<PAGE> 1
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB/A-1
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended August 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT
For the transition period from _____ to _____
Commission file number 0-24819
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 October 12, 1999, there were 6,948,966 shares of Common Stock
outstanding.
<PAGE> 2
ITEM 1. FINANCIAL STATEMENTS
AMERICAN ENERGY SERVICES, INC.
BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
August 31, February 28,
1999 1999
------------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 256,197 $ 353,510
Certificates of deposit 11,223 11,223
Accounts receivable - trade, net of $19,924 and $0 reserves 378,464 153,191
Accounts receivable - other 97,125 68,767
Income tax receivable 147,543 147,543
Prepaids and other 117,776 103,834
Costs in excess of billings on uncompleted
contracts 3,897,058 4,056,295
Inventories 1,859,588 1,337,095
------------- -------------
Total Current Assets 6,764,974 6,231,458
Property, Plant and Equipment:
Machinery and equipment 1,307,682 1,307,682
Furniture and fixtures 327,541 327,541
Vehicles 102,369 81,553
Buildings and Improvements 221,241 221,241
Land 76,894 76,894
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2,035,727 2,014,911
Less: accumulated depreciation (804,719) (749,677)
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1,231,008 1,265,234
Trademarks, patents, and drawings 1,050,228 992,086
Less: Accumulated amortization (294,847) (254,721)
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755,381 737,365
Deferred tax asset 468,590 473,371
Other assets 147,029 147,029
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Total Assets $ 9,366,982 $ 8,854,457
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 3
AMERICAN ENERGY SERVICES, INC.
BALANCE SHEETS (Continued)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
August 31, February 28,
1999 1999
------------ ------------
<S> <C> <C>
Current Liabilities:
Notes Payable $ 2,622,818 $ 2,393,763
Current portion of long-term obligations 175,825 168,313
Current portion of capital leases 53,723 53,723
Accounts payable and accrued expenses 3,114,126 4,330,462
Billings in excess of costs on uncompleted
contracts 837,300 145,153
------------ ------------
Total Current Liabilities 6,803,792 7,091,414
Long-term obligation, net of current portion 1,147,461 1,153,374
Capital leases, net of current portion 78,325 78,325
------------ ------------
Total Liabilities 8,029,578 8,323,113
Stockholders' Equity:
Common stock, $.001 par value, 10,000,000 shares authorized,
6,198,966 and 6,198,966 shares issued 6,949 6,199
Accumulated comprehensive income (loss) -- --
Capital in excess of par value 964,633 212,384
Retained earnings 365,822 312,761
------------ ------------
Total Stockholders' Equity 1,337,404 312,761
------------ ------------
Total Liabilities and Stockholders' Equity $ 9,366,982 $ 8,635,874
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
AMERICAN ENERGY SERVICES, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
August 31, August 31,
------------------------- -------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales $ 2,042,307 $ 2,601,736 $ 3,445,427 $ 5,006,654
Cost of sales 1,433,907 1,970,468 2,485,409 3,730,293
----------- ----------- ----------- -----------
Gross profit 608,400 631,268 960,018 1,276,361
Operating expenses 387,170 478,697 633,656 885,900
----------- ----------- ----------- -----------
Income (loss) from operations 221,230 152,571 326,362 390,461
Other expenses (income):
Interest, net 155,975 142,807 272,476 243,282
Other, net (1,972) (313) (3,955) (1,487)
----------- ----------- ----------- -----------
154,003 142,494 268,521 241,795
----------- ----------- ----------- -----------
Net income (loss) before taxes 67,227 10,077 57,841 148,666
Income tax (expense) benefit (4,781) (2,480) (4,781) (48,230)
----------- ----------- ----------- -----------
Net income (loss) $ 62,446 $ 7,597 $ 53,060 $ 100,436
=========== =========== =========== ===========
Basic income (loss) per share $ 0.01 $ 0.00 $ 0.01 $ 0.02
=========== =========== =========== ===========
Diluted income (loss) per share $ 0.01 $ 0.00 $ 0.01 $ 0.02
=========== =========== =========== ===========
Basic shares outstanding 6,948,966 6,198,966 6,948,966 6,198,966
=========== =========== =========== ===========
Diluted shares outstanding 7,636,414 6,508,914 7,636,414 6,508,914
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
AMERICAN ENERGY SERVICES, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
August 31, August 31,
------------------------- -------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ 62,446 $ 97,928 $ 53,060 $ 97,928
Adjustments to reconcile net income (loss) to cash provided
(used) by operating activities:
Depreciation and amortization 57,164 111,571 95,168 111,571
Changes in operating assets and liabilities:
Increase (decrease) in accounts receivable 804,697 (333,918) (253,631) (333,918)
(Increase) decrease in costs in excess of billings on
uncompleted contracts (13,369) (1,540,018) 159,237 (1,540,018)
(Increase) decrease in inventories (222,443) 201,445 (522,493) 201,445
(Increase) decrease in prepaids and other accrued liabilities (13,942) 8,332 (13,942) 8,332
Decrease in deferred tax asset 4,781 48,230 4,781 48,230
Increase (decrease) in accounts payable & accrued expenses (1,022,267) 1,032,952 (1,216,336) 1,032,952
Increase (decrease) in billings in excess of cost on
uncompleted contracts (438,766) 404,271 692,147 404,271
----------- ----------- ----------- -----------
Net Cash Provided (Used) by Operating Activities (781,699) 30,793 (1,002,009) 30,793
Cash Flows from Investing Activities:
(Purchase) of property, plant and equipment (20,816) (8,307) (20,816) (8,307)
(Purchase) of trademarks, patents and drawings (100) (6,381) (58,142) (6,381)
(Purchase) of certificates of deposit -- (30,648) -- (30,648)
----------- ----------- ----------- -----------
Net Cash Provided (Used) in Investing Activities (20,916) (45,336) (78,958) (45,336)
Cash Flows from Financing Activities:
Capital contributions in excess of par value 753,000 0 753,000 0
Net increase in lines of credit 270,292 60,427 229,055 60,427
Net increase (decrease) on long-term obligations 43,677 (46,533) 1,599 (46,533)
----------- ----------- ----------- -----------
Net Cash (Used) Provided by Financing Activities 1,066,969 13,894 983,654 13,894
Net increase (decrease) in cash and cash equivalents 264,354 (649) (97,313) (649)
Cash and cash equivalents at beginning of period (8,157) 13,786 353,510 13,786
----------- ----------- ----------- -----------
Cash and cash equivalents at end of period $ 256,197 $ 13,137 $ 256,197 $ 13,137
=========== =========== =========== ===========
</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 as well as the Quarterly
Report on Form 10-QSB for the fiscal quarter ended May 31, 1999.
NOTE 2 - REVENUE RECOGNITION
Revenues are recorded when flow control valves sold are shipped or when
title passes. Title passes from seller to buyer when the goods are shipped. In
some instances, the buyer will pay in advance for completed goods just prior to
shipment.
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. Percentages are derived by
comparing costs incurred with the estimated total costs and calculated
percentages are used to allocate anticipated total revenue and cost .If any
losses on a contract-in-progress become apparent, that loss is charged against
the job in the period it was recognized.
6
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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
Three Months Ended August 31, 1999 versus Three Months Ended August 31, 1998
Revenues for the three months ended August 31, 1999 were $2,042,000
compared to $2,602,000 for the same period in 1998. The decline in revenues can
be largely attributed to the down-turn in oil pricing and many of the Company's
customers in the energy industry waiting out the decline before committing to
new orders.
While cost of sales was down 27% or $537,000, the gross profit for the
fiscal quarter ended August 31, 1999 was down as well at 4% below the
three-month period ended August 31, 1998. This was primarily due to the reasons
cited above regarding the down-turn in oil pricing and the energy industry in
general.
Operating expenses decreased $339,000, or 71% from the same period in
prior fiscal year as a result of the Company's diligent efforts to reduce these
expenses to increase profitability in the disappointing economic environment in
which the Company had to operate during the current period. This effort is, has
been, and will continue to be one of key focus by AES management regardless of
economic conditions of the industry.
Interest and other expenses for the three months ended August 31, 1999
increased $12,000 compared to the same period of last year. However, this too,
is an area of continued management focus as is discussed further in the
Liquidity and Capital Resources section below.
Six Months Ended August 31, 1999 versus Six Months Ended August 31, 1998
Revenues for the six months ended August 31, 1999 were $3,445,000 or
$1,561,000 down from the same period of last year. Although this unfavorable
variance is considered significant, the Company is cautiously encouraged since
64% of the variance occurred in the first quarter of this fiscal period. Once
again, the unfavorable variance is largely attributable to economic market
conditions in the industry in which AES operates.
Cost of sales for the six month period ended August 31, 1999 was down
$1,245,000 as would be expected with lower that prior year revenues. Further,
gross profit dollars were down 25% compared to the same period of last year.
However, gross profit was 28% as a percent of revenues in the current period,
compared to only 25% in the same period of last year.
Operating expenses were down $252,000 in the six months ended August
31, 1999 compared to the six months ended August 31, 1998. This can be
attributed to the aforementioned efforts of AES to reduce these costs, which has
included, among other initiatives, a reduction in force.
Interest and other expenses for the six months of the current fiscal
year increased $27,000 compared to the same period of last year.
7
<PAGE> 8
LIQUIDITY AND CAPITAL RESOURCES
The primary sources of the Company's liquidity for the six months ended
August 31, 1999 included cash available at the beginning of the year and more
significantly capital contributed by private investors. These funds were
primarily used for the reduction of accounts payable, coupled with an increase
in inventories.
During the six months ended August 31, 1999, the working capital
deficit improved to $39,000 when compared to the deficit at February 28, 1999 of
$860,000. In the past, short-term cash flows have been inadequate in the past to
overcome the working capital deficit. However, AES management's continuing
efforts to raise capital been benefited the Company's working capital position,
as well as it's ability to move forward with an aggressive five year strategic
plan. Management is continually striving to improve it working capital position
as well as grow the Company through a variety of alternatives. These
alternatives may include, but are not limited to, debt restructuring, debt and
equity offerings, cash flow reengineering, joint ventures, mergers and
acquisitions. Because of the aggressive pursuit of such alternatives, the
Company anticipates imminent 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.
Capital expenditures during the six months ended August 31, 1999
included a note for a vehicle necessitated by the retirement of another. Only
upon a continued and significant improvement in the Company's financial
position, will capital expenditures be considered, and then only after diligent
consideration and within stringent guidelines.
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 assessed the Company's internal hardware
and most of its software with regard to Y2K compliance. No "mission critical"
systems have required significant modification or replacement, other than the
management information system discussed below.
The Company recently contracted with Global Solutions ("InFiSy") for
installation and implementation of a new management information system. The new
system will replace an obsolete legacy system. The decision during 1998 to
replace the existing system was influenced by the costs associated with making
the obsolete system Y2K compliant. However, the decision was made primarily due
to the need for a fully integrated MRP II (Material Resource Planning) system,
the efficiencies to be gained, and the reasonable, very favorable terms under
which InFiSy will be acquired. The cost of the InFiSy system, which will be
amortized over its expected useful life is approximately $50,000, exclusive of
some possible internal costs of installation.
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.
Other than the capital expenditure for the InFiSy system, which will be
spread over nine months, the Company has absorbed approximately $8,000 to date
for expenses related to the Y2K project. The additional cost estimated to bring
the project to completion is $15,000, which will be treated as a period cost and
expensed as incurred.
8
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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
9
