AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 20, 2002
REGISTRATION NO. 333-100869

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

AMENDMENT NO. 1 TO
FORM S-3 FILED ON FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

E-REX, INC.
(Exact name of registrant as specified in 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 (305) 895-3350
(Address, including zip code, of registrant's principal executive offices)
(Telephone number, including area code)

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

COPIES TO:

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

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

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

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

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

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

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

CALCULATION OF REGISTRATION FEE

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

Common Stock. . . . . . . . . . 166,666,666 (2) $ 0.007 $ 500,000 $ 46.00
- ------------------------------- --------------- ---------------- --------------- -------------

Common Stock. . . . . . . . . . 5,000,000 (3) $ 0.008 $ 40,000 $ 3.68
- ------------------------------- --------------- ---------------- --------------- -------------

Total Registration Fee . . $ 49.68
- ------------------------------- -------------

(1) Represents the conversion price under the convertible note, and the
exercise price under the warrants, being registered herein.

(2) Represents shares of our common stock issuable to Auxiliarius Fortunare,
LLC upon conversion of an outstanding promissory note. Also includes an
indeterminate amount of securities issuable pursuant to the note (i) to prevent
dilution resulting from stock splits, stock dividends or similar transactions or
(ii) by reason of changes in the conversion price of the note in accordance with
the terms thereof.

(3) Represents shares of our common stock issuable upon exercise of warrants
issued to Auxiliarius Fortunare, LLC, plus an indeterminate amount of securities
issuable pursuant to anti-dilution rights in the warrants.

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

PROSPECTUS

Up to 171,666,666 shares of common stock

E-REX, INC.

E-Rex is registering up to 171,666,666 shares for sale by:

- - Auxiliarius Fortunare, LLC, who may acquire up to 166,666,666 shares upon
conversion of a promissory note.

- - Auxiliarius Fortunare, LLC, who may acquire up to 5,000,000 shares upon
the exercise of warrants issued to them.

INVESTING IN THE COMMON STOCK INVOLVES RISKS. E-REX HAS NOMINAL
OPERATIONS, IS IN UNSOUND FINANCIAL CONDITION, AND YOU SHOULD NOT INVEST UNLESS
YOU CAN AFFORD TO LOSE YOUR ENTIRE INVESTMENT. SEE "RISK FACTORS" BEGINNING ON
PAGE 4.

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

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

Our common stock is quoted on the over-the-counter electronic bulletin
board under the symbol "EREX." On October 25, 2002, the closing bid price of our
common stock was $0.01 per share.

THE DATE OF THIS PROSPECTUS IS _______________, 2002

PROSPECTUS SUMMARY

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

ABOUT OUR COMPANY

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

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

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

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

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

We have a $12,817,663 accumulated deficit as of December 31, 2001. We do
not have any significant operating history or revenues, and our independent
accountant has qualified his report, noting that our significant losses raise
substantial doubt about our ability to continue in business.

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

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

ABOUT THE CONVERTIBLE NOTE

Under the convertible note to Auxiliarius, they are obligated to provide us
with a minimum of $10,000 per week, assuming the following conditions are
satisfied:

- - this Registration Statement has been declared effective and remains
effective;
- - our stock price is $0.004 or higher during the 15 days before the funding;
and
- - our stock trading volume is within a specified range depending on our
stock price.

The note has an interest rate of 10% per year. Auxiliarius is obligated to
provide us with, and the maximum outstanding principal amount of the convertible
note is, $500,000.

Auxiliarius is the holder of warrants to acquire up to 5,000,000 shares of
our common stock at an exercise price of $0.008 per share, exercisable for two
years from their date of issuance.

THE OFFERING

Common stock outstanding
prior to this offering 120,148,852 shares (1)

Common stock offered for
resale to the public up to 171,666,666 shares (2)

Common stock outstanding
after this offering up to 291,815,518 shares (2)

Percentage of common stock outstanding
after this offering represented by
shares offered for resale to the public 59%

(1) Shares outstanding as of October 28, 2002. Does not include 5,000,000
shares underlying warrants issued to Auxiliarius.

(2) Includes up to 166,666,666 shares that may be issued to Auxiliarius
pursuant to the convertible note, and 5,000,000 shares underlying warrants
issued to Auxiliarius. Does not include an indeterminate amount of securities
issuable pursuant to the note and warrant to prevent dilution resulting from
stock splits, stock dividends or similar transactions.

RISK FACTORS

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

We have never operated profitably, we have generated very little revenues,
and we may never become profitable, making it difficult or impossible for our
investors to evaluate our business.

We have a limited operating history upon which potential investors may
evaluate our performance. To date, we have generated an accumulated deficit of
more than $13,964,463. For the years ended December 31, 2001 and 2000, we
incurred net losses of $3,535,831 and $8492,853, respectively, and for the six
months ended June 30, 2002, our net loss was $1,146,800. Because of our lack of
cash, we have issued large amounts of stock to pay salaries and some accounts
payable. We expect that our operating expenses will increase over the next few
years as we continue to develop and market our Dragonfly product, and as a
result we expect losses to continue. In addition, our future operations may not
be profitable. We must consider the likelihood of our success relative to the
problems, difficulties, complications, and delays frequently encountered in
connection with the development and operation of a new business.

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

We have only developed a prototype of our Dragonfly product, and as a
result we have not generated any revenues from the sale of the Dragonfly, and
will not during this fiscal year. We have funded a large portion of our
operations through the issuance of stock to employees and consultants, and
unless we are successful in obtaining adequate financing, we will continue to do
so. Although we had sufficient capital to complete the initial prototype of the
Dragonfly, if we do not obtain adequate financing, we cannot finalize the
development of our Dragonfly product.

Although it is difficult to estimate the amount of additional financing we
will require, we anticipate that over the next two years we will need
approximately $120,000 to finalize the development of the Dragonfly, $1,500,000
for marketing and sales expenses, and $800,000 for general working capital
expenses. We do not know where this capital will come from. If we are not able
to raise sufficient capital, we will not be able to implement our business
plan.

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

For the year ended December 31, 2001, we generated a total of $87,185 in
revenues, all of which was consulting fees related to our Internet consulting
division. For the six months ended June 30, 2002, our consulting division
generated $10,930 in revenues, representing all of our revenues for the period.
We do not expect to generate any revenues from our Dragonfly product this fiscal
year, and when we do begin to generate revenues from the product, we do not
expect to be profitable for several years, if at all.

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

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

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

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

There may be other products on the market similar to the Dragonfly that are
from substantially larger and more established companies, which may make it
impossible for us to compete.

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

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

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

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

Future sales of substantial amounts of our common stock in the public
market, or the perception that these sales might occur, could adversely affect
the prevailing market price of our common stock or limit our ability to raise
additional capital. We currently have 120,148,852 shares of our common stock
issued and outstanding, and over 36,398,000 shares of our common stock are
reserved for issuance upon the exercise of outstanding options and warrants.
Upon effectiveness of the registration statement of which this prospectus is a
part, we may issue up to an additional 171,666,666 shares of common stock,
representing an increase of over 100% in the issued and outstanding shares.

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

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

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

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

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

The conversion of the convertible notes may lower the market price of our
common stock and substantially dilute the interests of other holders of our
common stock.

As Auxiliarius exercises its conversion rights under the convertible note,
we will be required to issue shares of our common stock at a price below
the prevailing market price of our common stock. The shares issuable upon
conversion of the note will be issued at a price equal to $0.007, unless reset
in accordance with the terms of the note.

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

If Auxiliarius elects to convert some or all of the convertible note, and
to the extent that they sell our common stock, our common stock price may
decrease due to the additional shares in the market. As the price of our common
stock decreases, the conversion price under the convertible note may be reset at
lower prices and we will be required to issue more shares of our common stock
for any given dollar amount converted. This may encourage short sales, which
could place further downward pressure on the price of our common stock.

The conversion of the convertible note may substantially dilute the
interests of other holders.

The shares of our common stock issuable upon conversion of the note will be
available for sale immediately upon issuance. Accordingly, the conversion may
result in substantial dilution to the interests of the other holders of our
common stock and the price of our common stock may decrease.

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

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

FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. In some cases, you
can identify forward-looking statements by terms such as "may," "will,"
"should," "could," "would," "expects," "plans," "anticipates," "believes,"
"estimates," "projects," "predicts," "potential" and similar expressions in-
tended to identify forward-looking statements. These statements reflect our
current views with respect to future events and are based on assumptions and
subject to risks and uncertainties. These risks, uncertainties and other
factors may cause our actual results, performances or achievements to be
materially different from those expressed or implied by our forward-looking
statements. Our forward-looking statements in this prospectus include, but are
not limited to, statements relating to:

- - our anticipated business strategy;
- - the market opportunity for our products, including anticipated growth of
our industry and expected demand for our products;
- - our plans for hiring additional personnel;
- - our estimates regarding our future capital requirements and needs for
additional financing; and
- - any of our other plans, objectives, expectations and intentions contained
in this prospectus that are not historical facts.

You should read this prospectus completely and with the understanding that
our actual future results may be materially different from what we expect. We
will not update these forward-looking statements, even though our situation may
change in the future. We qualify all of our forward-looking statements by these
cautionary statements.

Our forward-looking statements involve known and unknown risks, uncertain-
ties and other factors that may cause actual results to be materially different.
Such factors include, among others, the risk and other factors set forth in the
section "Risk Factors" as well as the following:

- - changes in general economic and business conditions;
- - changes in current pricing levels;
- - reductions in sales to any of our significant customers or in customer
capacity generally;
- - our ability to hire and retain qualified personnel;
- - changes in our sales mix to lower margin products;
- - increased competition; and
- - our ability to keep up with technological change and changes in customer
demands.

If one or more of these risks or uncertainties materialize, or if
underlying assumption prove incorrect, our actual results may vary materially
from those expected, estimated or projected. Because of these uncertainties,
you should not place undue reliance on forward-looking statements.

USE OF PROCEEDS

We will not receive any proceeds from the resale of our common stock
by Auxiliarius Fortunare, LLC, however, because the effectiveness of this
registration statement is a condition to their funding obligation, we will
receive subsequent to this offering up to $500,000 and we may receive proceeds
from the issuance of shares to Auxiliarius upon their exercise of warrants. If
all the funding under the convertible note is completed, and all the warrants
are exercised, we estimate that we will receive net proceeds of approximately
$530,000 (after paying a finders fee of $10,000).

We intend to use the net proceeds as follows:

FULL
OFFERING
---------
Offering Costs . . . . . . . . . . . . . . . $ 25,000
Dragonfly Prototype Research and Development 120,000
Payment of Accounts Payable. . . . . . . . . 280,000
Marketing and Advertising. . . . . . . . . . 55,000
Other Working Capital Requirements . . . . . 50,000
---------
Total . . . . . . . . . . . . . . . . . $ 530,000
=========

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

SELLING SECURITY HOLDERS

The following table sets forth certain information as of the date of this
prospectus, with respect to Auxiliarius, the only selling shareholder for whom
we are registering shares for resale to the public. Auxiliarius proposes
selling all of their shares, in which case it would beneficially own no shares
after the offering. Auxiliarius is not currently an affiliate of ours, has not
had a material relationship with us during the past three years, and is not
affiliated with a registered broker-dealer. An asterisk indicates that their
common stock ownership is less than one percent.

Shares Owned Shares to be
Prior to the Shares to be Sold Owned After the % Owned After
Name Offering in the Offering Offering the Offering (1)
- -------------------------- ------------- ----------------- --------------- ----------------
Auxiliarius Fortunare, LLC 171,666,666 (2) 171,666,666 (2) -0- -0-
- -------------------------- -------------- ------------------ --------------- ----------------

Totals. . . . . . . . 171,666,666 171,666,666 -0- -0-
-------------- ------------------ --------------- ----------------

(1) Based on 120,148,852 shares of our common stock issued and outstanding
as of October 28, 2002.

(2) Represents up to 166,666,666 shares of our common stock issuable to
Auxiliarius upon conversion of the convertible note, plus 5,000,000
shares of our common stock that we may issue to Auxiliarius upon their
exercise of warrants. It is expected that Auxiliarius will not own
beneficially more than 4.9% of our outstanding common stock at any time.
The Manager Auxiliarius is Kyle G. Kennedy

PLAN OF DISTRIBUTION

On October 14, 2002, we entered into a Securities Purchase Agreement with
Auxiliarius Fortunare, LLC for the sale of up to $500,000 in convertible notes.
Auxiliarius has not given us the money for those notes, and is not obligated to
do so until after the effectiveness of this registration statement, and then
they are required to deliver to us $10,000 per week until the entire $500,000
has been paid. In addition, our stock price must be above $0.004 and our stock
trading volume must be above a pre-determined minimum level as set forth in the
table below before Auxiliarius is required to deliver the weekly amount. The
outstanding balance under the notes earns interest at the rate of 10% per year,
and we are required to repay each $10,000 weekly payment two years from the time
it is paid to us, unless it is converted into our common stock.

The note is convertible into our common stock, at the discretion of
Auxiliarius, at $0.007 per share. However, if our stock price changes as set
forth in the table below, the conversion price for each weekly payment may be
reset. Once a weekly payment is paid to us, and the conversion price is set
based on our stock price and trading volume at that time, then the conversion
price cannot be changed.

EREX FUNDING RESET PROVISION TABLE

---------------------------------------------------------------
AVERAGE 15 DAYS CONVERTIBLE MINIMUM 15 PRIOR WEEKLY
PRIOR CLOSING NOTE TRADING DAYS TRANCHE
BID PRICE CONVERSION PRICE DAILY VOLUME FUNDING
---------------------------------------------------------------
Reset Provision 12 . . . . . . . . $ 0.25 $ 0.188 60,000 $ 10,000
Reset Provision 11 . . . . . . . . $ 0.15 $ 0.113 90,000 $ 10,000
Reset Provision 10 . . . . . . . . $ 0.10 $ 0.075 140,000 $ 10,000
Reset Provision 9. . . . . . . . . $ 0.08 $ 0.060 170,000 $ 10,000
Reset Provision 8. . . . . . . . . $ 0.05 $ 0.038 270,000 $ 10,000
Reset Provision 7. . . . . . . . . $ 0.04 $ 0.030 350,000 $ 10,000
Reset Provision 6. . . . . . . . . $ 0.025 $ 0.019 550,000 $ 10,000
Reset Provision 5. . . . . . . . . $ 0.015 $ 0.011 900,000 $ 10,000
- ---------------------------------- ---------------- ----------------- ---------------- --------
DOC EXECUTION PARAMETERS . . . . . $ 0.009 $ 0.007 1,500,000 $ 10,000
- ---------------------------------- ---------------- ----------------- ---------------- --------
Reset Provision 1. . . . . . . . . $ 0.007 $ 0.006 1,900,000 $ 10,000
Reset Provision 2. . . . . . . . . $ 0.006 $ 0.005 2,200,000 $ 10,000
Reset Provision 3. . . . . . . . . $ 0.005 $ 0.004 2,700,000 $ 10,000
Reset Provision 4. . . . . . . . . $ 0.004 $ 0.003 3,400,000 $ 10,000

If our stock price remains at $0.009, the notes will be convertible at
$0.007 into 71,428,571 shares of our common stock. However, if our stock price
decreases to $0.004, the lowest price at which Auxiliarius would be obligated to
fund the notes, the notes could be convertible at $0.003 into as many as
166,666,666 shares of our common stock. In addition, both the note and warrant
contains provisions for the issuance of additional shares to prevent anti-
dilution from stock splits and recapitalizations. We are only authorized to
issue 250,000,000 shares of common stock, and thus would have to increase our
authorized common stock in order to issue the full number of possible shares.

As part of the Securities Purchase Agreement, Auxiliarius purchased
warrants to acquire 5,000,000 shares of our common stock at a price of $0.008
per share. The warrants are exercisable for two years from their issuance date,
and the exercise price cannot change. The warrants are not conditioned upon the
effectiveness of this registration statement or the actual funding of money
under the notes.

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

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

We have informed Auxiliarius that the anti-manipulation rules of the SEC,
including Regulation M promulgated under the Securities Exchange Act of 1934,
will apply to its sales in the market, and have provided them with a copy of
such rules and regulations.

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

Rules 101 and 102 of Regulation M under the Securities Exchange Act, among
other things, generally prohibit certain participants in a distribution from
bidding for or purchasing for an account in which the participant has a
beneficial interest, any of the securities that are the subject of the
distribution. Rule 104 of Regulation M provides that no person, directly or
indirectly, may stabilize, effect any syndicate covering transaction, or impose
a penalty bid in connection with an offering of any security in contravention of
the rule's provisions.

Auxiliarius may also rely upon Rule 144 for the sale of our common shares
in the open market.

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

Registration Fees . . . . . . . Approximately $ 50.00
Transfer Agent Fees . . . . . . Approximately 500.00
Costs of Printing and Engraving Approximately 1,000.00
Legal Fees. . . . . . . . . . . Approximately 20,000.00
Accounting Fees . . . . . . . . Approximately 3,450.00
----------
Total $25,000.00
==========

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

We have agreed to indemnify and reimburse Auxiliarius and its officers,
directors, partners, legal counsel, and accountants, against any losses, claims,
damages or liabilities to which they may become subject under the Securities Act
of 1933, the Securities Exchange Act of 1934, or any other federal or state law,
insofar as such losses arise out of or are based upon (i) any untrue statement
or alleged untrue statement of a material fact contained in a registration
statement, or (ii) the omission or alleged omission of a material fact required
to be stated therein or necessary to make the statements therein not misleading.

LEGAL PROCEEDINGS

In the ordinary course of business, the Company is from time to time
involved in various pending or threatened legal actions. The litigation process
is inherently uncertain and it is possible that the resolution of such matters
might have a material adverse effect upon the financial condition and/or results
of operations of the Company.

Recently, the Company was dismissed from a Nevada lawsuit in which the
plaintiff's were seeking class-action status. The Company remains a party to a
Florida lawsuit, and although the Company's potential liability in the Florida
lawsuit cannot be determined at this time, management does not believe that
defense costs associated therewith will be material to the operations of the
Company.

Chris Ford, Successor Trustee to the Carol J. Gamble 86 Trust v.
---------------------------------------------------------------------------
International Investment Banking, Inc., et al
- --------------------------------------------------

In April 2002, the Company was served with a lawsuit brought by Chris Ford,
Successor Trustee to the Carol J. Gamble Trust 86, in the Circuit Court of the
11th Judicial Circuit in and for Miami-Dade County, Florida, General
Jurisdictional Division, case number 02-10265CA1S. The defendants in the action
are International Investment Banking, Inc. ("IIBI"), the Company, its Board of
Directors, and a former Director.

The Complaint alleges, among other things, that the plaintiff agreed to
lend money to IIBI for the purpose of development of E-Rex's Dragonfly
electronic device. The Complaint further alleges theft, diversion of the
corporate assets, and breach of fiduciary duties by the defendants in diverting
the loan proceeds for the directors own benefit.

The Complaint requests treble damages in the amount of $750,000 under the
note, plus penalties, interest, and attorneys' fees, and an accounting from all
defendants.

The Company is vigorously defending this lawsuit although the Company
believes that the action lacks merit. The plaintiff in this case is the same
plaintiff as in the case described below. 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.

DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

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

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

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

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

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

Joseph Pacheco 42 Director (2001)

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

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

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

SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of October 28, 2002, certain information
with respect to our common stock owned of record or beneficially by (i) each of
our officers and directors; (ii) each person known to us to beneficially own
more than 5% of each class of our stock; and (iii) all directors and officers as
a group. Except as otherwise noted, each person listed below is the sole
beneficial owner of the shares and has sole investment and voting power over
such shares. Unless otherwise indicated, the address of each named beneficial
owner is the same as that of our principal executive offices located at 11645
Biscayne Boulevard, Suite 210, Miami, Florida 33181.

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

Donald A. Mitchell. . . . . . . . . . . 3,740,000 (2)(3) 3.1%

Carl E. Dilley. . . . . . . . . . . . . 3,925,258 (2)(6) 3.3%

Joseph Pacheco. . . . . . . . . . . . . 4,470,000 (4) 3.7%

Swartz Private Equity, LLC
300 Colonial Center Parkway, Ste 300
Roswell, Georgia 30076 . . . . . . . . 2,700,000 (5) 3.6%

All directors and officers
as a group (3 persons). . . . . . . . . 12,135,258 (2)(3)(4) 10.1%

* Represents less than 1%.

(1) Based on 120,148,852 shares outstanding.

(2) Includes options issued to each of Mr. Dilley and Mr. Mitchell to
acquire 200,000 shares of common stock at $0.40, 100,000 shares at $0.75 per
share, and 100,000 shares at $0.15 per share.

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

(4) Includes 4,470,000 shares held of record by Capricorn Investments, of
which Mr. Pacheco is the controlling member.

(5) Includes 2,700,000 shares issuable upon exercise of the outstanding
warrant issued to Swartz in connection with the investment agreement. Swartz
has the right to acquire up to an additional 30,000,000 shares of our common
stock under certain circumstances. It is expected that Swartz will not own
beneficially more than 9.99% of our outstanding common stock at any one time.
The beneficial owners of Swartz Private Equity, LLC are Eric S. Swartz and
Michael C. Kendrick.

(6) Does not include an undetermined number of shares of common stock
underlying warrants to acquire up to $120,000 in common stock of the Company at
a price equal to 50% of the closing bid price on the day before exercise.

DESCRIPTION OF SECURITIES

Our authorized capital stock consists of 250,000,000 shares of common
stock, par value $0.001. As of October 28, 2002, there are 120,148,852 shares
of our common stock issued and outstanding. We are not authorized to issue
preferred stock.

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

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

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

INTERESTS OF NAMED EXPERTS AND COUNSEL

The legality of our common stock offered by this prospectus will be passed
upon by The Lebrecht Group, APLC, Rancho Santa Margarita, California. Neither
The Lebrecht Group, APLC, nor any of its officers, directors, shareholders or
employees, currently own any shares of our common stock.

EXPERTS

Parks, Tschopp, Whitcomb & Orr P.A., certified public accountants, have
audited our consolidated financial statements included in our Annual Report on
Form 10-KSB/A for the year ended December 31, 2001, as set forth in their
report, which is incorporated by reference in this prospectus and elsewhere
in the registration statement. Our consolidated financial statements are
incorporated by reference in reliance on Parks, Tschopp, Whitcomb & Orr P.A.'s
report, given on their authority as experts in accounting and auditing.

DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES

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

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

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

DESCRIPTION OF BUSINESS

ABOUT OUR COMPANY

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

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

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

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

We have an $12,817,663 accumulated deficit as of December 31, 2001. We do
not have any significant operating history or revenues, and our independent
accountant has qualified his report, noting that our significant losses raise
substantial doubt about our ability to continue in business.

OUR PRIMARY PRODUCT

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

We have completed the initial prototype of the Dragonfly. It is anticipated
that production could begin within six months of obtaining the necessary capital
and/or entering into a relationship with a third party for manufacturing. We
have not entered into any agreements for the manufacture of the Dragonfly,
however demonstrations with potential manufacturers have been arranged.

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

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

E-REX CONSULTING

Our only current source of revenue, on a very limited scale, is our
consulting business, E-Rex Consulting, which formerly operated as E-tech Design.
This division of E-Rex provides services to approximately 25 clients in the
areas of Internet website design and development, online advertising, and video
marketing.

We have one internal employee who handles sales for this division, and then
independent contractors perform services directly for the clients. E-Rex
Consulting maintains a web site at www.erexconsulting.com.

Once the Dragonfly product is ready to market, we do not anticipate that
our consulting business will constitute a material part of our operations, but
will support and develop applications and customized services for the Dragonfly.

MARKETING AND SALES

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

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

MANUFACTURING

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

RESEARCH AND DEVELOPMENT

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

Since that time, we have contracted with Valcom, Ltd. of Guelph Ontario,
Canada, to produce our first prototype, including the associated software and
hardware. Valcom has estimated that the cost of producing the initial and 20
field test and production-ready prototypes will be approximately $395,000, of
which we still need to pay approximately $94,000 before the 20 prototypes can be
completed and ready for manufacture.

COMPETITION

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

INTELLECTUAL PROPERTY

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

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

We do not own and have not applied for any patents on our products.

WEBULATE

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

EMPLOYEES

We currently have three full-time employees, one of which is an officer and
director and one of which serves in a marketing and sales capacity. Each of our
full-time employees devotes all of their time to the company. The Company
currently subcontracts research and development as required for production of
the Dragonfly prototype. The Company intends to add full-time executives in
sales and marketing, finance and distribution as it moves closer to production
of the Dragonfly. In the E-Rex Consulting division there is one full time
employee and it is anticipated that several staff will be added later this
fiscal year in the areas of project management, sales and web site design and
programming.

MANAGEMENT'S DISCUSSION AND ANALYSIS

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,
2001 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, 2001
raise substantial doubt about our ability to continue in business.

YEARS ENDED DECEMBER 31, 2001 AND 2000

Results of Operations

We had significant losses of $3,535,831 for the year ended December 31,
2001. We have funded losses by the sale of additional securities and the
issuance of stock for services. We expect losses to continue. Other than the
Swartz financing, we have no sources of long-term capital. To the extent losses
continue and we are unable to fund them, we may have to curtail aspects of our
operations or cease operations altogether.

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

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

Revenue

The Company's total revenue for the year ended December 31, 2001 was
$87,185, all of which was earned from web site design and consulting services
rendered by the Company. The cost of sales for this period was $79,837,
resulting in gross profit of $7,348 for the year. The Company had total revenue
for the year ended December 31, 2000 of $35,976, all of which were earned from
web site design and consulting services rendered by the Company. The cost of
sales for this period was $10,607, resulting in gross profit of $25,369. The
company did not have any revenues for the year ended December 31, 1999.

General and Administrative

The Company's general and administrative expenses totaled $3,334,639 for
the year ended December 31, 2001, as compared to $8,350,075 for the previous
year, a decrease of approximately 40%. Of the total general and administrative
expenses, $1,104,108, or 33.1%, is attributable to stock issued for services to
various consultants, advisors, employees, and service providers to the Company.
Because the Company does not have sufficient revenues or current assets to pay
these providers in cash, it has continued to issue common stock for services,
and anticipates that this pattern will continue throughout the current fiscal
year. The Company also recorded $146,261 in research and development expenses
related to its Dragonfly product.

Net Losses

Net losses for the year ended December 31, 2001 were $3,535,831, as
compared to $8,492,853 for the prior year, a decrease of approximately 40%. As
described in General and Administrative, above, the primary component of the net
loss was stock issued for services ($1,104,108). The Company expects that it
will continue to incur large operating and net losses as a result of its
insufficient revenue and continued issuance of stock for services.

The loss per share, based on a weighted average number of shares of
29,649,570, was $0.12 per share, a substantial decrease from the loss per share
of $0.45 for the previous year.

QUARTERS ENDED SEPTEMBER 30, 2001 AND 2002

Results of Operations

We had significant losses of $351,150 for the quarter ended September 31,
2002. We have funded losses by the sale of additional securities, loans and the
issuance of stock for services. We expect losses to continue. Other than the
Swartz financing and the Auxiliarius financing, we have no sources of long-term
capital. To the extent losses continue and we are unable to fund them, we may
have to curtail aspects of our operations or cease operations altogether.

On a long-term basis, the Company's liquidity is dependent on revenue
generation, additional infusions of capital, and potential debt financing. We
currently have no arrangements for such financing and there can be no assurance
that the Company will be able to obtain the needed additional equity or debt
financing in the future.

Revenue

The Company's total revenue for the quarter ended September 30, 2002 was
$15,543, all of which was earned from web site design and consulting services
rendered by the Company. The cost of sales for this period was $9,736,
resulting in gross profit of $5,807 for the quarter. The Company had total
revenue for the quarter ended September 30, 2001 of $31,975, all of which was
earned from web site design and consulting services rendered by the Company.
The cost of sales for this period was $28,571, resulting in gross profit of
$3,404.

General and Administrative

The Company's general and administrative expenses totaled $787,900 for the
nine months ended September 30, 2002. The Company's general and administrative
expenses totaled $294,540 for the quarter ended September 30, 2002, as compared
to $878,838 for the previous year, a decrease of approximately 66%. Of the
total general and administrative expenses, $184,050, or 62.5%, is attributable
to stock issued for services to various consultants, advisors, employees, and
service providers to the Company. Because the Company does not have sufficient
revenues or current assets to pay these providers in cash, it has continued to
issue common stock for services, and anticipates that this pattern will continue
throughout the current fiscal year. The Company also recorded $47,638 in
research and development expenses during the quarter ended September 30, 2002
related to its Dragonfly product.

Net Losses

Net losses for the quarter ended September 30, 2002 were $351,150 as
compared to $953,860 for the prior year, a decrease of approximately 63%. The
Company expects that it will continue to incur large operating and net losses as
a result of its insufficient revenue and continued issuance of stock for
services.

The loss per share, based on a weighted average number of shares of
93,750,395, was $0.003 per share, a substantial decrease from the loss per share
of $0.03 for the previous year.

Liquidity and Capital Requirements

The Company requires substantial capital in order to meet its ongoing
corporate obligations and in order to continue and expand its current and
strategic business plans. Working capital has been primarily obtained through
the private placement of common stock and loan advances. The web design and
hosting business of the Company has not expanded significantly due to the
recessionary economic climate 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 has successfully demonstrated it's initial prototype and will be
focusing on the completion of 20 field test units in the near term. The Company
will therefore need available capital to complete the Dragonfly filed test
prototypes estimated at approximately $94,000 and an estimated additional
$325,000 for product testing, packaging and consumer research prior to
manufacturing. Capital to promote the product and accomplish the sales and
marketing to the OEM entities is estimated at $1,000,000 over the next
12 months. Head office and corporate operations including salaries, rent,
miscellaneous office expenses, investor relations, legal and accounting for the
next 12 months is estimated at $650,000. The total capital requirement is
therefore estimated at $2,069,000.

It is anticipated that the 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. 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. In such an event, the Company may raise additional operating capital
through private placements of equity and/or debt securities. However there can
be no assurances that it will be successful in its endeavors.

In addition to the Swartz financing, the Company has recently entered into
the Securities Purchase Agreement with Auxiliarius. The Auxiliarius financing
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. It is possible that E-Rex may never receive
any proceeds from the Auxiliarius financing agreement, or if it does, that it
may not have sufficient capital to meet its short term financing requirements.

The Company received proceeds from the sale of common stock of $56,601 for
the quarter ended September 30, 2002. The Company repaid loans of $77,432 for
the quarter ended September 30, 2002 resulting in net cash provided by financing
activities of $(20,831).

The Company purchased fixed assets valued at $15,600 during the three
months ended September 30, 2002 and made fixed asset purchases of $3,446 during
the same period in 2001. The company received no proceeds from the sales of
investments during the three months ended September 30, 2002 resulting in net
cash flows from investing activities of $(15,600) during the period ended
September 30, 2002.

DESCRIPTION OF PROPERTY

We currently lease office space located at 11645 Biscayne Boulevard, Suite
210, Miami, Florida 33181-3138. This space covers approximately 1,050 square
feet and is leased under an agreement that expires January 1, 2003 and requires
us to pay $1,441.00 per month in rent.

We believe that the current facilities are adequate to meet our needs into
the foreseeable future, even when we have begun manufacturing the Dragonfly
because we will contract with outside manufacturers.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Certain Relationships and Related Transactions
- --------------------------------------------------

In May, 2000 the Company entered into an oral contract for design and
integration work with Valcom, Ltd., a West Vancouver, British Columbia company
controlled by Paul R. MacPherson, a former Director of the Company. Under the
terms of this agreement, Valcom, Ltd. will supply six prototypes of the
Dragonfly for the approximate sum of $268,000, including work done prior to May
2000. The work is to be done on an ongoing basis. To date, the Company has paid
Valcom, Ltd. the sum of U.S. $250,093 on account, and the estimated total cost
has been revised to $395,000, leaving a balance due of $145,000.

The Company entered into an agreement on January 21, 2000 with
International Investment Banking, Inc. ("IIBI") whereby IIBI, among other
things, was to serve as senior management of the Company for an initial term of
two years unless further extended by mutual agreement of the parties (management
is now the responsibility of Carl E. Dilley, President and Chief Executive
Officer of the Company). Donald A. Mitchell, the Chairman of the Company,
controls IIBI. Pursuant to the agreement, IIBI received $10,000 per month and
reimbursement of normal business expenses that it incurs on behalf of the
Company and certain expenses of individual consultants assigned to the Company
by IIBI. Thereafter the annual compensation increased at a rate of 20% per
year. In addition to monthly compensation, IIBI or Mr. Mitchell was entitled to
receive an annual bonus as determined by the Company's Board of Directors
payable in common stock or cash. Mr. Mitchell was granted 2,000,000 shares of
common stock representing 1,000,000 common shares for each year of IIBI's
engagement. The agreement was terminated on June 30, 2001, and we do not intend
to renew it.

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

In September 2000, the Company purchased certain assets from Webulate, LLC.
The assets included software, equipment, and stock in DiveDepot.com, Inc. The
transaction was completed with $40,000 cash and $200,000 in convertible note
payables valued for a total of $240,000. The President of the Company, Mr.
Dilley, was at the time a Director of DiveDepot.com, Inc., and our Chairman, Mr.
Mitchell, is the Chairman of DiveDepot.com, Inc.

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

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

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

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

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

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

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

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

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

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

In November 2001, the Company issued 390,000 shares of common stock to Carl
E. Dilley, 300,000 shares to Donald A. Mitchell, and 50,000 shares to Jeffrey M.
Harvey for services rendered to the Company. The issuances were registered on
Form S-8.

In November 2002, the Company issued 3,523,508 shares of common stock to
Carl E. Dilley, 2,000,000 shares to Donald A. Mitchell, and 1,500,000 shares to
Joe Pacheco for services rendered to the Company and repayment of director loans
to the company. The issuances were registered on Form S-8.

In November 2002, the Company issued 936,460 shares to Donald A. Mitchell,
and 2,2470,942 shares to Joe Pacheco for repayment of director loans to the
company. The issuances are restricted. The shares were restricted in accordance
with Rule 144, and the issuances were exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933 and the shareholders were accredited.

In all instances, in the opinion of management, the terms of the
transactions with affiliates or related parties are no less favorable than could
be obtained from non-affiliates.

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

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

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

PRICES
YEAR PERIOD HIGH LOW
---- ------ ---- ----

2002 First Quarter 0.03 0.01
Second Quarter 0.06 0.01
Third Quarter 0.03 0.01

2001 First Quarter 0.53 0.16
Second Quarter 0.56 0.03
Third Quarter 0.44 0.03
Fourth Quarter 0.07 0.01

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

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

HOLDERS

As of October 28, 2002, there were approximately 236 holders of record of
the common stock.

DIVIDEND POLICY

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

EXECUTIVE COMPENSATION

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

For the year ended December 31, 2001, the executive officers of the Company
received salaries, in aggregate, equal to approximately $152,000.00 and received
the benefit of automobile allowances and health Insurance for an aggregate
$9,287.00

As of December 31, 2001, Donald A. Mitchell was compensated pursuant to a
management engagement agreement dated January 21, 2000 between the Company and
International Investment Banking, Inc., a company controlled by Mr. Mitchell.
Total amounts payable to International Investment Banking, Inc. during the year
2001 are $69,832.00. Pursuant to the agreement, IIBI receives $10,000 per month
in addition to other miscellaneous fees for services. This service agreement
was terminated by mutual agreement on June 30, 2001.

As of November 16, 2001, Donald A. Mitchell was compensated $3,000.00
pursuant to a management engagement agreement dated November 16, 2000 between
the Company and Mr. Mitchell.

Jeffrey M. Harvey was hired as General Counsel for the Company on March 1,
2001, at an annual salary of $60,000. This service agreement was terminated by
mutual agreement on September 31, 2001.

On September 30, 2001, the Board of Directors of the Company issued to Mr.
Dilley, as compensation for tax liabilities arising out of the Company's payment
of his compensation in stock rather than cash, warrants to acquire up to
$128,000 in Company common stock at a price equal to 50% of the closing bid
price on the date immediately before the exercise of any warrants. The Company
booked this compensation expense at $64,500.

On November 26, 2001, the Board of Directors of the Company issued to Mr.
Harvey, in lieu of salary compensation, warrants to acquire up to $25,000 in
Company common stock at a price equal to 50% of the closing bid price on the
date immediately before the exercise of any warrants. The Company booked this
compensation expense at $12,500.

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

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

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

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

The Summary Compensation Table shows certain compensation information for
services rendered in all capacities for the fiscal years ended December 31, 2001
and 2000. Other than as set forth herein, no executive officer's salary
and bonus exceeded $120,000 in any of the applicable years. The following
information includes the dollar value of base salaries, bonus awards, the number
of stock options granted and certain other compensation, if any, whether paid or
deferred.

SUMMARY COMPENSATION TABLE

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

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

Donald A. Mitchell
(Chairman). . . . . . . . . 2001 $ 3,000 -0- $ 69,832 -0- 200,000 -0- -0-

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

Carl E. Dilley
(CEO, Director) . . . . . . 2001 $114,000 -0- $ 9,287 -0- 200,000 -0- $64,500

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

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

Jeffrey M. Harvey
(Treasurer, Director,
Resigned Sept 30, 2001) . . 2001 $ 35,000 -0- -0- -0- 200,000 -0- $12,500

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

Joseph Pacheco
(Director). . . . . . . . . 2001 -0- -0- -0- -0- -0- -0- -0-

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

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

Donald A. Mitchell . . . . . . . . . . 100,000 6.4 $ 0.40 7/7/03

100,000 6.4 $ 0.15 7/7/03

Carl E. Dilley . . . . . . . . . . . . 100,000 6.4 $ 0.15 7/7/03

100,000 6.4 $ 0.40 7/7/03

(1) (1) (1) 9/30/03

Jeffrey M. Harvey. . . . . . . . . . . 100,000 6.4 $ 0.40 7/7/03

100,000 6.4 $ 0.15 7/7/03

(2) (2) (2) 11/26/03

Joseph Pacheco . . . . . . . . . . . . -0- -0- -0- -0-

(1) On September 30, 2001, the Board of Directors of the Company issued to
Mr. Dilley, as compensation for tax liabilities arising out of the Company's
payment of his compensation in stock rather than cash, warrants to acquire up to
$128,000 in Company common stock at a price equal to 50% of the closing bid
price on the date immediately before the exercise of any warrants. The Company
booked this compensation expense at $64,500.

(2) On November 26, 2001, the Board of Directors of the Company issued to
Mr. Harvey, in lieu of salary compensation, warrants to acquire up to $25,000 in
Company common stock at a price equal to 50% of the closing bid price on the
date immediately before the exercise of any warrants. The Company booked this
compensation expense at $12,500.

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

NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-
SECURITIES UNDERLYING MONEY OPTION/SARS
SHARES ACQUIRED OPTIONS/SARS AT FY-END (#) AT FY-END ($)
NAME ON EXERCISE (#) VALUE REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------ --------------- ------------------ ------------------------- ----------------------------
Donald A. Mitchell. . . . -0- -0- -0- -0-

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

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

Joseph Pacheco. . . . . . -0- -0- -0- -0-

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE

Gately & Associates, LLC
- ---------------------------

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

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

Perez-Abreu, Aguerrebere, Sueiro LLC
- ---------------------------------------

On February 4, 2002, Perez-Abreu, Aguerrebere, Sueiro LLC, the independent
accountant previously engaged as the principal accountant to audit the financial
statements of E-Rex, Inc., resigned as auditors for the Company. As Perez-Abreu
resigned, the decision to change accountants was not approved by the Board of
Directors of the Company or by any audit or similar committee thereof.

During its engagement by the Company, Perez-Abreu did not issue an audit
opinion with respect to any financial statements of the Company. During the
period of their engagement, there were no disagreements with the former
accountant on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of the former accountant, would have caused it
to make reference to the subject matter of the disagreements in connection with
its audit report. E-Rex, Inc. has provided a copy of this disclosure to its
former accountants, and requested that the former accountants furnish them with
letters addressed to the Securities and Exchange Commission stating whether they
agree with the statements made by the Registrant, and, if not, stating the
respects in which they do not agree. A copy of the former accountants'
responses indicating agreement is included as exhibits to this report.

Upon Perez-Abreu, Aguerrebere, Sueiro LLC's resignation, the board of
directors on February 8, 2002 approved the engagement of Parks, Tschopp,
Whitcomb & Orr, P.A., Certified Public Accountants, as the principal accountant
to audit the financial statements of the Company.

During the two most recent fiscal years, or any subsequent interim period
prior to engaging Parks, Tschopp, Whitcomb & Orr, P.A., neither E-Rex nor anyone
acting on E-Rex's behalf consulted with Parks, Tschopp, Whitcomb & Orr, P.A.
regarding (i) the application of accounting principles to a specific completed
or contemplated transaction, or (ii) the type of audit opinion that might be
rendered on E-Rex's financial statements where either written or oral advice was
provided that was an important factor considered by E-Rex in reaching a decision
as to the accounting, auditing, or financial reporting issue, or (iii) any
matter that was the subject of a disagreement with E-Rex's former accountant on
any matter of accounting principles or practices, financial statement dis-
closure, or auditing scope or procedure, which disagreements, if not resolved to
the satisfaction of the former accountant, would have caused it to make
reference to the subject matter of the disagreements in connection with its
audit report.

AVAILABLE INFORMATION

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

Copies of all or any part of the registration statement may be inspected
without charge or obtained from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549, telephone number 1-800
SEC-0330, and its public reference facilities in New York, New York and Chicago,
Illinois, upon the payment of the fees prescribed by the Commission. The
registration statement is also available through the Commission's web site at
the following address: http://www.sec.gov.

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

FINANCIAL STATEMENTS

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
E-REX, INC.

Report of Parks, Tschopp, Whitcomb & Orr, P.A.,
Certified Public Accountants F-1

Consolidated Balance Sheets as of December 31, 2000 and 2001 F-2

Consolidated Statements of Operations for the years ended
December 31, 2000 and 2001 and from Inception F-3

Consolidated Statements of Cash Flows for the years
ended December 31, 2000 and 2001 and from Inception F-4

Consolidated Statements of Stockholder's Equity from
Inception (August 26, 1986 to December 31, 2001 F-5

Notes to the Consolidated Financial Statements F-7 to F-20

Balance Sheet as of September 30, 2002 and December 31,
2001 F-21

Statement of Operations for the Nine Months ending
September 30, 2002 and 2001, the Three Months
ending September 30, 2002 and 2001 and from
Inception F-22

Statement of Changes in Stockholders' Equity for
the Period from Inception (August 26, 1986) to
September 30, 2002 F-23 to F-25

Statement of Cash Flows for the Nine Months ending
September 30, 2002 and 2001, and from Inception F-26

Notes to Consolidated Financial Statements F-27 to F-42

INDEPENDENT AUDITORS' REPORT
----------------------------

The Board of Directors
E-Rex, Inc.:

We have audited the accompanying balance sheet of E-Rex, Inc. (a development
stage company) as of December 31, 2001, and the related statements of
operations, stockholders' equity, and cash flows for the year then ended, and
cumulative period from August 26, 1986 (date of inception) through December 31,
2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The 2000 financial statements were audited by
other auditors whose report dated May 11, 2001 expressed a qualified opinion for
going concern reasons.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of E-Rex, Inc. (a development
stage company) as of December 31, 2001, and the results of its operations and
its cash flows for the year then ended, and the cumulative period from August
26, 1986 (date of inception) through December 31, 2001, in conformity with
accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 2 to the
financial statements, the Company has experienced net operating losses of $
(3,535,831) and $ (8,492,953) for the years ended December 31, 2001 and 2000,
respectively. At December 31, 2001, the Company continues to experience a
working capital deficit and also has a stockholders' deficit of $ (701,545).
These matters raise substantial doubt about the Company's ability to continue as
a going concern. Management's plans in regard to these matters are described in
note 2. The accompanying financial statements do not include any adjustments
relating to the recoverability and classification of asset carrying amounts or
the amount and classification of liabilities that might result should the
Company be unable to continue as a going concern.

/s/ Parks, Tschopp, Whitcomb & Orr, P.A.
________________________________________
Parks, Tschopp, Whitcomb & Orr P.A.
Certified Public Accountants
Maitland, Florida

April 7, 2002

F-1

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

ASSETS
------

Dec 31 Dec 31
2001 2000
------- -------

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

Cash 7,454 19,948
Prepaid Expense 20,938 -
Accounts receivable from related parties 135 298
Accounts receivable 6,969 22,757
------------ ------------

Total Current Assets $ 35,496 $ 43,003
------------ ------------

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

Furniture, equipment and software 126,212 92,792
Less: accumulated depreciation (41,651) (7,800)
------------ ------------

Total Other Assets $ 84,561 $ 84,992
------------ ------------

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

Investments $ 12,601 $ 62,600
------------ ------------

TOTAL ASSETS $ 132,658 $ 190,595
============ ============

LIABILITIES AND STOCKHOLDERS' DEFECIT
--------------------------------------

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

Accounts payable 181,734 95,440
Accounts payable to related parties 2,837 155,467
Accrued liabilities 37,813 10,838
Accrued interest on bonds 26,008 7,460
Demand Note Payable-related party 485,811 298,654
Convertible debenture bonds 100,000 240,000
------------ ------------

Total current liabilities $ 834,203 $ 807,859
------------ ------------

TOTAL LIABILITIES $ 834,203 $ 807,859
------------ ------------

STOCKHOLDERS' DEFECIT
--------------------

STOCKHOLDERS' DEFICIT
- ----------------------

Common stock, $.001 par value, 100,000,000 authorized
Shares issued and outstanding as of December 31, 2000 23,808,816 23,809
Shares issued and outstanding as of December 31, 2001 54,524,223 54,524 -
Additional paid in capital 12,621,494 10,386,204
Accrued Stock Compensation (22,500) (1,258,045)
Accumulated Other Comprehensive Income, net of tax
Net unrealized gains (losses) on marketable equity securities (537,400) (487,400)
Deficit accumulated during the development stage (12,817,663) (9,281,832)

Total stockholders' deficit $ (701,545) $ (617,264)
------------ ------------

TOTAL LIABILITIES AND DEFICIT $ 132,658 $ 190,595
============ ============

See accompanying notes to the financial statements

F-2

E-REX, INC.
STATEMENT OF OPERATIONS
FOR THE YEARS ENDING DECEMBER 31, 2001 AND 2000 AND FROM INCEPTION
(A Development Stage Company)

Year Year
Ended Ended
31-Dec 31-Dec FROM
2001 2000 INCEPTION
------------ ------------ ------------

REVENUE $ 87,185 $ 35,976 $ 123,161
- -------

COST OF SALES (79,837) (10,607) (90,444)
- ------------- ------------ ------------ ------------

GROSS PROFIT 7,348 25,369 32,717
- ------------- ------------ ------------ ------------

EXPENSES
- --------

General and administrative (3,334,639) (8,350,075) (12,595,858)
Research and development (146,261) (151,729) (297,990)
------------ ------------ ------------

Total expenses (3,480,900) (8,501,804) (12,893,848)
------------ ------------ ------------

LOSS FROM OPERATIONS (3,473,552) (8,476,435) (12,861,131)
- -------------------- ------------ ------------ ------------

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

Interest income 1,439
Interest Expense (62,279) (16,418) (78,697)
Recovery from lawsuit - - 120,726
------------ ------------ ------------

INCOME (LOSS) BEFORE INCOME TAXES $(3,535,831) $ (8,492,853) $(12,817,663)
- ---------------------------------
Income Taxes - - -
------------ ------------ ------------

NET INCOME (LOSS) $(3,535,831) $ (8,492,853) $(12,817,663)
- ----------------- ============ ============ ============

Weighted average
Number of shares 29,649,570 18,841,966

Basic EPS $ (0.12) $ (0.45)

See accompanying notes to the financial statements

F-3

E-REX, INC.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDING DECEMBER 31, 1999 DECEMBER 31, 2000 AND DECEMBER 31, 2001
(A Development Stage Company)

Year Year
Ended Ended FROM
31-Dec 31-Dec INCEPTION
2001 2000 TO DATE
----------- ------------ --------------

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

Net Loss $ (3,535,831) (8,492,853) (12,817,663)

Adjustments to reconcile net loss
to net cash provided by
operating activities:

Stock issued for Services 1,104,108 7,273,872 8,568,656
Stock issued for Research and Development - 124,595 124,595
Stock issued in conversion of Accts Payable 120,000 - 120,000
Warrants issued for Services 731,673 450,000 1,181,673
Amortization of stock issued for services
in prior period 1,235,545 - 1,235,545
Depreciation expense 33,851 4,904 41,651
(Increase) Decrease in
Accounts receivable 15,788 (22,757) (6,969)
Accounts receivable from related parties (135) (298) (135)
Prepaid professional Fees and Expenses (19,196) - (19,494)
Deposits and Retainers (1,444) - (1,444)
(Increase) Decrease in
Accounts payable 96,054 162,382 181,734
Accounts payable to related parties (162,390) - 2,837
Accrued liabilities 26,975 18,298 37,813
Accrued Bond Interest 18,548 - 26,008
Other - - -
------------ ------------ --------------

Total adjustments to net income (loss) 3,199,377 8,010,996 11,492,470

Net cash used in
operating activities (336,454) (481,857) (1,325,193)
------------ ------------ --------------
CASH FLOWS FROM (FOR)
INVESTING ACTIVITIES
- ---------------------

Purchase or Disposal of Furniture,
Equipment and Software 703 (37,855) (33,951)

Net cash flows used in
investing activities 703 (37,855) (33,951)
------------ ------------ --------------

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

Proceeds from loan from related party 187,157 623,654 810,811
Proceeds from issuance of stock 136,100 329,000 990,787
Payment on loan - (325,000) (325,000)
Purchase of treasury stock - (150,000) (150,000)
Proceeds from issuance of Conv Debentures - 40,000 40,000
----------- ------------ --------------
Net cash provided by
financing activities 323,257 517,654 1,366,598

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

Net increase (decrease) in cash (12,494) (2,058) 7,454
Cash at beginning of period 19,948 22,006 0
------------ ------------ --------------

CASH BALANCE AT END OF YEAR $ 7,454 $ 19,948 $ 7,454
- --------------------------------- ============ ============ ==============

See accompanying notes to the financial statements

F-4

E-REX, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (AUGUST 26, 1986) TO DECEMBER 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. 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)

F-5

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)

Beneficial Conversion feature of Warrants 450,000 450,000

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) 10,386,204 (9,281,832) (617,264)

Common shares issued
for consulting services 15,616,949 15,617 1,088,491 1,104,108

Common shares issued
for Software Development Investment 127,373 127 33,997 34,124

Accrued Stock Compensation 1,235,545 1,235,545

Common shares issued
in Conversion of accounts payable 600,000 600 119,400 120,000

Common shares issued
in Conversion of Convertible Debentures 280,000 280 139,720 140,000

Common shares issued
for Cash 14,091,085 14,091 122,009 136,100

Beneficial Conversion feature of Warrants 731,673 731,673

Accumulated Other Comprehensive losses, net of tax
Net unrealized gains (losses) on marketable equity securities (50,000)

Net loss for the period (3,535,831) (3,535,831)
----------- -------- ------------ ----------- ----------- -----------
Balance, December 31, 2001 54,524,223 $ 54,524 ($22,500) $12,621,494 ($12,817,663) ($701,545)
=========== ======== ============ =========== =========== ===========

See accompanying notes to the financial statements

F-6

E-REX, INC.
FORM 10-K

NOTES TO
FINANCIAL STATEMENTS

DECEMBER 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 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."

F-7

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 are charged to expense as incurred; 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 December 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:

F-8

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 $0.04
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 Dec 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 December 31, 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 December 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.

F-9

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 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. A settlement agreement has been reached and
the Company has issued a total of 166,667 shares of restricted common stock that
was delivered to Crusader Capital Group, Inc. in conjunction with 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. 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 mis-
representations, 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 April 22, 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.

F-10

The Company is vigorously defending this lawsuit although the Company believes
that the action lacks merit. The case is at a stage where no discovery has been
taken and no prediction can be made as to the outcome of this case.

7. Related Party Transactions:

The company 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, was on the Board of Directors of DiveDepot.Com, Inc. at the time of
the transaction and the director Mr. Mitchell, is also on the Board of Directors
of DiveDepot.Com, Inc.

The Company entered into an agreement on January 21, 2000 with International
Investment Banking, Inc. ("IIBI") whereby IIBI will serve as senior management
of the Company for an initial term of two years unless further extended by
mutual agreement of the parties. The Chairman of the Company, Donald A.
Mitchell, also controls IIBI. Pursuant to the agreement, IIBI receives $10,000
per month and reimbursement of normal business expenses that it incurs on behalf
of the Company and certain expenses of individual consultants that IIBI assigns
to carry out the duties and responsibilities of IIBI. Thereafter the annual
compensation shall increase at a rate of 20% per year. In addition to monthly
compensation, IIBI or Mr. Mitchell may be entitled to receive an annual bonus as
determined by the Company's Board of Directors payable in common stock or cash.
Mr. Mitchell was granted 2,000,000 shares of common stock representing 1,000,000
common shares for each year of IIBI's engagement. As an addendum to this
agreement, IIBI was directed on the Company's behalf to execute the following:
Purchase 8,237,616 shares of stock from two of the Company's former directors
for $250,000; issue 6,000,000 shares of stock to Stockbroker Relations, Inc. per
an investor relations contract; and issue IIBI 1,000,000 shares of restricted
common stock. On February 28, 2001 the board of Directors issued 600,000
restricted shares under Regulation D to IIBI in satisfaction of an outstanding
debt of $120,000. This service agreement was terminated by mutual agreement on
June 30, 2001.

The Company entered into an agreement on September 11, 2000 with International
Investment Banking, Inc. ("IIBI") whereby IIBI provides the company with a
credit line financing on a demand basis with interest accruing at prime rate
plus 4%. The total of loan advances, services invoices outstanding and
interest has been assigned to designees of IIBI. This demand loan has a balance
including interest of $485,811 at December 31, 2001 and $298,654 at December
31, 2000 respectively.

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 con-
sideration, 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.

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.

On June 12, 2001 the Company issued 85,714 shares of common stock to Jeffrey
Harvey, a director and officer, for legal services valued at $36,857, and
162,857 shares of common stock to Carl Dilley, for management services valued at
$70,029, and 115, 000 shares of common stock to Brian Lebrecht, the attorney for
the corporation, for legal services valued at $49,450. The issuances were
registered on Form S-8.

F-11

On August 13, 2001 the Company issued 166,667 shares of common stock to Jeffrey
Harvey, a director and officer, for legal services valued at $26,667, and
279,167 shares of common stock to Carl Dilley, for management services valued at
$70,029, and 250,000 shares of common stock to Brian Lebrecht, the attorney for
the corporation, for legal services valued at $40,000. The issuances were
registered on Form S-8.

On November 16, 2001 the Company issued 300,000 shares of common stock to
Donald A. Mitchell, a director and officer, for management services valued
at$3,000.

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 the company Riotech LLC.

On September 30, 2000 the Board of Directors extended and modified the terms of
the employment agreement with Carl Dilley president and CEO, a director and
officer as follows.

Term. The term of the Employment Agreement shall be extended for an additional
two year period, such that the Employment Agreement shall now expire at the end
of the day on May 30, 2004.

Compensation and Benefits. Effective as of the date hereof, in addition to any
compensation due Employee under the Employment Agreement or otherwise and except
as otherwise provided herein, Employee shall be entitled to the following
compensation and benefits:

Employee's salary shall increase by 15% over the prior year's salary, effective
April 1, 2002 and each April 1 thereafter.

Company shall provide to Employee, without cost, or reimburse Employee 100% of
the cost, of health insurance, effective April 1, 2002.

Employee shall be entitled to an annual bonus to be determined by the Board of
Directors, which bonus may be paid either in cash or common stock registered on
Form S-8.

The amount of Employee's vacation shall increase by one (1) week for each year
of completed service, effective April 1, 2002 and each April 1 thereafter, up to
a maximum of six (6) weeks of paid vacation.

Employee shall be entitled to participate in any bonus, profit sharing or 401(K)
program sponsored by Company and in any other benefit or perquisite that Company
may offer to its employees.

The Company shall issue to
Employee warrants to purchase a number of shares of its common stock having an
aggregate market value based on the bid price at the time of exercise of
$128,700.00 to supplement the depreciation of the stock compensation previously
paid to Employee (as provided by the Employment Agreement) and as additional
compensation in order to cover the tax liabilities generated by the payment in
stock rather than cash required by Company. The warrants shall have a two year
term and be exercisable upon written notice to Company setting forth an exercise
effective date, at a price that is 50% of the average closing bid price for the
five trading days immediately preceding the exercise effective date (the fifth
day in the average calculation being one day prior to the exercise date).

F-12

The Company shall issue to Employee 90,000 shares of its common stock as
additional compensation in order to account for the dilution of Employee's
original stock position (as contemplated by the Employment Agreement). The
foregoing shares of stock shall be immediately, or shall have been prior to
delivery, registered with the Securities and Exchange Commission on Form S-8 or
otherwise, so that such shares shall be immediately free trading and able to be
sold on the open market upon receipt.

Share Adjustment in the Event of Devaluation. To the extent not otherwise
addressed in the Employment Agreement, in the event the aggregate market value
of any shares issued pursuant to the Employment Agreement, as amended, declines
after issuance, then Company shall from time-to-time as reasonably appropriate
(but in no event less frequently than is necessary to provide periodic payments
equal to the salary and other sums then due) issue to Employee additional shares
of its common stock, registered or to be registered on Form S-8 as provided
above, to compensate Employee for any lost value.

8. Convertible Debenture Bonds:

9. Stockholders' Equity:

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

On November 20, 2000, the board of directors declared 1,096,670 restricted
common shares to be issued, a value of $449,537, for the purpose of settling
with shareholders that had asserted that the Company had originally issued the
shareholders stock that was stated to be free trading shares. The shares were
issued under a Regulation D section 144 filing. In addition to the shares
issued were 3,290,000 options to purchase shares of the Company's common stock
at an 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., accepted as
settlement the 166,667 shares, which have been issued and accounted for.

F-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 directors and officers with an
expiration date of August 7, 2003. The stock options were issued August 7, 2001
with 300,000 options excercisable at $.15 per share and 300,000 options
excercisable at $.40 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.

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.

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.

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 2001 and subsequently removed from the stockholders equity of
the company.

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.

F-14

On May 1st, 2001 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. In addition to the compensation provided
for the agreement, throughout the term of this Agreement, Big Apple shall be
eligible to receive a bonus in the form of callable warrants based on its
performance in the 90 day period beginning on the Effective Date and in each 90
day period thereafter (each, a "Bonus Period"). Big Apple's eligibility to
------------
receive warrants, if any, shall be based on the Average Closing Share Bid Price
(the "ACSBP") for the twenty-one (21) trading days ending on the last day of
-----
each Bonus Period. The number of warrants, if any, to be issued to Promoter for
a Bonus Period shall be determined as follows:

If the ACSBP equals or exceeds: Promoter shall receive: Exercisable at:
- ------------------------------ ---------------------- --------------

$0.25 per share 175,000 $0.17 per share
$0.40 per share 100,000 $0.25 per share
$0.50 per share 100,000 $0.40 per share

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. This agreement was terminated on August 23, 2001.

On June 1st, 2001 the board of Directors issued 100,000 restricted shares to Big
Apple Consulting U.S.A., Inc. under Regulation D in exchange for investor
relations services valued at $20,000 as part of the services agreement executed
May 1, 2001.

On July 30th, 2001 the board of Directors issued 200,000 restricted shares to
Big Apple Consulting U.S.A., Inc. under Regulation D in exchange for investor
relations services valued at $38,000 as part of the services agreement executed
May 1, 2001.

On August 7th, 2001 the board of Directors issued 40,000 restricted shares under
Regulation S in exchange for advisory board member services valued at $66,343.

On August 14th, 2001 the board of Directors issued 280,000 free trading shares
in conversion of the principle amount of $140,000 in convertible debentures.

On August 23, 2001 E-Rex, Inc. terminated the services and marketing agreements
with Big Apple Consulting U.S.A., Inc. for breach of contract.

On September 9th, 2001 the board of Directors issued 928,572 restricted shares
to Mr. Terry Shores for $65,000 in cash.

On September 28th, 2001 the board of Directors issued 200,000 free trading
shares under Regulation S in exchange for marketing and stock exchange listing
services valued at $16,000. On October 28th, 2001 the board of Directors issued
400,000 free trading shares and warrants exercisable into $150,000 of Free
trading shares under Regulation S in exchange for consulting services as
follows.

F-15

Duties of Consultant, The Consultant will provide such services and advice to
the Company so as to advise the Company in business development, mergers and
acquisitions, business strategy and corporate image. Without limiting the
generality of the foregoing, Consultant will also assist the Company in
developing, studying and evaluating acquisition proposals, prepare reports and
studies thereon when advisable, and assist in matters of executive compensation
and discussions pertaining thereof. Nothing contained herein constitutes a
commitment on the part of the Consultant to find an acquisition target for the
Company or, if such target is found, that any transaction will be completed.
This Agreement is not a contract for listing services, and nothing in this
Agreement will require the Consultant to negotiate on behalf of the Company with
corporations that are involved with listings or making a market in corporate
securities in the OTC markets. Consultant would undertake such services under
the direction of Carl Dilley, Company President and CEO. Duties Expressly
Excluded. This Agreement expressly excludes the Consultant from providing public
relation services to the Company inclusive of but not limited to (i) direct or
indirect promotion of the Company's securities; (ii) assistance in making of a
market in the Company's securities. The Consultant shall not have the power of
authority to bind the Company to any transaction without the Company's prior
written consent.

The Company shall compensate the Consultant with free trading shares of the
Company's Common Stock, and warrants for shares of Company's Common Stock. The
Company shall issue the Consultant 400,000 free trading shares of the Company's
Common Stock upon execution of this agreement. In addition, the Company will
issue warrants to purchase $150,000 in freely trading shares of the Company's
Common Stock according to the schedule below.

The warrants will expire 90 days from the date of issue according to the
schedule below, and Consultant may exercise any available warrants in any
increments of 100,000 or more at any time prior to expiration according to the
schedule below. The aforementioned warrants shall be executable at a "Market"
price determined by taking the average closing price per share for ten days
previous to execution of the warrants and multiplying by 65%. The
aforementioned warrants shall be considered earned upon execution of the
agreement. The Company shall immediately file an S-8 registration including
these shares. The Company agrees to file additional S-8 registrations if
necessary to fulfill the terms of the contract.

Schedule For Compensation

Date Description Amount/Number
1. Execution Issue Shares 400,000
2. Execution Warrants at 65% of Market $30,000
3. 11/01/01 Warrants at 65% of Market $40,000
4. 12/01/01 Warrants at 65% of Market $40,000
5. 1/01/02 Warrants at 65% of Market $40,000

During the year ended December 31, 2001 the board of Directors issued 131,935
free trading shares under Regulation S in exchange for professional services
valued at $24,637.

During the year ended December 31, 2001 the board of Directors issued 8,196,745
free trading shares to Mark Wilson, Jonathan Knigin, Sepher Niakan, Andy
Sikorski, Paul Storti, Anne Balduzzi, Steve Marinkovitch, Jonathan Keane, and
Mitch Ackles under Regulation S in exchange for consulting services valued at
$258,852.

During the year ended December 31, 2001 the board of Directors issued 127,373
free trading shares under Regulation S in exchange for Software Research and
development valued at $31,124.

During the year ended December 31, 2001 the board of Directors issued 3,665,925
free trading shares under Regulation S in exchange for legal services
valued at $213,984.

F-16

During the year ended December 31, 2001 the Company issued 1,441,191 free
trading shares under Regulation S to Donald A. Mitchell and Carl E. Dilley,
directors and officers, for management services valued at$146,933.

During the year ended December 31, 2001 the board of Directors issued 13,162,333
free trading shares under Regulation S pursuant to the exercise of warrants
for cash of $71,100.

10. Other Agreements

On March 1, 2001 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 to third-party clients of
the Company. 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 the Company. Riotech will manage and provide project managers
and development staff on an exclusive basis for all projects undertaken during
the term of the agreement, and will also supply 300 hours of work towards the
development of the Company's proprietary websites and systems.

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.

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.

F-17

On August 2, 2001 the company entered into an agreement with Steve Marinkovich
to act as a Senior Technology and Network Systems Consultant for Erex and assist
them with the following: Designing their network architecture for wireless data
flow to and from mobile Dragonfly units to Erex hosted back-end or customer
centric systems as required. Designing and recommending complete "end-to-end"
solutions where Erex fully hosts the connectivity and back-end systems for
Dragonfly connectivity and document transfer, hosts a wireless gateway to the
Internet and a customer's back-end system or provides recommendation on software
that allows customers to host in-house systems for data transfer. Recommend
software required to create the "end-to-end" solutions for each of the
transmission scenarios above. This will include mobile software, as well as any
required backend, middleware, transaction, and portal server software. Recommend
a Security Infrastructure for their network as well as security options for
secure data transmission from the Dragonfly. Assist Erex in choosing the
necessary hardware infrastructure components and suitable configurations. Assist
Erex in providing technical explanations to its customers and investors
regarding the potential uses of the Dragonfly and the Erex network as required.

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 holds two investments in marketable Securities. The first investment
was in Ultimate Franchise Systems, Inc. in an exchange of 1,000,000 shares of
the Company's stock valued at $400,000. The second investment was a purchase of
software, equipment and 100,000 shares of DiveDepot.com, Inc. stock from
Webulate LLC. The transaction was completed with cash of $40,000 and convertible
notes payable valued at $200,000. The President of the Company, Mr. Dilley, and
the director Mr. Mitchell, are also on the Board of Directors of DiveDepot.Com,
Inc.

The company has written down the value of the investment in Ultimate Franchise
Systems, Inc. to $12,500 reflecting the closing market price of the stock at as
of December 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 reflecting the fair value of the stock
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
$49,999 for the period ending Dec 31, 2001.

13. Required Cash Flow Disclosure:

The Company had interest expense of $314 and no income taxes paid for the year
ended December 31, 2001.

F-18

For the year ended December 31, 2001, the Company entered into agreements
for non-cash exchanges of stock for services totaling $1,104,108.

For the year ended December 31, 2001, the Company entered into agreements
for non-cash exchanges of free trading shares of stock for software research
and development valued at $34,124.

For the year ended December 31, 2001, the Company converted $140,000 principle
of convertible debentures to 280,000 free trading common shares of E-Rex, Inc.

For the year ended December 31, 2001, the Company entered into agreements
for non-cash exchanges of stock for accounts payable satisfaction totaling
$120,000.

For the year ended December 31, 2001, the Company issued stock for cash
totaling $136,100.

For the year ended December 31, 2001, the Company had a balance outstanding
for accrued stock compensation of $22,500.

14. Summarized Quarterly Data (Unaudited)

Following is a summary of the quarterly results of operations for the years
ended December 31, 2001 and 2000:

March June September December
2001 31 30 30 31 Total
------------- ------------- ------------ ------------ ------------
Net revenue $ 7,966 $ 29,072 $ 31,975 $ 18,172 $ 87,185
Loss from Operations (1,723,389) (400,344) (938,729) (411,090) (3,473,552)
Net income (loss) (1,738,409) (416,216) (953,860) (427,346) (3,535,831)
Basic earnings (loss)
per share (0.07) (0.02) (0.03) (0.01) (0.12)
Diluted earnings (loss)
per share (0.07) (0.02) (0.03) (0.01) (0.12)
Weighted average shares
Outstanding 24,122,005 26,425,681 29,098,552 39,082,212 29,649,570

2000

Net revenue - - $ 7,524 $ 28,452 $ 35,976
Loss from Operations (175,084) (2,023,162) (2,501,898) (3,776,291) (8,476,435)
Net income (loss) (175,084) (2,023,162) (2,501,898) (3,792,709) (8,492,853)
Basic earnings (loss)
per share (0.01) (0.11) (0.13) (0.16) (0.45)
Diluted earnings (loss)
per share (0.01) (0.11) (0.13) (0.16) (0.45)
Weighted average shares
Outstanding 13,276,859 17,973,048 18,607,310 23,025,226 18,841,966

F-19

15. Recent Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement No. 141, "Business Combinations". Statement 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. Statement 141 also specifies criteria that intangible
assets acquired in a purchase method business combination must meet to be
recognized and reported apart from goodwill, noting that any purchase price
allocable to an assembled workforce may not be accounted for separately. Based
upon our initial assessment, we do not expect the adoption of this statement to
have a significant impact on our financial condition or results of operations.

In June 2001, the FASB approved SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 142 requires companies to cease amortizing goodwill
and other intangible assets with indefinite lives after December 31, 2001. SFAS
No. 142 also establishes a new method of testing goodwill for impairment on an
annual basis or on an interim basis if an event occurs or circumstances change
that would reduce the fair value of a reporting unit below its carrying value.
We expect that the impact to 2002 net income associated with the discontinuation
of the amortization of goodwill to be a pre-tax increase of approximately
$174,000. We have not completed our initial assessment of goodwill impairment.
Upon adoption of this standard, any resulting impairment charges recorded may
have a material impact on our results of operations.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." The statement provides accounting and reporting standards for
recognizing the cost associated with obligations related to the retirement of
tangible long-lived assets. Under this statement, legal obligations associated
with the retirement of long-lived assets are to be recognized at their fair
value in the period in which they are incurred if a reasonable estimate of fair
value can be made. The fair value of the asset retirement costs is capitalized
as part of the carrying amount of the long-lived asset and expensed using a
systematic and rational method over the asset's useful life. Any subsequent
changes to the fair value of the liability will be expensed. We will be required
to adopt this statement no later than January 1, 2003. Based on our initial
assessment, we do not expect the adoption of this statement to have a
significant impact on our financial condition or results of operations.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets," which is effective for fiscal years beginning
after December 15, 2001. This statement supersedes FASB Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," and replaces the provisions of APB Opinion No. 30, "Reporting
the Results of Operations - Reporting the Effects of Disposal of Segments of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions," for the disposal of segments of a business. SFAS No. 144 retains
the fundamental provisions of SFAS No. 121 for the recognition and measurement
of the impairment of long-lived assets to be held and used and the measurement
of long-lived assets to be disposed of by sale. Impairment of goodwill is not
included in the scope of SFAS No. 144 and will be treated in accordance with
SFAS No. 142. Under SFAS No. 144, long-lived assets are measured at the lower of
carrying amount or fair value less cost to sell. We are required to adopt this
statement no later than January 1, 2002. Based on our current assessment, we do
not expect the adoption of this statement to have a significant impact on our
financial condition or results of operations.

16. Correction of Error

E-Rex, Inc. has restated its Annual Report on Form 10-KSB. This Annual Report
is for the year ended December 31, 2001, and was originally filed with the
Commission on April 12, 2002. References throughout this Annual Report are
accurate as of the date originally filed. The Company has not undertaken to
update all of the information in this Annual 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 Annual Report.

The financial statements have been revised to 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.

Effect of Correction On Earnings, Net Income and Loss Per Share

E-REX, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 2000
(A DEVELOPMENT STAGE COMPANY)

(RESTATED)
2000 2000
------------ ------------

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

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

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

EXPENSES
- --------------

General and administrative 8,350,075 7,900,075
Research and development 151,729 151,729
------------ ------------

Total expenses 8,501,804 8,051,804

LOSS FROM OPERATIONS (8,476,435) (8,026,435)
- ---------------------

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

Interest income - -
Interest Expense (16,418) (16,418)
Recovery from lawsuit

INCOME (LOSS) BEFORE INCOME TAXES (8,492,853) (8,042,853)
- ----------------------------------

Income Taxes - -
------------ ------------

NET INCOME (LOSS) $(8,492,853) $(8,042,853)
- ------------------ ============ ============

Weighted average
Number of shares 18,841,966 18,841,966

Basic EPS $ (0.45) $ (0.43)

F-20

E-REX, INC.
BALANCE SHEET
AS OF SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
(A DEVELOPMENT STAGE COMPANY)

ASSETS
------

(UnAudited)
SEPT 30 DEC 31
2002 2001
------------- -------------
CURRENT ASSETS
- --------------
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,704 7,454
Prepaid Expense . . . . . . . . . . . . . . . . . . . . . . . 8,832 20,938
Accounts receivable from related parties. . . . . . . . . . . 339 135
Accounts receivable . . . . . . . . . . . . . . . . . . . . . 5,198 6,969
------------- -------------

Total Current Assets. . . . . . . . . . . . . . . . . . . . $ 19,073 $ 35,496
------------- -------------

PROPERTY AND EQUIPMENT
- ----------------------
Furniture, equipment and software . . . . . . . . . . . . . . 156,712 126,212
Less: accumulated depreciation. . . . . . . . . . . . . . . . (77,571) (41,651)
------------- -------------

Total Other Assets. . . . . . . . . . . . . . . . . . . . . $ 79,141 $ 84,561
------------- -------------

OTHER ASSETS
- ------------
Investments . . . . . . . . . . . . . . . . . . . . . . . . . $ 101 $ 12,601
------------- -------------

TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . . $ 98,315 $ 132,658
============= =============

LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------

CURRENT LIABILITIES
- -------------------
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . 332,054 181,734
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . 56,036 37,813
Accrued interest on bonds . . . . . . . . . . . . . . . . . . 33,350 26,008
Demand Note Payable . . . . . . . . . . . . . . . . . . . . . 266,018 -
Payable - related party . . . . . . . . . . . . . . . . . . . 80,154 2,837
Demand Note Payable -related party. . . . . . . . . . . . . . 328,225 485,811
Convertible debenture bonds . . . . . . . . . . . . . . . . . 100,000 100,000
------------- -------------

Total current liabilities . . . . . . . . . . . . . . . . . $ 1,195,837 $ 834,203
------------- -------------

STOCKHOLDERS' DEFICIT
---------------------

STOCKHOLDERS' EQUITY (DEFICIT)
- ------------------------------
Common stock, $.0001 par value, 100,000,000 authorized
54,524,223 shares issued and outstanding as of Dec 31-2001. . 54,524
114,294,090 shares issued and outstanding as of Sept 30-2002. 114,294
Additional paid in capital. . . . . . . . . . . . . . . . . . 13,253,697 12,621,494
Accrued Stock Compensation. . . . . . . . . . . . . . . . . . - (22,500)
Deficit accumulated during the development stage. . . . . . . (14,315,613) (12,817,663)
Accumulated Other Comprehensive Income, net of tax
Net unrealized gains (losses) on marketable securities. . . . (149,900) (537,400)
------------- -------------

Total Stockholders' Deficit . . . . . . . . . . . . . . . . $ (1,097,522) $ (701,545)
------------- -------------

TOTAL LIABILITIES AND EQUITY (DEFICIT). . . . . . . . . . $ 98,315 $ 132,658
============= =============

See accompanying notes to the financial statements

F-21

E-REX, INC.
STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDING SEPTEMBER 30, 2002 AND 2001,
THE THREE MONTHS ENDING SEPTEMBER 30, 2002 AND 2001 AND FROM INCEPTION
(A DEVELOPMENT STAGE COMPANY)
UnAudited

NINE MONTHS NINE MONTHS THREE MONTHS THREE MONTHS
ENDED ENDED ENDED ENDED
SEPT 30 SEPT 30 SEPT 30 SEPT 30 FROM
2002 2001 2002 2001 INCEPTION
------------- ------------- -------------- ------------ -------------

REVENUE . . . . . . . . . . . . . . . . . . . .$ 26,473 $ 69,489 $ 15,543 $ 31,975 $ 149,633
- -------

COST OF SALES . . . . . . . . . . . . . . . . . (17,787) (66,321) (9,736) (28,571) (108,231)
- -------------

GROSS PROFIT. . . . . . . . . . . . . . . . . . 8,686 3,168 5,807 3,404 41,402
- ------------

EXPENSES
- --------
General and administrative. . . . . . . . . . (787,900) (2,931,147) (294,540) (878,838) (13,383,758)
Research and development. . . . . . . . . . . (294,038) (134,484) (47,638) (63,295) (592,028)
------------- ------------- -------------- ------------ -------------

Total expenses. . . . . . . . . . . . . . . . .(1,081,938) (3,065,631) (342,178) (942,133) (13,975,786)
------------- ------------- -------------- ------------ -------------

LOSS FROM OPERATIONS. . . . . . . . . . . . . . (1,073,252) (3,062,463) (336,371) (938,729) (13,934,384)
------------- ------------- -------------- ------------ -------------

OTHER INCOME
- ------------
Interest income . . . . . . . . . . . . . . . - - - - 1,439
Interest Expense. . . . . . . . . . . . . . . (43,612) (46,023) (14,779) (15,131) (122,309)
Recovery From Lawsuit . . . . . . . . . . . . - - - - 120,726
Loss on the sale of investments . . . . . . . (381,085) - - - (381,085)
------------- ------------- -------------- ------------ -------------

INCOME (LOSS) BEFORE INCOME TAXES . . . . . . .$ (1,497,950) $ (3,108,486) $ (351,150) $ (953,860) $(14,315,613)
- ---------------------------------

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

NET INCOME (LOSS) . . . . . . . . . . . . . . .$ (1,497,950) $ (3,108,486) $ (351,150) $ (953,860) $(14,315,613)
- ---------------- ============= ============= ============== ============ =============

EARNINGS PER SHARE
Weighted average
Number of shares Outstanding. . . . . . . . . 79,554,426 26,576,013 93,750,395 29,098,552

Basic EPS . . . . . . . . . . . . . . . . . .$ (0.02) $ (0.12) $ (0.00) $ (0.03)
============= ============= ============== ============

Weighted average
Number of shares on a Fully Diluted Basis . . 79,554,426 26,576,013 93,750,395 29,098,552

Fully Diluted EPS . . . . . . . . . . . . . .$ (0.02) $ (0.12) $ (0.00) $ (0.03)
============= ============= ============== ============

See accompanying notes to the financial statements

F-22

E-REX, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (AUGUST 26, 1986) TO SEPTEMBER 30, 2002
(A DEVELOPMENT STAGE COMPANY)

DEFICIT
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,
1993 for $4.00 per share. . . . . . . . 32,000 32 127,968 128,000

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

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

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

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

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

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

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

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

See accompanying notes to the financial statements

F-23

E-REX, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
CONTINUED
FOR THE PERIOD FROM INCEPTION (AUGUST 26, 1986) TO SEPTEMBER 30, 2002
(A DEVELOPMENT STAGE COMPANY)

DEFICIT
ACCRUED ADDITIONAL ACCUMULATED
COMMON STOCK STOCK PAID-IN DURING
SHARES AMOUNT COMPENSATION CAPITAL DEV. STAGE TOTAL
------------ -------- -------------- ----------- ------------- ------------

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 . . . . . . . . . . 424,000 424 113,076 113,500
for cash

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

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

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

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

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

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

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

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

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

Beneficial Conversion feature of Warrants 450,000 450,000

Accumulated other 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) 10,386,204 (9,281,832) (617,264)

See accompanying notes to the financial statements

F-24

E-REX, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
CONTINUED
FOR THE PERIOD FROM INCEPTION (AUGUST 26, 1986) TO SEPTEMBER 30, 2002
(A DEVELOPMENT STAGE COMPANY)

Balance, December 31, 2000 . . . . . . . 23,808,816 23,809 (1,258,045) 10,386,204 (9,281,832) (617,264)

Common shares issued
for consulting services. . . . . . . . . 15,616,949 15,617 1,088,491 1,104,108

Common shares issued
for Software Development Investment. . . 127,373 127 33,997 34,124

Accrued Stock Compensation . . . . . . . 1,235,545 1,235,545

Common Shares Issued
In Conversion of accounts payable. . . . 600,000 600 119,400 120,000

Common shares issued
in Conversion of Convertible Debentures. 280,000 280 139,720 140,000

Common shares issued
For Cash . . . . . . . . . . . . . . . . 14,091,085 14,091 122,009 136,100

Beneficial Conversion feature of Warrants 731,673 731,673

Accumulated Other Comprehensive losses,
net of tax Net unrealized gains (losses)
on marketable equity securities. . . . . (50,000)

Net loss for the period. . . . . . . . . (3,535,831) (3,535,831)
------------ -------- -------------- ----------- ------------- ------------

Balance, December 31, 2001 . . . . . . . 54,524,223 $ 54,524 ($22,500) $12,621,494 $(12,817,663) $(701,545)

UnAudited
Common shares issued
for consulting services. . . . . . . . . 29,250,000 29,250 258,000 287,250

Common shares issued
for software development . . . . . . . . 2,100,000 2,100 16,800 18,900

Accrued Stock Compensation . . . . . . . 22,500 22,500

Common Shares Issued
In Conversion of accounts payable. . . . 4,648,186 4,648 90,176 94,824

Common shares issued
For Cash . . . . . . . . . . . . . . . . 23,771,681 23,772 143,728 167,500

Accumulated Other Comprehensive losses,
net of tax Net unrealized gains (losses)
on marketable equity securities. . . . . 387,499

Beneficial Conversion feature of Warrants 123,499 123,499

Net loss for the period. . . . . . . . . (1,497,950) (1,497,950)
------------ -------- -------------- ----------- ------------- ------------

Balance, September 30, 2002. . . . . . . 114,294,090 $114,294 $ 0 $13,253,697 $(14,315,613) $(1,097,522)

See accompanying notes to the financial statements

F-25

E-REX, INC.
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDING SEPTEMBER 30, 2002 AND 2001 AND FROM INCEPTION
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED

NINE MONTHS NINE MONTHS
CASH FLOWS FROM (FOR) ENDED ENDED FROM
- --------------------- SEPT 30 SEPT 30 INCEPTION
OPERATING ACTIVITIES 2002 2001 TO DATE
- -------------------- ------------- ------------- -------------

Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,497,950) $ (3,108,486) (14,315,613)

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

Stock issued for Services . . . . . . . . . . . . . . . . . . . . . . . . 287,250 950,318 8,855,906
Stock issued in conversion of Accts. Payable. . . . . . . . . . . . . . . 94,824 120,000 214,824
Stock Issued for Research & Development . . . . . . . . . . . . . . . . . - - 124,595
Stock Issued for Software Development . . . . . . . . . . . . . . . . . . 18,900 - 18,900
Amortization of stock issued for services in prior period . . . . . . . . 22,500 1,239,692 1,258,045
Loss on sale of investments . . . . . . . . . . . . . . . . . . . . . . . 381,085 - 381,085
Warrants Issued for Services. . . . . . . . . . . . . . . . . . . . . . . 123,499 594,000 1,305,172
Depreciation expense. . . . . . . . . . . . . . . . . . . . . . . . . . . 35,920 24,761 77,571
(Increase) Decrease in
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . 1,771 13,439 (5,198)
Accounts receivable from related parties. . . . . . . . . . . . . . . . (204) (4,960) (339)
Prepaid professional Fees and Expenses. . . . . . . . . . . . . . . . . 12,106 (29,164) (8,832)
Deposits & Retainers. . . . . . . . . . . . . . . . . . . . . . . . . . - (1,444) -
Increase (Decrease) in
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,320 72,518 332,054
Accounts payable to related parties . . . . . . . . . . . . . . . . . . 53,199 (70,329) 56,036
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . (4,463) 34,639 33,350
Accrued Bond & Note Interest. . . . . . . . . . . . . . . . . . . . . . 240,010 16,054 266,018
------------- ------------- -------------

Total adjustments to net income . . . . . . . . . . . . . . . . . . . . . 1,416,717 2,959,524 12,909,187

Net cash provided by (used in)
operating activities. . . . . . . . . . . . . . . . . . . . . . . . . . . (81,233) (148,962) (1,406,426)

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

Purchase of furniture, Equipment & Software . . . . . . . . . . . . . . . (30,500) (3,446) (64,451)
Proceeds from sale of Investments . . . . . . . . . . . . . . . . . . . . 18,915 - 18,915
------------- ------------- -------------

Net cash flows provided by (used in)
investing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . (11,585) (3,446) (45,536)

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

Proceeds from loan. . . . . . . . . . . . . . . . . . . . . . . . . . . . - 81,785 810,811
Proceeds from issuance of stock . . . . . . . . . . . . . . . . . . . . . 167,500 65,000 1,158,287
Payment on loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (77,432) - (402,432)
Purchase of treasury stock. . . . . . . . . . . . . . . . . . . . . . . . - - (150,000)
Issuance of Conv. Debentures. . . . . . . . . . . . . . . . . . . . . . . - - 40,000
------------- ------------- -------------

Net cash provided by (used in) financing. . . . . . . . . . . . . . . . . 90,068 146,785 1,456,666

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

Net increase (decrease) in cash . . . . . . . . . . . . . . . . . . . . . (2,750) (5,623) 4,704
Cash at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . 7,454 19,948 0
------------- ------------- -------------

CASH BALANCE AT END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . $ 4,704 $ 14,325 $ 4,704
- ----------------------------- ============= ============= =============

See accompanying notes to the financial statements

F-26

E-REX, INC.
FORM 10-QSB

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

SEPTEMBER 30, 2002

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
September 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.

F-27

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

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

Realized gains and losses are determined on the basis of specific identifi-
cation. Declines in the fair value of individual available-for-sale securities
below their cost that are other than temporary result in write-downs of the
individual securities to their fair value. The related write-downs are included
in earnings as realized losses.

Non-marketable securities - The Company accounts for investments for which the
Company does not have the ability to exercise significant influence or for which
there is not a readily determinable market value, under the cost method
of accounting. Additionally, certain securities are restricted and are not
transferable.

The Company periodically evaluates the carrying value of its investments
accounted for under the cost method of accounting and as of September 30, 2002,
such investments were recorded at the lower of cost or estimated net realizable
value.

2. Basis of Presentation as a Going Concern:

F-28

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:

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 $0.04 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 5 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.

In October 2002, E-Rex entered into a Securities Purchase Agreement with
Auxiliarius Fortunare, LLC for the sale of up a convertible note in the
principal amount of up to $500,000. The note is convertible into shares of
E-Rex common stock at $0.008 per share, subject to adjustment based on the stock
price and trading volume of the common stock. In connection with the Securities
Purchase Agreement, E-Rex issued to Auxiliarius warrants to purchase 5,000,000
shares of our common stock at $0.008 per share. The Securities Purchase
Agreement requires E-Rex to file and have effective a registration statement
with the SEC prior to the time funding commences, which the Company has filed,
but which has not yet been declared effective.

F-29

3. Income Taxes:

Since the Company has not generated cumulative taxable income since inception,
no provision for income taxes has been provided. At September 30, 2002, the
Company did not have significant tax net operating loss carry forwards (tax
benefits resulting from losses for tax purposes have been fully reserved due to
the uncertainty of a going concern). At September 30, 2002 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 September 30, 2002, 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:

Inception
Jan. 1, 1999 (8/26/86)
To Feb. 20, To Dec. 31,
1999 1999
------------- -------------
Revenues $ -- $ --
Net (Loss) $ (230,954) $ (616,086)

F-30

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. A settlement agreement has been reached and
the Company has issued a total of 166,667 shares of restricted common stock that
was delivered to Crusader Capital Group, Inc. in conjunction with the final
settlement agreement.

In February 2002, the Company was served with a lawsuit brought by a group of
ten (10) plaintiffs, namely Carol Gamble Trust 86, September L. Blackwell,
September 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.

This suit was dismissed with prejudice on August 5, 2002. A Motion was filed by
the plaintiffs to remove the "with prejudice" clause in the decision. On October
21, 2002 the court upheld it's earlier ruling of "dismissal with prejudice".

In April 2002, the Company was served with a lawsuit brought by Chris Ford,
Successor Trustee to the Carol J. Gamble Trust 86, in the Circuit Court of
the 11th Judicial Circuit in and for Miami-Dade County, Florida, General
Jurisdictional Division, case number 02 10265CA1S. The defendants in the action
are International Investment Banking, Inc. ("IIBI"), the Company, its Board of
Directors, and a former Director.

The Complaint alleges, among other things that the plaintiff agreed to lend
money to IIBI for the purpose of development of E-Rex's Dragonfly electronic
device. The Complaint further alleges theft, diversion of the corporate assets,
and breach of fiduciary duties by the defendants in diverting the loan proceeds
for the directors' own benefit.

The Complaint requests treble damages in the amount of $750,000 under the note,
plus penalties, interest, and attorneys' fees, and an accounting from all
defendants.

The Company is vigorously defending this lawsuit as management believes that the
action is without merit. The plaintiff in this case is the same plaintiff as in
the case described below. The case is at a stage where only limited discovery
has taken place and no prediction can be made as to the outcome of this case.

7. Related Party Transactions:

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, was on the Board of Directors of DiveDepot.com, Inc. at the
time of the transaction and the director Mr. Mitchell, is also on the Board of
Directors of DiveDepot.com, Inc.

F-31

The Company entered into an agreement on January 21, 2000 with International
Investment Banking, Inc. ("IIBI") whereby IIBI would 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 this agreement, IIBI received $10,000
per month and reimbursement of normal business expenses that it incurs on behalf
of the Company and certain expenses of individual consultants 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. This service agreement was terminated by mutual agreement on
September 30, 2001.

The Company entered into an agreement on September 11, 2000 with International
Investment Banking, Inc. ("IIBI") whereby IIBI provides the Company with a
credit line financing on a demand basis with interest accruing at prime rate
plus 4%. The total of loan advances, services invoices outstanding and interest
has been assigned to designees of IIBI. This demand loan has a balance
including interest of $485,811 at December 31, 2001 and $332,360 at September
30, 2002.

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 since disposed of it's holding in Ultimate
Franchise Systems, Inc.

On September 12, 2001 the Company issued 85,714 shares of common stock to
Jeffrey Harvey, a director and officer, for legal services valued at $36,857,
and 162,857 shares of common stock to Carl Dilley, for management services
valued at $70,029, and 115, 000 shares of common stock to Brian Lebrecht, the
attorney for the corporation, for legal services valued at $49,450. The
issuances were registered on Form S-8.

F-32

On November 16, 2001 the Company issued 300,000 shares of common stock to Donald
A. Mitchell, a director and officer, for management services valued at $3,000.

On September 30, 2000 the Board of Directors extended and modified the terms of
the employment agreement with Carl Dilley president and CEO, a director and
officer as follows.

Term. - The term of the Employment Agreement shall be extended for an
additional two-year period, such that the Employment Agreement shall now expire
at the end of the day on May 30, 2004.

Compensation and Benefits. - Effective as of the date hereof, in addition to
any compensation due Employee under the Employment Agreement or otherwise and
except as otherwise provided herein, Employee shall be entitled to the following
compensation and benefits:

Employee's salary shall increase by 15% over the prior year's salary, effective
April 1, 2002 and each April 1 thereafter.

Company shall provide to Employee, without cost, or reimburse Employee 100% of
the cost, of health insurance, effective April 1, 2002.

Employee shall be entitled to an annual bonus to be determined by the Board of
Directors, which bonus may be paid either in cash or common stock registered on
Form S-8.

Employee shall be entitled to participate in any bonus, profit sharing or 401(K)
program sponsored by Company and in any other benefit or perquisite that Company
may offer to its employees.

The agreement was also amended April 4, 2002 as follows.

Promptly upon the full execution of this Amendment, Company shall issue to
Employee warrants to purchase shares of its common stock having an exercise
value of $128,700.00 to supplement the depreciation of the stock compensation
previously paid to Employee (as provided by the Employment Agreement) and as
additional compensation in order to cover the tax liabilities generated by the
payment in stock rather than cash required by Company. The warrants shall have
a two-year term and be exercisable upon written notice to Company setting forth
an exercise effective date, at a price of $.0042 per share. The Company will
have the right at its option to repurchase all or part of these warrants on a
pro rata basis for a total of $64,350.00.

F-33

8. Convertible Debenture Bonds:

Refer to Footnote 7 with regard to bonds issued to related parties. These
convertible debentures mature July 1, 2002 are convertible anytime at the
holders option on the basis of 1 common share for each $.50 of debenture par
value converted. The debentures accrue interest at the rate of 10% per annum.
On August 1, 2001 $140,000 principal of convertible debentures was converted to
280,000 common shares of E-Rex, Inc. At September 30, 2002 there was a total of
$100,000 principal convertible debentures and accrued interest of $30,912
outstanding. On October 8, 2002 the board of directors approved a modification
to the conversion privilege of the outstanding convertible debentures that would
allow the holders to convert the principle and accrued interest to common stock
at the rate of 90% of the average of the last 5 trading days' closing price.

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 restricted
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.,
accepted as settlement the 166,667 shares, which have been issued and accounted
for. 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 exercisable at $.40 per share and 325,000
options exercisable at $.75 per share.

Stock options have been granted by the Company to directors and officers with an
expiration date of August 7, 2003. The stock options were issued August 7, 2001
with 300,000 options exercisable at $.15 per share and 300,000 options
exercisable at $.40 per share.

F-34

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 August 1, 2000 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.

The Company has also offered $1,000,000 in units of the Company's securities
pursuant to its Memorandum of terms dated September 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.

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.

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 2001 and subsequently removed from the stockholders equity of
the Company.

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 1, 2001 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

F-35

including, direct broker promotion, investor relations including conference
calls, and investor lead management. In addition to the compensation provided
for the agreement, throughout the term of this Agreement, Big Apple shall be
eligible to receive a bonus in the form of callable warrants based on its
performance in the 90-day period beginning on the Effective Date and in each
90-day period thereafter (each, a "Bonus Period"). Big Apple's eligibility to
receive warrants, if any, shall be based on the Average Closing Share Bid Price
(the "ACSBP") for the twenty-one (21) trading days ending on the last day of
each Bonus Period. The number of warrants, if any, to be issued to Promoter for
a Bonus Period shall be determined as follows:

If the ACSBP equals or exceeds: Promoter shall receive: Exercisable at:
$0.25 per share 175,000 $0.17 per share
$0.40 per share 100,000 $0.25 per share
$0.50 per share 100,000 $0.40 per share

On May 25, 2001 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. This agreement was terminated on August 23, 2001.

On July 30, 2001 the board of Directors issued 200,000 restricted shares to Big
Apple Consulting U.S.A., Inc. under Regulation D in exchange for investor
relations services valued at $38,000 as part of the services agreement executed
May 1, 2001.

On August 1, 2001 the board of Directors issued 280,000 free trading shares in
conversion of the principle amount of $140,000 in convertible debentures.

On August 7, 2001 the board of Directors issued 40,000 restricted shares on from
S-8 in exchange for advisory board member services valued at $66,343.

On August 23, 2001 E-Rex, Inc. terminated the services and marketing agreements
with Big Apple Consulting U.S.A., Inc. for breach of contract.

On September 1, 2001 the board of Directors issued 100,000 restricted shares to
Big Apple Consulting U.S.A., Inc. under Regulation D in exchange for investor
relations services valued at $20,000 as part of the services agreement executed
May 1, 2001.

On September 9, 2001 the board of Directors issued 928,572 restricted shares to
Mr. Terry Shores for $65,000 in cash.

On September 28, 2001 the board of Directors issued 200,000 free trading shares
registered on form S-8 in exchange for marketing and stock exchange listing
services valued at $16,000. On October 28, 2001 the board of Directors issued
400,000 free trading shares and warrants exercisable into $150,000 of Free
trading shares registered on form S-8 in exchange for consulting services as
follows.

Duties of Consultant - The Consultant will provide such services and advice to
the Company so as to advise the Company in business development, mergers and
acquisitions, business strategy and corporate image. Without limiting the
generality of the foregoing, Consultant will also assist the Company in

F-36

developing, studying and evaluating acquisition proposals, prepare reports and
studies thereon when advisable, and assist in matters of executive compensation
and discussions pertaining thereof. Nothing contained herein constitutes a
commitment on the part of the Consultant to find an acquisition target for the
Company or, if such target is found, that any transaction will be completed.
This Agreement is not a contract for listing services, and nothing in this
Agreement will require the Consultant to negotiate on behalf of the Company with
corporations that are involved with listings or making a market in corporate
securities in the OTC markets. Consultant would undertake such services under
the direction of Carl Dilley, Company President and CEO.

Duties Expressly Excluded. - This Agreement expressly excludes the Consultant
from providing public relation services to the Company inclusive of but not
limited to (i) direct or indirect promotion of the Company's securities; (ii)
assistance in making of a market in the Company's securities. The Consultant
shall not have the power of authority to bind the Company to any transaction
without the Company's prior written consent.

The warrants will expire 90 days from the date of issue according to the
schedule below, and Consultant may exercise any available warrants in any
increments of 100,000 or more at any time prior to expiration according to the
schedule below. The aforementioned warrants shall be executable at a "Market"
price determined by taking the average closing price per share for 10 days
previous to execution of the warrants and multiplying by 65%. The afore-
mentioned warrants shall be considered earned upon execution of the agreement.
The Company shall immediately file a form S-8 registration including these
shares. The Company agrees to file additional S-8 registrations if necessary to
fulfill the terms of the contract.

Schedule For Compensation

During the year ended December 31, 2001 the board of Directors issued 131,935
free trading shares registered on form S-8 exchange for professional services
valued at $24,637.

During the year ended December 31, 2001 the board of Directors issued 8,196,745
free trading shares to Mark Wilson, Jonathan Knigin, Sepehr Niakan, Andy
Sikorski, Paul Storti, Anne Balduzzi, Steve Marinkovitch, Jonathan Keane, and
Mitch Ackles registered on form S-8 in exchange for consulting services valued
at $258,852.

During the year ended December 31, 2001 the board of Directors issued 127,373
free trading shares registered on form S-8 in exchange for Software Research and
development valued at $31,124.

F-37

During the year ended December 31, 2001 the board of Directors issued 3,665,925
free trading shares registered on form S-8 in exchange for legal services valued
at $213,984.

During the year ended December 31, 2001 the Company issued 1,441,191 free
trading shares registered on form S-8 to Donald A. Mitchell and Carl E. Dilley,
directors and officers, for management services valued at$146,933.

During the year ended December 31, 2001 the board of Directors issued 13,162,333
free trading shares registered on form S-8 pursuant to the exercise of warrants
for cash of $71,100.

During the period ended September 30, 2002 the board of Directors issued
14,123,533 free trading shares registered on form S-8 pursuant to the exercise
of warrants for cash of $110,899.

During the period ended September 30, 2002 the board of Directors issued
4,648,186 restricted shares in payment of outstanding debt to Valcom, Ltd. of
$94,825.

During the period ended September 30, 2002 the board of Directors issued
8,800,000 free trading shares registered on form S-8 in exchange for legal,
marketing and other consulting services valued at $103,200.

10. Other Agreements:

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:

F-38

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.

On September 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 August 2, 2001 the Company entered
into an agreement with Steve Marinkovitch to act as a Senior Technology and
Network Systems Consultant for E-Rex and assist them with the following:
Designing their network architecture for wireless data flow to and from
mobile Dragonfly units to E-Rex hosted back-end or customer centric systems as
required. Designing and recommending complete "end-to-end" solutions where E-Rex
fully hosts the connectivity and back-end systems for Dragonfly connectivity and
document transfer, hosts a wireless gateway to the Internet and a customer's
back-end system or provides recommendation on software that allows customers to
host in-house systems for data transfer. Recommend software required to create
the "end-to-end" solutions for each of the transmission scenarios above. This
will include mobile software, as well as any required backend, middleware,
transaction, and portal server software. Recommend a Security Infrastructure for
their network as well as security options for secure data transmission from the
Dragonfly. Assist E-Rex in choosing the necessary hardware infrastructure
components and suitable configurations. Assist E-Rex in providing technical
explanations to its customers and investors regarding the potential uses of the
Dragonfly and the E-Rex network as required.

In October 2002, E-Rex entered into a Securities Purchase Agreement with
Auxiliarius Fortunare, LLC for the sale of up a convertible note in the
principal amount of up to $500,000. The note is convertible into shares of
E-Rex common stock at $0.008 per share, subject to adjustment based on the stock
price and trading volume of the common stock. In connection with the Securities
Purchase Agreement, E-Rex issued to Auxiliarius warrants to purchase 5,000,000
shares of its common stock at $0.008 per share. The Securities Purchase
Agreement requires E-Rex to file and have effective a registration statement
with the SEC prior to the time funding commences, which the Company has filed,
but which has not yet been declared effective.

F-39

11. Concentrations of risk:

12. Investments:

The Company currently holds one investment in marketable Securities. The first
investment was in Ultimate Franchise Systems, Inc. in an exchange of 1,000,000
shares of the Company's stock valued at $400,000. The second investment was a
purchase of software, equipment and 100,000 shares of DiveDepot.com, Inc. stock
from Webulate LLC. The transaction was completed with cash of $40,000 and
convertible notes payable valued at $200,000. The Chairman and director of the
Company Mr. Mitchell is also on the Board of Directors of DiveDepot.com, Inc.

The Company has sold its holdings in Ultimate Franchise Systems, Inc. for net
proceeds of $18,915 and recorded a loss of $331,368.

DiveDepot.com, Inc has restated its earnings for this period reflecting a
substantial write off of its investment in internet related projects resulting
in negative shareholders equity as of September 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 reflecting the fair value of the stock
as of Sept 30, 2000.

In reviewing financial and other information supplied to the Company by
management of the investee it is our opinion that the decline in value of
this investment is temporary in nature. The DiveDepot.com, Inc. generates
significant operating revenues and it seems likely that the Company will return
to profitability as the economy improves. If it seems likely that the future
value of DiveDepot.com, Inc. will not improve management will effect a charge to
earnings and a permanent writedown of the investment value.

13. Required Cash Flow Disclosure:

The Company had interest expense of $43,612 and no income taxes paid for the
period ended September 30, 2002.

For the period ended September 30, 2002, the Company entered into agreements for
non-cash exchanges of stock for services totaling $287,250.

For the period ended September 30, 2002, the Company entered into agreements for
non-cash exchanges of stock for software development totaling $18,900.

For the period ended September 30, 2002, the Company entered into agreements for
non-cash exchanges of stock for accounts payable satisfaction totaling $94,825.

For the period ended September 30, 2002, the Company issued stock from the
exercise of warrants for cash totaling $167,500.

F-40

14. Summarized Quarterly Data (Unaudited):

Following is a summary of the quarterly results of operations for the years
ended December 31, 2001 and 2000:

March June September December
2001 31 30 30 31 Total
--------------- -------------- -------------- -------------- ------------
Net revenue $ 7,966 $ 29,072 $ 31,975 $ 18,172 $ 87,185
Loss from Operations (1,723,389) (400,344) (938,729) (411,090) (3,473,552)
Net income (loss) (1,738,409) (416,216) (953,860) (427,346) (3,535,831)
Basic earnings (loss)
per share (0.07) (0.02) (0.03) (0.01) (0.12)
Diluted earnings (loss)
per share (0.07) (0.02) (0.03) (0.01) (0.12)
Weighted average shares
Outstanding 24,122,005 26,425,681 29,098,552 39,082,212 29,649,570

2000

15. Recent Accounting Pronouncements:

In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
No. 141, "Business Combinations." Statement 141 requires that the purchase
method of accounting be used for all business combinations initiated after
September 30, 2001. Statement 141 also specifies criteria that intangible
assets acquired in a purchase method business combination must meet to be
recognized and reported apart from goodwill, noting that any purchase price
allocable to an assembled workforce may not be accounted for separately. Based
upon our initial assessment, we do not expect the adoption of this statement to
have a significant impact on our financial condition or results of operations.

In September 2001, the FASB approved SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 142 requires companies to cease amortizing goodwill
and other intangible assets with indefinite lives after December 31, 2001. SFAS
No. 142 also establishes a new method of testing goodwill for impairment on an
annual basis or on an interim basis if an event occurs or circumstances change
that would reduce the fair value of a reporting unit below its carrying value.
We expect that the impact to 2002 net income associated with the discontinuation
of the amortization of goodwill to be a pre-tax increase of approximately
$174,000. We have not completed our initial assessment of goodwill impairment.
Upon adoption of this standard, any resulting impairment charges recorded may
have a material impact on our results of operations.

F-41

In September 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." The statement provides accounting and reporting
standards for recognizing the cost associated with obligations related to
the retirement of tangible long-lived assets. Under this statement, legal
obligations associated with the retirement of long-lived assets are to be
recognized at their fair value in the period in which they are incurred if a
reasonable estimate of fair value can be made. The fair value of the asset
retirement costs is capitalized as part of the carrying amount of the long-lived
asset and expensed using a systematic and rational method over the asset's
useful life. Any subsequent changes to the fair value of the liability will be
expensed. We will be required to adopt this statement no later than January 1,
2003. Based on our initial assessment, we do not expect the adoption of this
statement to have a significant impact on our financial condition or results of
operations.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," which is effective for fiscal years beginning
after December 15, 2001. This statement supersedes FASB Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," and replaces the provisions of APB Opinion No. 30, "Reporting
the Results of Operations - Reporting the Effects of Disposal of Segments of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions," for the disposal of segments of a business. SFAS No. 144 retains
the fundamental provisions of SFAS No. 121 for the recognition and measurement
of the impairment of long-lived assets to be held and used and the measurement
of long-lived assets to be disposed of by sale. Impairment of goodwill is not
included in the scope of SFAS No. 144 and will be treated in accordance with
SFAS No. 142. Under SFAS No. 144, long-lived assets are measured at the lower
of carrying amount or fair value less cost to sell. We are required to adopt
this statement no later than January 1, 2002. Based on our current assessment,
we do not expect the adoption of this statement to have a significant impact on
our financial condition or results of operations.

F-42

YOU MAY RELY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS
PROSPECTUS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR SALE OF COMMON STOCK
MEANS THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AFTER THE DATE OF
THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY THESE SHARES OF THE COMMON STOCK IN ANY CIRCUMSTANCES UNDER WHICH
THE OFFER OR SOLICITATION IS UNLAWFUL.

Dealer Prospectus Delivery Obligation. Until ________, 2002; all dealers that
effect transactions in these securities, whether or not participating in this
offering, may be required to deliver a prospectus. This is in addition to the
dealers' obligation to deliver a Prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
_________________

TABLE OF CONTENTS 171,666,666 SHARES

Page
----

Prospectus Summary 2 E-REX, INC.
Risk Factors 4
Forward-Looking Statements 8
Use of Proceeds 9
Selling Security Holders 10
Plan of Distribution 11
Legal Proceedings 14
Directors, Executive Officers, Promoters
and Control Persons 15
Security Ownership of Certain Beneficial
Owners and Management 16
Description of Securities 17
Interests of Named Experts and Counsel 18
Disclosure of Commission Position on
Indemnification For Securities
Act Liabilities 18 --------------------
Description of Business 19 PROSPECTUS
Management's Discussion and Analysis --------------------
or Plan of Operation 23
Description of Property 27
Certain Relationships
and Related Transactions 27 ---------------, 2002
Market for Common Equity
and Related Stockholder Matters 30
Executive Compensation 31
Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure 34
Available Information 36
Index to Consolidated Financial
Statements 37

PART II - INFORMATION NOT REQUIRED IN PROSPECTUS

INDEMNIFICATION OF DIRECTORS AND OFFICERS

Our Articles of Incorporation do not further address indemnification.

On February 15, 2002, and on May 24, 2002, the Board of Directors of the
Company, in accordance with the Bylaws of the Company and applicable sections of
the Nevada Revised Statutes, unanimously approved an Indemnification Agreement
between the Company and each of Carl Dilley, Donald A. Mitchell, Jeffrey M.
Harvey, and Joseph Pacheco.

OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

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

RECENT SALES OF UNREGISTERED SECURITIES

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

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

II-1

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

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

In 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 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 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.

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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 warrants 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. The issuance
was exempt from registration pursuant to Section 4(2) of the Securities Act of
1933 and the purchaser was an accredited investor.

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

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

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

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

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

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

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

In February 20, 2002, the Company issued 4,648,186 shares of common stock,
restricted in accordance with Rule 144, to Paul MacPherson, a principal of
Valcom Limited, as consideration for $94,823.00 in services rendered by Valcom
to E-Rex. The issuance was exempt from registration pursuant to Section 4(2) of
the Securities Act of 1933.

On August 26, 2002, the Company issued 1,250,000 shares of common stock,
restricted in accordance with Rule 144, to one accredited investor in exchange
for cash consideration of $10,000. The issuance was exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933.

` In November 2002, the Company issued 936,460 shares to Donald A. Mitchell,
and 2,270,942 shares to Joe Pacheco for repayment of director loans to the
Company. The issuances are restricted. The shares were restricted in accordance
with Rule 144, and the issuances were exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933 and the shareholders were accredited.

EXHIBITS

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

3.1 (1) Articles of Incorporation of P.R. Stocks, Inc.

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

3.3 (1) Articles of Merger of Medgain International Corporation into
National Health & Safety Corporation

3.4 (1) Amendment to the Articles of Incorporation of Medgain International
Corporation

3.5 (2) Certificate of Amendment of Articles of Incorporation of E-Rex, Inc.

3.6 (1) Bylaws of P.R. Stocks, Inc.

4.1* Securities Purchase Agreement dated October 14, 2002 by and
between E-Rex, Inc. and Auxiliarius Fortunare, LLC

4.2* E-Rex, Inc. 10% Convertible Note

4.3* E-Rex, Inc. Common Stock Purchase Warrant

4.4* Registration Rights Agreement dated October 14, 2002

4.5* Escrow Agreement dated October 14, 2002

5.1+ Legal Opinion of The Lebrecht Group, APLC

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23.1 Consent of Parks, Tschopp, Whitcomb & Orr P.A.

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

(1) Incorporated by reference to E-Rex's Registration Statement on Form SB-2
dated October 30, 2001 as filed with the SEC on November 1, 2001.

(2) Incorporated by reference to E-Rex's Definitive Schedule 14C Information
Statement dated August 30, 2002 filed with the SEC on August 30, 2002.

* Previously filed.

+ To be filed in a later amendment.

UNDERTAKINGS

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

B. We hereby undertake:

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

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

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

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

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

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

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and authorizes this registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Miami, State of Florida, on November 14, 2002.

E-Rex, Inc.,
a Nevada corporation

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

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

/s/ Carl E. Dilley
__________________________ November 14, 2002
By: Carl E. Dilley
Its: President, Secretary, Treasurer,
principal financial officer,
principal accounting officer, and
Director

/s/ Donald A. Mitchell
__________________________ November 14, 2002
By: Donald A. Mitchell
Its: Director

/s/ Joseph Pacheco
__________________________ November 14, 2002
By: Joseph Pacheco
Its: Director

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