<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 November 30, 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.
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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 January 14, 2000, there were 6,948,966 shares of Common Stock
outstanding.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN ENERGY SERVICES, INC.
BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
November 30, February 28,
1999 1999
----------- -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ (75,853) $ 353,510
Certificates of deposit 11,223 11,223
Accounts receivable - trade, net of $4,387 and $0 reserves 83,352 153,191
Accounts receivable - other 105,148 68,767
Income tax receivable 147,543 147,543
Prepaids and other 117,776 103,834
Costs in excess of billings on uncompleted
contracts 4,191,568 4,056,295
Inventories 1,854,198 1,337,095
----------- -----------
Total Current Assets 6,434,955 6,231,458
Property, Plant and Equipment:
Machinery and equipment 1,307,682 1,307,682
Furniture and fixtures 329,524 327,541
Vehicles 83,423 81,553
Buildings and Improvements 221,241 221,241
Land 76,894 76,894
----------- -----------
2,018,764 2,014,911
Less: accumulated depreciation (828,261) (749,677)
----------- -----------
1,190,503 1,265,234
Trademarks, patents, and drawings 1,050,774 992,086
Less: accumulated amortization (327,028) (254,721)
----------- -----------
723,746 737,365
Deferred tax asset 473,371 473,371
Other assets 197,528 147,029
----------- -----------
Total Assets $ 9,020,103 $ 8,854,457
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 3
AMERICAN ENERGY SERVICES, INC.
BALANCE SHEETS (CONTINUED)
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
November 30, February 28,
1999 1999
------------- -------------
<S> <C> <C>
Current Liabilities:
Notes Payable $ 2,585,064 $ 2,393,763
Current portion of long-term obligations 175,825 168,313
Current portion of capital leases 52,182 53,723
Accounts payable and accrued expenses 2,622,049 4,330,462
Billings in excess of costs on uncompleted
contracts 1,044,926 145,153
------------- -------------
Total Current Liabilities 6,480,046 7,091,414
Long-term obligation, net of current portion 1,106,861 1,153,374
Capital leases, net of current portion 106,950 78,325
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Total Liabilities 7,693,857 8,323,113
Stockholders' Equity:
Common stock, $0 par value, 10,000,000 shares authorized,
6,948,966 and 6,198,966 shares issued and outstanding 6,949 6,199
Capital in excess of par value 964,633 212,384
Comprehensive Income (Loss) 0 0
Retained earnings 354,664 312,761
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Total Stockholders' Equity 1,326,246 531,344
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Total Liabilities and Stockholders' Equity $ 9,020,103 $ 8,854,457
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
AMERICAN ENERGY SERVICES, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
November 30, November 30,
------------------------- ------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales $ 1,794,175 $ 3,108,235 $ 5,239,602 $ 8,114,889
Cost of sales 1,273,251 2,405,698 3,758,660 6,136,148
----------- ----------- ----------- -----------
Gross profit 520,924 702,537 1,480,942 1,978,741
Operating expenses 396,894 391,033 1,030,550 1,278,619
----------- ----------- ----------- -----------
Income (loss) from operations 124,030 311,504 450,392 700,122
Other expenses (income):
Interest, net 134,686 128,551 407,162 370,425
Other, net 5,283 (979) 1,328 (1,393)
----------- ----------- ----------- -----------
139,969 127,572 408,490 369,032
----------- ----------- ----------- -----------
Net income (loss) before taxes (15,939) 183,932 41,902 331,090
Income tax (expense) benefit 4,781 (60,698) 0 (108,928)
----------- ----------- ----------- -----------
Net income (loss) $ (11,158) $ 123,234 $ 41,902 $ 222,162
=========== =========== =========== ===========
Basic earnings (loss) per common share $ (0.00) $ 0.02 $ 0.01 $ 0.04
=========== =========== =========== ===========
Diluted earnings (loss) per common share $ (0.00) $ 0.02 $ 0.01 $ 0.04
=========== =========== =========== ===========
Average shares outstanding 6,528,636 6,198,966 6,764,034 6,198,966
=========== =========== =========== ===========
Average diluted shares outstanding 7,010,602 6,198,966 7,324,593 6,198,966
=========== =========== =========== ===========
</TABLE>
AMERICAN ENERGY SERVICES, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
November 30, November 30,
------------------------- ------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income (loss) $ (11,158) $ 123,234 $ 41,902 $ 222,162
Other comprehensive income (loss) -- -- -- --
----------- ----------- ----------- -----------
Comprehensive income (loss) $ (11,158) $ 123,234 $ 41,902 $ 222,162
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
AMERICAN ENERGY SERVICES, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
November 30, November 30,
------------------------- -------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ (11,158) $ 123,234 $ 41,902 $ 221,162
Adjustments to reconcile net income (loss) to cash provided
(used) by operating activities:
Depreciation and amortization 55,723 57,020 150,891 168,591
Changes in operating assets and liabilities:
Decrease in receivables 323,470 605,542 69,839 271,624
(Increase) decrease in inventories 5,390 (49,293) (517,103) 152,152
(Increase) in costs in excess of billings on uncompleted
contracts (294,510) (3,751,342) (135,273) (5,291,360)
(Decrease) increase in accounts payable and accrued expenses (492,045) 1,890,857 (1,708,381) 1,899,189
Increase in billings in excess of cost on uncompleted
contracts 207,626 134,376 899,773 538,647
Increase (decrease) in other assets/liabilities,net (292,252) 1,397,541 (225,907) 2,478,723
----------- ----------- ----------- -----------
Net Cash Provided (Used) by Operating Activities (497,756) 407,935 (1,424,259) 438,728
Cash Flows from Investing Activities:
Retirement (purchase) of property, plant and equipment 24,669 (102,145) 3,853 (110,452)
Retirement (purchase) of trademarks, patents and drawings 116,830 (107,739) 58,688 (114,120)
Redemption (purchase) of certificates of deposit -- 34,358 -- 3,710
----------- ----------- ----------- -----------
Net Cash Provided (Used) in Investing Activities 141,499 (175,526) 62,541 (220,862)
Cash Flows from Financing Activities:
Capital contributions in excess of par 0 0 753,000 0
Net (payments) on lines of credit 37,753 (283,519) 191,302 (223,092)
Net (payments) on long-term obligations (13,546) 41,478 (11,947) (5,055)
----------- ----------- ----------- -----------
Net Cash (Used) Provided by Financing Activities 24,207 (242,041) 932,355 (228,147)
Net (decrease) in cash and cash equivalents (332,050) (9,632) (429,363) (10,281)
Cash and cash equivalents at beginning of period 256,197 13,137 353,510 13,786
----------- ----------- ----------- -----------
Cash and cash equivalents at end of period $ (75,853) $ 3,505 $ (75,853) $ 3,505
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
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 and the Quarterly Reports on
Form 10-QSB for the fiscal quarters ended May 31, 1999 and August 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 goods are shipped. In some
instances, the buyer will pay in advance for completed goods just prior to
shipment.
Generally AES 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 in which it was recognized.
<PAGE> 7
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 November 30, 1999 versus Three Months Ended November 30, 1998
Revenues for the three months ended November 30, 1999 were $1,794,000
compared to $3,108,000 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.
Cost of sales and gross profit for the fiscal quarter ended November
30, 1999 were down when compared to the same quarter in the prior year. This
too, can be attributed to the downturn in the energy industry. As a percentage
of revenues however, the gross profit for the three-month period ended November
30, 1999 was 29% compared to 23% gross profit experienced in the same three
months of the previous year.
Operating expenses increased $6,000, or 1.5% from the same period in
prior fiscal year, largely attributable to increased legal and travel expenses
generally associated with raising working capital. These expenses were offset to
some degree by a reduction of headcount and employee hours.
Interest and other expenses for the three months ended November 30,
1999 increased $12,000 compared to the same period of 1998. Management has
continued its efforts to reduce interest expense through the restructuring of
debt. This debt restructuring is expected to be in place by the end of the
fourth fiscal quarter, and is further addressed in the Liquidity and Capital
Resources section below.
Nine Months Ended November 30, 1999 versus Nine Months Ended November 30, 1998
Revenues for the nine months ended November 30, 1999 were $5,240,000 or
$2,875,000 or 35% below the same period of last year. Although significantly off
from prior year revenues, management is cautiously optimistic about the upcoming
year with oil pricing now reflecting an upward trend to levels that generally
increase order activity.
Cost of sales for the nine month period ended November 30, 1999 was
down considerably when compared to the same period in 1998, as would be expected
with lower revenues. Gross profit dollars were also unfavorable when compared to
the previous year. However, gross profit as percentage of revenues was 28% in
the nine months ended November 30, 1999 compared to 24% in the nine months ended
November 30, 1998 primarily due to product mix and improved operating
efficiencies.
Operating expenses were down $248,000 in the nine months ended November
30, 1999 compared to the nine months ended November 30, 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 nine months of the current fiscal
year increased $39,000 compared to the same period of last year primarily due to
the interest expense associated with an increase in notes payable.
<PAGE> 8
LIQUIDITY AND CAPITAL RESOURCES
The primary sources of the Company's liquidity for the nine months
ended November, 1999 included cash available at the beginning of the year, and
more significantly, capital contributed by private investors in a 506D equity
offering. These funds were primarily used for the reduction of accounts payable,
coupled with an increase in inventories.
During the nine months ended November 30, 1999, the working capital
deficit improved to $45,000 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. There are several material issues relating
to the cash shortage that the Company is in the midst of addressing. Although
certainly not all inclusive of the cash shortage issues, there are three in
particular that are considered material. First, the Company is in arrears with
the Internal Revenue Service for employment (Form 941) taxes. While two months
behind for 1999 taxes at this quarter-end, an installment agreement is in place
for an arreage of 1998 employment taxes totaling $266,205 at November 30, 1999.
Secondly, the Company is in arrears to Harris County, Texas for 1998/1999
property taxes of $62,000. AES has had discussions with County officials
concerning a payout of the arreage, although one has not yet been put in place.
The Company fully intends to fulfill its obligations to the county as soon as
possible. Finally, AES is also materially behind on its obligations to Metro
Bank, although an informal agreement involving a restructure of debt has been
accomplished to meet the Company's obligation to the bank with more favorable
terms.
In spite of the cash shortages, AES management's continuing efforts have
benefited the Company's working capital position, as well as it's ability to
move forward with its five year strategic plan. Management continues to strive
for alternatives to improve it working capital position and to address issues
such as those cited above. 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. For instance, on November 25, 1999 AES was awarded a materially
significant contract with Asia Pacific Refinery, subject to certain conditions
and although an influx of cash from that project cannot be expected until
Spring/Summer of 2000). However, there is no guarantee that improvements in the
AES' cash position 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 nine months ended November 30, 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.
<PAGE> 9
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 place.
Other than the capital expenditure for the InFiSy system, which will be
spread over nine months, the Company has absorbed approximately $13,000 to date
for expenses related to the Y2K project. The additional cost estimated to bring
the project to completion is $5,000, which will be treated as a period cost and
expensed as incurred.
PART 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
