SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
Form 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Act of
1934
For the Quarterly Period Ended August 31, 1998
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1937
For the transition period from ______ to _______
Commission File No. _______
AMERICAN ENERGY SERVICES, INC.
(exact name of registrant as specified in its charter)
TEXAS 76-0279288
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) identification No.)
7224 LAWNDALE, HOUSTON, TEXAS 77012
(Address of principal executive offices)
713-928-5311
(Registrant's telephone number, including area code)
Check whether the issuer (1) filled all reports required to be filed by Section
13 or 15(d) of the 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 such filing requirements for the past 90 days:
YES [ ] NO [X]_
As of October 14, 1998, 6,201,996 shares of Common Stock outstanding.
Transitional Small Business Disclosure Form: YES [ ] NO [X]
<PAGE>
AMERICAN ENERGY SERVICES, INC.
FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED
AUGUST 31, 1998
INDEX
PART 1. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets --
August 31, 1998 and February 28, 1998.................1
Consolidated Statement of Operations --
Three months and Six months ended August 31, 1998
and 1997..............................................3
Consolidated Statement of Cash Flows Three months and
Six months ended August 31, 1998 and 1997.............4
Notes to Consolidated Financial Statements............5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.........6
PART II. OTHER INFORMATION..................................................9
SIGNATURE ..................................................................10
<PAGE>
AMERICAN ENERGY SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
AUGUST 31,1998 FEBRUARY 28, 1998
(UNAUDITED) (AUDITED)
----------------- -----------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents ................ $ 13,137 $ 13,786
Certificates of deposit .................. 48,028 17,380
Accounts receivable - trade net of
allowance for doubtful accounts
of $20,000 and $0 .................... 844,645 516,921
Accounts receivable - other .............. 66,880 60,686
Income tax receivable .................... 147,543 147,543
Prepaids and other ....................... 99,356 100,081
Costs in excess of billings on
uncompleted contracts ................ 2,709,903 1,169,885
Inventories .............................. 1,293,571 1,495,016
----------------- -----------------
Total Current Assets ............ 5,223,063 3,521,298
Property, Plant and Equipment:
Machinery and equipment .................. 1,307,681 1,307,682
Furniture and fixtures ................... 327,542 219,840
Vehicles ................................. 81,553 81,553
Building and improvements ................ 219,741 219,741
Land ..................................... 76,894 76,894
----------------- -----------------
2,013,411 1,905,710
Less accumulated depreciation ................ (682,868) (614,725)
----------------- -----------------
1,330,543 1,290,985
Trademarks, patents and drawings ............. 884,348 877,967
Less accumulated amortization ................ (207,365) (163,937)
----------------- -----------------
676,983 714,030
Deferred tax asset ........................... 451,994 500,224
Other assets ................................. 146,792 154,399
----------------- -----------------
Total ........................... $ 7,829,375 $ 6,180,936
================= =================
</TABLE>
SEE ACCOMPANYING NOTES
<PAGE>
AMERICAN ENERGY SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS'
EQUITY(DEFICIT)
<TABLE>
<CAPTION>
AUGUST 31,1998 FEBRUARY 28, 1998
(UNAUDITED) (AUDITED)
----------------- -----------------
<S> <C> <C>
Current Liabilities:
Notes payable ............................ $ 2,698,426 $ 2,668,000
Current portion of long-term obligations . 177,807 144,122
Accounts payable and accrued expenses .... 2,691,922 1,658,970
Billings in excess of costs on uncompleted
contracts .......................... 603,300 199,029
Notes payable to shaeholders ............. 30,000
----------------- -----------------
Total Current Liabilities ............ 6,201,455 4,670,121
----------------- -----------------
Long-term obligation, net of current portion . 1,360,506 1,341,328
Commitments and Contingencies
Stockholders' Equity(Deficit)
Capital stock - .001 par value, 100,000,000
shares authorized; 6,201,966 shares issued
and outstanding ........................ 6,202 6,202
Additional paid in capital ............... 212,381 212,381
Accumulated (deficit) - Beginning ........ (49,097) (158,214)
Current period earnings ................ 97,928 109,118
----------------- -----------------
Total Stockholders' Equity(Deficit) .. 267,414 169,487
----------------- -----------------
Total Liabilities and Stockholders'
Equity(Deficit) ...................... $ 7,829,375 $ 6,180,936
================= =================
</TABLE>
SEE ACCOMPANYING NOTES
<PAGE>
AMERICAN ENERGY SERVICES
AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED AUGUST 31 SIX MONTHS ENDED AUGUST 31
----------------------------- -----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales ................................... $ 2,601,736 $ 3,499,053 $ 5,006,654 $ 6,535,665
Cost of sales ............................... 1,970,625 2,729,991 3,730,450 5,205,684
------------ ------------ ------------ ------------
Gross Profit ........................... 631,111 769,062 1,276,204 1,329,981
Operating expenses .......................... 480,383 411,351 887,586 867,076
------------ ------------ ------------ ------------
Income from operations ................ 150,728 357,711 388,618 462,905
Other expenses (income)
Interest, net .......................... 143,472 85,638 243,947 221,393
Other, net ............................. (313) (2,659) (1,487) (12,865)
------------ ------------ ------------ ------------
143,159 82,979 242,460 208,528
------------ ------------ ------------ ------------
Net income (loss) before taxes .... 7,569 274,732 146,158 254,377
Income tax expense .......................... 2,480 83,944 48,230 83,944
------------ ------------ ------------ ------------
Net income (loss) ................. $ 5,089 $ 190,788 $ 97,928 $ 170,433
============ ============ ============ ============
Basic and diluted income(loss) per share $ 0.001 $ 0.031 $ 0.016 $ 0.027
============ ============ ============ ============
(6,201,996 shares outstanding)
</TABLE>
SEE ACCOMPANYING NOTES
<PAGE>
AMERICAN ENERGY SERVICES, INC.
AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED AUGUST 31 SIX MONTHS ENDED AUGUST 31
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income (loss) ................................. $ 5,089 $ 190,788 $ 97,928 $ 170,433
Adjustments to reconcile net income to cash
provided (used) by operating activities:
Depreciation and amortization ................... 62,530 50,555 111,571 101,286
Changes in operating assets and liabilities
Decrease (increase) in accounts receivable ... (666,345) 736,650 (333,918) 137,893
Decrease in income tax receivable ............ -- 10,000 -- 10,000
(Increase) in costs in excess of billings
on uncompleted contracts .................. (574,330) (512,467) (1,540,018) (1,648,204)
Decrease in inventories ...................... 316,837 287,435 201,445 719,093
Decrease in prepaids and other ............... 18,052 (4,017) 8,332 2,763
Decrease in deferred tax asset ............... 2,480 83,944 48,230 83,944
Increase in accounts payable ................. 761,581 (77,458) 1,032,952 103,514
Increase in billings in excess of cost
on uncompleted contracts .................. (103,737) (1,013,124) 404,271 179,942
------------ ------------ ------------ ------------
Net Cash Provided by Operating Activities ....... (177,843) (247,694) 30,793 (139,336)
Cash Flows from Investing Activities:
Purchase of property, plant and equipment ......... (3,066) (1,082) (8,307) (23,454)
Purchase of trademarks, patterns and drawings ..... -- -- (6,381) (6,796)
Purchase of certificates of deposit ............... (15,648) (2,074) (30,648) (2,074)
------------ ------------ ------------ ------------
Net Cash Used in Investing Activities .......... (18,714) (3,156) (45,336) (32,324)
Cash Flows from Financing Activities:
Proceeds from long-term obligations ............... 30,403 -- 30,403
Payments of long-term obligations ................. (65,786) (50,280) (76,936) (121,212)
Proceeds from note payable ........................ 483,288 184,261 599,628 1,186,669
Payment of note payable ........................... (270,127) (504,999) (569,201) (1,291,918)
Proceeds from note payable to shareholders ........ 40,000 -- 40,000
Payment of note payable to shareholders ........... (10,000) (10,000)
------------ ------------ ------------ ------------
Net cash (used) provided by Financing Activities 207,778 (371,018) 13,894 (226,461)
------------ ------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents .. 11,221 (621,868) (649) (398,121)
Cash and cash equivalents at beginning of period ...... 1,916 695,543 13,786 471,796
------------ ------------ ------------ ------------
Cash and cash equivalents at end of period ............ $ 13,137 $ 73,675 $ 13,137 $ 73,675
============ ============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the quarters for
Interest ..................................... $ 64,694 $ 90,876 $ 174,285 $ 226,631
============ ============ ============ ============
Taxes ........................................ $ -- $ --
============ ============ ============ ============
Noncash transactions
Equipment acquired under long-term obligations ...... $ 99,395 $ 99,395
============ ============
</TABLE>
SEE ACCOMPANYING NOTES
<PAGE>
AMERICAN ENERGY SERVICES, INC.
Note 1. General
The unaudited financial statements included herein for the Company for the three
month and six month periods ended August 31, 1997 and 1998 have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
(the Commission) and include all adjustments which are, in the opinion of
management, necessary for a fair presentation. Certain information and footnote
disclosures required by generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. These financial
statements should be read in conjunction with the audited financial statements
of February 28, 1998, and related notes thereto, as filed with the Commission in
the Company's Registration on Form 10-SB on August 20, 1998.
The results for interim periods are not necessarily indicative of trends or of
results to be expected for the full year.
Note 2. Per share computations
All references in the accompanying financial statements to the number of common
shares and per share amounts have been restated to reflect the reverse stock
split of August 28, 1997.
<PAGE>
PART 1
FINANCIAL INFORMATION
Item 2. Management's discussion and analysis of operations
FORWARD LOOKING STATEMENTS
Certain of the comments that follow or that appear elsewhere in this quarterly
report represent forward-looking statements with respect to the Company's future
results of operations and its related capital resources and financial condition.
The Company relies on a variety of internal and external information as well as
management judgment in order to develop such forward-looking statements. Because
of the inherent limitations in this process, the relatively volatile nature of
the industry in which the Company operates, and other risks and uncertainties
including those discussed in this quarterly report and the Company's
Registration Statement on Form 10-SB, there can be no assurance that actual
results will not differ materially from these forward-looking statements.
RESULTS OF OPERATIONS
General
In early 1998, the Company was awarded several contracts for delivery of valves
to Kuwait, totaling over $5.8 million, from two overseas contractors. Problems
with obtaining acceptable letters of credit and required bonding have delayed
deliveries and progress on these jobs. Progress has been made on solving these
problems, and the Company anticipates that these contracts will produce improved
cash flows in the last half of the year.
Three months ended August 31, 1998 compared with three months ended August 31,
1997
Sales for the three month period ended August 31, 1998 were $897,000 less than
the comparative period ended August 31, 1997, or a 26% decline from last year.
Operations and sales have been adversely affected by financing difficulties.
Gross margin for the three month period ended August 31, 1998 was $138,000 less
than the comparative period ended August 31, 1997, or an 18% decline from last
year.
Operating expenses for the three month period ended August 31, 1998 increased
$69,000, or 17% from the comparative period ended August 31, 1997. This increase
was caused primarily by a significant increase in legal expenses
<PAGE>
related to the breach of contract and slander suit, initiated by the Company,
against Union Pacific Resources. All discovery work is completed for the suit
and is now awaiting trial. Without this large increase in legal fees, operating
cost would have decreased approximately $100,000.
Interest expense increased $58,000 over last year, primarily because of reliance
on short term trade finance and factoring of accounts receivable. Current long
lead time projects have not provided the substantial progress payments which had
been received on contracts during the previous period.
The deficit in working capital was essentially unchanged during the three month
period ended August 31, 1998, with only a $4,000 reduction from May 31, 1998.
However, compared to August 31, 1997, the deficit was reduced by $700,000.
Cash flow from operations was a negative $178,000 for the current three months,
compared to a negative of $248,000 for the period ended August 31, 1997.
Six months ended August 31, 1998 compared with six months ended August 31, 1997
Sales for the six month period ended August 31, 1998 were $1,529,000 less than
the comparative period ended August 31, 1997, or a 23% decline from last year.
Sales have been adversely affected by reliance on several large projects that
have had delays due to financing difficulties.
Gross margin for the six month period ended August 31, 1998 was $54,000 less
than the comparative period ended August 31, 1997, or a 4% decline from last
year. This reflects an improved profit margin of 25%, compared to 20% during the
previous year.
Operating expenses for the six month period ended August 31, 1998 increased
$21,000, or 2% from the comparative period ended August 31, 1997. This increase
was caused primarily by a significant increase in legal expenses. Without this
large increase in legal fees, operating cost would have decreased approximately
$160,000.
Interest expense increased $23,000 over last year, primarily because of reliance
on short term trade finance. Current long lead time projects have not provided
substantial progress payments which had been received on contracts during the
previous period.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Working capital at August 31, 1998 was a deficit of $978,000, compared to a
deficit of $1,149,000 at February 28, 1998, a reduction of $171,000 during the
six month period. Cash flow from operations was $31,000 for the current six
months, compared to a negative of $139,000 for the period ended August 31, 1997.
At August 31, 1998, the Company had two notes from its principal bank used to
finance export sales, which are guaranteed by EXIM Bank: one for $2,000,000 and
one for $317,000. The $2,000,000 loan is a revolving loan, due on demand, with
interest at prime, plus 0.5%. The $317,000 loan is to be paid out over two
years, in monthly installments of $18,658, with interest at 8.5%; provided
however, the bank can demand payment at any time on this loan. The Company also
has a loan guaranteed by the Small Business Administration for $1,200,000,
payable over ten years of installments of $16,192, including interest at prime
plus 2%. Another loan, collateralized by the Company's main manufacturing
facility, is payable in monthly payments of $3,410, with interest at 10.5%.
Other loans are for short term transactional financing and equipment purchases,
with varying maturates and interest rates
The Company anticipates that cash flows will not be adequate to overcome the
deficit in working capital and provide for the growth anticipated from the
current economic conditions and the aggressive marketing plan management would
like to pursue. The shortage of working capital over the past six months has
caused inefficiencies and lost opportunities. The Company has been successful in
negotiating for advance payments from many customers to satisfy some working
capital needs. Additional working capital has been provided by pledging or
borrowing against letters of credit established by customers. The working
capital deficit will continue to hinder operations and profitability during at
least the next nine to twelve months. The Company currently has orders in
backlog that it anticipates will be shipped during the next six months and the
Company believes that revenues from these orders will ease working capital
needs. However, there can be no assurance that these orders will ultimately be
completed or that the profit margins earned by the Company with respect to these
orders will be sufficient to adequately address working capital needs. The
Company intends to seek additional capital as necessary for these purposes
through one or more funding sources that may include borrowings guaranteed by
the EXIM Bank for export sales, private trade finance companies, or offerings of
debt and/or equity securities of the Company; however, there can be no assurance
that such capital will be available to the Company at the time it is required or
on terms acceptable to the Company.
1
<PAGE>
Capital expenditures for the six months were $108,000, mostly to upgrade the
Company's computer systems and software. This was financed by a capital lease.
No additional significant capital expenditures will be made this year unless
favorable financing can be obtained.
YEAR 2000 COMPLIANCE
All of the Company's software products, including without limitation, any parts
or components thereof, when used prior to, during, and after the turn of the
century, are programmed to process turn-of-the-century dates. This capability
includes, without limitation, date formats that have multi-century formulas and
date values, date interface values that reflect the century, and calculations
that accommodate the occurrence of leap year. The Company is in the process of
conducting a review of its internal computer systems and intends to query its
vendors and clients regarding any millennium compliance issues that could have a
material impact on the Company or its results of operations. To date, the
Company has not incurred any material expense regarding millennium compliance
issues and any future expense that might be incurred is not considered at this
time to be material. There can be no assurance, however, that the year 2000 will
not present unforeseen problems in the systems of the Company and the third
parties with which the Company deals , such as third party payors. Failure of
the Company's or third parties' computer systems could materially and adversely
impact the Company's operations.
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Part II, Item 2, Legal Proceedings of the Company's
Registration Statement on Form 10-SB, filed August 20, 1998 for a description of
legal proceedings involving the Company. Since August 20, 1998, there have been
no material developments in these proceedings.
Item 2. Changes in securities
none
Item 3. Defaults upon Senior Securities
none
Item 4. Submission of matters of a vote of security holders
none
Item 5. Other information
none
Item 6. Exhibits and reports on Form 8-K
a) Exhibits
27. Financial Data Schedule
b) Reports on Form 8-K
none
<PAGE>
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AMERICAN ENERGY SERVICES, INC.
Date: October 14, 1998 By:/S/ PAT ELLIOTT
Pat Elliott
President
By:/S/ BRAXTON THOMASON
Braxton Thomason
Chief Financial Officer
(Principle Financial and Accounting
Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM FOR THE PERIOD ENDING AUGUST 31,1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-END> AUG-31-1998
<CASH> 13,137
<SECURITIES> 0
<RECEIVABLES> 931,525
<ALLOWANCES> (20,000)
<INVENTORY> 1,293,571
<CURRENT-ASSETS> 5,223,063
<PP&E> 2,013,411
<DEPRECIATION> (682,868)
<TOTAL-ASSETS> 7,829,375
<CURRENT-LIABILITIES> 6,201,455
<BONDS> 0
0
0
<COMMON> 6,202
<OTHER-SE> 261,212
<TOTAL-LIABILITY-AND-EQUITY> 7,829,375
<SALES> 5,006,654
<TOTAL-REVENUES> 5,006,654
<CGS> 3,730,450
<TOTAL-COSTS> 4,618,036
<OTHER-EXPENSES> (1,487)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 243,947
<INCOME-PRETAX> 146,158
<INCOME-TAX> 48,230
<INCOME-CONTINUING> 97,928
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 97,928
<EPS-PRIMARY> 0.016
<EPS-DILUTED> 0.016
</TABLE>
