<PAGE> 1
U.S. 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 November 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _____ to _____
Commission file number _____
AMERICAN ENERGY SERVICES, INC.
------------------------------
Texas 76-0279288
- -------------------------------- -------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization
7224 Lawndale, Houston, Texas 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 January 15, 1999, there were 6,201,966 shares of Common Stock
outstanding.
1
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN ENERGY SERVICES, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
November 30, February 28,
1998 1998
----------- -----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents .......................................... $ 3,505 $ 13,786
Certificates of deposit
13,670 17,380
Accounts receivable, net of reserves of $20,000 .................... 305,983 577,607
Income tax receivable .............................................. 147,543 147,543
Prepaids and other ................................................. 78,783 100,081
Cost in excess of billings on uncompleted contracts ................ 4,121,475 1,169,885
Inventories ........................................................ 1,342,864 1,495,016
----------- -----------
Total current assets ........................................ 6,013,823 3,521,298
Property, plant and equipment, net .......................................... 1,299,573 1,290,985
Deferred tax asset .......................................................... 391,296 500,224
Intangibles and other ....................................................... 907,095 868,429
----------- -----------
Total assets ................................................ $ 8,611,787 $ 6,180,936
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Notes payable ...................................................... $ 2,444,909 $ 2,668,000
Current portion of long-term debt .................................. 168,313 144,122
Accounts payable and accrued expenses .............................. 3,558,159 1,658,970
Billings in excess of costs on uncompleted contracts ............... 737,676 199,029
----------- -----------
Total current liabilities ................................... 6,909,057 4,670,121
Long-term debt .............................................................. 1,312,082 1,341,328
----------- -----------
Total liabilities ........................................... 8,221,139 6,011,449
----------- -----------
Stockholder's equity:
Common stock, $.001 par value, 100,000,000 shares
authorized, 6,201,966 issued
6,202 6,202
Capital in excess of par value ..................................... 212,381 212,381
Beginning retained earnings (loss).................................. (49,097) (158,214)
Current period earnings ....................................... 221,162 109,118
----------- -----------
Total stockholder's equity .................................. 390,648 169,487
----------- -----------
Total liabilities and stockholders' equity .................. $ 8,611,787 $ 6,180,936
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 3
AMERICAN ENERGY SERVICES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
November 30, November 30,
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales ............................................. $ 3,108,235 $ 2,502,866 $ 8,114,889 $ 9,038,532
Costs and expenses:
Cost of sales ................................ 2,405,698 2,214,960 6,136,148 7,420,646
Selling and administrative expenses .......... 391,033 424,475 1,278,619 1,291,549
----------- ----------- ----------- -----------
Operating Income ...................................... 311,504 (136,569) 700,122 326,337
Interest and other expenses, net ...................... 127,572 162,844 370,032 371,372
----------- ----------- ----------- -----------
Income (loss) before income tax expense (benefit) ..... 183,932 (299,413) 330,090 (45,035)
Income tax expense (benefit) .......................... 60,698 (89,824) 108,928 (13,474)
----------- ----------- ----------- -----------
Net income (loss) ..................................... $ 123,234 $ (209,589) $ 221,162 $ (31,561)
=========== =========== =========== ===========
Basic earnings (loss) per common share ................ $ 0.02 $ (0.03) $ 0.04 $ (0.01)
=========== =========== =========== ===========
Diluted earnings (loss) per common share .............. $ 0.02 $ (0.03) $ 0.04 $ (0.01)
=========== =========== =========== ===========
Average shares outstanding ............................ 6,201,966 6,198,966 6,201,966 6,198,966
=========== =========== =========== ===========
Average diluted shares outstanding .................... 6,201,966 6,198,966 6,201,966 6,198,966
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
AMERICAN ENERGY SERVICES, INC.
STATEMENT OF CASH FLOWS
(Condensed)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
November 30, November 30,
------------------------ ------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income (loss) ...................................... $ 123,234 $(202,305) $ 221,162 $ (31,872)
Adjustments to reconcile net income to
cash provided (used) by operating activities:
Depreciation and amortization ........................ 57,020 43,760 168,591 145,046
Changes in operating assets and liabilities .......... 227,681 814,081 48,975 403,026
--------- --------- --------- ---------
Net Cash Provided by Operating Activities ............ 407,935 655,536 438,728 516,200
Cash Flows from Investing Activities:
Purchase of property, plant and equipment .............. (102,145) (14,741) (110,452) (38,195)
Purchase of trademarks, patterns and drawings .......... (107,739) (65,745) (114,120) (72,541)
Sale of certificates of deposit ........................ 34,358 6,290 3,710 4,216
--------- --------- --------- ---------
Net Cash Used in Investing Activities ............... (175,526) (74,196) (220,862) (106,520)
Cash Flows from Financing Activities:
Net (payments) under notes payable ..................... (283,519) (308,932) (223,092) (414,181)
Net borrowings (payments) on long-term debt ............ 41,478 (72,808) (5,055) (194,020)
--------- --------- --------- ---------
Net cash (used) provided by Financing Activities .... (242,041) (381,740) (228,147) (608,201)
Net (decrease) increase in cash and cash equivalents
(9,632) 199,600 (10,281) (198,521)
Cash and cash equivalents at beginning of period ........... 13,137 73,675 13,786 471,796
--------- --------- --------- ---------
Cash and cash equivalents at end of period ................. $ 3,505 $ 273,275 $ 3,505 $ 273,275
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE> 5
NOTES TO CONSOLIDATED 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 the results for the
interim periods presented, are reflected in the financial statements.
These statements should be read in conjunction with the financial
statements and the related notes included in the Company's Registration
Statement on Form 10-SB for the fiscal year ended February 28, 1998
Note 2 - Debt
<TABLE>
<CAPTION>
Long-term debt includes the following: November 30, February 28,
1998 1998
----------- -----------
<S> <C> <C>
Bank note (secured); interest at prime plus 2% (10.5% at November 30, and
February 28, 1998); principal and interest payable in monthly
installments of $16,192 through February 17, 2008 .............. $1,145,136 $1,200,000
Bank note (secured) 10.5%; principal and interest payable in monthly
installments of $3,410 through November 5, 2002 ................ 135,924 156,093
Four bank notes (secured); interest at 7.5%, 8.5%, 9.75%, and 10.5%;
principal and interest payable in monthly installments of $1,614
in aggregate with varied maturities............................. 23,585 33,345
Capital lease obligations; interest at various rates from 3.0% to 13.4%;
payable in monthly installments ranging from $532 to $4,899 .... 148,678 96,012
Bank note (unsecured); interest at 13.5%; principal and interest due in
monthly installments of $1,037.................................. 27,072 --
---------- ----------
Total long-term obligations .................................... 1,480,395 1,485,450
Less portion due within one year ................................... 168,313 144,122
---------- ----------
Long-term debt ................................................. $1,312,082 $1,341,328
========== ==========
</TABLE>
At November 30, 1998 AES had various committed and uncommitted
short-term lines of credit totaling approximately $5,000,000. These lines of
credit are available for short-term borrowings or issuances of lines of credit.
At November 30, 1998 and February 28, 1998, borrowings under these lines were
$2,444,909 and $2,668,000, respectively.
Note 3 - Per share computations
All references to the number of shares and per share amounts have been
restated to reflect the reverse stock split of August 28, 1997.
5
<PAGE> 6
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. The
Company relies on a variety of internal and external information to develop such
statements. Due to the inherent 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
Three Months Ended November 30, 1998 vs. Three Months Ended November 30, 1997
Revenues for the three months ended November 30, 1998 were $3,108,000,
compared to $2,503,000 for the same period in 1997. The 24% increase in revenues
is largely attributable to several contracts for delivery of valves to Kuwait,
awarded by two overseas contractors.
The gross margin for the quarter ended November 30, 1998 was up
$415,000, or 44% versus the quarter ended November 30, 1997 primarily due to the
aforementioned Kuwait orders.
Selling and Administrative expenses decreased $33,000 to $391,000 in
the current period due to the Company's concerted effort to reduce overhead.
Interest and other expenses for the three months ended November 30,
1998 decreased $35,000 compared to the same period last year largely due to
reduced debt and more favorable financing arrangements.
Nine Months Ended November 30, 1998 vs. Nine Months Ended November 30, 1997
Revenues for the nine months ended November 30, 1998 were down $925,000
compared to the same period in 1997. The 10% decrease in revenues can be
attributed to both a slowdown of new orders resulting from lower energy prices
and project delays attributable to financing difficulties.
The gross margin for the nine months ended November 30, 1998 increased
$361,000 over the nine months ended November 30, 1997 due to the favorable
margins realized on the aforementioned Kuwait contracts.
Selling and administrative expenses decreased $13,000 in the nine month
period ended November 30, 1998 when compared to the same period in 1997. This
decrease was realized in spite of a significant increase in legal expense
incurred during the current period, resulting from a suit initiated by the
Company.
Interest and other expenses for the nine months ended November 30, 1998
were down slightly compared to the nine months ended November 30, 1997.
6
<PAGE> 7
LIQUIDITY AND CAPITAL RESOURCES
The primary source of the Company's liquidity for the nine months ended
November 30, 1998 was internally generated funds. These funds were used
primarily for the reduction of debt.
Working capital at November 30, 1998 was a deficit of $895,000, down
$254,000 when compared to the deficit at February 28, 1998 of $1,149,000. The
Company expects that short-term cash flows will be inadequate to overcome the
working capital deficit, hindering the ability to position for the anticipated
growth from current economic conditions and the ability to pursue an aggressive
and strategic marketing plan. The shortage of working capital during the nine
month period ended November 30, 1998 has resulted in inefficiencies as well as
lost opportunities. While the Company has been successful in negotiating advance
payments from many customers and has pledged against letters of credit
established by customers, the working capital deficit is expected to continue
hindering operations and profitability. For that reason, the Company is actively
seeking alternative sources of additional capital that may include debt
restructuring, borrowings guaranteed by the EX-IM Bank for export sales, and/or
offerings of debt and/or equity securities of AES. However, there is currently
no assurance that such capital will be available when it is required or on terms
that are acceptable to the Company.
Capital expenditures for the nine months ended November 30, 1998 were
$108,000, primarily to upgrade the Company's computer systems and software,
which was financed by a capital lease. No additional or significant capital
expenditures are expected to be made for the balance of the fiscal year.
YEAR 2000
The "Year 2000" issue is the inability of computer systems (both
hardware and software) to recognize the change in date from 1999 to 2000. The
issue affects both information technology ("IT") and non-IT systems. Non-IT
systems typically include embedded technology such as micro-controllers. These
systems are more difficult to assess and often require replacement rather than
repair.
The Company has recognized the significant uncertainty associated with
the Year 2000 issue and has tested its products for compliance. It is the
Company's belief that substantially all necessary modifications have been made
to it's software products.
AES is in the process of reviewing its internal computer systems. To
date, no "mission critical" systems have required significant modification or
replacement.
The Company is also in the process of identifying and communicating
with its suppliers and vendors where failure by such third parties to achieve
Year 2000 compliance could be expected to have a material impact on the Company.
For those suppliers or vendors who may pose a material risk, contingency plans
will be developed.
The Company has not incurred any material expense to date with regard
to the Year 2000 issue and does not 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 Year 2000 will not present problems unforeseen at this time.
7
<PAGE> 8
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is subject to legal proceedings and claims which 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 on Form 8-K
None
8
<PAGE> 9
SIGNATURE
In accordance with requirements 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.
AMERICAN ENERGY SERVICES, INC.
(Registrant)
Date: May 7, 1999 By: /s/ Pat Elliott
---------------
Pat Elliott
President
By: /s/ Robert S. Love
------------------
Robert S. Love
Chief Financial Officer
9
<PAGE> 10
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-START> MAR-01-1998
<PERIOD-END> NOV-30-1998
<CASH> 3,505
<SECURITIES> 0
<RECEIVABLES> 325,983
<ALLOWANCES> 20,000
<INVENTORY> 1,342,864
<CURRENT-ASSETS> 6,013,823
<PP&E> 1,299,573
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,611,787
<CURRENT-LIABILITIES> 6,909,057
<BONDS> 0
0
0
<COMMON> 6,202
<OTHER-SE> 384,446
<TOTAL-LIABILITY-AND-EQUITY> 8,611,787
<SALES> 8,114,889
<TOTAL-REVENUES> 8,114,889
<CGS> 6,136,148
<TOTAL-COSTS> 7,414,767
<OTHER-EXPENSES> (3,700)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 373,732
<INCOME-PRETAX> 330,090
<INCOME-TAX> 108,928
<INCOME-CONTINUING> 221,162
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 221,162
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
