (33,201)
(Increase) Decrease in
Accounts payable. . . . . . . . . . . . . . . . . . . . . (39,149) 120,657 211,758
Accrued liabilities 6,562 - 17,400
Conv Debentures issued in debt exchange 120,000 - 120,000
Accrued Bond Interest 11,835 - 19,295
Work in Progress Deposits 29,102 - 29,102
Deposits & Retainers 15,000 - 15,000

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . - (34) -
-------------- -------------- --------------

Total adjustments to net income . . . . . . . . . . . . . . 2,068,472 3,048,534 10,361,565

Net cash provided by (used in)
operating activities. . . . . . . . . . . . . . . . . . . . (86,153) (144,658) (1,074,892)

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

Purchase of furniture, Equipment & Software . . . . . . . . (3,215) (5,511) (37,869)
-------------- -------------- --------------

Net cash flows provided by (used in)
investing activities. . . . . . . . . . . . . . . . . . . . (3,215) (5,511) (37,869)

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

Proceeds from loan. . . . . . . . . . . . . . . . . . . . . 81,785 409,000 705,439
Proceeds from issuance of stock - 249,000 854,687
Payment on loan - (314,000) (325,000)
Purchase of treasury stock. . . . . . . . . . . . . . . . . - (150,000) (150,000)
Issuance of Conv. Debentures - - 40,000
-------------- -------------- --------------

Net cash provided by (used in) financing. . . . . . . . . . 81,785 194,000 1,125,126

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

Net increase (decrease) in cash . . . . . . . . . . . . . . (7,583) 43,831 12,365
Cash at beginning of period . . . . . . . . . . . . . . . . 19,948 22,006 0
-------------- -------------- --------------

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

See accompanying notes to the financial statements

E-REX, INC.
FORM 10-QSB

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

JUNE 30, 2001

1. Summary of Significant Accounting Policies:

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

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

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

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

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 U.S. dollars. The Company had no significant
gain or losses from foreign currency conversions. The Company has closed its
foreign bank accounts during the year 2000 and now operates using U.S. currency.

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

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

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 has incurred a net
loss from inception (August 26, 1986) and is considered to be in its development
stage. The Company continues to operate at a loss. This factor, among others,
raises substantial doubt as to the Company's ability to continue as a going
concern.

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

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. At the
current market price of our common stock, the amount of money we can raise
through the Swartz agreement is very limited, and we cannot be sure how much
money we can raise through the Swartz agreement in the future. 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. 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.

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

4. Development Stage Company:

The Company is a 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 June 30, 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 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, 1999. The Company survived during that year as
the surviving corporation. The following table sets forth certain results of
operations for the periods presented as if the Plantech business combination had
been consummated on the same terms at the Plantech inception in 1992.

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

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

6. Litigation:

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

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:

On September 1, 2000 the Company completed the purchase of assets from Webulate
LLC. The purchase consisted 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.

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 to this
agreement, IIBI was directed on the Company's behalf to execute the following:
Purchase 8,237,616 shares of stock from two of the Company's former directors
for $250,000; issue 6,000,000 shares of stock to Stockbroker Relations, Inc. per
an investor relations contract; and issue IIBI 1,000,000 shares of restricted
common stock. On February 28, 2001 the board of Directors issued 600,000
restricted shares under Regulation D to IIBI in satisfaction of an outstanding
debt of $120,000.

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

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

8. Convertible Debenture Bonds:

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

9. Stockholders' Equity:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

10. Other Agreements

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

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

E-Rex has entered into an investment financing agreement with Swartz private
equity LLC. 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.

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.

11. Concentrations of risk:

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

12. Investments:

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

The company has written down the value of the investment in Ultimate Franchise
Systems, Inc. to $10,000.00 reflecting the closing market price of the stock at
as of June 30, 2001.

13. Required Cash Flow Disclosure:

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

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

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

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 $416,216 for the three month period
ended June 30, 2001, as compared to $2,023,162 for the three month period ended
June 30, 2000, and losses of $2,154,625 for the six month period ended June 30,
2001. The reduction in losses for this quarter as compared to the same quarter
of last year is due primarily to the reduction in general and administrative
expenses associated with restructuring and changing management. Losses have
been funded by the sale of additional securities and the issuance of stock for
services. We expect losses to continue 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 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 the fourth quarter of this fiscal year. 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 and consulting division by utilizing sub
contractors and independent commission-based sales personnel.

Revenue

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

The Company's total revenue for the six month period ended June 30, 2001
was $37,518, all of which were earned from web site design and consulting
services rendered by the Company. The cost of sales for this period was $37,750,
resulting in gross profit of ($232). The Company did not report any revenues for
the same period in 2000.

General and Administrative

The Company's general and administrative expenses totaled $364,791 for the
three month period ended June 30, 2001, as compared to $2,023,162 for the three
month period ended June 30, 2000. Of the total general and administrative
expenses, $358,569 is attributable to stock issued for services to various
consultants, advisors, employees, and service providers to the Company. The
substantial decline in operating expenses in the June 2001 quarter is due to
final amortizing of accrued management fees expenses in the first quarter of
2001 in the amount of $1,258,045. These fees were related to the restructuring
of the management team in early 2000 and are non-recurring. Because the Company
does not have sufficient revenues or current assets to pay these providers in
cash, it has continued to issue common stock for services, and anticipates that
this pattern will continue during the coming year. The Company also recorded
$41,397 in research and development expenses related to its Dragonfly product.
No research and development expenses were recorded in the three month period
ended June 30, 2000.

The Company's general and administrative expenses totaled $2,052,312 for
the six month period June 30, 2001. Of the total general and administrative
expenses, $668,492 is attributable to stock issued for services to various
consultants, advisors, employees, and service providers to the Company. Because
the Company does not have sufficient revenues or current assets to pay these
providers in cash, it has continued to issue common stock for services, and
anticipates that this pattern will continue during the coming year. The Company
also recorded $71,189 in research and development expenses related to its
Dragonfly product for the period.

Net Losses

Net losses for the three month period ended June 30, 2001 were $416,216 as
compared to $2,023,162 for the three month period ended June 30, 2000, as a
result of the change in general and administrative expenses as described above.
The Company expects that it will continue to incur operating and net losses as a
result of its insufficient revenue and continued issuance of stock for services.

The loss per share for the quarter, based on a weighted average number of
shares of 26,425,648 was $0.02 per share, compared with the loss per share of
$0.11 based on a weighted average number of shares of 17,973,048 for the quarter
ended June 30, 2000.

Net losses for the six months ended June 30, 2001 were $2,154,625. The loss
per share, based on a weighted average number of shares of 25,293,366 was $0.09
per share for the period.

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.

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 filed with the SEC, and then only if certain conditions are met and
certain conditions precedent exist. For example, at the current market price of
our common stock, the amount of money we can raise through the Swartz agreement
is very limited, and we cannot be sure how much money we can raise through the
Swartz agreement in the future. 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 $41,785.00 for the quarter
ended June 30, 2001 resulting in net cash provided by financing activities of
$41,785.00. The Company received proceeds from loans of $81,785.00 during the
six month period ended June 30, 2001 resulting in net cash provided by financing
activities of $81,785.

The Company invested $31,275.00 in development of an on-line ordering
system for the fast food franchise industry during the six months ended June 30,
2001. This was a non cash investment transaction made with 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 $10,000.00 reflecting the closing market price of the
stock at as of June 30, 2001.

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
$52,500.00 for the period ending June 30, 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.

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

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

10.1 Business Development Agreement dated May 25, 2001 between the
Company and Big Apple Consulting U.S.A., Inc.

10.2 Sales and Marketing Consulting Agreement dated June 15, 2001
between the Company and Anne Balduzzi.

(b) Reports on Form 8-K

On June 1, 2001, the Company filed a Form 8-K dated May 18, 2001 reporting
Item 4, Change in Registrants' Certifying Accountant.

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: July 12, 2002 E-Rex, Inc.

/s/ Carl E. Dilley
______________________________

By: Carl E. Dilley

Its: President and Chief
Financial Officer