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>
Registrant's gross revenues for its most recent fiscal year were none, and
operations expenses totaled ($19,339) for a net loss of ($19,339).
State the aggregate market value of the voting stock held by non-affiliates of
the Registrant: $2,970,204 as of May 31, 2000 (a $.10/share average bid at May
31, 2000).
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock: 45,802,042 common shares as of May 31, 2000.
<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. 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, the
Company, in 1997, turned its attention to efforts to liquidate its real estate
capital assets and has done so.
Industry Segments
-------------------
Oil & Gas Income and Expense (Operations discontinued)
------------------------------
Income $ 0
Cost of Sales $ 0
Expenses $ 0
Net Income $ 0
Real Estate (Operations discontinued)
-------------------------------------
Income $0
Expense $0
<PAGE>
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 pending legal proceedings which would result in any
uninsured liability, to which the Registrant is a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
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.
FY 1999 (Ended May 31, 2000):
High Bid Low Bid
-------- -------
1st quarter .16 .06
2nd quarter 1.37 .05
3rd quarter .18 .05
4th quarter 1.20 .08
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, 2000, there were 741 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 from a principal shareholder.
In view of the current economic conditions within the industry in which the
Registrant participates, the Registrant anticipates that cash flow from
operations for fiscal 2000 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
-------------------
The Company has experienced continued operating expenses for the year ended
of $19,339 compared to $21,634 for the year ended in 1999. The Company received
no revenues in the current year compared to $16,524 in the prior year. These
resulted in a net loss of ($19,339) for the current year and ($5,110) for the
prior year. At this time, the losses will continue to use up the available
resources.
Liquidity and Capital Resources
-------------------------------
The Company had minimal cash capital at the end of the year. The Company
will be forced to either borrow against or sell assets or make private
placements of stock in order to fund operations continuance. No assurance exists
as to the ability to achieve sales of assets or loans against the assets, or
make private placements of stock.
<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) Michael B. Johnson & Co. resigned in August 2000 as the Auditor. The
Board appointed Oatley & Hansen, P.C. of Greenwood Village, Colorado as the
Auditors for the period ended May 31, 2000 and thereafter.
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 ..........50 President & Annual Oct. 1997
Director
Bruce Bowler ..............59 Director Annual Oct. 1998
(resigned July 2000)
Denis Iler ................61 Director/ Annual Jan. 1999
Secretary
Kenneth Curry .............40 Director* Annual July 2000
*Mr. Curry was appointed after fiscal year end.
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 59
(resigned July 2000)
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>
Charles L. Stout, age 50
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.
Denis R. Iler, age 61
Director and Secretary, he received a BA in Math from San Jose State
University in California, and an MBA from Regis University in 1982. He was a
comptroller with Berge Exploration from 1978 to 1984. Since 1984, he has been
President and principal accountant for Business Financial Systems, Inc., an
indepdendent accounting firm, providing tax and accounting services for the
small business community, including oil and gas, construction, and real estate
brokerage accounting.
Kenneth Curry, age 40
Director, attended West Virginia University for a year studying forestry.
He is a Certified Logger in West Virginia. He is principal in and President and
Director of Square Roots, Inc., a logging and lumber company in Bridgeport, West
Virginia, from inception in May 1997 to present. He was a director of NELX, Inc.
from October 1997 to January 1999.
Mr. Curry was appointed as a Director in July 2000.
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 September 14, 2000:
Charles L. Stout
Denis Iler
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
Denis Iler 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
Denis Iler, Secretary/Director 1999 $0 $0
Bruce Bowler* 1997 $0 $0
Directors 1997 $0 $0
Aggregate
* Resigned in July 2000
LONG TERM COMPENSATION
----------------------
Options
Restricted & SARs
Stock LTIP LTIP Other
Awards Payouts Payouts Compensation
Charles L. Stout None None None None
Denis Iler 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, 2000, 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, President/Director 13,000,000 30.5%
Denis Iler, Secretary/Director 1,000,000 2.2%
Bruce Bowler, Director* 3,000,000 6.6%
Total owned by Officers and Directors 16,000,000 39.3%
* Resigned July, 2000
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, 2000, and 1999 are filed as part of
this report.
<PAGE>
Page
----
(1) Financial statements of NELX, Inc:
Report of Michael Johnson & Co., LLC. F-2
Report of Oatley & Hansen, P.C.
year ended May 31, 2000 F-3
Balance Sheets F-4
Statements of Operations F-5
Statements of Cash Flow F-6
Statements of Shareholders' Equity F-7
Notes to Financial Statements F-7
(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, 1999.
13.2* Quarterly Report of NELX, Inc. 10-QSB for Period ended November 30, 1999.
13.3* Quarterly Report of NELX, Inc. 10-QSB for Period ended February 28, 2000.
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.
/s/ Charles L. Stout
Octobber 3, 2000 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
______________________ President October 14, 2000
Charles L. Stout and Director
/s/ Denis Iler
______________________ Vice President October 14, 2000
Denis Iler
/s/ Kenneth L. Curry
______________________ Director October 14, 2000
Kenneth L. Curry
<PAGE>
NELX, INC.
FINANCIAL STATEMENTS
For the Year Ended May 31, 2000
<PAGE>
NELX, INC.
Financial Statements
Table of Contents
PAGE
Reports of Independent Public Accountants F-2 & F-3
Financial Statements
Consolidated Balance Sheet F-3
Consolidated Statement of Operations F-4
Consolidated Statement of Cash Flows F-5
Consolidated Statement of Changes in Stockholders' Equity F-6
Notes to Consolidated Financial Statements F-7
<PAGE>
Michael Johnson & Co., LLC
9175 E. Kenyon Avenue, #100
Denver, CO 80237
Telephone: (303) 796-0099
Fax: (303) 796-0137
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-2
<PAGE>
Oatley & Hansen, P.C.
6061 S. Willow Drive, Suite 230
Greenwood Village, CO 80111-6160
Telephone: (303) 770-2595
Fax: (303) 721-6925
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS'
August 8, 2000
To the Board of Directors
NELX, INC.
Lakewood, Colorado
We have audited the accompanying consolidated balance sheet of NELX, INC. as of
May 31, 2000, and the related consolidated 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.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the accompanying consolidated financial statements referred to
above present fairly, in all material respects, the financial position of NELX,
INC. at May 31, 2000, and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been presented assuming
that the Company will continue as a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. As discussed in Note A to the financial statements, the Company has
incurred significant recurring losses and has a substantial working capital
deficit as of May 31, 2000. In addition, at May 31, 2000, the Company had no
substantial product, service or properties and requires significant additional
financing to satisfy its outstanding obligations and commence operations. Unless
the Company successfully obtains suitable significant additional financing there
is substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also discussed in Note A. The
financial statements do not include any adjustments to reflect the possible
future effect on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the outcome of this
uncertainty.
/s/ Oatley & Hansen, P.C.
Greenwood Village, Colorado
F-3
<PAGE>
<TABLE>
<CAPTION>
NELX, INC.
CONSOLIDATED BALANCE SHEET
May 31, 2000
ASSETS
<S> <C>
CURRENT ASSETS
Cash $ 1,521
-------
Total current assets 1,521
INVESTMENT IN UNDEVELOPED MINERAL LEASE,
net of accumulated amortization of $9,517 121,658
-------
Total assets $ 123,179
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Settlement payable $ 24,254
Advances from stockholder 66,650
------
Total current liabilities 90,904
------
STOCKHOLDERS' EQUITY
Common stock, $.001 par value par value; 500 million shares authorized:
45,802,042 shares issued and outstanding 4,580
Additional paid-in capital 7,718,330
Accumulated deficit (7,690,635)
-----------
Total stockholders' equity 32,275
------
Total liabilities and stockholders' equity $ 123,179
=========
</TABLE>
F-3
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
NELX, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended May 31,
---------------------------------------
2000 1999
------------------ ------------------
<S> <C> <C>
REVENUE $ - $ 16,524
---- --------
GENERAL AND ADMINISTRATIVE EXPENSE 13,733 12,681
AMORTIZATION 5,106 4,542
INTEREST EXPENSE 500 4,411
---- -----
Total expenses 19,339 21,634
------- ------
NET INCOME (LOSS) $ (19,339) $ (5,110)
========== =========
BASIC AND DILUTIVE NET INCOME (LOSS) PER SHARE:
NET INCOME (LOSS) PER SHARE $ - $ -
==== ===
WEIGHTED AVERAGE SHARES OUTSTANDING 44,659,302 44,352,042
=========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE>
<TABLE>
<CAPTION>
NELX, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended May 31,
--------------------------------------
2000 1999
----------------- ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (19,339) $ (5,110)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation and amortization 5,106 4,411
Changes in operating assets and liabilities:
Accounts payable - (188,752)
Accrued liabilities - (10,036)
------- --------
Net cash flows from (used for) operating activities (14,233) (199,487)
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Disposition of equipment - 36,479
------- ------
Net cash flows (used for) investing activities - 36,479
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES
Exercise of stock options 17,500 161,600
Advances from stockholder 7,000 -
Repayment of advances from shareholder (6,000) -
Repayment of loan (3,000) -
------- -
Net cash flows (used for) from financing activities 15,500 161,600
------- -------
NET INCREASE (DECREASE) IN CASH 1,267 (1,408)
CASH AT BEGINNING OF YEAR 254 1,662
---- -----
CASH AT PERIOD END OF YEAR $ 1,521 $ 254
======== =====
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 500 $ 4,542
Non-cash investing transactions:
Issuance of 1.1 million shares to buyout overriding royalty interests 77,000 -
</TABLE>
See accompanying notes.
F-5
<PAGE>
<TABLE>
<CAPTION>
NELX, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Common Stock Additional
------------ Paid-In Accumulated
Shares Amount Capital Deficit
------------ ------------ ------------- --------------
<S> <C> <C> <C> <C>
Balances, May 31, 1998 46,352,042 $ 4,635 $ 7,465,975 $ (7,666,186)
Stock returned for re-issuance (6,000,000) (600) -
Issuance of stock for cash 4,000,000 400 158,000
Net (loss) - - - (5,110)
---------- ------- --------- -------------
Balances, May 31, 1999 44,352,042 4,435 7,623,975 (7,671,296)
Exercise of stock options 350,000 35 17,465 -
Issued to buyout overriding royalty interests 1,100,000 110 76,890 -
Net (loss) - - - (19,339)
----------- -------- ------------ -------------
Balances, May 31, 2000 45,802,042 $ 4,580 $ 7,718,330 $(7,690,635)
=========== ======== ============ =============
</TABLE>
See accompanying notes.
F-6
<PAGE>
NELX, INC.
Notes to Consolidated Financial Statements
Note A - Organization and Business
Organization and Nature of Business
-----------------------------------
NELX, INC. (the "Company") was incorporated in Kansas on March 25,
1983. As of May 31, 2000, the Company had no business operations. Its
principal asset is a leasehold interest in undeveloped mineral spring
in Arkansas. On July 26, 2000 the Company acquired all of the stock of
a West Virginia corporation in the business of producing dimensional
lumber, crossties and landscaping timber (see Note H).
The accompanying consolidated financial statements have been presented
assuming that the Company will continue as a going concern, which
contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company has incurred
significant recurring losses and has a substantial working capital
deficit as of May 31, 2000. In addition, at May 31, 2000, the Company
had no substantial product, service or properties and requires
significant additional financing to satisfy its outstanding obligations
and commence operations. Management's plans to address these matters
include acquisitions, private placements of stock and obtaining
short-term loans. Unless the Company successfully obtains suitable
significant additional financing there is substantial doubt about the
Company's ability to continue as a going concern. The financial
statements do not include any adjustments to reflect the possible
future effect on the recoverability and classification of assets or the
amounts and classification of liabilities that may result from the
outcome of this uncertainty.
Note B - Summary of Significant Accounting Policies
Principles of Consolidation
---------------------------
The financial statements include the accounts of Crystal Mountain
Water, Inc., a wholly owned subsidiary. All inter-company transactions
and balances have been eliminated.
Use of Estimates
----------------
Preparation of financial statements in conformity with generally accept
-ed accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial
statements and accompanying notes. Significant areas requiring the use
of management estimates are valuation of stock issued for services and
property and valuation of deferred tax benefits. Actual results
inevitably will differ from those estimates, and such differences may
be material to the financial statements.
F-7
<PAGE>
NELX, INC.
Notes to Consolidated Financial Statements
Property
--------
Property, including the Company's investment in an undeveloped mineral
spring, is recorded at cost. Maintenance and repair costs are charged
to expense as incurred, and renewals and improvements that extend the
useful life of assets are capitalized. Amortization of the leasehold
cost of the mineral spring is computed using the straight-line method
over the remaining term of the lease (including options to extend,
which ends October 28, 2026).
Amortization expense of $5,106 and $4,411 was recorded in fiscal 2000
and 1999, respectively.
Income Taxes
------------
The Company uses the asset and liability approach of accounting for
income taxes. The asset and liability approach requires the recognition
of deferred tax assets and liabilities for the expected future
consequences of temporary differences between the financial reporting
basis and tax basis of assets and liabilities (see Note D).
Statement of Cash Flows
-----------------------
Cash and cash equivalents include cash and short-term investments with
original maturities of three months or less.
Basic Earnings (Loss) Per Share
-------------------------------
Basic earnings (loss) per share of common stock are computed using the
weighted average number of shares outstanding during each period.
Diluted earnings per share are computed on the basis of the average
number of common shares outstanding plus the dilutive effect of
convertible debt, stock options and warrants.
The basic and the dilutive earnings per share are the same in fiscal
2000 and 1999 since the Company had net losses and the inclusion of the
effect of stock options would be anti-dilutive.
Concentrations
--------------
The principal asset of the Company is a leasehold interest in an
Arkansas mineral spring.
<PAGE>
NELX, INC.
Notes to Consolidated Financial Statements
Note D - Advances from Stockholders
As of May 31, 2000, unsecured, non-interest bearing advances totaling
$66,650 were due on demand to the Company's president.
Note D - Income Taxes
As of May 31, 2000, the accumulated net operating loss carryforward
that may be offset against future taxable income, if any, totals
approximately $6.4 million. The loss carryforward expires in varying
amounts from fiscal 2008 through fiscal 2020.
In addition, as of May 31, 2000, the Company had approximately $1.2
million of capital loss carryovers, which may be used only to offset
capital gains. The capital losses carryforward expires from fiscal 2001
through fiscal 2004.
A tax benefit has not been reported in the accompanying financial
statements for the operating and capital losses carried forward because
the Company is uncertain as to the likelihood of utilization.
Accordingly, the approximate tax benefit of $1.1 million of the amounts
carried forward has been offset by a valuation allowance of the same
amount, a decrease of approximately $3,000 in fiscal 2000.
Note E - Stockholders' Equity
Exercise of Stock Options
-------------------------
During fiscal 2000, options were exercised covering a total of 350,000
shares of common stock resulting in proceeds of $17,500.
Stock Issued to Liquidate Overriding Royalty Interest in Mineral Spring
-----------------------------------------------------------------------
On May 5, 2000, a total of 1.1 million shares of restricted common
stock, with an estimated value of $77,000 were issued to five
individuals to liquidate overriding royalty interests totaling $.016
per gallon in the Arkansas mineral spring.
Note F - Commitments and Contingencies
In fiscal 1998 an agreement was reached to settle a $24,524 loan. As
part of the agreement the creditor was also to transfer 550,000 to
third parties and return 166,667 shares to the Company (a total of
666,667 shares). As of May 31, 2000, the agreement has not been
executed.
<PAGE>
NELX, INC.
Notes to Consolidated Financial Statements
Note G - Fair Value of Financial Instruments
The carrying amounts for the settlement payable and advances from
stockholder approximates fair value because of the short-term
maturities of these instruments.
The determinations of fair value discussed above are subjective in
nature and involve uncertainties and significant matters of judgment
and do not include income tax considerations. Therefore, the results
cannot be determined with precision and cannot be substantiated by
comparison to independent market values and may not be realized in
actual sale or settlement of the instruments.
Note H - Events Subsequent to May 31, 2000 (Unaudited)
July 26, 2000, the Company acquired all of the voting stock of Square
Roots Incorporated, a West Virginia corporation for 1 million shares of
common stock.
