SECURITIES EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended May 31, 1996
Commission file number 0-21210
NELX, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Kansas 84-0922335
-------------------------------- ----------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
10200 W. 44th Ave. #400, Wheat Ridge, CO 80033
- -------------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(303) 422-9497 Securities
Registered Pursuant to Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act
COMMON STOCK $.0001 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers in Response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained to the best of Registrant's knowledge in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB.
Yes No X
----- -----
Registrants gross revenues for its most recent fiscal year were $82,521, cost of
sales was $44,839 and operations expenses totaled $1,846,158 for a net loss of
$1,808,476.
State the aggregate market value of the voting stock held by non-affiliates of
the Registrant: $3,375,749 as of May 31, 1996 (a $.19/share average bid at May
31, 1996).
<PAGE>
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock: 18,947,300 common shares as of May 31, 1996.
<PAGE>
TABLE OF CONTENTS
PART I
Page
Item 1. Business .................................. 1
Item 2. Properties ................................ 5
Item 3. Legal Proceedings.......................... 6
Item 4. Submission of Matters to a Vote of
Security Holders........................... 6
PART II
Item 5. Market for Registrant's Common Stock and
Security Holder Matters ................... 6
Item 6. Management's Discussion and Analysis of
Financial Condition and Results of
Operations ................................ 7
Item 7. Financial Statements and Supplementary Data.. 8
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure....... 9
PART III
Item 9. Directors and Executive Officers of the
Registrant.................................. 9
Item 10. Executive Compensation...................... 12
Item 11. Security Ownership of Certain Beneficial
Owners and Management....................... 14
Item 12. Certain Relationships and Related
Transactions................................ 15
PART IV
Item 13. Exhibits, Financial Statement Schedule
and Reports on Form 8-K..................... 15
<PAGE>
PART I
ITEM 1. BUSINESS
General
- -------
The Registrant was incorporated in the State of Kansas in March 1983 as
Nelson Exploration, Inc. In October 1991, the Registrant acquired Westwind
Production Company, a Nevada corporation, which owned certain non-producing oil
and gas properties and related assets. On November 30, 1993 the Board approved a
name change to NELX, Inc. and a "reverse split" of the issued and outstanding
shares of common stock based upon issuance of one new common share in exchange
for each 30 shares of (old) common stock issued and outstanding effective as of
December 31, 1993. Subsequent transactions have resulted in the Registrant's
acquisition of additional improved and unimproved real estate including a
subsidiary, CS, Inc., which owns a building in Provo, Utah. The Registrant's
business is in two industry segments, 1.) oil and gas production and 2.) real
estate, both rental and development, in one geographic area, the continental
United States. The company holds real estate for investment, development and
resale. For financial information concerning these industry segments, see
"Financial Statements and Supplementary Data."
In May 1995, Registrant, through MS Oil Company, Inc., its wholly owned
subsidiary, acquired interests in ten producing oil and gas wells in Ohio.
Parent (Registrant)
- ------
NELX, Inc.
Wholly owned Subsidiaries
- -------------------------
1. CS, Inc. (a Utah corporation)
Operations: Industrial Real Estate in Utah
2. MS Oil Company, Inc. (a Colorado corporation)
Operations: All oil and gas production
3. Westwind Production Company (a Colorado corporation)
Operations: Inactive
4. NELX Marketing, Inc. (a Colorado corporation)
Operations: All Marketing
Oil and Gas Producing Activities.
- ---------------------------------
None.
1
<PAGE>
Patents, Trademarks, Licenses, Etc.
- -----------------------------------
The Registrant does not hold any patents, trademarks, licenses, etc., with
respect to, nor are patents significant in regard to, the Registrant's
activities.
Governmental Regulation
- -----------------------
General - The Registrant's oil and gas production activities are subject to
extensive regulation by numerous federal, state and local governmental
authorities, including state conservation agencies, the Department of Energy
(including the Economic Regulatory Administration and the Federal Bureau of
Indian Affairs and Bureau of Land Management). Regulation of the Registrant's
production, transportation and sale of oil or gas, and federal price and
allocation controls in particular, have a significant effect on the Registrant
and its operating results.
Natural Gas Price Controls - The Federal Energy Regulatory Commission
("FERC"), an independent commission within the Department of Energy ("DOE"), has
pricing authority over the transmission and sale of various categories of
natural gas. This authority includes administration of the Natural Gas Act and
Natural Gas Policy Act of 1978 ("NGPA"), which establishes, among other things,
maximum lawful prices for various categories and other price adjustments. These
maximum lawful prices apply to the sale of natural gas in both intrastate and
interstate commerce from properties in which the Registrant has an interest,
NGPA price controls as to certain classifications have been removed and
generally the sale of the Company's gas production is currently not subject to
price regulations.
State Regulation - The production operations of the Registrant are subject
to regulation by state conservation commissions which have authority to issue
permits prior to the commencement of drilling activities, establish allowable
rates of production, control spacing of wells, prevent waste and protect
correlative rights, and aid in the conservation of natural oil and gas. Typical
state regulations require permits to drill and produce oil or gas, protection of
fresh water horizons, and confirmation that wells have been properly plugged and
abandoned.
Environmental Matters - Various federal and state authorities have
authority to regulate the production and development of oil and gas and mineral
properties with respect to environmental matters. Such laws and regulations,
presently in effect or as hereafter promulgated, may significantly affect the
cost of the workover and development activities contemplated by the Registrant
and could result in loss or liability to the Registrant in the event that its
operations are subsequently deemed inadequate for purposes of any such law or
regulation. New regulations, if adopted, could result in significant capital
expenditures by the Registrant, resulting in unprofitable operations.
2
<PAGE>
Uncertainties Related to the Oil and Gas Business in General
- ------------------------------------------------------------
The Registrant's operations will be subject to all of the risks normally
incident to the production of oil and gas, including blowouts, pollution and
fires. Each of these incidents could result in damage to or destruction of oil
and gas wells or formations or production facilities or damage to persons or
property. As is common in the oil and gas industry, the Registrant is not fully
insured against these risks either because insurance is not available or because
the Registrant has elected not to insure due to prohibitive premium costs.
The Registrant's future oil and gas activities may involve a significant
risk that commercial oil or gas production will not be maintained. The costs of
drilling, completing reworking or operating wells is often uncertain. Further,
operations, may be curtailed or delayed as a result of many factors, weather
conditions, delivery delays, shortages of pipe and equipment, and the
availability of workover equipment.
The oil and gas business is further subject to many other contingencies
which are beyond the control of the Registrant. Wells may have to be shut-in
because they have become uneconomical to operate due to changes in the price of
oil, depletion of reserves, or deterioration of equipment. Changes in the price
of imported oil, the discovery of new oil and gas fields and the development of
alternative energy sources have had and will continue to have an important
effect on the Registrant's business.
Competition and Markets
- -----------------------
There are many companies and individuals engaged in the oil and gas
business. Some are very large and well established with substantial capabilities
and long earnings records. The registrant is at a competitive disadvantage with
other firms and individuals in acquiring and disposing of oil and gas properties
since they have greater financial resources and larger technical staffs than the
Registrant. In addition, in recent years a number of small companies have been
formed which have objectives similar to those of the Registrant and which
present substantial competition to the Registrant.
A number of factors, beyond the Registrant's control and the effect of
which cannot be accurately predicted, affect the production and marketing of oil
and gas. These factors include crude oil imports, actions of foreign oil
producing nations, the availability of adequate pipeline and other
transportation facilities, the marketing of competitive fuels and other matters
affecting the availability of a ready market, such as fluctuating supply and
demand.
3
<PAGE>
Real Estate Business
- --------------------
The Company originally acquired real estate as capital assets to form a
base from which to grow. Due to the continuing lack of capital partners for oil
and gas exploration, the company has turned its attention to efforts to maximize
the value of its real estate capital assets by developing them, commencing with
zoning, annexation, and platting, as necessary. It will have to seek private
capital or loans to pay for the costs of development or seek venture partners.
The Company will seek co-venturers to develop and build on any of its
undeveloped property. The Registrant believes that this will allow for the
realization of better value for its assets rather than merely holding them as
undeveloped ground.
Competition: There is major competition in the real estate development
sector from numerous national and international companies who are very well
capitalized.
Market factors: Real estate markets are greatly influenced by economic
cycles, availability of development, construction loans, competitive properties,
oversupply and other matters over which the registrant has no control.
Registrant intends to maintain these market factors in perspective and develop
on a basis that would allow the company and properties to be sustainable in a
cyclical market.
Capital: The Company has no commitments for capital at this time for its
real estate development projects.
Industry Segments
- -----------------
Real Estate Rental Income & Expense
- -----------------------------------
(Residential)
Income $19,800
Expenses $ 6,870
Net Income $ (54) (Before Depreciation)
(Industrial-CS, Inc.)
Income $ 10,185
Expenses $ 28,779
Net Income $(18,594) (Before Depreciation)
Oil & Gas Income and Expense
- ----------------------------
Income $ 72,336
Cost of Sales $ 40,495
Expenses $ 86,090
Net Income $(54,249)
4
<PAGE>
Employees
- ---------
The Registrant currently coordinates real estate and oil and gas operations
activities using contract labor and consultants. The Registrant retains
consultants with respect to current and proposed properties and well by well
operations. The Registrant from time to time retains independent engineering and
geological consultants and the services of lease brokers and geophysicists in
connection with its operations. The company President, Wes Whiting, is on a full
time basis as President of NELX, Inc.
ITEM 2. PROPERTIES
Oil and Gas Properties
- ----------------------
None
REAL PROPERTY
- -------------
1) The Company owns 240 acres of undeveloped land adjacent to the towns of
Erie and Broomfield, Colorado on Highway #7 approximately 3 miles east of the
town of Lafayette, Colorado and 4 miles west of I-25. The property is currently
zoned agricultural and being used for grazing. An annexation petition to the
Town of Erie has been filed to zone it "light industrial". The Company will hold
the property for investment and seek a joint venture participant to develop the
property.
2) The Company owns a three unit apartment building in Denver, Colorado at
61-65 So. Quitman Street for investment and eventual sale. The units rent for
approximately $550.00 per month with water and sewer utilities included. There
are numerous other competitive rental apartments in the surrounding
neighborhood. The building was constructed in the 1920's of brick. The building,
roof, and interiors are well maintained. The property is subject to a mortgage
to Chrysler First Financial of $57,000.00 bearing interest @ 13.75% payable @
$664 per month due in 1997.
3) The Company owns 12 residential lots in Ward County, North Dakota with
streets adjacent to the lots.
4) The Company owns a 500 square foot house on one lot in Burke County,
North Dakota, in the city of Columbus, N.D. near Minot. In addition the Company
owns 6 residential lots in Columbus, N.D.
5) The company owns 5 acres of Multifamily zoned land at 104th and York
Street, Thornton, Colorado subject to a $200,000 promissory note secured by a
First Trust Deed bearing interest @ only annually 8% with a balloon payment due
July 15, 1997.
6) The company owns 320 acres of real estate (more or less) located
5
<PAGE>
north-east of the Front Range Airport in Adams County, Colorado. The property is
included in the Denver International Airport master plan area. It is zoned: 160
acres light industrial and 160 acres residential. Financing is a Promissory Note
in amount of $500,000 bearing interest at 8% per annum payable in a lump sum on
or before September 30, 1998, secured by a First Trust Deed.
NELX owns, through CS, Inc., its wholly owned subsidiary, an 18,000 sq.ft.
industrial building and office facility in Provo, Utah, having constructed
inside it, a high pressure gasification and liquefaction reactor and system for
purposes of hydrocarbon research and development. The building is subject to a
promissory note for $375,000.00 @ 8% interest payable @ $4,300 monthly with a
balloon in 5 years secured by a first deed of trust to the Church of Latter Day
Saints.
ITEM 3. LEGAL PROCEEDINGS
There are presently no material pending legal proceedings which would
result in any uninsured liability, other than routine litigation incidental to
the business, to which the Registrant is a party. The Company is aware of a suit
by Allan Pezoldt, filed, but never served naming the Company as a co-defendant
in El Paso County, Colorado. New Plaintiff's counsel filed a Lis Pendens on the
Erie property, and served a complaint on the Company in 1997. The Company
believes any suit by Allan Pezoldt has no merit whatsoever.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None in Fiscal Year 1995.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
(a) The Registrant's common stock is traded in the over-the-counter
market under the symbol NLXI (NASDAQ Bulletin Board Symbol). The table below
sets forth the high and low bid prices of the Registrant's common stock for the
periods indicated. Such prices are inter-dealer prices, without mark-up,
mark-down or commissions and do not necessarily represent actual sales.
6
<PAGE>
High Bid Low Bid
-------- -------
FY 1995:
1st quarter 1.125 0.63
2nd quarter .938 .375
3rd quarter(*) .688 .219
4th quarter .469 .141
High Bid Low Bid
-------- -------
FY 1994:
1st quarter 1 5/8 1.00
2nd quarter .1 1/4 1.00
3rd quarter 1 3/8 .013
4th quarter .16 .06
* Reverse Split Effective
The above quotations reflect inter-dealer prices, without retail mark-up,
mark-down, or commission and may not necessarily represent actual transactions.
The Company has not declared or paid any cash dividends on its common stock
and does not anticipate paying dividends for the foreseeable future.
(b) As of May 31, 1995, there were 658 holders of record of the
Registrant's common stock.
(c) The Registrant has neither declared nor paid any cash dividends on
its common stock, and it is not anticipated that any such dividend will be
declared or paid in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Registrant was unable to satisfy all of its general working capital
requirements with cash flow generated from oil and gas and real estate
operations during the current fiscal year. This deficit in working capital was
financed by loans, and capital contributions through private placement of stock.
In view of the current economic conditions within the industries in which
the Registrant participates, the Registrant anticipates that cash flow from
operations for fiscal 1995 will be insufficient to satisfy all of its general
working capital requirements necessitating additional capital infusions from
affiliates, from sale of assets, borrowing, equity participation or Farmout
Agreements.
The Registrant will continue a deficit working capital position in the
future if sustaining revenues and growth capital are not generated by the
Registrant.
7
<PAGE>
Results of Operations
---------------------
NELX, Inc. incurred operating expenses (EBDIT*) for fiscal year 1995 in the
amount of $1,815,858 and costs of sales of $40,495 as compared with operating
expenses of $403,326 for fiscal year 1994. Depreciation totalled $46,628 for
real estate and $28,579 for oil and gas operations. The registrant expects that
its operating expenses will substantially decrease in fiscal year 1996 over
1995.
Registrant had oil and gas operating revenues in fiscal year 1995 of
$72,336 and by contrast had oil and gas operating revenues of $117,994 in fiscal
year 1994.
Registrants monthly revenue for operations is insufficient to cover its
normal operating costs and debt service.
Registrant will strive to increase revenues from oil and gas acquisitions
and real estate development in fiscal year 1996.
* Earnings before depreciation interest and taxes.
Liquidity and Capital Resources
-------------------------------
Registrants liquidity is limited by its ownership of undeveloped real
estate, which may not be readily marketable depending upon economic conditions,
and lack of sufficient net cash flow from oil and gas and its ownership of
non-producing mineral leases, which have limited liquidity.
Registrant will be forced to seek venture partners for capital, or in the
alternative, borrow money upon its real estate, which may not be possible or
practical under current market conditions.
Registrant had no significant cash reserves or deposits at year end, and
while it holds certain notes receivable, there is no assurance that such notes
will be liquid at times when the company needs money.
Registrant will be forced to and will seek private placements of its stock
and loans to make up the lack of operating revenues.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item is included as a separate Exhibit to this report.
Please see pages F-1 through F-12.
8
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
a) No changes in accountants have been made.
b) In connection with audits of two most recent fiscal years and any
interim period preceding resignation, no disagreements exist with any former
accountant on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope of procedure, which disagreements if not
resolved to the satisfaction of the former accountant would have caused him to
make reference in connection with his report to the subject matter of the
disagreement(s).
c) The principal accountant's report on the financial statements for
the past two years contained no adverse opinion or a disclaimer of opinion nor
was qualified as to uncertainty, audit scope, or accounting principles except
for the "going concern" qualification.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) The names of the directors and information about them, as
furnished by the directors themselves, are set forth below:
Relationship Term of Director
Name Age With Company Office Since
---- --- ------------ ------ -----
Wesley F. Whiting 63 President & Annual Jan. 1993
Director
Reed Clayson 65 Secretary- Annual Nov. 1993
Treasurer
Grant Gaeth 64 Director Annual May 1993
Officers and Directors
- ----------------------
The term of office for each director is one (1) year, or until his/her
successor is elected at the Company's annual meeting and qualified. The term of
office for each officer of the Company is at the pleasure of the board of
directors.
The board of directors has no nominating, auditing, or compensation
committee. Therefore, the selection of person or election to the board of
directors was neither independently made nor negotiated at arm's length.
9
<PAGE>
Business Experience
-------------------
The Company's president and a director, Wesley F. Whiting, age 63,
president of Westwind Production Inc., (since February 1993) a subsidiary of
NELX, Inc., has been directly involved in the oil and gas field exploration,
drilling and management since 1978. Mr. Whiting has sixteen years experience in
oil and gas leases as well as mapping, management and exploration. He has been
president, director and secretary of Berge Exploration, Inc., (1978-88) and vice
president and director of Intermountain Methane Corporation (1988-91), and
Westwind Production, Inc. (a subsidiary of NELX, Inc. now inactive from 1993).
The Company's Secretary-Treasurer is Reed Clayson, age 65, and President
and director of CS,, Inc., a wholly owned subsidiary, received his B.S. Degree
in physics and journalism from Utah State University and has completed three
years graduate work in english, math, and operations research. Positions held in
the past are: CS, Inc.: President from 1992 to date, responsible for technology
transfer from universities in areas of cogeneration, remediation, product design
and training/information systems. Positions previously held: Synfuels
Engineering and Development, Inc.: Vice President, responsible for computer
modeling, documentation, resource analysis, environmental and socioeconomic
studies involving innovative waste processing and synfuels development including
DOE evaluation contracts as well as private industry. Science Applications,
Inc.: Manager, Resource Analysis, responsible for development, documentation,
and use of automated decision-aiding tools (government and industry). Resource
Science, Inc.: Executive Vice President, responsible for socioeconomic and
environmental modeling, land planning studies, siting for transportation and
energy facilities.
Grant Gaeth, age 64, is Director and Vice President of development for oil
and gas of NELX. He obtained a B.S. in Utah Geology, 1953. Mr. Gaeth was Senior
Geologist for Carter/Humble Oil which became part of Exxon from 1953-1967. From
1967-70 he was an officer and director of Romex Corporation an oil and gas
company. From 1970-74 he was an independent consulting geologist. From 1974 to
1980 he was president and director of Colt Oil, Inc. a public oil and gas
company. From 1980 to 1983 he was president and director of Western Royalty
Corporation a public royalty holding Company.
Family Relationships
--------------------
There are no family relationships among any of the company's officers
and directors.
Involvement in Certain Legal Proceedings
----------------------------------------
During the past five years there have been no filing of petitions under the
federal bankruptcy laws, or any state insolvency laws, by or against any
10
<PAGE>
partnership in which any director or executive officer of Registrant was a
general partner or executive officer at the time or within two years before the
time of such a filing.
No director or executive officer of Registrant has, during the past five
years, been convicted in a criminal proceeding or is the named subject of a
pending criminal proceeding (excluding traffic violations and other minor
offenses).
During the past five years no director or executive officer of Registrant
has been the subject of any order, judgment or decree, not subsequently
reversed, suspended or vacated by any court of competent jurisdiction
permanently or temporarily enjoining him from or otherwise limited in his
involvement in any type of business, securities or banking activities.
During the past five years no director or executive officer of Registrant
has been found by a court of competent jurisdiction in a civil action, nor by
the Securities and Exchange Commission nor the Commodity Futures Trading
Commission to have violated any federal or state securities or commodities law,
which judgment or finding has not been subsequently reversed, suspended or
vacated.
The Executive Officers of the Registrant are elected annually for term
terminating at such time as their respective successors are elected and
qualified.
Compliance with Section 16(a) of the Exchange Act.
--------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's directors and officers and any persons who own more than
ten percent of the Company's equity securities, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission (the "SEC").
Directors, officers and greater than ten-percent shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) report
files.
The Company has requested that its officers and directors and
greater-than-ten-percent shareholders comply with the Section 16(a) by filing
Form 5.
The following persons had not filed Form 5 as of May 31, 1996:
Wesley F. Whiting
Reed Clayson
Grant Gaeth
11
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
Summary
a) Set forth in the following table is information as to the cash
compensation paid or set aside directly or indirectly during the fiscal year
ended May 31, 1996, to or for the benefit of any executive officer whose cash
compensation exceeded $60,000.00, and all executive officers as a group:
Name of Individual Capacities in Salary
or Number of Group Which Served and fees
- ------------------ ------------ --------
Wesley F. Whiting President $30,000
Reed Clayson Secretary $0
Max P. Sommer Vice-President $51,000
Directors $0
All Executive Officers
as a Group (3 persons) - $81,000
b) Compensation paid by the Company for all services provided during
the fiscal year ended May 31, 1996, (1) to each of the Company's directors whose
cash compensation exceeded $60,000 and (2) to all directors as a group is set
forth below:
ANNUAL COMPENSATION ($$)
------------------------
Name and Position Year Salary Bonus
- ----------------- ---- ------ -----
Wesley F. Whiting 1995 $30,000 $0
Max P. Sommer 1995 $51,000 $0
Grant Gaeth 1995 $0 $0
Reed Clayson 1995 $0 $0
Directors 1995 $81,000 $0
12
<PAGE>
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------
Options
Restricted & SARs
Stock LTIP LTIP Other
Other Awards Payouts Payouts Compensation
- ----- ------ ------- ------- ------------
<S> <C> <C> <C> <C>
Wesley F. Whiting None None None None
Max P. Sommer None None None None
Grant Gaeth None None None None
Reed Clayson None None None None
</TABLE>
All directors and officers as a group $81,000 Total Cash Compensation
Option/SAR Granted During the Last Fiscal Year
----------------------------------------------
Registrant does not have a stock option or stock appreciation rights plan.
Therefore this section is not applicable.
Long Term Incentive Plans/Awards in Last Fiscal Year
----------------------------------------------------
Registrant has no long-term incentive plans and consequently has made no
such awards.
Compensation of Directors
-------------------------
(1) Standard Arrangements. None
(2) Other Arrangements. There are no other arrangements for the
compensation of directors of the Registrant.
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements. None.
- -------------
Report on Repricing of Options/SARs
-----------------------------------
No options or stock appreciation rights are outstanding or were repriced
during the fiscal year ended May 31, 1996, or subsequently.
1995 Employee Stock Compensation Plan
-------------------------------------
The Company adopted an Employee stock compensation plan for up to one
million eight hundred thousand shares of common stock to be awarded, either as
bonuses or in lieu of cash compensation to employees, consultants and
professional advisors to the company. As of fiscal year end no shares had been
issued, although a Registration Statement on Form S-8 had been filed in relation
thereto. Subsequent to year end shares were issued in consideration of services
rendered to the company during the year to officers, consultants and advisors.
13
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) The following table sets forth, as of May 31, 1996, the beneficial
ownership (as defined by the rules of the Securities and Exchange Commission) of
common stock of the Registrant by each person owning more than 5% of Registrants
Common Stock and each officer and director and by all officers and directors as
a group, together with the percentage of the outstanding shares of such class
which such ownership represents. Unless otherwise indicated, such persons have
sole voting and investment power with respect to such shares.
Amount and Nature Percent
of Beneficial of
Name of Beneficial Owner Ownership Class
- ------------------------ ----------------- -------
Reed Clayson 333,334 2%
Secretary & Director
10200 W. 44th Ave. #400
Wheat Ridge, CO 80033
Grant Gaeth, Director 0 0%
10200 W. 44th Ave. #400
Wheat Ridge, CO 80033
Challenge Oil & Gas 564,638 3%
1550 Larimer Ste. #2306
Denver, CO 80202
Wesley F. Whiting * 150,000 less than 1%
10200 W. 44th Ave. #400 50,000
Wheat Ridge, CO 80033 (owned by Jeraldine Whiting, wife)
NOTE: Adult Emancipated Relatives of Wesley Whiting own shares as shown below.
Wesley Whiting disclaims any ownership or control thereof.
Blake Whiting 16,667* .09%
957 N. 1300 W.
Salt Lake City, UT 84116
Diane Whiting 3,333* .02%
11425 W. 106th Way
Westminster, CO 80021
Greg Whiting 6,667* .04%
11425 W. 106th Way
Westminster, CO 80021
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Risk Management Services, Inc. 10,333* .05%
(Beneficially Kip Whiting
and Greg Whiting)
Joshua Whiting, UGTMA 3,333* .02%
11425 W. 106th Way
Westminster, CO 80021
Kip Whiting 33,560* .18%
131 E. 500 N.
Provo, UT 84606
Pat Whiting 1,667* .01%
424 Blithedale Ave.
Mill Valley, CA 94941
Tessa Whiting, UGTMA 3,333* .02%
11425 W. 106th Way
Westminster, CO 80021
La Vean Robbins 1,667* .01%
225 N. 2nd E.
Tremonton, UT 84337
W. Cecil Whiting 1,667* .01%
424 Blithedale Ave.
Mill Valley, CA 94941
*If combined with Wesley Whiting's shares .45%
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain Transactions
--------------------
None
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules. The following financial
statements and schedules for NELX, Inc., as of May 31, 1996, and 1995 are filed
as part of this report.
Page
----
(1) Financial statements of NELX, Inc:
Reports of Independent Accountants
Report of Michael B. Johnson & Co.
years ended May 31, 1996 and May 31, 1995 F-1
Balance Sheets F-3
Statements of Operations F-4
Statements of Cash Flow F-5
Statements of Shareholders' Equity F-7
Notes to Financial Statements F-8 - F-13
15
<PAGE>
(2) Financial Statement Schedules:
(a) None
(b) Reports on Form 8-K:
8-K dated July 14, 1995 Incorporated by reference as
filed with Securities and
Exchange Commission
8-K dated November 9, 1995 Incorporated by reference as
filed with Securities and
Exchange Commission
8-K dated January 11, 1996 Incorporated by reference as
filed with Securities and
Exchange Commission
(c) Exhibits
Item No.
(under 601)
4.1* Articles of Incorporation and By-Laws:
Incorporated by Reference as filed with Form 10 with the
Securities and Exchange Commission
10.4* S-8 Registration Statement filed February 20, 1996, as
Commission No. 33-91826.
13.1* Quarterly Report of NELX, Inc. 10-QSB for Period ended
August 31, 1995.
13.2* Quarterly Report of NELX, Inc. 10-QSB for Period ended
November 30, 1995.
13.3* Quarterly Report of NELX, Inc. 10-QSB for Period ended
February 28, 1996.
22.1 Subsidiaries of Registrant
* Previously filed
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DATE NELX, INC.
March 18, 1997
by: \s\ Wesley F. Whiting
-------------------------------
Wesley F. Whiting
President
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the dates indicated.
\s\ Wesley F. Whiting
- -------------------------------
Wesley F. Whiting, President and March 18, 1997
Director --------------
Date
\s\ Reed L. Clayson March 18, 1997
- ------------------------------ --------------
Reed L. Clayson, Secretary and Date
Director
\s\ Grant Gaeth March 18, 1997
- ------------------------------ --------------
Grant Gaeth, Director Date
17
<PAGE>
NELX, INC.
INDEPENDENT AUDITORS' REPORT
CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended May 31, 1996
<PAGE>
Michael B. Johnson & Co., P.C.
(A Professional Corporation)
Certified Public Accountants
9175 East Kenyon Ave., Suite 100
Denver, Colorado 80237
Michael B. Johnson C.P.A. Telephone: (303)796-0099
Member: A.l.C.P.A. Fax: (303)796-0137
Colorado Society of C.P.A.'s
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of NELX, Inc.
We have audited the accompanying balance sheet of NELX, Inc., as of May 31,
1996, and the related statements of operations, cash flows and changes in
stockholders' equity for the period then ended. 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 statements presentation.
We believe that our audit provides a reasonable basis for our opinion.
As shown in the financial statements, the company incurred a net loss of
$2,908,318 for 1996 and had incurred a substantial net loss in the prior year.
At May 31, 1996, current liabilities exceed current assets by $533,787. These
factors indicate that the company may be unable to continue in existence. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event the company
cannot continue existence.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of NELX, Inc., as of May 31, 1996
and the results of its operations and its cash flow for the period May 31, 1996,
in conformity with generally accepted accounting principles.
/S/ MICHAEL B. JOHNSON & CO., P.C.
- -----------------------------------
Denver, Colorado
February 28, 1997
F-2
<PAGE>
<TABLE>
<CAPTION>
NELX, Inc.
Consolidated Balance Sheets
May 31,
ASSETS: 1996 1995
- ------- ---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 8,701 $ 11,104
Prepaid expenses -- 22,524
Accounts Receivable -- 31,829
Accrued Interest Receivable 500 56,100
----------- -----------
Total Current Assets 9,201 121,557
Fixed Assets:
Land 3,716,801 3,240,027
Gas Plant 1,000,000 1,000,000
Equipment 8,654 5,742
Apartment & Office Buildings 678,063 501,088
----------- -----------
5,403,518 4,746,857
Less Accumulated Depreciation (132,725) (260,651)
----------- -----------
Net Fixed Assets 5,270,793 4,486,206
Other Assets:
Deposits 3,950 3,950
Lease and Royalty Interest -- 770,140
Notes Receivable -- 735,000
Investments 10,000 --
----------- -----------
Total Other Assets 13,950 1,509,090
----------- -----------
TOTAL ASSETS 5,293,944 6,116,853
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts Payable $ 139,649 $ 30,179
Accounts Payable - Related Parties -- 85,304
Advance Payable 29,000 35,000
Current Portion of Long-Term Debt 368,214 512,650
----------- -----------
Total Current Liabilities 536,863 663,133
Long-Term Liabilities:
Notes Payable 1,594,733 1,376,856
----------- -----------
Total Long-Term Liabilities 1,594,733 1,376,856
----------- -----------
TOTAL LIABILITIES 2,131,596 2,039,989
STOCKHOLDERS' EQUITY:
Common Stock, $.0001 par value 500,000,000
shares authorized, 18,947,300 and 10,437,581
issued and outstanding at May 31, 1996
and 1995, respectively 1,895 1,044
Additional paid-in capital 7,183,780 5,195,578
Deficit Accumulated During the Development Stage (4,023,327) (1,119,758)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 3,162,348 4,076,864
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 5,293,944 6,116,853
=========== ============
</TABLE>
The accompanying notes are considered an integral part of these
financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
NELX, INC.
CONSOLIDATED FINANCIAL STATEMENTS OF OPERATIONS
For the Year Ended May 31, 1996
For the For the
Year Ended Year Ended
May 31, May 31,
1996 1995
------------ ------------
REVENUES:
- ---------
<S> <C> <C>
Oil & gas sales $ 72,336 $ 117,994
Cost of Sales (44,839) (307,595)
------------ ------------
Gross Profit 27,497 (189,601)
EXPENSES:
- ---------
Consulting 810,850 --
Salaries 59,199 73,271
Office Expense 23,248 14,900
Travel 20,685 14,441
Lease Expense 352,898 --
Repairs & Maintenance 1,497 --
Professional Fees 174,950 25,992
Telephone & Utilities 42,062 14,035
Depreciation & Depletion 75,207 79,503
Miscellaneous 84,825 31,437
Interest Expense 170,437 149,747
------------ ------------
Total Expenses 1,815,858 403,326
------------ ------------
OTHER REVENUES & (EXPENSES):
- ----------------------------
Net Rental Expense (70,430) (30,300)
Miscellaneous Income -- 5,266
Interest Income 10,185 60,863
------------ ------------
Total Other Revenue & (Expenses) (60,245) 35,829
NET LOSS BEFORE EXTRAORDINARY ITEMS $ (1,848,606) $ (557,098)
EXTRAORDINARY ITEMS:
- --------------------
Loss on Write Off of Non-Producing Assets (759,959) (434,763)
Sale of Subsidiary Assets (295,004) --
------------ ------------
NET LOSS $ (2,903,569) $ (991,861)
============ ============
Loss per Common Shares:
Loss Before Extraordinary Items (0.10) (0.06)
Extraordinary Items (Note 3) (0.06) (0.04)
------------ ------------
Net Loss Per Share $ (0.16) $ (0.10)
------------ ------------
Weighted Average Number of
Shares Outstanding 14,692,441 9,730,097
</TABLE>
The accompanying notes are considered an integral part of these
financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
NELX, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Year Ended May 31, 1996
For the For the
Year Ended Year Ended
May 31, May 31,
1996 1995
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Profit (Loss) $(2,903,569) $ (991,861)
Amortization and Depreciation 55,211 79,503
Stock Issued for Services -- --
(Increase) Decrease in Prepaids
(Decrease) Increase in Accounts Payable 22,524 115,571
(Decrease) Increase in Accounts Payable - 109,470 13,771
Related Parties
(Decrease) Increase in Advance Payable (85,304) (6,774)
(Increase) Decrease in Investments (6,000) 35,000
(Increase) Decrease in Accounts Receivable 31,829 10,258
(Increase) Decrease in Accrued Interest Receivable 55,600 --
(Increase) Decrease in Deposits -- --
----------- -----------
Net Cash Flows Used for Operating Activities (2,730,239) (744,532)
Cash Flows From Investing Activities:
Purchase of Fixed Assets (659,121) (92,092)
Retirements of Fixed Assets 2,460 --
Note Receivable 735,000 15,900
Lease & Royalty Interest -- (166,660)
Retirement of Lease & Royalty Interest 587,003 416,455
----------- -----------
Net Cash Flow Used for Investing Activities 665,342 173,603
Cash Flows From Financing Activities:
Borrowing Under Notes Payable 248,037 360,728
Principal Payments on Notes Payable (174,596) --
Issuance of Common Stock:
Exchange for Assets/Liabilities,
Services Rendered and Cash 1,989,053 216,544
----------- -----------
Net Cash Flows Provided by Financing Activities 2,062,494 577,272
Increase (Decrease) in cash (2,403) 6,343
----------- -----------
Cash and Cash Equivalents -- Beginning of Year 11,104 4,761
----------- -----------
Cash and Cash Equivalents -- End of Year $ 8,701 $ 11,104
=========== ===========
</TABLE>
The accompanying notes are considered an integral part
of the financial statements.
F-5
<PAGE>
NELX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, (Cont.)
For the Year Ended May 31, 1996
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
- --------------------------------------------------------------------
Noncash Activities
- ------------------
The company issued 1,520,100 common shares in exchanges for cash.
The company issued 4,058,619 common shares in exchanges for services.
The company issued 1,000,000 common shares in exchange for a 10% investment
in home improvement financing, Inc.
The company issued 750,000 common shares in exchange for a 100% investment
in Radarfind, Inc.
The company issued 570,000 common shares in exchange for the acquisition of
seven oil wells.
The company issued 350,000 common shares in exchange for a mini mall
located in Kansas.
The company issued 150,000 common shares in exchange for a 100% ownership
of Crystal Mountain Water, Inc.
The company issued 111,000 common shares in relief of $ 14,906 interest
owed to Joshua Foss.
Interest
- --------
Interest expense paid for the year was $29,054.
F-6
<PAGE>
<TABLE>
<CAPTION>
NELX, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
May 31, 1996
Common Stock Additional
Paid-In Accumulated
# of Shares Amount Capital Deficit
----------- ------ ------- -------
<S> <C> <C> <C> <C>
Balances May 31, 1995, 10,437,581 $1,044 $5,195,578 $ (1,119,758)
Issuance of Common Stock for Cash 1,520,100 152 382,086 --
Issuance of Common Stock for
Services Rendered 4,058,619 406 917,520 --
Issuance of Common Stock for Assets
Acquired or Reduction
in Liabilities 2,931,000 293 688,596 --
Current Period Net Loss -- -- -- ( 2,903,569)
---------- ------ ------------- -----------
Balance at May 31, 1996 18,947,300 $1,895 $7,183,780 $(4,023,327)
========== ====== ============= ===========
</TABLE>
The accompanying notes are considered an integral part
of these financial statements.
F-7
<PAGE>
NELX, INC.
NOTES TO FINANCIAL STATEMENTS
May 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
- ----------------------------------------------------
The following is a summary of NELX, Inc.'s (Company) significant accounting
policies:
Organization
------------
The Company was incorporated March 25, 1983 under the laws of Kansas for
the purpose of acquiring, dealing in and, if warranted, developing oil and
gas properties. The Company may also engage in other businesses or
activities unrelated to natural resources which management believes hold
potential for profit. On October 25, 1983, the Company amended its Articles
of Incorporation increasing its authorized shares of 0.0001 par value
common stock from 200,000,000 to 500,000,000 shares.
On October 30, 1993, a special meeting of Shareholders was held.
Stockholders approved a name change of the Company from Nelson Exploration,
Inc., to NELX, Inc.
On November 30, 1993 the Board approved a "reverse split" of the issued and
outstanding shares of common stock based upon issuance of one (1) new
common share in exchange for each 30 shares of (old) common stock issued
and outstanding effective as of December 31, 1993.
Principles of Consolidation:
----------------------------
The consolidated financial statements include the assets, liabilities,
revenues, and expenses of NELX, Inc. and its wholly-owned subsidiary, MS
Oil, Inc. The business combination with MS Oil, Inc. was accounted for the
pooling of interest method which includes the direct cost of acquisition.
Investment in MS Oil, Inc. is carried at cost. All significant
inter-company transactions have been eliminated in consolidation. In May
1996, the assets of MS Oil, Inc. were sold to Applied Mechanics, Inc.
Cash and Cash Equivalents:
--------------------------
For purposes of the statement of cash flows, cash and cash equivalents
include cash in banks and money market accounts.
Fixed Assets and Depreciation/Depletion:
----------------------------------------
The purchased equipment is recorded at cost, and the equipment and gas
plant received in the purchase of Westwind Production Company, Inc., are
recorded at fair market value. The equipment is not yet in use, therefore,
no depreciation is being recorded.
The useful lives of property, plant, equipment, and operating leases, for
purposes of computing depreciation/depletion are:
Buildings 31.5 - 39.5 years
Machinery & equipment 6.0 years
Plant 27.5 years
Oil & Gas Leases 15% of gross revenue generated
F-8
<PAGE>
NELX, INC.
NOTES TO FINANCIAL STATEMENTS
May 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. CON'T:
- -----------------------------------------------------------
In 1996 and 1995, respectfully, depreciation and depletion expense of
$75,207 and $79,503 was charged to operations.
Income taxes
------------
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards Number 109 ("SFAS 109"), "Accounting for
Income Taxes", which requires a change from the deferred method to the
asset and liability method of accounting for income taxes. Under the asset
and liability method, deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory tax
rates applicable to future years to differences between the financial
statement carrying amounts and the tax basis of existing assets and
liabilities.
At May 31, 1996, the Company had net operating loss carryforwards of
approximately $4,023,327 for federal income tax purposes. These
carryforwards, if not utilized to offset taxable income will expire at the
end of the indicated years:
2000 $ 14,630
2001 20,180
2002 --
2003 19,735
2004 22,537
2005 2,401
2006 6,447
2007 2,487
2008 67,274
2009 --
2010 964,067
2011 2,903,569
-----------
$4,023,327
==========
There was no provision or benefit for income taxes in fiscal 1996.
Reclassifications:
------------------
Certain amounts in the 1995 and 1996 financial statements have been
reclassified to conform to the 1996 presentation.
Use of Estimates in the Preparation of Financial Statements:
------------------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and
F-9
<PAGE>
NELX, INC.
NOTES TO FINANCIAL STATEMENTS
May 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. CON'T:
- -----------------------------------------------------------
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 2 - ACQUISITION OF SUBSIDIARIES & ASSETS:
- ----------------------------------------------
On November 30, 1993, the Company issued shares of NELX, Inc. common stock
to Richard E. Gash Electric Profit Sharing Plan in part payment for five
acres of land more or less located north of the Jefferson County Airport in
Broomfield, Colorado zoned B-2 PUD. Purchase price was $400,000 paid by a
promissory note in the amount of $200,000 bearing interest only annually at
8% per annum payable in a lump sum on or before July 15, 1997. The balance
of $200,000 was paid by issue of 10,000,000 shares of common stock of the
Registrant.
During 1994, the five acres of land was sold to P.D. McK & Co. in exchange
for a $765,000 note. During 1996, P.D. McK & Co. defaulted on the note. As
a result of the default, NELX, Inc. took back possession of the five acres
of land. The value of the land is $400,000 which is original cost.
In May 1994, the Company acquired all of the outstanding shares of common
stock of MS Oil, Inc. a Colorado corporation, with a primary purpose of
acquiring and developing oil and gas properties in exchange for 330,020
shares of the Company's common stock. Under the terms of the agreement,
each MS Oil, Inc. share was exchanged for 20 common shares of the Company's
shares. In May 1996, the assets of MS Oil, Inc. were sold to Applied
Mechanics, Inc. in exchange for forgiveness of a $150,000 note payable to
Tel Oil, Inc. The Company's common shares are still outstanding and are
being held by Applied Mechanics, Inc.
In accordance with the purchase agreement dated May 23, 1995, by and
between NELX, Inc. and Cortland Energy, Inc., the Company issued to
Cortland Energy, Inc. 550,000 shares of NELX, Inc. common stock in exchange
for an acquisition of oil interest. The oil lease was valued at $163,350.
At the end of May 1996, the oil lease was deemed worthless and subsequently
written off.
On September 7, 1995, the Company exchanged 750,000 shares of common stock
to the stockholders of Radarfind, Inc. for 100% interest in Radarfind, Inc.
The Company assessed the value of Radarfind, Inc. at $187,500. In May 1996,
the investment in Radarfind, Inc. was deemed worthless and subsequently
written off.
On February 8, 1996, the Company exchanged 1,000,000 shares of common stock
for a 10% interest in Home Improvement Financing, Inc. The Company assessed
the value of Home Improvement Financing, Inc. at $250,000. In May 1996, the
investment in Home Improvement Financing, Inc. was deemed worthless and
subsequently written off.
F-10
<PAGE>
NELX, INC.
NOTES TO FINANCIAL STATEMENTS
May 31, 1996
NOTE 3 - EXTRAORDINARY ITEM:
- ----------------------------
The current year Statement of Operations was charged with various
write-offs of non-productive assets:
Loss on Investments:
Radarfind, inc. $ 187,500
Home Improvement Financing, Inc. 250,000
Naples, Florida House 2,459
Non-collectible notes receivable:
P.D. McK & Co. 320,000
-------
Extraordinary Losses $ 759,959
=========
In May 1996, the Company wrote off several non-productive investments.
These investments were written off et their undepleted balances of
$439,959.
In May 1996, the note receivable from P.D. McK & Co., for the land located
north of the Jefferson County Airport was deemed uncollectible. The note
balance, net of the value of the land, was written off et a $320,000 loss.
NOTE 4 - NOTES RECEIVABLES
- --------------------------
Following is a summary of notes receivables at May 31,
1995 1996
---- ----
Note receivable from P.D. McK & Co., Inc.
at 8%, due 05/95, secured by first deed
of trust for land in Boulder County,
Colorado, payable in lump sum payment $735,000 -
F-11
<PAGE>
<TABLE>
<CAPTION>
NELX, INC.
NOTES TO FINANCIAL STATEMENTS
May 31, 1996
NOTE 5 - LONG-TERM DEBT
- -----------------------
Following is a summary of long-term debt at May 31,
1995 1996
---- ----
<S> <C> <C> <C>
8% Note payable to Latter Day Saints
Church Real Estate, due 01/2008,
secured by office building in Provo,
Utah $402,972 $380,963
7.6% Note payable to CNETCO, Inc., due
10/05, secured by 4th mortgage on
property - 31,875
13.75% Note payable to Chrysler First Financial
Services, Inc., due 06/97, secured by
first deed of trust on apartment building
in Denver, Colorado
8% Notes payable to Standard Financial
Services, Inc., due 01/94, and 9/30/95
secured by land in Weld County, CO,
and an apartment complex in
Englewood, Colorado 25,541 25,541
8% Note payable to Linda K. Gash Trust
Fund, due 07/97, secured by first deed
of trust on land in Boulder County,
Colorado 200,000 200,000
8% Note payable to Richard E. Gash
Electric Company, Inc., due 07/97,
secured by first deed of trust on land in
Adams County, Colorado 200,000 200,000
8% Note payable to Meheen Engineering
Corp. Profit Sharing Plan Trust, due
09/98, secured by first deed of trust on
land in Brighton, Colorado 500,000 500,000
14% Note payable to DBL Mortgage Corp.,
due 12/95, secured by first deed of trust
on land in Weld County, Colorado 240,000 240,000
Various Unsecured notes payable to officers,
% due on various dates through 1996 at
interest rates from 8% - 10% 114,487 83,005
Less: Current maturities included in current
liabilities (363,135) (368,214)
---------- ----------
$1,376,856 $1,315,761
========== ==========
</TABLE>
F-12
<PAGE>
NELX, INC.
NOTES TO FINANCIAL STATEMENTS
May 31, 1996
NOTE 5 - LONG-TERM DEBT, CON'T:
- -------------------------------
Following are maturities of long-term debt for each of the next years:
1998 $ 24,061
1999 924,167
2000 26,162
2001 28,323
2002 30,661
---------
1,033,374
---------
Remaining Balance 282,387
----------------- -------
Total Long-Term Debt $1,315,761
==========
Real Estate Loans:
------------------
As of May 31, 1996, NELX, Inc. was in default upon two real estate loans.
The first loan is upon the Company's Erie, Colorado real estate in the
amount of $240,000 to DBL Mortgage, which loan has been placed in
foreclosure. Subsequent to year end, the Company negotiated a work out with
the lender providing for an extension to bring the note current. On October
4, 1995 the Company paid $75,000 to cure the foreclosure.
The second loan for $25,541 is upon the land in Weld County, Colorado, and
the apartment complex in Englewood, Colorado to Standard Financial
Services, Inc. Foreclosure was commenced (Note 8).
NOTE 6 - GOING CONCERN:
- -----------------------
The Company incurred a net loss of $2,908,318 for 1996 and has incurred a
substantial net loss in the prior year. At May 31, 1996, current
liabilities exceed current assets by $533,787. These factors indicate that
the Company may be unable to continue in existence. The financial
statements do not include any adjustments relating to the recoverability
and classification of recorded assets, or the amounts and classification of
liabilities that might be necessary in the event the company cannot
continue existence.
NOTE 7 - RELATED PARTY TRANSACTION:
- -----------------------------------
A note payable to Michael Littman, a shareholder of the Company, had a
balance of $21,711 at May 31, 1996. This amount represents monies advanced
to the Company for operating expenses. These amounts will be repaid when
funds become available.
NOTE 8 - SUBSEQUENT EVENTS:
- ---------------------------
The note to Standard Financial Services, Inc. in the amount of $25,541 was
in default at May 31, 1996. In February 1997, the apartment complex in
Englewood, Colorado was turned over to Standard Financial Services, Inc. as
a result of the default.
F-13
<PAGE>
EXHIBIT 22.1
Subsidiaries of Registrant
1. MS Oil Company, Inc., a Colorado corporation, 100% of stock
owned by NELX, Inc.
2. CS, Inc., a Utah corporation, 100% of stock owned by NELX,
Inc.
3. Westwind Production Company, Inc., 100% of stock owned by
NELX, Inc.
4. NELX Marketing, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-END> MAY-31-1996
<CASH> 8,701
<SECURITIES> 0
<RECEIVABLES> 500
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 5,417,468
<DEPRECIATION> 132,725
<TOTAL-ASSETS> 5,293,944
<CURRENT-LIABILITIES> 536,863
<BONDS> 1,594,733
0
0
<COMMON> 1,895
<OTHER-SE> 3,160,453
<TOTAL-LIABILITY-AND-EQUITY> 5,293,944
<SALES> 72,336
<TOTAL-REVENUES> 82,521
<CGS> 44,839
<TOTAL-COSTS> 1,715,851
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 170,437
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (1,054,963)
<CHANGES> 0
<NET-INCOME> (2,903,569)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> 0
</TABLE>
