UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   FORM 10-KSB

                    ANNUAL REPORT UNDER SECTION 13 OR 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                     For the fiscal year ended May 31, 2005


                                   NELX, INC.
                                ---------------
             (Exact name of registrant as specified in its charter)

<TABLE>
<CAPTION>
<S>                                      <C>                                   <C>
======================================== ===================================== =====================================
                Kansas                                 0-21210                              84-0922335
                ------                                 -------                              ----------
---------------------------------------- ------------------------------------- -------------------------------------
    (State or other jurisdiction of            (Commission File Number)         (IRS Employer Identification No.)
            incorporation)
======================================== ===================================== =====================================
</TABLE>
                         300 Summers Street, Suite 970,
                              Charleston, WV 25301
                      -------------------------------------
               (Address of principal executive offices) (Zip Code)


       Registrant's telephone number, including area code: (304) 343-8171
                                                           --------------


          Securities registered under Section (b) of the Exchange Act:

                                      NONE

          Securities registered under Section (g) of the Exchange Act:

                          COMMON STOCK $.0001 PAR VALUE

Check  whether  the issuer  (1) has filed all  reports  required  to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the proceeding
12 months (or for such shorter  period that the  registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.

                                                  Yes x     No ___
                                                     ---
<PAGE>

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the best of the  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. [x]

State the issuer's revenues for the most recent fiscal year.  $260,347

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates  computed by reference to the price at which the common equity
was sold,  or the average bid and asked  price of such  common  equity,  as of a
specified  date  within  the past 60 days.  As of last  trade on August 1, 2005:
$1,212,961.30 (91,200,105 shares at $.0133 / share)

State the number of shares outstanding of each of the issuer's classes of common
equity,  as of the latest  practicable  date:  122,663,860  common  shares as of
September 6, 2005.


















                                       1
<PAGE>
                                TABLE OF CONTENTS

                                     PART I

                                                                            Page

Item 1.  Description of Business...............................................3

Item 2.  Description of Property...............................................4

Item 3.  Legal Proceedings.....................................................4

Item 4.  Submission of Matters to a Vote of Security Holders...................4


                                     PART II

Item 5.  Market for Common Equity and Related
         Stockholder Matters...................................................4

Item 6.  Management's Discussion and Analysis of
         Financial Condition and Results of Operations.........................5

Item 7.  Financial Statements..................................................9

Item 8.  Changes In and Disagreements with Accountants
         on Accounting and Financial Disclosure...............................10

Item 8A. Evaluation of Disclosure Controls and Procedures;
         Changes In Internal Controls.........................................10

Item 8B. Other Information - Reportable Conditions............................10

                                    PART III

Item 9.  Directors, Executive Officers, Promoters and Control
         Persons; Compliance With Section 16(a) of the
         Exchange Act.........................................................10

Item 10. Executive Compensation...............................................12

Item 11. Security Ownership of Certain Beneficial Owners
         and Management.......................................................13

Item 12. Certain Relationships and Related Transactions.......................14

Item 13. Exhibits, and Reports on Form 8-K....................................15

Item 14. Principal Accountant Fees and Services...............................15

                                       2
<PAGE>


                                     PART I

ITEM 1. BUSINESS

NELX, Inc.  ("NELX" or the "Company") was incorporated in the State of Kansas in
March 1983 as Nelson Exploration, Inc. for the purpose of acquiring, dealing in,
and if warranted, developing oil and gas properties. In October 1993 the Company
changed its name to NELX,  Inc.  Prior to May 2001,  the Company  owned  certain
non-producing oil and gas properties as well as various real estate  properties.
Due to continuing lack of capital  partners for oil and gas  exploration  and/or
real estate development, in fiscal year 1997 the Company turned its attention to
divesting  its  interests  in said  properties.  For the next three  years,  the
principal  activities  of the Company  involved  disposing  of assets,  settling
claims and liabilities  and considering  potential  business  combinations  with
related or  complementary  businesses.  During  fiscal year 2001,  the Company's
principal  assets  consisted of a leasehold  interest in an undeveloped  mineral
spring in Arkansas and certain oil and gas properties  located in West Virginia.
The oil and gas properties were sold in May 2001.

On May 29, 2001,  the Company  acquired two  businesses,  FS  Investments,  Inc.
("FSI") and Jacobs & Company  ("Jacobs & Co." or  "Jacobs"),  in exchange for 75
million shares of common stock of NELX. The  transaction  was accounted for as a
recapitalization of FSI and Jacobs & Co. effected by a reverse acquisition.  For
accounting purposes,  NELX was treated as the acquiree, and no goodwill or other
intangible asset was recorded.

FSI,  incorporated  in 1997 in West  Virginia,  is a  holding  company  that was
organized to develop  surety  business  through the formation or  acquisition of
subsidiaries   engaged  in  the  issuance  of  surety  bonds  collateralized  by
investment accounts that are professionally  managed by Jacobs & Co. Through its
wholly-owned  subsidiary,  Triangle Surety Agency, Inc. ("Triangle Surety"), FSI
is actively  engaged in the placement with insurance  companies of surety bonds,
with an emphasis on clients engaged in regulated industries.

Jacobs  & Co.,  incorporated  in  1988  in West  Virginia,  is a SEC  registered
investment advisory firm whose executive offices are located in Charleston, West
Virginia.  Jacobs & Co.  provides  fee based  investment  advisory  services  to
institutions  and  individuals,  including the Jacobs & Company Mutual Fund (the
"J&C Fund" or the "Fund"),  which was  organized in June 2001 as a series of the
Advisors Series Trust. On June 27, 2005, the Fund was reorganized as a series of
Northern Lights Fund Trust.

Since the May 29, 2001 business combination,  the Company has expanded its focus
to include the ongoing  business and  activities  of FSI and Jacobs,  namely the
surety business and investment  management and related services.  The Company is
headquartered  in  Charleston,  West  Virginia,  and  through  its  wholly-owned
subsidiaries, employs a total of eight (8) employees, of which five (5) are full
time employees.

                                       3
<PAGE>

ITEM 2. PROPERTIES

Through its wholly-owned  subsidiary,  Crystal Mountain Water, Inc. ("CMW"), the
Company has an undeveloped  leasehold interest in a mineral water spring located
near Hot Springs,  Arkansas. Under this leasehold arrangement,  CMW is obligated
for minimum lease payments in the amount of  approximately  $150 per month until
October  2006,  with  automatic  options  to extend  the  leasehold  for two (2)
additional  ten-year terms extending  through October 2026. CMW has the right to
cancel the lease upon sixty (60) days written  notice at any time.  The property
is presently not being  actively  explored or developed.  During the 2002 fiscal
year,  management  evaluated the lease and  determined the  development  was not
currently feasible.  Accordingly, the Company recorded an impairment of $116,661
to its  investment in the lease.  Opportunities  will continue to be explored as
they arise with respect to the development or sale of the leasehold interest.

ITEM 3. LEGAL PROCEEDINGS

None


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company'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 price information for the Company's common stock for the periods  indicated.
Such prices are inter-dealer  prices,  without mark-up,  mark-down or commission
and may not represent actual transactions.

                                               High                      Low
                                              -----                      ---

Fiscal Year Ended May 31, 2005

         4th Quarter                           .013                      .006
         3rd Quarter                           .013                      .007
         2nd Quarter                           .02                       .006
         1st Quarter                           .05                       .015


Fiscal Year Ended May 31, 2004

         4th Quarter                           .03                       .013
         3rd Quarter                           .038                      .013
         2nd Quarter                           .045                      .015
         1st Quarter                           .04                       .015

As of September 6, 2005, there were  approximately  800 holders of record of the
Company's common stock.

The Company has neither declared nor paid any cash dividends on its common stock
during  the last  two  fiscal  years,  and it is not  anticipated  that any such
dividend will be declared or paid in the foreseeable future.

                                       4
<PAGE>

ITEM 6. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Basis of Financial Reports

For the three years  preceding  its  acquisition  of FSI and Jacobs & Co. in May
2001, the Company had no substantial continuing business operations. During this
time, the Company focused its efforts on the liquidation of non-producing assets
and  settlement  of  existing  obligations.   Loan  advances  from  a  principal
shareholder and director financed deficits in working capital. Additionally, the
Company  searched for potential  equity partners or business  combinations  that
would  be  complementary  to  its  historic  business  and  that  could  enhance
shareholder value.

In May 2001,  prior to its acquisition of FSI and Jacobs,  NELX  consummated the
sale of certain oil and gas  properties  located in Roane County,  West Virginia
that NELX had previously  acquired from an affiliate of a principal  shareholder
for a nominal  amount.  As a result,  the Company  realized net proceeds of $1.3
million.  The  consummation  of this  transaction  afforded  NELX the ability to
acquire FSI and Jacobs as it provided a source of capital for the curtailment of
debt and the financing of ongoing operations.

The Company's acquisition of FSI and Jacobs & Co. was accounted for as a reverse
acquisition and a recapitalization of FSI and Jacobs & Co.

RESULTS OF OPERATIONS FOR THE YEAR ENDED MAY 31, 2005

The  Company  suffered  an  operating  loss in fiscal  2005 of  $1,120,000.  The
principal  factors that influenced the results of operations for the fiscal year
were a relatively  stagnant  performance of the investment  accounts  managed by
Jacobs & Co.,  continuing  contractions in the surety business  resulting from a
loss of  underwriters  willing to provide  surety bonds,  and expenses  incurred
during the period to arrange  for the  acquisition  of an  insurance  company to
respond to the crisis in the surety  markets  which  culminated in the Company's
execution  of a  definitive  stock  purchase  agreement  with  the  owner of the
insurance company on July 31, 2005 (see, "Future Direction of Company").

While Jacobs & Co. was able to add assets under management through its marketing
efforts,  the  loss of  surety  business  and the  managed  collateral  accounts
associated  with such  business  resulted in a net  contraction  in assets under
management and revenues derived from the investment advisory business.

General and  administrative  expenses were down  slightly,  with the decrease in
general and administrative  being offset by an increase in mutual fund expenses;
overall,  total expenses increased  significantly  because of increased interest
expense as the result of the working capital deficit and continued  financing of
operations with short term debt. Also, the Company's incurred additional general
and  administrative  expenses  associated  with the potential  acquisition  of a
licensed insurance company.

The J&C Fund is responsible for its own operating  expenses.  However, to assure
the viability of the Fund and in accordance with industry norms, Jacobs & Co. as
the  investment  adviser,  has  agreed  to limit  the  Fund's  aggregate  annual
operating  expenses  to 2.00% of the average net  assets.  During  fiscal  2005,
Jacobs  bore  $111,902  of  expenses  of the J&C Fund  pursuant  to its  expense
limitation agreement, while earning $72,479 in investment advisory fees from the
Fund.  Fiscal  2005  was  disappointing,  based  in part on the  loss of  surety
collateral  accounts and also  stagnant  performance,  neither of which could be
fully offset by the Company's marketing efforts.

                                       5
<PAGE>

COMPARISON OF RESULTS OF OPERATIONS FOR FISCAL 2005 WITH FISCAL 2004

The Company  experienced a loss for the year ended May 31, 2005 in the amount of
$1,120,133 as compared with a loss of $970,926 for its year ended May 31, 2004.

Revenues for fiscal 2005 were $260,347 versus $315,916 for fiscal 2004. Revenues
of the Company's surety segment increased from $11,775 in fiscal 2004 to $22,337
in fiscal 2005. Revenues of the Company's  investment advisory segment decreased
from $290,070 to $238,035.

Operating  expenses for fiscal 2005 were  $1,380,480 as compared with $1,286,842
for fiscal 2004, an increase of $93,638.  Such increase was  attributable  to an
increase  in  mutual  fund  costs of  $9,229,  which was  partially  offset by a
decrease in general and administrative  expenses of $22,337,  and to an increase
in interest  expense to $324,226 for fiscal 2005,  as compared with $218,164 for
fiscal  2004.  The   substantial   increase  in  interest   expense  is  largely
attributable  to the  Company's  continued  debt  financing  of  operations  and
substantial deficit in working capital.

CONTRACTUAL OBLIGATIONS

The following table lists our significant liabilities at May 31, 2005:
<TABLE>
<CAPTION>

                                                                 Payments Due by Period
                                          Less than                                            After
Contractual Obligations:                    1 Year          2-3 Years       4-5 Years         5 Years        Total
                                          ----------         -------        --------         --------     ----------

<S>                                       <C>                <C>            <C>              <C>          <C>
Long-term debt                            $1,419,300         $     0        $      0         $      0     $1,419,300
Long-term debt to Related Parties
                                           1,605,715          33,204          54,378            8,120      1,701,417
Operating leases                               7,919          13,703          11,508                          33,130
                                          ----------         -------        --------         --------     ----------
Total contractual cash obligations
                                          $3,032,934         $46,907        $ 65,886         $  8,120     $3,153,847
                                          ==========         =======        ========         ========     ==========
</TABLE>

NELX has no  outstanding  guarantees  or other  commitments  to be  disclosed as
contractual  obligations.  The terms of the  contractual  obligations  discussed
above have been included in the financial information at Item 7.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our financial condition and results of operations
are based upon our consolidated  financial statements,  which have been prepared
in accordance with accounting principles generally accepted in the United States
of America.  The preparation of these financial  statements  requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues  and  expenses,   and  related  disclosure  of  contingent  assets  and
liabilities.  On an on-going basis,  we evaluate our estimates,  including those
related to allowance for uncollectible receivables, impairment and income taxes.
We base our estimates on historical experience, current and anticipated business
conditions,   the  condition  of  the  financial  markets,   and  various  other
assumptions that are believed to be reasonable under existing conditions. Actual
results may differ from these estimates.

                                       6
<PAGE>

We believe  that the  following  critical  accounting  policies  affect our more
significant  judgments and estimates used in the preparation of our consolidated
financial statements:

Allowance for  Uncollectible  Receivables.  The majority of our fee revenues are
generated  by  services  provided to  companies  throughout  the Eastern  United
States.  We evaluate the need for a reserve for the amount of these  receivables
that may be uncollectible,  based upon historical  collection  activity adjusted
for current  conditions.  Based on this  evaluation,  management  believes  that
substantially  all accounts  receivable are  collectible,  and therefore has not
established an allowance for estimated uncollectible accounts.

Impairment.  We evaluate  long-lived assets,  including our undeveloped  mineral
spring  lease,  for  impairment  annually,  or  whenever  events or  changes  in
circumstances indicate that the assets may not be recoverable. The impairment is
measured  by  calculating  the  estimated  future  cash  flows  expected  to  be
generated,  and comparing this amount to the carrying  value of the asset.  Cash
flows are calculated utilizing forecasts and projections for the estimated lives
of the assets being analyzed. Should actual results differ from those forecasted
and  projected,  we are subject to future  impairment  charges  related to these
facilities.

Income Taxes.  We currently have net operating loss ("NOL")  carryforwards  that
may be available to offset  future income for federal and state tax purposes and
may  represent a  significant  deferred tax asset.  However,  we have recorded a
valuation  allowance  against this deferred tax asset as we have determined that
it is more likely  than not that we will not be able to fully  utilize the NOLs.
Should our assumptions  regarding the  utilization of these NOLs change,  we may
reduce  some or all of this  valuation  allowance,  which  would  result  in the
recording of an income tax benefit.


FUTURE DIRECTION OF COMPANY

The  Company  intends  to focus its  efforts  on the  expansion  of the  ongoing
business  activities  of FSI and Jacobs & Co.,  namely  insurance  (surety)  and
investment  management and advisory  services.  Critical to its business plan is
the  acquisition of an insurance  company that will issue surety bonds utilizing
programs  developed  by FSI and marketed by Triangle.  The  collateral  accounts
required as a condition  of the issuance of such surety bonds will be managed by
Jacobs & Co. Thus, if an insurance company can be acquired, revenue sources will
be  created  for each of  Triangle  and  Jacobs & Company,  in  addition  to the
revenues  generated by the  insurance  company  directly  from  premiums for the
issuance of surety bonds.

On May 28, 2004,  the Company  entered into an  Exclusivity  Agreement  with the
owner of an insurance  company that granted the Company the  exclusive  right to
acquire the insurance company;  and on July 31, 2005, the Company entered into a
definitive  purchase agreement with the owner to acquired the insurance company.
Under the terms of the purchase agreement, upon closing of the acquisition,  the
insurance  company will maintain  licenses in West  Virginia,  Ohio and Indiana,
will have approximately $2,850,000 in capital reserves, will have no liabilities
and will have no other business assets.  Conditions of the acquisition include a
requirement  that the  Company  obtain the  approval  of  applicable  regulatory
authorities  and arrange  necessary  financing.  The Company  has  submitted  an
application  to the West  Virginia  Insurance  Commissioner  for approval of the
acquisition and of its plan to operate the insurance company as a surety and has
obtained commitments for $1,500,000 to finance the acquisition and is seeking to
obtain  commitments  for an additional  $3,500,000.  Prior to the closing of the

                                       7
<PAGE>

acquisition,  the  Company  will  seek  the  approval  of  the  shareholders  to
reorganize the Company as a Delaware  corporation with articles of incorporation
that  authorize the board of directors to issue  preferred  stock to finance the
Company's  business  operations,  including  the  acquisition  of the  insurance
company. If the Company is able to secure the necessary regulatory approvals and
arrange  financing as  described,  the  opportunity  in the  marketplace  for an
insurance  company offering surety products  combined with the synergies created
for the businesses of Triangle and Jacobs & Co. should dramatically  enhance the
overall business prospects of the Company.  However, if the Company is unable to
secure the necessary regulatory approvals and arrange the necessary financing to
complete the  acquisition,  its prospects  for growth and viability  will not be
good.

ANALYSIS OF FINANCIAL CONDITION

As of May 31, 2005,  a deficiency  in working  capital  exists as the  Company's
current  liabilities  exceed its  current  assets by  approximately  $4,181,000.
Recognizing the cash flow shortages that the Company is facing,  management will
seek to raise  additional  funds through  private  placements of stock at prices
that will not be  dilutive  to current  shareholders.  The  Company is  actively
attempting to raise  financing for the  acquisition  of an insurance  company as
described  in "Future  Direction  of Company,"  above.  If such a financing  and
acquisition are successfully accomplished, holders of the Company's indebtedness
who have been granted the right to convert such  indebtedness into common shares
will be encouraged to exercise their conversion rights. If the Company is unable
to arrange financing for the acquisition, it may not survive.

Irrespective of whether the Company's cash assets prove to be inadequate to meet
the Company's  operational needs, the Company might seek to compensate providers
of services by issuances of stock in lieu of cash.

Going  concern  contingency:  The Company has incurred  significant  losses from
operations  since  inception,  and such  losses are  expected  to  continue.  In
addition,  the  Company  experienced  negative  cash  flow  from  operations  of
approximately  $796,000  in fiscal  2005.  Also,  the Company has no net working
capital.  The foregoing raises  substantial doubt about the Company's ability to
continue as a going concern. Management's plans include continuation of steps to
improve cash flow, including the acquisition of an insurance company licensed to
issue surety bonds that will generate revenues. Management intends to accomplish
these objectives by seeking additional  capital and/or debt financing.  There is
no guarantee  that  additional  capital  and/or debt financing will be available
when  and to the  extent  required,  or that if  available,  it will be on terms
acceptable to the Company. The consolidated  financial statements do not include
any adjustments that might result from the outcome of this uncertainty.


                                       8
<PAGE>



ITEM 7. FINANCIAL STATEMENTS

The following financial statements are included herein in response to Item 7:

                                                                           Page

         Table of Contents                                                  F-1

         Report of Independent Registered Public Accounting Firm            F-2

         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












                                       9
<PAGE>
                                   NELX, INC.
                               TABLE OF CONTENTS


                                                                         PAGE

Report of Independent Public Accountants                                  F-2

Consolidated Financial Statements -

    Balance Sheet                                                         F-3

    Statement of Operations                                               F-4

    Statement of Cash Flows                                               F-5

    Statement of Changes in Stockholders' Equity (Deficit)                F-6

    Notes to Consolidated Financial Statements                            F-7


















                                      F-1
<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors
NELX, INC.
Charleston, West Virginia


We have audited the accompanying  consolidated balance sheet of NELX, INC. as of
May 31, 2005, and the related consolidated statements of operations,  cash flows
and changes in  stockholders'  equity (deficit) for the years ended May 31, 2005
and 2004.  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 audits.

We conducted  our audits in  accordance  with  standards  of the Public  Company
Accounting  Oversight  Board (U.S.).  Those  standards  require that we plan and
perform the audits to obtain  reasonable  assurance  about whether the financial
statements  are free of material  misstatement.  The Company is not  required to
have,  nor were we engaged to perform,  an audit of its  internal  control  over
financial reporting.  Our audit included  consideration of internal control over
financial  reporting  as  a  basis  for  designing  audit  procedures  that  are
appropriate  in the  circumstances,  but not for the  purpose of  expressing  an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting. Accordingly, we express no such opinion. 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 audits provide 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, 2005,  and the results of its  operations and its cash flows for
the years ended May 31, 2005 and 2004, in conformity with accounting  principles
generally accepted in the United States of America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note A to the
financial statements,  the Company's significant net working capital deficit and
operating  losses  raise  substantial  doubt  about its ability to continue as a
going  concern.  The financial  statements do not include any  adjustments  that
might result from the outcome of this uncertainty.


/s/Gordon, Hughes & Banks, LLP
Greenwood Village, Colorado
July 21, 2005

                                      F-2
<PAGE>

<TABLE>
<CAPTION>
NELX, INC.
CONSOLIDATED BALANCE SHEET
MAY 31, 2005


ASSETS

CURRENT ASSETS
<S>                                                                                     <C>
    Cash and cash equivalents                                                           $        437
    Receivables                                                                               28,286
    Prepaid and other                                                                          7,560
                                                                                        --------------
      Total current assets                                                                    36,283
                                                                                        --------------

FURNITURE AND EQUIPMENT,
    net of accumulated depreciation of $93,425                                                10,659

Deposits                                                                                      40,000
                                                                                        --------------

      Total assets                                                                      $     86,942
                                                                                        ==============



LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
    Notes payable                                                                      $   1,419,300
    Notes payable - related parties                                                        1,605,715
    Accounts payable                                                                         271,295
    Accrued interest payable                                                                 121,632
    Accrued expenses                                                                         799,376
                                                                                        --------------
      Total current liabilities                                                            4,217,318

NOTES PAYABLE, less current maturities - related parties                                      95,702
                                                                                        --------------
      Total liabilities                                                                    4,313,020
                                                                                        --------------

STOCKHOLDERS' EQUITY (DEFICIT)
    Common stock, $.0001 par value par value; 500 million shares
      authorized: 122,663,860 shares issued and outstanding                                   12,266
    Additional paid-in capital                                                             1,115,138
    Accumulated deficit                                                                   (5,353,482)
                                                                                        --------------
      Total stockholders' equity (deficit)                                                (4,226,078)
                                                                                        --------------

      Total liabilities and stockholders' equity (deficit)                              $    86,942
                                                                                        ==============
</TABLE>


                            See accompanying notes.

                                      F-3
<PAGE>
<TABLE>
<CAPTION>
NELX, INC.
CONSOLIDATED STATEMENT OF OPERATIONS


                                                                             Year Ended May 31,
                                                                       -------------------------------
                                                                           2005             2004
                                                                       --------------   --------------


<S>                                                                    <C>                  <C>
REVENUE                                                                $     260,347        $ 315,916
                                                                       --------------   --------------

EXPENSES
    General and administrative                                               902,444          924,781
    Mutual fund costs                                                        147,870          138,641
    Interest                                                                 324,266          218,164
    Depreciation and amortization                                              5,900            5,256
                                                                       --------------   --------------

      Total expenses                                                       1,380,480        1,286,842
                                                                       --------------   --------------

NET (LOSS)                                                               $(1,120,133)      $ (970,926)
                                                                       ==============   ==============


BASIC AND DILUTIVE NET (LOSS) PER SHARE:

    NET (LOSS) PER SHARE                                                     $ (0.01)         $ (0.01)
                                                                       ==============   ==============

    WEIGHTED AVERAGE SHARES OUTSTANDING                                  122,663,860      120,709,510
                                                                       ==============   ==============


</TABLE>



                             See accompanying notes.

                                      F-4
<PAGE>
<TABLE>
<CAPTION>
NELX, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS


                                                                             Year Ended May 31,
                                                                       -------------------------------
                                                                           2005             2004
                                                                       --------------   --------------

CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                    <C>              <C>
    Net (loss)                                                         $  (1,120,133)   $    (970,926)
    Adjustments to reconcile net (loss) to
      net cash provided by operating activities
         Depreciation                                                          5,900            5,256
         Stock issued for debt forebearance and guarantees                    34,637                -
         Warrants issued to vendor                                                 -           39,966
         Changes in operating assets and liabilities:
           Receivables                                                        13,697            2,140
           Prepaid and other current assets                                      236            3,466
           Accounts payable                                                   (8,038)          68,075
           Accrued expenses                                                  277,616          224,437
                                                                       --------------   --------------
                Net cash flows provided (to) operating activities           (796,085)        (627,586)
                                                                       --------------   --------------

CASH FLOWS FROM INVESTING ACTIVITIES
    Purchase furniture and equipment                                          (3,050)          (1,823)
    Deposit                                                                  (25,000)         (15,000)
                                                                       --------------   --------------
                Net cash flows provided from (to) investing actvities        (28,050)         (16,823)
                                                                       --------------   --------------

CASH FLOWS FROM FINANCING ACTIVITIES
    Proceeds from related party debt                                       1,187,464        1,196,336
    Repayments of related party debt                                        (677,313)      (1,058,701)
    Proceeds from debt obligations                                           423,150          585,500
    Repayments of debt obligations                                          (109,350)         (78,929)
                                                                       --------------   --------------
                Net cash flows provided from (to) financing activities       823,951          644,206
                                                                       --------------   --------------

NET INCREASE (DECREASE) IN CASH                                                 (184)            (203)

CASH AND EQUIVALENTS, BEGINNING OF PERIOD                                        621              824
                                                                       --------------   --------------

CASH AND EQUIVALENTS, END OF PERIOD                                    $         437    $         621
                                                                       ==============   ==============


SUPPLEMENTAL DISCLOSURES
    Interest paid                                                      $     223,055    $     218,033
    Income taxes paid                                                              -                -
    Non-cash investing and financing transactions:
      Accrued interest added to notes payable                                      -           12,558


</TABLE>





                             See accompanying notes

                                      F-5
<PAGE>
<TABLE>
<CAPTION>
NELX, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY



                                                                                     Additional
                                                             Common Stock             Paid- In        Accumulated
                                                       -------------------------                 ---------------------
                                                        Shares           Amount       Capital           Deficit           Total
                                                       ------------------------- ---------------------------------------------------

<S>                                                     <C>            <C>          <C>               <C>               <C>
Balance, May 31, 2003                                   120,709,510    $ 12,071     $ 1,040,730       $(3,262,423)     $(2,209,622)

    Issuance of warrants to vendor                                -           -          39,966                 -           39,966

    Net (loss), year ended May 31, 2004                           -           -               -          (970,926)        (970,926)
                                                        -----------    ---------    ------------      ------------      -----------

Balance, May 31, 2004                                   120,709,510    $ 12,071     $ 1,080,696       $(4,233,349)     $(3,140,582)

    Issuance of stock for debt forbearance                1,954,350         195          34,442                 -           34,637
     and guarantees

    Net (loss), year ended May 31, 2005                           -           -               -        (1,120,133)      (1,120,133)
                                                        -----------    ---------    ------------      ------------      -----------

Balance, May 31, 2005                                   122,663,860    $ 12,266     $ 1,115,138       $(5,353,482)     $(4,226,078)
                                                        ===========    =========    ============      ============      ===========
</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" or "NELX") was  incorporated  in Kansas on March 25,
1983. In 2001, the Company  acquired two  wholly-owned  subsidiaries  located in
Charleston, West Virginia: Jacobs & Company ("Jacobs") and FS Investments,  Inc.
("FSI").  Jacobs is a  registered  investment  advisory  firm that  derives  its
revenue from asset-based  fees.  Jacobs serves clients in  approximately  twenty
states,  primarily in the eastern United States.  FSI,  through its wholly-owned
subsidiary Triangle Surety Agency, Inc. ("Triangle"), is engaged in the business
of  placing  surety  bonds  with  insurance  companies  for  clients  engaged in
regulated industries,  such as the extraction of coal, oil and gas. FSI receives
commission  income  from the  placement  of these  bonds and is  licensed in ten
states primarily in the eastern United States.  The Company and its subsidiaries
are subject to the business risks inherent with the financial services industry.

LIQUIDITY AND GOING CONCERN

These  financial  statements  are  presented  on the basis that the Company is a
going  concern.  Going concern  contemplates  the  realization of assets and the
satisfaction  of  liabilities in the normal course of business over a reasonable
length  of  time.  The  Company  incurred   operating  losses  of  approximately
$1,120,000 and $971,000 for the years ended May 31, 2005 and 2004, and as of May
31, 2005 had a $4,181,000 working capital deficit and a $4,226,000 stockholders'
deficit.  These factors raise  substantial  doubt about the Company's ability to
continue as a going concern.

Management  intends to  continue  with  steps it has taken to improve  cash flow
through  operations,  including the acquisition of an insurance company licensed
to issue surety bonds that will generate revenues.  Management may seek to raise
additional  funds  through  private  placements  of stock,  other  long-term  or
permanent financing,  or short-term  borrowings.  However, the Company cannot be
certain  that it will be able to obtain such funds,  complete  the  contemplated
acquisition,  nor can it predict  whether it will be able to continue as a going
concern.  The accompanying  financial  statements do not include any adjustments
that might result from the outcome of this uncertainty.

                                      F-7
<PAGE>
NELX, INC.
Notes to Consolidated Financial Statements

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------
PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of NELX, Inc. and its
majority owned subsidiaries, after the elimination of intercompany transactions.

USE OF ESTIMATES

Preparation of financial  statements in conformity  with  accounting  principles
generally  accepted in the United States of America 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 include the collectibility of receivables and valuation of
deferred  tax  benefits.  Actual  results  inevitably  will  differ  from  those
estimates, and such differences may be material to the financial statements.

RECENT ACCOUNTING PRONOUNCEMENTS

On December 16, 2004, the Financial  Accounting  Standards Board ("FASB") issued
Statement of Financial  Accounting  Standards  ("SFAS") No. 123 (revised  2004),
"Share-Based  Payment."  SFAS No. 123(R) will require the Company to measure all
employee  stock-based  compensation  awards using a fair value method and record
such expense in its consolidated  financial  statements.  In addition,  SFAS No.
123(R) will require additional  accounting related to the income tax effects and
additional disclosure regarding the cash flow effects resulting from share-based
payment arrangements.  For public entities that file as a small business issuer,
SFAS No. 123(R) is effective for the first  interim or annual  reporting  period
beginning after December 15, 2005.

In December  2004,  the FASB issued SFAS No. 153. This  Statement  addresses the
measurement of exchanges of nonmonetary  assets. The guidance in APB Opinion No.
29,  Accounting  for  Nonmonetary  Transactions,  is based on the principle that
exchanges of  nonmonetary  assets should be measured  based on the fair value of
the assets exchanged.  The guidance in that Opinion,  however,  included certain
exceptions to that principle.  This Statement amends Opinion 29 to eliminate the
exception for nonmonetary exchanges of similar productive assets and replaces it
with a general  exception for exchanges of  nonmonetary  assets that do not have
commercial  substance.  A nonmonetary  exchange has commercial  substance if the
future cash flows of the entity are expected to change significantly as a result
of the exchange. This Statement is effective for financial statements for fiscal
years  beginning  after June 15, 2005.  Earlier  application  is  permitted  for
nonmonetary  asset  exchanges  incurred  during fiscal years beginning after the
date of this Statement is issued.

                                      F-8
<PAGE>
NELX, INC.
Notes to Consolidated Financial Statements

In June 2005,  the FASB  issued  SFAS No.  154,  "Accounting  Changes  and Error
Corrections"  which  replaces APB Opinion 20 and FASB Statement 3. Statement 154
changes  the  requirements  for the  accounting  and  reporting  of a change  in
accounting principle. Opinion 20 previously required that most voluntary changes
in accounting principles be recognized by including the cumulative effect of the
new  accounting  principle in net income of the period of change.  Statement 154
now requires  retrospective  application  of changes in accounting  principle to
prior period financial statements,  unless it is impractical to determine either
the  period-specific  effects  or  the  cumulative  effect  of the  change.  The
Statement is effective for fiscal years beginning after December 15, 2005.

Management  does not expect the  adoption of these rules and  pronouncements  to
have a material  impact on the  Company's  results of  operations  or  financial
position.

REVENUE RECOGNITION

Fees for investment  advisory  services are based on an agreed percentage of the
value of client  assets  under  management  and are accrued  based on the market
value of client assets on the accrual date. Commissions for surety bond services
are based on a percentage  of premiums  charged for bonds placed with  insurance
companies,  and are recorded upon the issuance or effective  renewal date of the
bonds.  The Company is not responsible for any significant  continuing  services
subsequent to the issuance or renewal of bonds.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

Management  believes that substantially all accounts receivable are collectible,
and therefore  has not  established  an allowance  for  estimated  uncollectible
accounts.

LONG-LIVED ASSETS

When facts and circumstances  indicate that the cost of long-lived assets may be
impaired,  an  evaluation  of the  recoverability  is performed by comparing the
carrying value of the assets to the projected future cash flows. Upon indication
that the  carrying  value of such  assets may not be  recoverable,  the  Company
recognizes an impairment  loss by a charge against current  operations  based on
discounted projected future cash flows.

FURNITURE AND EQUIPMENT

Furniture and equipment is recorded at cost. Maintenance and repairs are charged
to operations  when  incurred.  When property and equipment are sold or disposed
of, the asset account and related accumulated depreciation account are relieved,
and any  gain or loss is  included  in  operations.  The  cost of  property  and
equipment is depreciated  over the estimated useful lives of the related assets,
ranging from three to seven years,  using the  double-declining  balance method,
which approximates estimated economic depreciation.

                                      F-9
<PAGE>
NELX, INC.
Notes to Consolidated Financial Statements

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 E).

STATEMENT OF CASH FLOWS

Cash and cash equivalents include cash and short-term  investments with original
maturities of three months or less (including money market investment funds with
immediate availability).

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.  In periods of net loss, there are no diluted earnings per share since
the result would be anti-dilutive.

















                                      F-10
<PAGE>

NELX, INC.
Notes to Consolidated Financial Statements

NOTE C - NOTES PAYABLE
----------------------
<TABLE>
<CAPTION>
Notes payable consist of the following as of May 31, 2005:
<S>                                                                                                           <C>
           Note  payable  dated  June,  2003,  10%  interest,  secured by personal  guarantee  of an
           officer,  convertible  into common stock at $.10 per share (or lower price  implicit in a
           Qualified  Financing,  as defined)  before the earlier of i) extended due date of October
           15, 2005  maturity,  or ii) a financing of debt or equity for net proceeds of at least $5
           million (a "Qualified Financing").                                                                  $50,000

           Notes payable to an individual,  dated in fiscal 2003, 10% interest,  secured by personal
           guarantee of an officer,  convertible into common stock at $.10 per share (or lower price
           implicit in a Qualified  Financing)  before the  earlier of i) the  extended  due date of
           October 15, 2005, or ii) a Qualified Financing.                                                     325,000

           Notes payable to an individual, dated in October 2004, 10% interest, secured by personal
           guarantee of an officer, convertible into common stock at $.10 per share (or lower price
           implicit in a Qualified Financing) before the earlier of i) payment thereof, and
           retirement of the notes, or ii) a Qualified Financing.  Due on demand.                              350,000

           Notes payable to an individual, dated in February 2004, 10% interest, secured by
           personal guarantee of an officer, payable on demand.                                                 75,000

           Notes payable to an individual, dated in fiscal 2004 and 2005, 12% interest, secured by
           personal guarantee of an officer, convertible into common stock at $.10 per share (or
           lower price implicit in a Qualified Financing) before the earlier of i) payment thereof,
           and retirement of the notes, or ii) a Qualified Financing. Due on demand.                           219,300

           Notes payable to an individual, dated in fiscal 2004, 10% interest, secured by personal
           guarantee of an officer, convertible into common stock at $.10 per share (or lower price
           implicit in a Qualified Financing) before the earlier of i) the extended due date of
           October 15, 2005, or ii) a Qualified Financing.                                                      75,000

           Notes payable to a unrelated trust, dated in fiscal 2004 and 2005, 10% interest, secured
           by personal guarantee of an officer, convertible into common stock at $.10 per share (or
           lower price implicit in a Qualified Financing) before the earlier of i) the extended due
           date of September 15, 2005, or ii) a Qualified Financing.                                           225,000

           Note payable to an  individual,  dated  October  2004,  10% interest, secured by personal
           guarantee of an officer, convertible into common stock at $.10 per share  (or  lower
           price  implicit  in a  Qualified Financing)  before the earlier of i) the date due,  October
           31, 2005,  or ii) a Qualified Financing.                                                             50,000

           Note payable to an  individual,  dated  November  2004, 10% interest, secured  by  personal
           guarantee  of an  officer,  payable on demand, convertible  into  common  stock at $.10 per
           share (or lower price implicit in a Qualified  Financing)  before the earlier of i) payment
           thereof, and retirement of the note, or ii) a Qualified Financing.                                   50,000
                                                                                                          ------------
                Total                                                                                     $  1,419,300
                                                                                                          ============
</TABLE>

                                      F-11
<PAGE>
NELX, INC.
Notes to Consolidated Financial Statements


NOTE D - NOTES PAYABLE - RELATED PARTIES
----------------------------------------
<TABLE>
<CAPTION>

Notes payable to related parties consist of the following as of May 31, 2005:
<S>                                                                                                           <C>
           Various notes payable to officer,  variable interest rate, unsecured, due on demand.
                                                                                                              $311,749

           Notes payable to four  shareholders,  10% interest;  two of the notes  totaling  $100,000
           secured by a personal guarantee of an officer are in default; payable on demand.                    335,000

           Advances  from  former  director,  non-interest  bearing,  unsecured, payable on demand.             39,837

           Notes payable to four  shareholders,  10% interest,  secured by personal  guarantee of an
           officer,  convertible  into common stock at $.10 per share (or lower price  implicit in a
           Qualified  Financing)  before the earlier of i) extended due date October 15 2005, or ii)
           a Qualified Financing.                                                                              442,500

           Note payable to shareholder dated July 2005, 10% interest, secured by personal guarantee
           of an officer, payable on demand, convertible into common  stock  at $.10  per  share  (or
           lower  price  implicit  in a Qualified  Financing)  before the earlier of i) payment thereof,
           and  retirement of the note, or ii) a Qualified Financing.                                           42,000

           Note payable to  shareholder,  dated  January  2005,  10%  interest,  secured by personal
           guarantee  of an officer,  with  payments to be made in 20 equal  quarterly  installments
           including   principal  and  interest   beginning  February  2006  through  January  2010,
           convertible  into common stock at $.10 per share (or lower price  implicit in a Qualified
           Financing) before the earlier of i) January 2010, maturity or ii) a Qualified Financing.             50,000

           Notes  payable to four  shareholders,  dated in fiscal  year 2004 and 2005,  10%  interest,
           secured by personal  guarantee  of an officer;  payable on demand,  convertible  into common
           stock at $.10 per share (or lower price implicit in a Qualified Financing) before the earlier
           of i)  payment  thereof,  and  retirement  of  the  notes,  or  ii) a Qualified Financing.          402,297

           Note payable to shareholder  dated in fiscal year 2004, 12% interest, secured  by  personal
           guarantee  of an  officer,  payable  on demand convertible  into  common  stock at  $.10/per
           share (or lower  price implicit in a Qualified  Financing)  before the earlier of i) payment
           thereof, and retirement of the note, or ii) a Qualified Financing.                                   47,000

           Note payable to  shareholder  dated  October 21, 1999,  10% interest, secured by assignment
           of $25,000 of proceeds of a term life insurance policy  insuring  the  life of an  officer,
           interest  and  principal payable monthly, with a final payment on May 1, 2006.                        6,034

           Note  payable  to  shareholder,  dated  August  2004,  10%  interest, unsecured, due on demand.      25,000
                                                                                                          ------------
                Total                                                                                      $ 1,701,417
                                                                                                          ============

                Current maturities                                                                         $ 1,605,715
                Long-term maturities                                                                            95,702
                                                                                                          ------------
                Total                                                                                      $ 1,701,417
                                                                                                          ============
</TABLE>

                                      F-12
<PAGE>
NELX, INC.
Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>

Future  maturities of notes payable to related parties as of May 31, 2005 are as follows:

<S>                                                                                                      <C>
                                                                                        2006             $   1,605,715
                                                                                        2007                    15,780
                                                                                        2008                    17,424
                                                                                        2009                    43,166
                                                                                        2010                    11,212
                                                                                        Thereafter               8,120
                                                                                                         -------------

                                                                                                         $   1,701,417
                                                                                                         =============
</TABLE>


During 2004 and 2005, the Company's  operating expenses were partially funded by
advances  from its largest  shareholder  and chief  executive  officer,  John M.
Jacobs.  The  funding  source for these  advances  originated  with  obligations
incurred by Mr. Jacobs with third parties (such  obligations,  together with the
loans by Mr. Jacobs to the Company,  "back-to-back loans").  Interest expense on
such  back-to-back  loans  ranging from 6.75% to 12%  amounted to  approximately
$18,000 for 2005 and $36,000 for 2004.

To assure that repayments of the various borrowings by the Company do not result
in a deemed loan to Mr. Jacobs,  effective May 31, 2004, Mr. Jacobs entered into
an  Assumption  Agreement  with the Company  pursuant  to which he assumes,  and
agrees to hold the Company  harmless  from,  principal of  specified  guaranteed
loans as and when  necessary to fully  offset what might  otherwise be deemed an
advance of funds  arising  out of the  Company's  financing  activities.  During
fiscal 2004, the Company  repaid  $460,378 on the  back-to-back  loans which was
$133,578 more than the original loans and related interest charges.  As a result
of the  Assumption  Agreement at May 31, 2004,  this excess was offset against a
$325,000 note for a net note payable to Mr. Jacobs  totaling  $191,422 as of May
31, 2004. During fiscal 2005, Mr. Jacobs loaned the Company $764,214  (including
interest charges) and was repaid $643,887 on the back-to-back  loans,  resulting
in a net note  payable to Mr.  Jacobs of  $311,749 as of May 31, 2005.

NOTE E - INCOME TAXES
---------------------

As  of  May  31,  2005,  the  Company  had  operating  loss   carryforwards   of
approximately  $9.85  million,  an  increase  in  fiscal  2005 of  approximately
$1,100,000. These carryforwards begin expiring in 2010 and are subject to review
by the  Internal  Revenue  Service  and,  as a result  of the  ownership  change
resulting  from the 2001  acquisitions  of FSI and Jacobs,  the  utilization  of
approximately   $6.4  million  of  the  operating  loss  carryforwards  will  be
substantially limited.

The Company has fully  reserved  the $2.2  million tax benefit of the  operating
loss  carryforward,  by a valuation  allowance of the same  amount,  because the
likelihood of realization of the tax benefit cannot be determined.

                                      F-13

<PAGE>
NELX, INC.
Notes to Consolidated Financial Statements

NOTE F - STOCKHOLDERS' EQUITY
-----------------------------

WARRANTS

On September 29, 2003, the Company issued  warrants to purchase 2 million common
shares to a principal  vendor in connection  with  financing and  forbearance in
payment of certain trade obligations. The exercise price of the warrants is $.04
per share and expire  September  30, 2008.  The  warrants  were valued using the
Black-Scholes pricing model at $.02 per share, a total of $39,966.

DEBT FORBEARANCE

In fiscal 2005, confirming promises made to certain of its third-party financing
sources,  the Company  issued  1,954,350  shares of its common  stock to certain
holders  of  predominantly  demand  promissory  notes  in  consideration  of the
continuing forbearance and guarantees granted by such note holders. The warrants
were valued at approximately  $.0178 per share based on quoted closing prices on
the dates the stock was committed, a total of $34,637.


NOTE G - COMMITMENTS
--------------------

LEASE COMMITMENTS

The Company leases certain office  equipment with combined  monthly  payments of
approximately  $700 and expiration  terms varying from three to five years.  The
Company's  lease of office,  parking and storage  space expired in July 2002 and
continues on a  month-to-month  basis at an approximate  monthly rate of $2,400.
Rental expense for these lease  commitments  totaled  approximately  $47,000 and
$55,000 during 2005 and 2004.

Minimum  future lease  payments  under  non-cancelable  operating  leases having
remaining terms in excess of one year as of May 31, 2005 are:

                        2006                   $ 7,919
                        2007                     6,851
                        2008                     6,852
                        2009                     6,852
                        2010                     4,656

                                      F-14
<PAGE>
NELX, INC.
Notes to Consolidated Financial Statements

NOTE H - FINANCIAL INSTRUMENTS
------------------------------

FAIR VALUE

The carrying amount reported in the balance sheet for cash, receivables, prepaid
expenses,  notes payable,  accounts payable and accrued liabilities approximates
fair value because of the immediate or relatively  short-term  maturity of these
financial 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.

CONCENTRATION OF CREDIT RISK

Statement of Financial  Accounting Standards No. 105, "Disclosure of Information
about  Financial   Instruments   with   Off-Balance-Sheet   Risk  and  Financial
Instruments  with  Concentrations  of  Credit  Risk",   requires  disclosure  of
significant concentration of credit risk regardless of the degree of such risk.

The  Company   transacts  the  majority  of  its  business  with  two  financial
institutions,  one for commercial  banking  services and the other for brokerage
and  custodial  services.  Periodically,  the  amount on  deposit  in  financial
institutions   providing   commercial  banking  services  exceeds  the  $100,000
federally insured limit.  Management  believes these financial  institutions are
financially sound. With respect to the financial institution providing brokerage
and  custodial  services,  amounts on deposit are invested in money market funds
comprised of short-term U.S. government securities.

Management  believes  that  substantially  all  trade  account  receivables  are
collectible,  and  therefore  has not  established  an allowance  for  estimated
uncollectible accounts.


                                      F-15
<PAGE>
NELX, INC.
Notes to Consolidated Financial Statements

NOTE I - SEGMENT REPORTING
--------------------------
<TABLE>
<CAPTION>

The Company has two reportable segments, investment advisory services and surety
bond  brokerage.  The  following  table  presents  revenue  and other  financial
information by industry segment.


                                                                                                    Year Ended
        Industry Segment                                                             May 31, 2005                May 31, 2004
        ----------------                                                             ------------                ------------
        Revenues:
<S>                                                                                  <C>                         <C>
         Investment advisory                                                         $    238,035                $    290,070
         Surety bond brokerage                                                             22,254                      11,775
         Corporate                                                                             58                      14,071
                                                                                     ------------                ------------
         Total revenues                                                              $    260,347                $    315,916
                                                                                     ============                ============

        Operating (Loss):
         Investment advisory                                                         $   (458,420)               $   (411,531)
         Surety bond brokerage                                                           (183,932)                   (193,104)
         Corporate                                                                       (477,781)                   (366,291)
                                                                                     ------------                ------------
         Total operating income (loss)                                               $ (1,120,133)               $   (970,926)
                                                                                     ============                ============

        Identifiable Assets:
         Investment advisory                                                         $     40,384                $     51,032
         Surety bond brokerage                                                              5,891                      12,356
         Corporate                                                                         40,667                      15,521
                                                                                     ------------                ------------
         Total assets                                                                $     86,942                $     78,909
                                                                                     ============                ============

        Capital Acquisitions:
         Investment advisory                                                         $      3,050                $      1,823
         Surety bond brokerage                                                                  -                           -
         Corporate                                                                              -                           -
                                                                                     ------------                ------------
         Total assets                                                                $      3,050                $      1,823
                                                                                     ============                ============

        Depreciation Charged to
        Identifiable Assets:
         Investment advisory                                                         $      5,900                $      5,256
         Surety bond brokerage                                                                  -                           -
         Corporate                                                                              -                           -
                                                                                     ------------                ------------
        Total assets                                                                 $      5,900                $      5,256
                                                                                     ============                ============
</TABLE>

NOTE J - COMPREHENSIVE INCOME
-----------------------------

There  are  no  adjustments   necessary  to  net  income  as  presented  in  the
accompanying   statements  of  operations  to  derive  comprehensive  income  in
accordance with SFAS No. 130, "Reporting Comprehensive Income."

                                      F-16
<PAGE>
NELX, INC.
Notes to Consolidated Financial Statements


NOTE K - EVENTS SUBSEQUENT TO MAY 31, 2005 (UNAUDITED)
-----------------------------------------------------

From June through July 30,  2005,  the Company  received a total of $72,000 from
the  issuance of  convertible  promissory  notes.  The notes are, in some cases,
guaranteed by an officer with interest generally at 10%, payable quarterly, with
principal due on demand. The principal is convertible, in whole or in part, into
common stock on or before the earlier of i) payment  thereof and  retirement  of
the notes, or ii) a Qualified  Financing.  Any such conversion is at the rate of
$.10  per  share  (or the  lower  price  per  share  implicit  in the  Qualified
Financing).

On July 31,  2005,  the Company  entered into a  definitive  purchase  agreement
pursuant to which it has agreed to purchase the outstanding  stock of a licensed
insurance  company  and the owner of such stock has agreed to sell that stock to
the Company for an aggregate  purchase price of  approximately  $3,000,000.  The
closing of the  transaction  is  conditioned  on  regulatory  approvals  and the
Company's  obtaining  the  necessary  financing.  The Company has paid a $40,000
deposit to the seller  which,  if the  transaction  does not close in accordance
with the terms of the purchase agreement, is non-refundable.
















                                      F-17
<PAGE>

ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE

In connection with the audits for the years ended May 31, 2005 and May 31, 2004,
there have been no disagreements  with  independent  accountants with respect to
any  matter  of  accounting   principles  or  practices,   financial   statement
disclosure, or auditing scope or procedure .

ITEM 8A. EVALUATION OF DISCLOSURE  CONTROLS AND PROCEDURES;  CHANGES IN INTERNAL
CONTROLS

The Chief  Executive  Officer/Principal  Financial  Officer of the  Company  has
concluded, based on his evaluation as of the end of the fiscal period covered by
this Report, that the Company's disclosure controls and procedures are effective
to ensure  that  information  required  to be  disclosed  by the  Company in the
reports filed or submitted by it under the  Securities  Exchange Act of 1934, as
amended (the "Exchange  Act"), is recorded,  processed,  summarized and reported
within the time  periods  specified  in the SEC's  rules and forms,  and include
controls  and  procedures  designed  to ensure that  information  required to be
disclosed by the Company in such reports is accumulated and  communicated to the
Company's management,  including the Chief Executive Officer/Principal Financial
Officer, as appropriate to allow timely decisions regarding required disclosure.

There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
such evaluation.


ITEM 8B.  OTHER INFORMATIOIN - REPORTABLE CONDITIONS

None.


                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.

The directors and  executive  officers of the Company,  their ages and positions
are as follows:


Name                       Age              Company  Position
----------------------     ---              ---------------------
John M. Jacobs             51               President & Director
Frederick E. Ferguson      71               Director
C. David Thomas            52               Director
Robert J. Kenney           58               Vice President


JOHN M. JACOBS

Mr. Jacobs is a SEC registered investment advisor,  Certified Public Accountant,
and is licensed  as a property  and  casualty  insurance  agent in fifteen  (15)
states.  For the past eight  years,  Mr.  Jacobs  has  served as a Director  and
President  of  both  Jacobs  &  Company  and  FS  Investments,   Inc.  Prior  to
establishing  his  investment  advisory  business  in  1988,  Mr.  Jacobs  was a
practicing  public  accountant  for over thirteen  years,  during which he was a
managing  partner of his accounting firm and a business and personal  advisor to
his  clients.  Mr.  Jacobs has served as a director  and  President of NELX Inc.
since May 2001.

                                       10
<PAGE>

FREDERICK E. FERGUSON

Mr. Ferguson is retired coal operator who has a diverse  experience with respect
to business and the coal industry. Prior to owning his own company, Mr. Ferguson
began the first half of his career as a state and federal mine inspector. During
the later half of his career,  Mr.  Ferguson  owned his own coal company and was
involved in all facets of mining  production.  He has served as a Director of FS
Investments,  Inc.  since its  inception in December  1997,  and has served as a
director of NELX, Inc. since July 2002.

C. DAVID THOMAS

Mr.  Thomas is a licensed  resident  insurance  agent in West Virginia and holds
non-resident agent licenses in several other states. Mr. Thomas began his surety
career in 1976 with United  States  Fidelity and Guaranty  Company and served as
the surety  underwriter in the Charleston,  WV branch office until 1979. At that
time he joined George  Friedlander & Company,  a regional insurance agency based
in  Charleston,  WV, where he presently  serves as Vice President and Manager of
the Surety  Department.  Mr.  Thomas is a  shareholder  and  Director  of George
Friedlander & Company. He has served as a Director of FS Investments, Inc. since
its inception in December 1997, and has served as a director of NELX, Inc. since
July 2002.

ROBERT J. KENNEY

Mr. Kenney joined FSI and Jacobs &Co. in 2000,  and is Senior Vice  President of
Triangle Surety and Vice President and Assistant Portfolio Manager of Jacobs. In
addition,  he is a licensed  resident  insurance agent in West Virginia and also
holds Series 63 and 65 securities licenses. Prior to joining Triangle Surety and
Jacobs, Mr. Kenney had over 20 years experience in the oil and gas industry with
Columbia  Energy Group.  With  Columbia,  Mr.  Kenney held various  positions in
Treasury,  Human  Resources,  and Law  Departments and served as both Manager of
Risk  Management  and Special  Projects  Manager.  Mr.  Kenney was elected  Vice
President of the Company during fiscal 2003.

There  are no family  relationships  among any of the  Company's  directors  and
executive officers.

During  the past five  years,  there have been no  filings  of  petitions  under
federal  bankruptcy  laws,  or any state  insolvency  laws,  by or  against  any
business of which any director or executive officer of the Company was a general
partner or executive  officer at the time or within two years before the time of
such filing.

During the past five years, no director or executive  officer of the Company has
been  convicted in a criminal  proceeding or been subject to a pending  criminal
proceeding.

During the past five years, no director or executive  officer of the Company has
been the subject of any order,  judgement, or decree, not subsequently reversed,
suspended  or  vacated  by a court of  competent  jurisdiction,  permanently  or
temporarily enjoining, barring, suspending or otherwise limiting his involvement
in any type of business, securities or banking activities.

During the past five years, no director or executive  officer of the Company has
been  found  by a court  of  competent  jurisdiction  (in a civil  action),  the
Commission  or the  Commodity  Futures  Trading  Commission  to have  violated a
federal or state securities or commodities law.

                                       11
<PAGE>

ITEM 10. EXECUTIVE COMPENSATION

The following table sets forth the  compensation  paid by the Company during the
calendar years ended December 31, 2002,  December 31, 2003 and December 31, 2004
to the Chief Executive  Officer of the Company ("the Named Executive  Officer").
Other than the Chief  Executive  Officer,  no  executive  officer of the Company
received total compensation from the Company in excess of $100,000.
<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE

                                                   Annual Compensation

------------------------------------------------------------------------------------------------------------------
                                                                                                  Other
Name and                                                                                          Annual
Principal Position                        Year         Salary ($)          Bonus (s)         Compensation ($)
------------------------------------------------------------------------------------------------------------------

<S>                                      <C>          <C>                 <C>                <C>
John M. Jacobs (1)                        2004         $150,000            $     -            $         -
Chief Executive Officer                   2003         $150,000            $     -            $         -
                                          2002         $150,000            $     -            $         -
------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  Mr. Jacobs was appointed  Chief  Executive  Officer of NELX in May 2002 and
     the amounts  reported  represent  compensation  paid to Mr. Jacobs as Chief
     Executive  Officer of Jacobs & Co. and FSI during the calendar  years 2004,
     2003, and 2002.

The  Company  had no long  term  incentive  compensation  plans  in the  form of
restricted stock awards,  stock  appreciation  rights  ("SARs"),  phantom stock,
stock  options,  warrants,  convertible  securities,  performance  units  and/or
performance  shares, or any other such instruments during the 2004, 2003 or 2002
calendar  years.  The  Board  of  Directors  of the  Company  did  adopt a Stock
Incentive  Plan  ("Plan") on July 17, 2003.  However,  the Plan was by its terms
required to be  submitted  to and  approved by the  shareholders  of the Company
prior to July 17,  2004.  Because  the  Company  failed to seek or  obtain  such
approval, the Plan (and awards made thereunder) was rescinded.

There were no cash payments or other  compensation paid or set aside directly or
indirectly  to or for the  benefit of any  director of the Company for the 2004,
2003 or 2002  calendar  years.  There are no standard or other  arrangements  in
effect for the compensation of directors of the Company.

                                       12
<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following  table sets forth the beneficial  ownership of common stock of the
Company as of August 1, 2005 by (i) each person known by the Company to own more
than 5% of the Company's  common stock,  (ii) each of the  directors,  (iii) the
Named  Executive  Officer and (iv) all  directors  and  executive  officers as a
group.  Unless  otherwise  noted,  such persons have sole voting and  investment
power with respect to such shares.
<TABLE>
<CAPTION>
         Name and Address of                         Amount and Nature of
         Beneficial Ownership                        Beneficial Ownership (1)           Percent of Class (2)
         --------------------                        ------------------------           --------------------
<S>                                                  <C>                                <C>
         John M. Jacobs
         300 Summers Street, Suite 970
         Charleston, WV  25351                              16,001,460 (3)                      13.26%

         Charles L. Stout and
         Marilyn Stout
         Route 1, Box 41J
         Bridgeport, WV  26330                              13,025,000  (4)                     10.79%

         William D. Jones and
         Cynthia B. Jones
         513 Georgia Avenue
         Chattanooga, TN  37403                              9,060,000                          7.51%

         Frederick E. Ferguson and
         Sandra B. Ferguson
         Rt. 3, Box 408
         Fayetteville, WV 25840                                750,000                          0.63%

         C. David Thomas
         PO Box 5157
         Charleston, WV 25361                                  917,295                          0.76%

         Robert J. Kenney
         809 Sherwood Road
         Charleston, WV 25314                                  770,000 (5)                      0.64%

         All Executive Officers
         and directors as a Group                           18,438,755                         15.28%

</TABLE>

(1)  Beneficial  ownership is  determined  in  accordance  with the rules of the
     Securities  Exchange Commission and generally includes voting or investment
     power with respect to securities.  Shares of common stock issuable upon the
     exercise of options or  warrants  currently  exercisable  within 60 days of
     September  8, 2003 are deemed  outstanding  for  computing  the  percentage
     ownership of the person holding such options or warrants but are not deemed
     outstanding for computing the percentage ownership of any other person.

(2)  Based on  120,709,510  shares of common stock issued and  outstanding as of
     September 8, 2003.

(3)  Includes  12,233,044  shares of common stock held in the name of FS Limited
     Partnership  ("FSLP") of which Mr. Jacobs is the sole general partner.  Mr.
     Jacobs  has the power to vote and to direct  the voting of and the power to
     dispose  and direct the  disposition  of the shares  beneficially  owned by
     FSLP.

(4)  Includes 25,000 shares held in the name of Applied Mechanics Corporation of
     which Charles L. Stout is President and a director and 500,000  shares held
     in the name of James R. Stout.

                                       13
<PAGE>

(5)  Includes  260,000 shares held in an individual  retirement  account for the
     benefit of Mr. Kenney, and 510,000 shares held in an individual  retirement
     account for the benefit of Mr. Kenney's wife, Lee Anne Kenney.

There are no outstanding  arrangements that may result in a change in control of
the Company.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

As  described  in Item 6.  Management's  Discussion  and  Analysis of  Financial
Condition  and Results of  Operations,  the Company  previously  acquired  for a
nominal  amount  all the  right,  title  and  interest  in  certain  oil and gas
properties  located  in Roane  County,  West  Virginia  from  Applied  Mechanics
Corporation  ("AMC"),  a company  affiliated  with a principal  shareholder  and
former director of the Company  (Charles L. Stout).  In connection with the sale
of the properties in May 2001 to an unrelated third-party,  AMC was appointed as
agent to  represent  the Company and  received a fee of $150,000 for its role in
bringing a  successful  conclusion  to the sale and  transfer of the  properties
which netted the Company proceeds of $1.3 million.

For the calendar year 2000, the five-month period ended May 31, 2001, and fiscal
years 2002,  2003,  and 2004 the Company's  operating  expenses  were  partially
funded by advances from its principal  shareholder and chief executive  officer,
John M.  Jacobs.  The  source of  funding  for these  advances  originated  with
obligations incurred by Mr. Jacobs with third parties.  Interest expense on such
obligations  amounted to $135,358  in  calendar  year 2000,  and $61,097 for the
five-month  period  ended May 31,  2001,  $58,158  for fiscal year ended May 31,
2002,  $34,438  for the fiscal year ended May 31,  2003,  $36,006 for the fiscal
year ended May 31, 2004, and $18,108 for the fiscal year ended May 31, 2005.


                                       14
<PAGE>

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

     (a) The following exhibits are filed as a part of this Annual Report.

Exhibit Number                                                             Page

2.1    Agreement and Plan of Merger dated as of
       May 18, 2001 by and among NELX, Inc.,
       FSI Acquisition Corp. and FS Investments, Inc. (1)

2.2    Agreement and Plan of Merger dated as of
       May 18, 2001 by and among NELX, Inc.,
       J&C Acquisition Corp. and Jacobs & Company (1)

       Company's plan of acquisition, reorganization, arrangement,
       liquidation or succession

3.1    Company's Articles of Incorporation (2)

3.2    Company's By-laws (2)

21     Subsidiaries of Company                                              21.1

31.1   Certification of Chief Executive Officer and Principal
       Financial Officer pursuant to Rule 13a-146.1 promulgated
       under the Securities Exchange Act of 1934                            31.1

32.1   Certification pursuant to 18 U.S.C. Section 1950, as
       adopted pursuant to Section 906 of the Sarbanes-Oxley                32.1
       Act of 2002



     (1)  Incorporated by reference to the Company's  Current Report on Form 8-K
          dated May 29, 2001.

     (2)  Incorporated by reference to the Company's  Registration  Statement on
          Form 10.

     (b) No reports on Form 8-K have been filed  during the last  quarter of the
period covered by this report.

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

During fiscal 2005, principal accounting fees and services related to the annual
audit of  financial  Statements,  reviews of interim  financial  statements  and
audit-specific  matters were $28,750. Fees for tax services for fiscal 2005 were
$5,750.

                                       15
<PAGE>

SIGNATURES


In  accordance  with the Exchange  Act, this report has been signed below by the
following  persons on behalf of the  registrant and in the capacities and on the
dates indicated.


Dated:   September 9,  2005                        By:  /s/ John M. Jacobs
        ------------------------                   ----------------------------
                                                     John M. Jacobs
                                                     President, Director and
                                                     Principal Financial Officer


Dated:   September 9,  2005                        By: /s/ Frederick E. Ferguson
        ------------------------                   ----------------------------
                                                     Frederick E. Ferguson
                                                     Director


Dated:   September 9,  2005                        By: /s/ C. David Thomas
        ------------------------                   ----------------------------
                                                     C. David Thomas
                                                     Director
















                                       16