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, 1999

                         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.)

              10525 W. 23rd Place, Lakewood, CO        80215
              -------------------------------          -----
              (Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code:    (304) 622-9599

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
                                 --            --

<PAGE>

Registrant's  gross  revenues  for its most recent  fiscal  year were none,  and
operations expenses totaled ($19,339) for a net loss of ($19,339).

State the aggregate market value of the voting stock held by  non-affiliates  of
the Registrant:  $2,970,204 as of May 31, 2000 (a $.10/share  average bid at May
31, 2000).

Indicate the number of shares outstanding of each of the Registrant's classes of
common stock: 45,802,042 common shares as of May 31, 2000.

<PAGE>

                                TABLE OF CONTENTS

                                     PART I
                                                                        Page

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

Item 2.               Properties ................................       3

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

Item 4.               Submission of Matters to a Vote of
                      Security Holders..........................        3

                                     PART II

Item 5.               Market for Registrant's Common Stock and
                      Security Holder Matters ..................        4

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

Item 7.               Financial Statements and Supplementary Data..     6

Item 8.               Changes in and Disagreements with Accountants
                      on Accounting and Financial Disclosure.....       6

                                           PART III

Item 9.               Directors and Executive Officers of the
                      Registrant.................................       7

Item 10.              Executive Compensation......................      9

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

Item 12.              Certain Relationships and Related
                      Transactions...............................       11

                                            PART IV

Item 13.              Exhibits, Financial Statement Schedule
                      and Reports on Form 8-K....................       12

<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.  The  Registrant
currently has no business  operations and it has been  unsuccessful in achieving
any oil or gas  production.  All mineral leases have been sold or terminated and
written  off.  The company  has  divested  all real estate held for  investment,
development and resale.  For financial information see "Financial Statements and
Supplementary Data."

Parent (Registrant)
-------------------
NELX, Inc.

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

        None

Oil and Gas Producing Activities.
-----------------------------------
        None.  All attempts at production activities were terminated.

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   activities  may  be  subject  to  extensive
regulation by numerous federal, state and local governmental authorities, if the
Company engages in either the oil and gas or real estate business. Regulation of
the  Registrant's  development  activities,  if they ever  develop,  will have a
significant effect on the Registrant and its operating results.

<PAGE>

               Oil and Gas Activities - The Company currently has no oil and gas
               ----------------------
activities or operations.

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,  the
Company,  in 1997,  turned its attention to efforts to liquidate its real estate
capital assets and has done so.

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


Oil & Gas Income and Expense                (Operations discontinued)
------------------------------
Income                              $ 0
Cost of Sales                       $ 0
Expenses                            $ 0
Net Income                          $ 0

Real Estate (Operations discontinued)
-------------------------------------
Income                              $0
Expense                             $0

<PAGE>


Employees
-----------
     The Registrant retains consultants with respect to any activities for which
consulting  services may be necessary.  The Registrant from time to time retains
independent  engineering  and  geological  consultants  in  connection  with its
operations. The company President,  Charles L. Stout, is on a part time basis as
President of NELX, Inc.

ITEM 2.        PROPERTIES

Oil and Gas Properties
------------------------
        None

REAL PROPERTY
---------------
        None

ITEM 3.        LEGAL PROCEEDINGS

     There are presently no pending legal  proceedings which would result in any
uninsured liability, to which the Registrant is a party.


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

     None.

<PAGE>


                                     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 (OTC  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.

FY 1999 (Ended May 31, 2000):
                                                   High Bid      Low Bid
                                                   --------      -------
          1st quarter                                .16           .06
          2nd quarter                               1.37           .05
          3rd quarter                                .18           .05
          4th quarter                               1.20           .08

FY 1998 (Ended May 31, 1999):
                                                   High Bid      Low Bid
                                                   --------      -------
          1st quarter                                .10           .03
          2nd quarter                                .03           .025
          3rd quarter                                .045          .03
          4th quarter                                .03           .03

FY 1997 (Ended May 31, 1998):

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

        1st quarter                                .06           .025
        2nd quarter                                .075          .03
        3rd quarter                                .06           .03
        4th quarter                                .045          .03

                                                   High Bid      Low Bid
                                                   --------      -------
FY 1996:
        1st quarter                                .24           .09
        2nd quarter                                .125          .055
        3rd quarter                                .13           .045
        4th quarter                                .11           .03125

        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,  2000,  there  were  741  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.

<PAGE>

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 from a principal shareholder.

     In view of the current economic conditions within the industry in which the
Registrant  participates,   the  Registrant  anticipates  that  cash  flow  from
operations  for fiscal 2000 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 Fairmout
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.

        Changes in Financial Conditions - None
        -------------------------------

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

     The Company has experienced continued operating expenses for the year ended
of $19,339  compared to $21,634 for the year ended in 1999. The Company received
no  revenues in the current  year  compared to $16,524 in the prior year.  These
resulted in a net loss of  ($19,339)  for the current  year and ($5,110) for the
prior  year.  At this time,  the losses will  continue  to use up the  available
resources.

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

     The Company had minimal  cash  capital at the end of the year.  The Company
will be  forced  to  either  borrow  against  or  sell  assets  or make  private
placements of stock in order to fund operations continuance. No assurance exists
as to the ability to achieve  sales of assets or loans  against  the assets,  or
make private placements of stock.


<PAGE>


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.

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

     a) Michael B.  Johnson & Co.  resigned in August 2000 as the  Auditor.  The
Board  appointed  Oatley & Hansen,  P.C. of Greenwood  Village,  Colorado as the
Auditors for the period ended May 31, 2000 and thereafter.

     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.

<PAGE>

                                    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:


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

Charles L. Stout ..........50   President &      Annual    Oct. 1997
                                Director

Bruce Bowler ..............59   Director         Annual    Oct. 1998
(resigned July 2000)

Denis Iler ................61   Director/        Annual    Jan. 1999
                                Secretary

Kenneth Curry .............40   Director*        Annual    July 2000

*Mr. Curry was appointed after fiscal year end.

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.

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

Bruce Bowler, age 59
(resigned July 2000)

         Director of the  Registrant,  received his education at Colorado  State
University from 1959 to 1961 and University of Denver from 1961 to 1963 where he
received a BSBA in Building  Industry and Real Estate. He has been a Real Estate
Broker in Colorado  since 1973. In the lending  industry,  he was: a) Designated
FNMA  Underwriter;  b) Designated VA Automatic  Underwriter;  c) Designated  FHA
Underwriter for FHA Coinsurance program; d) Designated FHA Underwriter under HUD
Direct  Endorsement  Program;  and e) Certified FHA 203(k)  Rehabilitation  Loan
Program  Trainer.  From 1984 to July 31, 1998 was CEO and Chairman and principal
in Universal Lending  Corporation,  a mortgage banker.  From 1982 to 1984 he was
Senior Vice  President/Director  of Mortgage  Banking  Division of Van Schaack &
Company.  From 1980 to 1982 he was Senior Vice President of Secondary  Marketing
for Moore Mortgage Company. From 1979 to 1980 Mr. Bowler was a Vice President at
Western Bancorp Mortgage Corp. From 1975 to 1979 he advanced from Branch Manager
to Assistant Vice President to Vice President in Mortgage Banking at Van Schaack
& Company.


<PAGE>


Charles L. Stout, age 50

     President  and  Director,   obtained  a  B.S.  in  Mechanical   Engineering
Technology  from Fairmont  State  College.  He has post  graduate  study at West
Virginia  University.   He  is  President  and  Director  of  Applied  Mechanics
Corporation which he founded in 1983, a West Virginia Oil and Gas producer. From
1984 to  present,  he has been  President  of  Appalachian  Labor  and  Economic
Development  Corps., Ltd. He is a director of Square Roots, Inc. and is owner of
Applied Machining, Inc., a tool and die shop.

Denis R. Iler, age 61

     Director  and  Secretary,  he  received  a BA in Math  from San Jose  State
University  in  California,  and an MBA from Regis  University in 1982. He was a
comptroller  with Berge  Exploration  from 1978 to 1984. Since 1984, he has been
President and principal  accountant  for Business  Financial  Systems,  Inc., an
indepdendent  accounting  firm,  providing tax and  accounting  services for the
small business community,  including oil and gas, construction,  and real estate
brokerage accounting.

Kenneth Curry, age 40

     Director,  attended West Virginia  University for a year studying forestry.
He is a Certified Logger in West Virginia.  He is principal in and President and
Director of Square Roots, Inc., a logging and lumber company in Bridgeport, West
Virginia, from inception in May 1997 to present. He was a director of NELX, Inc.
from October 1997 to January 1999.

     Mr. Curry was appointed as a Director in July 2000.

        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
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.

<PAGE>

        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 September 14, 2000:

        Charles L. Stout
        Denis Iler
        Bruce Bowler

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, 1997,  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
--------------------                         --------------              -------
Charles L. Stout                            President & Director        $0
Denis Iler                                  Director/Secretary          $0
Bruce Bowler                                Dirctor                     $0

All Executive Officers
as a Group (3 persons)                      -                           $0

               b)  Compensation paid  by the Company  for all  services provided
during  the  fiscal  year  ended  May 31,  1999,  (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:

<PAGE>

                                  ANNUAL COMPENSATION ($$)
                                  ------------------------
Name and Position                  Year              Fees                  Bonus
-------------------                 ----              -----                 ----
Charles L. Stout, President & Dir. 1997              $0                    $0

Denis Iler, Secretary/Director     1999              $0                    $0

Bruce Bowler*                      1997              $0                    $0

Directors                          1997              $0                    $0
Aggregate

*  Resigned in July 2000
                                  LONG TERM COMPENSATION
                                  ----------------------
                                       Options
                        Restricted     & SARs
                        Stock          LTIP          LTIP           Other
                        Awards         Payouts       Payouts        Compensation

Charles L. Stout        None           None          None           None

Denis Iler              None           None          None           None

Kenneth L. Curry        None           None          None           None

     All  directors  and  officers as a group  received no shares as  additional
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, except as set forth under Long Term Compensation above.

        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.
-------------

<PAGE>

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

        No options or stock appreciation rights are outstanding or were repriced
during the fiscal year ended May 31, 2000, or subsequently.

        Employee Stock Compensation Plan - No open plans.
        -------------------------------------------------

ITEM 11.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

               (a) The  following  table sets  forth,  as of May 31,  1999,  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
--------------------------                   -----------------           -------
Charles L. Stout, President/Director         13,000,000                  30.5%

Denis Iler, Secretary/Director               1,000,000                    2.2%

Bruce Bowler, Director*                      3,000,000                    6.6%

Total owned by Officers and Directors        16,000,000                  39.3%

* Resigned July, 2000


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, 2000, and 1999 are filed as part of
this report.

<PAGE>
                                                                      Page
                                                                      ----
        (1)    Financial statements of NELX, Inc:
               Report of Michael Johnson & Co., LLC.                  F-2
               Report of Oatley & Hansen, P.C.
               year ended May 31, 2000                                F-3
               Balance Sheets                                         F-4
               Statements of Operations                               F-5
               Statements of Cash Flow                                F-6
               Statements of Shareholders' Equity                     F-7
               Notes to Financial Statements                          F-7

        (2)    Financial Statement Schedules:
               (a)    None
               (b)    Reports on Form 8-K:

                                                   Incorporated by reference as
                                                   filed with Securities and
                                                   Exchange Commission

                                                   Incorporated by reference as
                                                   filed with Securities and
                                                   Exchange Commission

                                                   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
13.1*  Quarterly Report of NELX, Inc. 10-QSB for Period ended August 31, 1999.
13.2*  Quarterly Report of NELX, Inc. 10-QSB for Period ended November 30, 1999.
13.3*  Quarterly Report of NELX, Inc. 10-QSB for Period ended February 28, 2000.
22.1*  Subsidiaries of Registrant
* Previously filed


<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.

                                                       /s/ Charles L. Stout
Octobber 3, 2000                                   by:--------------------------
                                                     Charles L. Stout, 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/ Charles L. Stout
______________________                      President        October 14, 2000
Charles L. Stout                            and Director

/s/ Denis Iler
______________________                      Vice President   October 14, 2000
Denis Iler

/s/ Kenneth L. Curry
______________________                      Director         October 14, 2000
Kenneth L. Curry


<PAGE>


                                   NELX, INC.

                              FINANCIAL STATEMENTS

                        For the Year Ended May 31, 2000

<PAGE>


                                   NELX, INC.
                              Financial Statements
                               Table of Contents


                                                                           PAGE

Reports of Independent Public Accountants                              F-2 & F-3

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

<PAGE>

                           Michael Johnson & Co., LLC
                          9175 E. Kenyon Avenue, #100
                                Denver, CO 80237
                           Telephone: (303) 796-0099
                              Fax: (303) 796-0137


                          INDEPENDENT AUDITORS' REPORT


Board of Directors
NELX, Inc.


We have audited the accompanying  balance sheet of NELX, Inc. as of May 31, 1999
and  the  related   statements  of   operations,   cash  flows  and  changes  in
stockholders' equity 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.

We conducted our audit in accordance with generally accepted auditing standards.
These standards  require that we plan and perform the audit to obtain reasonable
assurance   about   whether  the   financial   statement  is  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.

As shown in the financial statements,  the company incurred a net loss of $5,110
for 1999 and had incurred  substantial losses in the prior years. At May May 31,
1999,  current  liabilities  exceed  current  assets by $92,650.  These  factors
indicate that the company has substantial doubt about the ability to continue as
a going  concern.  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 ncessary in the event
the company cannot continue in 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, 1999,
and the results of their  operations,  cash flows,  and changes in stockholders'
equity for the year then ended in conformity with generally accepted  accounting
principles.


/s/ Michael Johnson & Co., LLC

Denver, Colorado
October 13, 1999


                                      F-2


<PAGE>

                             Oatley & Hansen, P.C.
                        6061 S. Willow Drive, Suite 230
                        Greenwood Village, CO 80111-6160
                           Telephone: (303) 770-2595
                              Fax: (303) 721-6925


                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS'

                                 August 8, 2000

To the Board of Directors
NELX, INC.
Lakewood, Colorado

We have audited the accompanying  consolidated balance sheet of NELX, INC. as of
May 31, 2000, and the related consolidated statements of operations,  cash flows
and changes in  stockholders'  equity 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.

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 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, 2000,  and the results of its  operations and its cash flows for
the  year  then  ended,  in  conformity  with  generally   accepted   accounting
principles.

The accompanying  consolidated financial statements have been presented assuming
that the  Company  will  continue as a going  concern,  which  contemplates  the
realization of assets and the  satisfaction  of liabilities in the normal course
of business. As discussed in Note A to the financial statements, the Company has
incurred  significant  recurring  losses and has a substantial  working  capital
deficit as of May 31,  2000.  In addition,  at May 31, 2000,  the Company had no
substantial product,  service or properties and requires significant  additional
financing to satisfy its outstanding obligations and commence operations. Unless
the Company successfully obtains suitable significant additional financing there
is substantial doubt about the Company's ability to continue as a going concern.
Management's  plans in regard to these matters are also discussed in Note A. The
financial  statements  do not include any  adjustments  to reflect the  possible
future effect on the  recoverability and classification of assets or the amounts
and  classification  of  liabilities  that may result  from the  outcome of this
uncertainty.


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



                                      F-3


<PAGE>

<TABLE>
<CAPTION>


NELX, INC.
CONSOLIDATED BALANCE SHEET
May 31, 2000

ASSETS
<S>                                                                                        <C>

CURRENT ASSETS
     Cash                                                                                    $ 1,521
                                                                                             -------
        Total current assets                                                                   1,521

INVESTMENT IN UNDEVELOPED MINERAL LEASE,
     net of accumulated amortization of $9,517                                               121,658
                                                                                             -------

        Total assets                                                                       $ 123,179
                                                                                           =========


LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
     Settlement payable                                                                     $ 24,254
     Advances from stockholder                                                                66,650
                                                                                              ------
        Total current liabilities                                                             90,904
                                                                                              ------

STOCKHOLDERS' EQUITY
     Common stock, $.001 par value par value; 500 million shares authorized:
        45,802,042 shares issued and outstanding                                                4,580
     Additional paid-in capital                                                             7,718,330
     Accumulated deficit                                                                   (7,690,635)
                                                                                           -----------
        Total stockholders' equity                                                             32,275
                                                                                               ------

        Total liabilities and stockholders' equity                                          $ 123,179
                                                                                            =========

</TABLE>

                                      F-3

                            See accompanying notes.

<PAGE>

<TABLE>
<CAPTION>


NELX, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
                                                                 Year Ended May 31,
                                                       ---------------------------------------
                                                                    2000                 1999
                                                       ------------------   ------------------
<S>                                                           <C>                  <C>
REVENUE                                                             $  -             $ 16,524
                                                                    ----             --------


GENERAL AND ADMINISTRATIVE EXPENSE                                13,733               12,681
AMORTIZATION                                                       5,106                4,542
INTEREST EXPENSE                                                     500                4,411
                                                                    ----                -----

     Total expenses                                               19,339               21,634
                                                                 -------               ------


NET INCOME (LOSS)                                              $ (19,339)            $ (5,110)
                                                               ==========            =========


BASIC AND DILUTIVE NET INCOME (LOSS) PER SHARE:

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

     WEIGHTED AVERAGE SHARES OUTSTANDING                      44,659,302           44,352,042
                                                              ===========          ==========

</TABLE>

                            See accompanying notes.

                                      F-4

<PAGE>

<TABLE>
<CAPTION>


NELX, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
                                                                                         Year Ended May 31,
                                                                                --------------------------------------
                                                                                            2000                 1999
                                                                                -----------------   ------------------
<S>                                                                                    <C>                   <C>
CASH FLOWS FROM OPERATING ACTIVITIES
     Net income (loss)                                                                 $ (19,339)            $ (5,110)
     Adjustments to reconcile net income (loss) to net cash
        provided by operating activities
           Depreciation and amortization                                                   5,106                4,411
           Changes in operating assets and liabilities:
               Accounts payable                                                                -             (188,752)
               Accrued liabilities                                                             -              (10,036)
                                                                                         -------              --------
        Net cash flows from (used for) operating activities                              (14,233)            (199,487)
                                                                                         --------            ---------

CASH FLOWS FROM INVESTING ACTIVITIES
     Disposition of equipment                                                                 -               36,479
                                                                                         -------              ------
        Net cash flows (used for) investing activities                                        -               36,479
                                                                                         -------              ------

CASH FLOWS FROM FINANCING ACTIVITIES
     Exercise of stock options                                                            17,500              161,600
     Advances from stockholder                                                             7,000                    -
     Repayment of advances from shareholder                                               (6,000)                   -
     Repayment of loan                                                                    (3,000)                   -
                                                                                          -------                   -
        Net cash flows (used for) from financing activities                               15,500              161,600
                                                                                         -------              -------

NET INCREASE (DECREASE) IN CASH                                                            1,267               (1,408)

CASH AT BEGINNING OF YEAR                                                                    254                1,662
                                                                                            ----                -----

CASH AT PERIOD END OF YEAR                                                               $ 1,521                $ 254
                                                                                        ========                =====

SUPPLEMENTAL DISCLOSURES:
     Interest paid                                                                         $ 500              $ 4,542
     Non-cash investing transactions:
        Issuance of 1.1 million shares to buyout overriding royalty interests             77,000                    -


</TABLE>

                            See accompanying notes.

                                      F-5

<PAGE>

<TABLE>
<CAPTION>


NELX, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

                                                            Common Stock                   Additional
                                                            ------------                      Paid-In          Accumulated
                                                       Shares           Amount                Capital              Deficit
                                                    ------------    ------------        -------------        --------------
<S>                                                      <C>               <C>            <C>                 <C>
Balances, May 31, 1998                                   46,352,042        $ 4,635        $ 7,465,975         $ (7,666,186)

     Stock returned for re-issuance                      (6,000,000)          (600)                                      -

     Issuance of stock for cash                           4,000,000            400            158,000

     Net (loss)                                                  -               -                  -               (5,110)
                                                         ----------        -------          ---------         -------------

Balances, May 31, 1999                                   44,352,042          4,435          7,623,975           (7,671,296)

     Exercise of stock options                              350,000             35             17,465                    -

     Issued to buyout overriding royalty interests        1,100,000            110             76,890                    -

     Net (loss)                                                  -               -                  -              (19,339)
                                                        -----------       --------       ------------         -------------

Balances, May 31, 2000                                   45,802,042        $ 4,580        $ 7,718,330          $(7,690,635)
                                                        ===========       ========       ============         =============

</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")  was  incorporated  in Kansas on March 25,
         1983. As of May 31, 2000, the Company had no business  operations.  Its
         principal asset is a leasehold  interest in undeveloped  mineral spring
         in Arkansas.  On July 26, 2000 the Company acquired all of the stock of
         a West Virginia  corporation  in the business of producing  dimensional
         lumber, crossties and landscaping timber (see Note H).

         The accompanying  consolidated financial statements have been presented
         assuming  that the  Company  will  continue as a going  concern,  which
         contemplates   the  realization  of  assets  and  the  satisfaction  of
         liabilities in the normal course of business.  The Company has incurred
         significant  recurring  losses and has a  substantial  working  capital
         deficit as of May 31, 2000. In addition,  at May 31, 2000,  the Company
         had  no  substantial  product,   service  or  properties  and  requires
         significant additional financing to satisfy its outstanding obligations
         and commence  operations.  Management's  plans to address these matters
         include  acquisitions,   private  placements  of  stock  and  obtaining
         short-term  loans.  Unless the Company  successfully  obtains  suitable
         significant  additional  financing there is substantial doubt about the
         Company's  ability  to  continue  as a  going  concern.  The  financial
         statements  do not include  any  adjustments  to reflect  the  possible
         future effect on the recoverability and classification of assets or the
         amounts  and  classification  of  liabilities  that may result from the
         outcome of this uncertainty.

         Note B - Summary of Significant Accounting Policies
         Principles of Consolidation
         ---------------------------

         The  financial  statements  include  the accounts  of Crystal  Mountain
         Water, Inc., a wholly owned subsidiary. All inter-company  transactions
         and balances have been eliminated.

         Use of Estimates
         ----------------

         Preparation of financial statements in conformity with generally accept
         -ed accounting  principles 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 stock issued for services and
         property  and  valuation  of  deferred  tax  benefits.  Actual  results
         inevitably will differ from those  estimates,  and such differences may
         be material to the financial statements.

                                      F-7

<PAGE>

         NELX, INC.
         Notes to Consolidated Financial Statements


         Property
         --------

         Property,  including the Company's investment in an undeveloped mineral
         spring,  is recorded at cost.  Maintenance and repair costs are charged
         to expense as incurred,  and renewals and improvements  that extend the
         useful life of assets are  capitalized.  Amortization  of the leasehold
         cost of the mineral spring is computed using the  straight-line  method
         over the  remaining  term of the lease  (including  options  to extend,
         which ends October 28, 2026).

         Amortization  expense of $5,106 and $4,411 was  recorded in fiscal 2000
         and 1999, respectively.

         Income Taxes
         ------------

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

         Statement of Cash Flows
         -----------------------

         Cash and cash equivalents include cash and short-term  investments with
         original maturities of three months or less.

         Basic 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.

         The basic and the  dilutive  earnings  per share are the same in fiscal
         2000 and 1999 since the Company had net losses and the inclusion of the
         effect of stock options would be anti-dilutive.

         Concentrations
         --------------

         The  principal  asset of the  Company  is a  leasehold  interest  in an
         Arkansas mineral spring.

<PAGE>

         NELX, INC.
         Notes to Consolidated Financial Statements


         Note D - Advances from Stockholders

         As of May 31, 2000,  unsecured,  non-interest bearing advances totaling
         $66,650 were due on demand to the Company's president.

         Note D - Income Taxes
         As of May 31, 2000, the  accumulated  net operating  loss  carryforward
         that may be  offset  against  future  taxable  income,  if any,  totals
         approximately  $6.4 million.  The loss carryforward  expires in varying
         amounts from fiscal 2008 through fiscal 2020.

         In addition,  as of May 31, 2000,  the Company had  approximately  $1.2
         million of capital  loss  carryovers,  which may be used only to offset
         capital gains. The capital losses carryforward expires from fiscal 2001
         through fiscal 2004.

         A tax  benefit  has not been  reported  in the  accompanying  financial
         statements for the operating and capital losses carried forward because
         the  Company  is  uncertain  as  to  the  likelihood  of   utilization.
         Accordingly, the approximate tax benefit of $1.1 million of the amounts
         carried  forward has been offset by a valuation  allowance  of the same
         amount, a decrease of approximately $3,000 in fiscal 2000.

         Note E - Stockholders' Equity
         Exercise of Stock Options
         -------------------------

         During fiscal 2000,  options were exercised covering a total of 350,000
         shares of common stock resulting in proceeds of $17,500.

         Stock Issued to Liquidate Overriding Royalty Interest in Mineral Spring
         -----------------------------------------------------------------------

         On May 5, 2000,  a total of 1.1  million  shares of  restricted  common
         stock,  with  an  estimated  value  of  $77,000  were  issued  to  five
         individuals to liquidate  overriding  royalty interests  totaling $.016
         per gallon in the Arkansas mineral spring.

         Note F - Commitments and Contingencies

         In fiscal 1998 an agreement  was reached to settle a $24,524  loan.  As
         part of the  agreement  the  creditor  was also to transfer  550,000 to
         third  parties  and return  166,667  shares to the  Company (a total of
         666,667  shares).  As of May 31,  2000,  the  agreement  has  not  been
         executed.


<PAGE>

         NELX, INC.
         Notes to Consolidated Financial Statements


         Note G - Fair Value of Financial Instruments
         The  carrying  amounts for the  settlement  payable and  advances  from
         stockholder   approximates   fair  value  because  of  the   short-term
         maturities of these 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.

         Note H - Events Subsequent to May 31, 2000 (Unaudited)
         July 26, 2000,  the Company  acquired all of the voting stock of Square
         Roots Incorporated, a West Virginia corporation for 1 million shares of
         common stock.