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, 2004


                                   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.  $315,916

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 September 14, 2004:
$2,052,062 (120,709,510 shares at $.017 / share)

State the number of shares outstanding of each of the issuer's classes of common
equity,  as of the latest  practicable  date:  120,709,510  common  shares as of
September 14, 2004.


















                                       2
<PAGE>

                                TABLE OF CONTENTS

                                     PART I

                                                                            Page

Item 1. Description of Business...............................................4

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

Item 3. Legal Proceedings.....................................................5

Item 4. Submission of Matters to a Vote of Security Holders...................5

                                     PART II

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

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

                                    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

Signatures....................................................................16


                                       3
<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 of surety bonds with insurance  companies,
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.

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.

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.

                                       4
<PAGE>

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, 2004

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


Fiscal Year Ended May 31, 2003

         4th Quarter                     .07                       .03
         3rd Quarter                     .035                      .011
         2nd Quarter                     .04                       .015
         1st Quarter                     .04                       .02

As of September 14, 2004, there were  approximately 500 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.

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 of
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.

                                       5
<PAGE>

RESULTS OF OPERATIONS FOR THE YEAR ENDED MAY 31, 2004

The Company suffered an operating loss in fiscal 2004 of $971,000. 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.

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.

Corporate  overhead  expenses  were  slightly up with an increase in general and
administrative  being offset by a decrease in mutual fund expenses;  but overall
expenses increased significantly based upon interest expense being substantially
up as the  result of the  Company's  deficit in working  capital  and  continued
financing of operations with short term debt. Also, the Company's identification
of a potential  insurance company acquisition target and determination to pursue
such acquisition resulted in non-recurring expenses to pursue that plan.

While the J&C Fund is responsible for its own operating expenses,  to assure the
viability  of the  Fund  and in  accordance  with  industry  practice,  upon the
organization  of the Fund,  Jacobs & Co., as the investment  adviser,  agreed to
limit the Fund's aggregate annual operating expenses to 2.00% of the average net
assets.  During  fiscal  2004,  Jacobs bore  $90,971 of expenses of the J&C Fund
pursuant  to  its  expense  limitation  agreement,  while  earning  $105,878  in
investment advisory fees from the Fund. Fiscal 2004 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.


COMPARISON OF RESULTS OF OPERATIONS FOR FISCAL 2004 WITH FISCAL 2003

The Company  experienced a loss for the year ended May 31, 2004 in the amount of
$970,926 as compared with a loss of $703,152 for its year ended May 31, 2003.

Revenues for fiscal 2004 were $315,916 versus $344,621 for fiscal 2003. Based on
the extreme  limitations in the  availability  of surety bonds,  revenues of the
Company's  surety  segment  decreased  from $32,538 in fiscal 2003 to $11,775 in
fiscal 2004.  Revenues of the Company's  investment  advisory segment  decreased
from $305,493 to $290,070.

 Operating  expenses for fiscal 2004 were $1,286,842 as compared with $1,047,773
for fiscal 2003, an increase of $239,069.  Such increase was  attributable to an
increase in general and administrative expense of $181,917,  which was partially
offset by a decrease  in mutual  fund costs of  $35,333,  and to an  increase in
interest  expense to $218,164 for fiscal  2004,  as compared  with  $125,443 for
fiscal  2003.  The   substantial   increase  in  interest   expense  is  largely
attributable  to the  Company's  continued  debt  financing  of  operations  and
substantial deficit in working capital.

                                       6
<PAGE>

Contractual Obligations

<TABLE>
<CAPTION>
The following table lists our significant liabilities at May 31, 2004:

                                                                 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                             $ 971,922             $ 0           $   0            $   0      $ 971,922
Long-term debt to Related Parties
                                           1,282,020          42,824               0                0      1,324,844
Operating leases                              16,020          11,887           4,807                0         32,714
                                         -----------      -----------     -----------        --------     ----------
 Total contractual cash obligations
                                          $2,269,962         $54,711      $    4,807            $   0     $2,329,480
                                         ===========      ===========     ===========        ========     ==========
</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.

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
can be utilized  to offset  future  income for  federal and state tax  purposes.
These NOLs generate 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.

                                       7
<PAGE>

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.

The  Company  has  identified  an  insurance   company  that  is  available  for
acquisition and, on May 28, 2004, entered into an Exclusivity Agreement with the
owner granting the Company the exclusive right to acquire the insurance  company
for a period of time. A condition of the acquisition is that the Company arrange
financing. If the Company is able to arrange such financing,  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 arrange  the  necessary  financing  and  complete  the
acquisition,  its  prospects  for growth  and  viability  will be  significantly
diminished.

In order to secure, and provide a continuing incentive to, the employment of key
employees of the Company,  on July 17, 2003, the Board of Directors  adopted the
NELX, Inc. Stock Incentive Plan (the "Plan"). However, the Plan required that it
be  submitted  to and  approved by the  shareholders  prior to July 17, 2004 and
because the Company was not in a position to seek such approval  within the time
prescribed,  the Plan and awards  granted under the Plan were  rescinded.  It is
anticipated  that  before the next  annual  meeting of the  shareholders  of the
Company the Board of Directors  will again adopt a stock  incentive plan for the
employees of the Company.

Analysis of Financial Condition

As of May 31, 2004,  a deficiency  in working  capital  exists as the  Company's
current  liabilities  exceed its  current  assets by  approximately  $3,126,267.
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.  If
such  a  financing  is  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 $628,000 in fiscal 2004. Also, the Company has no working capital.
The foregoing raises  substantial  doubt about the Company's ability to continue
as a going concern. Management's plans include 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 Public Accountants                     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.
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS


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 PUBLIC ACCOUNTANTS



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, 2004, and the related consolidated statements of operations,  cash flows
and changes in  stockholders'  equity (deficit) for the years ended May 31, 2004
and 2003.  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. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our 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, 2004,  and the results of its  operations and its cash flows for
the years ended May 31, 2004 and 2003, 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  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
------------------------------
Gordon, Hughes & Banks, LLP
Greenwood Village, Colorado
July 30, 2004


                                      F-2

<PAGE>
NELX, INC.
CONSOLIDATED BALANCE SHEET
MAY 31, 2004


ASSETS

CURRENT ASSETS
    Cash and cash equivalents                                    $          621
    Receivables                                                          41,983
    Prepaid and other                                                     7,796
                                                                 ---------------
      Total current assets                                               50,400
                                                                 ---------------

FURNITURE AND EQUIPMENT,
    net of accumulated depreciation of $87,525                           13,509

Deposits                                                                 15,000
                                                                 ---------------

      Total assets                                               $       78,909
                                                                 ===============



LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
    Notes payable                                                $      971,922
    Notes payable - related parties                                   1,282,020
    Accounts payable                                                    279,333
    Accrued interest payable                                             55,058
    Accrued expenses                                                    588,334
                                                                 ---------------
      Total current liabilities                                       3,176,667

NOTES PAYABLE, less current maturities - related parties                 42,824
                                                                 ---------------
      Total liabilities                                               3,219,491
                                                                 ---------------

STOCKHOLDERS' EQUITY (DEFICIT)
    Common stock, $.0001 par value par value; 500 million shares
      authorized: 120,709,510 shares issued and outstanding              12,071
    Additional paid-in capital                                        1,080,696
    Accumulated deficit                                              (4,233,349)
                                                                 ---------------
      Total stockholders' equity (deficit)                           (3,140,582)
                                                                 ---------------

      Total liabilities and stockholders' equity (deficit)       $       78,909
                                                                 ===============






                             See Accompanying Notes

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


                                                                             Year Ended May 31,
                                                                       -------------------------------
                                                                           2004             2003
                                                                       --------------   --------------

<S>                                                                    <C>              <C>
REVENUE                                                                $    315,916     $    344,621
                                                                       --------------   --------------

EXPENSES
    General and administrative                                               924,781          742,864
    Mutual fund costs                                                        138,641          173,974
    Interest                                                                 218,164          125,443
    Depreciation and amortization                                              5,256            5,492
                                                                       --------------   --------------

      Total expenses                                                       1,286,842        1,047,773
                                                                       --------------   --------------

NET (LOSS)                                                             $    (970,926)   $    (703,152)
                                                                       ==============   ==============


BASIC AND DILUTIVE NET (LOSS) PER SHARE:

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

    WEIGHTED AVERAGE SHARES OUTSTANDING                                  120,709,510      120,601,931
                                                                       ==============   ==============
</TABLE>

















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


                                                                             Year Ended May 31,
                                                                       -------------------------------
                                                                           2004             2003
                                                                       --------------   --------------

<S>                                                                    <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
    Net (loss)                                                         $    (970,926)   $    (703,152)
    Adjustments to reconcile net (loss) to
      net cash provided by operating activities
         Depreciation                                                          5,256            5,492
         Stock issued to settle account payable                                    -            6,588
         Warrants issued to vendor                                            39,966                -
         Changes in operating assets and liabilities:
           Receivables                                                         2,140           (4,811)
           Prepaid and other current assets                                    3,466             (574)
           Accounts payable and bank overdraft                                68,075            3,444
           Accrued expenses                                                  224,437           62,493
                                                                       --------------   --------------

             Net cash flows provided (to) operating activities              (627,586)        (630,520)
                                                                       --------------   --------------

CASH FLOWS FROM INVESTING ACTIVITIES
    Purchase furniture and equipment                                          (1,823)          (2,356)
    Deposit                                                                  (15,000)              -
                                                                       --------------   --------------
            Net cash flows provided from (to) investing activities           (16,823)          (2,356)
                                                                       --------------   --------------

CASH FLOWS FROM FINANCING ACTIVITIES
    Proceeds from related party debt                                       1,196,336          946,042
    Repayments of related party debt                                      (1,058,701)        (769,960)
    Proceeds from debt obligations                                           585,500          460,000
    Repayments of debt obligations                                           (78,929)         (11,071)
                                                                       --------------   --------------
            Net cash flows provided from (to) financing activities           644,206          625,011
                                                                       --------------   --------------

NET INCREASE (DECREASE) IN CASH                                                 (203)          (7,865)

CASH AND EQUIVALENTS, BEGINNING OF PERIOD                                        824            8,689
                                                                       --------------   --------------

CASH AND EQUIVALENTS, END OF PERIOD                                    $         621    $         824
                                                                       ==============   ==============


SUPPLEMENTAL DISCLOSURES
    Interest paid                                                      $     218,033    $     105,465
    Income taxes paid                                                              -                -
    Non-cash investing and financing transactions:
      Warrants issued (rescinded) with related party debt                          -           (3,000)
      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, 2002                                   120,577,745      12,058       1,037,155        (2,559,271)      (1,510,058)

    Issuance of stock to settle account payable             131,765          13           6,575                 -            6,588

    Rescission of warrants issued in 2002                         -           -          (3,000)                -           (3,000)

    Net (loss), year ended May 31, 2003                           -           -               -          (703,152)        (703,152)
                                                        -----------    ---------    ------------      ------------      -----------

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)
                                                        ===========    =========    ============      ============      ===========
</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  $971,000 and $703,000 for the years
         ended May 31, 2004 and 2003,  and as of May 31,  2004 had a  $3,126,000
         working  capital  deficit  and  a  $3,141,000   stockholders'  deficit.
         Management  intends to continue with steps it has taken to improve cash
         flow  through   operations   and  pursuit  of  viable   joint   venture
         opportunities.  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,  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.


         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.

                                      F-7
<PAGE>

         NELX, INC.
         Notes to Consolidated Financial Statements

         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  are
         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
         In June 2003,  the FASB approved SFAS No. 150,  Accounting  for Certain
         Financial  Instruments  with  Characteristics  of both  Liabilities and
         Equity (SFAS No. 150).  SFAS No. 150  establishes  standards for how an
         issuer  classifies  and measures  certain  financial  instruments  with
         characteristics  of both  liabilities  and equity.  This  Statement  is
         effective for financial  instruments entered into or modified after May
         31, 2003,  and  otherwise  is  effective at the  beginning of the first
         interim  period  beginning  after  June 15,  2003.  SFAS No. 150 is not
         expected to have an effect on the Company's 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.

                                      F-8
<PAGE>

         NELX, INC.
         Notes to Consolidated Financial Statements

         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.

         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-9

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


         NOTE C - NOTES PAYABLE
<TABLE>
<CAPTION>

         Notes payable consist of the following as of May 31, 2004:

<S>        <C>                                                                                                <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) October 15, 2004 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) October 15, 2004,  or ii) a
           Qualified Financing.                                                                                191,422

           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) October 15, 2004, or ii) a
           Qualified Financing.                                                                                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 February 2004, 12% interest, secured by
           personal guarantee of an officer, payable on demand.                                                 55,500

           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) October 31, 2004, or ii) a
           Qualified Financing.                                                                                 75,000

           Notes payable to an entity, 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) October 31, 2004, or ii) a
           Qualified Financing.                                                                                175,000
                                                                                                             ---------

                Total                                                                                        $ 971,922
                                                                                                             =========

</TABLE>


         NOTE D - NOTES PAYABLE - RELATED PARTIES
<TABLE>
<CAPTION>
<S>        <C>                                                                                              <C>
           Notes payable to related parties consist of the following as of May 31, 2004: 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) October 15, or ii) a Qualified Financing.             464,500

                                      F-10
<PAGE>

         NELX, INC.
         Notes to Consolidated Financial Statements


           Note payable to shareholder dated May 2002, 10% interest,  unsecured, due on December 31,
           2003.                                                                                                20,000

           Note payable to  stockholder,  dated  November  2003,  10% interest,  secured by personal
           guarantee  of an officer,  with  payments to be made in 20 equal  quarterly  installments
           including  principal and interest  through March 31, 2009,  convertible into common stock
           at $.10/per share (or lower price implicit in a Qualified  Financing)  before the earlier
           of i) March 31, 2009, maturity or ii) a Qualified Financing.                                         50,000

           Notes payable to four shareholders,  dated in fiscal year 2004, 10% interest,  secured by
           a personal guarantee of an officer; payable on demand.                                              357,002

           Note payable to shareholder  dated in fiscal year 2004, 12% interest, secured by personal
           guarantee of an officer, payable on demand.                                                          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.                         11,505
                                                                                                          ------------

                Total                                                                                     $  1,324,844
                                                                                                          ============


                Current maturities                                                                        $  1,282,020

                Long-term maturities                                                                            42,824
                                                                                                          ------------

                Total                                                                                     $  1,324,844
                                                                                                          ============
</TABLE>


         Future  maturities  of notes  payable to related  parties as of May 31,
         2004 are as follows:

                                         2005             $   1,282,020
                                         2006                    17,852
                                         2007                    13,055
                                         2008                    11,917
                                                          ---------------
                                                          $   1,324,844
                                                          ===============

         During 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  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 at 12% per annum on
         such  back-to-back  loans  amounted to $34,438 for 2003 and $36,006 for
         2004.

                                      F-11
<PAGE>

         NELX, INC.
         Notes to Consolidated Financial Statements

         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,  this excess has been offset  against a $325,000
         note for a net note payable  totaling  $191,422 as of May 31, 2004 (see
         Note C).

         NOTE E - INCOME TAXES
         As of May 31, 2004,  the Company had operating  loss  carryforwards  of
         approximately   $8.75   million,   an   increase   in  fiscal  2004  of
         approximately $950,000.  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  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.

         NOTE F - STOCKHOLDERS' EQUITY
         Settlement of Trade Payable for Stock
         On March 25, 2003, the Company  settled a $13,176 trade account payable
         for 131,765  shares of common  stock  valued at $6,588,  resulting in a
         gain on the settlement of $6,588.

         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 they  expire on
         September 30, 2008.  The warrants  were valued using the  Black-Scholes
         pricing model at $.02 per share, a total of $39,966.

                                      F-12
<PAGE>

         NELX, INC.
         Notes to Consolidated Financial Statements

         NOTE G - COMMITMENTS

         LEASE COMMITMENTS
         The Company  leases  certain  office  equipment  with combined  monthly
         payments of  approximately  $1,600 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  $55,000 and $47,000 during 2004 and
         2003.

         Minimum  future lease payments under  non-cancelable  operating  leases
         having remaining terms in excess of one year as of May 31, 2004 are:

                                  2005                   $   16,020
                                  2006                       11,887
                                  2007                        4,807

         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.

                                      F-13
<PAGE>

         NELX, INC.
         Notes to Consolidated Financial Statements


         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.

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

                                                                                                     Year Ended
        Industry Segment                                                             May 31, 2004                May 31, 2003
        ----------------                                                             ------------                ------------
<S>                                                                                  <C>                         <C>
        Revenues:
         Investment advisory                                                         $   290,070                 $   305,493
         Surety bond brokerage                                                            11,775                      32,538
         Corporate                                                                        14,071                       6,590
                                                                                     ------------                ------------
         Total revenues                                                              $   315,916                 $   344,621
                                                                                     ============                ============

        Operating (Loss):
         Investment advisory                                                         $  (411,531)                $  (391,545)
         Surety bond brokerage                                                          (193,104)                   (131,463)
         Corporate                                                                      (366,291)                   (180,144)
                                                                                     ------------                ------------
         Total operating income (loss)                                               $  (970,926)                $  (703,152)
                                                                                     ============                ============

        Identifiable Assets:
         Investment advisory                                                         $    51,032                 $    64,613
         Surety bond brokerage                                                            12,356                       7,714
         Corporate                                                                        15,521                         824
                                                                                     ------------                ------------
         Total assets                                                                $    78,909                 $    73,151
                                                                                     ============                ============
                                      F-14
<PAGE>

         NELX, INC.
         Notes to Consolidated Financial Statements


        Capital Acquisitions:
         Investment advisory                                                         $     1,823                 $     2,356
         Surety bond brokerage                                                                 -                           -
         Corporate                                                                             -                           -
                                                                                     ------------                ------------
         Total assets                                                                $     1,823                 $     2,356
                                                                                     ============                ============

        Depreciation Charged to
        Identifiable Assets:
         Investment advisory                                                         $     5,256                 $     5,492
         Surety bond brokerage                                                                 -                           -
         Corporate                                                                             -                           -
                                                                                     ------------                ------------

        Total assets                                                                 $     5,256                 $     5,492
                                                                                     ============                ============
</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."

         NOTE K - EVENTS SUBSEQUENT TO MAY 31, 2004 (UNAUDITED)
         From June  through  July 30,  2004,  the  Company  received  a total of
         $135,600 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 shares of NELX, Inc. 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).

         Effective July 1, 2004, the Company exchanged for the two related party
         notes totaling  $100,000 ($50,000 each) that were in default at May 31,
         2004, two replacement  notes.  Each such replacement note has a $50,000
         principal balance,  bears interest at 10% per annum, and is convertible
         into  shares of common  stock of the  Company  on the same terms as the
         notes described in the preceding  paragraph.  One  replacement  note is
         payable  on  demand,  and the  other is  payable  in 60  equal  monthly
         installments commencing October of 2004.

         On July 17, 2003, the Board of Directors  adopted the NELX,  Inc. Stock
         Incentive Plan (the "Plan").  On July 17, 2004 the Plan  (including all
         awards made thereunder) was rescinded because it had not been submitted
         to and approved by the shareholders of the Company.





                                      F-15

<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, 2004 and May 31, 2003,
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.


                                    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:

                                            Company
Name                       Age              Position
----------------------     ----             ---------------------
John M. Jacobs             50               President & Director

Frederick E. Ferguson      70               Director

C. David Thomas            51               Director

Robert J. Kenney           57               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 seven  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 most recently 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, 2001,  December 31, 2002 and December 31, 2003
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)                        2003        $ 150,000            $   -                $    -
Chief Executive Officer                   2002        $ 150,000            $   -                $    -
                                          2001        $  87,500            $   -                $    -
------------------------------------------------------------------------------------------------------------------
</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 2003,
     2002,  and  2001.  Other  annual  compensation  for Mr.  Jacobs  represents
     distributions  made to or on behalf of Mr.  Jacobs by Jacobs & Company as a
     small business  corporation  electing to be taxed under Subchapter S of the
     Internal Revenue Code.


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 2003, 2002 or 2001
calendar years.  The Board of Directors of the Company adopted 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 2003,
2002 or 2001  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 31,  2004 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>
<S>      <C>                                         <C>                                <C>
         Name and Address of                         Amount and Nature of
         Beneficial Ownership                        Beneficial Ownership (1)           Percent of Class (2)
         --------------------                        ------------------------           --------------------

         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 30, 2004.

(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.

(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.

                                       13
<PAGE>

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  (such  obligations,
together  with the loans by Mr.  Jacobs to the Company,  "back-to-back  loans").
Interest  expense on such  back-to-back  loans  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
and $36,006 for the fiscal year ended May 31, 2004.

The principal  sources of financing for the Company since May 31, 2001 have been
(i) the back-to-back loans from John M. Jacobs and (ii) loans from third parties
to the Company the repayment of which is  guaranteed by Mr. Jacobs  ("guaranteed
loans").  In order 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 by the Company to Mr. Jacobs arising out
of the Company's financing activities.



                                       14
<PAGE>



Item 13. EXHIBITS AND REPORTS

(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)

31.1 Certification of Chief Executive  Officer and Principal
     Financial  Officer pursuant to Rule13a-146.1  promulgated under
     the Securities Exchange Act of 1934                                 EX 31.1

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

21   Subsidiaries of Company                                                E-1

     (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.

                                       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 30, 2004                        By: /s/ John M. Jacobs
        ------------------------                   ----------------------------
                                                     John M. Jacobs
                                                     President, Director and
                                                     principal financial officer


Dated:   September 30, 2004                        By: /s/ Frederick E. Ferguson
        ------------------------                   ----------------------------
                                                     Frederick E. Ferguson
                                                     Director


Dated:   September 30, 2004                        By: /s/ C. David Thomas
        ------------------------                   ----------------------------
                                                     C. David Thomas
                                                     Director
















                                       16