<PAGE>

                       Securities and Exchange Commission

                             Washington, D.C. 20549

                                 FORM 10-KSB-A1

   [X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
       OF 1934

                   For the fiscal year ended February 28, 2001

   [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
       ACT OF 1934

                  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)

      Indicate by check mark 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 [ ]

      Indicate by check mark if disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]


      At July 31, 2001, the Common Stock, $.001 par value, there is a total of
14,065,054 restricted shares and 5,049,558 non-restricted shares totaling
19,114,612 shares of common stock outstanding held by 1,102 shares holders,

                     DOCUMENTS INCORPORATED BY REFERENCE

      There is incorporated by reference in Part III of this Annual Report on
Form10-KSB the information contained in the Registrant's Proxy Statement for the
Company's Annual Meeting of Stockholder's to be held on October 12, 2001.

Transitional Small Business Disclosure Format  (check one): Yes [ ] No [X]

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                                  P A R T  I

ITEM 1.  DESCRIPTION OF BUSINESS

GENERAL

      American Energy Services, Inc., a Texas corporation, was founded and
incorporated in 1987 ("Old AES"). The Company began active operations in 1989
after acquiring certain operating assets of two other valve manufacturing and
re-manufacturing businesses, CGM Valve, Inc. ("CGM") and American Energy Valves,
Inc. ("AEV"). The Company's current directors, Pat Elliott, Larry Elliott, Sid
McCarra, Mark Elliott and Cary McCarra, were previously associated with CGM and
AEV.

      Seahawk Overseas Exploration Corporation, a California corporation
("Seahawk") was formed in November 1988 to conduct the international operations
of Seahawk Oil International Corporation ("SOIC"). In January 1989, in
conjunction with a planned sale of certain domestic producing oil properties by
SOIC, the shares of stock of Seahawk were distributed to the shareholders of
SOIC, who number over 3000. Seahawk continued operations with little or no
success up until the time of the merger with Old AES, a Texas corporation. In
January 1996, Old AES was merged with and into Seahawk pursuant to an Agreement
and Plan of Merger by and between Old AES and Seahawk. In accordance with the
terms of the merger, (I) Seahawk became the surviving entity although its names
was changed to "American Energy Services, Inc." and (ii) shares of Seahawk stock
were issued to the seven stockholders of Old AES (i.e. the current AES
directors). In February 1996, a new corporation was formed under the name
American Energy Services, Inc., a Texas corporation ("New AES"). Subsequent to
the formation of New AES, Seahawk merged with and into New AES to maintain the
historic domicile of Old AES in Texas and to retain the historical business
name. In addition, the merger was intended to provide the Company with a legal
entity which could enter the public company domain and ultimately, provide
potential capital through the sale of registered securities. The effect of this
merger has been that the Company was able to acquire approximately 1,500
shareholders formerly owning shares of Seahawk stock. As used herein, references
to "AES" or the "Company" refer to New AES, its subsidiaries and predecessors.

PRODUCTS AND SERVICES

      The Company is engaged in providing products and services worldwide to
processing manufacturers, energy companies and engineering/construction
contractors. Principal end-user markets include domestic and international
producers, transporters and refiners of oil and natural gas, as well as the
petrochemical, processing and power generation industries. AES designs,
manufactures, markets and services standard or specialty valves of varying sizes
and pressures used to regulate the movement of liquids, gases, and solid
materials.

      AES utilizes both Company owned and operated manufacturing facilities and
contractually licensed manufacturing subcontractors that are audited for AES
quality to produce the full line of AES standard and engineered valves.

      For much of its standard product manufacturing requirements, the Company
relies on a network of AES-selected subcontractors, all of which are audited and
licensed under internationally recognized quality programs, including ISO 9000
and API Q1. The use of these subcontractors allows the Company to reduce its
fixed costs my minimizing its investment in plant and equipment. In addition, by
maintaining manufacturing relations and capabilities internationally, AES has
been able to attract additional customers worldwide.

      In addition, the Company designs, engineers and manufactures various
valves at its Houston plant. The facility has full scale manufacturing
capabilities, including large turning and machine centers, heavy-duty cranes,
and full welding capabilities. AES also houses a fully equipped engineering
department with


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computer-aided design ("CAD") system capabilities and metallurgical equipment to
determine American Society of Testing Materials ("ASTM") specified requirements.


Mexico and Alaska

      It is prudent to note that AES has implemented a plan that management
believes will flatten the cyclical curve of the oil & gas industry.
Consequently, AES has directed its attention and efforts to two major areas to
guarantee as accurately as possible, revenues from both geographical sections
mentioned above.

      Mexico, in particular has evolved into a strong hold for AES. AES Houston
personnel, including management, speak Spanish, and the 25 year history of good
relations and market proximity have been expanded to a broader penetration into
the service sector which management believes will augment product sales. A
Mexico City office has recently been opened and staffed with 6 employees to more
directly participate in the core, valve sales business. Additionally, AES has
signed significant representation agreements that management believes will
augment revenues with both commissions for new product and services sales, but
more importantly grant AES the right of first refusal for core product from AES
and its acquired companies, to be supplied to all represented companies. To
date, AES has contracts with,

      a) Green Oasis Environment, a multipurpose state of the art, modular
Refinery Company. The refinery accomplishes two significant goals: 1) consume
dirty contaminated waste oil of which Mexico produces some 5 million barrels per
year; 2) transform this environmental hazard into much needed diesel, jet fuel
and heating oil. AES has negotiated a right of first refusal to sell the
approximately $1MM of hard metal goods to construct each patented plant.

      b) Boots & Coots (WEL) are a high profile, industry leader in the blow
out, and well interdiction companies. This company also has evolved into a state
of the art, 21st Century service company that is eagerly looking to enter
Mexico. Boots & Coots, as it maps Mexico wells and petrochemical locations for
safety and environmental compliance will need materials of pipe, valves and
fittings, to complete its task of bringing the wells and plants into a new,
safer, cleaner component of the new Oil, Gas and Petrochemical world in Mexico.
AES has entered into a right of first refusal agreement to sell all necessary
hard metal goods required by Boots & Coots to perform its services in Mexico.

      AES is completing a joint venture Alliance with Arctic Slope Regional Corp
(ASRC) , a company that that generates approximately $1BB in annual revenues.
ASRC is an integrated oil and gas service, and refining company. AES has opened
it's office on July 18, 2001 in Anchorage, located in the Natchiq Headquarters
in Alaska. The catalyst for the association between ASRC and AES was a patented
valve design "Tractrix" that had been 95% developed over 6 years by ASRC and
which needs a market driven company to bring it to its place in the industry.
AES is currently in negotiation with Idaho National Engineering and
Environmental Laboratory (INEEL) to enter into a license agreement, which will
allow AES to market and sell the "Tractrix" valve. However, there can be no
assurance that an agreement will be entered into.

      The Company manufactures valves to the following qualifications: American
Petroleum Institute ("API") 6D, API 6A, API 599, API 600, and API 602. AES is a
licensed API monogram holder under specifications 6D and Q1 and its Quality
Assurance Manual is ISO 9000 approved. Steps involved with the design and
manufacture of the Company's valves include (I) consultation with the customer's
project coordinators, (ii) general design work and detailed engineering, (iii)
fabrication and assembly and (iv) final installation.

      The Company's sales personnel and independent marketing representatives,
or agents, initiate sales calls and coordinate bid proposals with the Company's
quotation specialists.


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The quotation specialists produce proposals that identify preliminary design and
cost estimates for a type of valve to be utilized for a specific application.
AES marketing management must also determine whether there is a sufficient
amount of working capital available to generate revenue.

      The initial design efforts involve significant communication and
coordination with the customer in order to identify and agree on valve
specifications. For custom-engineered valve projects, design concerts are tested
against established empirical data and previously manufactured valve designs.
AES maintains a source library of valve designs from which to choose and the
Company's CAD capabilities provide readily available and accessible design
parameters. When an order requires standard valve designs, AES' engineering and
quality assurance personnel verify that the Company's "off the shelf" designs
comply with the required specifications. Once the valve application has been
clearly defined, the Company's engineers formulate a design for the manufactured
valve. Project engineers perform complete engineering services, including
mechanical schematics, layouts and drawings. Process and electrical control
systems can also be integrated into the design.

      The manufacturing process involves fabrication and assembly of component
parts to meet specific valve designs and specifications. AES produces machined
assemblies from raw castings and forgings or sourced machined assemblies from
subcontractors, which are inspected fully for material and tolerance compliance.
The assembly groups are then put together as a complete valve, and function and
operation tests are performed. Testing involves configuring testing procedures
and changing the equipment before each test in order to ensure that the valves
meet the particular project's needs and requirements. The Company believes that
its testing of valve integrity is the basis for providing performance and
quality guarantees and total concept capability. After testing is completed, the
valves are prepared for shipment.

      Because the manufacturing process can take from several weeks to several
months, customers frequently request partial shipment of finished products and
components. AES generally invoices customers as deliveries are made. Receivables
represent billings on delivered products or milestone achievements. Revenue is
recognized utilizing the percentage-of-completion method.

NEW PRODUCTS AND SERVICES

      Since 1993, AES has developed (I) a full line of refinery and process
gate, globe, swing check, and ball valves of varying sizes, (ii) a line of
specialty valve products, designed and manufactured to meet a client's
particular valve application requirements, (iii) and other products, including
lubricated plug valves, rotary control valves, linear control valves, geothermal
through conduit gate valves and pressure seal valves. The Company also offers
trunnion mounted ball valves, and reduced or full bore floating ball valves, in
virtually any metallurgy required.

      The Company also designs and manufactures specialty valves, such as high
pressure three-way ball valves for high temperature switching service,
metal-seated ball valves for various services including abrasives, three-way
piggable "Y" pattern ball valves for dock-loading applications, rapid shutoff
high pressure flood valves for NASA launch pad facilities, rotary control valves
for quiet operations for the Submarine Division of the U.S. Navy, and cyrogenic
valves for service to minus 150 degrees Celsius.


QUALITY COMMITMENT AND CONTROL

      The Company's comprehensive quality control program is designed to ensure
that valves it manufactures, as well as components purchased from outside
manufacturers, meet AES' standards of quality. The quality control program of
the Company includes inspections at all stages of the design and manufacturing
process at its facility. All purchased components and products assembled by
subcontractors are also inspected to ensure that they perform properly. Thus
far, the Company's management has been satisfied with the quality and
reliability of products assembled by subcontractors. However, there can be no
assurance that such products will always perform properly. The performance
failure of a product could have a material adverse effect on the Company's
business, operating results, and financial condition.


                                       4
<PAGE>

      Since 1989, the Company has manufactured over 70,000 valve units. Due to
AES's commitment to quality, less than one-fifth of one percent of these units
have required any type of field service or plant refitting. The Company is
licensed under internationally recognized quality programs, including API
Specifications 6D, Q1 and its Quality Assurance Manual is ISO 9000 approved.
Additionally, AES has been a member of several standardization societies
including API and ASTM, among others.

SUPPLIERS AND SUBCONTRACTORS

      The Company purchases nearly all castings, forgings, and certain finished
or semi-finished components used in its products from domestic and international
suppliers, including foundries and forging companies, bolt distributors and soft
good distributors. AES performs most of the finished machining for the Company's
engineered products. The Company also assembles valve components, and performs
pressure testing and final preparation of the finished product. The Company
maintains an approved vendor list of sub-suppliers and sub-assemblies for the
final manufacture of equipment by AES for its clients. Over the past eight years
AES has developed a working relationship with a substantial number of suppliers
and sub-vendors. Management believes that these approved vendors provide
adequate availability of alternative sources of quality supplies for use by the
Company. However, the Company has not entered into any agreements or contracts
with either of these leading sub-vendors except for the placement of specific
purchase orders related to the Company's course of business. AES sources its
sub-vendors on a continuing, as needed basis. Terms of sale between the Company
and the sub-vendors are generally either C.O.D. or under an Irrevocable Letter
of Credit payment.

CUSTOMERS

      The Company's customers include manufacturers, energy companies, domestic
and international oil and gas producers, transmission and refining segments of
the energy industry, and the petrochemical processing and power generation
industries. End-users of the Company's products consist of a broad range of
industrial, commercial and utility companies. The Company's customer base is
comprised of 300 accounts with over 125 considered active. The Company markets
and sells a vast majority of its products internationally while marketing
domestically through distribution. Over the last ten years, the Company has
placed in service approximately $90 million dollars worth of valve products.

      The Company seeks to serve a sufficiently large number of customers to
avoid dependence on any one customer or industry. Due to the nature of the
Company's operations, it is anticipated that significant portions of future
revenues may continue to be attributable to a few customers, although it is
likely that the identity of such customers will change from period to period.
Because of the Company's range of gate, globe, check and ball valves and the
variety of applications available to the valves sold by the Company, the Company
maintains a broad customer base within the various industries it serves.


The Company's products are used by a variety of segments of the general
industries indicated below:

      ENERGY INDUSTRY                     POWER GENERATION
      Refiners and Processors             Co-generators
      Oil and Gas Producers               Utility
      Transmission Companies

      PLASTIC AND PETROCHEMICAL           MINING AND MINERAL PROCESSING
      Petrochemical Complexes             Water and Waste Treatment
      Base Resin Manufacturers            Catalysts
      Base Chemicals                      Steel Mills
                                          Pulp and Paper



                                       5
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MARKETING AND DISTRIBUTION

      DOMESTIC. The Company's domestic (United States, Canada and Mexico)
marketing network consists of a primary distribution relationship with
multifaceted production, general supply companies and specialty valve
distributors. Presently, the Company's distribution activities are in the
initial stages of growth. As of February 28, 2001, AES' distribution backlog was
in excess of $500,000.

      INTERNATIONAL. The Company markets its valve products internationally
through a network of independent manufacturer's representative firms or agents
located in every major oil and gas producing and/or consuming country in the
world. The Company maintains relationships with international customers by
regularly sending the Company's international marketing personnel to foreign
countries to discuss local market conditions, to conduct technical presentations
to potential buyers and to participate in point of sale commercial negotiations
during major bid activities. Both domestic and international engineered product
sales involve the Company's technical sales personnel and valve engineering
consultants. The Company's quotation specialists act as liaisons between
customers and the Company's design and engineering group by responding to
customer requests for proposals regarding the cost of a certain quantity of
valves that meet specific design and capability criteria.


      The Company's international markets are divided among the following areas:

      1.    Western Hemisphere:     Mexico, Venezuela, Argentina, Colombia,
                                    Peru, Ecuador, Brazil

      2.    Europe:                 North Sea, Continental Europe, United
                                    Kingdom, Russia

      3.    Africa:                 Nigeria, Algeria, Offshore West Africa,
                                    South Africa

      4.    Middle East:            Turkey, Syria, Saudi Arabia, Kuwait, U.A.E.,
                                    Egypt

      5.    Sub-Continent:          India, Pakistan, Bangladesh

      6.    Pacific Rim:            Singapore, Malaysia, Indonesia, Japan,
                                    Korea, Thailand

      7.    China:                  Mainland China, Hong Kong, Taiwan

      The market and demand for the Company's valves have grown rapidly
recently, primarily as a result of the resurgence of the industries to which the
Company markets. The international energy, chemical, and petrochemical
industries, as well as domestic refining and pipeline markets have experienced
rapid growth. In response to such growth, the Company has opened regional or
country offices staffed by marketing personnel indigenous to the local market
and technically well versed in valve product applications. The Company employs
support personnel in Beijing, China, Seoul Korea, and Calgary, Canada.

      The prospects for the Company depend to a large extent upon the economic
condition of the industries to which the Company markets. Should these
industries experience an economic downturn, there may be a significant reduction
in the demand for the Company's products. Many of the Company's competitors are
significantly larger than the Company and have substantially greater financial
and other resources at their disposal. No assurance, therefore, can be given as
to the Company's ability to compete effectively in the even the industries it
serves experience an economic downturn.

      In addition to direct marketing by independent and Company marketing
representatives, the Company markets its products and services through
catalogues and brochures. The Company also advertises and attends major trade
shows and conventions worldwide.

COMPETITION AND INDUSTRY

      The valve manufacturing industry is highly competitive. Although reliable
comparative figures are not available, the Company believes that its principal
competitors have more extensive and diversified operations and also have
financial, operating and other resources substantially in excess of those
available to the


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Company. However, personal relationships and interaction with clients worldwide
at their places of business has proven to be a very effective way of combating
competition, developing business and cutting costs. Many years of experience
with international manufacturers and suppliers have allowed the Company to
purchase valve castings and semi-finished components used in its products at
cost competitive prices.

      The Company has also been able to successfully compete because minimal
overhead and fixed manufacturing costs have allowed it to bid and complete
projects at lower prices than its competitors. Many other large traditionally
structured valve manufacturers have a substantial capital investment in domestic
plant and equipment along with continuing monthly maintenance and production
expenses. In contrast, the Company has structured a flexible custom
manufacturing, assembly, testing, and quality verification plant in Houston,
Texas that is staffed by a core group of experienced, quality-oriented valve
experts. The Company's specialized facility is supported and complemented by
both domestic and international quality conscious valve manufacturing
subcontractors that are selectively utilized on a when needed basis - only as
project quality and budget requirements dictate. By outsourcing its
manufacturing requirements, not only has the Company been able to minimize fixed
costs, but it has also established a large network of subcontractors
strategically located throughout the world that can provide annual valve
manufacturing capacity exceeding $100 million.



      The Company competes against numerous valve manufacturers. Several of the
Company's competitors are more established in the industry and have
substantially greater manufacturing, marketing and financial resources than the
Company. However, the Company plans to remain competitive by continuing to
maintain strict quality standards, respond flexibly and responsibly to
customers' needs, and deliver high quality products on a reliable basis and at
competitive prices.

      Some of the Company's competitors include large, well-established US-based
valve manufacturers with revenues in excess of $200 million, including Cooper
Industries, Crane Valve Company and Zidell Corporation, among others. These
large domestic-based producers, which are established domestically and
internationally, are able to protect their market territories by target pricing,
approval protection, and local relations. Further, their large amount of capital
and reserves allow them to survive difficult economic downturns. Another group
of competitors includes divisional or stand-alone US valve manufacturers with
revenues between $20 million and $100 million, including TK Valve and Tom
Wheatley Valve Corporation, both of which are divisions of Dresser Industries,
Inc.

      The Company also competes with several international competitors located
in various parts of Europe, North and South America and Asia. One group of
international valve manufacturers with which the Company competes, including
Kitz, Grove-Italia and PBV, are recognized, well established, international
valve manufacturers with revenues between $10 million and $1 billion. The
Company also competes with various low cost producers located in Eastern Europe,
India and China.

BACKLOG

      The Company's total backlog of valve manufacturing contracts as of May 29,
2001 was approximately $3,214,000(including aforementioned distribution
backlog). Approximately 90% of the Company's present backlog of contracts is at
least partially secured for payment by irrevocable letters of credit,
milestones, progress payments, or wire transfer of funds at time of shipment;
however, the majority of the Company's contracts are terminable by the customer
without penalty. Certain of the Company's contracts include a "cancellation for
convenience" section, which provides for AES recovery of costs incurred to date
and related profits. As such, there can be no assurance that the amount of
backlog ultimately will be realized.

INDUSTRY OUTLOOK

      OIL AND GAS PRODUCTION, TRANSMISSION AND REFINING. Both domestic and
international production, transmission and refining markets demand high quality,
reliable and long-lasting products for their


                                       7

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facilities. The domestic valve market has historically been dominated by brand
name products; however, given the economics of domestic deregulation coupled
with international end-user acceptance of low-bid, technically capable valve
products, the international marketplace is expected to provide quality
conscious, low-priced valve manufacturers like the Company with many
opportunities.

      PETROCHEMICAL, CHEMICAL AND PROCESSING. Over the last few years, the
Company has experienced an increasing demand from the international
petrochemical and refinery industries for the Company's products. The Company's
current positive outlook is directly impacted by the new construction projects
regularly announced by the worldwide chemical and petrochemical industries.

      POWER GENERATION AND OTHER. The power generation, textile, pulp and paper,
food, and mineral processing industries have historically comprised a modest
amount of the Company's revenues and business development efforts. However,
because the future of these industries is believed by management to offer the
Company opportunities for growth, the Company intends to devote a greater amount
of its marketing and business development efforts to these industries.

TRADEMARKS AND PROPRIETARY RIGHTS

      The Company owns 100% of the Full Port Cartridge Loaded Forged Check Valve
design which has been patented with the United States Patent and Trademark
Office (US Patent No. 5,522,423). The Company is also in the process of
developing several other patents, including a Prescription Compact Thru-Conduit
Terminal Gate Valve and a Three-Port Terminal Switch Valve. The Company has also
registered the names AEV, AES, and AES Accuseal 500 with the United States
Patent and Trademark Office.

RESEARCH AND DEVELOPMENT

      The Company currently conducts regular research and development activities
involving the engineering and design of valve products. During the fiscal years
ended February 28, 2001, 2000, and 1999, approximately $180,000, $225,000 and
$226,000, respectively, was expended in connection with such activities.
Management anticipates that research and development costs as a percentage of
sales will not increase materially from current levels.

ENVIRONMENTAL COMPLIANCE

      The Company's operations are subject to a variety of federal, state and
local laws and regulations, including laws and regulations relating to the
protection of the environment. The Company is required to expend financial and
managerial resources to comply with such laws and related permit requirements in
its operations and anticipates that it will continue to do so in the future.
Although such expenditures historically have not been material to the Company,
the fact that such laws or regulations are changed frequently makes it
impossible for the Company to predict the cost or impact of such laws and
regulations on its future operations. Modification of existing laws or
regulations or the adoption of new laws or regulations affecting the Company's
operations could adversely affect the Company. The Company believes that it
currently is in material compliance with all such applicable laws and
regulations.

EMPLOYEES

      At February 28, 2001, the Company employed 40 persons. None of the
Company's employees are covered by collective bargaining agreements. The Company
considers its employee relations to be satisfactory.

ITEM 2.  PROPERTIES

      The principal offices and manufacturing facilities utilized and owned by
AES are located in Houston, TX. These book value of these facilities amount to
less than ten percent (10%) of the total assets of AES. The Company believes
that its manufacturing facilities will be suitable and adequate to meet
production


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demands of the near future. In order to take advantage of available orders,
however, AES has plans to build a new facility with greater production capacity
within the next year.

ITEM 3.  LEGAL PROCEEDINGS

        Since 1996, the Company has been a plaintiff in a lawsuit against Union
Pacific Resources Company and DTI Diversite CTL, Inc. The relief the Company
seeks is money damages of approximately $10 million to $12 million for breach of
contract and tortious interference. The case is currently pending in the Texas
Court of Appeals.

      Since 1999, the Company has been a defendant in a breach of contract
lawsuit brought by EIM Company, Inc. ("EIM"). EIM is seeking money damages in
the amount of $96,000. The case is before the District Court of Harris County,
Texas, 157th Judicial District. The Company has brought a counter claim against
EIM for money damages amounting to $50,000.

      In 2000, a suit was brought against the Company by DHV Industries, Inc.
for breach of contract. The suit was brought in the District Court of Harris
County, Texas, 125th Judicial District.

      During 2001, Techint-Cotecol brought suit against the Company in District
Court of Harris County, Texas, 125th Judicial District for breach of contract.
The suit seeks damages in the amount of $1 million. The Company believes that a
major subvendor is responsible for manufacturing the valves which are in
question in this suit and is confident it will be indemnified by the subvendor
for any amounts the Company is required to pay as a result of this suit. The
Company is a defendant in a lawsuit of which, in May 2001 the plaintiff won a
binding arbitration from the International Chamber of Commerce in the amount of
$1,204,000, including interest at a rate of 9% per annum from December 16,1999.



ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      There was no matter during the fiscal quarter ended February 28, 2001 that
was submitted to a vote of security holders.



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                                  P A R T  II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
         MATTERS

        Since May 26, 2000, AES' common stock has been listed on the NASD OTC
Electronic Bulletin Board and continues to be traded on such market. The table
below shows the high and low bid prices as reported by the OTC-BB. AES trades
under the symbol "AEYS." The bid prices represent inter-dealer quotations,
without adjustments for retail mark-ups, markdowns or commissions and may not
necessarily represent actual transactions.

        The table below shows the high and low bid prices as reported by the
OTC-BB during each of the calendar quarters identified below. AES trades under
the symbol "AEYS." Trading commenced on May 26, 2000. These bid prices were
obtained from the National Quotation Bureau, and do not necessarily reflect
actual transaction, retail markups, markdowns or commissions. Based on the very
limited public float and trading in Registrant's Common Stock, Registrant
believes that such data in anecdotal, and may bear no relation to the true value
of Registrant's Common Stock, or the range of prices that would prevail in a
liquid market.

Quarter Ended:         High Bid:              Low Bid

March 31, 1999         Securities Not Listed
June 30, 1999          Securities Not Listed
September 30, 1999     Securities Not Listed
December 31, 1999      Securities Not Listed

March 31, 2000         Securities Not Listed
September 30, 2000     $1.37                   $ .625
June 30, 2000          $1.375                  $ .50
December 31, 2000      $1.4062                 $ .4062

March 31, 2001         $1.375                  $ .5312
June 30, 2001          $  .750                 $ .160


ITEM 6.  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

FISCAL YEAR ENDED FEBRUARY 28, 2001 VERSUS FISCAL YEAR ENDED FEBRUARY 29, 2000

      Net sales for the Company's fiscal year ended February 28, 2001 decreased
$1,976,731 below the fiscal year ended February 29, 2000. This decrease was
primarily related to Canceled orders previously recognized as revenue using
percentage of completion accounting.



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      Cost of sales in fiscal 2001 increased $858,176 or 22% higher than fiscal
2000 to $4,658,398. The Gross profit (loss) for fiscal 2001 was ($1,299,722).

      Operating expenses in fiscal 2001 increased $2,626,709. The increase can
primarily be attributed to penalties and interest associated with unpaid
employment taxes, and $1,204,083 expense related to the judgment against the
company discussed in the financial note 6.. The Company has initiated a plan to
significantly decrease operating expenses including workforce reduction and
other cost-reduction programs.

      Other expenses for fiscal 2001 decreased $19,093 over other expenses in
fiscal 2000 largely due to decreased interest expense.

      Net income (loss) for fiscal 2001 was ($6,448,820), an increase in net
loss of $5,442,523 in fiscal 2001. The 37% reduction in net sales, as well as
the additional overhead cost of being a public company were major factors in the
company's net loss for fiscal 2001.

      The net loss in fiscal 2001 resulted in basic and diluted losses per share
of ($0.83) for fiscal 2001, as compared with ($0.14) loss per share for fiscal
2000.

FISCAL YEAR ENDED FEBRUARY 29, 2000 VERSUS FISCAL YEAR ENDED FEBRUARY 28, 1999

      Net sales for the Company's fiscal year ended February 29, 2000 ("fiscal
2000") decreased $5,465,277 or 50% below the fiscal year ended February 28, 1999
("fiscal 1999"). This decrease was due primarily to a significant downturn in
construction in the oil and gas industry. Additionally, the capital constraints
under which the Company operated in fiscal 2000, hampered AES' sales efforts.

      Cost of sales in fiscal 2000 decreased $4,505,016 to $3,800,222 or 55%
below fiscal 1999 of $8,305,238. As a percent of net sales, the Company's gross
profit margin improved from 23% in fiscal 1999 to 28.8% in fiscal 2000.

      Operating expenses in fiscal 2000 increased $603,456 to $2,172,875 or 28%
above operating expenses of $1,569,419 for fiscal 1999. Included in fiscal 2000
operating costs were certain expenses specifically related to taking the Company
public and initiating the trading of its shares on the NASDAQ.

      Other expenses for fiscal 2000 decreased $168,712 to $368,607 or 31% below
other expenses of $537,319 for fiscal 1999. This change was due largely to a
decrease in interest expenses accrued by the Company during fiscal 2000.

      Net income (loss) for fiscal 2000 was ($1,006,297), a decrease of
$1,368,154 from $361,857 net profit for fiscal 1999. The 50% reduction in net
sales coupled with $728,000 of extraordinary operating expenses were major
factors in the Company's net loss for fiscal 2000.

      The net losses in fiscal 2000 resulted in basic and diluted losses per
share of ($0.14) for fiscal 2000, as compared with $0.06 earnings per share for
fiscal 1999.

IMPACT OF INFLATION

      An effect of inflation is to increase the prices of labor and raw
materials used to manufacture AES' products, which may require periodic
increases in the prices for the products to maintain gross profit margins.
Management does not consider AES to have any unique difficulty in managing the
effects, if any, on its business.


                                       11
<PAGE>

GOING CONCERN

      The accompanying Consolidated Financial Statements have been prepared
assuming the Company will continue as a going concern. The Company receives the
majority of its revenues from customers in the energy industry, which experience
a significant downturn in 1998 that continued throughout 1999. Industry
conditions improved in 2000, however the Company's customer base has not to date
increased project expenditure levels to those existing in the first half of
1998. Demand for the Company's products and services is impacted by the number
and size of projects available as changes in oil and gas exploration and
production activities change the respective customers' forecasts and budgets.
These fluctuations have a significant effect on the Company's cash flows.

      Oil and gas prices have improved significantly since the downturn in 1998.
While these price improvements have brought the company increases in the
frequency of inquires and subsequent orders, the Company has not yet benefited
to a meaningful degree from an increase in the volume of valve projects.
Consequently, the Company's financial performance has been subject to
significant fluctuations.

      As a result of the downturn in the oil and gas industry over the last two
years and the resultant negative effect on the Company's financial position,
Company management initiated actions in 2000 which included among others, (a)
downsizing personnel, (b) attempting to improve its working capital, (c)
retargeting its marketing efforts and, (d) consolidating administrative
functions to ensure that the Company's resources are deployed in a more
profitable manner. The Company's efforts to rationalize its operations commenced
in the first quarter of 2000 and continued through 2001. However, the results of
these efforts were not sufficient to prevent significant operating losses or
provide sufficient levels of operating capital.

      However, it is prudent to note that AES has implemented a plan that
management believes will flatten the cyclical curve of the oil & gas industry.
Consequently, AES has directed its attention and efforts to two major areas
intended to generate revenues from Alaska and Mexico.

      A Mexico City office has recently been opened and staffed with 6 employees
to more directly participate in the core, valve sales business. AES Houston
personnel, including management, speak Spanish, and the Company's 25 year
history of good relations and market proximity has been expanded into the
service sector to augment product sales. Additionally, AES has signed
significant representation agreements that is expected to augment our revenues
with commissions for both new product and services sales. AES has been granted
the right of first refusal to supply products to the following companies:

      a) Green Oasis Environment, is a multipurpose state of the art, modular
refinery company. Green Oasis refinery's are intended to accomplishes two
significant goals: 1) consume dirty contaminated waste oil of which Mexico
produces some 5 million barrels per year; 2) transform this environmental hazard
into much needed diesel, jet fuel and heating oil. AES has negotiated a right of
first refusal to sell the approximately $1MM of hard metal goods to construct
each patented plant.

      b) Boots & Coots (WEL) is a high profile, industry leader in the blow out,
and well interdiction market. This company is eagerly looking to enter Mexico
with all of its new services and products intended to protect the environment.
As Boots & Coots maps Mexico's wells and petrochemical locations for safety and
environmental compliance they will need materials of pipe, valves and fittings,
to complete its task of bringing the wells and plants into a new, safer, cleaner
component of the new Oil, Gas and Petrochemical world in Mexico. AES has
negotiated a right of first refusal to sell all necessary hard metal goods
required by Boots & Coots to perform its services in Mexico.

      In Alaska AES is completing a joint venture alliance with Arctic Slope
Regional Corp (ASRC), a company with approximately $1BB in annual revenues. ASRC
is an integrated oil and gas service, and refining company. On July 18,2001 AES
opened its office in Anchorage, located in the Natchiq Headquarters in Alaska.
The catalyst for the association between ASRC and AES is a patented valve design
"Tractrix" that has been 95% developed over 6 years by ASRC and which needs a
company to bring it to market. In order for AES to market and sell the
"Tractrix" valves AES must enter into a license agreement with the Idaho
National Engineering and Environmental Laboratory (INEEL).Currently AES and
INEEL are in final negotiation and the company expects to have the license
agreement signed by the middle of August. However, there can be no assurance
that an agreement will be entered into. The failure of the Company to


                                       12
<PAGE>

enter into an agreement with either ASRC or INEEL would prevent the Company from
being able to complete development of and market the "Tractrix" valve. This
failure would have a substantial negative impact on the Company's expected
future operations.

      The Company's impaired liquidity position has resulted in the inability to
pay certain vendors in a timely manner. In spite of this, none of AES creditors
to date have threatened to file a bankruptcy petition. However, this has
hampered the Company's ability to hire sub-contractors, obtain materials and
supplies, and otherwise conduct operations in an effective or efficient manner.
Moreover, throughout most of fiscal 2000 and 2001, the Company was in default
with virtually all its debt agreements. To alleviate the Company's liquidity
problems and to improve its overall capital structure, the Company initiated a
program to restructure its debt and equity positions. The program involved a
series of steps designed to raise new funds, restructure its debt and increase
its shareholders' equity.

      The Company negotiated agreements with various vendors to exchange debt
for shares of common stock, and has agreed to register the shares to be issued
to vendors in exchange for approximately 1.5MM of vendor debt.

      The Company has been in default on four loans at Metro Bank since
September 1999, the loans total $3.3MM in principal and approximately $700,000
in interest expense. To date there has been no threatened foreclosure action by
the bank. The Company is in negotiation with Metro Bank to restructure this
debt. The proposed restructured debt will provide an additional $250,000 working
capital for the company and will place the debt under more favorable terms. If
the debt is successfully restructured it will allow the Company to reduce its
interest expense and increase the term of the note to 17 years. However, there
can be no assurance the company will be able to restructure this debt with Metro
Bank.

            The Company engaged in a private offering through March to May of
2001 pursuant to rule 506.A Securities Purchase Agreement with certain investors
to purchase units (the"Units"), for a purchase price of $1,000 per Unit, each
unit consisting of a 6% Convertible Promissory Note (the "Note") in the original
principal amount of$1,000 and 500 warrants (the "Warrants") to purchase one
share of common stock. Under the 506 offering the company raised $1,050,000 and
expects to receive additional funds upon the exercise of the Warrants. Upon
conversion of the Notes, the investors can purchase a number of shares, without
limitation, based upon a thirty (30%) percent discount from the average market
price of our common stock for the five trading days prior to the conversion. The
agreements do not contain a trading price below which the investor is not
permitted to convert the Note. As a result, the number of shares that these
investors are entitled to receive upon conversion will increase as our stock
price decreases. Therefore, these investors have an incentive to engage in short
selling activities aimed at driving down the price of our common stock.
 .

       Although the Company has had some limited success raising capital, there
can be no assurance that the Company will be able to obtain new capital, and if
new capital is obtained that it will be on terms favorable to the Company. As of
February 28, 2001, the Company's current assets totaled $3,273,481 and current
liabilities were $7,954,323 resulting in a working capital deficit of
approximately $4,680,842. The Company is actively seeking new sources of
financing, including the restructuring of old debt and raising capital through
the issuance of company stock. Additionally, the Company continues to pursue
methods to expand its business activities and enhance its operating cash flow.
However, absent new sources of financing, or if the Company does not
significantly improve its operating performance, the Company will not have
sufficient funds to meet its current obligations over the next twelve months and
could be forced to dispose of its assets in order to satisfy future liquidity
requirements. The current uncertainties surrounding the sufficiency of its
future cash flows and the lack of firm commitments for additional capital raise
substantial doubt about the ability of the Company to continue as a going
concern.

             LIQUIDITY AND CAPITAL RESOURCES/INDUSTRY CONDITIONS

      The primary sources of the Company's revenues are generated from customers
in the energy industry, which experienced a significant downturn in 1998 that
continued throughout 1999. The energy


                                       13

<PAGE>

industry began to improve in 2000, however the Company's customer base had not
yet begun to increase budgets to include large projects, which may have enabled
the Company to increase sales to a level seen before the downturn. The Company
has experienced a very large increase in order inquiries in the fourth quarter
of fiscal 2001, which leaves management believing that the energy industry has
increased budgets to include large valve projects. However, these fluctuations
in the energy industry have had a significant impact on the Company's cash
flows. As a result of this downturn the Company is in a severely impaired
liquidity position.

      To alleviate the Company's liquidity problems the Company has aggressively
initiated a plan to restructure its debt and equity position. This plan has
already been successful in reducing vendor debt $1,506,858.

      Although Company sales generally include a high percentage of export
sales, the exposure to currency rate fluctuations is considered minimal. The
U.S. dollar is the functional currency of the Company and all AES purchase
orders are placed with and paid to the Company in that same currency. Thus, all
sales and receivables are denominated in U.S. dollars.



ITEM 6A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES REGARDING MARKET RISK

      Market risk inherent in financial instruments outside the financial
statements is considered immaterial.

ITEM 7.  FINANCIAL STATEMENTS

      The financial statements required to be filed under this item are
presented elsewhere in this report. Such financial statements are incorporated
by reference under this Item 8. See the index to this information on page 16 of
this Annual Report.

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
         AND FINANCIAL DISCLOSURE

      None.



                                       14
<PAGE>

                                 P A R T III

ITEM 9.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      The following table sets forth certain information about the directors and
executive officers of the Company:


            NAME               AGE         POSITION
            ----               ---         --------

      Larry S. Elliott         53          Chairman of the Board, and Senior
                                           Vice President

      Patrick S. Elliott       57          Director, President, and Chief
                                           Executive Officer

      Mark P. Elliott          37          Director, Senior Vice President

      Cary P. McCarra          37          Director, Senior Vice President

      Sidney J. McCarra        48          Director, Senior Vice President


LARRY S. ELLIOTT - Larry Elliott has served as Chairman of the Board of
Directors of AES since October, 1997, as President of the Company from March,
1989 until appointed Chairman, and as a director since October 1992. He has over
27 years experience in the valve industry, including extensive business travel
and relationships in 45 countries. He is familiar with every major area of the
Company, including sales, engineering, manufacturing, accounting and legal.

PATRICK S. ELLIOTT - Patrick Elliott has served as President of the Company
since October, 1997, Chairman of the Board from March 1989 through September,
1997, as Vice President since March 1989, and as a director since October, 1992.

MARK P. ELLIOTT - Mark Elliott has served as a director of the Company since
October, 1992, and as Vice President since March 1989. During that time, he has
been responsible for marketing and selling the Company's valves and services to
the oil and petrochemical industry. He is currently Senior Vice President of
Sales and leads the efforts of the Company's Sales Department.

CARY P. MCCARRA - Cary McCarra has served as a director of the Company since
October 1992, and as Vice President since March 1989. He has nearly 20 years
experience in the valve industry, including welding, machining, assembly and
testing. He is currently Senior Vice President and is responsible for on-site
inspection tours of all current and potential Company vendors, including
auditing Quality Assurance programs and witnessing procedure implementation.

 SIDNEY J. MCCARRA - Sidney McCarra has served as director of the Company since
October 1992 and as Vice President since March 1989, and is currently Senior
Vice President. He has been active in the valve manufacturing and
re-manufacturing industry since 1974. He has served as Vice President of
Procurement and Vice President of Operations. He has been responsible for
purchasing valve products and equipment, including parts, machinery and valves,
and for managing day to day operations, including accounting, collections,
shipping, receiving, and sales. He is currently responsible for locating and
approving new quality vendors, negotiating vendor contracts, and performing
management duties for all foreign operations as it relates to product
distribution and project business.


                                       15
<PAGE>

ITEM 10.  EXECUTIVE COMPENSATION

      The following compensation table sets forth certain information regarding
compensation paid during the fiscal year ended February 28, 2001 to the
executives of the Company. Officers are paid $ 30.00 per hour up to sixty hours
per week; in addition each officer receives a $ 500 auto allowance per month.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
NAME AND
PRINCIPAL                              FISCAL               SALARY                BONUS       STOCK AWARDS
POSITION                                YEAR                  ($)                  ($)      OTHER COMPENSATION
--------                             ----------           -----------           ----------  ------------------
<S>                                     <C>                 <C>                     <C>             <C>
Patrick S. Elliot                       2001                $ 94,000                0               0
Chief Executive Officers,               2000                  95,000                0               0
President, and Director                 1999                  90,000                0               0

Larry S. Elliot                         2001                $114,000                0               0
Chairman of the Board,                  2000                 110,000                0               0
and Senior Vice President               1999                 111,000                0               0

Sidney J .McCarra                       2001                $109,000                0               0
Senior Vice President,                  2000                 113,000                0               0
Secretary and Director                  1999                  90,000                0               0

Mark P. Elloitt                         2001                $ 81,000                0               0
Senior Vice President                   2000                  92,000                0               0
and  Director                           1999                  90,500                0               0

Cary P. McCarra                         2001                $ 113,000               0               0
Senior Vice President                   2000                  108,000               0               0
and Director                            1999                   90,500               0               0

</TABLE>

2000 STOCK OPTION PLAN

    The board of directors and stockholders of AES adopted the 2000 Stock Option
Plan (the "Option Plan") in June of 2000. Under the Option Plan, 3,000,000
shares of AES' common stock, subject to certain adjustments, were reserved for
issuance upon the exercise of options. Options granted under the Option Plan are
intended to constitute incentive stock options under Section 422 of the Internal
Revenue Code of 1986, as amended. Incentive stock options may be granted under
the Option Plan to employees, including officers and directors who are
employees, of AES on the date of grant.

    By its terms, the Option Plan is to be administered by a committee appointed
by the board of directors which shall consist of at least three disinterested
persons who serve at the discretion of the board of directors. Subject to the
provisions of the Option Plan, the committee has the authority to determine the
persons to whom options will be granted, the exercise price, the term during
which options may be exercised and such other terms and conditions as it deems
appropriate.

    Incentive stock options granted under the Option Plan may not have an
exercise price less than the fair market value of the common stock on the date
of the grant, i.e. 110% of the fair market value in the case of employees
holding ten percent or more of the voting stock of AES. Options granted under
the Option Plan will expire, not more than ten years from the date of the grant,
five years in the case of incentive options of employees holding ten percent or
more of the voting stock of AES, subject to earlier termination under the Option
Plan. Optionees under the Option Plan may exercise their options by paying cash
or by tendering shares of AES common stock that they already own.


                                       16
<PAGE>

    The following table presents information for the named officer in the
Summary Compensation Table with respect to options exercised during the fiscal
year ended February 28, 2001 and unexercised options held as of the end of the
fiscal year.

<TABLE>
<CAPTION>
Name                        Shares           Value          Number of Securities          Underlying Value of In-the-Money
                            Acquired        Realized        Unexercised                       Options/SARS at FY-End
                            on Exercise        ($)          Options/SARs at FY-End                    ($)
                            (#)                             Exercisable/Unexercisable        Exercisable/Unexercisable
<S>                         <C>                 <C>            <C>                                  <C>
Patrick S. Elliot           183,800             0              0/0                                  $0/$0
Larry S. Elliot             176,640             0              6,360/0                              $5,565/$0
Sidney J. McCarra           176,640             0              6,360/0                              $5,565/$0
Mark P. Elliot              183,000             0              0/0                                  $0/$0
Cary P. McCarra             176,640             0              6,360/0                              $5,565/$0

</TABLE>

Values reflected above are based on the closing price of $ .875 per share of
AES' common stock for the last business day of the fiscal year.

COMPENSATION OF DIRECTORS - No director of the Company received any form of
compensation from the Company for any services provided as a director, for
committee participation, or for special assignments.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The following table sets forth certain information concerning the number
of shares of Common Stock owned beneficially as of July 31, 2001 by: (I) each
person known to the Company to own more than five percent (5%) of any class of
the Company's voting securities; (ii) each director of the Company; and (iii)
all directors and officers as a group.

<TABLE>
<CAPTION>
         TITLE              NAME AND ADDRESS         AMOUNT AND NATURE               PERCENT
       OF CLASS           OF BENEFICIAL OWNER       OF BENEFICIAL OWNER             OF CLASS
     ------------        ----------------------    ---------------------         ---------------
<S>                       <C>                            <C>                          <C>
     Common Stock         Larry S. Elliott (1)           2,135,679(3)                 11.17%
                          5319 Mandell
                          Houston, TX 77005


     Common Stock         Patrick S. Elliott (2)         2,102,457(4)                 11.00%
                          2608 Green Tee
                          Pearland, TX 77581

     Common Stock         Mark P. Elliott                  983,729                     5.13%
                          3504 E. Circle Drive
                          Pearland, TX 77581

     Common Stock         Sidney J. McCarra              1,667,426                     8.72%
                          1903 Orchard Country
                          Houston, TX 77062

     Common Stock         Cary P. McCarra                  394,576                     2.06%
                          3663 Nasa Road 1, #301
                          Seabrook, TX 77586

     Common Stock         All directors and              7,283,867                    38.11%
                          officers as a group
</TABLE>

      Unless otherwise indicated, all shares of Common Stock were held directly
with sole voting and investment powers.

1.   Includes 1,708,679.2 shares owned by the Larry S. Elliott Trust for the
     benefit of Ross S. Elliott and Laura Elise Elliott, the children of Larry
     S. Elliott. Larry S. Elliott, as trustee of this trust, has sole voting and
     dispositive power over the trust assets.


                                       17
<PAGE>

2.   Includes 1,767,457.8 shares owned by the Pat S. Elliott Trust for the
     benefit of Mark P. Elliott, Shannon Elliott and Michelle Elliott, the
     children of Pat S. Elliott. Pat S. Elliott, as trustee of this trust, has
     sole voting and dispositive power over the trust assets.

The Company is not aware of any arrangement which might result in a change of
control in the future.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The Company intends that any transactions between the Company and its
officers, directors, principal stockholders, affiliates or advisors will be on
terms no less favorable to the Company than those reasonably obtainable from
third parties.

                                  P A R T  IV

ITEM 13.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(A)   DOCUMENTS FILED AS A PART OF THIS REPORT

                                                                         PAGE
1.    Financial Statements

      Report of management.............................................  19
      Report of independent accountants................................  20
      Balance  sheets at February 28, 2001 and  2000...................  21 - 22
      Statements of operations for the years ended February 28,
            2001 and 2000..............................................  23
      Statement of Comprehensive Income for the years ended
            February 28, 2001, 2000 and 1999...........................  23
      Statements of stockholders' equity for the years ended
            February 28, 2001and 2000..................................  24
      Statements of cash flows for the years ended February 28,
            2001  and 2000.............................................  25 - 26
      Notes to financial statements....................................  27 - 35

2.    All financial statement schedules are omitted because they are
      not applicable or the required information is shown in the
      financial statements or related notes listed above.

3.    Exhibits



        EXHIBIT
        NUMBER                      DESCRIPTION
      ----------                  ---------------

         2.1            Articles of Incorporation of the Company, filed as
                        Exhibit 2.1 of AES' Report on Form 10-SB filed August
                        19, 1998, and incorporated by reference herein.

         2.2            Articles of Merger of Seahawk Overseas Exploration
                        Corporation with and into the Company, filed as Exhibit
                        2.2 of AES' Report on Form 10-SB filed August 19, 1998,
                        and incorporated by reference herein.

         2.3            Bylaws of the Company, filed as Exhibit 2.3 of AES'
                        Report on Form 10-SB filed August 19, 1998, and
                        incorporated by reference herein.

         2.4            Form of Common Stock Certificate, filed as Exhibit 2.4
                        of AES' Report on Form 10-SB filed August 19, 1998, and
                        incorporated by reference herein.


                                       18
<PAGE>

         2.5            Common Stock Purchase Warrant of Murphy & Co., filed as
                        Exhibit 2.5 of AES' Report on Form 10-SB filed August
                        19, 1998, and incorporated by reference herein.

         6.1            Promissory Note dated November 17, 1997 executed by the
                        Company in favor of Metrobank, N.A., in the original
                        principal amount of $1,200.000, filed as Exhibit 6.1 of
                        AES' Report on Form 10-SB filed August 19, 1998, and
                        incorporated by reference herein.

         6.2            Promissory Note dated May 2, 1998 executed by the
                        Company in favor of Metrobank, N.A., in the original
                        principal amount of $2,000,000, filed as Exhibit 6.2 of
                        AES' Report on Form 10-SB filed August 19, 1998, and
                        incorporated by reference herein.

         6.3            Security Agreement dated May 2, 1998 executed by the
                        Company in favor of Metrobank, N.A., in the original
                        principal amount of $2,000,000, filed as Exhibit 6.3 of
                        AES' Report on Form 10-SB filed August 19, 1998, and
                        incorporated by reference herein.

         6.4            Promissory Note dated February 2, 1998 executed by the
                        Company in favor of Metrobank, N.A., in the original
                        principal amount of $644, 465, filed as Exhibit 6.4 of
                        AES' Report on Form 10-SB filed August 19, 1998, and
                        incorporated by reference herein.

         6.5            Security Agreement dated February 2, 1998 executed by
                        the Company in favor of Metrobank, N.A., in the original
                        principal amount of $644,465, filed as Exhibit 6.5 of
                        AES' Report on Form 10-SB filed August 19, 1998, and
                        incorporated by reference herein.

         23             Consent of Simonton, Kutac & Barnidge, L.L.P.



o     Management Contract or compensatory plan or agreement.

      The Company will furnish a copy of any exhibit described above to any
beneficial holder of its securities upon receipt of a written request therefor,
and provided further that such holder pays to the Company a fee compensating the
Company for its reasonable expenses in furnishing such exhibits.


(b)         AES did not file any report on Form 8-K during the year ended
            February 28, 2001.



                                       19
<PAGE>

SIGNATURES

      As required by Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned.


                                          AMERICAN ENERGY SERVICES, INC.
                                                     (REGISTRANT)


Date: July 31, 2001                       By:  /s/  LARRY S. ELLIOTT
                                               -----------------------
                                               Larry S. Elliott
                                               Chairman of the Board


      As required by the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>

SIGNATURE                        TITLE                                       DATE
------------------------------------------------------------------------------------------

<S>                              <C>                                         <C>
/s/  LARRY S. ELLIOTT            Senior Vice President and Chairman
--------------------------       of the Board                                July 31, 2001

/s/  PATRICK S. ELLIOTT          President, Chief Executive Officer and
--------------------------       Director (Principal Executive Officer)      July 31, 2001

/s/  SIDNEY J. MCCARRA           Senior Vice President and Director          July 31, 2001
--------------------------


/s/  MARK P. ELLIOTT             Senior Vice President and Director          July 31, 2001
--------------------------


/s/  CARY P. MCCARRA             Senior Vice President and Director          July 31, 2001
--------------------------

</TABLE>


                             REPORT OF MANAGEMENT

      The accompanying financial statements of American Energy Services, Inc.
and its consolidated subsidiaries were prepared by management, which is
responsible for their integrity and objectivity. The statements were prepared in
accordance with generally accepted accounting principles and include amounts
that are based on management's judgment and estimates.

      The Company maintains a system of internal controls, including accounting
controls. AES believes that its system of internal controls provides reasonable
assurance that assets are safeguarded against losses from unauthorized use or
disposition and that financial records are reliable for use in preparing
financial statements.


                                       20
<PAGE>

      Management also recognizes its responsibility for conducting the Company's
affairs according to the highest standards of personal and corporate conduct.
This responsibility is characterized and reflected in policy statements
regarding, among other things, conduct of the Company's business activities
within the laws of the countries in which the AES operates and avoidance of
potentially conflicting outside business interests by the Company's employees.



/s/  PATRICK S. ELLIOTT
Patrick S. Elliott
President and Chief Executive Officer



July 31, 2001



                                       21
<PAGE>












                         AMERICAN ENERGY SERVICES, INC.

                              FINANCIAL STATEMENTS

                     FEBRUARY 28, 2001 AND FEBRUARY 29, 2000


<PAGE>


                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
American Energy Services, Inc.

We have audited the accompanying balance sheets of American Energy Services,
Inc. as of February 28, 2001 and February 29, 2000, and the related statements
of operations, changes in stockholders' equity (deficit) and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

In our report dated May 25, 2001, our opinion on the February 28, 2001 financial
statements was qualified because of the effects of the omission of a definitive
plan by management to obtain additional capital and to restructure operations
and debt. As explained in Footnote 13, the Company has developed such a plan as
required by generally accepted accounting principles. Accordingly, our present
opinion on the February 28, 2001 financial statements, as presented herein,
differs from that previously expressed.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

The Company's financial statements disclose information about matters that raise
substantial doubt about its ability to continue as a going concern. The Company
incurred a net loss of $6,448,820 during the year ended February 28, 2001 and,
as of that date, had a working capital deficiency of $4,680,842 and accumulated
deficit of $7,142,356. Cost of goods sold exceeded gross revenues by $1,299,722
during 2001. Additionally, the Company is in default of substantially all of its
notes payable and long-term debt. There are significant uncertainties
surrounding its ability to continue its operations and to satisfy its creditors
on a timely basis. While the Company is seeking additional sources of capital,
including equity capital, there can be no assurance that the Company will be
successful in accomplishing its objectives.

<PAGE>

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Energy Services, Inc.
as of February 28, 2001 and February 29, 2000, and the results of its operations
and cash flows for the years then ended in conformity with generally accepted
accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The conditions described above do
raise substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.



Simonton, Kutac & Barnidge, L.L.P.
Houston, Texas
May 25, 2001, except as to the second
paragraph above and Footnote  13
which are as of July 27, 2001

<PAGE>

                         AMERICAN ENERGY SERVICES, INC.

                                 BALANCE SHEETS

                                     ASSETS

<TABLE>
<CAPTION>
                                                        February 28,   February 29,
                                                            2001           2000
                                                        -----------    -----------
<S>                                                     <C>            <C>
Current Assets:
  Cash and cash equivalents                             $     9,763    $    75,778
  Accounts receivable - trade, net of allowance for
    doubtful accounts of $59,493 and $20,000 for 2001       165,760        662,132
    and 2000 respectively
  Accounts receivable - other                                  --           41,176
  Income tax receivable                                      12,524        124,000
  Prepaids and other                                        118,278         17,370
  Costs in excess of billings and estimated
    earnings on uncompleted contracts                       955,100      1,491,996
  Inventories                                             2,012,056      1,901,855
                                                        -----------    -----------
      Total Current Assets                                3,273,481      4,314,307

Property, Plant and Equipment:
  Machinery and equipment                                 1,351,225      1,307,682
  Furniture and fixtures                                    327,541        327,541
  Vehicles                                                   83,423         83,423
  Building and improvements                                 226,510        226,970
  Other                                                     208,489        193,819
  Land                                                       76,894         76,894
                                                        -----------    -----------
                                                          2,274,082      2,216,329
Less accumulated depreciation                            (1,013,180)      (881,181)
                                                        -----------    -----------
      Total                                               1,260,902      1,335,148

Trademarks, patents and drawings                          1,455,462      1,275,462
Less accumulated amortization                              (514,037)      (378,545)
                                                        -----------    -----------
      Total                                                 941,425        896,917

Other assets:
  Deferred tax asset                                           --          150,110
                                                        -----------    -----------

      Total Assets                                      $ 5,475,808    $ 6,696,482
                                                        ===========    ===========
</TABLE>


             See accompanying notes to these financial statements.

<PAGE>
                         AMERICAN ENERGY SERVICES, INC.

                           BALANCE SHEETS (CONTINUED)

                 LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY

<TABLE>
<CAPTION>
                                                                   February 28,         February 29,
                                                                       2001                 2000
                                                                  --------------       --------------
<S>                                                                 <C>                 <C>
Current Liabilities:
  Notes payable                                                     $ 2,589,885         $ 2,962,008
  Current portion of long-term debt                                   1,250,715           1,382,347
  Current portion of capital leases                                     102,130             120,175
  Accounts payable and accrued expenses                               1,057,644             876,155
  Federal payroll taxes due                                             833,566             570,000
  Accrued interest                                                      651,300             403,259
  Estimated litigation damages                                        1,204,083                --

  Billings in excess of costs and estimated
    earnings on uncompleted contracts                                   265,000              46,991
  Advances from officers                                                   --                32,500
                                                                    -----------         -----------
      Total Current Liabilities                                       7,954,323           6,393,435
                                                                    -----------         -----------

Long-term debt, net of current portion                                     --                  --

Capital leases, net of current portion                                     --                  --

Commitments and Contingencies                                              --                  --
Stockholders' (Deficit) Equity:
  Common stock - $.001 par value, 100,000,000 shares
    authorized; 15,460,717 and 6,973,928 shares
    issued and outstanding at February 28, 2001
    and February 29, 2000, respectively                                  15,461               6,974
  Paid-in capital                                                     4,648,380             989,609
  Accumulated other comprehensive loss                                     --                  --
  (Accumulated deficit)                                              (7,142,356)
                                                                    -----------
                                                                                           (693,536)
      Total Stockholders' (Deficit) Equity                           (2,478,515)            303,047
                                                                    -----------         -----------

      Total Liabilities and Stockholders' (Deficit) Equity          $ 5,475,808         $ 6,696,482
                                                                    ===========         ===========
</TABLE>


             See accompanying notes to these financial statements.

<PAGE>

                         AMERICAN ENERGY SERVICES, INC.

                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                    FOR THE YEARS ENDED
                                                             ----------------------------------
                                                              February 28,        February 29,
                                                                 2001                 2000
                                                             --------------     ---------------
<S>                                                           <C>                 <C>
Sales                                                         $ 4,850,672         $ 5,335,407
    Less: Sales returns and allowances                         (1,491,996)               --
                                                              -----------         -----------
Net sales                                                       3,358,676           5,335,407

Cost of sales                                                   4,658,398           3,800,222
                                                              -----------         -----------
    Gross Profit (Loss)                                        (1,299,722)          1,535,185

Operating expenses                                              4,799,584           2,172,875
                                                              -----------         -----------
  (Loss) from operations                                       (6,099,306)           (637,690)

Other expenses (income):
  Interest, net                                                   351,514             366,879
  Other, net                                                       (2,000)              1,728
                                                              -----------         -----------
                                                                  349,514             368,607
                                                              -----------         -----------

    Loss before taxes                                          (6,448,820)         (1,006,297)

Income tax (expense) benefit                                         --                   --_
                                                              -----------         -----------

    Net Loss                                                  $(6,448,820)        $(1,006,297)
                                                              ===========         ===========

Basic and diluted (loss) per share:                           $     (0.83)        $     (0.15)
                                                              ===========         ===========

    Net Loss

Diluted weighted average shares outstanding                     7,761,644           6,565,302
                                                              ===========         ===========

Basic and diluted weighted average shares outstanding           7,761,644           6,565,302
                                                              ===========         ===========

</TABLE>


             See accompanying notes to these financial statements.

<PAGE>

                         AMERICAN ENERGY SERVICES, INC.

                    STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

<TABLE>
<CAPTION>
                                                   FOR THE YEARS ENDED
                                              ------------------------------
                                                February 28,    February 29,
                                                   2001             2000
                                              --------------   -------------
<S>                                            <C>              <C>
    Net (loss)                                 $(6,448,820)     $(1,006,297)
    Other comprehensive income (loss)                 --               --
                                               -----------      -----------
    Comprehensive (loss)                       $(6,448,820)     $(1,006,297)
                                               ===========      ===========

</TABLE>

             See accompanying notes to these financial statements.

<PAGE>

                         AMERICAN ENERGY SERVICES, INC.

             STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY

           FOR THE YEARS ENDED FEBRUARY 28, 2001 AND FEBRUARY 29, 2000

<TABLE>
<CAPTION>
                                                                                                    RETAINED
                                                     CAPITAL STOCK                                  EARNINGS/          TOTAL
                                                     -------------                PAID-IN           (ACCUM.         STOCKHOLDERS'
                                               SHARES             AMOUNT          CAPITAL           DEFICIT)      (DEFICIT)EQUITY
                                             -----------       -----------      -----------       -----------     ----------------
<S>                                            <C>             <C>              <C>               <C>               <C>
    Balance, February 28, 1999                 6,198,966       $     6,199      $   212,384       $   312,761       $   531,344

    Sale of common stock                         775,000               775          774,225              --             775,000

    Sale of warrants                                --                --              3,000              --               3,000

    Transfer agent adjustment                        (38)             --               --                --                --

    Net loss                                        --                --               --          (1,006,297)       (1,006,297)
                                             -----------       -----------      -----------       -----------       -----------

    Balance, February 29, 2000                 6,973,928       $     6,974      $   989,609       $  (693,536)      $   303,047
                                             ===========       ===========      ===========       ===========       ===========

    Common Stock Issued for:

      Cash                                     1,025,000             1,025          653,975              --             655,000
      Officers and directors                     915,000               915        1,125,940              --           1,126,855
      Accounts payable and
        accrued liabilities                    1,665,462             1,666        1,506,858              --           1,508,524
      Prepaid goods & services                   374,389               374          376,505              --             376,879
      Exercise of employee
       stock options                             163,750               164             (164)             --                --
      Financial consultants                    3,500,000             3,500           (3,500)             --                --
      Replacement of Seahawk
        shares                                   843,188               843             --                --
    Net Loss                                        --                --               (843)       (6,448,820)       (6,448,820)
                                             -----------       -----------      -----------       -----------       -----------
    Balance, February 28, 2001                15,460,717       $    15,461      $ 4,648,380       $(7,142,356)      $(2,478,515)
                                             ===========       ===========      ===========       ===========       ===========
</TABLE>

             See accompanying notes to these financial statements.

<PAGE>

                         AMERICAN ENERGY SERVICES, INC.

                            STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                               FOR THE YEARS ENDED
                                                                         ------------------------------
                                                                           February 28,     February 29,
                                                                              2001             2000
                                                                         --------------   -------------
<S>                                                                       <C>              <C>
Cash Flows from Operating Activities:
  Net (loss)                                                              $(6,448,820)     $(1,006,297)
  Adjustments to reconcile net income to
    cash provided by operating activities:
    Depreciation and amortization                                             267,492          123,824
    Provision for bad debts                                                    39,493             --
    Changes in operating assets and liabilities:
      (Increase) decrease in accounts receivable                              456,879         (481,350)
      Decrease in other receivables                                            41,176             --
      Decrease in income tax receivable                                       111,476           23,543
      Decrease in costs and estimated earnings in excess
        of billings on uncompleted contracts                                  536,896        2,564,299
      (Decrease) increase in advances from officers                           (32,500)          32,500
      (Increase) decrease in inventories                                     (110,201)        (564,760)
      Decrease (increase) in prepaids and other                              (100,909)          86,464
      Decrease in deferred tax asset                                          150,110          323,261
(Increase) decrease in other assets                                              --            (46,789)
      (Decrease) increase in accounts payable/accrued liabilities             181,489       (3,261,048)
      Increase in Federal payroll taxes due                                   263,566          570,000
      Increase in accrued interest payable                                    248,041          210,000
      Increase in estimated litigation damages                              1,204,083             --
      Increase (decrease) in billings in excess of costs and
        estimated earnings on uncompleted contracts                           218,009          (98,162)
                                                                          -----------      -----------
Net Cash Used by Operating Activities                                      (2,973,720)      (1,524,515)

Cash Flows from Investing Activities:
  Purchase of property, plant and equipment                                   (57,753)          (7,599)
  Purchase of trademarks, patents and drawings                               (180,000)        (283,376)
                                                                          -----------      -----------
    Net Cash Used in Investing Activities                                    (237,753)        (290,975)

</TABLE>

             See accompanying notes to these financial statements.

<PAGE>

                         AMERICAN ENERGY SERVICES, INC.

                      STATEMENTS OF CASH FLOWS (CONTINUED)

<TABLE>
<CAPTION>

<S>                                                      <C>              <C>
Cash Flows from Financing Activities:
  Proceeds from sale of common stock                     3,658,771        775,000
Proceeds from the sale of warrants                            --            3,000
Proceeds from long-term obligations, net                      --          203,386
  Payments of long-term obligations                       (131,632)          --
  Payments of notes payable                               (372,123)          --
  Proceeds from note payable, net                             --          568,245
  Payments of capital leases                               (18,045)       (11,873)
  Other, net                                                 8,487           --
                                                       -----------    -----------
        Net Cash Provided by Financing Activities        3,145,458      1,537,758
                                                       -----------    -----------

Net (decrease) increase in cash and cash equivalents       (66,015)      (277,732)

Cash and cash equivalents at beginning of year              75,778        353,510
                                                       -----------    -----------
Cash and cash equivalents at end of year               $     9,763    $    75,778
                                                       ===========    ===========


                                                          FOR THE YEARS ENDED
                                                     ------------------------------
                                                       February 28,    February 29,
                                                           2001           2000
                                                     --------------   -------------

SUPPLEMENTAL CASH FLOW INFORMATION:
  Cash paid during the years for
    Interest                                           $   103,473    $    63,162
                                                       ===========    ===========

</TABLE>

             See accompanying notes to these financial statements.

<PAGE>

                         AMERICAN ENERGY SERVICES, INC.

                          NOTES TO FINANCIAL STATEMENTS

                     FEBRUARY 28, 2001 AND FEBRUARY 29, 2000


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

American Energy Services, Inc. ("Company" or "AES") is a manufacturer of
custom-engineered flow control valves and a retail distributor of finished
valves and flanges. The Company has sales to customers located throughout the
world.

A summary of the significant accounting policies consistently applied in the
preparation of the accompanying financial statement follows:

CASH AND CASH EQUIVALENTS - The Company considers all highly liquid short-term
investments with a maturity of ninety days or less from the purchase date to be
cash equivalents.

PREPAIDS AND OTHER - Prepaids and other primarily include prepayments to several
law firms and other service providers for future services by issuance of AES
common stock.

INVENTORIES - Inventories consist of valve parts and finished goods. Inventories
are valued at the lower of cost or market using the average cost method, which
approximates first-in and first-out (FIFO).

REVENUE RECOGNITION - Revenues from the sale of flow control valves are recorded
when the products are shipped or when title passes. Title normally passes from
seller to buyer when goods are shipped.

Revenues on long-term contracts involving a system of control flow valves for a
single installation are recorded using the percentage-of-completion method
commencing when progress reaches a point where experience is sufficient to
estimate final results with reasonable accuracy. The portion of the total
contract price accrued is based on the ratio of costs incurred to date to total
estimated costs on each contract. Losses, if any, to be incurred on contracts in
progress, are charged to income in full as soon as they become apparent.

PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated at
cost. Depreciation is provided in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives on a
straight-line basis. Estimated service lives are as follows:


                                                         ESTIMATED
                                                          SERVICE
                                                           LIVES
                                                       ------------
            Machinery and equipment                        15 years
            Furniture and fixtures                     5 - 10 years
            Vehicles                                        5 years
            Building and improvements                5 - 31.5 years


<PAGE>

                         AMERICAN ENERGY SERVICES, INC.

                          NOTES TO FINANCIAL STATEMENTS

                     FEBRUARY 28, 2001 AND FEBRUARY 29, 2000


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


TRADEMARKS, PATENTS AND DRAWINGS - Trademarks, patents and drawings are stated
at cost. Amortization is provided in amounts sufficient to relate the cost of
amortizable assets to operations over their estimated services lives on a
straight-line basis. Estimated service lives are as follows:

                                               ESTIMATED SERVICE
                                                    LIVES
                                               ------------------
            Trademarks                             10 years
            Patents                                17 years
            Drawings                               10 years

INCOME TAXES - The Company accounts for income taxes pursuant to the asset and
liability method of computing deferred income taxes. Deferred tax assets and
liabilities are established for the temporary differences between the financial
reporting bases and the tax bases of the Company's assets and liabilities at
enacted tax rates expected to be in effect when such amounts are realized or
settled. When necessary, valuation allowances are established to reduce deferred
tax assets to the amount expected to be realized. No provision is made for
current or deferred income taxes because the Company has an excess net operating
loss carryforward.

USE OF ESTIMATES - In preparing the financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
the financial statements and revenues and expenses during the reporting period.
Actual results could differ from those estimates.

COMPREHENSIVE INCOME - In June 1997, the Financial Accounting Standards Board
issued SFAS No. 130, "Reporting Comprehensive Income." This statement
established standards for reporting and displaying comprehensive income and its
components in the financial statements. Under this statement, the Company is
required to classify items of other comprehensive income by their nature in a
financial statement and display the accumulated balance of other comprehensive
income separately from retained earnings in the stockholder's equity section of
the balance sheet. The Company has no other items of other comprehensive income.

EARNINGS (LOSS) PER SHARE - Basic earnings (loss) per share have been computed
by dividing net loss by the weighted average number of shares outstanding during
the period. Because the Company's potential dilutive securities are
antidilutive, the accompanying presentation is only of basic loss per share.


             See accompanying notes to these financial statements.

<PAGE>

                         AMERICAN ENERGY SERVICES, INC.

                          NOTES TO FINANCIAL STATEMENTS

                     FEBRUARY 28, 2001 AND FEBRUARY 29, 2000


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
--------------------------------------------------------------

STOCK OPTIONS - The Company adopted the fair value based method of accounting
for an employee stock option or similar equity instrument as prescribed in SFAS
123. Under the fair value based method, compensation cost is measured at the
grant date based on the value of the award. SFAS 123 prescribes the use of the
fair value method for all options issued to nonemployees.

YEAR 2000 - The Company did experience difficulties due to the Year 2000 issue,
defined here as the inability of computer systems (both hardware and software)
to recognize the change in the year from 1999 to 2000. The Company was required
to purchase a new software system and convert essentially all of its existing
software over to it. The system and conversion costs were approximately $75,000.

NOTE 2 - CONTRACTS IN PROGRESS

Information regarding long-term contracts in progress is as follows:

<TABLE>
<CAPTION>
                                                                 February 28,      February 29,
                                                                     2001              2000
                                                               --------------     -------------
<S>                                                              <C>               <C>
   Expenditures on uncompleted contracts                         $   579,845       $ 1,694,380
   Estimated earnings thereon                                        110,255           584,599
                                                                 -----------       -----------
                                                                     690,100         2,278,979
   Less billings applicable thereto                                     --            (833,974)
                                                                 -----------       -----------
                                                                 $   690,100       $ 1,445,005
                                                                 ===========       ===========

  Included in accompanying balance sheet under following captions:

                                                                 February 28,      February 29,
                                                                     2001              2000
                                                               --------------     -------------

   Costs in excess of billings on uncompleted contracts          $   955,100       $ 1,491,996
   Billings in excess of costs on uncompleted contracts             (265,000)          (46,991)
                                                                 -----------       -----------
                                                                 $   690,100       $ 1,445,005
                                                                 ===========       ===========
</TABLE>

             See accompanying notes to these financial statements.

<PAGE>

                         AMERICAN ENERGY SERVICES, INC.

                          NOTES TO FINANCIAL STATEMENTS

                     FEBRUARY 28, 2001 AND FEBRUARY 29, 2000


NOTE 3 - NOTES PAYABLE

Notes payable consists of the following:

<TABLE>
<CAPTION>
                                                               February 28,        February 29,
                                                                  2001                2000
                                                              -------------       -------------
<S>                                                             <C>                <C>
   Note payable to a bank with interest at
     prime (8.5% at February 28, 2001);
     principal advances are due on demand
     secured by substantially all assets of
     the Company                                                $  214,539         $  228,777

   Line of credit agreement with a bank
     with interest at prime plus 0.5% (9.0% at
     February 28, 2001) due monthly; principal
     advances are due on demand and is
     collateralized by substantially all assets
     of the Company                                              1,886,228          2,122,222

   Note payable to bank with interest at 8.0%,
     due currently, secured by certain
     machinery and equipment                                        61,292             61,292

   Note payable to stockholder, interest
     at 18.0%, due on demand                                        83,166             57,312

   Notes payable to an officer and director,
     non-interest bearing, due on demand                            20,000             35,836

   Note payable to individual, interest
     at 10.0%, due on demand                                       230,856            250,000

   Factoring agreement with 30% interest,
     maturing November, 2004                                        81,116             89,000

   Anunsecured line of credit agreement
     with a bank with interest at prime plus
     1.5% (10.0% at February 28, 2001) due
     on demand, providing for maximum
     borrowings of $24,000                                          12,688             15,444
                                                                ----------         ----------
                                                                $2,589,885         $2,962,008
                                                                ==========         ==========
</TABLE>


The above-noted notes payable are due currently as the Company is in technical
default with respect to payment schedules and/or restrictive covenants for the
majority of them.


             See accompanying notes to these financial statements.

<PAGE>

                         AMERICAN ENERGY SERVICES, INC.

                          NOTES TO FINANCIAL STATEMENTS

                     FEBRUARY 28, 2001 AND FEBRUARY 29, 2000


NOTE 4 - LONG-TERM DEBT

Long-term debt consist of the following:

<TABLE>
<CAPTION>
                                                       FOR THE YEARS ENDED
                                                 ------------------------------
                                                   February 28,   February 29,
                                                      2001           2000
                                                 --------------  -------------
<S>                                                 <C>            <C>
   Note payable to a bank due in
     monthly installments of $16,192,
     including interest at prime plus 2%
     (10.5% at February 28, 2001); due
     February 17, 2008 collateralized by
     machinery equipment, furniture,
     fixtures and patents                           $1,094,712     $1,194,842

   Note payable to a bank; due in
     monthly installments of $3,410,
     including interest at 10.5%;
     due November 5, 2002;
     collateralized by land, building,
     equipment and inventory                           125,408        137,871

   Two notes payable to a bank; due
     in monthly installments of $586
     and $533 including interest at
     0.9% and 8.25% due July 2002 and
     July 2001; collateralized by
     automobiles                                        15,831         26,701

   Revolving credit agreement
     (unsecured); 9.25% interest
     payable monthly                                    14,764         22,933
                                                    ----------     ----------
                                                     1,250,715      1,382,347
       Less current portion                          1,250,715      1,382,347
                                                    ----------     ----------
                                                    $       --     $       --
                                                    ==========     ==========
</TABLE>

Substantially all of the above-noted long-term debt is due currently as the
Company is in technical default with respect to payment schedules and
restrictive covenants, and it has received demand notices from essentially all
of these note holders.

NOTE 5 - CAPITAL LEASES

The Company is the lessee of certain equipment under capital leases expiring in
various years through 2004. The assets and liabilities under capital leases are
recorded at the lower of the present value of the minimum lease payments or the
fair value of the asset. The assets are depreciated over the lower of the
related lease terms or their estimated productive lives. Depreciation of assets
under capital leases is included in depreciation expense.


             See accompanying notes to these financial statements.

<PAGE>

                         AMERICAN ENERGY SERVICES, INC.

                          NOTES TO FINANCIAL STATEMENTS

                     FEBRUARY 28, 2001 AND FEBRUARY 29, 2000


NOTE 5 - CAPITAL LEASES (CONTINUED)

Following is a summary of equipment held under capital leases:

<TABLE>
<CAPTION>
                                                      FOR THE YEARS ENDED
                                                ------------------------------
                                                  February 28,    February 29,
                                                      2001            2000
                                                --------------   -------------
<S>                                                <C>             <C>
   Machinery and equipment                         $ 109,222       $  56,782
   Furniture and fixtures                            146,257         146,257
                                                   ---------       ---------
                                                     255,479         203,039
       Less accumulated depreciation                (106,817)        (67,450)
                                                   ---------       ---------
                                                   $ 148,662       $ 135,589
                                                   =========       =========
</TABLE>

The above noted capital leases are either in default or delinquent in payments.

Future minimum lease payments under capital leases as of February 28, 2001 are
as follows:

             FOR THE YEARS ENDED
                    2002                                      $       51,914
                    2003                                              41,265
                    2004                                              41,265
                                                              --------------
        Total minimum lease payments                                 134,444

        Less amount representing interest                            (32,314)
                                                              ---------------

        Present value of net minimum lease payments           $      102,130
                                                              ==============


Interest rates on capitalized leases vary and are imputed based on the lower of
the Company's incremental borrowing rate at the inception of each lease or the
lessor's implicit rate of return.

NOTE 6 - COMMITMENTS AND CONTINGENCIES

The Company is a defendant in an arbitration involving a dispute over valves
sold by AES that allegedly were not in compliance with the contracted testing
requirements. In May 2001, the Plaintiffs won a binding arbitration award from
the International Chamber of Commerce in the amount of $1,204,000, including
interest at a rate of 9% per annum from December 16, 1999.

Management is considering its alternatives in civil court. However, outside
counsel for AES has advised that a favorable outcome is unlikely. Accordingly, a
provision for loss of $1,086,000 has been charged to operations, along with an
accrual for due and unpaid interest of $118,000, for the year ended February 28,
2001. The Company is vigorously seeking a settlement with the Plaintiff.


             See accompanying notes to these financial statements.

<PAGE>

                         AMERICAN ENERGY SERVICES, INC.

                          NOTES TO FINANCIAL STATEMENTS

                     FEBRUARY 28, 2001 AND FEBRUARY 29, 2000


NOTE 6 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

The Company is engaged in various other lawsuits either as plaintiff or
defendant. In the opinion of management, based upon advice of counsel, the
ultimate outcome of these lawsuits will not have a material impact on the
Company's financial statements.

NOTE 7 - INCOME TAXES

Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities as
measured by the enacted tax rates which will be in effect when these differences
reverse. Deferred tax expense is the result of changes in deferred tax assets
and liabilities.

The expense (benefit) for income taxes consists of the following:

<TABLE>
<CAPTION>
                                                FOR THE YEARS ENDED
                                         --------------------------------
                                          February 28,       February 29,
                                             2001               2000
                                         --------------     -------------
<S>                                       <C>               <C>
   Current                                $      --         $      --
   Deferred                                (1,853,778)         (337,420)
                                          -----------       -----------
   Total                                  $(1,853,778)      $  (337,420)
                                          ===========       ===========
</TABLE>

A reconciliation of income taxes computed at the statutory Federal income tax
rate and income taxes reported in the statements of operations follows:

<TABLE>
<CAPTION>
                                               FOR THE YEARS ENDED
                                          ------------------------------
                                           February 28,     February 29,
                                               2001            2000
                                          --------------   -------------
<S>                                        <C>              <C>
   (Benefit) tax at statutory rate         $(1,853,778)     $  (342,140)
   Non-deductible expenses                        --              4,720
                                           -----------      -----------
         Subtotal                           (1,853,778)        (337,420)
   Less: valuation allowance                 1,853,778          337,420
                                           -----------      -----------

       Total (benefit) expense             $      --        $      --
                                           ===========      ===========
</TABLE>



             See accompanying notes to these financial statements.

<PAGE>

                         AMERICAN ENERGY SERVICES, INC.

                          NOTES TO FINANCIAL STATEMENTS

                     FEBRUARY 28, 2001 AND FEBRUARY 29, 2000


NOTE 7 - INCOME TAXES (CONTINUED)

The long-term deferred tax asset results from the following:

<TABLE>
<CAPTION>
                                                         February 28,     February 29,
                                                             2001             2000
                                                        --------------   -------------
<S>                                                      <C>               <C>
Basis differences in intangibles and fixed assets        $  (393,327)      $  (393,327)
Net operating loss carryforward                            3,400,760         1,208,162
Miscellaneous costs capitalized for tax purposes                --               4,044
Valuation allowance                                       (3,007,433)         (668,769)
                                                         -----------       -----------
                                                         $      --         $   150,110
                                                         ===========       ===========
</TABLE>

A valuation allowance has been applied to the above-noted deferred tax assets as
a result of the Company's going-concern uncertainty and the substantial doubt of
realizing these benefits.

The Internal Revenue Service is currently examining the Company's Federal Income
Tax returns for the fiscal years 1993 through 1996. The ultimate resolution of
the examination is not known at this time.

NOTE 8 - SIGNIFICANT CUSTOMERS

The Company had sales to one customer that constituted 63% of net sales for the
year ended February 28, 2001, and 35% of net sales for the year ended February
29, 2000.

Foreign sales were 20% and 95% of total sales in fiscal years 2001 and 2000,
respectively.

NOTE 9 - WARRANTS

The Company has issued warrants to two investment banking firms to purchase 10%
of the equity of the Company for professional services in raising equity
capital, and are exercisable for a period of five years after the date of issue.
The number of shares authorized for issue under this warrant agreement amounted
to 619,896 at February 28, 2001 and February 29, 2000. No warrants have been
exercised.

In connection with the private placement sale of 775,000 shares of common stock
during fiscal 2000, investors received warrants to purchase 310,000 shares of
additional common stock for $2.00 per share. The cost of these warrants was
$3,000. No warrants have been exercised.


             See accompanying notes to these financial statements.

<PAGE>

                         AMERICAN ENERGY SERVICES, INC.

                          NOTES TO FINANCIAL STATEMENTS

                     FEBRUARY 28, 2001 AND FEBRUARY 29, 2000


NOTE 10 - STOCK OPTIONS

The Company issued options to employees for the exercise of 121,250 shares of
common stock during fiscal year 2001 pursuant to the Company's 2000 Stock Option
Plan. The Company recorded $132,163 in expense under SFAS 123 as a result,
representing 100% of the fair market value of the common stock on date of grant
of the option, all of which were exercised immediately.

NOTE 11 - NEW ACCOUNTING STANDARDS


SFAS No. 132, "Employers' Disclosure about Pensions and Other Postretirement
Benefits," revises standards for disclosures regarding pensions and other
postretirement benefits. It also requires additional information on changes in
the benefit obligations and fair values of plan assets that will facilitate
financial analysis. This statement does not change the measurement or
recognition of the pension and other postretirement plans. The financial
statements of AES are unaffected by implementation of this standard.

SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contacts,
(collectively referred to as derivates) and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically designated as (a) a
hedge of the exposure to changes in the fair market value of a recognized asset
or liability or an unrecognized firm commitment, (b) a hedge of the exposure to
variable cash flows of a forecasted transaction, or (c) a hedge of the foreign
currency exposure of a net investment in a foreign operation, an unrecognized
firm commitment, an available-for-sale security, or a foreign-currency-dominated
forecasted transactions. Because the Company has no derivatives, this accounting
pronouncement has no effect on the Company's financial statements.



             See accompanying notes to these financial statements.

<PAGE>

                         AMERICAN ENERGY SERVICES, INC.

                          NOTES TO FINANCIAL STATEMENTS

                     FEBRUARY 28, 2001 AND FEBRUARY 29, 2000


NOTE 12 - GEOGRAPHIC INFORMATION

The Company's revenues by geographical area for the fiscal years ended February
28, 2001 and February 29, 2000 are as follows:

<TABLE>
<CAPTION>
                                               FOR THE YEARS ENDED
                                          ------------------------------
                                           February 28,     February 29,
                                              2001             2000
                                          --------------   -------------
<S>                                        <C>              <C>
United States                              $2,702,101       $  533,541
Mexico                                        651,818        1,333,852
Kuwait                                          4,757        3,468,014
Other                                            --               --
                                           ----------       ----------

  Total Revenues                           $3,358,676       $5,335,407
                                           ==========       ==========

</TABLE>

NOTE 13 - GOING CONCERN

The following information is derived from the accompanying financial statements:

<TABLE>
<CAPTION>
                                                             FOR THE YEARS ENDED
                                                        ------------------------------
                                                         February 28,     February 29,
                                                             2001             2000
                                                        --------------   -------------
<S>                                                      <C>               <C>
Gross (loss) profit                                      $(1,299,722)      $ 1,535,185

Net (loss)                                               $(6,448,820)      $(1,006,297)

Net current liabilities in excess of current assets      $(4,680,842)      $(2,079,128)

Accumulated (deficit)                                    $(7,142,356)      $  (693,536)
Stockholders' (deficit) equity                           $(2,478,515)      $   303,047

</TABLE>

Included in the above noted net current liabilities amount at February 28, 2001,
are estimated litigation damages of $1,204,083 (including interest) and $833,566
in delinquent federal payroll taxes (including penalties and interest).
Additionally, the Company was in default on substantially all of its notes
payable, long-term debt and capital lease agreements. No waivers have been
obtained for the defaults. There are significant uncertainties surrounding the
Company's ability to continue its operations and to satisfy its creditors on a
timely basis.



             See accompanying notes to these financial statements.

<PAGE>

                         AMERICAN ENERGY SERVICES, INC.

                          NOTES TO FINANCIAL STATEMENTS

                     FEBRUARY 28, 2001 AND FEBRUARY 29, 2000


NOTE 13 - GOING CONCERN (CONTINUED)

The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. The Company receives the majority of its
revenues from customers in the energy industry, which experienced a significant
downturn in 1998 and 1999. While industry conditions improved in fiscal 2000,
however, the Company's customer base has not increased project expenditures
accordingly. Demand for the Company's products and services is impacted by the
number and size of projects available as fluctuations in oil and gas exploration
and production activities change the respective customers' forecasts and
budgets. These changes have a direct effect on the Company's cash flows.

Oil and gas prices have improved significantly since the downturn in 1998.
However, the Company has not yet benefited significantly from an increase in the
volume of new projects.

As a result of the downturn in the oil and gas industry over the last two years
and the resultant negative effect on the Company's financial position,
management had initiated actions in fiscal 2000 which included among others, (a)
downsizing personnel, (b) attempting to improve its working capital by reducing
other operating expenses, (c) increased its marketing efforts and, (d)
consolidating administrative functions. However, the results of these efforts
were not sufficient to prevent significant operating losses or to provide
adequate levels of operating capital.

AES has recently implemented a plan that management believes will improve this
situation. AES has directed its attention and efforts to two new market areas
intended to generate revenues, namely Alaska and Mexico.

Mexico has evolved into a strong market for AES. A Mexico City office has
recently been opened and staffed with 6 employees to better develop this market.
Additionally, AES has signed significant representation agreements that are
expected to increase revenues with commission revenues for both new product and
services sales. AES has been granted the right of first refusal to supply
products to two large companies with operations in Mexico.

In Alaska, AES is completing a joint venture alliance with Arctic Slope Regional
Corp ("ASRC"). ASRC is an integrated oil and gas service and refining company.
On July 18, 2001 AES opened an office in Anchorage. The catalyst for the
association between ASRC and AES is a patented valve design "Tractrix" that has
been 95% developed over 6 years by ASRC and which needs a market driven company
to bring it to its place in the industry. In order for AES to market and sell
the "Tractrix" valves AES must enter into a license agreement with the Idaho
National Engineering and Environmental Laboratory (INEEL). Currently AES and
INEEL are in final negotiation and the Company expects to have the license
agreement finalized soon. However, there can be no assurance that an agreement
will be entered into.


             See accompanying notes to these financial statements.

<PAGE>

                         AMERICAN ENERGY SERVICES, INC.

                          NOTES TO FINANCIAL STATEMENTS

                     FEBRUARY 28, 2001 AND FEBRUARY 29, 2000


NOTE 13 - GOING CONCERN (CONTINUED)

The Company has initiated a program to restructure its debt and equity
positions. The Company has negotiated agreements with numerous vendors to
exchange outstanding payables for shares of common stock. The Company has agreed
to register the shares to be issued to vendors in exchange for approximately
$1.5 million of vendor payables.

The Company has been in default on four loans at Metro Bank since September
1999. The loans total $3.3 million in principal and approximately $700,000 in
interest expense. The Company is in negotiation with Metro Bank to restructure
this debt. The proposed restructured debt will provide an additional $250,000
working capital for the Company and will place the debt under more favorable
terms. If the debt is successfully restructured, it will allow the Company to
reduce its interest expense and increase the term of the note to 17 years.
However, there can be no assurance the company will be able to restructure this
debt with Metro Bank.

The Company engaged in a private offering from March, 2001 to May, 2001,
pursuant to Rule 506.A Securities Purchase Agreement with certain investors to
purchase units (the "Units"), for a purchase price of $1,000 per Unit, each unit
consisting of a 6% Convertible Promissory Note (the "Note") in the original
principal amount of $1,000 and 500 warrants (the "Warrants") to purchase one
share of common stock. The Company has raised $1,050,000 through this offering.

Although the Company has had some limited success raising capital, there can be
no assurance that the Company will be able to obtain new capital, and if new
capital is obtained that it will be on terms favorable to the Company. The
Company is actively seeking new sources of financing. Additionally, the Company
continues to pursue methods to expand its business activities and enhance its
operating cash flow. However, absent new sources of financing, or if the Company
does not significantly improve its operating performance, the Company will not
have sufficient funds to meet its current obligations over the next twelve
months and could be forced to dispose of its assets in order to satisfy future
liquidity requirements. The current uncertainties surrounding the sufficiency of
its future cash flows and the lack of firm commitments for additional capital
raise substantial doubt about the ability of the Company to continue as a going
concern.

             See accompanying notes to these financial statements.