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, 2002


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

<TABLE>
<CAPTION>
<S>                                      <C>                                   <C>
======================================== ===================================== =====================================
                KANSAS                                 0-21210                              84-0922335
                ------                                 -------                              ----------
---------------------------------------- ------------------------------------- -------------------------------------
    (State or other jurisdiction of            (Commission File Number)         (IRS Employer Identification No.)
            incorporation)
======================================== ===================================== =====================================
</TABLE>

               300 Summers Street, Suite 970, Charleston WV 25301
                   ------------------------------------------
               (Address of principal executive offices) (Zip Code)


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

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

                                      NONE

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

                          COMMON STOCK $.0001 PAR VALUE

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

                                  YES X     No ___
<PAGE>
Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the best of the  registrant's  knowledge,  in  definitive  proxy or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [x]

State the issuer's revenues for the most recent fiscal year.  $370,812

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates  computed by reference to the price at which the common equity
was sold,  or the average bid and asked  price of such  common  equity,  as of a
specified  date within the past 60 days.  As of last trade on September 6, 2002:
$4,823,110 (at $.04 / 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
September 6, 2002


                                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..................................................10

Item 8. Changes In and Disagreements with Accountants
        on Accounting and Financial Disclosure................................11

                                       2
<PAGE>


                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control
        Persons; Compliance With Section 16(a) of the
        Exchange Act..........................................................11

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 next three  years,  the
principal  activities  of the Company  involved  disposing  of assets,  settling
claims and liabilities  and considering  potential  business  combinations  with
related or  complementary  businesses.  During  fiscal year 2001,  the Company's
principal  assets  consisted of a leasehold  interest in an undeveloped  mineral
spring in Arkansas and certain oil and gas properties  located in West Virginia.
The oil and gas properties were sold in May 2001.

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

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

                                       3
<PAGE>

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

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

Item 2.           PROPERTIES

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

Item 3.           LEGAL PROCEEDINGS

During 2000, the Company's subsidiary, FS Investments,  Inc. ("FSI"), negotiated
for the  acquisition  of a company  located in  Kentucky.  Prior to closing  the
transaction, the sellers refused to go forward with the transaction. FSI 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  filed a
counterclaim   against   FSI  for  fraud  in  the   inducement   and   negligent
misrepresentation.  In March  2002,  the United  States  District  Court for the
Eastern  District of Kentucky issued an order for summary  judgement in favor of
the  defendants  with  respect to FSI's cause of action.  In exchange  for FSI's
agreement not to appeal the decision,  the defendants dropped their counterclaim
and the matter was dismissed.

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

                                             HIGH                       LOW
                                             ----                       ---

Fiscal Year Ended May 31, 2002

         4th Quarter                          .05                       .03
         3rd Quarter                          .05                       .03
         2nd Quarter                          .07                       .025
         1st Quarter                          .10                       .025


Fiscal Year Ended May 31, 2001

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

As of September 13, 2002, 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

BASIS OF FINANCIAL REPORTS
--------------------------

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

                                       5
<PAGE>

would  be  complementary  to  its  historic  business  and  that  could  enhance
shareholder value.

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

As reflected  in the  financial  statements  (see Item 7.  Financial  Statements
below), the Company's acquisition of FSI and Jacobs & Co. was 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 YEAR ENDED MAY 31, 2002
-----------------------------------------------------

During its fiscal year 2002, the Company  experienced revenue growth in both the
investment  advisory and surety segments of its business while strengthening its
organization  and building  infrastructure,  including the  establishment of the
Jacobs & Company  Mutual  Fund  (the "J&C  Fund" or the  "Fund")  as a  separate
reporting entity.  In addition,  as indicated in Item 3 above, the Company ended
FSI's ongoing  litigation.  While disappointed in the results of the litigation,
management  determined  not to appeal the court's  decision but instead to focus
its full attention on growth of the Company's business.

Although the Company experienced a loss in fiscal 2002, management believes that
its efforts during fiscal 2002 have stabilized  expenses and,  combined with the
investment management  performance of Jacobs & Co. and the substantial marketing
program undertaken by the Company, have positioned the Company to build revenues
that will now be reflected directly in the bottom line.

In June 2001, the J&C Fund was launched.  Jacobs & Co. is the Fund's  investment
adviser.  The Fund was  launched to provide a vehicle for  capturing  investment
management  business that in earlier years had been referred to other investment
advisers  due  to  account  size  not  being  large  enough  to  provide  proper
diversification.  While the Fund is responsible for its own operating  expenses,
Jacobs & Co., as the investment  adviser,  agreed to limit the Fund's  aggregate
annual  operating  expenses to 2.00% of the average  net assets.  During  fiscal
2002,  Jacobs bore  $163,149 of expenses of the J&C Fund pursuant to its expense
limitation agreement, while earning $72,450 in investment advisory fees from the
Fund.  As the  result of the  growth in the net  assets of the Fund,  since May,
2002,  investment  advisory fees have exceeded Jacobs & Co.'s  obligations under
the  expense  limitation  agreement.  With  continuing  growth of the Fund's net
assets,  management  expects  that in  fiscal  2003  the  Fund  will  contribute
significantly to Company revenues.

                                       6
<PAGE>
COMPARISON OF RESULTS OF OPERATIONS FOR FISCAL 2002 WITH FISCAL 2001
--------------------------------------------------------------------

The Company  experienced a loss for the year ended May 31, 2002 in the amount of
$1,141,755  as compared with a loss of $520,919 for its year ended May 31, 2001.
The  increased  loss is despite a growth in revenues  and is  attributable  to a
number of factors that are summarized below.

Revenues for fiscal 2002 were $370,812 versus $262,128 for fiscal 2001. Revenues
of the Company's surety segment increased from $12,976 in fiscal 2001 to $36,918
in fiscal  2002;  and  revenues of the  Company's  investment  advisory  segment
increased  from $244,568 to $293,163.  The increase in the  investment  advisory
segment  reflects a decrease in  investment  advisory  fees received from client
accounts  transferred to the J&C Fund, offset by an increase in overall revenues
attributable to an increase in assets under management of Jacobs & Co.

 Operating  expenses for fiscal 2002 were  $1,512,567  as compared with $783,047
for fiscal 2001. The majority of this increase is  attributable  to nonrecurring
expenses  including the $116,661 write down of the Company's  leasehold interest
in a mineral water spring (see Item 2 above),  direct costs of $183,458 incurred
in the litigation  that has now ended (see Item 3 above),  and $163,149 in costs
of the J&C Fund borne by Jacobs & Co under its expense limitation agreement. The
balance of the increase in general and  administrative  costs 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 a
marketing director,  increased expenses associated with marketing and promotion,
and market research and support services.

Interest  expense  for fiscal 2002 was $85,503 as  compared  with  $270,858  for
fiscal  2001.  The   substantial   decrease  in  interest   expense  is  largely
attributable to the fact that, in connection with the 2001 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  repaid  or
restructured.  Interest  expense  of fiscal  2002 was higher  than  anticipated,
including as the result of greater than  projected  expenses  incurred under the
expense limitation  agreement of Jacobs with respect to the J&C Fund and greater
than expected legal and expert expenses in relation to the  litigation,  both of
which were financed with short-term borrowings.

CONTRACTUAL OBLIGATIONS
-----------------------

The following table lists our significant liabilities at May 31, 2002:
<TABLE>
<CAPTION>
                                                                 Payments Due by Period
<S>                                     <C>            <C>          <C>             <C>        <C>
                                        Less than                                   After
Contractual Obligations:                  1 Year        2-3 Years   4-5 Years       5 Years     Total
Long-term debt                          $ 50,000       $ 100,000    $      0        $   0      $  150,000
Long-term debt to Related Parties        635,310         209,508      17,173            0         861,991
Operating leases                          17,508          30,934      14,602            0          63,044
                                        --------       ---------    --------         ------    ----------
Total contractual cash obligations      $702,818       $ 340,442    $ 31,775        $   0      $1,075,035
                                        ========       =========    ========         ======    ==========
</TABLE>

                                       7
<PAGE>

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES
------------------------------------------

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

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

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

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

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

                                       8
<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.

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.  FSI is reviewing  possible  insurance company
acquisition  targets and seeking to identify  financing  for the  purchase of an
insurance  company that would enable it to expand the distribution of its surety
programs to fill this market niche.  In addition,  FSI expects to take advantage
of  opportunities  for the  generation  of income  from  consulting  services in
relation to its surety business as they arise.

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. The investment  strategies of Jacobs have outperformed  relevant market
indices. For example,  the J&C Fund (which mirrors the investment  strategies of
Jacobs'  private  client  accounts) was ranked by the Wall Street Journal in the
top ten  balanced  funds based on  performance  for the 12 months ended June 30,
2002.  Effectively  marketing  the  services of Jacobs & Co. will be a principal
focus of  management  in the  coming  year.  Additionally,  the 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 and may
depend  in part  upon the  availability  of  financing.  As of May 31,  2002,  a
deficiency in working capital exists as the Company's current liabilities exceed
its current  assets by  approximately  $1,203,455.  Additionally,  the Company's
current monthly expenses exceed its revenues by an estimated  $25,000 per month.
Recognizing  the potential  cash flow  shortages the Company may be faced within
the next six to twelve months as its business  continues to develop,  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 potential investors, management believes that opportunities for
such private  placements  exist,  although the Company cannot be certain that it
will be able to obtain such funds.

                                       9
<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





















                                       10
<PAGE>
NELX, INC.
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS


REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS'                                   F-2

FINANCIAL STATEMENTS

    Consolidated Balance Sheet                                              F-3

    Consolidated Statements of Operations                                   F-4

    Consolidated Statements 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

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, 2002, and the related consolidated statements of operations,  cash flows
and changes in  stockholders'  equity  (deficit) for the year then ended.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our  audit.  The  financial  statements  of NELX,  Inc.  as of May 31,  2001 and
December 31, 2000 were audited by other  auditors  whose report dated August 24,
2001 (except for the second  paragraph of then Note J, which was as of September
1, 2001), expressed an unqualified opinion on those statements.

We conducted our audit in accordance with generally  accepted auditing standards
of the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.

In our opinion, the accompanying  consolidated  financial statements referred to
above present fairly, in all material respects,  the financial position of NELX,
INC. at May 31, 2002,  and the results of its  operations and its cash flows for
the year then ended, in conformity with accounting principles generally accepted
in the United States of America.

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

/s/ Gordon, Hughes, & Banks, LLP

Greenwood Village, Colorado
August 8, 2002 (except for the second paragraph
    of Note K, which is as of September 6, 2002)





                                      F-2
<PAGE>
NELX, INC.
CONSOLIDATED BALANCE SHEET

                                                                   May 31, 2002
                                                                  --------------
ASSETS

CURRENT ASSETS
    Cash and cash equivalents                                     $       8,689
    Receivables                                                          39,312
    Prepaid and other                                                    10,688
                                                                  --------------
      Total current assets                                               58,689

INVESTMENT IN UNDEVELOPED MINERAL SPRING LEASE                                -

FURNITURE AND EQUIPMENT,
    net of accumulated depreciation of $76,776                           20,078
                                                                  --------------
      TOTAL ASSETS                                               $       78,767
                                                                  ==============

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
    Current maturities of notes payable                          $       50,000
    Current maturities of notes payable - related parties               635,310
    Accounts payable                                                    207,814
    Accrued interest payable                                             33,449
    Accrued expenses                                                    335,571
                                                                 ---------------
      TOTAL CURRENT LIABILITIES                                       1,262,144

LONG-TERM LIABILITIES

    Notes payable, less current maturities                              100,000
    Notes payable, less current maturities - related parties            226,681
                                                                 ---------------
      TOTAL LONG-TERM LIABILITIES                                       326,681

STOCKHOLDERS' EQUITY (DEFICIT)

    Common stock, $.0001 par value par value; 500 million shares
      authorized: 120,577,744 shares issued and outstanding              12,058
    Additional paid-in capital                                        1,037,155
    Accumulated deficit                                              (2,559,271)
                                                                 ---------------
      TOTAL STOCKHOLDERS' EQUITY (DEFICIT)                           (1,510,058)
                                                                 ---------------

      TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)       $       78,767
                                                                 ===============
                            See accompanying notes.
                                      F-3
<PAGE>
<TABLE>
<CAPTION>
NELX, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
                                                                 Year Ended    Five Months Ended    Year Ended
                                                                May 31, 2002      May 31, 2001   December 31, 2000
                                                               ------------------------------------------------
<S>                                                             <C>                <C>              <C>
REVENUE                                                         $    370,812       $ 109,384        $ 269,392
                                                                   ----------      ----------       -----------

EXPENSES
    General and administrative                                        909,009         257,589          389,906
    Costs attributable to unconsummated acquisitions                  183,458          36,085          221,105
    Acquisition related expenses                                       48,000          58,245                -
    Mutual fund start-up costs                                              -          35,000                -
    Mutual fund costs                                                 163,149               -                -
    Interest                                                           85,503          98,637          176,342
    Depreciation and amortization                                       6,787           1,444            3,658
    Impairment of undeveloped mineral spring lease                    116,661               -                -
                                                                  -----------      ----------       -----------
      TOTAL EXPENSES                                                1,512,567         487,000          791,011
                                                                  -----------      ----------       -----------

NET (LOSS)                                                      $  (1,141,755)     $ (377,616)      $ (521,619)
                                                                  ===========      ==========       ===========

BASIC AND DILUTIVE NET (LOSS) PER SHARE:

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

    WEIGHTED AVERAGE SHARES OUTSTANDING                           120,577,744      75,905,505       74,999,987
                                                                  ===========      ==========       ===========
</TABLE>

                            See accompanying notes.
                                      F-4

<PAGE>
<TABLE>
<CAPTION>
NELX, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                 Year Ended     Five Months Ended     Year Ended
                                                                May 31, 2002      May 31, 2001     December 31, 2000
                                                               ------------------------------------------------
<S>                                                              <C>               <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
    Net (loss)                                                    $(1,141,755)     $ (377,616)      $ (521,619)
    Adjustments to reconcile net (loss) to
      net cash provided by operating activities
         Salary imputed to shareholder                                      -          50,000          120,000
         Depreciation and amortization                                  6,787           1,444            3,658
         Impairment of undeveloped mineral spring lease               116,661               -                -
         Changes in operating assets and liabilities:
           Receivables                                                  3,545          23,829           22,774
           Prepaid and other current assets                            17,178         (20,203)          (4,436)
           Accounts payable                                            26,442         (26,705)          39,057
           Accrued expenses                                           256,537          57,984           26,043
                                                                  -----------      -----------      -----------
              Net cash flows provided (to) operating activities      (714,605)       (291,267)        (314,523)
                                                                  -----------      -----------      -----------

CASH FLOWS FROM INVESTING ACTIVITIES
    Cash acquired in connection with business combination                   -       1,055,707                -
    Purchase furniture and equipment                                  (14,120)             -           (16,982)
                                                                  -----------      -----------      -----------
              Net cash flows provided from (to) investing activities  (14,120)      1,055,707          (16,982)
                                                                  -----------      -----------      -----------

CASH FLOWS FROM FINANCING ACTIVITIES

    Convertible note borrowings                                             -         325,000          527,500
    Borrowings from NELX, Inc. prior to business combination                -         250,000                -
    Proceeds from related party debt                                1,027,878         210,000                -
    Repayment of related party debt                                (1,137,350)       (779,804)        (387,873)
    Proceeds from debt obligations                                    150,000               -          210,000
    Repayment of debt obligations                                     (75,000)              -          (19,054)
                                                                  -----------      -----------      -----------
              NET CASH FLOWS PROVIDED FROM (TO) FINANC                (34,472)          5,196          330,573
                                                                  -----------      -----------      -----------

NET INCREASE (DECREASE) IN CASH                                      (763,197)        769,636             (932)

CASH AND EQUIVALENTS, BEGINNING OF PERIOD                             771,886           2,250            3,182
                                                                  -----------      -----------      -----------

CASH AND EQUIVALENTS, END OF PERIOD                               $     8,689       $ 771,886        $   2,250
                                                                  ===========      ===========      ===========


SUPPLEMENTAL DISCLOSURES:

    Interest paid                                                 $   124,480      $   41,413       $  161,140
    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       $        -
      Warrants issued with related party debt                     $     3,000      $        -       $        -

</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   Acquiror    Acquiree    Total
                              ------------------------------------------------------------------------------------------------------
<S>                             <C>  <C>      <C>       <C>            <C>         <C> <C>        <C>              <C>  <C>
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

   Conversion of debt to equity   -        -        -           -            -       -           -          -          -          -

   Capital contribution           -        -        -           -            -       -           -          -          -          -

   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  -        -        -           -            -       -           -   (377,616)         -   (377,616)
    May 31, 2001

   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)


   Detachable warrants issued
          with debt instrument    -        -        -           -            -       -       3,000          -          -      3,000

   Net (Loss), Year Ended
          May 31, 2002            -        -        -           -            -       -           - (1,141,755)         - (1,141,755)
                              ------  ------ ---------   ---------  ----------   -----  ----------- ---------  ---------  ----------

BALANCE, MAY 31, 2002             -      $ -        -         $ -  120,577,744 $12,058  $1,037,155$(2,559,271)  $      -$(1,510,058)
                              ======  ====== =========   =========  ==========   =====  =========== =========  =========  ==========

</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  firm that
derives  its  revenue  from   asset-based   fees.   Jacobs  serves   clients  in
approximately  twenty  states,  primarily  in the eastern  United  States.  FSI,
through its wholly-owned  subsidiary Triangle Surety Agency, Inc.  ("Triangle"),
is engaged in the business of placing surety bonds with insurance  companies for
clients engaged in regulated industries, such as the extraction of coal, oil and
gas. FSI  receives  commission  income from the  placement of these bonds and is
licensed in ten states  primarily in the eastern United States.  The Company and
its  subsidiaries  are subject to the business risks inherent with the financial
services industry.

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                                     $1,337,526
                                                                     ===========

The following  unaudited pro forma  consolidated  results of operations  for the
twelve months ended May 31, 2001 assumes the business  combination  had occurred
as of January 1, 1999:

                                                            Twelve Months Ended
                                                               May 31, 2001
                                                            --------------------
             Fee revenues                                            $  262,128

             Interest Expense                                           270,858
             Other Expense                                              512,189
                                                                    ------------
                                                                        783,047
                                                                    ------------
             Net (loss)                                              $ (520,919)
                                                                    ============
             Net (loss) per share                                    $ (    .01)
                                                                    ============

The  operations  of  NELX,  prior  to the  business  combination,  have not been
included in the proforma  presentation  of the twelve months ended May 31, 2001.
The proforma presentation has been limited to continuing operations.

LIQUIDITY AND GOING CONCERN
---------------------------

These  financial  statements  are  presented  on the basis that the Company is a
going concern. Going concern contemplates the realization of

                                      F-8
<PAGE>
NELX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

assets and the satisfaction of liabilities in the normal course of business over
a  reasonable  length  of  time.  The  Company  incurred   operating  losses  of
approximately  $1,142,000 for the year ended May 31, 2002, $378,000 for the five
months ended May 31, 2001 and $522,000 for the year ended December 31, 2000, and
as of May 31, 2002 has a  $1,203,455  working  capital  deficit and a $1,510,058
stockholders' deficit. Management intends to continue with steps it has taken to
improve  cash flow  through  operations  and  pursuit  of viable  joint  venture
opportunities.  Management may seek to raise  additional  funds through  private
placements  of stock,  other  long-term or permanent  financing,  or  short-term
borrowings.  However,  the  Company  cannot be  certain  that it will be able to
obtain such funds, nor able to currently determine the outcome of this matter.

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 and  impairment of
its investment in an undeveloped mineral spring lease. Actual results inevitably
will differ from those  estimates,  and such  differences may be material to the
financial statements.

RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------

In  June  2001,  the  Financial  Accounting  Standards  Board  ("FASB"),  issued
Statement  of  Financial  Accounting  Standards  No. 143,  Accounting  for Asset
Retirement  Obligations,  ("SFAS No.  143").  SFAS No. 143  addresses  financial
accounting  and  reporting for  obligations  associated  with the  retirement of
tangible  long-lived  assets and the associated asset retirement costs. SFAS No.
143 generally  requires  obligations  associated  with asset  retirements  to be
recognized  earlier and displayed as liabilities  rather than as  contra-assets.
The pronouncement is effective for financial  statements issued for fiscal years
beginning after June 15, 2002.  Management does not believe that the adoption of

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

SFAS No.  143 will have any  impact on its  financial  position  or  results  of
operations.

In August  2001,  the  Financial  Accounting  Standards  Board  ("FASB")  issued
Statement  of  Financial  Accounting  Standards  No.  144,  Accounting  for  the
Impairment or Disposal of  Long-lived  Assets,  ("SFAS No.  144").  SFAS No. 144
addresses  financial  accounting and reporting for the impairment or disposal of
long-lived  assets.  SFAS No.  144  establishes  a single  accounting  model for
long-lived  assets to be disposed of by sale. The pronouncement is effective for
financial  statements issued for fiscal years beginning after December 15, 2001.
Management  does not  believe  that the  adoption  of SFAS No. 144 will have any
impact on its financial position or results of operations.

In June 2002, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial  Accounting Standards No. 146, Accounting for Costs Associated With
Exit or Disposal Activities,  ("SFAS No. 146"). SFAS No. 146 addresses financial
accounting and reporting for costs  associated with exit or disposal  Activities
and Nullifies Emerging Issues Task Force Issue No. 94-3,  Liability  Recognition
for Certain Employee  Termination  Benefits and Other Costs to Exit an Activity.
SFAS No. 146 generally  requires a liability for a cost  associated with an exit
or disposal  activity to be recognized and measured  initially at its fair value
in the period in which the liability is incurred. The pronouncement is effective
for exit or disposal  activities  initiated after December 31, 2002.  Management
does not believe  that the  adoption of SFAS No. 146 will have any impact on its
financial position or results of operations.

REVENUE RECOGNITION
-------------------

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

                                      F-10
<PAGE>

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

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

INVESTMENT IN UNDEVELOPED MINERAL SPRING LEASE
----------------------------------------------
The Company's investment in an Arkansas mineral spring lease was acquired in the
May 29,  2001  business  combination.  During the year ended May 31,  2002,  the
Company  explored  opportunities  for  development  but determined that none are
currently  feasible.  Accordingly,  the Company has  recorded an  impairment  of
$116,661 to its investment in its Undeveloped Mineral Spring Lease.

The  Company is  obligated  under a 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 $6,787 for the year ended May 31, 2002,  $1,444 for the five
months ended May 31, 2001, and $3,658 for the year ended December 31, 2000.

                                      F-11
<PAGE>

INCOME TAXES
------------

The  Company  uses the asset and  liability  approach of  accounting  for income
taxes. The asset and liability approach requires the recognition of deferred tax
assets  and  liabilities  for the  expected  future  consequences  of  temporary
differences  between the financial  reporting  basis and tax basis of assets and
liabilities (see Note E).

STATEMENT OF CASH FLOWS
-----------------------

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

EARNINGS (LOSS) PER SHARE
-------------------------

Basic earnings  (loss) per share of common stock are computed using the weighted
average number of shares  outstanding  during each period.  Diluted earnings per
share  are  computed  on the  basis  of the  average  number  of  common  shares
outstanding  plus the dilutive  effect of  convertible  debt,  stock options and
warrants.  In periods of net loss, there are no diluted earnings per share since
the result would be anti-dilutive.

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.

NOTE C - NOTES PAYABLE

Notes payable consist of the following as of May 31, 2002:

Note  payable  dated  February  12, 2002,  10.0%  interest,
secured by personal guarantee of an officer, payable on demand.         $ 50,000

Notes payable dated May 2002, 10% interest, and due
on December 31, 2003.                                                    100,000
                                                             -------------------
Total                                                                    150,000

Current maturities                                                        50,000
                                                             -------------------
Long-term maturities                                                   $ 100,000
                                                             ===================

                                      F-12
<PAGE>
NELX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Future maturities of notes payable as of May 31, 2002 are as follows:

                                                            2003     $  50,000
                                                            2004       100,000
                                                                     ---------
                                                                     $ 150,000

NOTE D - NOTES PAYABLE - RELATED PARTIES

Notes payable to related parties consist of the following as of May 31, 2002:

Note payable to officer  dated June 19, 2001;  interest  approximately
14.5%, unsecured.                                                     $ 113,253

Note  payable  to  officer   dated  June  19,  2001,   with   interest
approximating 9.34%, unsecured, average monthly interest and principal
of $16,538 payable monthly in fiscal 2003 and reducing thereafter with
a final payment due April 29, 2006.                                     245,958

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

Note payable to  shareholder  dated  October 21, 1999,  10%  interest,
secured by assignment of $25,000 of proceeds of a term life  insurance
policy insuring the life of an officer, interest and principal of $531
payable monthly, with a final payment on May 1, 2006.                    20,943


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

Note payable to shareholder  dated May 2002, 10% interest,  unsecured,
payable on demand.                                                       10,000

Notes  payable to  shareholder  dated  November  2001,  10%  interest,
unsecured, payable on demand.                                           150,000

Note payable to shareholder dated January 30, 2002, 10% interest,  and
due on December 31, 2003.  Further  consideration was issued as either
(i) a warrant to acquire 150,000 shares of common stock of NELX, Inc.,
or (ii) a ratable portion of the stock,  notes,  warrants and/or other
consideration  issued by NELX,  Inc. in  exchange  for the first third
party  financing  where proceeds  received by NELX,  Inc. are at least
$500,000.                                                                72,000

Notes  payable to officer dated  February  2002,  approximately  14.5%
interest, unsecured, payable on demand.                                  90,000

Note payable to shareholder dated December 2001, 10% interest, secured
by personal guarantee of an officer, payable on demand.                  50,000

Note payable to shareholder dated May 17, 2002, 10% interest,  secured
by personal guarantee of an officer, payable on demand.                  50,000
                                                             -------------------
                Total                                                   861,991

                Current maturities                                      635,310
                                                             -------------------

                Long-term maturities                                  $ 226,681
                                                             ===================

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

Future  maturities of notes payable to related parties as of May 31, 2002 are as
follows:

                      2003                       $    635,310
                      2004                            190,967
                      2005                             18,541
                      2006                             17,173
                                                 ------------
                                                 $    861,991
                                                 ============

NOTE E - 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 a 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, 2002, the Company's net deferred income tax asset is comprised of the
following:


     Net operating loss benefit carryforward                       $ 1,000,000
     Valuation allowance for the deferred tax asset                 (1,000,000)
                                                                   ------------
     Net deferred income tax asset                                 $       -0-
                                                                   =============

As  of  May  31,  2002,  the  Company  had  operating  loss   carryforwards   of
approximately   $7,100,000,   an  increase  in  fiscal  2002  of   approximately
$1,100,000.  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  approximately  $6,000,000 of the  operating  loss
carryforwards will be substantially limited in future periods.

The valuation  allowance of  $1,000,000  increased by $61,000 over the valuation
allowance as of May 31, 2001.


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

NOTE F - STOCKHOLDERS' EQUITY

OFFICER SALARY
--------------

During the period  ended May 31,  2001,  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.

DETACHABLE WARRANTS
-------------------

In January 2001 the Company issued detachable warrants to acquire 150,000 shares
of  common  stock  in  connection  with a note  payable  to a  shareholder.  The
warrant's  terms are:  exercise price per share of $.20; term is for five years;
the  warrant  may be  exercised  in whole  or in part at any  time  prior to the
expiration  of  its  term;  freely  transferable,  subject  to  compliance  with
applicable  state and  federal  securities  laws;  includes a cashless  exercise
feature; and allows appropriate  adjustments to be made to take account of stock
dividends,  stock splits, reverse stock splits, and any issuance of shares below
market value.  The warrants have been  separated  from the debt  instrument  and
recorded at a fair value of $3,000. The warrant value will be amortized over the
life of the related debt instrument using the interest  method.  As discussed in
Note D, the terms included in the debt obligation include an alternative form of
further consideration. The value of the alternative cannot be determined at this
time, and has not been considered in the valuation of the warrants.

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

NOTE G - COMMITMENTS AND CONTINGENCY

LITIGATION
----------

During 2000, the Company's subsidiary, FS Investments,  Inc. ("FSI"), negotiated
for the  acquisition  of a company  located in  Kentucky.  Prior to closing  the
transaction, the sellers refused to go forward with the transaction. FSI 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  filed a
counterclaim   against   FSI  for  fraud  in  the   inducement   and   negligent
misrepresentation.  In March  2002,  the Court  issued its opinion and order for
summary  judgment  in favor of the  defendants.  In exchange  for the  Company's
agreement not to appeal the decision,  the defendants  have agreed to drop their
counterclaim in the matter.  Costs attributed to this unconsummated  acquisition
totaled  $183,458 for the year ended May 31,  2002,  $36,085 for the five months
ended May 31, 2001 and $221,105 for the year ended December 31, 2000.

LEASE COMMITMENTS
-----------------

The Company leases certain office  equipment with combined  monthly  payments of
$1,479 and expiration terms varying from three to five years.

The  Company's  lease of office,  parking and storage space expired in July 2002
and continues on a month-to-month basis at a rate of $2,619 per month.

Rental expense for the above lease commitments totaled approximately $35,000 and
$13,000, for the year ended May 31, 2002 and the five months ended May 31, 2001,
respectively.

Minimum  future lease  payments  under  non-cancelable  operating  leases having
remaining terms in excess of one year as of May 31, 2002 are:

                               2003                      $17,508
                               2004                       17,749
                               2005                       13,185
                               2006                       10,607
                               2007                        3,995


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

NOTE H - FINANCIAL INSTRUMENTS

FAIR VALUE
----------

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

The  determinations  of fair value  discussed above are subjective in nature and
involve  uncertainties  and  significant  matters of judgment and do not include
income tax  considerations.  Therefore,  the results  cannot be determined  with
precision and cannot be substantiated by comparison to independent market values
and may not be realized in actual sale or settlement of the instruments.

CONCENTRATION OF CREDIT RISK
----------------------------

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

The  Company   transacts  the  majority  of  its  business  with  two  financial
institutions,  one for commercial  banking  services and the other for brokerage
and  custodial  services.  Periodically,  the amount on deposit in 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.

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

NOTE I - SEGMENT REPORTING
--------------------------

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

                                      F-17
<PAGE>
NELX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                                   Five Months
Industry Segment                   Year Ended         Ended         Year Ended
                                  May 31, 2002     May 31, 2001 December 31,2000
----------------                  ------------     ------------  ---------------
REVENUES:
Investment advisory                $ 293,163           $45,815        $ 257,245
Surety bond brokerage                 36,918             3,569           12,089
Corporate                             40,731            60,000               58
                                   -----------     ------------  ---------------
Total Revenues                     $ 370,812         $ 109,384        $ 269,392
                                   ===========     ============  ===============

OPERATING (LOSS):
Investment advisory                $(756,186)        $(160,121)       $(120,332)
Surety bond brokerage               (426,300)         (217,495)        (401,287)
Corporate                             40,731                 0                0
                                   -----------     ------------  ---------------
Total Operating Income           $(1,141,755)        $(377,616)       $(521,619)
                                   ===========     ============  ===============

IDENTIFIABLE ASSETS:
Investment advisory                 $ 71,293          $163,587         $ 85,388
Surety bond brokerage                  5,943           116,830            5,397
Corporate                              1,531           691,598          146,236
                                   -----------     ------------  ---------------
Total Assets                        $ 78,767          $972,015        $ 237,021
                                   ===========     ============  ===============

CAPITAL ACQUISITIONS:
Investment advisory                 $ 14,120               $ 0         $ 16,982
Surety bond brokerage                      0                 0                0
Corporate                                  0                 0                0
                                   -----------     ------------  ---------------
Total Assets                        $ 14,120               $ 0         $ 16,982
                                   ===========     ============  ===============


DEPRECIATION AND VALUATION CHARGED TO
IDENTIFIABLE ASSETS:
Investment advisory                  $ 6,787           $ 1,444          $ 3,658
Surety bond brokerage                      0                 0                0
Corporate                            116,661                 0                0
                                   -----------     ------------  ---------------
Total Assets                       $ 123,448           $ 1,444          $ 3,658
                                   ===========     ============  ===============

                                      F-18
<PAGE>
NELX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE J - COMPREHENSIVE INCOME

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

NOTE K - EVENTS SUBSEQUENT TO MAY 31, 2002

During June 2002 the Company  received a total of $72,000  from the  issuance of
two debt instruments.  The debt instruments  contain  detachable  warrants for a
total  of  384,000  shares  of the  common  stock of NELX,  Inc.  as  additional
consideration  to secure  financing.  The warrants are  exercisable  at $.20 per
share for five years.

On August  28,  2002 the  Company  received  $150,000  from a  convertible  debt
instrument.  Interest is at 10% and is payable  quarterly,  with  principal  due
October 15, 2004. The principal is convertible, in whole or in part, into common
shares of NELX, Inc. on or before the earlier of (i) consummation of a qualified
financing  arrangement or (ii) the maturity date. Any such  conversion is at the
rate of $.10 per  share and upon  written  notice of  conversion  at least  five
business days prior to the conversion  date. A qualified  financing  arrangement
means a financing accomplished of at least $5 million.

NOTE L - INTERIM FINANCIAL DATA AND IMPAIRMENT LOSS

At year-end,  the Company recorded an adjustment that is material to the results
of the fourth quarter.  The Company  recorded an impairment of the investment in
the undeveloped  mineral spring lease as a result of management's  determination
that  development  is  not  currently   feasible.   Consequently,   the  Company
experienced an event as defined by SFAS No. 121, and an impairment  valuation of
$116,661 was recorded in the fourth quarter.

                                      F-19
<PAGE>

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

In connection with the audits for the year ended May 31, 2002 and the five month
period ended May 31, 2001,  there have been no  disagreements  with  independent
accountants  with respect to any matter of  accounting  principles or practices,
financial statement disclosure, or auditing scope or procedure.


                                    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                48             President &
                                             Director

Frederick E. Ferguson         68             Director

C. David Thomas               49             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 six  years,  Mr.  Jacobs  has  served  as a  Director  and
President  of  both  Jacobs  &  Company  and  FS  Investments,   Inc.  Prior  to
establishing  his  investment  advisory  business  in  1988,  Mr.  Jacobs  was a
practicing  public  accountant  for over thirteen  years,  during which he was a
managing  partner of his accounting firm and a business and personal  advisor to
his  clients.  Mr.  Jacobs has served as a director  and  President of NELX Inc.
since May 2001.

FREDERICK E. FERGUSON
---------------------

Mr. Ferguson is retired coal operator who has a diverse  experience with respect
to business and the coal industry. Prior to owning his own company, Mr. Ferguson
began the first half of his career as a state and federal mine inspector. During
the later half of his career, Mr. Ferguson owned his own coal company and was

                                       11
<PAGE>

involved in all facets of mining  production.  He has served as a Director of FS
Investments,  Inc.  since its  inception in December  1997,  and has served as a
director of NELX, Inc. since July 2002.

C. DAVID THOMAS
---------------

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

Mr.  Charles L. Stout was President of NELX from 1997 to May 2001 and a director
of the Company until July 2002,  when his commitment to the Company  ended.  Mr.
Robert L. Neal served as Chief Financial  Officer and Secretary of NELX from May
2001 to May 2002,  when he resigned to pursue other  business  interests.  Denis
Iler,  who served as a director and Secretary of NELX,  resigned as director and
Secretary in May 2001 to pursue other business interests.  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.

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, 1999,  December 31, 2000 and December 31, 2001
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 ($)   Bonus(s)  Compensation ($)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

John M. Jacobs (1)              2001     $87,500      $     -      $       -
Chief Executive Officer         2000     $ 5,000      $     -      $ 147,656
                                1999     $ 9,500      $     -      $ 150,137

Charles L. Stout (2)            2001     $     -      $     -      $       -
Chief Executive Officer         2000     $     -      $     -      $       -
                                1999     $     -      $     -      $       -
--------------------------------------------------------------------------------

(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 2001,
     2000,  and  1999.  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 2001, 2000 or 1999
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 2001,
2000 or 1999  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,  2002 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             15,083,460 (3)                12.5%

         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%

         Frederick E. Ferguson and
         Sandra B. Ferguson
         Rt. 3, Box 408
         Fayetteville, WV 25840               750,000                     0.6%

         C. David Thomas
         PO Box 5157
         Charleston, WV 25361                 917,295                     0.8%

         All Executive Officers
         and Directors as a Group          16,750,755                     13.9%


(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  6, 2002 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.

                                       14
<PAGE>

(2)  Based on  120,577,744  shares of common stock issued and  outstanding as of
     September 6, 2002.

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

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

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

Item 12.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

For calendar years 1999 and 2000, the five-month  period ended May 31, 2001, and
fiscal year 2002,  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 and $58,158 for fiscal year
ended May 31, 2002.









                                       15
<PAGE>

Item 13. EXHIBITS AND REPORTS ON FORM 8-K

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

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

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

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

3.1    Company's Articles of Incorporation (2)

3.2    Company's By-laws (2)

21     Subsidiaries of Company                                           E-1

99.14a Certification by Chief Executive Officer                          99.14a

99.14b Certification by Principal Financial Officer                      99.14b

     (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 July 22, 2002, Nelx filed Form 8-K Reporting a change in Registrant's
certifying  accountant,  as a result of the merger of Oatley & Hansen, P.C., the
Registrant's prior accountant by Gordon, Hughes & Banks, LLP.



                                       16
<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 12, 2002                   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 12, 2002                   By:/s/John M. Jacobs
        -------------------------            -----------------------------------
                                             John M. Jacobs
                                             President, Director and
                                             Principal Financial Officer

Dated:  September 12, 2002                   By:/s/Frederick E. Ferguson
        -------------------------            -----------------------------------
                                             Frederick E. Ferguson
                                             Director

Dated:  September 12, 2002                   By:/s/C. David Thomas
        -------------------------            -----------------------------------
                                             C. David Thomas
                                             Director









                                       17