<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, 2000
[ ] 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 July 27, 2000, there were 7,973,928 shares of Common Stock
outstanding.
1
<PAGE> 2
ITEM 1. FINANCIAL STATEMENTS
AMERICAN ENERGY SERVICES, INC.
BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
May 31, February 28,
2000 2000
---------- -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 65,418 $ 75,778
Certificates of deposit 6,130
Accounts receivable - trade, net of $0 reserves 475,727 662,132
Accounts receivable - other 52,351 41,176
Income tax receivable 124,000 124,000
Prepaids and other 17,369 17,370
Costs in excess of billings on uncompleted
contracts 3,230,662 1,491,996
Inventories 1,901,855 1,901,855
---------- ----------
Total Current Assets 5,873,512 4,314,307
Property, Plant and Equipment:
Machinery and equipment 1,307,682 1,307,682
Furniture and fixtures 327,541 327,541
Vehicles 83,423 83,423
Buildings and Improvements 226,510 226,970
Land 76,894 76,894
---------- ----------
2,022,050 2,022,510
Less: accumulated depreciation (914,181) (881,181)
---------- ----------
1,107,869 1,141,329
Trademarks, patents, and drawings 1,320,462 1,275,462
Less: accumulated amortization (389,836) (378,545)
---------- ----------
930,626 896,917
Deferred tax asset 150,110 150,110
Other assets 204,541 193,818
---------- ----------
Total Assets $8,266,658 $6,696,481
========== ==========
</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>
May 31, February 29,
2000 2000
------------------- -------------------------
<S> <C> <C>
Current Liabilities:
Notes Payable $ 2,911,148 $ 2,962,008
Current portion of long-term obligations 1,375,792 1,382,347
Current portion of capital leases 100,087 120,175
Accounts payable and accrued expenses 2,051,787 1,849,414
Billings in excess of costs on uncompleted
contracts 948,751 46,991
Advances from officers 32,500 32500
------------------- -------------------------
Total Current Liabilities 7,420,065 6,393,435
Long-term obligation, net of current portion
Capital leases, net of current portion
------------------- -------------------------
Total Liabilities 7,420,065 6,393,435
Stockholders' Equity:
Common stock, $0 par value, 100,000,000 shares authorized,
7,973,928 shares issued and outstanding 6,949
Capital in excess of par value 1,489,634 996,583
Comprehensive Income (Loss) 43,547
Retained earnings (693,537) (693,536)
------------------- -------------------------
Total Stockholders' Equity 846,593 303,047
------------------- -------------------------
Total Liabilities and Stockholders' Equity $ 8,266,658 $ 6,696,482
=================== =========================
</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
May 31,
2000 1999
---------- ----------
<S> <C> <C>
Net Sales $1,935,970 $1,403,120
Cost of sales 1,445,143 1,051,502
---------- ----------
Gross profit 490,827 351,618
Operating expenses 351,636 246,486
---------- ----------
Income (loss) from operations 139,191 105,132
Other expenses (income):
Interest, net 95,644 116,501
Other, net (1,983)
---------- ----------
95,644 114,518
---------- ----------
Net income (loss) before taxes 43,547 (9,386)
Income tax (expense) benefit (13,000) --
---------- ----------
Net income (loss) $ 30,547 $ (9,386)
========== ==========
Basic and diluted income (loss) per share $ 0.00 $ (0.00)
========== ==========
Basic weighted average shares outstanding 7,413,488 6,201,966
========== ==========
Diluted weighted average shares outstanding 8,063,586 6,201,966
========== ==========
</TABLE>
AMERICAN ENERGY SERVICES, INC.
STATEMENT OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Three Months Ended
May 31,
2000 1999
---------- ----------
<S> <C> <C>
Net income (loss) $ 30,547 $ (9,386)
Other comprehensive income (loss) -- --
---------- ----------
Comprehensive income (loss) $ 30,547 $ (9,386)
---------- ----------
</TABLE>
4
<PAGE> 5
AMERICAN ENERGY SERVICES, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
May 31,
2000 1999
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ 30,547 $ (9,386)
Adjustments to reconcile net income (loss) to cash provided
(used) by operating activities:
Depreciation and amortization 33,000 38,004
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 186,405 (1,058,328)
(Increase) decrease in costs in excess of billings on
uncompleted contracts (1,738,666) 172,606
(Increase) in inventories -- (300,050)
(Increase) in prepaids and other -- --
Decrease in deferred tax asset -- --
(Decrease) increase in accounts payable 202,373 (194,369)
Increase in other liabilities 300
Increase in billings in excess of cost on uncompleted
contracts 901,760 1,130,913
----------- -----------
Net Cash Provided (Used) by Operating Activities (384,581) (220,310)
Cash Flows from Investing Activities:
(Purchase) of property, plant and equipment -- --
(Purchase) of trademarks, patents and drawings (45,000) (58,042)
(Purchase) of certificates of deposit (6,130) --
----------- -----------
Net Cash Provided (Used) in Investing Activities (51,130) (58,042)
Cash Flows from Financing Activities:
Net (payments) on lines of credit (77,503) (41,237)
Net (payments) on long-term obligations (42,078)
----------- -----------
Net Cash (Used) Provided by Financing Activities (77,503) (83,315)
Net (decrease) increase in cash and cash equivalents (513,214) (361,667)
Cash and cash equivalents at beginning of period 75,778 353,510
----------- -----------
Cash and cash equivalents at end of period $ (437,436) $ (8,157)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<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 29, 2000.
NOTE 2 - Revenue Recognition
Revenues are recorded when flow control valves sold are shipped or when
title passes. Title normally passes from seller to buyer when the goods are
shipped. On some rare occassions, the buyer pays for completed goods just prior
to shipment. At that point, AES considers title to have passed to the buyer. 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
NOTE 4 - EARNINGS (LOSS) PER SHARE
Basic earnings per share is calculated by dividing net income by the weighted
average number of common shares outstanding. Diluted earnings per share is
computed similarly, but also provides the effect to the impact of convertible
securities, such as common stock warrants, if dilutive, would have on net income
and average common shares outstanding if converted.
For the three month periods ending May 31, 2000 and May 31, 1999, average shares
outstanding were increased for stock warrants assumed exercised by 309,948 to
arrive at weighted average shares outstanding for purposes of calculating
diluted earnings per share.
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",
6
<PAGE> 7
"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, 2000 versus Quarter Ended May 31, 1999
Revenues for the three months ended May 31, 2000 were $1,935,970
compared to $1,403,120 for the same period in 1999. The increase in revenues can
be attributed primarily to increased sales from a single client who comprised
68% of the first quarter revenues. .
Cost of sales rose in first quarter ended May 31, 2000 to $1,445,143 up
from $1,051,502 during the first quarter of 1999. Gross profit for the May 31,
2000 quarter rose to $490,827, compared to $351,818 for first quarter 1999. As a
percent of net sales, gross profit was 25% for the first quarter 2000, compared
with 25% for first quarter 1999.
Operating expenses for first quarter 2000 were $351,636 or $105,150
above operating expenses for first quarter 1999 at $246,486. This increase can
be attributed in part to accounting adjustments made in the first quarter 2000,
to better reflect all accrued operating costs.
Interest and other expenses decreased $18,874 to $95,644 for first
quarter ended May 31, 2000, as compared to $114,518 interest and other expenses
for the same period in 1999. Net income for the first quarter 2000 was $30,547
or $39,933 greater than the ($9,386) for the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
The primary sources of the Company's liquidity for the three months
ended May 31, 2000 were cash available at the beginning of the year coupled with
additional paid in capital of $ 500,000. These funds were used for the reduction
of short-term and long-term debt as well as working capital and current
operations.
During the quarter ended May 31, 2000, the working capital deficit
decreased $532,575 when compared to the deficit at February 29, 2000 of
$2,079,128 Primarily due to the net improvement of costs and billings on
uncompleted projects. 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.
The company has entered into a best- efforts agreement with an investment banker
to raise $ 8,000,000 to $ 11,000,000 in new equity.
There were no capital expenditures during the quarter ended May 31,
2000, 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.
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.
7
<PAGE> 8
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 date 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.
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.
8
<PAGE> 9
ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
27 -- Financial Data Schedule
b) Reports of Form 8-K
None
9
<PAGE> 10
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------ -----------
27 Financial Data Schedule
