<PAGE> 1
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended May 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
For the transition period from _____ to _____
Commission file number _____
AMERICAN ENERGY SERVICES, INC.
Texas 76-0279288
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
7224 Lawndale, Houston, TX 77012
----------------------------------------
(Address of principal executive offices)
713-928-5311
------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
As of July 14, 1999, there were 6,198,966 shares of Common Stock
outstanding.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN ENERGY SERVICES, INC.
BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
May 31, February 28,
1999 1999
----------- -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ (8,157) $ 353,510
Certificates of deposit 11,223 11,223
Accounts receivable - trade, net of $0 reserves 1,203,580 153,191
Accounts receivable - other 76,706 68,767
Income tax receivable 147,543 147,543
Prepaids and other 103,834 103,834
Costs in excess of billings on uncompleted
contracts 3,883,689 4,056,295
Inventories 1,637,145 1,337,095
----------- -----------
Total Current Assets 7,055,563 6,231,458
Property, Plant and Equipment:
Machinery and equipment 1,307,682 1,307,682
Furniture and fixtures 327,541 327,541
Vehicles 81,553 81,553
Buildings and Improvements 221,241 221,241
Land 76,894 76,894
----------- -----------
2,014,911 2,014,911
Less: accumulated depreciation (771,690) (749,677)
----------- -----------
1,243,221 1,265,234
Trademarks, patents, and drawings 1,050,128 992,086
Less: accumulated amortization (270,712) (254,721)
----------- -----------
779,416 737,365
Deferred tax asset 473,371 473,371
Other assets 147,029 147,029
----------- -----------
Total Assets $ 9,698,600 $ 8,854,457
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
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AMERICAN ENERGY SERVICES, INC.
BALANCE SHEETS (CONTINUED)
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
May 31, February 28,
1999 1999
---------- ----------
<S> <C> <C>
Current Liabilities:
Notes Payable $2,352,526 $2,393,763
Current portion of long-term obligations 168,313 168,313
Current portion of capital leases 53,723 53,723
Accounts payable and accrued expenses 4,136,393 4,330,462
Billings in excess of costs on uncompleted
contracts 1,276,066 145,153
---------- ----------
Total Current Liabilities 7,987,021 7,091,414
Long-term obligation, net of current portion 1,124,727 1,153,374
Capital leases, net of current portion 64,894 78,325
---------- ----------
Total Liabilities 9,176,642 8,323,113
Stockholders' Equity:
Capital stock - no par value, 10,000,000 shares
authorized; 6,198,966 shares issued and outstanding 218,583 218,583
Retained earnings 303,375 312,761
---------- ----------
Total Stockholders' Equity 521,958 531,344
---------- ----------
Total Liabilities and Stockholders' Equity $9,698,600 $8,854,457
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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AMERICAN ENERGY SERVICES, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
May 31,
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net Sales $ 1,403,120 $ 2,404,918
Cost of sales 1,051,502 1,759,825
----------- -----------
Gross profit 351,618 645,093
Operating expenses 246,486 407,203
----------- -----------
Income (loss) from operations 105,132 237,890
Other expenses (income):
Interest, net 116,501 100,475
Other, net (1,983) (1,174)
----------- -----------
114,518 99,301
----------- -----------
Net income (loss) before taxes (9,386) 138,589
Income tax (expense) benefit 0 (45,750)
----------- -----------
Net income (loss) $ (9,386) $ 92,839
=========== ===========
Basic and diluted income (loss) per share $ ($0.00) $ $0.01
=========== ===========
Basic and diluted weighted average shares outstanding 6,198,966 6,198,966
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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AMERICAN ENERGY SERVICES, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
May 31,
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ (9,386) $ 91,022
Adjustments to reconcile net income (loss) to cash provided
(used) by operating activities:
Depreciation and amortization 38,004 49,041
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (1,058,328) 332,427
(Increase) decrease in costs in excess of billings on
uncompleted contracts 172,606 (965,688)
(Increase) in inventories (300,050) (115,181)
(Increase) in prepaids and other -- (9,720)
Decrease in deferred tax asset -- 45,750
(Decrease) increase in accounts payable (194,369) 272,548
Increase in other liabilities 300 --
Increase in billings in excess of cost on uncompleted
contracts 1,130,913 508,008
----------- -----------
Net Cash Provided (Used) by Operating Activities (220,310) 208,207
Cash Flows from Investing Activities:
(Purchase) of property, plant and equipment -- (5,241)
(Purchase) of trademarks, patents and drawings (58,042) (6,381)
(Purchase) of certificates of deposit -- (15,000)
----------- -----------
Net Cash Provided (Used) in Investing Activities (58,042) (26,622)
Cash Flows from Financing Activities:
Net (payments) on lines of credit (41,237) (173,062)
Net (payments) on long-term obligations (42,078) (20,400)
----------- -----------
Net Cash (Used) Provided by Financing Activities (83,315) (193,462)
Net (decrease) increase in cash and cash equivalents (361,667) (11,877)
Cash and cash equivalents at beginning of period 353,510 13,786
----------- -----------
Cash and cash equivalents at end of period $ (8,157) $ 1,909
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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AMERICAN ENERGY SERVICES
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - GENERAL
The foregoing financial statements have been prepared from the books
and records of American Energy Services, Inc. ("AES" or the "Company") without
audit. In the opinion of management all adjustments, consisting only of normal
recurring adjustments necessary for a fair statement of results for the interim
periods presented, are reflected in the financial statements.
These statements should be read in conjunction with the financial
statements and related notes included in the Company's Annual Report of Form
10-KSB for the fiscal year ended February 28, 1999.
NOTE 2 - Revenue Recognition
Revenues are recorded when flow control valves sold are shipped or when
title passes. In most instances, sales involve a system of valves for a single
installation and require long-term contracts. When jobs on a long-term contract
progress to a point where final results can be estimated with reasonable
accuracy, the percentage-of-completion method is utilized. Based on the ratio of
costs incurred to date to the total estimated costs of the contracts, a portion
of the total contract price is accrued as revenue. If any losses on a
contract-in-progress become apparent, that loss is charged against the job in
the period it was recognized.
NOTE 3 - Income Taxes
A pre-tax income or loss results in an income tax expense or benefit,
respectively. With pre-tax income, the tax expense is easily calculated and
accrued at the standard corporate rate. The income tax benefit on a pre-tax
loss, however, is much more difficult to estimate and accrue, and therefore
could be significantly different than the true tax benefit. With the pre-tax
loss incurred in the first fiscal quarter, it is the opinion of management that
the most conservative approach would be to defer accruing any income tax
benefit.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This material contains "forward-looking" statements as defined in the
Securities and Exchange Acts of 1933 and 1934 that could involve substantial
risk and uncertainties. When expressions include words such as "anticipate",
"believe", "estimate", "intend", "expect", "plan", and when similar expressions
are used, they are intended to identify the statements as forward-looking.
American Energy Services, Inc. ("AES" or the "Company") relies on a variety of
internal and external information to develop such statements. Due to the
inherent risks and limitations in that development process and the relatively
volatile nature of the industry in which the Company operates, actual results,
performance and achievements may differ materially from results suggested by
these forward-looking statements.
RESULTS OF OPERATIONS
Quarter Ended May 31, 1999 versus Quarter Ended May 31, 1998
Revenues for the three months ended May 31, 1999 were $1,403,000
compared to $2,405,000 for the same period in 1998. The decline in revenues can
be attributed to the focus on percentage-of-completion ("POC") billing for the
year ended February 28, 1999, hindering the billing of POC jobs in the first
quarter.
Although cost of sales was down $708,000, the gross margin for the
quarter ended May 31, 1999 was down $293,000 versus the quarter ended May 31,
1998. This was largely due to the aforementioned focus on the end of the fiscal
year billing of POC jobs for the most recent year-end.
Operating expenses decreased $160,717 to $246,000 in the current period
due to the Company's continuous and concerted efforts to reduce overhead.
Interest and other expenses for the three months ended May 31, 1999
increased $15,000 compared to the same period of last year.
LIQUIDITY AND CAPITAL RESOURCES
The primary sources of the Company's liquidity for the three months
ended May 31, 1999 were cash available at the beginning of the year coupled with
the net costs and billings on uncompleted contracts. These funds were used for
the reduction of short-term and long-term debt, and can also be attributed to
increased trade accounts receivable and inventories.
During the quarter ended May 31, 1999, the working capital deficit
increased $101,000 when compared to the deficit at February 28, 1999 of
$860,000. The short-term cash flows have been inadequate to overcome the working
capital deficit, thus hindering AES' ability to take advantage of slightly
improved economic conditions as well as it's ability to move forward more
aggressively with the Company's strategic plans. However, the Company has
successfully negotiated advance payments from many customers and has pledged
against letters of credit established by customers. Further, AES is aggressively
pursuing alternative sources of capital to overcome the working capital deficit.
These alternatives may include debt restructuring, debt and equity offerings,
borrowings guaranteed by the EX-IM Bank for export sales, or cash flow
reengineering. Because of the aggressive pursuit of such alternatives, the
Company anticipates improvement in its financial position. However, there is no
guarantee that such improvements will occur, nor that such capital will be
available when it is required or on terms that are acceptable to the Company.
There were no capital expenditures during the quarter ended May 31,
1999, nor are any planned or expected in the near term. Only upon a very
significant improvement in the Company's financial position, will capital
expenditures be considered, and then only after diligent consideration and
within stringent guidelines.
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YEAR 2000
The year 2000 ("Y2K") issue is the inability of computer systems to
recognize the change in year from 1999 to 2000. The issue affects both
information technology ("IT") and non-IT systems. Because non-IT systems are
typically embedded technology, these are more difficult to assess than IT
systems and often require replacement rather than repair.
AES has recognized the significant uncertainty associated with the Y2K
issue and has tested its products for compliance. It is the Company's belief
that substantially all necessary modifications have been made to its products.
However, the Company is still in the process of reviewing its internal
computer systems. An outside vendor has been contracted to assess the Company's
internal hardware and software with regard to Y2K compliance. No "mission
critical" systems have required significant modification or replacement to date.
AES is also in the process of identifying and communicating with its
suppliers and vendors where failure by such third parties to achieve Y2K
compliance could have a material impact on the Company. For those suppliers or
vendors who may pose a material risk, contingency plans are in development.
The Company has not incurred any material expense to day with regard to
the Y2K issue, nor does it expect any future expense related to the issue to be
material. Any costs associated with the issue will be treated as period costs
and expensed as incurred. There can be no assurance, however, that the Y2K issue
will not present problems unforeseen at this time.
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P A R T II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is subject to legal proceedings and claims that arise in
the ordinary course of business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not have a materially
adverse affect on the Company's results of operations or financial position.
ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
27 -- Financial Data Schedule
b) Reports of Form 8-K
None
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EXHIBIT INDEX
Exhibit 27 - Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-2000
<PERIOD-START> MAR-01-1999
<PERIOD-END> MAY-31-1999
<CASH> (8,157)
<SECURITIES> 0
<RECEIVABLES> 1,280,286
<ALLOWANCES> 0
<INVENTORY> 1,637,145
<CURRENT-ASSETS> 7,055,563
<PP&E> 1,243,221
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,698,600
<CURRENT-LIABILITIES> 7,987,021
<BONDS> 0
0
0
<COMMON> 218,583
<OTHER-SE> 303,075
<TOTAL-LIABILITY-AND-EQUITY> 9,698,600
<SALES> 1,403,120
<TOTAL-REVENUES> 1,403,120
<CGS> 1,051,502
<TOTAL-COSTS> 1,297,988
<OTHER-EXPENSES> (1,983)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 116,501
<INCOME-PRETAX> (9,386)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,386)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,386)
<EPS-BASIC> (0.00)
<EPS-DILUTED> (0.00)
</TABLE>
