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, 2001


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


Kansas                        0-21210                  84-0922335
----------------              -------------            ------------
(State or other               (Commission              (IRS Employer
jurisdiction of               File Number)             Identification No.)
incorporation)


               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.  $269,392

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 31,  2001
$5,622,017 (at $.06/share)

State the number of shares outstanding of each of the issuer's classes of common
equity,  as of the latest  practicable  date:  120,577,744  common  shares as of
August 31, 2001

                                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..................................................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


                                       2
<PAGE>

                                    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..............................................13

Item 11. Security Ownership of Certain Beneficial Owners
          and Management.....................................................14

Item 12. Certain Relationships and Related Transactions......................15

Item 13. Exhibits, and Reports on Form 8-K...................................16



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. In previous  years,  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 past three  years,  the
principal activities of the Company have 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  closely-held  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 is treated as the acquiree,
and no goodwill or other intangible asset is recorded.

FSI,  incorporated in 1997 in West Virginia,  is a closely-held  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., FSI is
actively engaged in the placement with insurance  companies of surety bonds with
an emphasis on clients engaged in regulated  industries,  such as the extraction
of coal,  oil and gas. FSI  specializes in placement of coal  reclamation  bonds
issued  by  businesses   located  primarily  in  West  Virginia,   Kentucky  and
surrounding states.

                                       3
<PAGE>

Jacobs  & Co.,  incorporated  in  1988  in West  Virginia,  is a SEC  registered
investment  advisory and  financial  planning firm whose  executive  offices are
located in Charleston, West Virginia. Jacobs & Co. provides fee based investment
advisory  services to institutions and individuals  located in West Virginia and
the eastern United States.  In June 2001,  Jacobs & Co.  announced the launch of
the  Jacobs & Company  Mutual  Fund (the  "Fund"),  as a series of the  Advisors
Series Trust. Jacobs & Co. is the investment advisor to the Fund.

As a result  of the May 29,  2001  business  combination,  the  Company  will be
expanding  its focus to include the ongoing  business and  activities of FSI and
Jacobs,  namely  the surety  business  and  investment  management  and  related
services to the natural  resource  industries,  as well as other  industries and
clients.  The Company is now  headquartered  in Charleston,  West Virginia,  and
through its wholly-owned subsidiaries,  employs a total of six (6) employees, of
which four (4) 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.

Pursuant to 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  and
management is engaged in evaluating the lease.  However,  opportunities  will be
explored as they arise with respect to the  development or sale of the leasehold
interest.

Item 3.           LEGAL PROCEEDINGS

During 2000,  FSI entered into an  agreement to acquire  Van-American  Insurance
Company and its affiliated agency, both Kentucky domiciled companies, from Asset
Guaranty Insurance Company ("AGI") and Van-American Companies, Inc. ("VAC"). The
sellers  refused to consummate  the  transaction.  In January 2001,  FSI filed a
complaint  against  AGI and VAC in the  United  States  District  Court  for the
Eastern District of Kentucky  alleging breach of contract and seeking damages in
excess of $13.0 million.  The defendants  have filed a counterclaim  against FSI
seeking damages in the amount of approximately $1.3 million and asserting claims
of fraud and inducement,  which FSI has denied and intends to vigorously defend.
This civil action is presently in the early stages of discovery.  The outcome of
this dispute cannot be predicted with any certainty.

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

         None

                                       4
<PAGE>
                                     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 bid  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 Bid                  Low Bid
                                            --------                  -------
Fiscal Year Ended May 31, 2001

         4th Quarter                          .095                      .031
         3rd Quarter                          .06                       .025
         2nd Quarter                          .092                      .0225
         1st Quarter                          .155                      .075

Fiscal Year Ended May 31, 2000

         4th Quarter                          .875                      .075
         3rd Quarter                          .14                       .05
         2nd Quarter                          .195                      .04
         1st Quarter                          .10                       .04

As of August 24,  2001,  there were  approximately  650 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

 For the two  years  preceding  its  acquisition  of FSI and  Jacobs & Co.,  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. Deficits in working capital were financed by
loan  advances from a principal  shareholder  and  director.  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

                                       5
<PAGE>

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.

As reflected  in the  financial  statements  (see Item 7.  Financial  Statements
below), the Company's acquisition of FSI and Jacobs & Co. has been accounted for
as a  reverse  acquisition  and a  recapitalization  of  FSI  and  Jacobs  & Co.
Accordingly,  the financial statements and management's  discussion and analysis
included herein reflect solely the business operations and cash flows of FSI and
Jacobs & Co. prior to May 29, 2001.

RESULTS OF OPERATIONS FOR THE FIVE MONTH PERIOD ENDED MAY 31, 2001
------------------------------------------------------------------

The Company  experienced a loss for the five-month  period ended May 31, 2001 in
the amount of $377,616 as compared with a loss of $115,669 for the corresponding
period ended May 31, 2000.  The increased  loss is  attributable  to a number of
factors that are summarized below.

Revenues for the five-month  period ended May 31, 2001 were $109,384  versus for
$116,646 for the  corresponding  period ended May 31, 2000  representing  a 6.2%
decrease. This decrease is attributable to the investment management segment and
the  overall  decline in the stock  market at the time of billing  offset by the
growth of new accounts under management.

Operating  expenses for the five-month  period ended May 31, 2001 were $ 487,000
as compared  with  $232,315 for the  comparable  period  ended May 31, 2000,  an
increase of $254,685. The majority of the increase in general and administrative
cost of $106,585 can be  associated  with the overall  increase in support staff
costs,  production costs, and general office and other  administrative  expense.
These costs include the hiring of the chief  financial and  compliance  officer;
increased expenses associated with market research and support services, as well
as marketing and promotion.

Other  operating  expenses  include  costs  attributable  to  the  unconsummated
acquisition of  Van-American  Insurance  Company (see Item 3. Legal  Proceedings
above),  including the on-going  costs of the legal action being  pursued;  NELX
acquisition  related legal and  professional  costs;  and the initial  outlay of
costs  associated with the formation and organization of the Jacobs & Co. Mutual
Fund that was launched on June 11, 2001.

Interest  expense for the  five-month  period  ended May 31, 2001 was $98,637 as
compared  with $64,921 for the  corresponding  period  ended May 31,  2000.  The
increase  in  interest  expense  is  attributable  to the  increase  in  average
borrowings  for the respective  periods.  In connection  with the  acquisitions,
certain  debt  obligations  of FSI and  Jacobs  were  converted  to stock of the
Company  and other  short  and  long-term  indebtedness  of FSI and  Jacobs  was
restructured.  Based on the Company's  post-acquisition  balance sheet, interest
expense is estimated to be approximately $46,750 for the next 12 months.

                                       6
<PAGE>

COMPARISON OF OPERATIONS FOR THE CALENDAR YEARS 2000 AND 1999
-------------------------------------------------------------

The  Company  experienced  a loss for the year ended  December  31,  2000 in the
amount  of  $521,619  as  compared  with a loss of  $185,529  in the year  ended
December 31, 1999.  The  increase in the loss is primarily  attributable  to the
costs  associated  with  the  unsuccessful  pursuit  of the  acquisition  of the
insurance company and agency in Kentucky (see Item 3. Legal Proceedings  above).
This expense coupled with an increase in interest  expense and personnel  costs,
as well as a decline  in  revenue,  account  for the  increased  loss in 2000 as
compared to 1999.

Revenues in 2000 were $269,392  versus  $305,323 in 1999,  representing an 11.8%
decrease.  Investment  advisory fees, net of referral fees, amounted to $257,245
in 2000 as compared  with  $297,140 in 1999.  An analysis of these fees  reflect
that the  difference  in fees billed  between the years for accounts that closed
are  essentially  offset by fees from new accounts that opened.  The majority of
the decline in advisory fees, approximately $33,000, is attributable to existing
accounts in which fees billed in 2000 were less than those billed in 1999.  This
decline can be  attributed  largely to a decline in the assets under  management
due to client  withdrawals.  Referral fees  incurred in 2000 were  approximately
$7,000 more than those incurred in 1999. Referral fees are paid to third parties
under  contractual   arrangements  for  the  referral  of  investment   advisory
relationships  and are based on a percentage  of the  investment  advisory  fee.
Although  referral fees increased,  in comparison to 1999,  investment  advisory
fees  from  such  referral  arrangements  increased  revenues  by  approximately
$18,000, net of referral fees incurred.

Surety  commissions,  net of amounts paid to underwriters and referring  agents,
amounted  to $12,089 in 2000 as  compared  to $8,183 in 1999.  The  increase  is
attributable to increased business.

Operating  expenses for the year ended December 31, 2000 amounted to $791,011 as
compared  with  $490,852 for the year ended  December  31, 1999,  an increase of
$300,159.  The majority of this increase is attributable to the costs associated
with the  unsuccessful  pursuit of the acquisition of the insurance  company and
agency in Kentucky. Included in such costs is approximately $55,000 of recurring
general  and  administrative  expenses  that  were  allocated  to  this  expense
classification.  Including  this  reclassification,  general and  administrative
costs  increased  approximately  17.4%  in  2000.  This  increase  is  primarily
attributable  to the increase in staffing that was undertaken in anticipation of
closing the targeted  acquisition (see Item 3. Legal Proceedings  above) as well
as  the  addition  of  a  full-time  employee  whose  responsibilities   include
development  of the surety  segment of the business,  as well as support for the
investment management segment of the business.

Interest  expense for the year ended  December 31, 2000 was $176,342 as compared
with $94,903 in 1999. The increase in interest  expense is  attributable  to the
increase  in  average  borrowings  as well as an  overall  general  increase  in
interest rates for the respective periods.

                                       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,  often directed to participants in
the coal, oil, and gas industries.

Opportunities   for  increased   business  in  the  surety   markets   utilizing
collateralized  bonding  programs  remain very promising as  traditional  surety
programs continue to experience significant problems,  leading to withdrawals of
competitors from the marketplace. Opportunities also exist for the generation of
income from consulting services in relation to the Company's surety business.

Additionally,  recent  conditions  in the  financial  markets have resulted in a
renewed focus by individuals  and  institutions  on safety and  preservation  of
capital,  which are the  cornerstone  of the investment  strategies  employed by
Jacobs & Co. for its  clients.  In  addition  to  growing  the number of private
clients,  the  launch  of the  Jacobs  &  Company  Mutual  Fund  (which  mirrors
investment  strategies  of Jacobs & Co.'s  private  client  account)  provides a
vehicle for capturing investment management business that in years past has been
referred  to other  investment  advisors,  due to account  size not being  large
enough to provide proper  diversification.  Additionally,  the mutual fund is an
ideal vehicle for the collateralized  bonding programs of FSI and its subsidiary
Triangle Surety Agency,  Inc.  Management  believes this segment of its business
holds much promise for growth as well.

ANALYSIS OF FINANCIAL CONDITION
-------------------------------

Management is optimistic with respect to the growth of the Company's business as
described above, but the rate of such growth is difficult to predict.  As of May
31,  2001, a  deficiency  in working  capital  exists as the  Company's  current
liabilities exceeds its current assets by approximately $169,000.  Additionally,
the  Company's  current  monthly  expenses  exceeds its historic  revenues by an
estimated  $25,000 per month.  Recognizing the potential cash flow shortages the
Company  may be faced  with in the next six to  twelve  months  as its  business
continues to develop, management has arranged for the availability of a $500,000
line of credit from a shareholder through June 30, 2002 to be available when, as
and if needed.  Management may seek to raise  additional  funds through  private
placements of stock at prices that will not be dilutive to current shareholders.
Based on preliminary  discussions  with several  individuals  and  institutions,
management  believes  that  opportunities  for such private  placements  exists,
although  the  Company  can not be certain  that it will be able to obtain  such
funds.

                                       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

                                                                            PAGE
                                                                            ----
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




                                      F-1

<PAGE>


REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS'

August 24,  2001  (except  for the  second
 paragraph  of Note J, which is as of
 September 1, 2001)

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, 2001, and the related consolidated statements of operations,  cash flows
and changes in stockholders' equity for the five months then ended and the years
ended  December  31,  2000  and  1999.   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  generally   accepted  auditing
standards. 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, 2001,  and the results of its  operations and its cash flows for
the five months then ended and the years ended  December  31, 2000 and 1999,  in
conformity with accounting principles generally accepted in the United States of
America.

/s/ Oatley & Hansen, P.C.
Greenwood Village, Colorado


                                      F-2

<PAGE>
NELX, INC.
CONSOLIDATED BALANCE SHEET
MAY 31, 2001

ASSETS

CURRENT ASSETS
    Cash and cash equivalents                                  $    771,886
    Receivables                                                      42,857
    Prepaid and other                                                27,866
                                                                 -----------
      TOTAL CURRENT ASSETS                                          842,609
                                                                 -----------

INVESTMENT IN UNDEVELOPED MINERAL LEASE                             116,661
                                                                 -----------

FURNITURE AND EQUIPMENT,
    net of accumulated depreciation of $69,990                       12,745
                                                                 -----------

      TOTAL ASSETS                                             $    972,015
                                                                 ===========


LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
    Current maturities of notes payable                        $    717,939
    Accounts payable                                                181,372
    Accrued interest payable                                         72,426
    Accrued other expenses                                           29,307
    Accrued income taxes                                             10,750
                                                                 -----------
      TOTAL CURRENT LIABILITIES                                   1,011,794
                                                                 -----------

NOTES PAYABLE, less current maturities                              331,524
                                                                 -----------

STOCKHOLDERS' EQUITY
    Common stock, $.0001 par value par value; 500 million shares
      authorized: 120,577,744 shares issued and outstanding          12,058
    Additional paid-in capital                                    1,034,155
    Accumulated deficit                                          (1,417,516)
                                                                 -----------
      Total stockholders' equity                                   (371,303)
                                                                 -----------

      Total liabilities and stockholders' equity               $    972,015
                                                                 ===========





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

                                                                    FIVE MONTHS ENDED MAY 31,      YEAR ENDED DECEMBER 31,
                                                                 -------------------------------------------------------------
                                                                       2001            2000            2000           1999
                                                                 -------------   --------------  -------------  --------------
                                                                                    (UNAUDITED)
<S>                                                             <C>                 <C>           <C>            <C>
REVENUE                                                         $     109,384       $  116,646    $   269,392    $    305,323
                                                                  ------------       ----------      ---------      ----------

EXPENSES

    General and administrative                                        257,589          151,004        389,906         378,830
    Costs attributable to unconsummated acquisitions                   36,085           14,866        221,105               -
    Acquisition related expenses                                       58,245                -              -               -
    Mutual fund start-up costs                                         35,000                -              -               -
    Interest                                                           98,637           64,921        176,342          94,903
    Depreciation and amortization                                       1,444            1,524          3,658          17,119
                                                                  ------------       ----------      ---------      ----------

      TOTAL EXPENSES                                                  487,000          232,315        791,011         490,852
                                                                  ------------       ----------      ---------      ----------

NET INCOME (LOSS)                                               $    (377,616)      $ (115,669)   $  (521,619)   $   (185,529)
                                                                  ============       ==========     ==========     ===========


BASIC AND DILUTIVE NET INCOME (LOSS) PER SHARE:

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

    WEIGHTED AVERAGE SHARES OUTSTANDING:
      Shares issued former shareholders of Jacobs & Co. and FSI    74,999,987       74,999,987     74,999,987      74,999,987
      Shares deemed issued May 29, 2001 to NELX shareholders          905,518              N/A            N/A             N/A
                                                                  ------------      -----------    -----------     -----------
                                                                   75,905,505       74,999,987     74,999,987      74,999,987
                                                                  ============      ===========    ===========     ===========
</TABLE>



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

                                                                    FIVE MONTHS ENDED MAY 31,      YEAR ENDED DECEMBER 31,
                                                                 -------------------------------------------------------------
                                                                       2001            2000            2000           1999
                                                                 -------------   --------------  -------------  --------------
                                                                                   (UNAUDITED)
<S>                                                              <C>              <C>           <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES
    Net income (loss)                                            $  (377,616)     $  (115,669)  $   (521,619)     $ (185,529)
    Adjustments to reconcile net income (loss) to
      net cash provided by operating activities
         Salary imputed to shareholder                                50,000           50,000        120,000         120,000
         Depreciation and amortization                                 1,444            1,524          3,658          17,119
         Changes in operating assets and liabilities:
           Receivables                                                23,829           26,792         22,774          (4,400)
           Prepaid and other current assets                          (20,203)           1,607         (4,436)          1,196
           Accounts payable                                          (26,705)         (81,451)        39,057          62,191
           Accrued liabilities                                        57,984           53,503         26,043           8,830
                                                                  -----------       ----------     ----------      ----------
            Net cash flows from (used for) operating activities     (291,267)         (63,694)      (314,523)         19,407
                                                                  -----------       ----------     ----------      ----------

CASH FLOWS FROM INVESTING ACTIVITIES
    Cash acquired in connection with business combination          1,055,707                -              -               -
    Purchase furniture and equipment                                       -           (7,482)       (16,982)        (16,005)
                                                                  -----------       ----------     ----------      ----------
                 Net cash flows (used for) investing activities    1,055,707           (7,482)       (16,982)        (16,005)
                                                                  -----------       ----------     ----------      ----------

CASH FLOWS FROM FINANCING ACTIVITIES
    Convertible note borrowings                                      325,000          315,000        527,500          25,000
    Borrowings from NELX, Inc. prior to business combination         250,000                -              -               -
    Repayment of short-term borrowings                              (210,000)               -              -               -
    Advances from (to) shareholder, net                             (359,804)        (209,948)      (387,873)          8,827
    Short-term borrowings                                                  -                -        210,000               -
    Repayment of term notes payable                                        -          (13,991)       (19,054)        (37,354)
                                                                  -----------       ----------    -----------      ----------
           Net cash flows (used for) from financing activities         5,196           91,061        330,573          (3,527)
                                                                  -----------       ----------    -----------      ----------

NET INCREASE IN CASH                                                 769,636           19,885           (932)           (125)

CASH AND EQUIVALENTS, BEGINNING OF PERIOD                              2,250            3,182          3,182           3,307
                                                                  -----------       ----------     ----------      ----------

CASH AND EQUIVALENTS, END OF PERIOD                              $   771,886      $    23,067   $      2,250      $    3,182
                                                                  ===========       ==========     ==========      ==========


SUPPLEMENTAL DISCLOSURES:
    Interest paid                                                $    41,413      $     4,120      $ 161,140      $   94,903
    Income taxes paid                                                      -                -              -               -
    Non-cash investing and financing transactions:
      Issue 75 million shares to refinance Company                   281,829                -              -               -
      Conversion of debt to equity                                   802,500                -              -               -
      Capital contribution                                           236,277                -              -               -



</TABLE>




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

                                                     COMMON STOCK
                              ----------------------------------------------------------------------
                              JACOBS & COMPANY FS INVESTMENTS, INC.     NELX, INC.      ADDITIONAL
                               (S CORPORATION)    (C CORPORATION)     (C CORPORATION)   PAID- IN   ACCUMULATED DEFICIT
                              ----------------   ----------------- ---------------------            ---------------
                               SHARES   AMOUNT    SHARES    AMOUNT   SHARES     AMOUNT    CAPITAL  ACQUIRORS   ACQUIREE     TOTAL
                              ---------  -----   -------  -------- -----------  ------   --------  ----------  ---------   ---------
<S>                           <C>       <C>      <C>     <C>       <C>          <C>     <C>       <C>          <C>      <C>

BALANCE, DECEMBER 31, 1998         250  $ 2,500  162,820 $ 162,820           -  $    -  $ 356,680 $(2,092,947) $      - $(1,570,947)

 Salary imputed
      to shareholder                 -        -        -         -           -       -    120,000           -          -    120,000

 Distributions to
      shareholder                    -        -        -         -           -       -          -    (145,040)         -   (145,040)

 Net (loss), year ended
     December 31, 1999               -        -        -         -           -       -          -    (185,529)         -   (185,529)

                              ---------  -----   -------  -------- -----------  ------  ---------  ----------  ---------   ---------

BALANCE, DECEMBER 31, 1999         250    2,500  162,820   162,820           -       -    476,680  (2,423,516)         - (1,781,516)

 Salary imputed
     to shareholder                  -        -        -         -           -       -    120,000           -          -    120,000

 Distributions to
     shareholder                     -        -        -         -           -       -          -    (144,084)         -   (144,084)

 Net (loss), year ended
      December 31, 2000              -        -        -         -           -       -          -    (521,619)         -   (521,619)

                              ---------  -----   -------  -------- -----------  ------  ---------  ----------  ---------   ---------

BALANCE, DECEMBER 31, 2000         250    2,500  162,820   162,820           -       -    596,680  (3,089,219)         - (2,327,219)

 Salary imputed
     to shareholder                  -       -         -         -           -       -     50,000           -          -     50,000

 Conversion of debt
      to equity                      -       -    76,973    76,973           -       -    725,527           -          -    802,500

 Capital contribution                -       -         -         -           -       -    236,277           -          -    236,277

 Distributions to
      shareholder                    -       -         -         -           -       -          -     (92,781)         -    (92,781)

 Net (loss), five months
      ended May 31, 2001             -       -         -         -           -       -          -    (377,616)         -   (377,616)

 Reorganization of NELX, Inc.
      May 29, 2001                   -       -         -         -  45,577,757   4,558  7,718,353           - (6,385,375) 1,337,536

 Issuance of NELX, Inc.
   shares to Jacobs and FSI
   shareholders May 29, 2001      (250) (2,500) (239,793) (239,793) 74,999,987   7,500 (8,292,682)  2,142,100  6,385,375          -
                              ---------  -----   -------  -------- -----------  ------  ---------  ----------  ---------   ---------

BALANCE, MAY 31, 2001                -  $    -         -  $      - 120,577,744 $12,058 $1,034,155 $(1,417,516) $       -  $(371,303)
                              =========  =====   =======  ======== ===========  ======  =========  ==========  =========   =========
</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. On May 29, 2001,  the Company  acquired two  affiliated
         companies  located  in  Charleston,  West  Virginia:  Jacobs &  Company
         ("Jacobs") and FS Investments,  Inc.  ("FSI") (see below).  Jacobs is a
         registered  investment  advisory and  financial  planning  firm.  FSI's
         principal  business is placing surety bonds for clients  collateralized
         by investment  accounts  managed by Jacobs.  It has specialized in coal
         reclamation bonds in West Virginia, Kentucky and surrounding states.

         MAY 29, 2001 ACQUISITIONS AND BASIS OF PRESENTATION
         ---------------------------------------------------
         Effective  May 29,  2001,  the Company  acquired  two  privately  owned
         companies,  Jacobs and FSI. In the  transactions,  25 million shares of
         NELX common stock were issued to the  shareholder of Jacobs and certain
         of its  security  holders  for all of  Jacobs'  previously  outstanding
         common stock and 50 million  shares of NELX common stock were issued to
         FSI's  shareholders  for all of  FSI's  previously  outstanding  common
         stock. As a result of the acquisitions,  the former Jacobs  shareholder
         and security holders own approximately  20.7% of NELX common stock, and
         the former FSI  shareholders  own  approximately  41.4% of NELX  common
         stock.

         The  acquisitions  are  recorded  as a  recapitalization  effected by a
         reverse  acquisition  wherein  NELX  is  treated  as the  acquiree  for
         accounting purposes, even though it is the legal acquirer. As a result,
         the results of  operations  included in the  financial  statements  for
         periods prior to May 29, 2001 are those of Jacobs and FSI.

         The   transactions   have  been   accounted  for  as  a  purchase  and,
         accordingly,  the  operating  results of NELX have been  included  with
         Jacobs and FSI in the consolidated  financial  statements from the date
         of the acquisitions. Also, since NELX was predominantly a non-operating
         shell  and had  only  limited  business  activities,  goodwill  was not
         recorded as a result of the acquisitions.

                                      F-7
<PAGE>

         NELX, INC.
         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


         Additional  paid-in  capital  has  been  charged  in the May  29,  2001
         business  combination for the accumulated deficits of NELX ($6,385,375)
         and  Jacobs  (an  S  corporation  -   $2,142,100).   Accordingly,   the
         accumulated  deficit  as of May 31,  2001  represents  the  accumulated
         deficit  of FSI as of May 29,  2001  and the  consolidated  results  of
         operations for the three days ended May 31, 2001.

         A summary of the net assets  acquired  from NELX on May 29, 2001 is set
         forth below:

             Cash and equivalents                                   $1,055,707
             Investment in undeveloped mineral lease                   116,661
             Loan to FSI prior to merger                               250,000
             Advances from director                                    (39,837)
             Accounts payable and accrued liabilities                  (45,005)
                                                                    -----------
             Net assets acquired                                    $1,337,536
                                                                    ===========

         The following  unaudited pro forma  consolidated  results of operations
         for the years ended May 31, 2001 and the years ended  December 2000 and
         1999  assume the  business  combination  had  occurred as of January 1,
         1999:

                                                         Year Ended December 31,
                                    Five Months Ended
                                         May 31, 2001        2000         1999
                                    -----------------      ---------  ----------
             Revenues                        $109,000     $ 269,000   $ 305,000
             Net income (loss)                890,000      (497,000)   (185,000)
             Net income (loss) per share     $    .01     $    (.01)  $       -
                                             ========      =========  ==========

         These amounts include the NELX sale in May 2001, of certain oil and gas
         properties,  resulting  in net  proceeds and a gain on the sale of $1.3
         million.

         In addition, the pro forma amounts for the year ended December 31, 2000
         include,  the  NELX  sale  of  an  interest  in  a  former  subsidiary,
         Mind2Market,  Inc.  (formerly NELX Marketing,  Inc.),  resulting in net
         proceeds and a gain on the sale of $60,000.

                                      F-8
<PAGE>

         NELX, INC.
         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


         In management's  opinion, the unaudited pro forma results of operations
         are not  indicative  of the actual  results that would have occurred if
         the  acquisitions  had  taken  place at the  beginning  of the  periods
         presented and are not intended to be a projection of future results.

         LIQUIDITY AND CAPITAL RESOURCES
         -------------------------------
         Recently  the  Company   incurred   significant   operating  losses  of
         approximately  $(378,000)  for the five months ended May 31, 2001,  and
         $(522,000)  and  $(186,000)  for the years ended  December 31, 2000 and
         1999,  respectively,  and as of May 31, 2001 has a  $(169,000)  working
         capital  deficit and a  $(371,000)  stockholders'  deficit.  Management
         intends  to  continue  with  steps it has  taken to  improve  cash flow
         through  operations and pursuit of viable joint venture  opportunities.
         However,   recognizing  the  potential  for  future  cash  flow  needs,
         management  has made  arrangements  with a  shareholder  for a $500,000
         credit line through  June 30, 2002 (Note J) and  believes  this will be
         sufficient to fund operations through May 31, 2002. Management may also
         seek to raise additional  funds through private  placements of stock or
         short-term  borrowings.  However, the Company cannot be certain that it
         will be able to obtain such funds.

         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  are
         valuation of deferred tax  benefits.  Actual  results  inevitably  will
         differ from those  estimates,  and such  differences may be material to
         the financial statements.

                                      F-9
<PAGE>
         NELX, INC.
         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


         NEW ACCOUNTING PRONOUNCEMENTS
         -----------------------------
         In July 2001, the Financial Accounting Standards Board ("FASB"), issued
         Statement  of  Financial   Accounting   Standards  No.  141,   Business
         Combinations,  ("SFAS  No.  141").  SFAS No.  141  addresses  financial
         reporting  for  business   combinations   and   supersedes   Accounting
         Principles  Board ("APB")  Opinion No. 16, Business  Combinations,  and
         SFAS No. 38, Accounting for  Preacquisition  Contingencies of Purchased
         Enterprises.  SFAS No. 141 generally requires business  combinations to
         be accounted for using the purchase method.  While the pronouncement is
         not  effective  for business  combinations  occurring  prior to July 1,
         2001,  the Company has followed the purchase  method of accounting  for
         the May 29, 2001 business combination.

         Concurrently  with the  issuance of SFAS No. 141,  the FASB issued SFAS
         No. 142, Goodwill and Other Intangible Assets.  SFAS No. 142 sets forth
         financial  accounting  and  reporting  for acquired  goodwill and other
         intangible assets and supersedes APB opinion No. 17, Intangible Assets.
         The  Provisions  of SFAS No. 142 are  effective  December 31, 2001.  As
         discussed in Note A, because the May 29, 2001 business combination is a
         recapitalization  effected  by  reverse  acquisitions,  recognition  of
         goodwill is inappropriate  and management does not believe SFAS No. 142
         applies to this business combination.

         In March  2000,  the  FASB  issued  Financial  Interpretation  No.  44,
         Accounting for Certain  Transactions  Involving Stock Compensation,  an
         Interpretation  of APB Opinion 25.  Interpretation  No. 44 is effective
         July 1, 2000.  Interpretation  No. 44 clarifies the  application of APB
         Opinion  25  for  various  matters,   specifically:  the  criteria  for
         determining  whether a plan qualifies as a  non-compensatory  plan; the
         accounting  consequence  of  various  modifications  to the  terms of a
         previously  fixed  stock  option or award;  and the  accounting  for an
         exchange  of  stock  compensation  awards  in a  business  combination.
         Management does not believe that the adoption of Interpretation  No. 44
         will  have  any  impact  on  its  financial   position  or  results  of
         operations.

                                      F-10
<PAGE>
         NELX, INC.
         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


         In March 2000, the FASB's Emerging Issues Task Force ("EITF") reached a
         consensus on EITF 00-2, Accounting for Web Site Development Costs. EITF
         00-2  discusses  how an entity  should  account  for costs  incurred to
         develop a web site.  The EITF is  effective  in the  first  quarter  of
         fiscal 2001. Management does not believe that the adoption of EITF 00-2
         will have a material  impact on the  Company's  financial  position  or
         results of operations.

         In December 1999, The Securities and Exchange Commission ("SEC") issued
         Staff Accounting Bulletin ("SAB") 101, Revenue Recognition in Financial
         Statements.  The SAB summarizes  certain of the SEC's views in applying
         generally  accepted  accounting  principles to revenue  recognition  in
         financial  statements.  In June 2000,  the SEC  issued SAB 101B,  which
         delays  the  implementation  date of SAB 101  until no  later  than the
         fourth  fiscal  quarter of fiscal years  beginning  after  December 15,
         1999. The Company believes that its revenue  recognition  practices are
         in conformity with the guidelines in SAB 101, as revised.

         In June  1998,  the  FASB  issued  Statement  of  Financial  Accounting
         Standards No. 133,  Accounting for Derivative  Instruments  and Hedging
         Activities.  SFAS  No.  133 (as  amended  by  SFAS  No.  137)  requires
         companies to recognize all  derivatives as either assets or liabilities
         in the statement of financial position and measure those instruments at
         fair value.  SFAS No. 133 is effective for fiscal years beginning after
         June  15,  2000.  The  Company  does  not  presently   enter  into  any
         transactions  involving derivative financial  instruments and, does not
         anticipate  the new  standard  will have any  effect  on its  financial
         statements for the foreseeable future.

         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 is  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.

                                      F-11
<PAGE>
         NELX, INC.
         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         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.

         INVESTMENT IN UNDEVELOPED MINERAL LEASE
         ---------------------------------------
         The  Company's  investment  in an  Arkansas  mineral  spring  lease was
         acquired in the May 29,  2001 merger and is recorded at cost,  which is
         amortized using the straight-line  method over the remaining lease term
         ending October 28, 2026 (including options to extend).  The property is
         presently not being  actively  explored or developed and  management is
         engaged  in  evaluating  the  lease.  In the event  that  costs are not
         supported  by  independently  determined  sources,  it  is  possible  a
         downward adjustment of its carrying cost may be required.

         The Company is obligated under the lease agreement for monthly payments
         of approximately  $150 through October 2006, with options to extend the
         lease for two additional  ten-year terms.  The Company has the right to
         cancel the lease upon sixty days written notice.

         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.  Depreciation  expense
         charged to  operations  was $1,444 and $1,524 for the five months ended
         May 31,  2001 and 2000,  and $3,658  and  $17,119  for the years  ended
         December 31, 2000 and 1999, respectively.

                                      F-12
<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 D).

         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.

         Common shares issued to the shareholders and security holders of Jacobs
         and FSI in the May 29, 2001 acquisitions are considered outstanding for
         all periods presented.  Shares  attributable to NELX shareholders prior
         to the  acquisitions  of  Jacobs  and  FSI are  considered  outstanding
         beginning May 29, 2001.

         RECLASSIFICATIONS
         -----------------
         Certain reclassifications have been made for consistent presentation.


                                      F-13
<PAGE>
<TABLE>
<CAPTION>
         NELX, INC.
         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         NOTE C - NOTES PAYABLE
         Notes payable consist of the following as of May 31, 2001:

<S>           <C>                                                                                            <C>
              Note payable to officer dated May 29, 2001, interest approximately 14.5%,
              unsecured, and paid in June 2001                                                               $ 434,626

              Note  payable  to  officer  dated  May  29,  2001,  with  interest
              approximating  9.34%,  unsecured,  average  monthly  interest  and
              principal of $17,428  payable  monthly in fiscal 2002 and reducing
              thereafter with a final payment due April 29, 2006                                               418,625

              Note  payable  to  officer  dated  May  29,  2001,  12%  interest,
              unsecured,  interest and principal of $5,000 payable monthly, with
              a final payment due November 29, 2002                                                             81,375

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

              Note payable dated  May 1, 2000,   with interest floating with the
              prime  rate   and  adjusted  quarterly,  unsecured,  interest  and
              principal  approximating  $985   payable  monthly,   with a  final
              payment on May 1, 2006                                                                            50,000

              Note payable  dated  October 21, 1999,  10%  interest,  unsecured,
              interest  and  principal  of $531  payable  monthly,  with a final
              payment on May 1, 2006                                                                            25,000
                                                                                                             ----------
                   Total                                                                                     1,049,463

                   Current maturities                                                                         (717,939)
                                                                                                             ----------

                   Long-term maturities                                                                      $ 331,524
                                                                                                             ==========
</TABLE>
<TABLE>
<CAPTION>
         Future maturities of notes payable as of May 31, 2001 are as follows:

<S>                                                                             <C>                  <C>
                                                                                2002                         $ 717,939
                                                                                2003                           170,397
                                                                                2004                           103,348
                                                                                2005                            29,200
                                                                                2006                            28,579

</TABLE>


                                      F-14
<PAGE>
         NELX, INC.
         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         NOTE D - INCOME TAXES
         Deferred  income tax assets and liabilities are recorded to reflect the
         tax  consequences in future years of differences  between the tax basis
         of assets and liabilities and their financial reporting amounts at each
         year-end.  Deferred  income tax assets are  recorded to reflect the tax
         consequences  on future  years of  income  tax  carryforward  benefits,
         reduced by valuation  allowance for future benefit amounts not expected
         to be realized by the Company.  A tax benefit has not been  reported in
         the  accompanying  financial  statements for the operating loss carried
         forward  because  the  Company is  uncertain  as to the  likelihood  of
         utilization.

         At May 31,  2001,  the  Company's  net  deferred  income  tax  asset is
         comprised of the following:

          Net  operating  loss  benefit carryforward        $   939,000
          Valuation allowance for the deferred tax asset       (939,000)
                                                            ------------
          Net deferred income tax asset                     $         -
                                                            ============

          As of May 31, 2001,  the Company had operating loss  carryforwards  of
          approximately  $6,000,000,  a decrease in fiscal 2001 of $73,000.  The
          operating loss carryforward  expires beginning in 2010. As a result of
          the  ownership  change  resulting  from  the  acquisitions  of FSI and
          Jacobs,  the  utilization  of  operating  loss  carryforwards  will be
          substantially limited in future periods.

         NOTE E - STOCKHOLDERS' EQUITY

         OFFICER SALARY
         --------------
         During the periods  presented,  salary of $10,000 per month was imputed
         for the services of the principal officer of the Company.

         CONVERSION OF DEBT TO EQUITY
         ----------------------------
         During May 2001,  debt totaling $802,500 was converted to 76,973 shares
         of FSI  stock  in  conjunction  with the  acquisition  by NELX.  Of the
         convertible notes,  $325,000 was  issued during 2001. The notes accrued
         interest at the prime rate.

         CAPITAL CONTRIBUTION
         --------------------
         In conjunction with the acquisition by NELX, a net capital contribution
         of  $236,277  resulted  from  the   relinquishment  of  debt  owed  the
         shareholders  of  Jacobs  and  FSI  in  connection  with  the  business
         combination with NELX.

                                      F-15
<PAGE>
         NELX, INC.
         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         NOTE F - COMMITMENTS AND CONTINGENCY

         UNCONSUMMATED BUSINESS ACQUISITIONS
         -----------------------------------
         During 2000, the Company's subsidiary, FSI, pursued acquisition targets
         in Kentucky  and Ohio.  Both  transactions  were not  consummated,  and
         accordingly,  all  related  costs  have  been  expensed,  approximately
         $257,000.

         Prior to closing the Kentucky  transaction,  the sellers  refused to go
         forward with the transaction.  FSI has brought a cause of action in the
         United States  District Court for the Eastern  District of Kentucky for
         breach  of  contract  seeking  damages.   The  defendant  has  filed  a
         counterclaim  against  FSI for fraud in the  inducement,  which FSI has
         denied and intends to vigorously defend. This civil action is presently
         in the  early  stages  of  discovery.  Litigation  is  subject  to many
         uncertainties  and the outcome of this dispute cannot be predicted with
         any certainty.

         LEASE COMMITMENTS
         -----------------
         The  Company is  obligated  under a lease  agreement  for a  Charleston
         office suite through July 2002,  currently at $2,124 per month; it also
         leases certain office equipment with combined monthly payments of $663.
         Rental  expense was  approximately  $13,000 and  $12,000,  for the five
         months  ended May 31, 2001 and 2000 and $30,000  and  $32,000,  for the
         years ended  December 31, 2000 and 1999,  respectively.  Minimum future
         lease payments under  non-cancelable  operating leases having remaining
         terms in excess of one year as of May 31, 2001 are:

                                   2002     $20,699
                                   2003      10,079
                                   2004       7,955
                                   2005       7,955
                                   2006       6,448

         NOTE G - 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


                                      F-16
<PAGE>
         NELX, INC.
         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         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 the  financial  institution
         providing  commercial  banking services exceeds the $100,000  federally
         insured limit.  Management believes that this financial  institution is
         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.

<TABLE>
<CAPTION>
         NOTE H - 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.

         Industry Segment                                 Five Months Ended May 31,               Year Ended December 31,
         ----------------                                 -------------------------               -----------------------
                                                           2001                2000                  2000             1999
                                                           ----                ----                  ----             ----
<S>      <C>                                           <C>                  <C>                   <C>              <C>

         REVENUES:
          Investment advisory                          $   105,815          $  113,965            $  257,245        $ 297,140
          Surety bond brokerage                              3,569               2,681                12,089            8,183
                                                        -----------          ---------             ---------         ---------
          Total revenues                               $   109,384          $  116,646            $  269,392        $ 305,323
                                                        ===========          =========             =========         =========

         OPERATING INCOME:
          Investment advisory                          $  (160,121)         $  (39,676)           $ (120,332)       $ (50,966)
          Surety bond brokerage                           (217,495)            (75,993)             (401,287)        (134,563)
                                                        -----------          ----------             ---------        ---------
          Total operating income                       $  (377,616)         $ (115,669)           $ (521,619)       $(185,529)
                                                        ===========          ==========             =========        =========

         IDENTIFIABLE ASSETS:
          Investment advisory                          $   163,587          $   55,731            $   85,388        $  79,385
          Surety bond brokerage                            116,830              38,447                 5,397           17,249
          Unallocated corporate                            691,598             123,179               146,236           51,602
                                                        -----------          ----------             ---------        ---------
          TOTAL ASSETS                                 $   972,015          $  217,357            $  237,021        $ 148,236
                                                        ===========          ==========             =========        =========
</TABLE>

                                      F-17
<PAGE>

         NELX, INC.
         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         NOTE I - 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 J - EVENTS SUBSEQUENT TO MAY 31, 2001 (UNAUDITED)

         In June 2001, the Company  announced the launch of the Jacobs & Company
         Mutual Fund, of which Jacobs & Company is the investment advisor.

         On September 1, 2001, the Company  obtained a $500,000 loan  commitment
         through June 30, 2002 from a private West Virginia  corporation that is
         also  a  shareholder  of  the  Company.  Interest  on  the  loan  is at
         one-percent above the lending corporation's borrowing rate.










                                      F-18


<PAGE>
Item 8.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
                  ON ACCOUNTING AND FINANCIAL DISCLOSURE

In  connection  with the audits of the two most  recent  calendar  years and the
five-month period ended May 31, 2001, there have been no disagreements  with the
independent  accountants with respect to any matter of accounting  principles or
practices, financial statement disclosure, or auditing scope or procedure.

                                    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             47               President &
                                             Director

Robert L. Neal             45               Chief Financial
                                             Officer & Secretary

Charles L. Stout           51               Director


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 twelve  (12)
states.  For the past five  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,  many of whom were and are in the coal  industry.  Mr.  Jacobs has
served as a director and President of NELX Inc. since May 2001.


                                       10
<PAGE>

ROBERT L. NEAL

Mr. Neal is a Certified  Public  Accountant who has over 20 years  experience in
public accounting and private industry. Prior to joining Jacobs & Company and FS
Investments,  Inc. in June 2000,  for the previous  eleven years,  Mr. Neal held
positions of Vice-President, Executive Vice-President and President of Merchants
National Bank (now City  National  Bank of WV), a community  bank with assets of
approximately $100 million located in Montgomery,  WV. Previously,  Mr. Neal had
over  nine  years  experience  with the  Charleston,  WV office of Ernst & Young
(formerly Ernst & Whinney). Mr. Neal has served as Secretary of NELX, Inc. since
May 2001.

CHARLES L. STOUT

Mr. Stout  obtained a B.S. in Mechanical  Engineering  Technology  from Fairmont
State  College.  He has post graduate study at West Virginia  University.  He is
President and Director of Applied Mechanics Corporation that he founded in 1983,
a West  Virginia  oil and  gas  producer.  From  1984 to  present,  he has  been
President of Appalachian Labor and Economic  Development Corps., Ltd. He also is
owner of Applied  Machining,  Inc., a tool and die shop. Mr. Stout was President
of NELX, Inc. from October 1997 until May 2001.

In connection  with the  acquisitions  of FSI and Jacobs & Company,  the Company
agreed to  nominate  for  election as  directors  of the  Company  Frederick  E.
Ferguson and C. David Thomas.  The Company  intends to nominate Mr. Ferguson and
Mr.  Thomas  for  election  as  directors  at the  next  annual  meeting  of the
shareholders of the Company.

FREDERICK E. FERGUSON

Mr. Ferguson is retired coal operator who has a diverse  experience with respect
to 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.

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.  Mr.  Thomas has served as a Director of FS  Investments,
Inc. since its inception in December 1997.

                                       11
<PAGE>

Mr. Kenneth L. Curry, President and a director of Square Roots Inc., and who was
appointed  as a director in July 2000,  resigned  this  position in January 2001
upon NELX's  decision to terminate its  acquisition  of Square Roots Inc.  Denis
Iler,  who served as a director and Secretary of NELX,  resigned as director and
Secretary in May 2001 to pursue other business interests.

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.

                                       12
<PAGE>

Item 10.          EXECUTIVE COMPENSATION

The following table sets forth the  compensation  paid by the Company during the
calendar years ended December 31, 1998,  December 31, 1999 and December 31, 2000
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.

SUMMARY COMPENSATION TABLE

                                       ANNUAL COMPENSATION
                                       -------------------
                                                                  Other
          Name and                                                Annual
     Principal Position     Year     Salary ($)   Bonus ($)   Compensation ($)
     ------------------     ----     ----------   ---------   ----------------
John M. Jacobs (1)          2000     $    5,000    $      -     $      147,656
Chief Executive Officer     1999          9,500           -            150,137
                            1998              -           -            135,011
--------------------------------------------------------------------------------
Charles L. Stout (2)        2000     $        -    $      -     $            -
Chief Executive Officer     1999              -           -                  -
                            1998              -           -                  -
--------------------------------------------------------------------------------

(1)  Mr. Jacobs was appointed  Chief  Executive  Officer of NELX in May 2001 and
     the amounts  reported  represent  compensation  paid to Mr. Jacobs as Chief
     Executive  Officer of Jacobs & Co. and FSI during the calendar  years 2000,
     1999,  and  1998.  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.

(2)  Mr. Stout resigned as Chief Executive Officer of NELX in May 2001.

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 2000, 1999 or 1998
calendar years.

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 2000,
1999 or 1998  calendar  years.  There are no standard or other  arrangements  in
effect for the compensation of directors of the Company.

                                       13
<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,  2001 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.

 Name and Address of                  Amount and Nature of            Percent of
 Beneficial Ownership                 Beneficial Ownership (1)        Class (2)
 --------------------                 ------------------------        ----------

 John M. Jacobs
 300 Summers Street, Suite 970
 Charleston, WV  25351                  13,852,460 (3)                     11.5%

 Charles L. Stout and
 Marilyn Stout
 Route 1, Box 41J
 Bridgeport, WV  26330                  13,025,000 (4)                     10.8%

 William D. Jones and
 Cynthia B. Jones
 513 Georgia Avenue
 Chattanooga, TN  37403                  9,060,000                          7.5%

 ALL EXECUTIVE OFFICERS
 AND DIRECTORS AS A GROUP               26,877,460                         22.3%


(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 11, 2001 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  120,577,744  shares of common stock issued and  outstanding as of
     September 11, 2001.

(3)  Includes  12,233,044  shares  of  common  stock  are 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.

                                       14
<PAGE>

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

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
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 calendar years 1999 and 2000, and the five-month  period ended May 31, 2001,
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 $84,257 in
calendar  year 1999,  $135,358  in  calendar  year  2000,  and  $61,097  for the
five-month period ended May 31, 2001.

                                       15
<PAGE>

Item 13.          EXHIBITS AND REPORTS ON FORM 8-K

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                                           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) The following reports on Form 8-K have been filed during the last quarter of
the period covered by this report.

     1.   On May 21, 2001 NELX announced the successful consummation of the sale
          of the Roane County, West Virginia oil field.

     2.   On May 29, 2001 NELX announced  that  agreements had been reached with
          FS Investments,  Inc. and Jacobs & Company for the acquisition of such
          companies.

     3.   On June 4, 2001 NELX announced the consummation of the acquisitions of
          FS  Investments,  Inc.  and Jacobs & Company as of May 29,  2001;  the
          resignation  of  Denis  R.  Iler  as  an  officer  and  director;  the
          appointment  of John M.  Jacobs  to the  board of  directors;  and the
          election of John M. Jacobs as President and CEO of the Company.

     4.   On August 8, 2001 NELX filed an  amendment  to its  Current  Report on
          Form  8-K  dated  June 4,  2001 to  amend  and  restate  Item 7 of the
          original Form 8-K to include the following financial statements for FS
          Investments,  Inc.  and  Jacobs  &  Company  and pro  forma  financial
          information.


                                       16
<PAGE>

          a)   Audited  consolidated  financial  statements for FS  Investments,
               Inc. as of December 31, 2000 and for the two years then ended.

          b)   Audited financial  statements for Jacobs & Company as of December
               31, 2000 and for the two years then ended.

          c)   Unaudited  consolidated  financial  statements for FS Investment,
               Inc. as of March 31, 2001 and for the  three-month  periods ended
               March 31, 2001 and 2000.

          d)   Unaudited  financial  statements for Jacobs & Company as of March
               31, 2001 and for the three month periods ended March 31, 2001 and
               2000.

          e)   Unaudited pro forma combined condensed financial statements as of
               May 28, 2001 and for the year then ended.




                                       17

<PAGE>
SIGNATURES

In  accordance  with  Section 13 or 15(d) of the Exchange  Act,  the  registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
                                  NELX, INC.
                                  (Registrant)


Dated: September 13, 2001         By: /s/John M. Jacobs
     ---------------------            --------------------------
                                        John M. Jacobs
                                        President

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 13, 2001         By: /s/John M. Jacobs
     ---------------------            --------------------------
                                        John M. Jacobs
                                        President and Director


Dated: September 13, 2001         By: /s/Robert L. Neal
     ---------------------            --------------------------
                                        Robert L. Neal
                                        Chief Financial Officer and Secretary


Dated: September 13, 2001         By: /s/Charles L. Stout
     ---------------------            --------------------------
                                        Charles L. Stout
                                        Director




                                       18