SECURITIES EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

                  ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
              For the Fiscal Year Ended May 31, 1996

                          Commission file number 0-21210

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

              Kansas                                          84-0922335
 --------------------------------                         ----------------
   (State or other jurisdiction                            (I.R.S. Employer
 of incorporation or organization)                        Identification No.)

  10200 W. 44th Ave. #400, Wheat Ridge, CO                    80033
--------------------------------------------                ---------
 (Address of principal executive offices)                   (Zip Code)

Registrant's  telephone number,  including area code:(303)  422-9497  Securities
Registered Pursuant to Section 12(b) of the Act:

                                      NONE

Securities Registered Pursuant to Section 12(g) of the Act

                          COMMON STOCK $.0001 PAR VALUE

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

                                 Yes   X       No
                                     -----         -----

Indicate by check mark if disclosure  of  delinquent  filers in Response to Item
405 of Regulation S-B is not contained in this form,  and no disclosure  will be
contained  to  the  best  of  Registrant's  knowledge  in  definitive  proxy  or
information  statements  incorporated  by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB.

                                 Yes           No   X
                                     -----        -----

Registrants gross revenues for its most recent fiscal year were $82,521, cost of
sales was $44,839 and operations  expenses totaled  $1,846,158 for a net loss of
$1,808,476.

State the aggregate market value of the voting stock held by  non-affiliates  of
the Registrant:  $3,375,749 as of May 31, 1996 (a $.19/share  average bid at May
31, 1996).


<PAGE>




Indicate the number of shares outstanding of each of the Registrant's classes of
common stock: 18,947,300 common shares as of May 31, 1996.



<PAGE>



                                TABLE OF CONTENTS


                                     PART I
                                                                        Page

Item 1.           Business ..................................            1

Item 2.           Properties ................................            5

Item 3.           Legal Proceedings..........................            6

Item 4.           Submission of Matters to a Vote of
                  Security Holders...........................            6

                                     PART II

Item 5.           Market for Registrant's Common Stock and
                  Security Holder Matters ...................            6

Item 6.           Management's Discussion and Analysis of
                  Financial Condition and Results of
                  Operations ................................            7

Item 7.           Financial Statements and Supplementary Data..          8

Item 8.           Changes in and Disagreements with Accountants
                  on Accounting and Financial Disclosure.......          9

                                    PART III

Item 9.           Directors and Executive Officers of the
                  Registrant..................................           9

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

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

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

                                     PART IV

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



<PAGE>
                                     PART I


ITEM 1.           BUSINESS

General
-------

     The  Registrant  was  incorporated  in the State of Kansas in March 1983 as
Nelson  Exploration,  Inc. In October 1991,  the  Registrant  acquired  Westwind
Production Company, a Nevada corporation,  which owned certain non-producing oil
and gas properties and related assets. On November 30, 1993 the Board approved a
name change to NELX,  Inc. and a "reverse  split" of the issued and  outstanding
shares of common  stock based upon  issuance of one new common share in exchange
for each 30 shares of (old) common stock issued and outstanding  effective as of
December 31, 1993.  Subsequent  transactions  have resulted in the  Registrant's
acquisition  of  additional  improved  and  unimproved  real estate  including a
subsidiary,  CS, Inc.,  which owns a building in Provo,  Utah. The  Registrant's
business is in two industry  segments,  1.) oil and gas  production and 2.) real
estate,  both rental and  development,  in one geographic  area, the continental
United States.  The company holds real estate for  investment,  development  and
resale.  For financial  information  concerning  these  industry  segments,  see
"Financial Statements and Supplementary Data."

     In May 1995,  Registrant,  through MS Oil Company,  Inc.,  its wholly owned
subsidiary, acquired interests in ten producing oil and gas wells in Ohio.

Parent (Registrant)
------

NELX, Inc.

Wholly owned Subsidiaries
-------------------------

         1.       CS, Inc. (a Utah corporation)
                  Operations: Industrial Real Estate in Utah

         2.       MS Oil Company, Inc. (a Colorado corporation)
                  Operations:  All oil and gas production

         3.       Westwind Production Company (a Colorado corporation)
                  Operations: Inactive

         4.       NELX Marketing, Inc. (a Colorado corporation)
                  Operations:  All Marketing


Oil and Gas Producing Activities.
---------------------------------

     None.

                                        1

<PAGE>

Patents, Trademarks, Licenses, Etc.
-----------------------------------

     The Registrant does not hold any patents, trademarks,  licenses, etc., with
respect  to,  nor  are  patents  significant  in  regard  to,  the  Registrant's
activities.

Governmental Regulation
-----------------------

     General - The Registrant's oil and gas production activities are subject to
extensive   regulation  by  numerous  federal,   state  and  local  governmental
authorities,  including state  conservation  agencies,  the Department of Energy
(including  the Economic  Regulatory  Administration  and the Federal  Bureau of
Indian Affairs and Bureau of Land  Management).  Regulation of the  Registrant's
production,  transportation  and  sale  of oil or gas,  and  federal  price  and
allocation  controls in particular,  have a significant effect on the Registrant
and its operating results.

     Natural  Gas Price  Controls - The  Federal  Energy  Regulatory  Commission
("FERC"), an independent commission within the Department of Energy ("DOE"), has
pricing  authority  over the  transmission  and sale of  various  categories  of
natural gas. This authority  includes  administration of the Natural Gas Act and
Natural Gas Policy Act of 1978 ("NGPA"), which establishes,  among other things,
maximum lawful prices for various categories and other price adjustments.  These
maximum  lawful prices apply to the sale of natural gas in both  intrastate  and
interstate  commerce from  properties in which the  Registrant  has an interest,
NGPA  price  controls  as to  certain  classifications  have  been  removed  and
generally the sale of the  Company's gas  production is currently not subject to
price regulations.

     State Regulation - The production  operations of the Registrant are subject
to regulation by state  conservation  commissions  which have authority to issue
permits prior to the commencement of drilling  activities,  establish  allowable
rates of  production,  control  spacing  of wells,  prevent  waste  and  protect
correlative  rights, and aid in the conservation of natural oil and gas. Typical
state regulations require permits to drill and produce oil or gas, protection of
fresh water horizons, and confirmation that wells have been properly plugged and
abandoned.

     Environmental   Matters  -  Various  federal  and  state  authorities  have
authority to regulate the production and  development of oil and gas and mineral
properties with respect to  environmental  matters.  Such laws and  regulations,
presently in effect or as hereafter  promulgated,  may significantly  affect the
cost of the workover and development  activities  contemplated by the Registrant
and could result in loss or liability  to the  Registrant  in the event that its
operations are  subsequently  deemed  inadequate for purposes of any such law or
regulation.  New regulations,  if adopted,  could result in significant  capital
expenditures by the Registrant, resulting in unprofitable operations.

                                        2

<PAGE>

Uncertainties Related to the Oil and Gas Business in General
------------------------------------------------------------

     The  Registrant's  operations  will be subject to all of the risks normally
incident to the  production of oil and gas,  including  blowouts,  pollution and
fires.  Each of these  incidents could result in damage to or destruction of oil
and gas wells or  formations  or  production  facilities or damage to persons or
property. As is common in the oil and gas industry,  the Registrant is not fully
insured against these risks either because insurance is not available or because
the Registrant has elected not to insure due to prohibitive premium costs.

     The  Registrant's  future oil and gas  activities may involve a significant
risk that commercial oil or gas production will not be maintained.  The costs of
drilling,  completing reworking or operating wells is often uncertain.  Further,
operations,  may be  curtailed or delayed as a result of many  factors,  weather
conditions,   delivery  delays,   shortages  of  pipe  and  equipment,  and  the
availability of workover equipment.

     The oil and gas  business  is further  subject to many other  contingencies
which are beyond the  control  of the  Registrant.  Wells may have to be shut-in
because they have become  uneconomical to operate due to changes in the price of
oil, depletion of reserves, or deterioration of equipment.  Changes in the price
of imported oil, the discovery of new oil and gas fields and the  development of
alternative  energy  sources  have had and will  continue  to have an  important
effect on the Registrant's business.

Competition and Markets
-----------------------

     There  are  many  companies  and  individuals  engaged  in the  oil and gas
business. Some are very large and well established with substantial capabilities
and long earnings records. The registrant is at a competitive  disadvantage with
other firms and individuals in acquiring and disposing of oil and gas properties
since they have greater financial resources and larger technical staffs than the
Registrant.  In addition,  in recent years a number of small companies have been
formed  which  have  objectives  similar  to those of the  Registrant  and which
present substantial competition to the Registrant.

     A number of  factors,  beyond the  Registrant's  control  and the effect of
which cannot be accurately predicted, affect the production and marketing of oil
and gas.  These  factors  include  crude oil  imports,  actions of  foreign  oil
producing   nations,   the   availability   of  adequate   pipeline   and  other
transportation  facilities, the marketing of competitive fuels and other matters
affecting the  availability  of a ready market,  such as fluctuating  supply and
demand.

                                        3

<PAGE>

Real Estate Business
--------------------

     The Company  originally  acquired  real estate as capital  assets to form a
base from which to grow. Due to the continuing lack of capital  partners for oil
and gas exploration, the company has turned its attention to efforts to maximize
the value of its real estate capital assets by developing them,  commencing with
zoning,  annexation,  and platting,  as necessary.  It will have to seek private
capital or loans to pay for the costs of development or seek venture partners.

     The  Company  will seek  co-venturers  to  develop  and build on any of its
undeveloped  property.  The  Registrant  believes  that this will  allow for the
realization  of better value for its assets  rather than merely  holding them as
undeveloped ground.

     Competition:  There is major  competition  in the real  estate  development
sector from  numerous  national and  international  companies  who are very well
capitalized.

     Market  factors:  Real estate  markets are greatly  influenced  by economic
cycles, availability of development, construction loans, competitive properties,
oversupply  and  other  matters  over  which  the  registrant  has  no  control.
Registrant  intends to maintain these market factors in perspective  and develop
on a basis that would allow the company and  properties to be  sustainable  in a
cyclical market.

     Capital:  The Company has no  commitments  for capital at this time for its
real estate development projects.

Industry Segments
-----------------

Real Estate Rental Income & Expense
-----------------------------------
(Residential)
Income                     $19,800
Expenses                   $ 6,870

Net Income                 $  (54)          (Before Depreciation)

(Industrial-CS, Inc.)

Income                     $ 10,185
Expenses                   $ 28,779

Net Income                 $(18,594)        (Before Depreciation)

Oil & Gas Income and Expense
----------------------------

Income                     $ 72,336
Cost of Sales              $ 40,495
Expenses                   $ 86,090
Net Income                 $(54,249)

                                        4

<PAGE>
Employees
---------

     The Registrant currently coordinates real estate and oil and gas operations
activities  using  contract  labor  and  consultants.   The  Registrant  retains
consultants  with  respect to current and proposed  properties  and well by well
operations. The Registrant from time to time retains independent engineering and
geological  consultants and the services of lease brokers and  geophysicists  in
connection with its operations. The company President, Wes Whiting, is on a full
time basis as President of NELX, Inc.

ITEM 2. PROPERTIES

Oil and Gas Properties
----------------------

     None

REAL PROPERTY
-------------

     1) The Company owns 240 acres of undeveloped  land adjacent to the towns of
Erie and  Broomfield,  Colorado on Highway #7  approximately 3 miles east of the
town of Lafayette,  Colorado and 4 miles west of I-25. The property is currently
zoned  agricultural  and being used for grazing.  An annexation  petition to the
Town of Erie has been filed to zone it "light industrial". The Company will hold
the property for investment and seek a joint venture  participant to develop the
property.

     2) The Company owns a three unit apartment building in Denver,  Colorado at
61-65 So.  Quitman  Street for  investment and eventual sale. The units rent for
approximately  $550.00 per month with water and sewer utilities included.  There
are  numerous   other   competitive   rental   apartments  in  the   surrounding
neighborhood. The building was constructed in the 1920's of brick. The building,
roof, and interiors are well  maintained.  The property is subject to a mortgage
to Chrysler First  Financial of $57,000.00  bearing  interest @ 13.75% payable @
$664 per month due in 1997.

     3) The Company owns 12 residential  lots in Ward County,  North Dakota with
streets adjacent to the lots.

     4) The  Company  owns a 500 square  foot house on one lot in Burke  County,
North Dakota, in the city of Columbus,  N.D. near Minot. In addition the Company
owns 6 residential lots in Columbus, N.D.

     5) The  company  owns 5 acres of  Multifamily  zoned land at 104th and York
Street,  Thornton,  Colorado subject to a $200,000  promissory note secured by a
First Trust Deed bearing  interest @ only annually 8% with a balloon payment due
July 15, 1997.

     6) The company owns 320 acres of real estate (more or less) located

                                        5

<PAGE>

north-east of the Front Range Airport in Adams County, Colorado. The property is
included in the Denver International  Airport master plan area. It is zoned: 160
acres light industrial and 160 acres residential. Financing is a Promissory Note
in amount of $500,000  bearing interest at 8% per annum payable in a lump sum on
or before September 30, 1998, secured by a First Trust Deed.

     NELX owns, through CS, Inc., its wholly owned subsidiary,  an 18,000 sq.ft.
industrial  building  and office  facility in Provo,  Utah,  having  constructed
inside it, a high pressure  gasification and liquefaction reactor and system for
purposes of hydrocarbon  research and development.  The building is subject to a
promissory  note for  $375,000.00 @ 8% interest  payable @ $4,300 monthly with a
balloon in 5 years  secured by a first deed of trust to the Church of Latter Day
Saints.

ITEM 3. LEGAL PROCEEDINGS

     There are  presently  no material  pending  legal  proceedings  which would
result in any uninsured liability,  other than routine litigation  incidental to
the business, to which the Registrant is a party. The Company is aware of a suit
by Allan Pezoldt,  filed,  but never served naming the Company as a co-defendant
in El Paso County,  Colorado. New Plaintiff's counsel filed a Lis Pendens on the
Erie  property,  and served a  complaint  on the  Company in 1997.  The  Company
believes any suit by Allan Pezoldt has no merit whatsoever.

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

     None in Fiscal Year 1995.


                                     PART II

ITEM 5.   MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
          SECURITY HOLDER MATTERS

          (a) The  Registrant's  common stock is traded in the  over-the-counter
market under the symbol NLXI (NASDAQ  Bulletin  Board  Symbol).  The table below
sets forth the high and low bid prices of the Registrant's  common stock for the
periods  indicated.  Such  prices  are  inter-dealer  prices,  without  mark-up,
mark-down or commissions and do not necessarily represent actual sales.



                                        6

<PAGE>

                                     High Bid                  Low Bid
                                     --------                  -------
FY 1995:
         1st quarter                   1.125                     0.63
         2nd quarter                   .938                      .375
         3rd quarter(*)                .688                      .219
         4th quarter                   .469                      .141

                                     High Bid                  Low Bid
                                     --------                  -------

FY 1994:
         1st quarter                   1 5/8                     1.00
         2nd quarter                   .1 1/4                    1.00
         3rd quarter                   1 3/8                     .013
         4th quarter                   .16                       .06
         * Reverse Split Effective

     The above quotations reflect inter-dealer  prices,  without retail mark-up,
mark-down, or commission and may not necessarily represent actual transactions.

     The Company has not declared or paid any cash dividends on its common stock
and does not anticipate paying dividends for the foreseeable future.

          (b) As of May 31,  1995,  there  were 658  holders  of  record  of the
Registrant's common stock.

          (c) The Registrant has neither declared nor paid any cash dividends on
its common  stock,  and it is not  anticipated  that any such  dividend  will be
declared or paid in the foreseeable future.

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

     The  Registrant  was unable to satisfy all of its general  working  capital
requirements  with  cash  flow  generated  from  oil  and gas  and  real  estate
operations  during the current fiscal year.  This deficit in working capital was
financed by loans, and capital contributions through private placement of stock.

     In view of the current economic  conditions  within the industries in which
the  Registrant  participates,  the Registrant  anticipates  that cash flow from
operations  for fiscal 1995 will be  insufficient  to satisfy all of its general
working capital  requirements  necessitating  additional  capital infusions from
affiliates,  from sale of assets,  borrowing,  equity  participation  or Farmout
Agreements.

     The  Registrant  will continue a deficit  working  capital  position in the
future if  sustaining  revenues  and growth  capital  are not  generated  by the
Registrant.

                                        7

<PAGE>

     Results of Operations
     ---------------------

     NELX, Inc. incurred operating expenses (EBDIT*) for fiscal year 1995 in the
amount of $1,815,858  and costs of sales of $40,495 as compared  with  operating
expenses of $403,326  for fiscal year 1994.  Depreciation  totalled  $46,628 for
real estate and $28,579 for oil and gas operations.  The registrant expects that
its  operating  expenses  will  substantially  decrease in fiscal year 1996 over
1995.

     Registrant  had oil and gas  operating  revenues  in  fiscal  year  1995 of
$72,336 and by contrast had oil and gas operating revenues of $117,994 in fiscal
year 1994.

     Registrants  monthly  revenue for operations is  insufficient  to cover its
normal operating costs and debt service.

     Registrant will strive to increase  revenues from oil and gas  acquisitions
and real estate development in fiscal year 1996.

     * Earnings before depreciation interest and taxes.

     Liquidity and Capital Resources
     -------------------------------

     Registrants  liquidity  is limited by its  ownership  of  undeveloped  real
estate,  which may not be readily marketable depending upon economic conditions,
and lack of  sufficient  net cash  flow  from oil and gas and its  ownership  of
non-producing mineral leases, which have limited liquidity.

     Registrant will be forced to seek venture  partners for capital,  or in the
alternative,  borrow  money upon its real  estate,  which may not be possible or
practical under current market conditions.

     Registrant  had no  significant  cash reserves or deposits at year end, and
while it holds certain notes  receivable,  there is no assurance that such notes
will be liquid at times when the company needs money.

     Registrant will be forced to and will seek private  placements of its stock
and loans to make up the lack of operating revenues.

ITEM 7.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The response to this Item is included as a separate Exhibit to this report.
Please see pages F-1 through F-12.



                                        8

<PAGE>


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

          a) No changes in accountants have been made.

          b) In  connection  with audits of two most recent fiscal years and any
interim period preceding  resignation,  no  disagreements  exist with any former
accountant  on any  matter of  accounting  principles  or  practices,  financial
statement disclosure, or auditing scope of procedure, which disagreements if not
resolved to the  satisfaction of the former  accountant would have caused him to
make  reference  in  connection  with his  report to the  subject  matter of the
disagreement(s).

          c) The principal  accountant's report on the financial  statements for
the past two years  contained no adverse  opinion or a disclaimer of opinion nor
was qualified as to uncertainty,  audit scope, or accounting  principles  except
for the "going concern" qualification.

                                    PART III

ITEM 9.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

          (a)  The  names  of the  directors  and  information  about  them,  as
furnished by the directors themselves, are set forth below:


                                  Relationship         Term of       Director
       Name              Age      With Company          Office       Since
       ----              ---      ------------          ------       -----

Wesley F. Whiting         63      President &          Annual        Jan. 1993
                                   Director

Reed Clayson              65      Secretary-           Annual        Nov. 1993
                                   Treasurer

Grant Gaeth               64      Director             Annual        May 1993


Officers and Directors
----------------------

     The term of office  for each  director  is one (1) year,  or until  his/her
successor is elected at the Company's annual meeting and qualified.  The term of
office  for each  officer  of the  Company  is at the  pleasure  of the board of
directors.

     The  board  of  directors  has no  nominating,  auditing,  or  compensation
committee.  Therefore,  the  selection  of  person or  election  to the board of
directors was neither independently made nor negotiated at arm's length.

                                        9

<PAGE>

     Business Experience
     -------------------

     The  Company's  president  and a  director,  Wesley  F.  Whiting,  age  63,
president of Westwind  Production  Inc.,  (since  February 1993) a subsidiary of
NELX,  Inc.,  has been directly  involved in the oil and gas field  exploration,
drilling and management  since 1978. Mr. Whiting has sixteen years experience in
oil and gas leases as well as mapping,  management and exploration.  He has been
president, director and secretary of Berge Exploration, Inc., (1978-88) and vice
president  and director of  Intermountain  Methane  Corporation  (1988-91),  and
Westwind Production, Inc. (a subsidiary of NELX, Inc. now inactive from 1993).

     The Company's  Secretary-Treasurer  is Reed Clayson,  age 65, and President
and director of CS,, Inc., a wholly owned  subsidiary,  received his B.S. Degree
in physics and journalism  from Utah State  University  and has completed  three
years graduate work in english, math, and operations research. Positions held in
the past are: CS, Inc.: President from 1992 to date,  responsible for technology
transfer from universities in areas of cogeneration, remediation, product design
and   training/information   systems.   Positions   previously  held:   Synfuels
Engineering and  Development,  Inc.:  Vice  President,  responsible for computer
modeling,  documentation,  resource  analysis,  environmental  and socioeconomic
studies involving innovative waste processing and synfuels development including
DOE  evaluation  contracts as well as private  industry.  Science  Applications,
Inc.: Manager,  Resource Analysis,  responsible for development,  documentation,
and use of automated  decision-aiding tools (government and industry).  Resource
Science,  Inc.:  Executive Vice  President,  responsible for  socioeconomic  and
environmental  modeling,  land planning studies,  siting for  transportation and
energy facilities.

     Grant Gaeth,  age 64, is Director and Vice President of development for oil
and gas of NELX. He obtained a B.S. in Utah Geology,  1953. Mr. Gaeth was Senior
Geologist for Carter/Humble Oil which became part of Exxon from 1953-1967.  From
1967-70 he was an  officer  and  director  of Romex  Corporation  an oil and gas
company. From 1970-74 he was an independent  consulting geologist.  From 1974 to
1980 he was  president  and  director  of Colt Oil,  Inc.  a public  oil and gas
company.  From 1980 to 1983 he was  president  and  director of Western  Royalty
Corporation a public royalty holding Company.

     Family Relationships
     --------------------

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

     Involvement in Certain Legal Proceedings
     ----------------------------------------

     During the past five years there have been no filing of petitions under the
federal bankruptcy laws, or any state insolvency laws, by or against any

                                       10

<PAGE>


partnership  in which any  director or  executive  officer of  Registrant  was a
general partner or executive  officer at the time or within two years before the
time of such a filing.

     No director or executive  officer of Registrant  has,  during the past five
years,  been  convicted in a criminal  proceeding  or is the named  subject of a
pending  criminal  proceeding  (excluding  traffic  violations  and other  minor
offenses).

     During the past five years no director or executive  officer of  Registrant
has  been the  subject  of any  order,  judgment  or  decree,  not  subsequently
reversed,   suspended  or  vacated  by  any  court  of  competent   jurisdiction
permanently  or  temporarily  enjoining  him from or  otherwise  limited  in his
involvement in any type of business, securities or banking activities.

     During the past five years no director or executive  officer of  Registrant
has been found by a court of competent  jurisdiction  in a civil action,  nor by
the  Securities  and  Exchange  Commission  nor the  Commodity  Futures  Trading
Commission to have violated any federal or state  securities or commodities law,
which  judgment  or finding has not been  subsequently  reversed,  suspended  or
vacated.

     The  Executive  Officers of the  Registrant  are elected  annually for term
terminating  at  such  time as  their  respective  successors  are  elected  and
qualified.

     Compliance with Section 16(a) of the Exchange Act.
     --------------------------------------------------

     Section 16(a) of the Securities  Exchange Act of 1934 (the "Exchange  Act")
requires the Company's  directors and officers and any persons who own more than
ten percent of the Company's equity securities, to file reports of ownership and
changes in ownership with the Securities  and Exchange  Commission  (the "SEC").
Directors,  officers and greater than  ten-percent  shareholders are required by
SEC  regulation  to furnish the Company with copies of all Section  16(a) report
files.

     The  Company  has   requested   that  its   officers  and   directors   and
greater-than-ten-percent  shareholders  comply with the Section  16(a) by filing
Form 5.

     The following persons had not filed Form 5 as of May 31, 1996:

         Wesley F. Whiting
         Reed Clayson
         Grant Gaeth




                                       11

<PAGE>


ITEM 10.   EXECUTIVE COMPENSATION

     Summary

          a) Set  forth in the  following  table is  information  as to the cash
compensation  paid or set aside  directly or  indirectly  during the fiscal year
ended May 31, 1996,  to or for the benefit of any  executive  officer whose cash
compensation exceeded $60,000.00, and all executive officers as a group:

Name of Individual          Capacities in                      Salary
or Number of Group          Which Served                       and fees
------------------          ------------                       --------

Wesley F. Whiting           President                          $30,000

Reed Clayson                Secretary                          $0

Max P. Sommer               Vice-President                     $51,000

                            Directors                          $0

All Executive Officers
as a Group (3 persons)               -                         $81,000

          b) Compensation  paid by the Company for all services  provided during
the fiscal year ended May 31, 1996, (1) to each of the Company's directors whose
cash  compensation  exceeded  $60,000 and (2) to all directors as a group is set
forth below:

                            ANNUAL COMPENSATION ($$)
                            ------------------------

Name and Position          Year         Salary             Bonus
-----------------          ----         ------             -----

Wesley F. Whiting          1995         $30,000            $0

Max P. Sommer              1995         $51,000            $0

Grant Gaeth                1995         $0                 $0

Reed Clayson               1995         $0                 $0

Directors                  1995         $81,000            $0



                                       12

<PAGE>
<TABLE>
<CAPTION>

                                  LONG TERM COMPENSATION
                                  ----------------------

                                                 Options
                             Restricted          & SARs
                             Stock               LTIP              LTIP             Other
Other                        Awards              Payouts           Payouts          Compensation
-----                        ------              -------           -------          ------------

<S>                          <C>                <C>                <C>              <C>   
Wesley F. Whiting            None                None              None             None

Max P. Sommer                None                None              None             None

Grant Gaeth                  None                None              None             None

Reed Clayson                 None                None              None             None
</TABLE>


All directors and officers as a group $81,000 Total Cash Compensation

     Option/SAR Granted During the Last Fiscal Year
     ----------------------------------------------

     Registrant does not have a stock option or stock appreciation  rights plan.
Therefore this section is not applicable.

     Long Term Incentive Plans/Awards in Last Fiscal Year
     ----------------------------------------------------

     Registrant has no long-term  incentive plans and  consequently  has made no
such awards.

     Compensation of Directors
     -------------------------

     (1) Standard Arrangements. None

     (2)  Other   Arrangements.   There  are  no  other   arrangements  for  the
compensation of directors of the Registrant.

     Employment  Contracts and Termination of Employment and Change-in-Control
Arrangements. None.
-------------

     Report on Repricing of Options/SARs
     -----------------------------------

     No options or stock  appreciation  rights are  outstanding or were repriced
during the fiscal year ended May 31, 1996, or subsequently.

     1995 Employee Stock Compensation Plan
     -------------------------------------

     The  Company  adopted an  Employee  stock  compensation  plan for up to one
million eight hundred  thousand shares of common stock to be awarded,  either as
bonuses  or  in  lieu  of  cash  compensation  to  employees,   consultants  and
professional  advisors to the company.  As of fiscal year end no shares had been
issued, although a Registration Statement on Form S-8 had been filed in relation
thereto.  Subsequent to year end shares were issued in consideration of services
rendered to the company during the year to officers, consultants and advisors.


                                       13

<PAGE>


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

          (a) The following table sets forth, as of May 31, 1996, the beneficial
ownership (as defined by the rules of the Securities and Exchange Commission) of
common stock of the Registrant by each person owning more than 5% of Registrants
Common Stock and each officer and director and by all officers and  directors as
a group,  together with the percentage of the  outstanding  shares of such class
which such ownership represents.  Unless otherwise indicated,  such persons have
sole voting and investment power with respect to such shares.


                                       Amount and Nature            Percent
                                       of Beneficial                of
Name of Beneficial Owner               Ownership                    Class
------------------------               -----------------            -------

Reed Clayson                           333,334                      2%
Secretary & Director
10200 W. 44th Ave. #400
Wheat Ridge, CO  80033

Grant Gaeth, Director                  0                            0%
10200 W. 44th Ave. #400
Wheat Ridge, CO  80033

Challenge Oil & Gas                    564,638                      3%
1550 Larimer Ste. #2306
Denver, CO 80202

Wesley F. Whiting *                    150,000                   less than 1%
10200 W. 44th Ave. #400                 50,000
Wheat Ridge, CO  80033        (owned by Jeraldine Whiting, wife)


NOTE: Adult  Emancipated  Relatives of Wesley Whiting own shares as shown below.
Wesley Whiting disclaims any ownership or control thereof.


Blake Whiting                           16,667*                   .09%
957 N. 1300 W.
Salt Lake City, UT  84116

Diane Whiting                           3,333*                    .02%
11425 W. 106th Way
Westminster, CO  80021

Greg Whiting                            6,667*                    .04%
11425 W. 106th Way
Westminster, CO  80021


                                       14

<PAGE>



Risk Management Services, Inc.         10,333*                   .05%
(Beneficially Kip Whiting
and Greg Whiting)

Joshua Whiting, UGTMA                  3,333*                    .02%
11425 W. 106th Way
Westminster, CO  80021

Kip Whiting                            33,560*                   .18%
131 E. 500 N.
Provo, UT  84606

Pat Whiting                            1,667*                    .01%
424 Blithedale Ave.
Mill Valley, CA  94941

Tessa Whiting, UGTMA                   3,333*                    .02%
11425 W. 106th Way
Westminster, CO  80021

La Vean Robbins                        1,667*                    .01%
225 N. 2nd E.
Tremonton, UT 84337

W. Cecil Whiting                       1,667*                    .01%
424 Blithedale Ave.
Mill Valley, CA  94941

*If combined with Wesley Whiting's shares                        .45%

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Certain Transactions
     --------------------

     None

ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

          (a)  Financial  Statements  and  Schedules.  The  following  financial
statements and schedules for NELX,  Inc., as of May 31, 1996, and 1995 are filed
as part of this report.

                                                                 Page
                                                                 ----
         (1)      Financial statements of NELX, Inc:

                  Reports of Independent Accountants
                  Report of Michael B. Johnson & Co.
                  years ended May 31, 1996 and May 31, 1995       F-1
                  Balance Sheets                                  F-3
                  Statements of Operations                        F-4
                  Statements of Cash Flow                         F-5
                  Statements of Shareholders' Equity              F-7
                  Notes to Financial Statements                   F-8 - F-13

                                       15

<PAGE>




     (2) Financial Statement Schedules:

          (a) None

          (b) Reports on Form 8-K:

8-K dated         July 14, 1995                Incorporated by reference as
                                               filed with Securities and
                                               Exchange Commission

8-K dated         November 9, 1995             Incorporated by reference as
                                               filed with Securities and
                                               Exchange Commission

8-K dated         January 11, 1996             Incorporated by reference as
                                               filed with Securities and
                                               Exchange Commission

          (c) Exhibits

Item No.
(under 601)

4.1*              Articles of Incorporation and By-Laws:
                  Incorporated by Reference as filed with Form 10 with the
                  Securities and Exchange Commission

10.4*             S-8 Registration Statement filed February 20, 1996, as
                  Commission No. 33-91826.

13.1*             Quarterly Report of NELX, Inc. 10-QSB for Period ended
                  August 31, 1995.

13.2*             Quarterly Report of NELX, Inc. 10-QSB for Period ended
                  November 30, 1995.

13.3*             Quarterly Report of NELX, Inc. 10-QSB for Period ended
                  February 28, 1996.

22.1              Subsidiaries of Registrant


* Previously filed









                                       16

<PAGE>



                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

DATE                                        NELX, INC.

March 18, 1997
                                             by:  \s\ Wesley F. Whiting
                                                 -------------------------------
                                                  Wesley F. Whiting
                                                  President


     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the dates indicated.


\s\ Wesley F. Whiting
-------------------------------
Wesley F. Whiting, President and                   March 18, 1997
                   Director                        --------------
                                                   Date

\s\ Reed L. Clayson                                March 18, 1997
------------------------------                     --------------
Reed L. Clayson, Secretary and                     Date
                 Director

\s\ Grant Gaeth                                    March 18, 1997
------------------------------                     --------------
Grant Gaeth, Director                              Date






                                       17




<PAGE>



                                   NELX, INC.
                          INDEPENDENT AUDITORS' REPORT
                        CONSOLIDATED FINANCIAL STATEMENTS
                         For the Year Ended May 31, 1996


<PAGE>



                         Michael B. Johnson & Co., P.C.
                          (A Professional Corporation)

                          Certified Public Accountants
                        9175 East Kenyon Ave., Suite 100
                             Denver, Colorado 80237

Michael B. Johnson C.P.A.                               Telephone: (303)796-0099
Member: A.l.C.P.A.                                            Fax: (303)796-0137
Colorado Society of C.P.A.'s


                          INDEPENDENT AUDITORS' REPORT


To the Board of Directors of NELX, Inc.

We have audited the  accompanying  balance  sheet of NELX,  Inc.,  as of May 31,
1996,  and the  related  statements  of  operations,  cash flows and  changes in
stockholders'  equity for the period then ended. These financial  statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

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

As  shown  in the  financial  statements,  the  company  incurred  a net loss of
$2,908,318  for 1996 and had incurred a substantial  net loss in the prior year.
At May 31, 1996, current  liabilities  exceed current assets by $533,787.  These
factors  indicate that the company may be unable to continue in  existence.  The
financial   statements   do  not  include  any   adjustments   relating  to  the
recoverability  and  classification  of  recorded  assets,  or the  amounts  and
classification  of liabilities  that might be necessary in the event the company
cannot continue existence.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of NELX, Inc., as of May 31, 1996
and the results of its operations and its cash flow for the period May 31, 1996,
in conformity with generally accepted accounting principles.



/S/  MICHAEL B. JOHNSON & CO., P.C.
-----------------------------------


Denver, Colorado
February 28, 1997

                                      F-2
<PAGE>
<TABLE>
<CAPTION>

                                   NELX, Inc.
                           Consolidated Balance Sheets
                                     May 31,
ASSETS:                                                      1996             1995       
-------                                                      ----             ----       
<S>                                                       <C>              <C>   
Current Assets:
  Cash and cash equivalents                               $     8,701     $    11,104
  Prepaid expenses                                               --            22,524
  Accounts Receivable                                            --            31,829
  Accrued Interest Receivable                                     500          56,100
                                                          -----------     -----------
     Total Current Assets                                       9,201         121,557

Fixed Assets:
  Land                                                      3,716,801       3,240,027
  Gas Plant                                                 1,000,000       1,000,000
  Equipment                                                     8,654           5,742
  Apartment & Office Buildings                                678,063         501,088
                                                          -----------     -----------
                                                            5,403,518       4,746,857
  Less Accumulated Depreciation                              (132,725)       (260,651)
                                                          -----------     -----------
     Net Fixed Assets                                       5,270,793       4,486,206

Other Assets:
  Deposits                                                      3,950           3,950
  Lease and Royalty Interest                                     --           770,140
  Notes Receivable                                               --           735,000
  Investments                                                  10,000            --
                                                          -----------     -----------
     Total Other Assets                                        13,950       1,509,090
                                                          -----------     -----------

TOTAL ASSETS                                                5,293,944       6,116,853
                                                          ===========     ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------

Current Liabilities:
  Accounts Payable                                        $   139,649     $    30,179
  Accounts Payable - Related Parties                             --            85,304
  Advance Payable                                              29,000          35,000
  Current Portion of Long-Term Debt                           368,214         512,650
                                                          -----------     -----------
     Total Current Liabilities                                536,863         663,133

Long-Term Liabilities:
  Notes Payable                                             1,594,733       1,376,856
                                                          -----------     -----------
     Total Long-Term Liabilities                            1,594,733       1,376,856
                                                          -----------     -----------

TOTAL LIABILITIES                                           2,131,596       2,039,989

STOCKHOLDERS' EQUITY:

  Common Stock, $.0001 par value 500,000,000
   shares authorized, 18,947,300 and 10,437,581
   issued and outstanding at May 31, 1996
   and 1995, respectively                                       1,895           1,044

  Additional paid-in capital                                7,183,780       5,195,578

  Deficit Accumulated During the Development Stage         (4,023,327)     (1,119,758)
                                                          -----------     -----------

TOTAL STOCKHOLDERS' EQUITY                                  3,162,348       4,076,864
                                                          -----------    -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                  5,293,944       6,116,853
                                                          ===========    ============

</TABLE>


             The accompanying notes are considered an integral part of these
                                  financial statements.

                                          F-3


<PAGE>
<TABLE>
<CAPTION>

                                   NELX, INC.
                 CONSOLIDATED FINANCIAL STATEMENTS OF OPERATIONS
                         For the Year Ended May 31, 1996

                                                         For the                    For the
                                                        Year Ended                 Year Ended
                                                          May 31,                    May 31,
                                                           1996                       1995
                                                       ------------                ------------
REVENUES:
---------
<S>                                                     <C>                         <C>   
Oil & gas sales                                        $     72,336                $    117,994

Cost of Sales                                               (44,839)                   (307,595)
                                                       ------------                ------------

Gross Profit                                                 27,497                    (189,601)

EXPENSES:
---------
         Consulting                                         810,850                        --
         Salaries                                            59,199                      73,271
         Office Expense                                      23,248                      14,900
         Travel                                              20,685                      14,441
         Lease Expense                                      352,898                        --
         Repairs & Maintenance                                1,497                        --
         Professional Fees                                  174,950                      25,992
         Telephone & Utilities                               42,062                      14,035
         Depreciation & Depletion                            75,207                      79,503
         Miscellaneous                                       84,825                      31,437
         Interest Expense                                   170,437                     149,747
                                                       ------------                ------------

         Total Expenses                                   1,815,858                     403,326
                                                       ------------                ------------

OTHER REVENUES & (EXPENSES):
----------------------------
         Net Rental Expense                                 (70,430)                    (30,300)
         Miscellaneous Income                                  --                         5,266
         Interest Income                                     10,185                      60,863
                                                       ------------                ------------

Total Other Revenue & (Expenses)                            (60,245)                     35,829

NET LOSS BEFORE EXTRAORDINARY ITEMS                    $ (1,848,606)               $   (557,098)

EXTRAORDINARY ITEMS:
--------------------

Loss on Write Off of Non-Producing Assets                  (759,959)                   (434,763)
Sale of Subsidiary Assets                                  (295,004)                       --
                                                       ------------                ------------

NET LOSS                                               $ (2,903,569)               $   (991,861)
                                                       ============                ============

Loss per Common Shares:

Loss Before Extraordinary Items                               (0.10)                      (0.06)
Extraordinary Items (Note 3)                                  (0.06)                      (0.04)
                                                       ------------                ------------

Net Loss Per Share                                     $      (0.16)               $      (0.10)
                                                       ------------                ------------

Weighted Average Number of
Shares Outstanding                                       14,692,441                   9,730,097


</TABLE>


         The accompanying notes are considered an integral part of these
                             financial statements.

                                      F-4

<PAGE>
<TABLE>
<CAPTION>

                                   NELX, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                         For the Year Ended May 31, 1996

                                                                 For the              For the
                                                                Year Ended            Year Ended
                                                                   May 31,              May 31,
                                                                    1996                  1995
                                                                -----------           -----------
<S>                                                              <C>                  <C>  
Cash Flows from Operating Activities:
  Net Profit (Loss)                                             $(2,903,569)          $  (991,861)
  Amortization and Depreciation                                      55,211                79,503
  Stock Issued for Services                                            --                    --
  (Increase) Decrease in Prepaids
  (Decrease) Increase in Accounts Payable                            22,524               115,571
  (Decrease) Increase in Accounts Payable -                         109,470                13,771
    Related Parties
  (Decrease) Increase in Advance Payable                            (85,304)               (6,774)
  (Increase) Decrease in Investments                                 (6,000)               35,000
  (Increase) Decrease in Accounts Receivable                         31,829                10,258
  (Increase) Decrease in Accrued Interest Receivable                 55,600                  --
  (Increase) Decrease in Deposits                                      --                    --
                                                                -----------           -----------

Net Cash Flows Used for Operating Activities                     (2,730,239)             (744,532)

Cash Flows From Investing Activities:
  Purchase of Fixed Assets                                         (659,121)              (92,092)
  Retirements of Fixed Assets                                         2,460                  --
  Note Receivable                                                   735,000                15,900
  Lease & Royalty Interest                                             --                (166,660)
  Retirement of Lease & Royalty Interest                            587,003               416,455
                                                                -----------           -----------

Net Cash Flow Used for Investing Activities                         665,342               173,603

Cash Flows From Financing Activities:
  Borrowing Under Notes Payable                                     248,037               360,728
  Principal Payments on Notes Payable                              (174,596)                 --
  Issuance of Common Stock:
         Exchange for Assets/Liabilities,
         Services Rendered and Cash                               1,989,053               216,544
                                                                -----------           -----------

Net Cash Flows Provided by Financing Activities                   2,062,494               577,272

Increase (Decrease) in cash                                          (2,403)                6,343
                                                                -----------           -----------

Cash and Cash Equivalents -- Beginning of Year                       11,104                 4,761
                                                                -----------           -----------

Cash and Cash Equivalents -- End of Year                        $     8,701           $    11,104
                                                                ===========           ===========

</TABLE>

             The accompanying notes are considered an integral part
                          of the financial statements.

                                      F-5

<PAGE>

                                   NELX, INC.
                 CONSOLIDATED STATEMENTS OF CASH FLOWS, (Cont.)
                         For the Year Ended May 31, 1996

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
--------------------------------------------------------------------

Noncash Activities
------------------

     The company issued 1,520,100 common shares in exchanges for cash.

     The company issued 4,058,619 common shares in exchanges for services.

     The company issued 1,000,000 common shares in exchange for a 10% investment
     in home improvement financing, Inc.

     The company issued 750,000 common shares in exchange for a 100%  investment
     in Radarfind, Inc.

     The company issued 570,000 common shares in exchange for the acquisition of
     seven oil wells.

     The  company  issued  350,000  common  shares in  exchange  for a mini mall
     located in Kansas.

     The company  issued  150,000 common shares in exchange for a 100% ownership
     of Crystal Mountain Water, Inc.

     The company  issued  111,000  common shares in relief of $ 14,906  interest
     owed to Joshua Foss.

Interest
--------

     Interest expense paid for the year was $29,054.

                                      F-6

<PAGE>
<TABLE>
<CAPTION>
                                   NELX, INC.
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                  May 31, 1996


                                                     Common Stock                                Additional
                                                                                Paid-In          Accumulated
                                            # of Shares        Amount            Capital          Deficit
                                            -----------        ------            -------          -------

<S>                                         <C>               <C>               <C>             <C>          
Balances May 31, 1995,                      10,437,581        $1,044            $5,195,578      $ (1,119,758)

Issuance of Common Stock for Cash            1,520,100           152               382,086                --

Issuance of Common Stock for
  Services Rendered                          4,058,619           406               917,520                --

Issuance of Common Stock for Assets
  Acquired or Reduction
  in Liabilities                             2,931,000           293               688,596                --

Current Period Net Loss                             --            --                    --       ( 2,903,569)
                                            ----------        ------         -------------       -----------

Balance at May 31, 1996                     18,947,300        $1,895            $7,183,780       $(4,023,327)
                                            ==========        ======         =============       ===========


</TABLE>




















                       The accompanying notes are considered an integral part
                                    of these financial statements.

                                                 F-7

<PAGE>

                                   NELX, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                  May 31, 1996

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
----------------------------------------------------

     The following is a summary of NELX, Inc.'s (Company) significant accounting
     policies:

     Organization
     ------------

     The  Company was  incorporated  March 25, 1983 under the laws of Kansas for
     the purpose of acquiring, dealing in and, if warranted,  developing oil and
     gas  properties.  The  Company  may  also  engage  in other  businesses  or
     activities  unrelated to natural  resources which management  believes hold
     potential for profit. On October 25, 1983, the Company amended its Articles
     of  Incorporation  increasing  its  authorized  shares of 0.0001  par value
     common stock from 200,000,000 to 500,000,000 shares.

     On  October  30,  1993,  a  special  meeting  of  Shareholders   was  held.
     Stockholders approved a name change of the Company from Nelson Exploration,
     Inc., to NELX, Inc.

     On November 30, 1993 the Board approved a "reverse split" of the issued and
     outstanding  shares of common  stock  based  upon  issuance  of one (1) new
     common  share in exchange  for each 30 shares of (old)  common stock issued
     and outstanding effective as of December 31, 1993.

     Principles of Consolidation:
     ----------------------------

     The  consolidated  financial  statements  include the assets,  liabilities,
     revenues,  and expenses of NELX, Inc. and its wholly-owned  subsidiary,  MS
     Oil, Inc. The business  combination with MS Oil, Inc. was accounted for the
     pooling of interest  method which includes the direct cost of  acquisition.
     Investment   in  MS  Oil,  Inc.  is  carried  at  cost.   All   significant
     inter-company  transactions have been eliminated in  consolidation.  In May
     1996, the assets of MS Oil, Inc. were sold to Applied Mechanics, Inc.

     Cash and Cash Equivalents:
     --------------------------

     For  purposes of the  statement  of cash flows,  cash and cash  equivalents
     include cash in banks and money market accounts.

     Fixed Assets and Depreciation/Depletion:
     ----------------------------------------

     The  purchased  equipment is recorded at cost,  and the  equipment  and gas
     plant received in the purchase of Westwind  Production  Company,  Inc., are
     recorded at fair market value. The equipment is not yet in use,  therefore,
     no depreciation is being recorded.

     The useful lives of property,  plant, equipment,  and operating leases, for
     purposes of computing depreciation/depletion are:

     Buildings                                 31.5 - 39.5 years
     Machinery & equipment                     6.0 years
     Plant                                     27.5 years
     Oil & Gas Leases                          15% of gross revenue generated

                                      F-8
<PAGE>

                                   NELX, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                  May 31, 1996

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. CON'T:
-----------------------------------------------------------

     In 1996 and 1995,  respectfully,  depreciation  and  depletion  expense  of
     $75,207 and $79,503 was charged to operations.

     Income taxes
     ------------

     The Financial  Accounting  Standards  Board (FASB) has issued  Statement of
     Financial  Accounting  Standards  Number 109 ("SFAS 109"),  "Accounting for
     Income  Taxes",  which  requires a change from the  deferred  method to the
     asset and liability method of accounting for income taxes.  Under the asset
     and liability  method,  deferred  income taxes are  recognized  for the tax
     consequences of "temporary  differences" by applying enacted  statutory tax
     rates  applicable  to future  years to  differences  between the  financial
     statement  carrying  amounts  and the tax  basis  of  existing  assets  and
     liabilities.

     At May 31,  1996,  the  Company had net  operating  loss  carryforwards  of
     approximately   $4,023,327   for  federal   income  tax   purposes.   These
     carryforwards,  if not utilized to offset taxable income will expire at the
     end of the indicated years:

               2000                                  $   14,630
               2001                                      20,180
               2002                                        --
               2003                                      19,735
               2004                                      22,537
               2005                                       2,401
               2006                                       6,447
               2007                                       2,487
               2008                                      67,274
               2009                                        --
               2010                                     964,067
               2011                                   2,903,569
                                                    -----------

                                                     $4,023,327
                                                     ==========

     There was no provision or benefit for income taxes in fiscal 1996.

     Reclassifications:
     ------------------

     Certain  amounts  in the 1995  and  1996  financial  statements  have  been
     reclassified to conform to the 1996 presentation.

     Use of Estimates in the Preparation of Financial Statements:
     ------------------------------------------------------------

     The  preparation  of financial  statements  in  conformity  with  generally
     accepted  accounting  principles  requires management to make estimates and
     assumptions  that affect the reported  amount of assets and liabilities and
     disclosures  of  contingent  assets  and  liabilities  at the  date  of the
     financial statements and

                                      F-9

<PAGE>
                                   NELX, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                  May 31, 1996

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. CON'T:
-----------------------------------------------------------

     the reported amounts of revenues and expenses during the reporting  period.
     Actual results could differ from those estimates.

NOTE 2 - ACQUISITION OF SUBSIDIARIES & ASSETS:
----------------------------------------------

     On November 30, 1993, the Company issued shares of NELX,  Inc. common stock
     to Richard E. Gash  Electric  Profit  Sharing Plan in part payment for five
     acres of land more or less located north of the Jefferson County Airport in
     Broomfield,  Colorado zoned B-2 PUD.  Purchase price was $400,000 paid by a
     promissory note in the amount of $200,000 bearing interest only annually at
     8% per annum payable in a lump sum on or before July 15, 1997.  The balance
     of $200,000 was paid by issue of  10,000,000  shares of common stock of the
     Registrant.

     During 1994,  the five acres of land was sold to P.D. McK & Co. in exchange
     for a $765,000 note.  During 1996, P.D. McK & Co. defaulted on the note. As
     a result of the default,  NELX, Inc. took back possession of the five acres
     of land. The value of the land is $400,000 which is original cost.

     In May 1994, the Company  acquired all of the outstanding  shares of common
     stock of MS Oil,  Inc. a Colorado  corporation,  with a primary  purpose of
     acquiring  and  developing  oil and gas  properties in exchange for 330,020
     shares of the  Company's  common stock.  Under the terms of the  agreement,
     each MS Oil, Inc. share was exchanged for 20 common shares of the Company's
     shares.  In May 1996,  the  assets  of MS Oil,  Inc.  were sold to  Applied
     Mechanics,  Inc. in exchange for  forgiveness of a $150,000 note payable to
     Tel Oil, Inc. The Company's  common  shares are still  outstanding  and are
     being held by Applied Mechanics, Inc.

     In  accordance  with the  purchase  agreement  dated May 23,  1995,  by and
     between  NELX,  Inc.  and  Cortland  Energy,  Inc.,  the Company  issued to
     Cortland Energy, Inc. 550,000 shares of NELX, Inc. common stock in exchange
     for an acquisition  of oil interest.  The oil lease was valued at $163,350.
     At the end of May 1996, the oil lease was deemed worthless and subsequently
     written off.

     On September 7, 1995, the Company  exchanged 750,000 shares of common stock
     to the stockholders of Radarfind, Inc. for 100% interest in Radarfind, Inc.
     The Company assessed the value of Radarfind, Inc. at $187,500. In May 1996,
     the  investment in Radarfind,  Inc. was deemed  worthless and  subsequently
     written off.

     On February 8, 1996, the Company exchanged 1,000,000 shares of common stock
     for a 10% interest in Home Improvement Financing, Inc. The Company assessed
     the value of Home Improvement Financing, Inc. at $250,000. In May 1996, the
     investment in Home  Improvement  Financing,  Inc. was deemed  worthless and
     subsequently written off.


                                      F-10

<PAGE>
                                   NELX, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                  May 31, 1996

NOTE 3 - EXTRAORDINARY ITEM:
----------------------------

     The  current  year   Statement  of  Operations  was  charged  with  various
     write-offs of non-productive assets:

       Loss on Investments:

             Radarfind, inc.                            $ 187,500
             Home Improvement Financing, Inc.             250,000
             Naples, Florida House                          2,459

     Non-collectible notes receivable:

             P.D. McK & Co.                               320,000
                                                          -------

     Extraordinary Losses                               $ 759,959
                                                        =========

     In May 1996,  the  Company  wrote off several  non-productive  investments.
     These  investments  were  written  off  et  their  undepleted  balances  of
     $439,959.

     In May 1996, the note  receivable from P.D. McK & Co., for the land located
     north of the Jefferson  County Airport was deemed  uncollectible.  The note
     balance, net of the value of the land, was written off et a $320,000 loss.

NOTE 4 - NOTES RECEIVABLES
--------------------------

     Following is a summary of notes receivables at May 31,

                                                      1995             1996
                                                      ----             ----

Note receivable from P.D. McK & Co., Inc.
at 8%, due 05/95, secured by first deed
of trust for land in Boulder County,
Colorado, payable in lump sum payment                $735,000            -


                                      F-11

<PAGE>
<TABLE>
<CAPTION>

                                              NELX, INC.
                                    NOTES TO FINANCIAL STATEMENTS
                                             May 31, 1996

NOTE 5 - LONG-TERM DEBT
-----------------------

Following is a summary of long-term debt at May 31,
                                                                         1995             1996
                                                                         ----             ----
        <S>      <C>                                                  <C>               <C>                                  
         8%       Note payable to Latter Day Saints
                  Church Real Estate, due 01/2008,
                  secured by office building in Provo,
                  Utah                                                 $402,972         $380,963

         7.6%     Note payable to CNETCO, Inc., due
                  10/05, secured by 4th mortgage on
                  property                                                   -            31,875

         13.75%   Note payable to Chrysler First Financial
                  Services,  Inc., due 06/97, secured by
                  first deed of trust on apartment building
                  in Denver, Colorado

         8%       Notes payable to Standard Financial
                  Services, Inc., due 01/94, and 9/30/95
                  secured by land in Weld County, CO,
                  and an apartment complex in
                  Englewood, Colorado                                    25,541           25,541

         8%       Note payable to Linda K. Gash Trust
                  Fund, due 07/97, secured by first deed
                  of trust on land in Boulder County,
                  Colorado                                              200,000          200,000

         8%       Note payable to Richard E. Gash
                  Electric Company, Inc., due 07/97,
                  secured by first deed of trust on land in
                  Adams County, Colorado                                200,000          200,000

         8%       Note payable to Meheen Engineering
                  Corp. Profit Sharing Plan Trust, due
                  09/98, secured by first deed of trust on
                  land in Brighton, Colorado                            500,000          500,000

         14%      Note payable to DBL Mortgage Corp.,
                  due 12/95, secured by first deed of trust
                  on land in Weld County, Colorado                      240,000          240,000

         Various  Unsecured notes payable to officers,
         %        due on various dates through 1996 at
                  interest rates from 8% - 10%                          114,487          83,005

         Less:    Current maturities included in current
                  liabilities                                          (363,135)        (368,214)
                                                                     ----------       ----------
                                                                     $1,376,856       $1,315,761
                                                                     ==========       ==========
</TABLE>


                                      F-12

<PAGE>

                                   NELX, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                  May 31, 1996

NOTE 5 - LONG-TERM DEBT, CON'T:
-------------------------------

     Following are maturities of long-term debt for each of the next years:


                    1998                          $   24,061
                    1999                             924,167
                    2000                              26,162
                    2001                              28,323
                    2002                              30,661
                                                   ---------
                                                   1,033,374
                                                   ---------
                    Remaining Balance                282,387
                    -----------------                -------

                    Total Long-Term Debt          $1,315,761
                                                  ==========



     Real Estate Loans:
     ------------------

     As of May 31, 1996,  NELX,  Inc. was in default upon two real estate loans.
     The first loan is upon the  Company's  Erie,  Colorado  real  estate in the
     amount  of  $240,000  to DBL  Mortgage,  which  loan  has  been  placed  in
     foreclosure. Subsequent to year end, the Company negotiated a work out with
     the lender providing for an extension to bring the note current. On October
     4, 1995 the Company paid $75,000 to cure the foreclosure.

     The second loan for $25,541 is upon the land in Weld County,  Colorado, and
     the  apartment  complex  in  Englewood,   Colorado  to  Standard  Financial
     Services, Inc. Foreclosure was commenced (Note 8).

NOTE 6 - GOING CONCERN:
-----------------------

     The Company  incurred a net loss of $2,908,318  for 1996 and has incurred a
     substantial  net  loss  in  the  prior  year.  At  May  31,  1996,  current
     liabilities exceed current assets by $533,787.  These factors indicate that
     the  Company  may  be  unable  to  continue  in  existence.  The  financial
     statements do not include any  adjustments  relating to the  recoverability
     and classification of recorded assets, or the amounts and classification of
     liabilities  that  might be  necessary  in the  event  the  company  cannot
     continue existence.

NOTE 7 - RELATED PARTY TRANSACTION:
-----------------------------------

     A note payable to Michael  Littman,  a  shareholder  of the Company,  had a
     balance of $21,711 at May 31, 1996. This amount  represents monies advanced
     to the Company for  operating  expenses.  These amounts will be repaid when
     funds become available.

NOTE 8 - SUBSEQUENT EVENTS:
---------------------------

     The note to Standard Financial Services,  Inc. in the amount of $25,541 was
     in default at May 31, 1996.  In February  1997,  the  apartment  complex in
     Englewood, Colorado was turned over to Standard Financial Services, Inc. as
     a result of the default.

                                      F-13
<PAGE>

                                  EXHIBIT 22.1


                           Subsidiaries of Registrant


1.       MS Oil Company, Inc., a Colorado corporation, 100% of stock
         owned by NELX, Inc.

2.       CS, Inc., a Utah corporation, 100% of stock owned by NELX,
         Inc.

3.       Westwind Production Company, Inc., 100% of stock owned by
         NELX, Inc.

4.       NELX Marketing, Inc.