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, 1997
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.)
Route 1, Box 4J, Bridgeport, West Virginia 26330
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (304) 622-9599
Securities Registered Pursuant to Section 12(b) ofthe 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 10KSB or any amendment to this Form 10-KSB.
Yes No X
<PAGE>
Registrants gross revenues for its most recent fiscal
year were $0, and operations expenses totaled
$(826,089) for a net loss of $4,093,083 after write-
off for discontinued operations.
State the aggregate market value of the voting stock
held by nonaffiliates of the Registrant: $1,376,622
as of May 31, 1997 (a $.06/share average bid at May
31, 1997).
Indicate the number of shares outstanding of
each of the Registrant's classes of common stock:
25,477,042 common shares as of May 31, 1997.
<PAGE>
TABLE OF CONTENTS
PART I
Page
Item 1. Business......................................1
Item 2. Properties....................................3
Item 3. LegalProceedings..............................4
Item 4. Submission of Matters to a Vote of
Security Holders..............................4
PART II
Item 5. Market for Registrant's Common Stock and
Security Holder Matters...................... 4
Item 6. Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 5
Item 7. Financial Statements and Supplementary Data...7
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure........7
PART III
Item 9. Directors and Executive Officers of the
Registrant................................... 7
Item 10. Executive Compensation........................9
Item 11. Security Ownership of Certain Beneficial
Owners and Management........................ 11
Item 12. Certain Relationships and Related
Transactions..................................12
PART IV
Item 13. Exhibits, Financial Statement Schedule
and Reports on Form 8-K...................... 12
<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. The Registrant's business
is in real estate, in one geographic area, the Denver area, but
it has been unsuccessful in achieving any oil or gas production.
The company holds real estate for investment, development and
resale. For financial information see "Financial Statements and
Supplementary Data." Parent (Registrant)
NELX, Inc.
Wholly owned Subsidiaries
1. CS, Inc. (a Utah corporation)
Operations: None
2. MS Oil Company, Inc. (a Colorado corporation)
Operations: None
3. Westwind Production Company (a Colorado corporation)
Operations: Inactive
Oil and Gas Producing Activities.
None. All attempts at production activities were terminated.
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.
<PAGE>
Governmental Regulation
General - The Registrant's activities are
subject to extensive regulation by numerous federal,
state and local governmental authorities, including
county planning and commission agencies. Regulation
of the Registrant's development activities, if they ever
develop, will have a significant effect on the Registrant
and its operating results.
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 liquidate its real estate
capital assets.
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 liquidated in a cyclical
market, to reduce debt.
Capital: The Company has no commitments for capital at this
time for its real estate development projects.
The Company determined, that due to defaulted mortgage
obligations on its real estate, it would write down its assets to
the balance outstanding on its mortgage obligations, since there
appeared to be sufficient equity in the real estate to satisfy the
obligations. The Company wrote off a note receivable and returned
real estate held to senior mortgage holders on two of its real
estate parcels, since both mortgages were in default. An apartment
triplex owned by the Company was lost in foreclosure, but it
resulted in the extinguishment of approximately $111,000 in debt.
Write-offs of real estate and a note receivable totaled $3,266,994.
Competition and Markets
There are many companies and individuals engaged in the real
estate 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
marketing real 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
development of real estate. These factors include area growth,
interest rates, transportation routes, the marketing of competitive
properties and other matters affecting the availability of a
ready market, such as fluctuating supply and demand.
<PAGE>
Industry Segments
Real Estate Rental Income & Expense
(Residential)
Income $ 8,418
Expenses $ 9,688
Net Income (Loss) $ (1,270)
(Industrial-CS, Inc.)
Income $ 28,023
Expenses $ 65,866
Net Income(Loss) $(37,843)
Oil & Gas Income and Expense (Operations discontinued)
Income $ 0
Cost of Sales $ 0
Expenses $ 0
Net Income $ 0
Employees
The Registrant currently coordinates real
estate 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 real estate in connection with its operations. The company
President, Wes Whiting, is on a full time basis as President of
NELX, Inc. Subsequent to fiscal year end, Mr. Whiting resigned.
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. The Company holds the property for
investment and seek a joint venture participant to develop the property.
<PAGE>
2) The company owns 320 acres of real estate
(more or less) located 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. (This property was
conveyed to holder of the Trust Deed in December 1997.)
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 except as follows: The
Company is Defendant in a suit filed by Allan Pezoldt naming the
Company as a co-defendant in El Paso County, Colorado. Plaintiff's
counsel filed a Lis Pendens on the Erie property, and served a
complaint on the Company in February 1997. The Company believes
any suit by Allan Pezoldt has no merit whatsoever, and is
vigorously defending the suit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None in Fiscal Year ended May 31, 1997.
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 (OTC 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.
High Bid Low Bid
FY 1996:
1st quarter .24 .09
2nd quarter .125 .055
3rd quarter .14 .045
4th quarter .11 .03125
<PAGE>
High Bid Low Bid
FY 1995:
1st quarter 1.125 .63
2nd quarter .938 .375
3rd quarter .688 .219
4th quarter .469 .141
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, 1997, there were 749
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.
Changes in Financial Conditions - Loss of Assets
In Fiscal Year 1996 ending May 31, 1997, the
Company lost an apartment property in foreclosure, a
triplex, which resulted in debt reduction of
approximately $111,000, and returned two undeveloped
land parcels to a lender in exchange for a release
of liability on notes with accrued interest
totaling in excess of $630,000. Further, the
Company lost in foreclosure its Provo, Utah
industrial building, which resulted in debt
cancellation of approximately $350,000. The total
<PAGE>
write-off of equity was approximately $1,330,000 with
a net write-off after deduction of debt cancellation, of
approximately $225,000.
Results of Operations
NELX, Inc. incurred operating expenses for
fiscal year 1996 in the amount of $786,976 as
compared with operating expenses of $1,815,858 for
fiscal year 1995. The Company determined, that due
to defaulted mortgage obligations on its real
estate, it would write down its assets to the
balance outstanding on its mortgage obligations,
since there appeared to be sufficient equity in
the real estate to satisfy the obligations. The
Company wrote off a note receivable and returned real
estate held to the senior mortgage holder on two of
its real estate parcels, since both mortgages were
in default. An apartment triplex owned by the
Company was lost in foreclosure, but it resulted in
the extinguishment of approximately $111,000 in debt.
Write-offs of real estate and a note receivable
totaled $3,266,994. The registrant expects that its
operating expenses will substantially decrease in fiscal
year 1997 over 1996. The net loss on operations for
year ended May 31, 1997, was ($826,089) compared to
($1,848,606) for year end May 31, 1996. The Company's
total net loss after write-offs on assets for year ended May
31, 1997, was $4,093,083 as compared to $2,903,569 for the
year ended May 31, 1996. The per share loss for year ended
May 31, 1997 was ($.20) compared to ($.20) for the year
ended May 31, 1996.
Registrant had no oil and gas operating revenues in fiscal
year 1996 and by contrast had oil and gas operating revenues
of $72,336 in fiscal year 1995.
Registrants monthly revenue for operations is insufficient
to cover its normal operating costs and debt service.
Liquidity and Capital Resources
Registrants liquidity is limited by its ownership of
undeveloped real estate, which is not be readily marketable.
The company has no cash flow from any other source.
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 was totally illiquid and without any operating
funds.
Registrant will be forced to and will seek private
placements of its stock and loans to make up the lack of
operating revenues.
<PAGE>
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.
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:
Name Age Relationship Term of Director
With Company Office Since
Wesley F. Whiting 65 President & Annual Jan. 1993
Director
Reed Clayson 67 Secretary- Annual Nov. 1993
Treasurer
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.
<PAGE>
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.
Business Experience
The Company's president and a director, Wesley
F. Whiting, age 65, 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 67, 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. Position 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.
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 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
<PAGE>
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, 1997:
Wesley F. Whiting
Reed Clayson
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, 1997, 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 $20,000
Reed Clayson Secretary $0
Directors $0
All Executive Officers
as a Group (2 persons) - $20,000
<PAGE>
b) Compensation paid by the Company for all services
provided during the fiscal year ended May 31, 1997, (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 Fees Bonus
Wesley F. Whiting 1996 $0 $0
Grant Gaeth (Resigned) 1996 $0 $0
Reed Clayson 1996 $0 $0
Directors 1996 $0 $0
LONG TERM COMPENSATION
Options
Restricted & SARs
Stock LTIP LTIP Other
Other Awards Payouts Payouts Compensation
Wesley F. Whiting None None None 1,000,000
shares
Max P. Sommer None None None None
Grant Gaeth None None None 500,000
(Resigned) shares
Reed Clayson None None None 1,000,000
shares
All directors and officers as a group received 2,500,000
shares as additional 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, except as set forth under Long Term
Compensation above.
<PAGE>
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, 1997, or subsequently.
1995 Employee Stock Compensation Plan - No open plans.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(a) The following table sets forth, as
of May 31, 1997, 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 1,333,334 5.2%
Secretary & Director
10200 W. 44th Ave. #400
Wheat Ridge, CO 80033
Wesley F. Whiting 1,200,000 4.7%
President & Director
10200 W. 44th Ave. #400 (including 50,000 shares
Wheat Ridge, CO 80033 owned by Jeraldine
Whiting, wife)
Total owned by Officers and Directors 2,533,334 9.9%
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain Transactions
In February 1997, the Directors voted to issue
common shares to themselves in consideration of services
rendered as officers and directors as follows: 1,000,000
shares to Wesley F. Whiting; 1,000,000 shares to Reed Clayson;
and 500,000 shares to Grant Gaeth.
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, 1997, and 1996 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, 1997 an May 31, 1996 F-2
Balance Sheets F-3
Statements of Operations F-4
Statements of Cash Flow F-5 - F-6
Statements of Shareholders' Equity F-7
Notes to Financial Statements F-8 - F-12
(2) Financial Statement Schedules:
(a) None
(b) Reports on Form 8-K:
February 14, 1997 Incorporatedby 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
13.1* Quarterly Report of NELX, Inc. 10-QSB
for Period ended August 31, 1996.
13.2* Quarterly Report of NELX, Inc. 10-QSB
for Period ended November 30, 1996.
13.3* Quarterly Report of NELX, Inc. 10-QSB
for Period ended February 28, 1997.
22.1* Subsidiaries of Registrant
* Previously filed
<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 10, 1998 by:/s/ Charles L.Stout
Charles L. Stout, 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/Charles L. Stout President March 10, 1998
Charles L. Stout and Director
/s/Harry Bullock Secretary March 10, 1998
Harry Bullock and Director
/s/Kenneth L. Curry Director March 10, 1998
Kenneth L. Curry
<PAGE>
NELX, INC.
INDEPENDENT AUDITORS' REPORT
CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended May 31, 1997 and 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.
Member: A.I.C.P.A.
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, 1997 and 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 $4,093,083 for 1997 and had
incurred a substantial net loss in the prior year.
At May 31, 1997, current liabilities exceed
current assets by $1,684,358. These factors
indicate that the company has substantial doubt
about its ability to continue as a going concern.
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
in 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,
1997 and 1996 and the results of its operations, cash
flows and changes in stockholders' equity for the years
then ended in conformity with generally accepted
accounting principles.
Michael B. Johnson & Co., P.C.
Denver, Colorado
January 5, 1998
<PAGE>
1997 1996
ASSETS:
Current Assets:
Cash and cash equivalents $ - $ 8,701
Accrued Interest Receivable - 500
Total Current Assets - 9,201
Fixed Assets:
Land 950,000 3,716,801
Plant & Plant Equipment 100,000 1,000,000
Equipment 12,479 8,654
Buildings 82,000 678,063
1,144,479 5,403,518
Less Accumulated Depreciation (106,154) (132,725)
Net Fixed Assets 1,038,325 5,270,793
Other Assets:
Deposits 3,950 3,950
Investments 10,000 10,000
Total Other Assets 13,950 13,950
TOTAL ASSETS $ 1,052,275 $ 5,293,944
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Bank Overdraft $ 8,533 $ -
Accounts Payable 489,424 139,649
Accrued Expenses 374,149 307,972
Current Portion ofLong-Term Debt 812,252 368,214
Total Current Liabilities 1,684,358 815,835
Long-Term Liabilities:
Notes Payable 30,617 1,315,761
Total Long-Term Liabilities 30,617 1,315,761
TOTAL LIABILITIES 1,714,975 2,131,596
STOCKHOLDERS' EQUITY:
Common Stock, $.0001 par value 500,000,000
shares authorized,25,477,042 and 18,947,300
issued and outstanding at May 31,1997
and 1996, respectively 2,548 1,895
Additional paid-in capital 7,441,162 7,183,780
Retained Deficit (8,106,410) (4,023,327)
TOTAL STOCKHOLDERS' EQUITY (662,700) 3,162,348
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,052,275 $ 5,293,944
<PAGE>
1997 1996
REVENUES:
Oil & gas sales $ - $ 72,336
Cost of Sales - (44,839)
Gross Profit - 27,497
EXPENSES:
Consulting 366,061 810,850
Salaries - 59,199
Office Expense 8,276 23,248
Travel 2,635 20,685
Lease Expense 52,580 352,898
Repairs & Maintenance 195 1,497
Professional Fees 137,310 174,950
Telephone & Utilities 87,233 42,062
Depreciation & Depletion 19,103 75,207
Miscellaneous 25,559 84,825
Interest Expense 150,110 170,437
Total Expenses 849,062 1,815,858
OTHER REVENUES & (EXPENSES):
Net Rental Expense (39,113) (70,430)
Interest Income - 10,185
Total Other Revenue & (Expenses) (39,113) (60,245)
NET LOSS BEFORE DISCONTINUED OPERATIONS $(888,175) $(1,848,606)
DISCONTINUED OPERATIONS:
Loss on Write Off of Non-Producing Assets (3,204,908) (759,959)
Sale of Assets - (295,004)
NET LOSS $(4,093,083) $(2,903,569)
Loss per Common Shares:
Loss Before Discounted Operations (0.04) (0.12)
Loss on Discontinued Operations (0.16) (0.08)
Net Loss Per Share $ (0.20) $ (0.20)
Weighted Average Number of
Shares Outstanding 20,084,742 14,692,441
<PAGE>
NELX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, (Cont.)
For the Year Ended May 31, 1997 and 1996
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Noncash Activities During Year End May 31, 1996
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 rights
to manufacture and market a patented safety device.
The company issued 570,000 common shares in exchange for the
acquisition interest in 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.
Non Cash Activities During Year End May 31, 1997
The company issued 232,143 shares for architectural services.
The company issued 1,817,993 shares for consulting services.
The company issued 120,000 shares for advertising services.
The company issued 2,000,000 shares to the Board of
Directors for services rendered.
<PAGE>
1997 1996
Cash Flows from Operating Activities:
Net Profit (Loss) $(4,083,083)$(2,903,569)
Amortization and Depreciation 19,103 55,211
Issuance of Common Stock for Services 248,771 917,926
(Increase) Decrease in Prepaids - 22,524
(Decrease) Increase in Accounts Payable 349,775 109,470
(Decrease) Increase in Bank Draft 8,533 -
(Decrease) Increase in Accounts Payable --
Related Parties - (85,304)
(Decrease) Increase in Accrued Expenses 66,177 (6,000)
(Increase) Decrease in Investments - (10,000)
(Increase) Decrease in Accounts Receivable - 31,829
(Increase) Decrease in Accrued Interest
Receivable 500 55,600
(Increase) Decrease in Note Receivable - 735,000
Net Cash Flows Used for Operating Activities (3,390,224) (1,077,313)
Cash Flows From Investing Activities:
Purchase of Fixed Assets (5,476) 29,768
Retirements/Repossessionof Fixed Assets 3,369,202 589,463
Net Cash Flow Used for Investing Activities 3,363,726 619,231
Cash Flows From Financing Activities:
Borrowing Under Notes Payable - 248,037
Principal Payments on Notes Payable - (174,596)
Issuance of Common Stock: 9,264 382,238
Net Cash Flows Provided by Financing Activities 9,264 455,679
Increase (Decrease) in cash (17,234) (2,403)
Cash and Cash Equivalents -- Beginning
of Year 8,701 11,104
Cash and Cash Equivalents -- End of Year $ (8,533) $ 8,701
Supplemental Disclosure of Cash Flow
Information Cash Paid During the Year for:
Interest $ - $29,054.00
Income Taxes $ - $ -
<PAGE>
<TABLE>
<CAPTION>
Common Stock Additional
Paid-In Accumulated
# of Shares Amount Capital Deficit
<S> <C> <C> <C> <C>
Balance at 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 -
May 31, 1996 Net Loss - - - (2,903,569)
Balance at May 31,
1996 18,947,300 1,895 7,183,780 (4,023,327)
Issuance of Common
Stock for Cash 185,280 19 9,245 -
Issuance of Common
Stock for Services
Rendered 6,344,462 634 248,137 -
May 31, 1997 Net Loss - - - (4,083,083)
Balance at May 31,
1997 25,477,042 $2,548 $7,441,162 $(8,106,410)
</TABLE>
<PAGE>
NELX, INC.
NOTES TO FINANCIAL STATEMENTS
May 31, 1997 and 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.
Cash and Cash Equivalents:
For purposes of the statement of cash flows,
cash and cash equivalents include cash in
banks and money market accounts. The cash
position at May 31, 1997 was a deficit of
$8,533.
Fixed Assets and Depreciation/Depletion:
The useful lives of property, plant, equipment,
andoperating leases, for purposes of computing
depreciation/depletion are:
Buildings 31.5 - 39.5 years
Machinery & 6.0 years
equipment
Plant 27.5 years
In 1997 and 1996, respectfully,
depreciation and depletion expense of
$19,103 and $75,207 was charged to
operations.
<PAGE>
NELX, INC.
NOTES TO FINANCIAL STATEMENTS
May 31, 1997 and 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES, CON'T:
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, 1997, the Company had net operating
loss carryforwards of approximately $8,091,780
for federal income tax purposes. These
carryforwards, if not utilized to offset taxable
income will expire at the end of the indicated years:
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
2011 4,083,083
$8,091,780
There was no provision or benefit for income taxes in
fiscal 1997.
Reclassifications:
Certain amounts in the 1996 financial
statements have been reclassified to conform
to the 1997 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 the reported amounts of
revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
<PAGE>
NELX, INC.
NOTES TO FINANCIAL STATEMENTS
May 31, 1997 and 1996
NOTE 2 - LONG-TERM DEBT:
Following is a summary of long-term debt
at May 31
1997 1996
8% Note payable to Latter
Day Saints Church Real
Estate, $4,014 payable
per month, due 01/2008,
secured by office building
in Provo, Utah $ - $ 380,963
7.6% Note payable to CNETCO,
Inc., payable at $359 per
month, due 10/05, secured
by 4th mortgage on property 31,875 31,875
13.75% Note payable to Chrysler
First Financial Services,Inc.,
payable at $745 per month due
06/97, secured by first deed
of trust on apartment
building in Denver, Colorado - 22,591
8% Notes payable to Standard
Financial Services, Inc., due
01/94, and 9/30/95 secured by
land in Weld County, CO, and
apartment units in Denver,
Colorado - 50,000
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
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
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., payable
at $2,800 per month secured
by first deed of trust on land
in Weld County, Colorado.
Note is in default, interest
escalates to 38% on unpaid
balance. 240,000 240,000
Various % Unsecured notes payable to
others, due on various dates
through 1998 at interest rates
from 8% - 10% 70,944 24,137
Less: Current maturities included in
current liabilities (812,252) (368,214)
$ 30,617 $1,315,761
<PAGE>
NELX, INC.
NOTES TO FINANCIAL STATEMENTS
May 31, 1997 and 1996
Following are maturities of long-term debt for each of the next
five years:
1999 $ 2,577
2000 2,780
2001 2,999
2002 3,185
2003 8,980
20,521
Remaining Balance 10,096
Total Long-Term Debt $30,617
NOTE 3 - GOING CONCERN:
The Company incurred a net loss of $4,083,083 for 1997 and
has incurred a substantial net loss in the prior year. At
May 31, 1997, current liabilities exceed current assets by
$1,684,358. These factors indicate that the Company has
substantial doubt about its ability 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 in existence.
NOTE 4 - ASSET DISSOLUTION:
In November of 1992 the company issued 7,400,000 shares
of the company's common stock for a 3 unit apartment
building, subject to a promissory note of $57,000 to
Chrysler First Financial Services Corporation. During the
1997 fiscal year the company was in default on this note
and the property was foreclosed.
In November 1993 the company exchanged 37,600,000 shares
of common stock and acquired an industrial building and
office facility in Provo, Utah subject to a promissory
note and trust deed for $420,000. During the 1997 fiscal
year the company was in default on this note and the trust
deed was foreclosed on the property and the note
satisfied.
In November 1993 the company issued 20,000,000 shares of
common stock for two separate five acreage parcels of land
subject to a $400,000 note and trust deed. During the
1997 fiscal year the company was in default on this note
and the properties were relinquished and the debt was
extinguished via a deed in lieu of foreclosure.
NOTE 5 - SUBSEQUENT EVENTS AND ASSET REVALUATION:
In November of 1992 the company issued 60,000,000 shares
of stock for 240 acres of land upon which the company
borrowed $240,000 via a note and deed of trust. The
company is in default on this mortgage and it has been
foreclosed. The company believes it has reached an
agreement to settle a lawsuit surrounding this property.
At year end the company has written the property down to
$450,000, the amount of the outstanding mortgage accrued
interest and penalties.
<PAGE>
NELX, INC.
NOTES TO FINANCIAL STATEMENTS
May 31, 1997 and 1996
NOTE 5 - SUBSEQUENT EVENTS AND ASSET REVALUATION, CON'T:
In October of 1993, the company issued 6,200,00 shares of
common stock in exchange for 320 acres of land subject to
a promissory note and deed of trust in the amount of
$500,000. The company was in default on this mortgage at
year end and subsequently gave the deed in lieu of
foreclosure to the note holder. The company has written
the property down to $500,000, the amount of the
outstanding mortgage at year end.
In September of 1995 the company exchanged 350,000 shares
of common stock for a mini mall located in Kansas subject
to a note for $31,875. The company is in default on this
note and the company has revalued this property down to
the amount of the outstanding mortgage of $31,000.
In 1996 & 1997 the company wrote off certain costs
associated with contracts to purchase land, because the
company could not perform upon the purchase contracts
within the time requirements of the contracts. The
purchase contracts were for land in Central, Colorado and
Elbert County, Colorado.
On October 9, 1997, the Board of Directors accepted an
offer from Charles Stout to acquire 20 million shares of
common stock of NELX, Inc., in consideration for his
agreement to contribute $20,000 in immediate cash and to
contribute such additional funding up to $250,000 to
settle accounts payable and commitments. Subsequently, on
October 17, 1997, the initial cash contribution of $20,000
was made. When issued, the 20 million shares will represent
46% of the outstanding stock of NELX, Inc. Mr. Charles Stout
was appointed President on October 9, 1997.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> MAY-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,144,479
<DEPRECIATION> (106,154)
<TOTAL-ASSETS> 1,052,275
<CURRENT-LIABILITIES> 1,684,358
<BONDS> 0
0
0
<COMMON> 2,548
<OTHER-SE> (665,248)
<TOTAL-LIABILITY-AND-EQUITY> 1,052,275
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 849,062
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (888,175)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 3,204,908
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,093,083)
<EPS-PRIMARY> (.20)
<EPS-DILUTED> (.20)
</TABLE>
