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, 2002

[ ]  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  bySection  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]

     Our revenues for the most recent fiscal year is $3,272,938.

     At February 28, 2002, the Common Stock,  $.001 par value,  there is a total
     of 20,461,656  restricted shares and non-restricted  shares of common stock
     outstanding held by 1,116 shares holders. The aggregate market value of the
     voting and non-voting common equity held by non-affiliates is $1,074,401 as
     of July 18, 2002.


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



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                                    P A R T I

ITEM 1.  DESCRIPTION OF BUSINESS

GENERAL

         American Energy Services,  Inc., a Texas  corporation,  was founded and
incorporated  in 1987 ("Old  AES").  We 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").  Our 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 name
was changed to "American Energy Services, Inc." and (ii) shares of Seahawk stock
were  issued to the seven  stockholders  of Old AES.  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  us  with a legal  entity  which  could  enter  the  public  domain  and
ultimately, provide potential capital through the sale of registered securities.
The effect of this  merger  has been that we were able to acquire  approximately
1,500 shareholders formerly owning shares of Seahawk stock.

PRODUCTS AND SERVICES

         We  are  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.   We  design,
manufacture,  market and service  standard and specialty valves of varying sizes
and  pressures  that are used to regulate  the movement of liquids,  gases,  and
solid materials.

         We utilize both company owned and operated manufacturing facilities and
contractually licensed manufacturing subcontractors that are audited for quality
to produce the full line of our standard and engineered valves.

         For much of our standard product manufacturing requirements, we rely on
a network of 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  allow us to  reduce  our  fixed  costs by
minimizing our investment in plant and  equipment.  In addition,  by maintaining
manufacturing relations and capabilities  internationally,  we have been able to
attract additional customers worldwide.

         In addition, we design,  engineer and manufacture various valves at our
Houston plant. The facility has full scale manufacturing capabilities, including
large  turning  and  machine  centers,   heavy-duty  cranes,  and  full  welding
capabilities.  We also  house  a  fully  equipped  engineering  department  with
computer-aided  design  system  capabilities  and  metallurgical   equipment  to
determine American Society of Testing Materials specified requirements.

         We  manufacture  valves  to  the  following  qualifications:   American
Petroleum  Institute ("API") 6D, API 6A, API 599, API 600, and API 602. We are a
licensed API monogram holder under  specifications 6D, 6A and Q1 and its Quality
Assurance  Manual is ISO 9000  approved.  Steps  involved  with the  design  and
manufacture of our 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.

         Our sales  personnel  and  independent  marketing  representatives,  or
agents,  initiate  sales calls and  coordinate  bid proposals with our quotation
specialists.   The  quotation   specialists   produce  proposals  that  identify
preliminary  design


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and  cost  estimates  for a  type  of  valve  to  be  utilized  for  a  specific
application.  Our marketing  management  must also determine  whether there is a
sufficient amount of working capital available to generate revenue.

         The  initial  design   efforts  for  our  valves  involve   significant
communication  and coordination with the customer in order to identify and agree
on valve specifications.  For custom-engineered valve projects,  design concepts
are tested against established empirical data and previously  manufactured valve
designs.  We maintain a source library of valve designs from which to choose and
our CAD capabilities provide readily available and accessible design parameters.
When an order  requires  standard  valve designs,  our  engineering  and quality
assurance  personnel  verify  that our "off the shelf"  designs  comply with the
required  specifications.  Once the valve  application has been clearly defined,
our 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.  We produce
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.  We believe  that our 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.  We generally invoice customers as deliveries are made.
Receivables represent billings on delivered products or milestone  achievements.
Revenue is recognized utilizing the percentage-of-completion method.

         Since 1993,  we have  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  and  (iii)  and  other  products,
including lubricated plug valves,  rotary control valves, linear control valves,
geothermal  through conduit gate valves and pressure seal valves.  We also offer
trunnion mounted ball valves,  and reduced or full bore floating ball valves, in
virtually any metallurgy required.

         We also design and manufacture  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.

MEXICO AND ALASKA

         We have  implemented a plan that  management  believes will flatten the
cyclical  curve of the oil & gas  industry.  Consequently,  we have directed our
attention and efforts to two major geographical areas to facilitate,  as much as
possible, receipt of revenues from these areas.

         Mexico,  in particular has evolved into a strong market for us. Many of
our personnel,  including management,  speak Spanish, and the 25 year history of
good relations and market proximity have been expanded to a broader  penetration
into the service sector which management believes will augment product sales. We
have   signed  a   significant   representation   agreement   with  Green  Oasis
Environmental,  Inc. that  management  believes will augment  revenues with both
commissions for new product and services sales, but more  importantly  grant AES
the right of first refusal for core product from AES and its acquired companies,
to be supplied to all represented companies. To date, we have contracts with:

         a)    Green Oasis Environment, a multipurpose state of the art, modular
               refinery  company.  The  refinery  accomplishes  two  significant
               goals:  1) consume dirty  contaminated  waste oil of which Mexico
               produces  some 5 million  barrels  per year;  2)  transform  this
               environmental  hazard  into  much  needed  diesel,  jet  fuel and
               heating oil. We have  negotiated a right of first refusal to sell
               the  approximately  $1 million of hard metal  goods to  construct
               each patented plant. As of February 28, 2002,

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<PAGE>


               AES/Green  Oasis had signed a contract  with Parador del So, S.A.
               de C.V., to build a Green Oasis Plant  Enviroeconomics  TM System
               Model 1000 in Mexico. This contract is subject to Parador del So,
               S.A. de C.V. obtaining (Overseas Private Investment  Corporation)
               ("OPIC")  financing.  The contract  value is  approximately  $4.5
               million

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

QUALITY CONTROL

         Our  comprehensive  quality  control program is designed to ensure that
valves  we   manufacture,   as  well  as  components   purchased   from  outside
manufacturers,  meet our  standards  of  quality.  Our quality  control  program
includes inspections at all stages of the design and manufacturing  process. All
purchased components and products assembled by subcontractors are also inspected
to ensure that they perform properly. Thus far our 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 our  business,  operating  results,  and financial  condition.  During
fiscal 2002, the  International  Chamber of Commerce found that 40 valves out of
2500 manufactured by AES for  Techint-Cotecol in Colombia were not in compliance
with the testing requirements.  Techint-Cotecol  replaced the units in question.
(See  LEGAL  PROCEEDINGS  on  page 8 for an  explanation  of  our  dispute  with
Techint-Cotecol).

         During our fiscal  year ended  2002,  we  experienced  one major  order
cancellation  by Genesis Corp., a  representative  of a Taiwan Plastics Corp., a
major petrochemical  provider.  The cancellation contained a 100% payment clause
for  cancellations  agreed  to and  signed  by the  parties.  We are  vigorously
pursuing payment of this due and payable receivable.

         Since 1989,  we have  manufactured  over 74,000 valve units.  Less than
one-fourth of one percent of these units have required any type of field service
or plant refitting.  We are licensed under  internationally  recognized  quality
programs,  including API  Specifications 6D, 6A and Q1 and its Quality Assurance
Manual is ISO 9000  approved.  Additionally,  AES has been a member  of  several
standardization  societies including the (American Petroleum  Institute) ("API")
and the (American Society for Testing and Materials) ("ASTM"), among others.

SUPPLIERS AND SUBCONTRACTORS

         We purchase  nearly all  castings,  forgings,  and certain  finished or
semi-finished  components  used in our products from domestic and  international
suppliers, including foundries and forging companies, bolt distributors and soft
good distributors.  We perform most of the finished machining for our engineered
products.  We also assemble valve components,  and performs pressure testing and
final preparation of the finished  product.  We maintain an approved vendor list
of sub-suppliers and sub-assemblies for the final manufacture of equipment by us
for  our  clients.  Over  the  past  ten  years  we  have  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 us.  However,  we have not
entered into any  agreements or contracts with any of these  sub-vendors  except
for the placement of specific purchase orders related to our course of business.
We source  our  sub-vendors  on a  continuing,  as needed  basis.  Terms of sale
between  us and  the  sub-vendors  are  generally  either  C.O.D.  or  under  an
irrevocable letter of credit payment.

CUSTOMERS

         Our 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

                                       4
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industries.  End-users of our products  consist of a broad range of  industrial,
commercial and utility companies. Our customer base is comprised of 300 accounts
with over 125  considered  active.  We market  and sell a vast  majority  of our
products internationally while marketing domestically through distribution. Over
the last ten years, we have placed in service  approximately $90 million dollars
worth of valve products.

         We seek to serve a  sufficiently  large  number of  customers  to avoid
dependence  on any one  customer  or  industry.  During  our  fiscal  year ended
February 2002,  Galcor Del Norte  represented 13% of our gross revenues.  Due to
the nature of our 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 our range of gate,  globe,  check and ball  valves and the variety of
applications  available  to the valves sold by us, we maintain a broad  customer
base within the various industries it serves.

         Our  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

MARKETING AND DISTRIBUTION

         Domestic.  Our domestic  (United States,  Canada and Mexico)  marketing
network  consists of a primary  distribution  relationship  with general  supply
companies  and  specialty  valve  distributors.   Presently,   our  distribution
activities  are in the initial  stages of growth.  As of February 28, 2002,  our
distribution backlog was less than $250,000.

         International.  We market our 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.  We
maintain  relationships  with  international  customers by regularly sending our
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 our
technical  sales  personnel  and valve  engineering  consultants.  Our quotation
specialists  act as liaisons  between  customers and our 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.

         Our 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, Qatar

         5.   Sub-Continent:        India, Pakistan, Bangladesh

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

         7.   China:                Mainland China, Hong Kong, Taiwan


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         For the fiscal year ended  February  2002,  our sales of $3,272,938 was
represented  by sales of  $1,739,869.78  in the United States and  $1,288,520 in
Mexico. Aggregate sales to all other areas totaled $244,548.

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

         Our prospects for depend to a large extent upon the economic  condition
of the  industries  to which we market our  products.  Should  these  industries
experience an economic  downturn,  there may be a  significant  reduction in the
demand for our products.  Many of our competitors are significantly  larger than
us and  have  substantially  greater  financial  and  other  resources  at their
disposal.  No  assurance,  therefore,  can be given as to our ability to compete
effectively  in the  industries we serve should these  industries  experience an
economic downturn.

         In  addition  to direct  marketing  by  independent  and our  marketing
representatives,  we market our  products and services  through  catalogues  and
brochures.  We also  advertise  and attend  major  trade  shows and  conventions
worldwide.

COMPETITION AND INDUSTRY

         The valve manufacturing  industry is highly competitive.  Our principal
competitors  have  more  extensive  and  diversified  operations  and also  have
financial,  operating  and  other  resources  substantially  in  excess of those
available to us.

         We have been able to successfully  compete because minimal overhead and
fixed  manufacturing  costs have allowed us to bid on and  complete  projects at
lower prices than our  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, we have 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.  Our  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  our  manufacturing  requirements,  not  only  have we been  able to
minimize  fixed  costs,  but  we  have  also  established  a  large  network  of
subcontractors  strategically  located  throughout  the world  that can  provide
annual valve manufacturing capacity exceeding $100 million.

         We  compete  against  numerous  valve  manufacturers.  Several  of  our
competitors are more established in the industry and have substantially  greater
manufacturing,  marketing and financial  resources than us. However,  we plan to
remain competitive by continuing to maintain strict quality  standards,  respond
flexibly and responsibly to customer needs, and deliver high quality products on
a reliable basis and at competitive prices.

         Some of our 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.

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

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BACKLOG

         Our total backlog of valve  manufacturing  contracts as of July 1, 2002
was approximately  $1,725,000 (including  aforementioned  distribution backlog).
Approximately  90% of our present  backlog of contracts  are at least  partially
secured  for  payment by  irrevocable  letters of credit,  milestones,  progress
payments,  or  wire  transfer  of  funds  at time of  shipment.  Certain  of our
contracts  include a "cancellation for convenience"  section,  which provides us
with recovery of costs incurred to date of cancellation and related profits.  As
such,  there can be no assurance that the amount of backlog  ultimately  will be
realized.

INDUSTRY OUTLOOK

         o  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   with   many
         opportunities.

         o  Petrochemical, Chemical and Processing.  Over the last few years, we
         have   experienced   an  increasing   demand  from  the   international
         petrochemical  and refinery  industries  for our products.  Our current
         positive outlook is directly impacted by the new construction  projects
         regularly   announced  by  the  worldwide  chemical  and  petrochemical
         industries.

         o  Power Generation and Other. The power generation,  textile, pulp and
         paper,  food,  and  mineral  processing  industries  have  historically
         comprised a modest  amount of our  revenues  and  business  development
         efforts. However, we intend to devote a greater amount of its marketing
         and business development efforts to these industries.

TRADEMARKS AND PROPRIETARY RIGHTS

         We own 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).  We are also in the process of developing  several other
products which we intend to apply for patents,  including a Prescription Compact
Thru-Conduit Terminal Gate Valve and a Three-Port Terminal Switch Valve. We have
also  registered the names AEV, AES, and AES Accuseal 500 with the United States
Patent and  Trademark  Office.  The  company  also is  licensed  to produce  the
TracTrix TM Plug Valve.

RESEARCH AND DEVELOPMENT

         We  currently  conduct  regular  research  and  development  activities
involving the engineering and design of valve products.  During the fiscal years
ended February 28, 2002, 2001, and 2000,  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

         Our  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. We are required to expend financial and managerial resources
to comply with such laws and related permit  requirements  in our operations and
we  anticipate  that we will  continue  to do so in the  future.  Although  such
expenditures  historically have not been material to us, the fact that such laws
or regulations are changed  frequently makes it impossible for us to predict the
cost  or  impact  of  such  laws  and  regulations  on  our  future  operations.
Modification  of existing  laws or  regulations  or the  adoption of new laws or
regulations  affecting our operations could adversely affect us. We believe that
we  currently  are in  material  compliance  with all such  applicable  laws and
regulations.

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EMPLOYEES

         At February 28, 2002, we employed 40 persons. None of our employees are
covered by collective bargaining agreements.  We consider our employee relations
to be satisfactory.

ITEM 2.  PROPERTIES

         Our principal offices and manufacturing  facilities  utilized and owned
by us are located in Houston,  TX. The book value of these facilities  amount to
less  than  ten  percent  (10%)  of  our  total  assets.  We  believe  that  our
manufacturing  facilities  will be  suitable  and  adequate  to meet  production
demands of the near future.

         It should be noted that Metro Bank has a security  interest  in both of
our  principle  offices  and  manufacturing  facility  in  Houston  , TX. We are
currently in default on our four loans at Metro Bank since  September  1999.  To
date, there has been no threatened foreclosure action by Metro Bank.

ITEM 3.  LEGAL PROCEEDINGS

            In May 2001,  Techint-Cotecol  was  awarded a  judgment  against  us
confirming  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. We have made  provisions  for this award in our
financial  statements  for year ending  February 28,  2001.  Our  management  is
vigorously  seeking  settlement  with  the  plaintiff,  and  feels  confident  a
settlement favorable to us will be reached.

         In December 2001 we filed suit against Apache Corporation et al, in the
189th  Judicial  District  Court of Harris  County  Texas.  We are claiming that
torturous  interference and negligence by Apache  Corporation and certain of its
employees  related to detrimental  activities by Apache personnel against us and
certain of our employees. We are seeking yet, undetermined damages. This case is
in early development with no trial setting as of July 1, 2002.

         In September  2001,  AVSCO  Houston,  Inc. filed suit against us in the
281st Judicial  District Court of Harris County,  Texas.  AVSCO Houston  alleges
breach of contract by us relating to a $250,000 valve  contract  placed by AVSCO
with us. Our management  believes that we will successfully  defend this lawsuit
and has  requested  our counsel to seek  frivolous  suit  sanctions  against the
plaintiff and its law firm. This suit is in the early stages of development, and
there has been no trial setting as of July 1, 2002.

         In October 2001,  Eastern  Trading Ltd.  filed suit against us and Mike
Bricker,  an employee of our company,  in the 129th  Judicial  District Court of
Harris County Texas.  Eastern  Trading Ltd of the United Arab Emirates,  alleges
breach of contract and commercial  fraud by us in fulfilling an Eastern  Trading
contract.  Our management believes that we will successfully defend this lawsuit
and we are contemplating filing charges, involving payment by insufficient check
issued to us by Eastern  Trading  Ltd.  This case is in the very early stages of
development and there has been no trial setting as of July 1, 2002.

         We filed suit against STL Capital Partner LLC et al in May 2002, in the
District Court of Harris County Texas. We are claiming breach of contract by STL
Partners LLC et al, with regards to an unfulfilled  investment  contract between
STL and AES. AES has proposed damages in excess of $250,000.  This case is under
settlement  negotiations.  As of  July 1,  2002 a  Memorandum  of  Understanding
resolving all issues between the parties was under review.

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

         There were no matters during the fiscal quarter ended February 28, 2002
that were submitted to a vote of security holders.


                                       8
<PAGE>


                                   P A R T II

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

            The table below shows the high and low bid prices as reported by the
OTCBB during each of the calendar quarters  identified below. We trade under the
symbol "AEYS." Trading commenced on May 26, 2000. These bid prices were obtained
from the  National  Quotation  Bureau,  and do not  necessarily  reflect  actual
transaction, retail markups, markdowns or commissions. Based on the very limited
public  float and  trading in our  common  stock,  we believe  that such data is
anecdotal,  and may bear no relation to the true value of our common  stock,  or
the range of prices that would prevail in a liquid market.

Quarter Ended:                    High Bid:             Low Bid

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

March 31, 2001                    $1.375                $.5312
June 30, 2001                     $ .750                $.160
September 30, 2001                $ .470                $.160
December 31. 2001                 $ .200                $.060

March 31, 2002                    $ .190                $.070
June 30, 2002                     $ .470                $.070


RECENT SALES OF UNREGISTERED SECURITIES

         On  September  7, 2000,  we issued  170,000  shares of common  stock to
Stroos USA Inc. as  compensation  for  services  rendered  valued at $142,156 in
reliance upon an exemption pursuant to Section 4(2) of the Act.

         On November 8, 2000,  we issued  330,000  shares of common stock to BDM
Financial as compensation  for services  rendered valued at $330,000 in reliance
upon an exemption pursuant to Section 4(2) of the Act.

         On November 20, 2000,  we issued 75,000 shares of common stock to David
Bromberg as  compensation  for services  rendered  valued at $75,000 in reliance
upon an exemption pursuant to Section 4(2) of the Act.

         On November  27,  2000,  we issued  150,000  shares of common  stock to
Evelyn  Elliot as  compensation  for  services  rendered  valued at  $100,000 in
reliance upon an exemption pursuant to Section 4(2) of the Act.

         On November 29, 2000,  we issued 25,000 shares of common stock to Fuqua
Family  Limited  Partnership as  compensation  for services  rendered  valued at
$25,000 in reliance upon an exemption pursuant to Section 4(2) of the Act.

         On December  15,  2000,  we issued 6,000 shares of common stock each to
James Shu and John  Gladney as  compensation  for  services  rendered  valued at
$6,000 in reliance  upon an exemption  pursuant to Section 4(2) of the Act. Also
on December 15, 2000,  we issued  12,000 shares of common stock to Zenghua He as
compensation for services rendered valued at $12,000.

         On December 21, 2000,  we issued  448,414  shares of common stock to NI
Energy  Development,  Inc.  as  compensation  for  services  rendered  valued at
$300,437 in reliance upon an exemption pursuant to Section 4(2) of the Act.


                                       9
<PAGE>

         On December 27, 2000, we issued 39,000 shares of common stock to Dunn's
Valve Tester's,  Inc. as compensation for services rendered valued at $20,000 in
reliance upon an exemption pursuant to Section 4(2) of the Act.

         On  January  10,  2001,  we issued  85,000  shares  of common  stock to
Southern  California  Valve  Maintenance as compensation  for services  rendered
valued at $85,000 in reliance on an  exemption  pursuant to Section  4(2) of the
Act.  Also on January 10, 2001, we issued 5,000 shares of common stock to Donald
Bullard as compensation for services rendered valued at $5,000 in reliance on an
exemption pursuant to Section 4(2) of the Act. In addition, on January 10, 2001,
we issued 25,000 shares of common stock to Fuqua & Keim, LLP as compensation for
services  rendered  valued at $25,000 in reliance upon an exemption  pursuant to
Section 4(2) of the Act.

         On February 15, 2001,  we issued  10,700  shares of common stock to TNT
Pipe & Valve,  Inc. as compensation  for services  rendered valued at $10,500 in
reliance upon an exemption pursuant to Section 4(2) of the Act.

         In March of 2001,  we issued  550,050  shares  of  common  stock to STL
Capital  Management as compensation for services  rendered valued at $429,699 in
reliance upon an exemption pursuant to Section 4(2) of the Act.

         From March to May of 2001,  pursuant to Rule 506, we offered to certain
accredited  investors,  pursuant to a Securities Purchase Agreement,  units (the
"Units"),  for a purchase price of $1,000 per Unit, each unit consisting of a 6%
Convertible  Promissory  Note (the "Note") in the original  principal  amount of
$1,000 and 500  warrants  (the  "Warrants")  to purchase one share of our common
stock.  The  Securities  Purchase  Agreement  was executed in reliance  upon the
exemption  provided  by Section  4(2) and  Regulation  D, Rule 506.  The Note is
payable  within  five years  with  interest  accruing  at a rate of 6% per annum
payable in cash or in common  stock on a bi-annual  basis.  The Note may also be
converted into shares of our common stock at a conversion  price equal to 70% of
the average  market price of the common stock for the five trading days prior to
conversion of the Note.  The Units also consisted of five hundred (500) Warrants
to purchase one (1) share of common  stock,  totaling 500 shares per Unit,  at a
price  equal to equal to the lower of $1.75 or the average  market  price of our
common stock for the ten (10) trading days  immediately  following the effective
date of a  registration  statement,  but in any case not less than $.50.  We are
currently in disagreement  with STL Capital Partners LLC and the other investors
in these  Units.  We have filed suit  against STL Capital  Partners  LLC and the
other investors and consequently  these investors  cannot currently  convert the
Notes or exercise the Warrants. (See LEGAL PROCEEDINGS on page 8.)

         In March of 2001, we issued  160,000  shares of common stock to Fuqua &
Keim, LLP as  compensation  for services  rendered valued at $39,050 in reliance
upon an exemption pursuant to Section 4(2) of the Act.

         In April of 2001, we issued 75,000 shares of common stock to First York
Partners,  Inc.  as  compensation  for  services  rendered  valued at $50,000 in
reliance upon an exemption pursuant to Section 4(2) of the Act.

         In April and May of 2001,  we issued an aggregate of 246,000  shares of
common stock to BDM  Financial  as  compensation  for  services  rendered for an
aggregate  value of $165,820 in reliance  upon an exemption  pursuant to Section
4(2) of the Act.

         In May of 2001,  we issued  106,948  shares of common  stock to Richard
Spradling as  compensation  for services  rendered valued at $69,516 in reliance
upon an exemption pursuant to Section 4(2) of the Act.

         In July of 2001, we issued 585,957 shares of common stock to William H.
Murphy and Co. as a note payable valued at $51,000 in reliance upon an exemption
pursuant to Section 4(2) of the Act.

         In October of 2001,  we issued  431,034  shares of common  stock to DHV
Industries,  Inc. as settlement payment related to a lawsuit.  These shares were
valued at $125,000  and were issued in reliance  upon an  exemption  pursuant to
Section 4(2) of the Act.


                                       10
<PAGE>


         Also in October  of 2001,  we issued  16,000  and 30,000  shares of our
common stock to Kochman & Piper and Keith Donati  respectively  as  compensation
for services rendered valued at $13,192 and $6,000 respectively in reliance upon
an exemption pursuant to Section 4(2) of the Act.

         In August  and  December  of 2001,  we issued an  aggregate  of 500,000
shares  of  common  stock  to Fuqua & Keim,  LLP as  compensation  for  services
rendered  for an  aggregate  value of  $92,500  in  reliance  upon an  exemption
pursuant to Section 4(2) of the Act.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS

                           FORWARD-LOOKING STATEMENTS

         This material contains  "forward-looking"  statements as defined in the
Securities  and Exchange  Acts of 1933 and 1934 that could  involve  substantial
risk and  uncertainties.  When  expressions  include words such as "anticipate",
"believe",  "estimate",  "intend", "expect", "plan" and when similar expressions
are used,  they are intended to identify the statements as  forward-looking.  We
rely  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 we operate,  actual results,
performance and  achievements  may differ  materially from results  suggested by
these forward-looking statements.

                              RESULTS OF OPERATIONS

FISCAL YEAR ENDED FEBRUARY 28, 2002 VERSUS FISCAL YEAR ENDED FEBRUARY 29, 2001

         Net sales for our fiscal  year ended  February  28, 2002  decreased  by
$85,738 to $3,272,938  compared to $3,358,676 for the fiscal year ended February
28, 2001.

         Cost of sales in fiscal 2002  decreased by $1,594,356 or 34% lower than
fiscal 2001 to $3,064,042.  The Gross profit (loss) for fiscal 2002 was 208,896,
or a $1,508,618  improvement  over the loss of $1,299,702  for fiscal year 2001.
This gross profit reflects an increase in our basic valve manufacturing business
during fiscal 2002

         Operating  expenses in fiscal 2002 also  decreased  from  $4,799,584 in
fiscal 2001 to $2,299,441 for fiscal 2002.  This  decrease,  outside of expenses
related to litigation,  can be attributed to aggressive  cost control  initiated
us. In addition,  cost  reductions  included  re-negotiations  of all  utilities
(telephone,  water,  gas,  etc...)  , a 20%  reduction  in the  salaries  of our
officers, and a more efficient management of production personnel over time pay.

         Other income for fiscal 2002 decreased by $204,417 over other income in
fiscal 2001 largely due to other income increase attributed to the settlement of
certain liabilities at amounts lower than recorded in previous years.

         Net  income  (loss)  for  fiscal  year  2002  was  ($2,235,642),  or an
improvement of $4,213,178  from a net income (loss) of  ($6,448,820)  for fiscal
year 2001. This 65% decrease in net (loss) is contributed to increased sales and
margins in our core  manufacturing  business in fiscal 2002,  as well as reduced
expenditures, both in operations and public company expenses during fiscal 2002.
This  gross  profit  reflects  the  return by us to our core  business  of valve
manufacturing during fiscal 2002.

         The net loss in fiscal 2002  resulted  in basic and diluted  losses per
share of ($0.12) for fiscal  2002,  as compared  with ($0.83) loss per share for
fiscal 2001

IMPACT OF INFLATION

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

                                       11
<PAGE>


GOING CONCERN

         The accompanying  Financial  Statements have been prepared  assuming we
will continue as a going  concern.  We receive the majority of our revenues from
customers in the energy industry,  which  experienced a significant  downturn in
1998 that continued  throughout 1999.  Industry  conditions improved in 2000 and
2001,  however our customer base has not to date increased  project  expenditure
levels to those existing in the first half of 1998.  Demand for our products and
services are impacted by the number and size of projects available as changes in
oil  and  gas  exploration  and  production  activities  change  the  respective
customers'  forecasts and budgets.  These fluctuations have a significant effect
on our cash flows.

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

         As a result of the downturn in the oil and gas  industry  over the last
two years and the  resultant  negative  effect on our  financial  position,  our
management  initiated  actions in 2001/2002  which  included  among others,  (a)
downsizing  personnel,  (b) attempting to improve its working  capital by, among
other things, restructuring our debt, (c) retargeting our marketing efforts and,
(d)  consolidating  administrative  functions to ensure that our  resources  are
deployed in a more profitable  manner. Our efforts to restructure our operations
commenced in the first quarter of 2000 and continued through 2002. However,  the
results of these efforts were not  sufficient to prevent  significant  operating
losses or provide sufficient levels of operating capital.

         Our impaired  liquidity  position has resulted in the  inability to pay
certain  vendors in a timely manner.  In spite of this, none of our creditors to
date have  threatened to file a bankruptcy  petition.  Our lack of liquidity has
hampered our ability to hire sub-contractors, obtain materials and supplies, and
conduct  operations in an effective or efficient  manner.  Moreover,  throughout
most of fiscal 2001 and 2002,  we were in default  with  virtually  all our debt
agreements.  To  alleviate  our  liquidity  problems  and to improve our overall
capital  structure,  we initiated a program to  restructure  our debt and equity
positions.  The program  involved a series of steps designed to raise new funds,
restructure our debt and increase our shareholders'  equity. This will primarily
be  accomplished  by our the  efforts of our  consultant  Roy Hill as  discussed
further below.

         We have been in default  on four  loans at Metro  Bank since  September
1999 totaling $3.3 million in principal and  approximately  $900,000 in interest
expense. To date there has been no threatened foreclosure action by the bank. We
are in  negotiation  with Metro Bank to  restructure  this  debt.  The  proposed
restructured debt is expected to provide an additional  $250,000 working capital
for the company and will place the debt under more favorable  terms. If the debt
is successfully restructured it will allow us to reduce our interest expense and
increase the term of the note to 17 years. However, there can be no assurance we
will be able to restructure this debt with Metro Bank.

         We engaged in a private  offering through March to May of 2001 pursuant
to rule 506. A Securities  Purchase Agreement with certain investors to purchase
units  (the "Units"), for a  purchase  price  of  $1,000  per  Unit,  each  unit
consisting  of 6%  Convertible  Promissory  Note (the  "Note")  in the  original
principal  amount of $1,000 and 500 warrants  (the  "Warrants")  to purchase one
share of common stock.  Upon conversion of the Notes, the investors can purchase
a number of  shares,  without  limitation,  based  upon a thirty  (30%)  percent
discount from the average  market price of our common stock for the five trading
days prior to the  conversion.  The  agreements  do not contain a trading  price
below which the investor is not permitted to convert the Note. As a result,  the
number of shares that these  investors  are entitled to receive upon  conversion
will increase as our stock price decreases.  Therefore,  these investors have an
incentive to engage in short selling  activities aimed at driving down the price
of our common stock. We are currently in a dispute with STL Capital Partners LLP
and the other  investors in this offering.  We have filed a lawsuit  against STL
Capital  Partners  LLP  and  the  other  investors  and as a  consequence  these
investors  cannot  currently  convert the Notes or exercise the  Warrants.  (See
LEGAL PROCEEDINGS on page 8.)

          Although we have had some limited success raising  capital,  there can
be no  assurance  that we will be able  to  obtain  additional  capital,  and if
additional  capital is obtained that it will be on terms  favorable to us. As of
February 28, 2002, our current assets totaled $2,570,187 and current liabilities
were  $7,470,857  resulting  in  a  working  capital  deficit  of  approximately
$4,900,670.  We are actively  seeking new sources of  financing,  including  the
restructuring  of old debt and raising  capital  through the issuance of company
stock.  Additionally,  we  continue  to pursue  methods to expand  our


                                       12
<PAGE>


business  activities  and enhance our operating cash flow.  However,  absent new
sources  of  financing,  or if we do not  significantly  improve  our  operating
performance,  we will not have sufficient funds to meet our current  obligations
over the next  twelve  months  and could be forced to  dispose  of our assets in
order to  satisfy  future  liquidity  requirements.  The  current  uncertainties
surrounding  the  sufficiency  of our  future  cash  flows  and the lack of firm
commitments for additional  capital raise substantial doubt about our ability to
continue as a going concern.

               LIQUIDITY AND CAPITAL RESOURCES/INDUSTRY CONDITIONS

         The primary sources of our 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  our
customer base had not yet begun to increase  budgets to include large  projects,
which may have enabled us to increase sales to a level seen before the downturn.
We have  experienced  a very large  increase  in order  inquiries  in the fourth
quarter  of fiscal  2002,  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 our cash
flows.  As a result of this  downturn  we are in a severely  impaired  liquidity
position.

         We have  retained  the  services of Mr. Roy W. Hill during  fiscal year
2002.  He is a  consultant  for the  energy  and  utility  industries.  His firm
specializes in raising capital,  restructuring  and reducing debt,  bringing the
business  community  together for joint  venture  purposes or mergers,  and, the
location of new revenue streams for businesses through the generation of new and
higher quality customers.  For his services,  he is being paid with the issuance
of 1.5 million shares of our common stock.

         Although there is no assurance that a final  agreement will be reached,
since Mr. Hill has become our  consultant,  verbal  agreements have been reached
with many of our major  creditors,  that would reduce the company's  outstanding
debt by as much as $3.5 million.  Additional negotiations are presently underway
with the  remaining  major  creditors  with which Mr. Hill has not yet reached a
verbal agreement.  We anticipate reaching  satisfactory  conclusions  concerning
these debts, as well,  during the next six months. In the event this sequence of
events  occurs in the  described  fashion,  we expect to  experience an improved
asset to debt ratio in the future.

         Simultaneously,  with ongoing debt negotiations,  we are in the process
of re-establishing  open lines of credit with our major raw material  suppliers.
Mr. Hill,  additionally,  is presently negotiating an open line of credit with a
major US bank, that would provide  periodic  working capital for us with respect
to our future  short term cash  needs.  At the  present  time,  we are seeking a
development of larger orders for our available  product lines.  If this progress
continues to increase, the cash flow generated from ongoing operations should be
of significant benefit in reducing and or eliminating our remaining  outstanding
indebtedness.

         However,  since we have only had limited  success in raising capital in
the past, there can be no assurance that we will be able to obtain all necessary
additional capital,  and/or that it will be on terms favorable to us. Subject to
the ongoing debt restructuring in progress, as of February 28, 2002, our current
assets totaled $2,570,187 and current liabilities were $7,470,857,  resulting in
a working capital deficit of approximately  $4,900,670.  Although our management
is  optimistic  about  meeting  our  current  capital  needs and  payment of our
outstanding  indebtedness,  absent these new sources of capital and restructured
financing,  we may  not  have  sufficient  funds  to  meet  current  and  future
obligations over the next 12 months. This could force us to dispose of assets on
unfavorable  terms in order to meet our liquidity  requirements and raise doubts
as to our ability to continue as an ongoing concern in our present form.

         To alleviate our liquidity  problems we have  aggressively  initiated a
plan,  primarily  involving  the  services  of  Mr.  Hill  described  above,  to
restructure our debt and equity position.  This plan has already been successful
in reducing our vendor debt by $1,506,858.

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

ITEM 7.  FINANCIAL STATEMENTS

         See Attached Financial Statements

                                       13
<PAGE>


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

         We have previously  reported the change of our independent  auditors on
Form 8-K filed May, 28, 2002. It should be noted that Jackson & Rhodes,  our new
independent auditors, merged with the accounting firm of Whitley Penn.
























                                       14
<PAGE>


                                   P A R T III

ITEM 9.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The following table sets forth certain  information about our directors
and executive officers:

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

         Larry S. Elliott           54         Chairman of the Board, and Senior
                                               Vice President

         Patrick S. Elliott         58         Director, President, and Chief
                                               Executive Officer

         Mark P. Elliott            38         Director, Senior Vice President

         Cary P. McCarra            38         Director, Senior Vice President

         Sidney J. McCarra          49         Director, Senior Vice President
                                               and Secretary

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 our President 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 since October, 1992, and
as Vice President  since March 1989.  During that time, he has been  responsible
for marketing  and selling our valves and services to the oil and  petrochemical
industry. He is currently Senior Vice President of Sales.

CARY P. MCCARRA - Cary McCarra has served as a director  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  vendors,  including  auditing  Quality  Assurance
programs and witnessing procedure implementation.

 SIDNEY J. MCCARRA - Sidney  McCarra has served as director  since  October 1992
and as Vice  President  since March 1989,  and is currently  our  Secretary  and
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.

            FAMILY RELATIONSHIPS.

         Patrick and Larry  Elliott  are  brothers.  Mark P.  Elliott is Patrick
Elliott's son and Larry Elliott's nephew. Cary and Sidney McCarra are brothers.

         SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the Exchange Act requires our director's and executive
officers,  and persons who own more than 10% of our outstanding common stock, to
file with the SEC,  initial  reports  of  beneficial  ownership  and  reports of
changes in  beneficial  ownership  of our  common  stock and other of our equity
securities.  To our knowledge,  for the fiscal year ended February 28, 2002, all
of our directors and officers have filed all required reports.

                                       15
<PAGE>


ITEM 10.  EXECUTIVE COMPENSATION

         The  following  compensation  table  sets  forth,  certain  information
regarding  compensation  paid during the fiscal year ended  February 28, 2002 to
our executives.

                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME AND
PRINCIPAL                           FISCAL       SALARY            BONUS         STOCK AWARDS
POSITION                             YEAR        ($)               ($)        OTHER COMPENSATION
--------                            ------       --------          -----      ------------------
<S>                                  <C>         <C>                 <C>     <C>
Patrick S. Elliott                   2002        $ 92,000            0       0
Chief Executive Officers,            2001        $ 94,000            0       0
President, and Director              2000        $ 95,000            0       0


Larry S. Elliott                     2002        $ 92,000            0       0
Chairman of the Board,               2001        $114,000            0       0
and Senior Vice President            2000        $110,000            0       0

Sidney J .McCarra                    2002        $ 92,000            0       0
Senior Vice President,               2001        $109,000            0       0
Secretary and Director               2000        $113,000            0       0

Mark P. Elloitt                      2002        $ 65,000            0       0
Senior Vice President                2001        $ 81,000            0       0
and  Director                        2000        $ 92,000            0       0

Cary P. McCarra                      2002        $ 91,000            0       0
Senior Vice President                2001        $113,000            0       0
and Director                         2000        $108,000            0       0
</TABLE>

*In addition each officer receives a $ 500 auto allowance per month.

            2000 AND 2002 STOCK OPTION PLANS

            Our board of directors adopted the 2000 Stock Option Plan (the "2000
Option  Plan") in June of 2000 and the 2002 Stock  Option  Plan in May 2002 (the
"2002  Option  Plan").  We reserved  for  issuance  upon the exercise of options
3,000,000 and 4,000,000  shares of our common stock,  under the 2000 Option Plan
and 2002 Option Plan  respectively.  Options granted under both option plans are
intended to constitute incentive stock options under Section 422 of the Internal
Revenue Code of 1986, as amended.  Incentive  stock options may be granted under
both  option  plans to  employees,  including  officers  and  directors  who are
employees on the date of the grant.

            By their  terms,  both  option  plans  are to be  administered  by a
committee appointed by the board of directors. Subject to the provisions of both
option  plans,  the committee has the authority to determine the persons to whom
options will be granted,  the exercise price,  the term during which options may
be exercised and such other terms and conditions as it deems appropriate.

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

                                       16
<PAGE>


            The following  table presents  information  for the named officer in
the Summary  Compensation  Table with  respect to options  exercised  during the
fiscal year ended February 28, 2002 and  unexercised  options held as of the end
of the fiscal year.

<TABLE>
<CAPTION>
Name                            Shares        Value         Number of Securities        Value of In-the-Money
                                Acquired      Realized      Underlying Unexercised      Options/SARS at FY-End
                                on Exercise   ($)           Options/SARs at FY-End      ($)Exercisable/Unexercisable
                                (#)(1)                      Exercisable/Unexercisable
<S>                             <C>           <C>                     <C>                  <C>
Patrick S. Elliot               330,000       $42,900                 0/0                  $0/$0
Larry S. Elliot                 330,000       $42,900                 0/0                  $0/$0
Sidney J. McCarra               330,000       $42,900                 0/0                  $0/$0
Mark P. Elliot                        0             0                 0/0                  $0/$0
Cary P. McCarra                 250,000       $32,500                 0/0                  $0/$0
</TABLE>

Values  reflected above are based on the closing price of $ .13 per share of our
common stock for the last business day of the fiscal year.

(1) All options exercised were issued to the named officer under the 2000 Option
Plan.

Compensation  of  Directors  - None  of  our  directors  received  any  form  of
compensation   for  any   services   provided  as  a  director   for   committee
participation, or for special assignments.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The  following  table sets forth  certain  information  concerning  the
number of shares of Common Stock owned  beneficially as of February 28, 2002 by:
(i) each person  known to us to own more than five  percent (5%) of any class of
our voting securities; (ii) each director ; and (iii) all directors and officers
as a group.

<TABLE>
<CAPTION>
               TITLE             NAME AND ADDRESS          AMOUNT AND NATURE         PERCENT
             OF CLASS          OF BENEFICIAL OWNER        OF BENEFICIAL OWNER       OF CLASS
             --------          -------------------        -------------------       --------
<S>                            <C>                             <C>                   <C>
          Common Stock         Larry S. Elliott (1)            2,465,679             12.05%
                               5319 Mandell
                               Houston, TX 77005


          Common Stock         Patrick S. Elliott (2)          2,432,457             11.89%
                               2608 Green Tee
                               Pearland, TX 77581

          Common Stock         Mark P. Elliott                   983,739             4.80%
                               3504 E. Circle Drive
                               Pearland, TX 77581

          Common Stock         Sidney J. McCarra               1,997,426             9.76%
                               1903 Orchard Country
                               Houston, TX 77062

          Common Stock         Cary P. McCarra                   644,576             3.15%

                               3663 Nasa Road 1, #301
                               Seabrook, TX 77586

          Common Stock         All directors and               8,523,867             41.66%
                               officers as a group
</TABLE>

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

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

                                       17
<PAGE>


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

We are not aware of any arrangement which might result in a change of control in
the future.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         None.



























                                       18
<PAGE>



                                   P A R T IV

ITEM 13.  EXHIBITS, LISTS, AND REPORTS ON FORM 8-K

(a)      Exhibits

EXHIBIT NO.                          DESCRIPTION
-----------                     ----------------------

      2.1 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.

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

      3.2 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.

      4.1 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.

      4.2 Form of Warrant  Agreement  to  purchasers  of Units  pursuant  to the
Company's offering conducted from March to May 2001.(1)

      10.1  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.

      10.2 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.

      10.3 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.

      10.4  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.

      10.5 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.

      10.6 Form of Securities Purchase Agreement to purchasers of Units pursuant
to the Company's offering conducted from March to May 2001. (1)

      10.7 Form of Convertible  Promissory  Note to purchasers of Units pursuant
to the Company's offering conducted from March to May 2001.(1)

      10.8*  Exclusive  Representation  Agreement  between  AES and Green  Oasis
Environmental, Inc. dated January 4, 2001.

      10.9* Consulting Agreement between AES and Roy Hill dated April 9, 2002.

      * - File Herewith

      (1)  Previously   filed  on  June  21,  2001  as  part  of  the  Company's
Registration Statement on Form SB-2, File No. 333-63582

                                       19
<PAGE>


      (b) AES did not file any report on Form 8-K during the fourth  quarter for
the year ended February 28, 2002.























                                       20
<PAGE>


                                            AMERICAN ENERGY SERVICES, INC.




                          INDEX TO FINANCIAL STATEMENTS

                                                                      PAGE
                                                                      ----

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS                              F-2 - F-3

BALANCE SHEETS
FEBRUARY 28, 2002 and 2001                                            F-4 - F-5

STATEMENTS OF OPERATIONS
YEARS ENDED FEBRUARY 28, 2002 AND 2001                                F-6

STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY
YEARS ENDED FEBRUARY 28, 2002 AND 2001                                F-7

STATEMENTS OF CASH FLOWS
YEARS ENDED FEBRUARY 28, 2002 AND 2001                                F-8

NOTES TO FINANCIAL STATEMENTS                                         F-9/19




                                      * * *




<PAGE>


                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
American Energy Services, Inc.

We have audited the accompanying balance sheet of American Energy Services, Inc.
as of February 28, 2002 and the related  statements  of  operations,  changes in
stockholders'  equity  (deficit)  and cash flows for the year 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 audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the  United  States of  America.  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  audit  provides  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of American Energy Services,  Inc.
as of February 28, 2002 and the results of its operations and cash flows for the
year then ended in conformity with accounting  principles  generally accepted in
the United States of America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in Note 11 to the
financial statements, the Company's significant operating losses and its working
capital  deficit and  stockholders'  deficit raise  substantial  doubt about its
ability to continue as a going concern at February 28, 2002.  Management's plans
in regard to that matter also are described in Note 11. The financial statements
do not  include  any  adjustments  that might  result  from the  outcome of this
uncertainty.



                                                        Whitley Penn

Dallas, Texas
July 17, 2002




                                      F-2
<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 the related statements of operations,  changes
in stockholders'  equity (deficit) and cash flows for the year 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 audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the  United  States of  America.  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  audit  provides  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.

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

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

Simonton, Kutac & Barnidge, L.L.P.
Houston, Texas
May 25, 2001


                                      F-3
<PAGE>


                         AMERICAN ENERGY SERVICES, INC.
                                 BALANCE SHEETS
                           February 28, 2002 and 2001


                         ASSETS
<TABLE>
<CAPTION>
                                                                 2002           2001
                                                             -----------     ----------
<S>                                                          <C>            <C>
Current Assets:
    Cash                                                     $     6,130    $     9,763
    Accounts receivable - trade, less allowance for
       doubtful accounts of $156,000 and
       $59,493, respectively                                     459,669        178,284
    Prepaids and other                                            92,000        118,278
    Costs in excess of billings and estimated earnings
       on uncompleted contracts                                  259,380        955,100
    Inventories                                                1,753,008      2,012,056
                                                             -----------     ----------
       Total current assets                                    2,570,187      3,273,481
                                                             -----------     ----------
Property, plant and equipment:
    Machinery and equipment                                    1,541,251      1,559,714
    Furniture and fixtures                                       327,541        327,541
    Vehicles                                                      83,423         83,423
    Land and buildings                                           303,404        303,404
                                                             -----------     ----------
                                                               2,255,619      2,274,082
    Less accumulated depreciation                             (1,145,181)    (1,013,180)
                                                             -----------     ----------
       Total                                                   1,110,438      1,260,902
                                                             -----------     ----------
Other assets:
    Trademarks, patents and drawings, less accumulated
       amortization of $650,037 and $514,037, respectively       854,086        941,425
                                                             -----------     ----------
                                                             $ 4,534,711     $5,475,808
                                                             ===========    ===========
</TABLE>


                    See accompanying notes to financial statements.




                                      F-4
<PAGE>

                         AMERICAN ENERGY SERVICES, INC.
                                 BALANCE SHEETS
                           February 28, 2002 and 2001


      LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
<TABLE>
<S>                                                            <C>            <C>
Current liabilities:
       Notes payable                                           $2,681,547     $2,589,885
       Long-term debt                                           1,186,369      1,352,845
       Accounts payable and accrued expenses                      693,107      1,057,644
       Federal payroll taxes due                                  640,876        833,566
       Accrued interest                                         1,182,958        769,383
       Estimated litigation damages                             1,086,000      1,086,000
       Billings in excess of cost and estimated earnings on
            uncompleted contracts                                      --        265,000
                                                               ----------     ----------
            Total current  liabilities                          7,470,857      7,954,323
                                                               ----------     ----------
       Convertible debentures (Note 12)                           810,000             --
                                                               ----------     ----------
           Total liabilities                                   8,280,857      7,954,323
                                                               ----------     ----------


 Commitments and contingencies (Note 5)                                --             --
 Stockholders' (deficit) equity:
       Common stock - $.001 par value, 100,000,000 shares
            authorized; 20,461,656 and 15,460,717 shares
            issued and outstanding, respectively                   20,462         15,461
       Additional paid-in capital                               6,076,690      4,648,380
       Common stock subscriptions -- officers and directors      (465,300)
       Accumulated deficit                                     (9,377,998)    (7,142,356)
                                                               ----------     ----------
            Total stockholders' (deficit) equity               (3,746,146)    (2,478,515)
                                                               ----------     ----------
                                                               $4,534,711     $5,475,808
                                                               ==========     ==========
</TABLE>






                    See accompanying notes to financial statements.

                                      F-5
<PAGE>


                     AMERICAN ENERGY SERVICES, INC.
                        STATEMENTS OF OPERATIONS
             For the Years Ended February 28, 2002 and 2001


                                                    2002              2001
                                                ------------      ------------
Sales                                           $  3,317,830      $  4,850,672
       Less returns and allowances                   (44,892)       (1,491,996)
                                                ------------      ------------
           Net sales                               3,272,938         3,358,676
Cost of sales                                      3,064,042         4,658,398
                                                ------------      ------------
           Gross profit (loss)                       208,896        (1,299,722)
Operating expenses                                 2,299,441         4,799,584
                                                ------------      ------------
           Loss from operations                   (2,090,545)       (6,099,306)
Other income (expense):
       Interest expense                             (431,408)         (351,514)
       Other                                         286,311             2,000
                                                ------------      ------------
           Net loss                             $ (2,235,642)     $ (6,448,820)
                                                ============      ============
Basic loss per share                            $      (0.12)     $      (0.83)
                                                ============      ============
Weighted average shares outstanding               18,515,317         7,761,644
                                                ============      ============








                    See accompanying notes to financial statements.

                                      F-6
<PAGE>


                         AMERICAN ENERGY SERVICES, INC.
             STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY
                 For the Years Ended February 28, 2002 and 2001


<TABLE>
<CAPTION>
                                                                      ADDITIONAL      COMMON
                                                COMMON STOCK            PAID-IN        STOCK       ACCUMULATED
                                             SHARES        AMOUNT       CAPITAL     SUBSCRIPTIONS     DEFICIT        TOTAL
                                           ----------   -----------   -----------    -----------    -----------    -----------
<S>               <C> <C>                   <C>         <C>           <C>            <C>            <C>            <C>
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 compensation        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 and 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          (843)          --             --             --
Net loss                                         --            --            --             --       (6,448,820)    (6,448,820)
                                           ----------   -----------   -----------    -----------    -----------    -----------
Balance, February 28, 2001                 15,460,717        15,461     4,648,380           --       (7,142,356)    (2,478,515)
   Common Stock Issued for:
   Cash                                        75,000            75        48,760           --             --           48,835
   Shares issued to escrow (Note 12)        1,200,000         1,200        (1,200)          --             --             --
   Officer and director compensation          250,000           250       194,750           --             --          195,000
   Subscribed by officers and directors       990,000           990       464,310       (465,300)          --             --
   Accounts payable and                          --            --
     accrued liabilities                    1,562,991         1,563       286,129           --             --          287,692
   Financial consultants                      922,948           923       435,561           --             --          436,484
Net loss                                         --            --            --             --       (2,235,642)    (2,235,642)
                                           ----------   -----------   -----------    -----------    -----------    -----------
Balance, February 28, 2002                 20,461,656   $    20,462   $ 6,076,690    $  (465,300)   $(9,377,998)   $(3,746,146)
                                           ==========   ===========   ===========    ===========    ===========    ===========
</TABLE>








                   See accompanying notes to financial statements.










                                      F-7
<PAGE>


                            AMERICAN ENERGY SERVICES, INC.
                               STATEMENTS OPERATIONS
                    For the Years Ended February 28, 2002 and 2001


<TABLE>
<CAPTION>
                                                                         2002            2001
                                                                      -----------    -----------
<S>                                                                   <C>            <C>
Cash flows from operating activities:
      Net loss                                                        $(2,235,642)   $(6,448,820)
      Adjustments to reconcile net loss to cash used
           by operating activities:
           Depreciation and amortization                                  277,410        267,492
           Provision for bad debts                                         96,507         39,493
           Stock issued for services                                      631,484      1,126,855
           Changes in operating assets and liabilities:
              Accounts receivable                                        (377,892)       456,879
              Other receivables                                              --           41,176
              Income tax receivable                                          --          111,476
              Costs and estimated earnings in excess of billing
                 on uncompleted contracts                                 695,720        536,896
              Advances from officers                                         --          (32,500)
              Inventories                                                 259,048       (110,201)
              Prepaids and other                                           44,741       (100,909)
              Deferred tax asset                                             --          150,110
              Accounts payable and accrued liabilities                    (93,294)       181,489
              Payroll taxes due                                          (192,690)       263,566
              Accrued interest payable                                    413,575        248,041
              Estimated litigation damages                                   --        1,204,083
              Billings in excess of cost and estimated earnings
                 on uncompleted contracts                                (265,000)       218,009
                                                                      -----------    -----------
Net cash used by operating activities                                    (746,033)    (1,846,865)
                                                                      -----------    -----------

Cash flows from investing activities:
      Purchase of property, plant and equipment                              --          (57,753)
      Purchase of trademarks, patents and drawings                        (58,070)      (180,000)
                                                                      -----------    -----------
Net cash used in investing activities                                     (58,070)      (237,753)
                                                                      -----------    -----------
Cash flows from financing activities:
      Proceeds from sale of common stock                                   48,835      2,531,916
      Additional debt, including convertible debentures                 1,033,991           --
      Payments on long-term debt                                         (237,356)      (149,677)
      Payments on notes payable                                           (45,000)      (372,123)
      Other                                                                  --            8,487
                                                                      -----------    -----------
Net cash provided from financing activities                               800,470      2,018,603
                                                                      -----------    -----------
Net decrease in cash                                                       (3,633)       (66,015)
Cash and cash equivalents, beginning of year                                9,763         75,778
                                                                      -----------    -----------
Cash and cash equivalents, end of year                                $     6,130    $     9,763
                                                                      ===========    ===========

Cash paid during the years for interest                               $    23,151    $    63,162
                                                                      ===========    ===========
</TABLE>



                                      F-8
<PAGE>


                         AMERICAN ENERGY SERVICES, INC.
                          NOTES TO FINANCIAL STATEMENTS

                           February 28, 2002 and 2001


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.  The Company's  corporate  offices are located in
        Houston, Texas.

        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.

        RECLASSIFICATION  - Certain items in the 2001 financial  statements have
        been reclassified to conform to the 2002 presentation.

        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.  Depreciation  expense  amounted  to
        $132,000  for each of the  years  ended  February  28,  2002  and  2001.
        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


                                      F-9
<PAGE>


                         AMERICAN ENERGY SERVICES, INC.
                          NOTES TO FINANCIAL STATEMENTS


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.

         RESEARCH AND  DEVELOPMENT - Research and  development  is expensed when
         incurred.  Expense amounted to $180,000 and 225,000 for the years ended
         February 28, 2002 and 2001, respectively.

                                      F-10
<PAGE>


                         AMERICAN ENERGY SERVICES, INC.
                          NOTES TO FINANCIAL STATEMENTS

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.

2.      CONTRACTS IN PROGRESS

        Information  regarding  long-term contracts in progress is as follows at
February 28:
<TABLE>
<CAPTION>
                                                                2002        2001
                                                             ---------   ---------
<S>                                                           <C>         <C>
        Expenditures on uncompleted contracts                 $181,566    $579,845
        Estimated earnings thereon                              77,814     110,255
                                                             ---------   ---------
                                                               259,380     690,100
        Less billings applicable thereto                            --          --
                                                             ---------   ---------
                                                              $259,380    $690,100
                                                             =========   =========
        Included in accompanying balance sheet under the following captions:

        Costs in excess of billings on uncompleted contracts  $259,380    $955,100

        Billings in excess of costs on uncompleted contracts        --    (265,000)
                                                             ---------   ---------
                                                              $259,380    $690,100
                                                             =========   =========
</TABLE>









                                      F-11
<PAGE>


                         AMERICAN ENERGY SERVICES, INC.
                          NOTES TO FINANCIAL STATEMENTS



3.      NOTES PAYABLE

<TABLE>
<CAPTION>
                                                                 2002         2001
                                                              ----------   ----------
<S>                                                           <C>          <C>
Note payable to a bank with interest at prime (6.5% at
      February 28, 2002), principal advances are due on
      demand; secured by substantially all assets of the
      Company                                                 $  214,539   $  214,539

Line of credit agreement with a bank with interest at prime
      plus .5% (7% at February 28, 2002) due monthly;
      principal advance are due on demand; collateralized
      by substantially all assets of the Company               1,886,228    1,886,228

Note payable to a bank with interest at 8%, due
      currently, secured by certain machinery and
      Equipment                                                   61,292       61,292

Note payable to a stockholder, interest at 18%, due on
      demand                                                      71,953       83,166

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

Note payable to an individual, interest at 10%, due on
      Demand                                                     200,000      230,856

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

Unsecured line of credit agreement with a bank, interest
      at prime plus 1.5% (8% at February 28, 2002);
      due on demand                                                9,174       12,688

12% note payable to an investment banker, principal and
      interest past due; collateralized by 460,000 shares
      of Company common stock owned by two officers
      ad guaranteed by the officers                              105,000           --

12% note payable to individuals, principal past due               50,000           --

Other                                                             33,245           --
                                                              ----------   ----------
                                                              $2,681,547   $2,589,885
                                                              ==========   ==========
</TABLE>

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

                                      F-12
<PAGE>



                         AMERICAN ENERGY SERVICES, INC.
                          NOTES TO FINANCIAL STATEMENTS


4.      LONG-TERM DEBT

        Long-term debt consists of the following at February 28:
<TABLE>
<CAPTION>
                                                                         2002         2001
                                                                     -----------   -----------
<S>                                                                  <C>           <C>
        Note payable  to a bank due in monthly installments of
            $16,192, including interest at prime plus 2% (8.5%
            at February 28, 2002); due in February 2008,
            collateralized by equipment, furniture and
            fixtures and patents                                     $ 1,049,712   $ 1,094,712

        Note payable to a bank due in monthly installments

            Of $3,410, including interest at 10.5%; due
            In November 2002; collateralized by land,
             building, equipment and inventory                       125,408           125,408

        Two notes payable to a bank, due in monthly

            installments aggregating $1,119, including
            interest at 9% and 8.25%; due July 2002;
            collateralized by automobiles
                                                                           5,894        15,831
        Capitalized leases
             collateralized by equipment                                      --       102,130

        Unsecured revolving credit agreement; 9.25%
            interest payable monthly
                                                                           5,355        14,764
                                                                     -----------   -----------
                Long-term debt (classified as current)               $ 1,186,369   $ 1,352,845
                                                                     ===========   ===========
</TABLE>

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

5.       COMMITMENTS AND CONTINGENCIES (CONTINUED)

         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.  Interest
         has also been  accrued  for fiscal  2002.  The  Company  is  vigorously
         seeking a settlement with the Plaintiff.


                                       F-13
<PAGE>


                         AMERICAN ENERGY SERVICES, INC.
                          NOTES TO FINANCIAL STATEMENTS


5.   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.

6.       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.

         No  tax  benefit  is  recognized  in  the  accompanying  statements  of
         operations  because  the Company has no ability to carry back losses to
         previous profitable years. The net operating loss carryforwards  amount
         to  approximately  $12,250,000 at February 28,2002 and expire from 2011
         to 2017.

         Following is a summary of the Company's deferred taxes at February 28:
<TABLE>
<CAPTION>
                                                                         2002          2001
                                                                     -----------   -----------
<S>                                                                  <C>           <C>
         Difference in bases of intangibles and fixed assets         $  (400,000)  $  (393,327)
         Net operating loss carryforward                               4,183,235     3,400,760
         Valuation allowance                                          (3,783,235)   (3,007,433)
                                                                     -----------   -----------
                                                                              --            --
                                                                     ===========   ===========
</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.

7.       SIGNIFICANT CUSTOMERS

         The Company had sales to one customer that constituted 13% of net sales
         for the year ended February 28, 2002, and 63% of net sales for the year
         ended February 29, 2001.

         Foreign  sales were 47% and 20% of total sales in fiscal years 2002 and
         2001, respectively.

                                      F-14
<PAGE>


                         AMERICAN ENERGY SERVICES, INC.
                          NOTES TO FINANCIAL STATEMENTS


8.     WARRANTS

         The Company  has issued  warrants to two  investment  banking  firms to
         purchase  common  shares 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 440,000 at February 28, 2002.
         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.

9.     STOCK OPTIONS

         The Company  issued  stock  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.

         During the year ended  February 28, 2002, the Company issued options to
         purchase 990,000 shares of common stock to three officers and directors
         at a price  equal to 110% of the market  value at the time of the grant
         of  the  option.   These   options   were   immediately   exercised  by
         subscription. Expense for these options was nominal.

10.      GEOGRAPHIC INFORMATION

         The Company's  revenues by geographical area for the fiscal years ended
         February 28 are as follows:

                                                 2002         2001
                                              ----------   ----------

         United States                        $1,739,869    2,702,101
         Mexico                                1,288,520      651,818
         Middle East                             244,549        4,757
                                              ----------   ----------
            Total revenues                    $3,358,676   $3,272,938
                                              ==========   ==========













                                      F-15
<PAGE>


                         AMERICAN ENERGY SERVICES, INC.
                          NOTES TO FINANCIAL STATEMENTS


11.      GOING CONCERN

         The Company's  financial  statements  have been  presented on the basis
         that it is a going  concern,  which  contemplates  the  realization  of
         assets and the  satisfaction  of  liabilities  in the normal  course of
         business. The current uncertainties  surrounding the sufficiency of its
         future  cash  flows  and the lack of firm  commitments  for  additional
         capital  raise  substantial  doubt  about the ability of the Company to
         continue as a going  concern.  The financial  statements do not include
         any adjustments that might result from the outcome of this uncertainty.
         The  Company  is  reporting  cumulative  net  losses for the past three
         fiscal   years  of   approximately   $9.7   million  and  has  utilized
         approximately  $4.1  million  in cash from  operations  during the same
         period.

         Included in the net current  liabilities  amount at February  28, 2002,
         are estimated litigation damages of $1,086,000 (excluding interest) and
         $640,876 in delinquent  federal payroll taxes (including  penalties and
         interest).  Additionally,  the Company was in default on  substantially
         all of its notes payable and long-term debt and demand has been made by
         the lenders. 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.

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

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

         As a result of the downturn in the oil and gas  industry  over the last
         two years and the resultant negative effect on the Company's  financial
         position,  management had initiated  actions in fiscal  2001/2002 which
         included  among others,  (a)  downsizing  personnel,  (b) attempting to
         improve its working capital, (c) retargeting its marketing efforts and,
         (d) consolidating administrative functions to ensure that the Company's
         resources  are  deployed in a more  profitable  manner.  The  Company's
         efforts to rationalize its operations commenced in the first quarter of
         2000 and continued through 2002. However,  the results of these efforts
         were not  sufficient  to  prevent  significant  operating  losses or to
         provide adequate levels of operating capital.

         The Company's impaired liquidity position has resulted in the inability
         to pay certain  vendors in a timely manner.  In spite of this,  none of
         the  Company's  creditors to date have  threatened to file a bankruptcy
         petition. This has hampered the Company's ability


                                      F-16
<PAGE>

                         AMERICAN ENERGY SERVICES, INC.
                          NOTES TO FINANCIAL STATEMENTS


         11. GOING CONCERN (CONTINUED)

         to hire  sub-contractors,  obtain  materials and supplies,  and conduct
         operations in an effective or efficient  manner.  Moreover,  throughout
         most of fiscal 2001 and 2002, the Company was in default with virtually
         all its debt agreements.  To alleviate the Company's liquidity problems
         and to improve its overall capital  structure,  the Company initiated a
         program to  restructure  its debt and  equity  positions.  The  program
         involved a series of steps designed to raise new funds, restructure its
         debt and increase its shareholders' equity.

         In fiscal 2001, the Company negotiated  agreements with various vendors
         to exchange debt for shares of common stock, and has agreed to register
         the shares to be issued to vendors in exchange for  approximately  $1.5
         million of vendor debt.

         The  Company  has been in  default  on four  loans at Metro  Bank since
         September   1999.  The  loans  total  $3.3  million  in  principal  and
         approximately  $900,000 in interest expense.  To date there has been no
         threatened   foreclosure   action  by  the  Bank.  The  Company  is  in
         negotiation  with Metro Bank to  restructure  this debt.  The  proposed
         restructured  debt will provide an additional  $250,000 working capital
         for the Company and will place the debt under more favorable  terms. If
         the debt is  successfully  restructured,  it will allow the  Company to
         reduce its  interest  expense and  increase  the term of the note to 17
         years.  However,  there can be no assurance the company will be able to
         restructure this debt with Metro Bank.

         The Company  engaged in a private  offering  from  March,  2001 to May,
         2001,  pursuant  to Rule 506.  A  Securities  Purchase  Agreement  with
         certain investors to purchase units (the "Units"), for a purchase price
         of $1,000 per Unit, each unit consisting of a 6% Convertible Promissory
         Note (the  "Note") in the original  principal  amount of $1,000 and 500
         warrants (the  "Warrants")  to purchase one share of common stock.  The
         Company has raised $810,000  through this offering and expects to raise
         additional funds upon the exercise of the Warrants.  Upon conversion of
         the Notes,  the  investors  can  purchase  a number of shares,  without
         limitation,  based upon a 30% discount from the average market price of
         the common stock for the five trading days prior to the conversion. The
         agreements  do not contain a trading  price below which the investor is
         not  permitted to convert the Note.  As a result,  the number of shares
         that these  investors  are  entitled to receive  upon  conversion  will
         increase as the stock price decreases.  Therefore, these investors have
         an incentive  to engage in short  selling  activities  aimed at driving
         down the price of the common stock.

         The Company has retained the services of Mr. Roy W. Hill during  fiscal
         year 2002.  He is a consultant  for the energy and utility  industries.
         His firm  specializes in raising  capital,  restructuring  and reducing
         debt,  bringing  the  business  community  together  for joint  venture
         purposes  or  mergers,  and the  location  of new  revenue  streams for
         businesses  through the generation of new and higher quality customers.
         For his  services,  he is being paid with the  issuance  of 1.5 million
         shares of the Company's common stock.

                                      F-17
<PAGE>


                         AMERICAN ENERGY SERVICES, INC.
                          NOTES TO FINANCIAL STATEMENTS


         11. GOING CONCERN (CONTINUED)

         Although there is no assurance that a final  agreement will be reached,
         since Mr. Hill has become the Company's  consultant,  verbal agreements
         have been  reached with many of the  Company's  major  creditors,  that
         would reduce the company's outstanding debt by as much as $3.5 million.
         Additional negotiations are presently underway with the remaining major
         creditors  with which Mr. Hill has not yet reached a verbal  agreement.
         The Company anticipates reaching  satisfactory  conclusions  concerning
         these  debts,  as well,  during the next six months.  In the event this
         sequence of events occurs in the described fashion, the Company expects
         to experience an improved asset to debt ratio in the future.

         Simultaneously,  with ongoing debt negotiations,  the Company is in the
         process  of  re-establishing  open lines of credit  with the  Company's
         major raw  material  suppliers.  Mr. Hill,  additionally,  is presently
         negotiating  an open  line of credit  with a major US bank  that  would
         provide  periodic  working capital for us with respect to the Company's
         future  short-term  cash  needs.  At the present  time,  the Company is
         seeking a  development  of larger  orders for the  Company's  available
         product lines.  If this progress  continues to increase,  the cash flow
         generated from ongoing  operations should be of significant  benefit in
         reducing  and  or  eliminating  the  Company's  remaining   outstanding
         indebtedness.

         However,  since the  Company  has only had  limited  success in raising
         capital in the past,  there can be no assurance  that they will be able
         to obtain all necessary  additional capital,  and/or that it will be on
         terms  favorable to us.  Subject to the ongoing debt  restructuring  in
         progress, as of February 28, 2002, the Company's current assets totaled
         $2,570,187  and current  liabilities  were  $7,470,857,  resulting in a
         working  capital  deficit of  approximately  $4,900,670.  Although  the
         Company's  management is optimistic about meeting the Company's current
         capital  needs and payment of the Company's  outstanding  indebtedness,
         absent  these new sources of capital and  restructured  financing,  the
         Company  may not have  sufficient  funds  to meet  current  and  future
         obligations  over the next 12 months.  This could  force the Company to
         dispose of assets on  unfavorable  terms in order to meet the Company's
         liquidity  requirements and raise doubts as to the Company's ability to
         continue as an ongoing concern in their present form.

         To  alleviate  the  Company's   liquidity   problems  the  Company  has
         aggressively  initiated a plan, primarily involving the services of Mr.
         Hill described above, to restructure its debt and equity position. This
         plan has already been successful in reducing the Company's  vendor debt
         by $1,506,858.

         Although  the Company has had some  limited  success  raising  capital,
         there can be no  assurance  that the Company will be able to obtain new
         capital,  and if new  capital  is  obtained  that it  will be on  terms
         favorable to the Company.  The Company is actively  seeking new sources
         of  financing,  including  the  restructuring  of old debt and  raising
         capital through the issuance of common stock. Additionally, the Company
         continues  to pursue  methods to expand  its  business  activities  and
         enhance  its  operating  cash  flow.  However,  absent  new  sources of
         financing,  or if  the  Company  does  not  significantly  improve  its
         operating  performance,  the Company will not have sufficient  funds to
         meet

                                      F-18
<PAGE>


                         AMERICAN ENERGY SERVICES, INC.
                          NOTES TO FINANCIAL STATEMENTS


         11. GOING CONCERN (CONTINUED)

         its current obligations over the next twelve months and could be forced
         to  dispose  of  its  assets  in  order  to  satisfy  future  liquidity
         requirements.

         12. CONVERTIBLE DEBENTURES

         The Company has issued $810,000 in 6% convertible  debentures (See Note
         11). The debentures are  convertible to common shares at a 30% discount
         to the five day average bid price of the common stock with a ceiling of
         $1.00 per share.  Interest can be paid in cash or stock at the election
         of the  Company.  The  debentures  were issued in units  consisting  of
         $1,000  debentures  and 500  warrants to  purchase  one share of common
         stock.  The  Company  has issued  4,700,000  shares into escrow for the
         eventual conversion of the debentures.




















                                      F-19
<PAGE>


                                   SIGNATURES

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

                                               AMERICAN ENERGY SERVICES, INC.
                                                             (REGISTRANT)

Date:    July 24, 2002                         By: /s/  LARRY S. ELLIOTT
                                                   ---------------------
                                               Larry S. Elliott
                                               Chairman of the Board

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

<TABLE>
<CAPTION>
SIGNATURE                         TITLE                                                DATE
-------------------------------------------------------------------------------------------
<S>                               <C>                                         <C>
/s/  LARRY S. ELLIOTT             Senior Vice President and Chairman
---------------------------       of the Board                                July 24, 2002


/s/  PATRICK S. ELLIOTT           President, Chief Executive Officer and      July 24, 2002
---------------------------       Director (Principal Executive Officer)


/s/  SIDNEY J. MCCARRA            Senior Vice President and Director          July 24, 2002
---------------------------       Secretary, Principal Accounting Officer


/s/  MARK P. ELLIOTT              Senior Vice President and Director          July 24, 2002
---------------------------

/s/  CARY P. MCCARRA              Senior Vice President and Director          July 24, 2002
---------------------------
</TABLE>