<PAGE>

                       Securities and Exchange Commission

                             Washington, D.C. 20549

                                   FORM 10-KSB
[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 February 28, 2001, the Common Stock, $.001 par value, of the registrant
held by non-affiliates of the registrant was 3,919,563 shares. As of that date,
there were 15,460,707 shares of Common Stock outstanding.

                       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]

<PAGE>

                                    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


                                       2
<PAGE>

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 to 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 to augment product sales. A Mexico City office has recently
been opened and staffed to more directly participate in the core, valve sales
business. This will obviously take us closer to the higher price point.
Additionally, AES has signed significant representation agreements that will
augment our 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, one, it
consumes dirty contaminated waste oil of which Mexico produces some 5 million
barrels per year. Secondly, it transforms this environmental hazard into much
needed diesel, jet fuel and heating oil for the net importer of Mexico. However,
as previously mentioned, 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
with all of its new services, and products to deliver a company, that protects
the environment and saves millions of dollars in front end planning. 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.

      Additionally, AES is working with Energy Offshore LLC and "a to be
announced" offshore and onshore drilling Company, to allow AES to stay within
the industry, but expose our carefully picked contractual alliances, to the new
PEMEX under the leadership of the P.A.N. Mexico has an auspicious budget for the
next five years in the new party's control and this should allow AES to fully
develop all win win aspects of this concentrated effort on America's most
important neighbor.

      Alaska, as a layover to Mexico as far as strategy, is another hotbed of
activity. AES is completing a J.V. Alliance with ASRC, a $1BB a year revenue
company that is one of the finest examples of integrated oil, gas, refining, E&P
companies in the great state of Alaska. AES hopes to have its office open in
June or July of 2001 in Anchorage, located in the Natchiq Headquarters in
Alaska. The catalyst for the association between Arctic Slope Regional Corp
(ASRC) and AES was a patented valve design "Tractrix" that had been 95%
developed over 6 years by ASRC and needed a market driven company to bring it to
its place in the industry. AES will share in the ownership of this phenomenal
design, as well as a willing market place to receive the benefits of its design.

IN CLOSING, CURRENT U.S. ENERGY SHORT FALLS, BOTH IN GAS AND OIL ARE HERE FOR A
PERIOD OF AT LEAST 3 TO 5 YEARS. AES IS WELL POSITIONED, TECHNICALLY,
COMMERCIALLY AND POLITICALLY TO ENJOY AN INCREASING SHARE OF THE MARKET PLACE,
AS THE EFFECTS OF ENERGY SHORT FALLS OF A GLOBAL NEED DEMANDS
ACCOMPLISHMENT.VALVE DESIGN AND MANUFACTURE

                                       3
<PAGE>

      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. 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.



                                       4
<PAGE>

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.

      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
<PAGE>

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.



                                       6
<PAGE>

      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 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.


                                       7

<PAGE>

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 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.


                                       8
<PAGE>

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 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

      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.

      The Company's management is vigorously seeking a settlement with the
plaintiff and feels confident a settlement favorable to AES will be reached.

      AES is involved in various legal proceedings and claims arising in the
ordinary course of business. In the opinion of management, the amounts of
ultimate liability, if any, with respect to these actions may materially affect
the financial position or future results of operations of the Company.



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.



                                       9
<PAGE>


                                   P A R T II

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

      The Common Stock of AES is currently traded as a OTBC stock. In connection
with a migratory merger effective August 22, 1996, pursuant to which Seahawk was
merged with and into the Company, 6,198,966 shares of the AES' stock were issued
to the Seahawk stockholders. Since this merger was solely for the purpose of
change the domicile of the Company, this transaction was deemed not to
constitute a sale in accordance with Rule 145 promulgated pursuant to the
Securities Act. There has been no other issuance of stock by AES during the last
three years.

ITEM 6.  SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                          YEAR ENDED FEBRUARY 28,
                                                ------------------------------------------------------------------------
                                                   2001            2000           1999           1998            1997
                                                ----------      ----------      --------       ---------       ---------
                                                                 (in thousands except per share data)
<S>                                             <C>             <C>             <C>            <C>             <C>
Revenues                                        $  4,851        $  5,335        $ 10,800       $ 11,989        $ 10,718
  Less: Sales returns and allowances              (1,492)
Net sales                                          3,359           5,335          10,800         11,989          10,718
Net Income (loss)                                 (6,449)         (1,006)            389            109          (1,225)
Total assets                                       5,476           6,696           8,854          6,181           7,006
Short-term debt                                    7,954           6,393           1,288          1,341             491
Basic and diluted EPS (a)                          (0.83)          (0.15)           0.06          (0.20)          (0.20)
Average shares outstanding - basic (b)             7,762           6,199           6,199          6,199           6,199
Average shares outstanding - diluted               7,762           6,973           6,199          6,199           6,199

</TABLE>


(a)   The effects of stock warrants were not included in computing diluted
      earnings per share because the effect was anti-dilutiive.

(b)   On August 28, 1997, AES effected a one for ten reverse stock split. The
      number of shares outstanding and per share amounts have been restated to
      reflect the split (refer to Note 10 of the Notes to Financial Statements.

ITEM 7.  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.



                                       10
<PAGE>

      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 $1,422,626. The increase can
primarily be attributed to penalties and interest associated with unpaid
employment taxes. 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 coupled with
$1,869,438 of extraordinary expenses, as well as the additional overhead cost of
being a public company were major factors in the company's net loss for fiscal
2001.

      Extraordinary expense of $1,204,083 was recognized related to the lawsuit
discussed in the financial note 6.

      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>

             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 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 $987,025. The Company has
entered into a best-efforts agreement with an investment banker to raise
$8,000,000 to $ 11,000,000 in new equity.

      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 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES REGARDING MARKET RISK

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

ITEM 8.  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 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
         AND FINANCIAL DISCLOSURE

      None.



                                       12

<PAGE>


                                   P A R T III

ITEM 10.  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

    Meyer Fields               33         Vice President, Chief Financial
                                            Officer

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.


                                       13
<PAGE>

ITEM 11.  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
           POSITION                   YEAR                    ($)                    ($)
           --------                   ----                    ---                    ---
<S>                                    <C>                 <C>
     Larry S. Elliott
     Senior Vice President             2001                $114,000                 -----
                                       2000                 110,000                 -----
                                       1999                 111,000                 -----
     Patrick S. Elliott
     President                         2001                $ 94,000                 -----
                                       2000                  95,000                 -----
                                       1999                  90,000                 -----

     Mark P. Elliott
     Senior Vice President             2001                $ 81,000                 -----
                                       2000                  92,000                 -----
                                       1999                  90,000                 -----

     Cary P. McCarra
     Senior Vice President             2001                $113,000                 -----
                                       2000                 108,000                 -----
                                       1999                  90,000                 -----
     Sidney J. McCarra
     Senior Vice President             2001                $109,000                 -----
                                       2000                 113,000                 -----
                                       1999                  90,000                 -----

     Meyer Fields
     Controller                        2001                $ 78,000                 -----
                                       2000                  12,500(A)              -----
                                       1999                  -----                  -----

</TABLE>

(A) Mr. Fields was hired in November 1999.



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 12.  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 February 28, 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.



                                       14
<PAGE>

<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)            1,708,678.2                    27.56%
                           5319 Mandell
                           Houston, TX 77005

      Common Stock         Patrick S. Elliott (2)          1,767,457.8                    28.51%
                           2608 Green Tee
                           Pearland, TX 77581

      Common Stock         Mark P. Elliott                   883,728.9                    14.26%
                           3504 E. Circle Drive
                           Pearland, TX 77581

      Common Stock         Sidney J. McCarra               1,237,425.5                    19.96%
                           1903 Orchard Country
                           Houston, TX 77062

      Common Stock         Cary P. McCarra                   294,576.3                     4.75%
                           3663 Nasa Road 1, #301
                           Seabrook, TX 77586

      Common Stock         All directors and               5,891,867.7                    95.05%
                           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.

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 13.  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 14.  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


                                       15
<PAGE>

      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.

            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.


                                       16
<PAGE>

             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.



                                       17
<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: May 29, 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                                    May 29, 2001

/s/  PATRICK S. ELLIOTT             President, Chief Executive Officer and
--------------------------            Director (Principal Executive Officer)       May 29, 2001

/s/  SIDNEY J. MCCARRA              Senior Vice President and Director             May 29, 2001
--------------------------
/s/  MARK P. ELLIOTT                Senior Vice President and Director             May 29, 2001
--------------------------
/s/  CARY P. MCCARRA                Senior Vice President and Director             May 29, 2001
--------------------------
/s/  MEYER FIELDS                   Controller and Chief Accounting Officer        May 29, 2001
--------------------------

</TABLE>


                                       18
<PAGE>

                              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.

      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

/s/  MEYER FIELDS
---------------------------------
Controller and Chief Accounting Officer



May 29, 2001


                                       19


<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.

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. Management has not developed any
definitive plans for obtaining additional capital and restructuring operations.
Disclosure of management's plans to do so is required to conform with generally
accepted accounting principles.

In our opinion, except for the omission of the information discussed in the
preceding paragraph, 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.

<PAGE>

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The conditions described in the third
paragraph of this report 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


<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                                        3,595,501          2,172,875
                                                        -----------        -----------
   (Loss) from operations                                (4,895,223)          (637,690)

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

      Loss before taxes and extraordinary item           (5,244,737)        (1,006,297)

Income tax (expense) benefit                                   --                 --
                                                        -----------        -----------
      Loss before extraordinary item                     (5,244,737)        (1,006,297)

Extraordinary item:
   Estimated litigation damages                           1,204,083               --
                                                        -----------        -----------

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

Basic and diluted (loss) per share:
   Loss from continuing operations before
      extraordinary item                                $     (0.83)       $     (0.15)
                                                        ===========        ===========

      Net Loss                                          $     (0.83)       $     (0.15)
                                                        ===========        ===========

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.


<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>


<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

An unsecured 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.

<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

Twonotes 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.

<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.

<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>

<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.


<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.


<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.

<PAGE>
                         AMERICAN ENERGY SERVICES, INC.

                          NOTES TO FINANCIAL STATEMENTS

                     FEBRUARY 28, 2001 AND FEBRUARY 29, 2000



NOTE 13 - GOING CONCERN (CONTINUED)

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. Management has not developed any definitive plans
for obtaining additional capital and restructuring operations. Disclosure of
management's plans to do so is required to conform with generally accepted
accounting principles. These financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going concern.