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As filed with the Securities and Exchange Commission on December 29, 2000
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
E-REX, INC.
(Name of Small Business Issuer in its Charter)
<S> <C> <C>
Nevada 9995 88-0292890
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or Classification Number) Identification Number)
Organization)
8890 Coral Way, Suite 220
Miami, Florida 33165
(305) 554-9903
(Address and telephone number
of principal executive offices and
principal place of business)
Carl Dilley
8890 Coral Way, Suite 220
Miami, Florida 33165
(305) 554-9903
Name, address and telephone number
of agent for service
with copies to J. Bennett Grocock
The Business Law Group
205 E. Central Blvd., Suite 500
Orlando, Florida 32801
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Approximate date of proposed sale to public: As soon as practicable
after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please 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) of 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. |_|
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CALCULATION OF REGISTRATION FEE
-------------------------------------------------------------------------------------------------------------
Title of each class Proposed maximum Proposed maximum
of securities to be Amount to be offering price per aggregate offering Amount of
registered registered unit price registration fee
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<S> <C> <C> <C> <C>
Common Stock 42,846,167 $0.50 $21,423,084 $5,656
-------------------------------------------------------------------------------------------------------------
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E-Rex, Inc. Page 1 of 55
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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.
E-Rex, Inc. Page 2 of 55
<PAGE>
PRELIMINARY PROSPECTUS DATED December 29, 2000
SUBJECT TO COMPLETION
This Prospectus relates to 42,846,167 shares of common stock, par value
$.001 per share (the "Shares") of E-Rex, Inc. (the "Company") that were issued
to certain Selling Security Holders (as defined herein).
The selling shareholders listed below may use this prospectus in
connection with the following resales of our common stock:
o Swartz Private Equity, LLC may offer up to 32,700,000 shares that we
may issue and sell to it when we exercise our right to "put" shares to
Swartz under our equity line agreement with Swartz or upon the exercise
of warrants;
The selling shareholders may sell the common stock at prices and on
terms determined by the market, in negotiated transactions or through
underwriters. Swartz is an "underwriter" within the meaning of the Securities
Act in connection with its sales of our common stock.
We will not receive any proceeds from the sale of shares by the selling
shareholders. However, we will receive proceeds from any sale of shares to
Swartz under our put option and upon the cash exercise of warrants held by
Swartz.
The date of this Prospectus is December 29, 2000
THERE ARE MATERIAL RISKS IN CONNECTION WITH THE PURCHASE OF THE SECURITIES. SEE
RISK FACTORS, PP. 7-8. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
NO DEALER, SALESMAN, AGENT OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING DESCRIBED HEREIN, AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY OFFER, SOLICITATION OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE OF THE PROSPECTUS.
AVAILABLE INFORMATION
We have filed with the Commission a registration statement (together
with all amendments and exhibits thereto, the "Registration Statement"), of
which this Prospectus is a part, on Form SB-2 under the Securities Act of 1933,
as amended (the "Act") with respect to the securities offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the Rules and
Regulations of the Commission. Statements contained herein concerning the
provisions of any documents are not necessarily complete, and in each instance
reference is made to the copy of such documents filed as an exhibit to the
Registration Statement. Each such statement is
E-Rex, Inc. Page 3 of 55
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qualified in its entirety by such reference. For further information with
respect to the Company and the securities offered hereby, reference is made to
the Registration Statement. Copies of such materials may be examined without
charge at, or obtained upon payment of prescribed fees from, the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, DC 20549, at the Chicago Regional Office, Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and
the New York Regional Office, 7 World Trade Center, New York, New York 10048.
We will provide without charge to each person who receives a
prospectus, upon written or oral request of such person, a copy of any of the
information that was incorporated by reference in the prospectus (not including
exhibits to the information that is incorporated by reference unless the
exhibits are themselves specifically incorporated by reference). Requests for
copies of said documents should be directed to Carl Dilley, President and CEO,
8890 Coral Way, Suite 220, Miami, Florida 33165.
The Commission maintains a Web site -- //www.sec.gov -- that contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the Commission.
E-Rex, Inc. Page 4 of 55
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TABLE OF CONTENTS
Page#
-----
PART I
Prospectus Summary...................................................... 6
Risk Factors............................................................ 7
Use of Proceeds......................................................... 11
Market for Common Equity and Related Stockholder Matters................ 12
Management's Discussion and Analysis.................................... 13
The Company............................................................. 15
Management.............................................................. 18
Certain Relationships and Related Transactions.......................... 20
Security Ownership of Certain Beneficial Owners and Management.......... 21
Selling Security Holders and Plan of Distribution....................... 22
Description of Securities............................................... 24
Experts................................................................. 25
Legal Proceedings....................................................... 25
Indemnification for Securities Acts Liabilities......................... 25
Financial Statements.................................................... 26
PART II
Indemnification......................................................... 33
Other Expenses of Issuance and Distribution............................. 33
Recent Sales of Unregistered Securities................................. 33
Exhibits................................................................ 33
Undertakings............................................................ 33
E-Rex, Inc. Page 5 of 55
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, financial statements and notes to the financial statements
including the notes thereto appearing elsewhere in this Prospectus.
To understand this offering fully, the Company encourages you to read
the entire Prospectus carefully, including the financial statements, the notes
to the consolidated financial statements of the company appearing elsewhere in
this Prospectus.
This Prospectus contains forward-looking statements. The outcome of the
events described in these forward-looking statements is subject to risks, and
actual results could differ materially. The sections entitled "Risk Factors,"
"Management's Discussion and Analysis," as well as other sections in this
Prospectus, contains a discussion of some of the factors that could contribute
to those differences.
The Company.
The Company was incorporated as a Nevada corporation 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
merger agreement with Plantech Communications Systems, Inc. ("Plantech"), a
privately held British Columbia, Canada, Corporation. Plantech was a development
stage enterprise in the software, computer and Internet area. From its inception
in 1992, Plantech had no revenues. Under the terms of the merger agreement,
Plantech shareholders received one share of the Company's common stock for each
outstanding share of Plantech stock. The Company issued 8,137,616 shares of its
common stock in exchange for all the Plantech common shares outstanding as of
February 20, 1999. Plantech's results of operations are included in the
Company's statement of operations from the date of merger, February 20,
1999,forward.
The Company is authorized to issue a total of 100,000,000 shares of its
capital stock (Common Stock), par value $.001 per share.
The Company's principal offices are located at 8890 Coral Way, #220
Miami, Fl 33165 and its telephone number at such address is (305) 554-9903.
Recent Developments
The Swartz Transaction
On or about December 22, 2000, we entered into an investment agreement
with Swartz Private Equity, LLC. Under the Swartz investment agreement, also
referred to as an equity line, we have the option to sell, or "put," up to $15
million of our common stock to Swartz, subject to a formula based on stock price
and trading volume, over a three year period beginning on the effective date of
the registration statement, of which this prospectus is a part. In addition, we
issued to Swartz a warrant to purchase 2,700,000 shares of our common stock at
an initial price of $0.50 per share, subject to adjustment.. We may issue
additional warrants to Swartz under the terms of the Swartz investment
agreement. We describe this transaction in more detail under the caption "The
Swartz Investment Agreement."
E-Rex, Inc. Page 6 of 55
<PAGE>
The Offering
By means of this prospectus, the selling shareholders are offering for
sale up to 42,846,167 shares of our common stock. We are required under our
contract with Swartz to initially register at least 30 million shares . We have
elected to register 32,700,000 million shares, currently, which amount may need
to be increased through filing additional registration statements in the future
in order for us to access the full amount available under our contract with
Swartz. The selling shareholders may sell the common stock at prices and on
terms determined by the market, in negotiated transactions and through
underwriters.
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<CAPTION>
<S> <C>
Securities Offered An aggregate of 42,846,167 shares of Common Stock.
Common Stock outstanding before offering 23,642,146 shares of Common Stock
Common Stock outstanding after offering 64,059,146 shares of Common Stock
Offering Put Options As part of the securities offered and registered
hereby, the Company has entered into a put option
investment agreement whereby the Company, at its
option, may put shares of its Common Stock to Swartz
Private Equity, LLC up to an aggregate amount of
$15,000,000. This is referred to as the Company's put
option to Swartz. See the Investment Agreement at
Exhibit 10.1
Risk Factors The securities offered hereby involve a high degree
of risk. Prospective investors should carefully
consider certain risk factors relating to an
investment in the Company. See "Risk Factors."
NASDAQ Symbol Common Stock - EREX
Market for Common Stock The Company Common Stock trades in the over-the-counter
market on the OTC Bulletin Board maintained by the
NASD.
Registration Rights The Company has agreed to provide certain registration
rights, including shelf registration and piggyback
rights, to Swartz Private Equity, LLC. The securities
offered hereby shall be offered as a shelf
registration as set forth under Rule 415 of the
Securities Act of 1933, as amended, and as agreed upon
in the Registration Rights Agreement between Swartz
and the Company. Said rights are set forth in the
Investment Agreement and Registration Rights Agreement
at Exhibit(s) 10.1 and 10.2 respectively.
Resales by Selling Shareholders This Prospectus relates to Common Shares being registered
on behalf of Selling Security Holders. The Company
will not receive any
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E-Rex, Inc. Page 7 of 55
<PAGE>
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cash or other proceeds in connection with the
subsequent sale. However, the Company will receive
proceeds from any sales of shares to Swartz under our
put option and upon the cash exercise of warrants held
by Swartz. The Company is not selling any Common
Shares on behalf of Selling Security Holders and has
no control or affect on these Selling Security
Holders. See "Selling Security Holders."
Absence of Dividends; Dividend Policy To date, the Company has not paid dividends on its
Common Stock and does not anticipate paying dividends
on its Common Stock in the foreseeable future. Payment
of dividends is subject to review by the Company's
Board of Directors from time to time in light of,
among other things, the Company's earnings and
financial position. See "Risk Factors."
Transfer Agent Nevada Agency and Trust Company of 50 West Liberty St,
Suite 880, Reno, NV 89501 is the Transfer Agent for
the Company's securities.
</TABLE>
RISK FACTORS
The Shares offered hereby are speculative and involve a high degree of
risk, including, but not necessarily limited to, the risk factors described
below. Each investor should carefully consider the following risk factors
inherent in, and affective, the business of the Company and this offering before
making an investment decision. The following risk and speculative factors, and
others could cause actual results to differ materially from those anticipated in
any forward-looking statements contained in this Prospectus.
Return on Investment. THERE IS NO ASSURANCE THAT A SHAREHOLDER WILL
REALIZE A RETURN ON HIS INVESTMENT OR THAT HE WILL NOT LOSE HIS ENTIRE
INVESTMENT IN THE COMPANY. The Company is in the development stage and has not
achieved profitable operations to date. There can be no assurance that the
Company will ever achieve profitable operations. PROSPECTIVE INVESTORS SHOULD
READ THIS MEMORANDUM AND ALL EXHIBITS CAREFULLY AND SHOULD CONSULT WITH THEIR
OWN ATTORNEY OR BUSINESS ADVISOR PRIOR TO MAKING ANY INVESTMENT DECISION
CONCERNING THE NOTES.
Development Stage Company. The Company is subject to all of the risks,
expenses, delays, problems, and difficulties typically encountered in the
establishment of a new business as well as those encountered in the shift from
development to commercialization of new software systems based on innovative
concepts. During the period from inception in 1986 to the present, the Company
has operated in a development stage while developing and evaluating the market
for its sole product. Throughout this development stage, the Company has
generated no revenues from operations and has incurred substantial losses. As a
result, the Company has a limited relevant operating history on which an
evaluation of the Company's prospects and performance can be made. The
likelihood of the success of the Company must be considered in light of the
problems, expenses, difficulties, complications, and delays frequently
encountered in
E-Rex, Inc. Page 8 of 55
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connection with the formation of a new business and the competitive environment
in which the Company will operate. It is likely that the Company will continue
to incur additional losses in the future. Accordingly, there can be no assurance
that the Company will be able to achieve increased levels of revenue in the
future or that the Company's future operations will be profitable.
The exercise of our put rights may substantially dilute the interests
of other security holders.
We will issue shares to Swartz upon exercise of our put rights at a
price equal to the lesser of:
o the market price for each share of our common stock minus $.075; or
o 91% of the market price for each share of our common stock.
Accordingly, the exercise of our put rights may result in substantial dilution
to the interests of the other holders of our common stock. Depending on the
price per share of our common stock during the three year period of the Swartz
investment agreement, we may need to register additional shares for resale.
The sale of material amounts of our common stock could reduce the price of our
common stock and encourage short sales.
If and when we exercise our put rights and sell shares of our common
stock to Swartz, if and to the extent that Swartz sells the common stock, our
common stock price may decrease due to the additional shares in the market.If
the price of our common stock decreases, and if we decide to exercise our right
to put shares to Swartz, we must issue more shares of our common stock for any
given dollar amount invested by Swartz. This may encourage short sales, which
could place further downward pressure on the price of our common stock.
Rapid Technological Change. Ever since the debut of the original Palm
Pilot, PDAs (personal digital assistants) have taken the world by storm,
spawning an industry with gargantuan potential. According to International Data
Corp., there were 2.3 million handheld devices sold in the U.S. in 1999. That
number is expected to grow to 3.6 million in 2000 and soar to 9.7 million by
2004. Meanwhile, global sales are projected to rise from $2.3 billion in 2000 to
$5.5 billion in 2004.
The market for computer peripheral and related products in general is
characterized by ongoing and rapid technological development, frequent new
product announcements and introductions, and substantial competition from
existing systems and manufacturers. Although the Company believes that its
proposed initial product, the Dragonfly(TM) offers a greater scope of functions
and applications than currently competing products, the introduction of other
products or improvements to existing competitive products can render existing
products, including those of the Company, obsolete and unmarketable. At present
there are no known competitors producing a product with the same document
handling and Internet connectivity features in a portable device. There are a
number of competing devices that provide a limited number of the same functions
of the Dragonfly as listed in the attached schedule (X).
The Company's future success depends in large part on its ability to
continue enhancing its product design and capabilities, to address the growing
requirements of its customers, and to anticipate or respond to technological
advances and competitive products in a timely, cost-
E-Rex, Inc. Page 9 of 55
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effective manner. There can be no assurance that the Company will be successful
in introducing, marketing, and supporting its products or its enhancements to
its products or that it will not experience difficulties that could delay or
prevent the successful introduction, marketing, enhancement, and support of its
products in the future. See "The Company."
Competition. The markets for the Company's initial product are
characterized by strong competition. The Company's Dragonfly(TM) will compete
directly with those of other well-established companies such as Hewlett Packard,
Cannon, Brother, Docuport, Palm Computing and Xerox. Although none of the
products produced by these competitors currently offers the full scope of
functions and ease of use offered by the Dragonfly(TM), some of these companies,
as well as some other current or potential competitors, have substantially
greater financial, technical, personnel, and other resources than the Company
and have established reputations for success in the development, licensing,
sale, and servicing of their copiers, scanners, facsimile and computer related
equipment.
Dependence on Limited Number of Key Personnel. The Company's future
success substantially depends upon the efforts of certain of its officers and
key technical and other employees, many of who have only recently joined the
Company. In particular, the Company depends upon the personal knowledge of
Valcom, Ltd. engineering personnel. The loss of Valcom's services would have a
material adverse effect on the Company's ability to maximize the sales of its
products, as well as its ability to develop enhancements to such products. The
success of the Company is also dependent on its ability to hire and retain
additional qualified executive, technical, and marketing personnel. When needed,
there can be no assurance that the Company will be able to hire or retain such
people. See "Management."
Risks Associated with Managing Growth. The Company's anticipated level
of growth, should it occur, will challenge the Company's management and its
sales, marketing, customer support, product development, finance, and
administrative operations. The Company's future performance will depend in part
on its ability to manage any such growth, should it occur, and to adopt its
operational and financial control systems, if necessary, to respond to changes
resulting from any such growth. The failure of the Company's management to
respond to and manage growth effectively would have a material adverse effect on
the Company's business, financial condition, and results of operations.
Risks Associated with Growth Through Acquisitions. A significant
element of the Company's growth strategy involves the expansion of its product
line and markets through the acquisition of other companies, which offer certain
specialized product functions. The Company intends to pursue acquisitions of
Internet Service Providers and Website design companies that have a profitable
commercial client base, existing expertise in personnel and/or proprietary
software that may enhance the companies' offerings that can be added to the
E-techdesign division of the Company. The first of these acquisitions was
accomplished in acquiring the assets of Denver based ISP, Webulate, LLC. These
assets included a fully functional ISP, a small commercial web hosting customer
base, a suite of proprietary e-commerce software and an in developmental stage
computer peripheral device. Although the Company is currently exploring other
possible acquisitions, there can be no assurance that any of these opportunities
or any other proposed acquisition will prove feasible. In addition, there can be
no assurance that the Company will be successful in identifying other
appropriate acquisition candidates, can acquire such firms at reasonable prices,
can finance such acquisitions, or will be successful in integrating such
acquired firms, if any, or their products, into its existing operations on a
profitable basis. Acquisitions involve a number of risks, which could adversely
affect the Company's operating results including, among others, diverting
management attention, payments for goodwill, and the potential loss of key
employees of the acquired companies.
Limited Intellectual Property Protection. The Company's ability to
compete effectively depends in part on its ability to maintain the proprietary
aspects of its products, chiefly the Dragonfly. In this regard, the Company
relies on a combination of copyright, trade secret, and
E-Rex, Inc. Page 10 of 55
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trademark law, together with non-disclosure agreements with its employees and
confidentiality agreements with third parties, to protect its proprietary
rights. Existing copyright laws, however, afford only limited protection for the
Company's systems, the functionality of which cannot be copyrighted. Despite
precautions taken by the Company, it may be possible for its existing or new
competitors to copy aspects of its product design and future enhancements and to
obtain and use information that the Company regards as proprietary. In addition,
some aspects of the Company's initial product are not subject to any
intellectual property protection. Moreover, the laws of some foreign countries
do not protect the Company's proprietary rights to the same extent as do the
laws of the United States.
The Company cannot be certain that others will not independently
develop and/or market substantially equivalent or superseding products in
competition with the Company's thereby substantially reducing the value of the
Company's proprietary rights. See "The Company - Intellectual Property."
No Dividends. To date, the Company has paid no cash dividends or made
any stockholder distributions. The payment of dividends on the Company's Common
Stock is within the discretion of the Board of Directors and will depend upon
the Company's earnings, its capital requirements, financial condition, and other
relevant factors. For the foreseeable future, however, it is not anticipated
that the Company will pay any dividends. Currently, the Company plans to retain
any earnings it receives for the continued development of its business
operations.
Control by Present Shareholders. Stockbroker Presentations, Inc.
beneficially owns in excess of approximately 11% of the outstanding capital
stock of the Company. As a result, that entity will continue to be in a position
to control the Company, elect all of the Company's directors, appoint officers,
control the policies and operations of the Company, and generally direct the
affairs of the Company. See "Management" and "Description of the Securities."
Liability and Insurance. The Company intends to procure corporate
liability insurance, including products liability, auto, fire, and extended
coverage, with limits it considers reasonable and prudent, as well as worker's
compensation insurance with limits prescribed by law or state regulation. There
can be no assurance however, that the Company will not be subject to a claim
that would exceed its insurance coverage or to a loss that is not covered. In
addition, there can be no assurance that adequate liability insurance will be
available in the future or available at premiums which are economically
feasible. See "The Company - Insurance."
Products Liability. The sale and support of future products by the
Company may entail the risk of products liability claims, and there can be no
assurance that the Company will not be subject to such claims in the future or
that any such claim would be covered under the Company's product liability
insurance. A product liability claim brought against the Company, regardless of
its merit, could have a material adverse effect on the Company's business,
financial condition, and results of operations. See "The Company - Insurance."
Need for Additional Capital. The Company believes, based on
currently-proposed plans and assumptions relating to its operations, that
existing capital and anticipated funds from operations, should be sufficient to
fund its current operations and other capital needs for the next 18 months.
However, in the event that the Company's plans change or its assumptions and
estimates change or prove to be inaccurate, the Company could be required to
seek additional financing in order to sustain operations or achieve future
expansion. The Company has made no arrangements to obtain future additional
financing, and there can be no assurance that such additional funds will be
available or that if available, such additional funds will be on terms
acceptable to the Company. The Company will receive no revenues from the sale of
the securities offered in this offering. However, we will receive proceeds from
any sales of shares to Swartz under our put option and upon the cash exercise of
warrants held by Swartz.
E-Rex, Inc. Page 11 of 55
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We may be unable to obtain sufficient funds from the Swartz equity line to meet
our liquidity needs. The future market price and volume of trading of our common
stock limits the rate at which we can obtain money under the Swartz equity line
agreement. Further, we may be unable to satisfy the conditions contained in the
Swartz equity line agreement, which would result in our inability to draw down
money on a timely basis, or at all. If the price of our common stock declines,
or trading volume in our common stock is low, we will be unable to obtain
sufficient funds to meet our liquidity needs.
Forward-looking Statements. The discussion in this Memorandum regarding
the Company and its business and operations includes "forward-looking
statements." Such statements consist of any statement other than a recitation of
historical fact and can be identified by the use of forward-looking terminology
such as "may," "expect," "anticipate," "estimate" or "continue" or the negative
thereof or other variations thereon or comparable terminology. Prospective
investors are cautioned that all forward-looking statements are necessarily
speculative, and there are certain risks and uncertainties that could cause
actual events or results to differ materially from those referred to in such
forward-looking statements. The Company does not have a policy of updating or
revising forward-looking statements; thus, it should not be assumed that silence
by management of the Company over time means that actual events are bearing out
as estimated in such forward-looking statements.
"Penny" Stock Regulation of Broker-Dealer Sales of Company Securities.
The Company's Common Stock is listed on the Over-The-Counter ("OTC") Bulletin
Board maintained by the NASDAQ. The Company's securities currently are covered
by Rule 15g-9 under the Securities Exchange Act of 1934 that imposes additional
sales practice requirements on broker-dealers who sell such securities to
persons other than established customers and institutional accredited investors
(generally institutions with assets in excess of $5,000,000 or individuals with
net worth in excess of $1,000,000 or annual income exceeding $200,000 or
$300,000 jointly with their spouse). For transactions covered by the rule, the
broker-dealer must furnish to all investors in penny stocks, a risk disclosure
document required by Rule 15g-9 of the Securities Exchange Act of 1934, make a
special suitability determination of the purchaser and have received the
purchaser's written agreement to the transaction prior to the sale. In order to
approve a person's account for transactions in penny stock, the broker or dealer
must (i) obtain information concerning the person's financial situation,
investment experience and investment objectives; (ii) reasonably determine,
based on the information required by paragraph (i) that transactions in penny
stock are suitable for the person and that the person has sufficient knowledge
and experience in financial matters that the person reasonably may be expected
to be capable of evaluating the rights of transactions in penny stock; and (iii)
deliver to the person a written statement setting forth the basis on which the
broker or dealer made the determination required by paragraph (ii) in this
section, stating in a highlighted format that it is unlawful for the broker or
dealer to effect a transaction in a designated security subject to the
provisions of paragraph (ii) of this section unless the broker or dealer has
received, prior to the transaction, a written agreement to the transaction from
the person; and stating in a highlighted format immediately preceding the
customer signature line that the broker or dealer is required to provide the
person with the written statement and the person should not sign and return the
written statement to the broker or dealer if it does not accurately reflect the
person's financial situation, investment experience and investment objectives
and obtain from the person a manually signed and dated copy of the written
statement. A penny stock means any equity security other than a security (i)
registered, or approved for registration upon notice of issuance on a national
securities exchange that makes transaction reports available pursuant to 17 CFR
11Aa3-1 (ii) authorized or approved for authorization upon notice of issuance,
for quotation in the NASDAQ system; (iii) that has a price of five dollars or
more or (iv) whose issuer has net tangible assets in excess of $2,000,000
demonstrated by financial statements dated less than fifteen months previously
that the broker or dealer has reviewed and has a reasonable basis to believe are
true and complete in relation to the date of the transaction with the person.
Consequently, the rule may affect the ability of
E-Rex, Inc. Page 12 of 55
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broker-dealers to sell the Company's securities and also may affect the ability
of purchasers in this Offering to sell their shares in the secondary market. See
"Market for Common Equity and Related Stockholder Matters."
USE OF PROCEEDS
The Company will not receive any proceeds from the resale of the Common
Stock being sold by the Selling Security Holders. However, we will receive
proceeds from any sales of shares to Swartz under our put option and upon the
cash exercise of warrants held by Swartz. If the Company fully exercises its put
options to Swartz, the Company will receive approximately $15,000,000 in
proceeds.
Expenses of Financing
Expenses of Registration, Issuance and Distribution $ 500,000
Working Capital
Payment of Short term debt $ 500,000
Marketing collateral, and advertisement $7,000,000
Research and Development $2,775,000
Other working capital needs $4,225,000
Total proceeds $15,000,000
--------------------------------------------------------------------------------
MARKET FOR COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company Common Stock is listed for trading under the symbol "EREX"
in the over-the-counter market on the Over-The-Counter ("OTC") Bulletin Board
maintained by the National Association of Securities Dealers, Inc. The following
table sets forth the range of high and low bid quotations for the Company's
common stock for each quarter since the Company commenced trading on June 17,
1998, as reported on the NASD OTC Bulletin Board, by Herzog, Pinson, Alexander,
Frankel, Wein Securities, Sharp, Acap, Hill Thompson, Meyerson, Knight, Andrew
Garrett and NAIB, the Company's market makers. The quotations represent
inter-dealer prices without retail markups, markdowns or commissions, and may
not necessarily represent actual transactions.
<TABLE>
<CAPTION>
------------------------------------------------------ ---------------- -------------------
Quarter Ended High Low
------------------------------------------------------ ---------------- -------------------
<S> <C> <C>
1998
------------------------------------------------------ ---------------- -------------------
2nd Quarter .04 .04
------------------------------------------------------ ---------------- -------------------
3rd Quarter .04 .04
------------------------------------------------------ ---------------- -------------------
4th Quarter .30 .94
------------------------------------------------------ ---------------- -------------------
------------------------------------------------------ ---------------- -------------------
1999
------------------------------------------------------ ---------------- -------------------
1st Quarter .91 .25
------------------------------------------------------ ---------------- -------------------
2nd Quarter 1.50 .625
------------------------------------------------------ ---------------- -------------------
3rd Quarter .968 .437
------------------------------------------------------ ---------------- -------------------
4th Quarter 1.00 .140
------------------------------------------------------ ---------------- -------------------
------------------------------------------------------ ---------------- -------------------
2000
------------------------------------------------------ ---------------- -------------------
1st Quarter .14 1.00
------------------------------------------------------ ---------------- -------------------
2nd Quarter .51 2.00
------------------------------------------------------ ---------------- -------------------
3rd Quarter .41 .72
------------------------------------------------------ ---------------- -------------------
4th Quarter .41 1.10
------------------------------------------------------ ---------------- -------------------
</TABLE>
As of December 20, 2000, 23,146,146 shares of the Company's Common
Stock were outstanding and, as far as the Company can determine, were held of
record by approximately 842 persons.
E-Rex, Inc. Page 13 of 55
<PAGE>
The Company has not paid any cash dividends since its inception and
does not anticipate paying cash dividends in the foreseeable future. Holders of
the Company's common stock are entitled to receive such dividends as may be
declared by its Board of Directors.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Nine Months Ended September 30, 2000 and September 30, 1999.
Trends and Uncertainties. Demand for the Company's products and
services will be dependent on, among other things, market acceptance of the
Company's concept, its proposed operations and general economic conditions that
are cyclical in nature. Inasmuch as a major portion of the Company's activities
will be the receipt of revenues from the sales of its products and services, the
Company's business operations, upon commencement, may be adversely affected by
the Company's inability to obtain the necessary financing, competitors and
prolonged recessionary periods.
Capital and Source of Liquidity. The Company requires substantial
capital in order to meet its ongoing corporate obligations and in order to
continue and expand its current and strategic business plans. Initial working
capital has been primarily obtained through advances from the Company's chief
executive officer.
The Company received proceeds from the issuance of Common Stock of
$8,812,348 for the nine months ended September 30, 2000, resulting in net cash
provided by financing activities of $5,700,686. The Company received proceeds
from the issuance of Common Stock of $216,768 for the nine months ended
September 30, 1999, resulting in net cash provided by financing activities of
$121,666.
In an exchange of stock and services agreement with Ultimate Franchise
Systems, Inc., the Company acquired securities valued at $400,000, and in an
exchange of stock and services agreement with Webulate, LLC., the Company
acquired securities valued at $150,000 for the nine months ended September 30,
2000. The Company acquired no securities for the nine months ended September 30,
1999.
The Company purchased fixed assets of $83,404 for the nine months ended
September 30, 2000. The Company purchased fixed assets of $2,403 for the nine
months ended September 30, 1999.
Results of Operations. During the third quarter of this year, the
company purchased the ISP assets and software of Webulate, LLC. With this
acquisition, the company initiated activities in the E-Tech design division of
the company. This division provides commercial web site design and consulting
services to small business. For the nine months ending September 30, 2000, the
Company had gross revenues of $7,524. For the nine months ending September 30,
1999, the Company had gross revenues of $0. For the nine months ended September
30, 2000, the Company had a net loss of $5,394,288. For the nine months ended
September 30, 1999, the Company had a net loss of $427,916. The Company had a
depreciation expense of $207 and issued common stock valued at $127,175 for
services for the nine-month period ended September 30, 2000. The Company had a
depreciation expense of $366 and issued common stock valued at $25,072 for
services for the nine-month period ended September 30, 1999. The Company had an
increase in loan payable to private company of $314,331, an increase in accounts
payable of $58,109, and an increase in management fees payable of $39,936. The
E-Rex, Inc. Page 14 of 55
<PAGE>
Company had no changes in loans payable to private company, an increase in
accounts payable of $65,326, and an increase in management fees payable of
$24,652.
General and administrative expenses for the nine months ending
September 30, 2000 were $5,401,814, and general and administrative expenses for
the nine months ending September 30, 1999 were $426,453.
Plan of Operation. The Company intends to pursue its business plan and
meet its reporting requirements utilizing cash made available from the private
and future public sale of its securities as well as income for the E-Tech Design
division of the company. The Company's management is aggressively pursuing
relationships/markets for the E-Tech Design division and is of the opinion that
revenues from the sales of its securities will be sufficient to pay its expenses
until its business operations create positive cash flow. The Company continues
its efforts to raise capital. The Company does not currently have sufficient
capital to continue operations for the next twelve months and will have to raise
additional capital to meet its business objectives as well as 1934 Act reporting
requirements.
On a long-term basis, the Company's liquidity is dependent on revenue
generation, additional infusions of capital and potential debt financing.
Company management believes that additional capital and debt financing in the
short term will allow it to pursue it's business plan and thereafter result in
revenue and greater liquidity in the long term. However, there can be no
assurance that the Company will be able to obtain the needed additional equity
or debt financing in the future.
Years Ended December 31, 1999 and December 31, 1998.
For the year ended December 31, 1999, the Company had a net loss of
$464,436, as compared to a net loss of $26,493 for the year ended December 31,
1998. The Company had a depreciation expense of $487 and issued common stock
valued at $128,608 for services for the year ended December 31, 1999. The
Company had no depreciation expense and issued common stock valued at $12,682
for services for the year ended December 31, 1998.
The Company had an increase in current liabilities of $100,954,
resulting in net cash used in operating activities of ($234,874) for the year
ended December 31, 1999. The Company had an decrease in current liabilities of
$16,101, resulting in net cash used in operating activities of ($4,151) for the
year ended December 31, 1998. The Company had general and administrative
expenses of $27,703 for the year ended December 31, 1999. The Company had
general and administrative expenses of $464,436 for the year ended December 31,
1998.
Plan of Operation. 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. The Company intends to pursue its business plan and meet its
reporting requirements utilizing cash made available from anticipated offerings
of its securities.
The Company is presently completing the production prototypes of the
Dragonfly(TM) after two "Dragonfly(TM) proof of concept prototypes were
successfully demonstrated at the Java One conference at the Moscone Centre in
San Francisco sponsored by Sun MicroSystems in November 1999. The approximate
time frame, including testing of these prototypes, for the Dragonfly will be 2-3
months. As soon as the production prototypes are fully operational,
demonstrations with major OEM corporations will be arranged. The Company will
not establish its own manufacturing plant, however, it will provide quality
control personnel at these plants and will also maintain research and
development facilities to secure development of products presently in the
planning stage. The Company does not expect to purchase any significant plant or
equipment within the next twelve months.
E-Rex, Inc. Page 15 of 55
<PAGE>
On a long-term basis, the Company's liquidity is dependent on
commencement of operations, 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 commence its
business plan and thereafter result in revenue and greater liquidity in the long
term. However, there can be no assurance that the Company will be able to obtain
the needed additional equity or debt financing in the future.
THE COMPANY
Historical Background. The Company was incorporated under the laws of
the State of Nevada 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 merged with Plantech Communications Systems, Inc.
("Plantech"), a privately held British Columbia, Canada, corporation. Plantech
was a development stage enterprise in the software, computer and Internet area.
From its inception in 1992, Plantech had no revenues. Under the terms of the
merger agreement, Plantech shareholders received one share of the Company's
common stock for each outstanding share of Plantech stock. The Company issued
8,137,616 shares of its common stock in exchange for all the Plantech common
shares outstanding as of February 20, 1999, the effective date of the merger.
Plantech's results of operations are included in the Company's statement of
operations from the date of merger forward. The following table sets forth
certain results of operations for the periods presented as if the Plantech
business combination had been consummated on the same terms at the Plantech
inception in 1992.
<TABLE>
<CAPTION>
-------------------------------------- ---------------------------------- -----------------------------------
January 1, 1999 to Inception (August 26, 1986) to
September 30, 2000 December 31, 1999
-------------------------------------- ---------------------------------- -----------------------------------
<S> <C> <C>
Revenues $ 7,524 $-0-
-------------------------------------- ---------------------------------- -----------------------------------
Net loss $(5,394,288) $(788,979)
-------------------------------------- ---------------------------------- -----------------------------------
</TABLE>
Currently, the Company is a development stage enterprise in the
computer software, hardware and Internet areas.
Product. The Company intends to market the Dragonfly, a portable,
multi-function color printer, copier, fax and scanner with Internet and e-mail
capabilities. The unit features a touch screen and is designed to operate with
the ease and simplicity of a copy machine for all functions. The Dragonfly
incorporates Sun Microsystems Java and Jini technology and represents the first
generation of "smart" products combining the Internet with new technology,
competitive pricing and shorter production time. By building on the network
connectivity provided by the Java technology, the product supports a diverse
range of connectivity options, ranging from satellite uplink to ordinary and
cellular modems and Ethernet networks. Pricing of this product has not yet been
determined. The Company is presently completing the initial prototypes of the
Dragonfly after two Dragonfly mock-up prototypes were successfully demonstrated
at the Java One conference held in San Francisco in November, 1999, and
sponsored by Sun MicroSystems. The approximate time frame to completion of the
production prototype, including Beta testing of software and hardware components
of the prototype will be 3-5 months. It is anticipated that following completion
of the prototype that production could begin within 4 months of obtaining the
necessary capital or entering into an OEM relationship for manufacturing. The
company is simultaneously negotiating with interested financial parties to
secure the necessary capital for commencement of production operations. As soon
as the initial prototypes are fully operational, demonstrations with major OEM
corporations will be arranged.
Marketing and Sales. The target customer profile centers on an existing
base of non-computer users and current laptop users that require access to
several communication mechanisms in a mobile environment.
E-Rex, Inc. Page 16 of 55
<PAGE>
It is expected that experienced users, such as business executives and
others, will purchase the unit for its portability, ease of use, convenience,
and power, will join this existing base.
This base will also be joined by a growing demographic profile of older
users who desire a range of functions without the necessity and complication of
using a fully functional computer, and the associated peripheral devices
currently needed to perform the functionality offered in the Dragonfly.
An enhanced communication center can be achieved by integration with
other information appliances and computers including digital cameras,
photo-printers and network servers. When bundled with these items, the product
provides a complete solution for the small, home or mobile office market.
A flexible architecture, in both software and hardware, provides a
mechanism for future enhancements and add-on products that branch into related
markets. For example, a software enhancement for drawing and handwriting could
permit stored documents to be annotated on-screen using a pen. These would
appeal to students, and homemakers. The addition of a card reader could permit
the unit to act as a point of sale terminal that manages purchases in a portable
kiosk. This would appeal to artists and others at weekend craft festivals, etc.
It is expected that these customers would prefer a more contemporary design
(i.e., the appeal of the iMac's design to these groups).
The flexible hardware architecture will enable the addition of larger
screens, the inclusion of a microphone and speaker, larger keyboards, and
buttons. Each of these items would be required for individuals with
exceptionalities.
The Company initially intends to market the Dragonfly within the United States
and Canada. Current and future products will be sold directly through the
Internet by utilizing by marketing to the public in general the database of
current shareholders, interested parties and marketing databases of partners
such as Ultimate Franchise Systems and International Investment Banking Inc. The
Company also intends to offer the product through electronics distributors and
OEM relationships, as well as through other avenues, such as trade shows,
affiliate websites and eventually expanding into other countries.
Manufacturing and Sources of Supply. A number of reputable
manufacturers produce the components used in the Dragonfly, including Intel,
Microsoft, Fujitsu and Cannon. Currently, the Company does not intend to
establish its own manufacturing plant. The production plan entails coordination
and liaison with existing manufacturing facilities. The Company intends to
install its own quality control personnel at these plants, and also intends to
maintain research and development facilities in North America.
Research and Development. The Company utilized the fully equipped
mechanical and electrical research and testing facilities at British Columbia
Institute of Technology to produce the proof of concept prototype. The
development of the Dragonfly production prototype and associated software and
hardware engineering and Research and Development is being conducted under
contract by Valcom, Ltd., of Guelph Ontario, Canada.
Paul R. MacPherson, 65, is the President/General Manager of Valcom,
Ltd., which has taken an active role in the Dragonfly prototype development. He
has served as Director of Ontario Aerospace Consortium Limited and as Director
of Lanvasta Corporation. In 1999 he was appointed to the Council of Advisors
Armed Forces Communications Electronics Association (AFCEA) Canada.
E-Rex, Inc. Page 17 of 55
<PAGE>
The Guelph, Ontario facility of Valcom, Ltd. is an ISO 9001 approved,
ICSD security cleared facility with modern, fully equipped, electronic,
electromechanical systems and equipment engineering and manufacturing plant.
This state-of-the-art plant contains 65,000 square feet of floor space, with a
staff of approximately 100 full-time employees performing the principal
functions of the plant, including:
o Research and Development
o Systems and Custom Design
o Manufacturing
o Repair and Overhaul
o Quality Control Testing
o These functions encompass a broad range of communications and
electronics, meteorological, data acquisition and electro-
mechanical, systems, equipment and components.
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 on functionality to the Dragonfly. At
present these manufacturers produce products that 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 the Company 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 the
Company now has, or will have in the foreseeable future. It is also likely that
other competitors offering similar products will emerge in the near future.
There is no assurance that the Company will compete successfully with other
established computer software and Internet companies. The Company intends to
compete on the basis of functionality, quality and price. Inability to compete
successfully might result in increased costs, reduced yields and additional
risks to the investors.
Intellectual Properties. At present the company is engaged in patent
study on the hardware and operating system functionality for the Dragonfly. It
is anticipated that some or the entire device may be able to be protected by
patents. The operating system and circuit boards and control systems as well as
the website hosting interface are proprietary to the Company.
Recent Transactions. The Company and Ultimate Franchise Systems Inc.
("UFSI") have completed their commitment to a long-term corporate alliance. The
Company and UFSI expect the Agreement to have a multi-million dollar value over
the course of the alliance. Because the Company designs and produces stand-alone
peripherals and direct Internet access products (cellular and satellite), it is
believed that this alliance will increase shareholder value and improve overall
profitability. The terms of the alliance include the following:
1. UFSI will order a minimum of one Dragonfly 6 in 1 unit for each UFSI
franchise location and office to be delivered over a twenty-four (24)
month period, beginning the first date of production.
2. A home delivery interface website which will be developed and operated
by E-Tech Design (the Web design and hosting division of the Company),
which will service the home delivery restaurants in the UFSI chain.
E-Rex, Inc. Page 18 of 55
<PAGE>
3. Subject to franchise restrictions, UFSI intends to position all current
or future restaurants offering home delivery to participate in the
website delivery program. Content and functionality are to be developed
in conjunction with UFSI management.
4. The Company and UFSI will enter into a data sharing agreement to
include the following conditions:
a) Access to the client base of UFSI at the website level or through
promotions utilized in the restaurants operated by UFSI for the
joint promotion of the Company products to be sold to that client
base.
b) Operational income from the website project is expected to generate
in excess of $300,000 per year income to the Company.
Recent Acquisitions. The Company has completed the acquisition of 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.
The Company also has initiated the business division of E-Tech Design,
which provides web hosting, development and e-commerce solutions for small to
medium sized businesses.
E-Tech Design's services range from creating and hosting your
introductory presence on the Internet to the complex e-commerce solutions
required by today's growing businesses. E-Tech Design's web hosting packages
range from $24.95 per month for their TechXpress Package to $1,250 per month for
their TechToGo Package. E-Tech Design is currently serving eleven clients.
Dependence on One or a Few Major Customers. The Company has yet to
commence production of the Dragonfly or any other products. The Company does not
expect that any single customer will account for more than ten percent of its
business because the intended market is broadly based individual consumer
related. While it is possible that large contracts for the supply of the
Dragonfly to individual corporations may develop, it is anticipated that this
will be a small segment of the overall market for the product.
Employees. The Company currently has three full time and one part-time
employee. The Company intends to employ individuals as required. The Company
currently subcontracts research and development as required for production of
the Dragonfly prototype. The Company intends to add full time executives in
sales and marketing, finance and distribution as it moves closer to production
of the Dragonfly. In the E-tech design division there is one full time employee
and it is anticipated that several staff will be added in the coming months in
the areas of project management, sales and web site design and programming.
Seasonal Nature of Business Activities. The Company does not anticipate
that its business activities will be subject to seasonal fluctuations.
Properties. The Company currently operates from a 1,400 square foot
office in Miami, Florida that is being leased on a month-to-month basis for $700
a month.
Insurance. The Company intends to procure appropriate insurance upon
commencing production of the Dragonfly for sale.
E-Rex, Inc. Page 19 of 55
<PAGE>
MANAGEMENT
The names and positions of the present directors and officers of the
Company are set forth below:
Name Age Position
---- --- --------
Donald A. Mitchell 67 Chairman of the Board of Directors
Carl Dilley 45 President, Chief Executive
Officer and Director
Jeffrey M. Harvey 29 Director and Treasurer
Each Director of the Company holds such position until the next annual
meeting of shareholders and until his successor is duly elected and qualified.
The officers hold office until the first meeting of the Board of Directors
following each annual meeting of shareholders and until their successors are
duly appointed and qualified, subject to early removal by the Board of
Directors.
Donald A. Mitchell - Chairman of the Board. Mr. Mitchell has served as
Chief Executive Officer for the Company. He is currently Chairman of the Board
of Directors, and has been serving the Company in that capacity since March 15,
2000. Since 1975, Mr. Mitchell has developed and managed a financial consulting
private practice and small business consulting practice that specializes in
organizing medium size and small business and developing a proper financing
strategy for sustained growth. Mr. Mitchell graduated from Bridgewater College,
Bridgewater, Virginia in 1957 and attended advanced studies-monitored programs
at New York University and Columbia University. Mr. Mitchell also serves as a
director of youticket.com, Inc., a NASDAQ Bulletin Board company.
Carl Dilley - President, CEO and a Director. Mr. Dilley is the
President, CEO and a Director of the Company, and has been since April 1, 2000.
Mr. Dilley served as President and CEO of DiveDepot.com, Inc. from 1997-1999.
Prior to that Mr. Dilley served in management positions with Canadian Investment
Firm RBC Dominion Securities, and a variety of other executive and consulting
positions in several industries including Chemical, Timber, Transportation,
Trust Co. 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.
Jeffrey M. Harvey - Treasurer and a Director. Mr. Harvey has been a
Director of the Company since October 10, 2000. Additionally, Mr. Harvey
currently serves as Vice Chairman of International Investment Banking, Inc.,
where he has been engaged since August 2000. From May 1997 to August 2000, Mr.
Harvey was an attorney with the firm of Stutzman & Bromberg in Dallas, Texas.
Mr. Harvey is a graduate of Wake Forest University School of Law (J.D. 1997) and
Graduate School of Business Administration (M.B.A. 1997), and of Texas A&M
University College of Engineering (B.S.E.E. 1993). Mr. Harvey also serves as
President and is a director of youticket.com, Inc., a NASDAQ Bulletin Board
company.
Director's Remuneration. Directors are reimbursed for actual expenses
incurred on behalf of the Company. Directors may receive an amount yet to be
determined annually for their participation and will be required to attend a
minimum of four Board of Directors 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 Company. The Company intends to provide
director liability insurance to all members of the Board of Directors. No
differentiation is
E-Rex, Inc. Page 20 of 55
<PAGE>
made in the compensation of "outside" or unaffiliated directors and those
officers of the Corporation serving in that capacity.
Executive Compensation. For the year ended December 31, 1999, none of
the prior officers and/or directors received any compensation for their
services. Subsequent to December 31, 1999, the Company will compensate Mr.
Mitchell pursuant to a management engagement agreement dated January 21, 2000
between the Company and International Investment Banking, Inc. ("IIBI"), a
company controlled by Mr. Mitchell. Pursuant to the agreement, IIBI receives
$10,000 per month. The annual compensation of IIBI will increase at a rate of
20% per year over the term of the agreement. 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 will be issued options representing up to 1,000,000 shares of
common stock of the Company for each year of IIBI's engagement. The agreement
has an initial term of two years unless further extended by mutual agreement of
the parties. All officers are reimbursed for expenses incurred on behalf of the
Company.
The Company compensates Mr. Dilley pursuant to an employment engagement
agreement dated April 1, 2000. Mr. Dilley is paid $7,000.00 per month in salary
and a guaranteed bonus of $9,000 quarterly. In addition Mr. Dilley has received
200,000 shares of restricted common stock and 76,786 shares of free trading
stock pursuant to a consulting agreement dated November 1, 2000. In addition to
monthly compensation, Mr. Dilley may be entitled to receive an annual bonus as
determined by the Company's Board of Directors, payable in common stock or cash.
The agreement has an initial term of two years unless further extended by mutual
agreement of the parties. All officers are reimbursed for expenses incurred on
behalf of Company.
Mr. Harvey has received 20,000 shares of restricted common stock and
80,000 shares of free trading stock pursuant to a consulting agreement dated
November 20, 2000.
Directors and Officers have also been granted stock options as per the
following schedule:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
---------------------------- -------------------------- -------------------------- --------------------------
Director or Officer Number of Options Exercise Price Expiry Date
---------------------------- -------------------------- -------------------------- --------------------------
---------------------------- -------------------------- -------------------------- --------------------------
Donald A. Mitchell 100,000 $.40 November 21-2002
---------------------------- -------------------------- -------------------------- --------------------------
Jeffrey M. Harvey 100,000 $.40 November 21-2002
---------------------------- -------------------------- -------------------------- --------------------------
Janet Williams 25,000 $.40 November 21-2002
---------------------------- -------------------------- -------------------------- --------------------------
Carl E. Dilley 100,000 $.40 November 21-2002
---------------------------- -------------------------- -------------------------- --------------------------
Donald A. Mitchell 100,000 $.75 November 21-2002
---------------------------- -------------------------- -------------------------- --------------------------
Jeffrey M. Harvey 100,000 $.75 November 21-2002
---------------------------- -------------------------- -------------------------- --------------------------
Janet Williams 25,000 $.75 November 21-2002
---------------------------- -------------------------- -------------------------- --------------------------
Carl E. Dilley 100,000 $.75 November 21-2002
---------------------------- -------------------------- -------------------------- --------------------------
</TABLE>
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.
E-Rex, Inc. Page 21 of 55
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In May, 2000 the Company entered into an oral contract for design and
integration work with Valcom, Ltd., a West Vancouver, British Columbia,
controlled by Paul R. MacPherson, a former Director of the Company. Under the
terms of this agreement, Valcom, Ltd. will supply six prototypes of the
Dragonfly for the approximate sum of $268,000, including work done prior to May
2000. The work is to be done on an ongoing basis. To date, the Company has paid
Valcom, Ltd. the sum of U.S. $59,418 on account.
In connection with the merger with Plantech Communication Systems, Inc.
on February 20, 1999, the Company assumed a promissory note dated March 15, 1997
in the amount of $6,450 with no interest stated payable to Valcom, Ltd. The
current balance due on the note is $5,781.
On January 21, 2000, the Company entered into a consulting agreement
with International Investment Banking, Inc. ("IIBI"), a Florida corporation
controlled by Donald A. Mitchell, the Chairman of the Board of Directors for the
Company. 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. The initial term of the
agreement is two years subject to extension by the mutual agreement of the
parties. 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. In March 2000, the Company issued to
Mr. Mitchell 2,000,000 shares of Common Stock, representing 1,000,000 shares for
each year of IIBI's engagement. As an addendum to the agreement, IIBI was
directed on the Company's behalf to purchase 8,237,616 shares of stock from two
of the Company's former directors for $250,000, issue 6,000,000 shares of stock
to Stockholder Presentations, Inc. per an investor relations contract, and issue
IIBI 1,000,000 shares of restricted common stock.
IIBI also loaned the Company $281,304 in the form of a promissory note
to cover the Company's short-term cash flow needs. The note accrues interest at
the rate of WSJ "Money Rates" Prime plus 4% per annum and is due and payable on
demand. The Company expects to fund this note with an issuance of stock within
the near future.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 20, 2000, there were 23,642,146 shares of Common Stock
issued and outstanding. The following table sets forth certain information
concerning beneficial ownership of the Company's Common Stock by all persons
known by the Company to own beneficially 5% or more of the outstanding shares of
the Company's Common Stock, each director and executive officer, and all
executive officers and directors of the Company as a group, as of September 30,
2000.
<TABLE>
<CAPTION>
<S> <C> <C>
------------------------------------------------------ --------------------------------- ----------------
Percent of
Name and Address of Beneficial Owner or Amount and Nature of Outstanding
Identity of Group Beneficial Ownership(1) Shares(2)
----------------- ----------------------- ---------
---------------------------------------------------------------------------------------------------------
Donald A. Mitchell 1,874,700 7.93%
2101 West S.R. 434, Suite 221
Longwood, FL 32779
---------------------------------------------------------------------------------------------------------
Carl Dilley 276,786 1.17%
279 Atlantic Ave
Sunnyisles, FL 33160
---------------------------------------------------------------------------------------------------------
Jeffery M. Harvey 100,000 .42%
189 Morse Boulevard, # 2
Longwood, FL 32779
---------------------------------------------------------------------------------------------------------
</TABLE>
E-Rex, Inc. Page 22 of 55
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
---------------------------------------------------------------------------------------------------------
Paul Daoust 1,584,120 6.70%
719 Princess Street, Suite 2404
Vancouver, BC Canada
---------------------------------------------------------------------------------------------------------
Stockbroker Presentations, Inc. 2,640,000 11.16%
2232 E. Semoran Blvd.
Apopka, Fl 32703
---------------------------------------------------------------------------------------------------------
Officer and Directors as a group 2,251,486 9.52%
(3 persons)
---------------------------------------------------------------------------------------------------------
</TABLE>
(1) Except as otherwise indicated, all stockholders have sole voting and
investment power with respect to the shares of Common Stock set forth
opposite their respective names.
(2) Based on 23,642,146 shares of Common Stock outstanding as of
December 20, 2000.
SELLING SECURITY HOLDERS AND PLAN OF DISTRIBUTION
Selling Shareholders
Swartz
This prospectus covers 32,700,000 shares of common stock issuable to
Swartz under the Swartz investment agreement and shares issuable upon exercise
of the warrants we previously issued to Swartz. Swartz is engaged in the
business of investing in publicly-traded equity securities for its own account.
Swartz does not beneficially own any of our common stock or any other
of our securities as of the date of this prospectus other than 2,700,000 shares
underlying the warrants we issued to Swartz in connection with the closing of
the Swartz investment agreement (which contain a 4.99% beneficial ownership
limitation). Other than its obligations to purchase common stock under the
Swartz investment agreement and the warrant, it has no other commitments or
arrangements to purchase or sell any of our securities.
The following table sets forth certain information regarding the
Selling Security Holders as of the date of this Prospectus and the number of
shares that they may sell under this prospectus. The actual number of shares of
our common stock issuable upon exercise of warrants to Swartz and our put rights
is subject to adjustment and could be materially less or more than the amount
contained in the table below, depending on factors which we cannot predict at
this time, including, among other factors, the future price and trading volume
of our common stock.. Such information was furnished to us by the individual
Selling Security Holders. The amount and percentage owned after the offering
assumes the sale of all of the Shares being registered on behalf of the Selling
Security Holders.
E-Rex, Inc. Page 23 of 55
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Name Shares Owned Shares to be Shares to be % Owned
Prior to the Sold in the Owned after the Relationship after
Offering Offering Offering to company offering
Alan Cole 70,000 70,000 0 None 0.00%
Alicia Cote 40,000 40,000 0 None 0.00%
Big Apple Consulting 200,000 200,000 0 None 0.00%
Director,
President &
Carl E. Dilley 476,786 400,000 76,786 CEO 0.01%
Carol J. Gamble trust 1,188,090 1,188,090 0 None 0.00%
Carolyn Cote 10,000 10,000 0 None 0.00%
Cecilia O'Donnell 370,000 370,000 0 None 0.00%
Chad Wekelo 120,000 120,000 0 None 0.00%
Cole, Kawa, Crane &
Associates, Inc. 40,000 40,000 0 None 0.00%
Crusader Capital 500,000 500,000 0 None 0.00%
Dale Sawyer 252,000 252,000 0 None 0.00%
David Randel 24,500 24,500 0 None 0.00%
Derek Payne 50,000 50,000 0 None 0.00%
Director &
Donald A. Mitchell 2,074,700 1,700,000 374,700 Chairman 0.58%
Doris Randel 24,500 24,500 0 None 0.00%
Dr, Michael Ruxin 150,000 150,000 0 None 0.00%
Melville Goodman Trust UDT
3281 100,000 100,000 0 None 0.00%
Harald Gamble 24,500 24,500 0 None 0.00%
Helga Spaulding 100,000 100,000 0 None 0.00%
J. Bennett Grocock 175,893 100,000 75,893 Attorney 0.01%
Assistant
Janet Williams 120,000 120,000 0 Secretary 0.00%
Director &
Jeffery M. Harvey 300,000 220,000 80,000 Treasurer 0.01%
Jen Pizarro 40,000 40,000 0 None 0.00%
John Neff 100,000 100,000 0 None 0.00%
John P. Ford 24,500 24,500 0 None 0.00%
Julia Hamilton 10,000 10,000 0 None 0.00%
June L. Blackwell 130,470 130,470 0 None 0.00%
Karl Soderstrom 6,667 6,667 0 None 0.00%
Kathleen Fix 30,470 30,470 0 None 0.00%
ken Blake 200,000 200,000 0 None 0.00%
kris Thoreson 10,000 10,000 0 None 0.00%
Lesley Stone 30,000 30,000 0 None 0.00%
Linda Heuer 24,500 24,500 0 None 0.00%
Lisa Mitchell 20,000 20,000 0 None 0.00%
Livier Olmedo 30,470 30,470 0 None 0.00%
Marc Jablon 60,000 60,000 0 None 0.00%
Martha Winston 24,500 24,500 0 None 0.00%
Mary Neff 70,000 70,000 0 None 0.00%
Mary Weller 20,000 20,000 0 None 0.00%
Mathew Maguire 70,000 70,000 0 None 0.00%
Melville Goodman 150,000 150,000 0 None 0.00%
Mrs. Paul H. Ford, Jr. 24,500 24,500 0 None 0.00%
</TABLE>
E-Rex, Inc. Page 24 of 55
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Nancy Pressley 24,500 24,500 0 None 0.00%
Neal Jablon 20,000 20,000 0 None 0.00%
Norbert Weller 20,000 20,000 0 None 0.00%
Paul H. Ford, Jr. 24,500 24,500 0 None 0.00%
Phillip Robertson 70,000 70,000 0 None 0.00%
Steve Rigg 200,000 200,000 0 None 0.00%
Ron Gooding 100,000 100,000 0 None 0.00%
Rulon Tolman 200,000 200,000 0 None 0.00%
Ruth Beiler 60,000 60,000 0 None 0.00%
Steve Montgomery 100,000 100,000 0 None 0.00%
Stockbroker Presentations,
Inc. 2,640,000 1,000,000 1,640,000 None 0.03%
Terry Shores 600,000 600,000 0 None 0.00%
Thomas Shanks 250,000 250,000 0 None 0.00%
Reid M.Waltman & Betty J .
Waltman Revocable Living
Trust Trust 87,500 87,500 0 None 0.00%
Warren White 40,000 40,000 0 None 0.00%
Webulate, LLC. 450,000 450,000 0 None 0.00%
Wendy Westbrook 10,000 10,000 0 None 0.00%
William Maguire in trust for
Judy Maguire 10,000 10,000 0 None 0.00%
Swartz Private Equity, LLC. 32,700,000(1) 32,700,000 0 None 0.00%
</TABLE>
(1) This number includes 2,700,000 shares of common stock issuable upon
exercise of outstanding warrants which are currently exercisable. This
number also includes (solely for purposes of this prospectus) up to an
aggregate of 30,000,000 shares of our common stock that we may sell to
Swartz under the Swartz investment agreement and warrants issuable in
connection with the Swartz investment agreement. These shares would not
be deemed beneficially owned within the meaning of Sections 13(d) and
13(g) of the Exchange Act before their acquisition by Swartz. Swartz
may not beneficially own more than 9.99% of our outstanding common
stock at any time. Eric S. Swartz holds investment and voting control
of the shares held by Swartz.
The Company is not selling any Shares on behalf of Selling Security
Holders and has no control or affect on the 42,846,167 Shares of these Selling
Security Holders, which are not subject to any lock-up agreement. The Company
will not receive any proceeds from the sale of the securities by the Selling
Security Holders, However, we will receive proceeds from any sales of shares to
Swartz under our put option and upon the cash exercise of warrants held by
Swartz.
The securities may be offered and sold by the Selling Security Holders
from time to time as market conditions permit. The Selling Security Holders may
sell the Common Shares offered hereby in one or more transactions (which may
include "block" transactions in the over-the-counter market, in negotiated
transactions or in a combination of such methods of sales, at fixed prices which
may be changed, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices). The Selling
Security Holders may effect such transactions by selling the Common Shares
directly to purchasers, or may sell to or through agents, dealers or
underwriters designated from time to time, and such agents, dealers or
underwriters may receive compensation in the form of discounts, concessions or
commissions
E-Rex, Inc. Page 25 of 55
<PAGE>
from the Selling Security Holders and/or the purchaser(s) of the Common
Shares for whom they may act as agent or to whom they may sell as principals, or
both. The Selling Security Holders and any agents, dealers or underwriters that
act in connection with the sale of the Common Shares might be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act, and
any discount or commission received by them and any profit on the resale of the
Common Shares as principal might be deemed to be underwriting discounts or
commissions under the Securities Act.
Swartz is, and each remaining selling shareholder and any broker-dealers acting
in connection with the sale of the common stock by this prospectus may be deemed
to be, an underwriter within the meaning of Section 2(11) of the Securities Act,
and any commissions received by them and any profit realized by them on the
resale of common stock as principals may be underwriting compensation under the
Securities Act.
The selling shareholders and any other persons participating in a
distribution of securities will be subject to applicable provisions of the
Securities Exchange Act and the rules and regulations thereunder, including,
without limitation, Regulation M, which may restrict certain activities of, and
limit the timing of purchases and sales of securities by, the selling
shareholders and other persons participating in a distribution of securities.
Furthermore, under Regulation M, persons engaged in a distribution of securities
are prohibited from simultaneously engaging in market making and certain other
activities with respect to such securities for a specified period of time prior
to the commencement of such distributions subject to specified exceptions or
exemptions. Swartz has, before any sales, agreed not to effect any offers or
sales of the common stock in any manner other than as specified in this
prospectus and not to purchase or induce others to purchase common stock in
violation of Regulation M under the Exchange Act. All of the foregoing may
affect the marketability of the securities offered by this prospectus.
The Offering by Selling Security Holders is offered as a shelf
registration, as that term is defined by Rule 415 of the Securities Act of 1933,
as amended, and will terminate no later than December 22, 2003.
The Company is not aware of any current plans, proposals, arrangements
or understandings by any Selling Security Holders to distribute their registered
shares of Common Stock of the Company to their respective outstanding
shareholders or partners. The Company is not aware of any plans, arrangements or
understandings by any Selling Security Holders to sell their registered shares
of Common Stock to any particular individual(s) or to use such registered shares
to satisfy contractual obligations.
The Company will receive no portion of the proceeds from the sale of
the Shares by the Selling Security Holders, and will bear all the costs relating
to the registration of this Offering (other than any fees and expenses of
counsel for the Selling Security Holders). However, the Company may receive
proceeds from the sale of Shares to Swartz upon the exercise of warrants held by
Swartz. Any commissions, discounts or other fees payable to a broker, dealer,
underwriter, agent or market maker in connection with the sale of any of the
Common Shares will be borne by the Selling Security Holders.
Under the Securities Exchange Act of 1934, as amended, and the
regulations promulgated thereunder, any person engaged in a distribution of the
securities of the Company offered by this Prospectus may not simultaneously
engage in market-making activities with respect to such securities during the
applicable "cooling off" period prior to the commencement of such distribution.
In addition, and without limiting the foregoing, the Selling Security Holders
will be subject to applicable provisions of the Exchange Act and the rules and
regulations promulgated thereunder, including, without limitation, Rule 10b-6
and Rule 10b-7, in connection
E-Rex, Inc. Page 26 of 55
<PAGE>
with transactions in such securities, which provisions may limit the time of
purchases and sales of such securities by the Selling Security Holders.
DESCRIPTION OF SECURITIES
The following description of the rights and preferences of the
Company's capital stock is merely a summary. Each prospective investor should
refer to the Company's Certificate of Incorporation, as amended, for a complete
description of the Company's capital stock as well as to the applicable statutes
of the State of Nevada for a more complete description concerning the rights and
liabilities of stockholders.
The authorized capital stock of the Company consists of 100,000,000
shares of Common Stock, with a par value of $.001 per share, of which 23,642,146
shares are issued and outstanding.
Holders of the Common Stock do not have preemptive rights to purchase
additional shares of Common Stock or other subscription rights. The Common Stock
carries no conversion rights and is not subject to redemption or to any sinking
fund provisions. Upon liquidation or dissolution of the Company, whether
voluntary or involuntary, holders of shares of Common Stock are to share equally
in the assets of the Company available for distribution to stockholders. All
outstanding shares of Common Stock are validly authorized and issued, fully paid
and nonassessable. The Board of Directors is authorized to issue additional
shares of Common Stock, not to exceed the amount authorized by the Company's
Articles of Incorporation, on such terms and conditions and for such
consideration as the Board may deem appropriate without further stockholder
action.
Each holder of Common Stock is entitled to one vote per share on all
matters on which such stockholders are entitled to vote. Since the shares of
Common Stock do not have cumulative voting rights, the holders of more than 50%
of the shares voting for the election of directors can elect all the directors
if they choose to do so and, in such event, the holders of the remaining shares
will not be able to elect any person to the Board of Directors.
Holders of the Company's Common Stock are entitled to dividends when,
as, and if declared by the Board of Directors out of funds legally available
therefor. The Company does not anticipate the declaration or payment of any
dividends in the foreseeable future. The Company intends to retain earnings, if
any, to finance the development and expansion of its business. Future dividend
policy will be subject to the discretion of the Board of Directors and will be
contingent upon future earnings, if any, the Company's financial condition,
capital requirements, general business conditions, and other factors. Therefore,
there can be no assurance that any dividends of any kind will ever be paid.
The Swartz Investment Agreement
Overview
On or about December 22, 2000, we entered into an investment agreement
with Swartz Private Equity, LLC. The Swartz investment agreement entitles us to
issue and sell up to $15 million of our common stock to Swartz, subject to a
formula based on average stock price and average trading volume, from time to
time over a three year period following the effective date of this registration
statement. We refer to each election by us to sell stock to Swartz as a "put."
In addition, on Sept. 22, 2000, we issued to Swartz a warrant to
purchase 2,700,000 shares of our common stock, exercisable for a period of 7
years from September 22, 2000, with an initial exercise price equal to $.50,
E-Rex, Inc. Page 27 of 55
<PAGE>
which was the lowest closing bid price for the five trading days before
September 22, 2000. We will adjust the exercise price of these warrants annually
on September 22 to equal the lesser of:
o the exercise price then in effect; or
o the lowest closing bid price of our common stock for the five
trading days before September 22 of that year.
We may issue additional warrants under the terms of the Swartz investment
agreement, as described below.
Put Rights
We may begin exercising puts on the date of this prospectus and
continue for a three-year period. To exercise a put, we must have an effective
registration statement on file with the SEC covering the resale to the public by
Swartz of any shares that it acquires under the Swartz investment agreement.
Also, we must give Swartz at least 10, but not more than 20, business days
advance notice of the date on which we intend to exercise a particular put
right. The notice must indicate the date we intend to exercise the put and the
maximum number of shares of common stock we intend to sell to Swartz. At our
option, we may also specify a maximum dollar amount (not to exceed $2 million)
of common stock that we will sell under the put. We may also specify a minimum
purchase price per share at which we will sell shares to Swartz. The minimum
purchase price cannot exceed the lesser of (i) 80% of the closing bid price of
the Company's common stock on the business day immediately preceding the date of
the advance put notice, or (ii) the closing bid price of the Company's common
stock on the business day immediately preceding the date of the advance put
notice, minus $0.125.
The number of common shares we sell to Swartz may not exceed 15% of the
aggregate daily reported trading volume of our common shares, excluding certain
block trades, during the 20 business days before or after the date we exercise a
put. Further, we cannot issue additional shares to Swartz that, when added to
the shares Swartz previously acquired under the Swartz investment agreement
during the 61 days before the date we exercise the put, will result in Swartz
holding over 9.99% of our outstanding shares upon completion of the put.
Swartz will pay us a percentage of the market price for each share of
common stock under the put. The market price of the shares of common stock
during the 20 business days immediately following the date we exercise a put is
used to determine the purchase price Swartz will pay and the number of shares we
will issue in return. This 20 day period is the pricing period. For each share
of common stock, Swartz will pay us the lesser of:
o the market price for each share, minus $.075; or
o 91% of the market price for each share.
The Swartz investment agreement defines market price as the lowest
closing bid price for our common stock during the 20 business day pricing
period. However, Swartz must pay at least the designated minimum per share
price, if any, that we specify in our notice. If the price of our common stock
is below the greater of the designated minimum per share price plus $.075, or
91% of the designated minimum per share price during any of the 20 days during
the pricing period,
E-Rex, Inc. Page 28 of 55
<PAGE>
that day is excluded from the 15% volume limitation described above. Therefore,
the amount of cash that we can receive for that put may be reduced if our stock
price declines.
We must wait a minimum of five business days after the end of the 20
business day pricing period for a prior put before exercising a subsequent put.
We may, however, give advance notice of our subsequent put during the pricing
period for the prior put. We can only exercise one put during each pricing
period.
Warrants
Within five business days after the end of each pricing period, we are
required to issue and deliver to Swartz a warrant to purchase a number of shares
of our common stock equal to 10% of the common shares issued to Swartz in the
applicable put. Each warrant will be exercisable at a price that will initially
equal the market price for the applicable put. The warrants will have annual
reset provisions similar to the reset provisions for the warrants Swartz
currently holdsEach warrant will be immediately exercisable and have a term
beginning on the date of issuance and ending 7 years later.
At no time may Swartz own a number of shares that, when added to the
number of shares acquired by Swartz under the Swartz investment agreement during
the 61 days before the put date, will result in Swartz holding more than 9.99%
of our outstanding common stock.
We are registering 32,700,000 shares of common stock for issuance to
Swartz under the Swartz investment agreement. We believe, based on the recent
market prices of our shares of common stock and volume in our common stock, that
32,700,000 shares will be sufficient to satisfy our obligations to issue stock
and warrants to Swartz in order to fully utilize the $15 million available under
the Swartz investment agreement. If 32,700,000 shares is not sufficient, we will
register additional shares for resale by Swartz.
Limitations and Conditions to Our Put Rights
Our ability to put shares of our common stock, and Swartz's obligation
to purchase the shares, is subject to the satisfaction of certain conditions.
These conditions include:
o we have satisfied all obligations under the agreements entered
into between us and Swartz in connection with the Swartz
investment agreement;
o our common stock is listed and traded on Nasdaq, the O.T.C.
Bulletin Board, or an exchange;
o our representations and warranties in the Swartz investment
agreement are accurate as of the date of each put;
o we have reserved for issuance a sufficient number of shares of
our common stock to satisfy our obligations to issue shares
under any put and upon exercise of warrants;
E-Rex, Inc. Page 29 of 55
<PAGE>
o the registration statement for the shares we will be issuing
to Swartz must remain effective as of the put date and no stop
order with respect to the registration statement is in effect;
o if the number of shares to be put to Swartz, together with any
shares previously put to Swartz, would equal 20% of all shares
of our common stock that would be outstanding upon completion
of the put, we must obtain shareholder approval of such excess
issuance as required by Nasdaq rules; and
o other than continuing losses described in an attachment to the
Swartz investment agreement, at the time of a put, there can
be no material adverse change in our business prospects or
financial condition.
Swartz is not required to acquire and pay for any additional shares of
our common stock once it has acquired $15 million worth of common stock.
Additionally, in the event that one of the following events occurs after we
deliver an advance put notice to Swartz, but before the applicable Put Date,
that Put shall terminate:
o we announced or implemented a stock split or combination of
our common stock;
o we paid a dividend on our common stock;
o we made a distribution of all or any portion of our assets or
evidences of indebtedness to the holders of our common stock;
or
o we consummated a major transaction, such as a sale of all or
substantially all of our assets or a merger or tender or
exchange offer that results in a change in control.
We may not require Swartz to purchase any subsequent put shares if:
o we, or any of our directors or executive officers, have
engaged in a transaction or conduct related to us that
resulted in:
o a SEC enforcement action, administrative proceeding
or civil lawsuit; or
o a civil judgment or criminal conviction or for any
other offense that, if prosecuted criminally, would
constitute a felony under applicable law;
o the aggregate amount of time which this registration statement
is not effective or our common stock is not listed and traded
on Nasdaq, the O.T.C. Bulletin Board, or an exchange exceeds
four months;
o we file for bankruptcy or any other proceeding for the relief
of debtors;
o we breach certain covenants contained in the Swartz investment
agreement; or
o the registration statement for the resale of shares of common
stock issued to Swartz is not effective by December 22, 2001.
E-Rex, Inc. Page 30 of 55
<PAGE>
Commitment and Termination Fees
If we do not put at least $1,000,000 worth of common stock to Swartz
during each six month period following the effective date of the Swartz
investment agreement, we must pay Swartz a semi-annual non-usage fee. This fee
equals the difference between $100,000 and 10% of the value of the shares of
common stock we put to Swartz during the six month period.
If the Swartz investment agreement is terminated, we must pay Swartz
the greater of (i) the non-usage fee described above, or (ii) the difference
between $200,000 and 10% of the value of the shares of common stock put to
Swartz during all puts to date.
Short Sales
The Swartz investment agreement prohibits Swartz and its affiliates
from engaging in short sales of our common stock unless Swartz has received a
put notice and the amount of shares involved in the short sale does not exceed
the number of shares we specify in the put notice.
Cancellation of Puts
We must cancel a particular put if:
o we discover an undisclosed material fact which would cause the
registration statement not to be current and effective;
o the registration statement registering resales of the common
shares becomes ineffective; or
o our shares of common stock are delisted from Nasdaq, the
O.T.C. Bulletin Board, or an exchange.
Termination of Swartz Investment Agreement
We may terminate our right to initiate further puts or terminate the
Swartz investment agreement at any time by providing Swartz with notice of our
intention to terminate. However, any termination will not affect any other
rights or obligations we have concerning the Swartz investment agreement or any
related agreement.
Restrictive Covenants
During the term of the Swartz investment agreement and for a period of
sixty days after termination of the Swartz investment agreement, we are
prohibited from engaging in certain transactions. These include the issuance of
any of our equity securities, or debt securities convertible into equity
securities, for cash in a private transaction without obtaining the prior
written approval of Swartz. The Swartz investment agreement also prohibits us
during this period from entering into any private equity line agreements similar
to the Swartz investment agreement without obtaining Swartz's prior written
approval.
There are important exceptions to this limitation. We can issue our
shares without Swartz's prior approval in the following transactions:
E-Rex, Inc. Page 31 of 55
<PAGE>
o in connection with a merger, consolidation, acquisition or
sale of assets;
o in connection with a strategic partnership or joint venture,
the primary purpose of which is not simply to raise money;
o in connection with our disposition or acquisition of a
business, product or license;
o upon exercise of options by employeesor directors;
o in an underwritten offering of our common stock;
o upon conversion or exercise of currently outstanding options,
warrants or other convertible securities; or
o under any option or restricted stock plan for the benefit of
employees or directors.
In addition, we may issue debt securities with no equity feature for working
capital purposes.
Right of First Refusal
With certain exceptions, Swartz has a right of first refusal to
participate in any private capital raising transaction of equity securities that
closes at any time during the period from the date of the Swartz investment
agreement, December 22, 2000, until sixty days after the termination of the
Swartz investment agreement.
Swartz's Right of Indemnification
We have agreed to indemnify Swartz, including its shareholders,
officers, directors, employees, investors and agents, from all liability and
losses resulting from any misrepresentations or breaches we make in connection
with the Swartz investment agreement, the registration rights agreement, other
related agreements, or the registration statement.
Effect on Outstanding Common Stock
The issuance of common stock under the Swartz investment agreement will
not affect the rights or privileges of existing holders of common stock except
that the issuance of shares will dilute the economic and voting interests of
each shareholder. See "Risk Factors."
As noted above, we cannot determine the exact number of shares of our
common stock issuable under the Swartz investment agreement and the resulting
dilution to our existing shareholders, which will vary with the extent to which
we utilize the Swartz investment agreement, the market price of our common
stock, and exercise of the related warrants. The potential effects of any
dilution on our existing shareholders include the significant dilution of the
current shareholders' economic and voting interests in us.
The Swartz investment agreement provides that, if we become listed on
the Nasdaq, we cannot issue shares of common stock that would exceed 20% of the
outstanding stock on the date of a put unless and until we obtain shareholder
approval of the issuance of common stock.
E-Rex, Inc. Page 32 of 55
<PAGE>
EXPERTS
The audited financial statements included in this Prospectus have been
so included in reliance on the report of Varma & Associates, on the authority of
such firm as experts in auditing and accounting.
Interests of Named Experts and Counsel. J. Bennett Grocock received
100,000 shares of Common Stock of the Company in connection with the preparation
of this filing.
LEGAL PROCEEDINGS
On August 4, 2000 Crusader Capital Group, Inc. filed a complaint
against the Company in civil action number CV-N-00-411-DWH-RAM in the United
States District Court for the District of Nevada. The Company was served with
this complaint on or about August 10, 2000. This complaint alleges undetermined
damages for misrepresentations, omissions, breach of contract and unjust
enrichment related to Crusaders purchase of restricted stock in the company
during the first quarter of 2000.
The Company believes the claims made in the complaint are without merit
and intends to defend itself vigorously in this matter.
INDEMNIFICATION FOR SECURITIES ACTS LIABILITIES
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the provisions of the Florida Business Corporation Act, we have 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. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceedings) is asserted by such
director, officer, or controlling person in connection with any securities being
registered, the Company will, unless in the opinion of its 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 Act and will be governed by the final adjudication of
such issues.
E-Rex, Inc. Page 33 of 55
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Description
Page
Independent Auditors' Report...............................................f-1
Balance Sheet..............................................................f-2
Statement of Operations....................................................f-3
Statement of Changes in Stockholders' Equity...............................f-4
Statement of Cash Flows....................................................f-8
Notes to Financial Statements..............................................f-9
E-Rex, Inc. Page 34 of 55
<PAGE>
E-REX, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
December 31, 1999
INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS
---------------------------------------------------------------
To the Board of Directors and Stockholders
E-Rex, Inc.
Orlando, FL
We have audited the accompanying balance sheet of E-Rex, Inc. (a development
stage company), as of December 31, 1999, and the related statement of
operations, stockholders' equity and cash flows for the year ended December 31,
1999, the year ended December 31, 1998, the year ended December 31, 1997 and for
the period from inception (August 26, 1986) to December 31,1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of E-Rex, Inc. (a development
stage company) as of December 31, 1999, and the results of its operations and
its cash flows for the year ended December 31, 1999, the year ended December 31,
1998, the year ended December 31, 1997 and for the period from inception (August
26, 1986) to December 31, 1999 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
that raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in note 2. The
Financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Varma and Associates
Certified Public Accountants
Longwood, FL
March 30, 2000
E-Rex, Inc. Page 35 of 55
<PAGE>
E-REX, INC.
BALANCE SHEET
As of December 31, 1999
ASSETS
--------
<TABLE>
<CAPTION>
CURRENT ASSETS
--------------
<S> <C> <C>
Cash $ 22,006
--------------
Total Current Assets 22,006 $ 22,006
OTHER ASSETS
------------
Furniture and equipment 4,937
Less: accumulated depreciation (2,896)
-------------
Total Other Assets 2,041 2,041
------------
TOTAL ASSETS $ 24,047
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------
CURRENT LIABILITIES
-------------------
Accounts payable $ 82,075
Demand note payable 6,450
--------------
Total current liabilities 88,525 $ 88,525
-------------
TOTAL LIABILITIES 88,525
STOCKHOLDERS' EQUITY
--------------------
STOCKHOLDERS' EQUITY (DEFICIT)
-----------------------------
Common stock, $.0001 par value,
100,000,000 authorized
and 15,663,164 shares issued and outstanding. 15,539
Additional paid in capital 708,962
Retained earnings (788,979)
------------
Total stockholders' equity (64,478) (64,478)
------------
TOTAL LIABILITIES AND EQUITY (DEFICIT) $ 24,047
=============
</TABLE>
E-Rex, Inc. Page 36 of 55
<PAGE>
E-REX, INC.
STATEMENT OF OPERATIONS
For the Period from Inception
(August 26, 1986) to December 31, 1999
<TABLE>
<CAPTION>
From
1999 1998 1997 Inception
<S> <C> <C> <C> <C>
REVENUE $ - $ - $ - $ -
EXPENSES
General and
administrative 464,436 27,703 68,704 911,144
---------- ---------- ----------- -----------
LOSS FROM OPERATIONS (464,436) (27,703) (68,704) (911,144)
OTHER INCOME
Interest income 1,210 229 1,439
Recovery from lawsuit - - 120,726 120,726
--------- ---------- ----------- ----------
INCOME (LOSS) BEFORE
INCOME TAXES (464,436) (26,493) 52,251 (788,979)
Income Taxes - - - -
NET INCOME (LOSS) $ (464,436) $ (26,493) $ 52,251 $ (788,979)
============ ============ ============== ============
Weighted average
Number of shares 13,439,674 1,178,841 803,195
Basic EPS $ (0.04) $ (0.02) $ 0.06
</TABLE>
E-Rex, Inc. Page 37 of 55
<PAGE>
E-REX, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
continued
For the Period from Inception
(August 26, 1986) to December 31, 1999
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN INCOME
SHARES AMOUNT CAPITAL (LOSS) TOTAL
--------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992 646,716 647 263,853 (278,556) (14,056)
Issuance of shares of
common stock to the public
on Feb. 3, 1993 for $4.00
per share 32,000 32 127,968 128,000
Deferred offering cost
offset against additional
paid-in capital (74,239) (74,239)
Common stock issued for
legal services on April
29, 1993 110,000 110 21,890 22,000
Net (loss) for the year
ended Dec. 31, 1993 (39,703) (39,703)
Balance, December 31, 1993 788,716 789 339,472 (318,259) 22,002
Net (loss) for the year
ended Dec. 31, 1994 (8,357) (8,357)
Balance, December 31, 1994 788,716 789 339,472 (326,616) 13,645
Net (loss) for the year
ended Dec. 31, 1995 (19,185) (19,185)
Balance, December 31, 1995 788,716 789 339,472 (345,801) (5,540)
Net (loss) for the year
ended Dec. 31, 1996 (4,500) (4,500)
Balance, December 31, 1996 788,716 789 339,472 (350,301) (10,040)
Common stock issued for
services Sep., 1997 30,000 30 30
Net income for the year
ended Dec. 31, 1997 52,251 52,251
Balance, December 31, 1997 818,716 819 339,472 (298,050) 42,241
Common stock issued for
services Sep., 1998 1,682,000 1,682 1,000 2,682
Common shares issued
in Rule 504 offering
Nov. and Dec., 1998 1,539,500 1,539 152,410 153,949
Common stock issued for
services Dec., 1998 100,000 100 9,900 10,000
Net (loss) for the year
ended Dec. 31, 1998 (26,493) (26,493)
Balance December 31, 1998 4,140,216 $ 4,140 $ 502,782 $ (324,543) $ 182,379
Common shares issued 323,332 197 80,636 80,833
for cash
Common shares issued
Balance, December 31, 1997 818,716 819 339,472 (298,050) 42,241
Common stock issued for
services Sep., 1998 1,682,000 1,682 1,000 2,682
Common shares issued
in Rule 504 offering
Nov. and Dec., 1998 1,539,500 1,539 152,410 153,949
Common stock issued for
services Dec., 1998 100,000 100 9,900 10,000
Net (loss) for the year
ended Dec. 31, 1998 (26,493) (26,493)
Balance December 31, 1998 4,140,216 $ 4,140 $ 502,782 $ (324,543) $ 182,379
Common shares issued 323,332 197 80,636 80,833
for cash
Common shares issued
for acquisition 8,137,616 8,138 8,138
Common shares issued
for directors' fees 1,332,000 1,332 74,700 76,032
Common shares issued
for services 1,730,000 1,732 50,844 52,576
Net loss for the period (464,436) (464,436)
Balance, December 31, 1999 15,663,164 $ 15,539 $ 708,962 $ (788,979) $ (64,478)
</TABLE>
E-Rex, Inc. Page 38 of 55
<PAGE>
E-REX, INC.
STATEMENT OF CASH FLOWS
For the Period from Inception (August 26, 1986)
to December 31, 1999
<TABLE>
<CAPTION>
CASH FLOWS FROM (FOR) From
OPERATING ACTIVITIES 1999 1998 1997 Inception
----------- ---------- --------- ------------
<S> <C> <C> <C> <C>
Net income $ (464,436) $ (26,493) $ 52,251 $ (788,979)
Adjustments to reconcile net income
to to net cash provided by (used in)
operating activities:
Stock issued for services 128,608 12,682 30 190,676
Accounts payable 71,940 (366) 460 82,075
Other 29,014 (16,467) 12,547
----------- ---------- ---------- ---------
Total adjustments to net income 229,562 (4,151) 490 285,298
Net cash provided by (used in)
operating activities (234,874) (30,644) 52,741 (503,681)
CASH FLOWS FROM (FOR)
INVESTING ACTIVITIES
None
--------- --------- -------- ---------
Net cash flows provided by (used in)
investing activities - - - -
CASH FLOWS FROM (FOR)
FINANCING ACTIVITIES
Proceeds from issuance of stock,
including paid-in capital 80,833 153,950 - 633,714
- - - (108,027)
--------- --------- ------- ---------
Net cash provided by (used in)
financing 80,833 153,950 - 525,687
CASH RECONCILIATION
Net increase (decrease) in cash (154,041) 123,306 52,741 22,006
Cash at beginning of year 176,047 52,741 - -
--------- --------- -------- ---------
CASH BALANCE AT END OF YEAR $ 22,006 $ 176,047 $ 52,741 $ 22,006
========= ========== ========== ==========
</TABLE>
E-Rex, Inc. Page 39 of 55
<PAGE>
E-REX, INC.
NOTES TO THE FINANCIAL STATEMENTS
(See Independent Auditors Report)
1. Summary of significant accounting policies:
Nature of Operations - E-Rex, Inc. (the "Company"), a Nevada corporation, was
incorporated on August 26, 1986 as P.R. Stocks, Inc. On February 26, 1992, the
Company changed its name to National Health & Safety Corporation. On November
12, 1992, the Company changed its name to Medgain International Corporation. On
June 20, 1994 the Company changed its name to E-Rex, Inc. On February 20, 1999
the Company entered into a business combination (see Note 5). To date, the
Company has had no revenues. The Company is in the development stage.
Cash Equivalents - The Company considers all highly liquid investments with a
maturity of nine months or less when purchased to be cash equivalents.
Earnings (Loss) Per Share - Basic earnings per share ("EPS") is computed by
dividing earnings available to common shareholders by the weighted-average
number of common shares outstanding for the period as required by the Financial
Accounting Standards Board (FASB) under Statement No. 128, 'Earnings per
Shares". Diluted EPS reflects the potential dilution of securities that could
share in the earnings.
Basis of Accounting - The Company's financial statements are prepared in
accordance with generally accepted accounting principles.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Income Taxes - The Company records its income tax provision in
accordance with Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes."
Functional Currency - All amounts in the Company's financial statements and
related footnotes are stated in US dollars. The Company had no significant gain
or losses from foreign currency conversions.
E-Rex, Inc. Page 40 of 55
<PAGE>
E-REX, INC.
NOTES TO THE FINANCIAL STATEMENTS
(See Independent Auditors Report)
Property and Equipment - Depreciation and amortization is computed by the
straight line method with the following recovery periods:
Organization costs 5 Years
Office equipment and software 3-5 Years
Furniture 5-7 Years
Maintenance and repairs, as incurred, are charged to expense; betterments and
renewals are capitalized in plant and equipment accounts. Cost and accumulated
depreciation applicable to items replaced or retired are eliminated from the
related accounts; gain or loss on the disposition thereof is included as income.
No depreciation is recorded on property and plant left idle.
2. Basis of Presentation as a Going Concern:
The Company's financial statements have been presented on the basis that it is a
going concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company incurred a net loss
of $812,952 for the period from inception (August 26, 1986) to December 31,
1999. This factor, amoung others, raises substantial doubt as to the Company's
ability to continue as a going concern.
The Company's management intends to raise additional operating funds through
equity and/or debt offerings. However, there can be no assurance management will
be successful in its endeavors.
3. Income Taxes:
The Company records its income tax provision in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" which
requires the use of the liability method of accounting for deferred income
taxes.
Since the Company has not generated cumulative taxable income since inception,
no provision for income taxes has been provided. At December 31, 1999, the
Company did not have any 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, 1999, the Company did not
have any significant deferred tax liabilities or deferred tax assets.
4. Development Stage Company:
A development stage company is one for which principal operations have not
commenced or principal operations have generated an insignificant amount of
revenue. Management of a development stage company devotes most of its
activities to establishing a new business. Operating losses have been incurred
through December 31, 1999, and the company continues to use, rather than
provide, working capital in this operation. Although management believes that it
is pursuing a course of action that will provide successful future operations,
the outcome of these matters is uncertain. Basic earnings per share ("EPS") is
computed by dividing earnings available to common shareholders by the
weighted-average number of common shares outstanding for the period as required
by the Financial Accounting Standards Board (FASB) under Statement No. 128,
'Earnings per Shares". Diluted EPS reflects the potential dilution of securities
that could share in the earnings.
5. Business Combination:
On February 20, 1999 the Company entered into a merger agreement with Plantech
Communications Systems, Inc. ("Plantech"), a privately held British Columbia,
Canada, Corporation. Plantech is a development stage enterprise in the software,
computer and internet area. From inception in 1992 to date Plantech has had no
revenues.
Under the terms of the merger agreement, Plantech shareholders received one
share of the Company's common stock for each outstanding share of Plantech
stock. The Company issued 8,137,616 shares of its common stock in exchange for
all the plantech common shares outstanding as of February 20, 1999.
E-Rex, Inc. Page 41 of 55
<PAGE>
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 or negative 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, forward. The
following table sets forth certain results of operations for the periods
presented as if the Plantech business combination had been consummated on the
same terms at the Plantech inception in 1992.
Inception
Jan. 1, 1999 (8/26/86)
to Feb. 20, to Dec. 31,
1999 1998
Revenues $ - $ -
Net (Loss) $ (230,954) $ (616,086)
6. Litigation and subsequent events:
In January, 2000 the Board of Directors resolved to settle a British Columbia
Supreme Court action brought against the Company for an unpaid vendor bill for
$25,000. The Company also accepted from the same vendor a return of 50,000
shares of the Company stock that the vendor held.
In 1993 the Company initiated legal action against a former merger candidate,
and several of its principals, primarily to the Company when the merger was not
consummated.
In October, 1997 a settlement agreement relating to the above action was entered
into. In November, 1997 the Company received, net of attorney's fees, $120,726
to settle this matter.
7. Related Party Transactions:
The Company entered into a an agreement for design and integration work with an
entity controlled by one of the Company's director/shareholders named Valcom
Ltd., a West Vancouver, British Columbia company.
8. Required Cash Flow Disclosure:
The Company had no interest and income taxes paid for the year. The Company
entered into a non-cash merger transaction as noted in footnote 5.
E-Rex, Inc. Page 42 of 55
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification
Section 78.7502 of the Nevada Revised Statutes permits indemnification
of officers, directors, employees and agents of a corporation under certain
conditions and subject to certain limitations. Reference is made to Article XI
of the Registrant's Bylaws that provide for indemnification by the Registrant in
the manner and to the full extent permitted by Nevada law. However, the SEC may
declare such provision invalid.
Item 25. Other Expenses of Issuance and Distribution
Other expenses in connection with this offering which will be paid by
E-Rex, Inc. (hereinafter in this Part II referred to as the "Company") are
estimated to be substantially as follows:
Item Amount Payable by the Company
$6,639
SEC Registration Fees
State Securities Laws Fees and Expenses $1250
Printing and Engraving Fees $300
Legal Fees $60,000
Accounting Fees and Expenses $3,500
Transfer Agent's Fees $3,000
Miscellaneous 3,000
Total 77,689
Item 26. Recent Sales of Unregistered Securities
During the past three years, the Registrant has sold the following
securities pursuant to exemptions from registration under the Securities Act of
1933, as amended (the "Act"):
1. In September 1997, the company issued to the individuals listed
below an aggregate of 30,000 shares of Common Stock valued at $.001 per share,
as compensation for services rendered to the Company. The shares were issued as
follows:
Suzy Frost 10,000 shares
Curtis M. Jamison 10,000 shares
Elliott Pearson 10,000 shares
These issuances were made pursuant to the exemption afforded by Section 4(2) of
the Act.
2. In November 1998, the Company issued to the individuals listed below
and aggregate of 1,682,000 shares of Common Stock valued at $.001 per share, as
compensation for services rendered to the Company. The shares were issued as
follows:
Elliott Pearson 1,050,000 shares
Curtis M. Jamison 500,000 shares
Lorita Chittenden 32,000 shares
Suzy Frost 100,000 shares
These issuances were made pursuant to the exemption afforded by Section 4(2) of
the Act.
3. In February 1999, the Company issued an aggregate of 1,539,500
shares of Common Stock to the individuals listed below pursuant to an exemption
from registration set forth in Rule 504 of Regulation D promulgated under
Section 3(b) of the Act. The purchase price was $.10 per share. The sales were
made by the Company's management, consultants and selected broker/dealers. No
commissions or other remuneration was paid to anyone in connection with the sale
of such securities. No general solicitation was utilized. The shares were issued
as follows:
Suzy Frost 1,000,000 shares $100,000
Skyridge Holdings, Inc. 60,000 shares $ 6,000
Steven Owlett, Esq. 100,000 shares $ 10,000
Paul Daoust 200,000 shares $ 20,000
Mark McDonald 10,000 shares $ 1,000
E-Rex, Inc. Page 43 of 55
<PAGE>
4. In February 1999, the Company issued to Adolf Bauer a total of
8,137,616 shares of Common Stock pursuant to the exemption from registration
afforded by Section 4(2) of the Act, in connection with the business combination
with Plantech Communication Systems, Inc.
5. In March 2000, the Company issued 1,000,000 shares of Common Stock
to International Investment Banking, Inc. ("IIBI"), a corporation controlled by
Donald A. Mitchell, the Company's Chairman of the Board of Directors, pursuant
to the terms of a consulting agreement entered into with IIBI on January 21,
2000. The issuance was made pursuant to Section 4(2) of the Act.
6. On March 16, 2000 the Company had a change in ownership whereby the
former directors of the Company sold 8,237,616 shares back to the Company as
treasury stock for an amount of $250,000. At that time, the Company issued
8,060,000 additional shares to the Company's attorney and to the new directors
of the Company in exchange for their services as directors, and the Company's
attorney. The shares issued were valued at the fair market value as traded on
the date that the shares were declared for issuance. The issuances were made
pursuant to Section 4(2) under the Act. Set forth below are the names of the
individuals and the number of shares issued to each.
Donald A. Mitchell 2,000,000 shares
Stockbroker presentations, Inc. 6,000,000 shares
Brenda Hamilton 60,000 shares
7. On November 20, 2000, the Company issued 311,263 additional
shares to the Company's attorney, accountant, and to the new directors of the
Company in exchange for their services. The shares were issued at the fair
market value as traded on the date that the shares were declared for issuance.
The issuances were made pursuant to a Form S-8 registration statement Section
4(2) under the Act. Set forth below are the names of the individuals and the
number of shares issued to each.
Carl Dilley 76,786 shares
J. Bennett Grocock 75,893 shares
Byron Rambo 32,923 shares
Jody Walker 12,582 shares
Steven Owlett 15,000 shares
Rodney Patterson 18,079 shares
Jeffery Harvey 80,000 shares
8. In September 2000, the Company issued 1,320,000 additional
restricted shares to a corporate service provider, the Company's attorney, and
to the new directors of the Company in exchange for their services. The shares
were issued at the fair market value as traded on the date that the shares were
declared for issuance. The issuances were made pursuant to Section 4(2) under
the Act. Set forth below are the names of the individuals and the number of
shares issued to each.
Corporate Service Providers, Inc. 1,000,000 shares
Jeffery Harvey 20,000 shares
J. Bennett Grocock 100,000 shares
Carl Dilley 200,000 shares
E-Rex, Inc. Page 44 of 55
<PAGE>
9. On February 26, 2000, the Company issued an aggregate of 4,220,000
shares of Common Stock to the individuals listed below pursuant to an exemption
from registration set forth in Rule 504 of Regulation D promulgated under
Section 3(b) of the Act. The purchase price was $.10 per share. The sales were
made by the Company's management, consultants and selected broker/dealers. No
commissions or other remuneration was paid to anyone in connection with the sale
of such securities. No general solicitation was utilized. The shares were issued
as follows:
Martha Winston, 24,500 shares $2,450
Paul, H Ford Jr. 24,500 shares $2,450
Harald Gamble 24,500 shares $2,450
David Randel 24,500 shares $2,450
Doris Randel 24,500 shares $2,450
Mrs. Paul Ford 24,500 shares $2,450
Kathleen Fix 30,470 shares $3,047
John P. Ford 24,500 shares $2,450
Livier Olmedo 30,470 shares $3,047
Nancy Pressley 24,500 shares $2,450
Terry Shores 500,000 shares $50,000
Crusader Capital Corp. 500,000 shares $50,000
June Blackwell 130,470 shares $13,047
Mary Neff 70,000 shares $7,000
Carrol J. Gamble Trust 1,188,090 shares $118,809
Helga Spaulding 100,000 shares $10,000
Michael Ruxin 150,000 shares $15,000
Cecilia O'Donnell 370,000 shares $37,000
Linda Heuer 24,500 shares $2,450
Item 27. Exhibits
<TABLE>
<CAPTION>
<S> <C>
-------------------- ----------------------------------------------------------------------------------------
3.1 Articles of Incorporation of the Registrant
-------------------- ----------------------------------------------------------------------------------------
3.2 Bylaws of the Registrant
-------------------- ----------------------------------------------------------------------------------------
4.1 Specimen of Common Stock Certificate
-------------------- ----------------------------------------------------------------------------------------
10.1 Indemnity Agreement [is there one for selling security holders and Company?]
-------------------- ----------------------------------------------------------------------------------------
</TABLE>
Item 28. Undertakings
The undersigned registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act
of 1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of
the registration statement (or the most
recent post-effective amendment thereof)
which, individually or in the aggregate,
represent a fundamental change in the
formation set forth in the registration
statement; and
E-Rex, Inc. Page 45 of 55
<PAGE>
(iii) To include any additional or changed
material information with respect to the
plan of distribution not previously
disclosed in the registration statement or
any material change to such information in
the registration statement.
(a)(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(a)(3) To remove from registration by means of a post-effective
amendment any of the securities being registered that remain unsold at the
termination of the offering.
(e) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions set forth in the Company's
Articles of Incorporation or otherwise, the registrant 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.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant 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, the registrant will,
unless in the opinion of its 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 Act and
will be governed by the final adjudication of such issue.
(f)(1) For purposes of determining liability under the Securities Act,
the Registrant shall treat the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the small business issuer under Rule
424(b)(1), or (4) or 497(h) under the Securities Act as part of this
Registration Statement as of the time the Commission declares it effective.
(f)(2) For purposes of determining any liability under the Securities
Act, treat each post-effective amendment that contains a form of prospectus as a
new registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial bona
fide offering of those securities.
E-Rex, Inc. Page 46 of 55
<PAGE>
SIGNATURES
In accordance with the Securities Act of 1933, the registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
of filing on Form SB-s and authorized this registration statement to be signed
on its behalf by the undersigned, in the City of _______, Sate of Florida on
December __, 2000.
E-REX, INC.
a Nevada corporation
By :/s/ Carl Dilley
-----------------------
Name: Carl Dilley
Title: President & CEO
In accordance with the requirement of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Carl Dilley President & Chief Executive December __, 2000
Officer and a Director
/s/ Donald A. Mitchell Chairman of the Board and a December __, 2000
Director
/s/ Jeffrey M. Harvey Treasurer and a Director December __, 2000
</TABLE>
E-Rex, Inc. Page 47 of 55
<PAGE>
Summary Historical Financial Information
Nine Months Ended September 2000 and September 1999
E-REX, Inc
BALANCE SHEET
As of September 30, 2000 & SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
SEPT. 30, SEPT 30,
2000 1999
CURRENT ASSETS
Total Current Assets $9,575 $5,257
OTHER ASSETS
Furniture and Equipment $23,915 $4,937
Software $65,000
Less: Accumulated Depreciation ($207) ($2,775)
Investment in Ultimate Franchise Iinc $400,000
Investment in DiveDepot.com $150,000
Deposit with Vendor $1,767
Total Other Assets $638,708 $3,929
TOTAL ASSETS $648,283 $9,186
LIABILITY & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $140,184 $75,461
Accrued management fee $60,000 $24,652
Accrued wages & salaries payable $13,465 $1,423
Loan Payable $0 $6,450
Other accrued liabilities $500
Total Current Liabilities $214,149 $107,986
LONG-TERM LIABILITIES
Total long-term liabilities $373,013
TOTAL LIABILITIES $587,162 $107,986
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.001 par value,
100,000,000 shares authorized, 15,539,164 (Dec.
31)
(Sept 30) shares issued and outstanding 22,400,883 $22,401 15,391,832 $15,392
Additional paid in capital $9,502,245 $638,268
Retained earnings ($6,320,183) ($752,460)
Prepaid Professional service fees ($3,143,342)
Total Stockholders' Equity $61,212 ($98,800)
TOTAL LIABILITIES & EQUITY (DEFICIT) $648,283 $9,186
</TABLE>
E-Rex, Inc. Page 48 of 55
<PAGE>
<TABLE>
<CAPTION>
E-REX, Inc.
STATEMENT OF OPERATIONS
The Nine Months Ending September 30, 2000 & 1999
NINE MONTHS NINE MONTHS
ENDING ENDING
SEPT. 30, 2000 SEPT. 30, 1999
<S> <C> <C>
REVENUE $7,526 $0
EXPENSES
General and
Administrative $918,938 $0
--------------------------------------------------------
LOSS FROM OPERATIONS ($5,394,288) ($426,453)
OTHER INCOME
Interest Income $0 $0
--------------------------------------------------------
INCOME (LOSS) BEFORE
INCOME TAXES ($5,394,288) ($426,453)
Income Taxes $0 ($1,463)
NET INCOME (LOSS) ($5,394,288) ($427,916)
========================================================
</TABLE>
E-Rex, Inc. Page 49 of 55
<PAGE>
<TABLE>
<CAPTION>
E-REX, Inc,
STATEMENT OF CASH FLOWS
STATEMENT OF OPERATIONS
THE NINE MONTHS ENDING SEPTEMBER 30, 2000 AND 1999
NINE MONTHS NINE MONTHS
ENDING ENDING
SEPT. 30, 2000 SEPT. 30, 1999
<S> <C> <C>
CASH FLOWS FROM (FOR)
OPERATING ACTIVITIES
Net Income (Loss) ($5,394,288) ($427,916)
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
--------------------------------------------------
Total adjustments to net income $307,052 $137,863
Net cash provided by (used in)
operating activities ($5,087,236) ($290,053)
CASH FLOWS FROM (FOR)
INVESTING ACTIVITIES
Net cash provided by (used in) --------------------------------------------------
investing activities ($633,404) ($2,403)
CASH FLOWS FROM (FOR)
FINANCING ACTIVITIES
Treasury stock $0 $0
Proceeds from loan $409,000
Payment on loan ($94,669)
Proceeds from issuance of stock, ($4,488) $121,666
Offering costs
Other 1st qtr adjustments $6,107
Add'l paid in capital $1,235,743
Retained earnings ($143,022)
Loans to shareholders $2,680
Prepaid professional services $4,289,335
------------------------------------------------
Net cash provided by (used in)
Financing activities $5,700,686 $121,666
CASH RECONCILIATION
Net increase (decrease) in cash ($19,954) ($170,790)
Beginning cash balance $22,006 $176,047
CASH BALANCE AT END OF PERIOD $2,052 $5,257
</TABLE>
E-Rex, Inc. Page 50 of 55
<PAGE>
<TABLE>
<CAPTION>
E-REX, Inc.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Period from December 31, 1999 to September 30, 2000
ADDITIONAL
Common STOCK PAID-IN INCOME
Shares AMOUNT CAPITAL (LOSS) TOTAL
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1999 $15,531,832 $15,532 $708,158 ($788,979) ($65,289)
-----------------------------------------------------------------------------------------
2/11/00 Common Stock issued
for cash $120,000 $120 ($120)
2/11/00 Common Stock issued
as prepaid stock ` $30,000 $30 ($30)
3/14/00 Common Stock issued
for cash $20,000 $20 ($20)
3/31/00 Common Shares Issued
for services $8,060,000 $8,060 $7,557,540 $7,565,600
Common Shares Purchased
as treasury stock ($6,977,616) $0
Net loss for the period
Ended March 31, 2000 ($175,084) ($175,084)
-----------------------------------------------------------------------------------------
Balance, March 31, 2000 $16,784,216 $23,762 $8,265,528 ($964,063) $7,325,227
Issuance of Shares of Common
Stock to the public for $.10 per
share $3,290,000 $3,290 $325,710 $329,000
Net (loss) for the
period
Ended June 30, 2000 ($2,999,374) ($2,999,374)
-----------------------------------------------------------------------------------------
Balance, June 30, 2000 $20,074,216 $27,052 $8,591,238 ($3,963,437) $4,654,853
8/1/00 Common Shares Issued
for Services $1,000,000 $1,000 $399,000 $400,000
8/11/00 Common Shares Issued
for Services $320,000 $320 $108,480 $108,800
9/1/00 Common Shares Issued
as part of an exchange of
shares $1,000,000 $1,000 $399,000 $400,000
9/27/00 Common Shares Issued
for Services $6,667 $7 $4,527 $4,534
9/30/00 Retired all Treasury
Stock $0 ($6,978) $0 ($6,978)
Net (loss) for the
period
Ended September 30, 2000 ($2,219,832) ($2,219,832)
-----------------------------------------------------------------------------------------
Balance September 30,2000 $22,400,883 $22,401 $9,502,245 ($6,183,269) ($3,341,377)
=========================================================================================
</TABLE>
E-Rex, Inc. Page 51 of 55
<PAGE>
Summary Historical Financial Information
Periods Ended December 31, 1999, 1998, 1997
E-REX, Inc
BALANCE SHEET
As of December 31, 1999
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $22,006 $176,047 $52,741
----------------------------------------------
Total Current Assets $22,006 $176,047 $52,741
Other Assets
Loan to Stockholder $16,000
Accumulated Interest $467
Furniture and equipment $4,937
Less: accumulated depreciation ($2,896)
----------------------------------------------
Total Other Assets $2,041 $16,467 $0
----------------------------------------------
TOTAL ASSETS $24,047 $192,514 $52,741
==============================================
LIABILITY & STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $82,075 $10,135 $10,500
Demand note payable $6,450
----------------------------------------------
TOTAL LIABILITIES $88,525 $10,135 $10,500
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.0001 par value,
100,000,000 shares authorized and
818, 716 shares issued and outstanding $819
5,140,216 shares issued and outstanding $5,140
15,663,164 shares issued and outstanding $15,539
Additional paid-in - capital $708,962 $501,782 $339,472
Retained earnings ($788,979)
(Deficit) accumulated during development stage ($324,543) ($298,050)
----------------------------------------------
Total Shareholders' equity ($64,478) $182,379 $42,241
----------------------------------------------
TOTAL LIABILITIES & EQUITY (DEFICIT) $24,047 $192,514 $52,741
==============================================
</TABLE>
E-Rex, Inc. Page 52 of 55
<PAGE>
<TABLE>
<CAPTION>
E-REX, Inc.
STATEMENT OF OPERATIONS
For the Period from Inception (August 26, 1986) to December 31, 1999
1999 1998 1997
<S> <C> <C> <C>
REVENUE $0 $0 $0
EXPENSES
General and
Administrative $464,436 $27,703 $68,704
----------------------------------------------------------
LOSS FROM OPERATIONS ($464,436) ($27,703) ($68,704)
OTHER INCOME
Interest Income $1,210 $229 $1,439
Recovery from lawsuit - - $120,726
----------------------------------------------------------
INCOME (LOSS) BEFORE
INCOME TAXES ($464,436) ($26,493) $52,251
Income Taxes $0 $0 $0
NET INCOME (LOSS) ($464,436) ($26,493) $52,251
===========================================================
</TABLE>
E-Rex, Inc. Page 53 of 55
<PAGE>
<TABLE>
<CAPTION>
E-REX, Inc,
STATEMENT OF CASH FLOWS
For the Period from December 31, 1996 to December 31, 1999
CASH FLOWS FROM (FOR)
OPERATING ACTIVITIES 1999 1998 1997
<S> <C> <C> <C>
Net Income ($464,436) ($26,493) ($52,251)
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Stock issued for services $128,608 $12,682 $30
Accounts Payable $71,940 ($366) $460
Other $29,014 ($16,467)
--------------------------------------------------
Total adjustments to net income $229,562 ($4,151) $490
Net cash provided by (used in) ($234,874) ($30,644) $52,741
operating activities
CASH FLOWS FROM (FOR)
INVESTING ACTIVITIES
None
--------------------------------------------------
Net cash flows provided by (used in)
investing activities
CASH FLOWS FROM (FOR)
FINANCING ACTIVITIES
Proceeds from issuance of stock,
including paid-in capital $80,833 $153,950 $0
--------------------------------------------------
Net cash provided by (used in)
financing $80,833 $153,950 $0
CASH RECONCILIATION
Net increase (decrease) in cash ($154,041) $123,306 $52,741
Cash at beginning of year $176,047 $52,741 $0
--------------------------------------------------
CASH BALANCE AT END OF YEAR $22,006 $176,047 $52,741
==================================================
</TABLE>
E-Rex, Inc. Page 54 of 55
<PAGE>
<TABLE>
<CAPTION>
E-REX, Inc.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Period from December 31,1997 to December 31, 1999
ADDITIONAL
Common STOCK PAID-IN INCOME
Shares AMOUNT CAPITAL (LOSS) TOTAL
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $818,716 $819 $339,472 ($298,050) $42,241
Common stock issued for
services Sep., 1998 $1,682,000 $1,682 $1,000 $2,682
Common shares issued in
Rule 504 offering
Nov. and Dec., 1998 $1,539,500 $1,539 $152,410 $153,949
Common stock issued for
services Dec., 1998 $100,000 $100 $9,900 $10,000
Net (loss) for the year
ended Dec. 31, 1998 ($26,493) ($26,493)
---------------------------------------------------------------------------------------
Balance December 31, 1998 $4,140,216 $4,140 $502,782 ($324,543) $182,379
Common shares issued
for cash $323,332 $197 $80,636 $80,833
Common shares issued
for acquisition $8,137,616 $8,138 $8,138
Common share issued
for director's fees $1,332,000 $1,332 $74,700 $76,032
Common shares issued
for services $1,730,000 $1,732 $50,844 $52,576
Net loss for period ($464,436) ($464,436)
---------------------------------------------------------------------------------------
Balance, December 31, 1999 $15,663,164 $15,539 $708,962 ($788,979) ($64,478)
=======================================================================================
</TABLE>
E-Rex, Inc. Page 55 of 55
<PAGE>
Exhibit
3.1 Articles of Incorporation (incorporated by reference,
Form 10-SB, July 20, 1999)
3.2 Bylaws (incorporated by reference, Form 10-SB, July 20, 1999)
5.1 Opinion on Legality
10.1 Investment Agreement
10.2 Registration Rights Agreement
10.3 Acknowledgement and Agreement
10.4 Warrant Antidilution Agreement
10.5 Commitment Warrant
10.6 Investment Purchase Warrant
10.7 Additional Warrant
