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, 1999
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.)
10525 W. 23rd Place, Lakewood, CO 80215
------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (304) 622-9599
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
-- --
<PAGE>
Registrants gross revenues for its most recent fiscal year were $16,524, and
operations expenses totaled ($21,634) for a net loss of ($15,110).
State the aggregate market value of the voting stock held by non-affiliates of
the Registrant: $850,561 as of May 31, 1999 (a $.03/share average bid at May 31,
1999).
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock: 44,352,042 common shares as of May 31, 1999.
<PAGE>
TABLE OF CONTENTS
PART I
Page
Item 1. Business .................................. 1
Item 2. Properties ................................ 3
Item 3. Legal Proceedings.......................... 3
Item 4. Submission of Matters to a Vote of
Security Holders.......................... 3
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.. 6
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure..... 6
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............................... 11
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
currently has no business operations and it has been unsuccessful in achieving
any oil or gas production. All mineral leases have been sold or terminated and
written off. The company has divested all real estate held for investment,
development and resale, except for a small commercial property in Kansas. For
financial information see "Financial Statements and Supplementary Data."
Parent (Registrant)
- -------
NELX, Inc.
Wholly owned Subsidiaries
- --------------------------
None
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.
Governmental Regulation
- ------------------------
General - The Registrant's activities may be subject to extensive
regulation by numerous federal, state and local governmental authorities, if the
Company engages in either the oil and gas or real estate business. Regulation of
the Registrant's development activities, if they ever develop, will have a
significant effect on the Registrant and its operating results.
<PAGE>
Oil and Gas Activities - The Company currently has no oil and gas
----------------------
activities or operations.
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, in 1997, turned its attention to efforts to
liquidate its real estate capital assets and has done so. The Company now owns
only one small commercial property in Kansas.
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 any
projects.
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.
Industry Segments
- ------------------
Real Estate Rental Income & Expense - (Operations discontinued)
- ------------------------------------
Income $ 0
Expenses $ 0
Net Income (Loss) $ 0
<PAGE>
Oil & Gas Income and Expense (Operations discontinued)
- -----------------------------
Income $ 0
Cost of Sales $ 0
Expenses $ 0
Net Income $ 0
Employees
- ----------
The Registrant retains consultants with respect to any activities for which
consulting services may be necessary. The Registrant from time to time retains
independent engineering and geological consultants in connection with its
operations. The company President, Charles L. Stout, is on a part time basis as
President of NELX, Inc.
ITEM 2. PROPERTIES
Oil and Gas Properties
- -----------------------
None
REAL PROPERTY
- --------------
None
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In March 1999, the shareholders elected new directors and approved a
reverse split of the issued and outstanding shares in a ratio of one new share
for each ten shares outstanding.
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-
<PAGE>
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.
FY 1998 (Ended May 31, 1999):
High Bid Low Bid
-------- -------
1st quarter .10 .03
2nd quarter .03 .025
3rd quarter .045 .03
4th quarter .03 .03
FY 1997 (Ended May 31, 1998):
High Bid Low Bid
-------- -------
1st quarter .06 .025
2nd quarter .075 .03
3rd quarter .06 .03
4th quarter .045 .03
High Bid Low Bid
-------- -------
FY 1996:
1st quarter .24 .09
2nd quarter .125 .055
3rd quarter .13 .045
4th quarter .11 .03125
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, 1999, 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.
<PAGE>
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 1999 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 Fairmout
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 - None
-------------------------------
Results of Operations for 1997 Ended May 31, 1998 Fiscal Year Compared
-----------------------------------------------------------------------
to 1996 Fiscal Year
-------------------
NELX, Inc. incurred operating expenses for fiscal year 1997 in the
amount of $184,932 as compared with operating expenses of $786,976 for fiscal
year 1996. In fiscal year 1996, 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. In fiscal year
1996, 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. In fiscal year 1996, an apartment triplex owned by
the Company was lost in foreclosure, but it resulted in the extinguishment of
approximately $111,000 in debt. 1996 write-offs of real estate and a note
receivable totaled $3,266,994. In the 1997 fiscal year, the Company conveyed two
undeveloped acreage tracts to settle debt and lawsuits resulting in over
$1,000,000 in debt elimination. The property conveyed had previously been
written down. The Registrant expects that its operating expenses will
substantially decrease in fiscal year 1998 over 1997. The net loss on operations
for year ended May 31, 1998 was ($184,932) compared to ($826,089) for year end
May 31, 1997. The Company's total net loss after write-offs on assets for year
ended May 31, 1998, was ($184,932) as compared to ($4,093,083) for the year
ended May 31, 1997. The per share loss for year ended May 31, 1997 was ($.004)
compared to ($.20) for the year ended May 31, 1996.
<PAGE>
Registrant had no oil and gas operating revenues in fiscal year 1998 and
no oil and gas operating revenues in fiscal year 1997.
Registrants monthly revenue for operations is insufficient to cover its
normal operating costs and debt service.
Liquidity and Capital Resources
-------------------------------
Registrant's liquidity is limited by its ownership of only one parecel of
real estate and some equipment not producing any revenues, which is not 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.
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.
<PAGE>
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
---- --- ------------ -------
With Company Office Since
------------ ------ -----
Charles L. Stout ..........49 President & Annual Oct. 1997
Director
Bruce Bowler ..............58 Director Annual Oct. 1998
John L. Cowan .............51 Director/ Annual Oct. 1997
(resigned July 1999) Secretary
Vice President and Directo, Harry Bullock died in January 1999.
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.
Business Experience
-------------------
Bruce Bowler, age 58
Director of the Registrant, received his education at Colorado State
University from 1959 to 1961 and University of Denver from 1961 to 1963 where he
received a BSBA in Building Industry and Real Estate. He has been a Real Estate
Broker in Colorado since 1973. In the lending industry, he was: a) Designated
FNMA Underwriter; b) Designated VA Automatic Underwriter; c) Designated FHA
Underwriter for FHA Coinsurance program; d) Designated FHA Underwriter under HUD
Direct Endorsement Program; and e) Certified FHA 203(k) Rehabilitation Loan
Program Trainer. From 1984 to July 31, 1998 was CEO and Chairman and principal
in Universal Lending Corporation, a mortgage banker. From 1982 to 1984 he was
Senior Vice President/Director of Mortgage Banking Division of Van Schaack &
Company. From 1980 to 1982 he was Senior Vice President of Secondary Marketing
for Moore Mortgage Company. From 1979 to 1980 Mr. Bowler was a Vice President at
Western Bancorp Mortgage Corp. From 1975 to 1979 he advanced from Branch Manager
to Assistant Vice President to Vice President in Mortgage Banking at Van Schaack
& Company.
<PAGE>
John Cowan, age 51
Director and Secretary of Registrant, is a Professional Engineer and a
practicing attorney. He received a BA in Math in 1980 from Metropolitan State
College, a BS in Civil Engineering in 1983 and a Juris Doctorate from University
of Denver in 1988. From 1988 to 1991 he was an attorney in the firm of Welborne,
Dufford, Brown, and Tooley in Denver. From 1991 to 1992 he was a staff attorney
with CDM Federal Programs Corp., an EPA contractor. In 1992 until 1993 he was an
associate with the Musick & Associates, a law firm in Boulder, Colorado. From
1993 to 1995 he was Special Counsel to Welborn Sullivan Meck & Tooley, a law
firm in Denver, Colorado. From 1995 to present he has been a sole practitioner
attorney.
Charles L. Stout, age 48
President and Director, obtained a B.S. in Mechanical Engineering
Technology from Fairmont State College. He has post graduate study at West
Virginia University. He is President and Director of Applied Mechanics
Corporation which he founded in 1983, a West Virginia Oil and Gas producer. From
1984 to present, he has been President of Appalachian Labor and Economic
Development Corps., Ltd. He is a director of Square Roots, Inc. and is owner of
Applied Machining, Inc., a tool and die shop.
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 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.
<PAGE>
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, 1999:
Charles L. Stout
John L. Cowan
Bruce Bowler
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
- ------------------- -------------- --------
Charles L. Stout President & Director $0
Harry Bullock Vice President $0
John L. Cowan Director/Secretary $0
Bruce Bowler Dirctor $0
All Executive Officers
as a Group (3 persons) - $0
b) Compensation paid by the Company for all services provided
during the fiscal year ended May 31, 1999, (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:
<PAGE>
ANNUAL COMPENSATION ($$)
------------------------
Name and Position Year Fees Bonus
- ------------------ ---- ----- -----
Charles L. Stout, President & Dir. 1997 $0 $0
Harry Bullock, Vice President 1997 $0 $0
John L. Cowan 1997 $0 $0
Kenneth L. Curry, Director* 1997 $0 $0
Bruce Bowler 1997 $0 $0
Directors 1997 $0 $0
Aggregate
* Resigned in October 19998
LONG TERM COMPENSATION
----------------------
Options
Restricted & SARs
Stock LTIP LTIP Other
Awards Payouts Payouts Compensation
Charles L. Stout None None None None
Harry Bullock None None None None
Kenneth L. Curry None None None None
All directors and officers as a group received no 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.
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.
- ------------
<PAGE>
Report on Repricing of Options/SARs
-----------------------------------
No options or stock appreciation rights are outstanding or were repriced
during the fiscal year ended May 31, 1999, or subsequently.
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, 1999, 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
- ------------------------- --------- -----
Charles L. Stout 14,000,000 31.5%
John L. Cowan 1,000,000 2.2%
Bruce Bowler 1,000,000 2.2%
Kenneth L. Curry 0 0%
Total owned by Officers and Directors 16,100,000 36%
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, 1999, and 1998 are filed as part of
this report.
<PAGE>
Page
----
(1) Financial statements of NELX, Inc:
Reports of Independent Accountants
Report of Michael B. Johnson & Co.
years ended May 31, 1999 and May 31, 1998 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:
Incorporated by reference as
filed with Securities and
Exchange Commission
Incorporated by reference as
filed with Securities and
Exchange Commission
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
13.1* Quarterly Report of NELX, Inc. 10-QSB for Period ended August 31, 1998.
13.2* Quarterly Report of NELX, Inc. 10-QSB for Period ended November 30, 1998.
13.3* Quarterly Report of NELX, Inc. 10-QSB for Period ended February 28, 1999.
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.
4 /s/ Charles L. Stout
November -------, 1999 by:--------------------------
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 4
______________________ President November ___, 1999
Charles L. Stout and Director
/s/ Denis Iler 4
______________________ Vice President November ___, 1999
Denis Iler
/s/ Bruce Bowler 4
______________________ Director November ___, 1999
Bruce Bowler
<PAGE>
NELX, INC.
FINANCIAL STATEMENTS
For the Year Ended May 31, 1999
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
NELX, Inc.
We have audited the accompanying balance sheet of NELX, Inc. as of May 31, 1999
and the related statements of operations, cash flows and changes in
stockholders' equity for the year 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.
These standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
As shown in the financial statements, the company incurred a net loss of $5,110
for 1999 and had incurred substantial losses in the prior years. At May May 31,
1999, current liabilities exceed current assets by $92,650. These factors
indicate that the company has substantial doubt about the 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 ncessary 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, 1999,
and the results of their operations, cash flows, and changes in stockholders'
equity for the year then ended in conformity with generally accepted accounting
principles.
/s/ Michael Johnson & Co., LLC
Denver, Colorado
October 13, 1999
F-1
<PAGE>
<TABLE>
<CAPTION>
NELX, Inc.
Balance Sheet
May 31,
ASSETS: 1999 1998
- ------- ---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 254 $ 1,662
---------- -----------
Total Current Assets $ 254 $ 1,662
Fixed Assets:
Plant & Plant Equipment 100,000 100,000
Equipment - 8,654
Buildings 54,175 82,000
---------- -----------
154,175 190,654
Less Accumulated Depreciation (104,411) (114,266)
---------- -----------
Next Fixed Assets 49,764 76,388
TOTAL ASSETS $ 50,018 $ 78,050
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts Payable 24,254 $ 78,765
Accrued Expenses - 10,036
Current Portion of long-Term Debt 68,650 158,984
---------- -----------
Total Current Liabilities 92,904 247,785
TOTAL LIABILITIES 92,904 247,785
STOCKHOLDERS' EQUITY:
Common Stock $.0001 par value 500,000,000
shares authorized, 44,352,042 and 46,352,042
issued and outstanding at May 31, 1999
and 1998, respectively 4,435 4,635
Additional paid-in capital 7,623,975 7,465,975
Prior Year Adjustment - 635,156
Retained Deficit (7,671,296) (8,301,342)
----------- ------------
TOTAL STOCKHOLDERS' EQUITY 42,886 195,576
----------- ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 50,018 $ 52,209
The accompanying notes are considered an integral part of these financial statements.
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
NELX, INC.
FINANCIAL STATEMENTS OF OPERATIONS
For the Year Ended May 31,
REVENUES: 1999 1998
- --------- ---- ----
<S> <C> <C>
Revenue $ 16,524 $ -
---------- -----------
Gross Profit 16,524 -
EXPENSES:
- ---------
Accounting & Legal 5,250 -
Consulting 200 39,662
Office Expense 5,700 4,527
Travel 700 3,939
Lease Expense - 2,049
Professional Fees - 33,872
Telephone & Utilities 598 6,323
Depreciation & Depletion 4,411 8,112
Miscellaneous - 5,708
Taxes 233 2,318
Interest Expense 4,542 78,422
----------- -----------
Total Expenses 21,634 184,932
----------- -----------
NET LOSS (5,110) (184,932)
=========== ===========
Net Loss Per Share (0.001) (0.01)
----------- -----------
Weighted Average Number of
Shares Outstanding 44,352,042 21,327,974
The accompanying notes are considered an integral part of these financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
NELX, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
May 31, 1999
Common Stock Additional Total
Paid-In Accumulated Stockholders
# of Shares Amount Capital Deficit Equity
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at May 31, 1995 10,437,581 $ 1,044 $5,195,578 $(1,119,758) $ 4,076,864
Issuance of Common Stock for Cash 1,520,100 152 382,086 - 382,238
Issuance of Common Stock for Service 4,058,619 406 917,520 - 917,926
Issuance of Common Stock for Assets
Acquired or Reduction in Liabilities 2,931,000 293 688,596 - 688,889
May 31, 1996 Net Loss - - - (2,903,569) (2,903,569)
------------------------------------------------------------------------
Balance at May 31, 1999 18,947,300 1,895 7,183,780 (4,023,327) 3,162,348
Issuance of Common Stock for Cash 185,280 19 9,245 - 9,264
Issuance of Common Stock for Services 6,344,462 634 248,137 - 248,771
May 31, 1997 Net Loss - - - (4,093,083) (4,093,083)
------------------------------------------------------------------------
Balance at May 31, 1997 25,477,042 2,548 7,441,162 (8,116,410) (672,700)
Issuance of Common Stock for Cash 20,875,000 2,087 24,813 - 26,900
Adjustment for Prior Year - - - 635,156 635,156
May 31, 1998 Net Loss - - - (184,932) (184,932)
------------------------------------------------------------------------
Balance at May 31, 1998 46,352,042 4,635 7,465,975 (7,666,186) (195,576)
Returned for Reissuance (6,000,000) (600) - - (600)
Issuance of Common Stock for Cash 4,000,000 400 158,000 - 158,400
May 31, 1999 Net Loss - - - (5,110) (5,110)
------------------------------------------------------------------------
Balance at May 31, 1999 44,352,042 $ 4,435 $7,623,975 $(7,671,296) $ (42,886)
========================================================================
The accompanying notes are considered an integral part of these financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
NELX, INC.
STATEMENT OF CASH FLOWS
For the Year Ended May 31
Cash Flows from Operating Activities: 1999 1998
---- ----
<S> <C> <C>
Net Profit (Loss) $ (5,110) $ (184,932)
Amortiztion and Depreciation 4,411 8,112
(Decrease) Increase in Accounts Payable (188,752) (635,156)
(Decrease) Increase in Bank Draft - (8,533)
(Decrease) Increase in Accrued Expenses (10,036) (66,177)
(Increase) Decrease in Accrued Interest Recevable - (3,950)
---------- -----------
Net Cash Flows Used for Operating Activities (199,487) (890,636)
Cash Flows from Investing Activities:
Purchase of Fixed Assets - (55,081)
Retirements/Repossesion of Fixed Assets 36,479 953,825
--------- -----------
Net Cash Flow Used for INvesting Activities 36,479 898,744
Cash Flows From Financing Activities:
Issuance of Common Stock: 161,600 2,087
--------- -----------
Net Cash Flows Provided by Financing Activities: 161,600 2,087
Increase (Decrease) in cash (1,408) 10,195
--------- -----------
Cash and Cash Equivalents - Beginning of Year 1,662 (8,533)
--------- -----------
Cash and Cash Equivalents - End of Year $ 254 $ 1,662
========= ===========
Supplmental Disclosure of Cash Flow
Information Cash Paid During the Year for:
Interest $ 4,542 $ 20,327
Income Taxes $ - $ -
The accompanying notes are considered an integral part of these financial statements.
</TABLE>
F-5
<PAGE>
NELX, INC.
NOTES TO FINANCIAL STATEMENTS
May 31, 1999
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 law 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.
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 useful lives of property, plant, equipment, and operating leases, for
purposes of computing depreciation/depletion are:
Buildings 39.5 years
Plant 27.5 years
In 1999 and 1998, respectfully, depreciation and depletion expense of $4,411 and
$8,112 was charged to operations.
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.
F-6
<PAGE>
NELX, INC.
NOTES TO FINANCIAL STATEMENTS
May 31, 1999
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, 1999, the Company had net operating loss carryforwards of
approximately $8,306,452 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 24,904
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
2012 4,272,851
----------
$8,306,452
----------
There was no provision or benefit for income taxes in fiscal 1999.
NOTE 2 - NOTES PAYABLE:
--------------
Following is a summary of notes payable at May 31,
1999
----
Various Unsecured notes payable to
8% Shareholder, due on various dates 65,650
8% Unsecured note payable to Stan Jensen,
due in 1998 at an interest rate of 8% 3,000
$68,650
F-7
<PAGE>
NELX, INC.
NOTES TO FINANCIAL STATEMENTS
May 31, 1999
NOTE 3 - GOING CONCERN:
--------------
The Company incurred a net loss of $5,110 for 1999 and has incurred substantial
net losses in the prior years. At May 31, 1999, current liabilities exceed
current assets by $92,650. 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 classifications of
liabilities that might be necessary in the event the Company cannot continue in
existence.
NOTE 4 - RELATED PARTY TRANSACTION:
--------------------------
An officer and director has loaned the company funds on many different
occassions.
F-8
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-END> MAY-31-1999
<CASH> 254
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 254
<PP&E> 154,175
<DEPRECIATION> 104,411
<TOTAL-ASSETS> 50,018
<CURRENT-LIABILITIES> 92,904
<BONDS> 0
0
0
<COMMON> 4,435
<OTHER-SE> (47,321)
<TOTAL-LIABILITY-AND-EQUITY> 50,018
<SALES> 0
<TOTAL-REVENUES> 16,524
<CGS> 21,634
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,110)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,110)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,110)
<EPS-BASIC> (.001)
<EPS-DILUTED> (.001)
</TABLE>
