SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report under section 13 or 15(d) of the securities exchange
act of 1934
For the quarterly period ended March 31, 2003
Or
[ ] Transition report pursuant to section 13 or 15(d) of the exchange act
for the transition period from _________ to ________________.
Commission File Number:
0-10238
U.S. Energy Systems, Inc.
Delaware 52-1216347
(State or Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
One North Lexington Avenue
Fourth Floor
White Plains, NY 10601
(Address of Principal Executive Offices)
(914) 993-6443
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of issuer's classes of common
equity, as of May 11, 2003:
Title of Class Number of Shares
Common 11,950,163
U.S. ENERGY SYSTEMS, INC. AND SUBSIDIARIES
CONTENTS
Part I: Financial Information
Item 1. Financial Statements
Page
Consolidated Balance Sheets as of March 31, 2003 and December 31, 2002...................................3
Consolidated Statements of Operations for the three months ended March 31, 2003 and for the three months
ended March 31, 2002 ....................................................................................4
Consolidated Statements of Changes in Stockholders' Equity for the three months ended March 31, 2003
and for the three months ended March 31, 2002............................................................5
Consolidated Statements of Cash Flow for the three months ended March 31, 2003 and for the three
months ended March 31, 2002 .............................................................................6
Notes to Consolidated Financial Statements...............................................................7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ...........10
Item 3. Quantitative and Qualitive Disclosures About Market Risk.........................................13
Item 4. Controls and Procedures..........................................................................13
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K.................................................................13
Signature ...............................................................................................20
Certifications ..........................................................................................21
2
U.S. Energy Systems, Inc. And Subsidiaries
Consolidated Balance Sheets
(in Thousands)
ASSETS March 31, 2003 December 31, 2002
(Unaudited) (Audited)
----------------- -------------------
Current Assets:
Cash.......................................................................... $ 3,253 $ 2,968
Restricted Cash............................................................... 14,498 13,247
Accounts Receivable (less allowance for doubtful accounts $1,200,000)......... 10,677 9,851
Installments Sale Partnership Interest and Interest Receivable, Current
Portion....................................................................... 4,926 4,421
Other Current Assets.......................................................... 2,636 2,339
----------------- -------------------
Total Current Assets, Net................................................. 35,990 32,826
----------------- -------------------
Property, Plant and Equipment, Net............................................ 64,578 65,468
Construction in Progress...................................................... 3,944 3,076
Installment Sale Partnership Interest, less Current Portion................... 14,189 14,945
Notes Receivable.............................................................. 51,450 51,450
Investments................................................................... 7,619 7,613
Deferred Costs, including Debt Issuance Costs, Net of Accumulated
Amortization.................................................................. 3,083 2,745
Goodwill...................................................................... 28,148 28,148
Deferred Tax Asset............................................................ 17,892 17,405
Other Assets.................................................................. 232 571
----------------- -------------------
Total Assets.............................................................. $227,125 $224,247
================= ===================
LIABILITIES
Current Liabilities:
Current Portion Long-term Debt................................................ $ 6,235 $ 6,050
Notes Payable - Stockholder 6,132 6,132
Accounts Payable and Accrued Expenses......................................... 13,702 14,276
Deferred Revenue Installment Sale Partnership Interest, Current Portion....... 1,007 1,007
----------------- -------------------
Total Current Liabilities................................................. 27,076 27,465
----------------- -------------------
Long-Term Debt less Current Portion........................................... 112,124 111,692
Notes Payable - Stockholder................................................... 4,798 4,798
Deferred Revenue Installment Sale Partnership Interest, less Current 5,679 6,085
Portion.......................................................................
Rate Incentive Liability...................................................... 17,219 15,200
Advances from Joint Ventures.................................................. 102 102
----------------- -------------------
Total Liabilities......................................................... 166,998 165,342
----------------- -------------------
Minority Interests......................................................... 17,804 17,308
----------------- -------------------
Stockholders' equity
Preferred Stock, $.01 par Value, Authorized 10,000,000 Shares:
Series B, Cumulative, Convertible, Issued and Outstanding 368 Shares.......... -- --
Series C Cumulative, Convertible, Issued and Outstanding 100,000 Shares....... 1 1
Series D, Cumulative, Convertible, Issued and Outstanding 1,138,888 Shares.... 11 11
Common Stock, $.01 par Value, Authorized 50,000,000 Shares, issued 12,333,613...... 123 123
Treasury Stock, 383,450 Shares of Common Stock at Cost............................. (1,805) (1,805)
Additional Paid-in Capital......................................................... 65,511 65,720
Accumulated Deficit................................................................ (22,134) (23,154)
Foreign Currency Translation Adjustment............................................ 616 701
----------------- -------------------
Stockholders' Equity.......................................................... 42,323 41,597
----------------- -------------------
Total Liabilities and Stockholders' Equity.................................... $227,125 $224,247
================= ===================
See notes to consolidated financial statements
3
U.S. Energy Systems, Inc. And Subsidiaries
Consolidated Statements Of Operations
(in Thousands, except Earning per Share)
Three Months Ended
-------------------------------------
March 31, 2003 March 31, 2002
(Unaudited) (Unaudited)
----------------- ----------------
Revenues............................................................ $ 11,977 $ 9,880
----------------- ----------------
Costs and Expenses:
Operating Expenses............................................. 6,273 6,103
General and Administrative Expenses............................ 1,627 1,722
Operating, General and Administrative-Non-recurring............ - 10,234
Depreciation and Amortization.................................. 1,182 1,318
Loss (gain) from Joint Ventures................................ - (15)
----------------- ----------------
Total Costs and Expenses............................................ 9,082 19,362
----------------- ----------------
Income (Loss) From Operations....................................... 2,895 (9,482)
Interest Income..................................................... 337 395
Interest Expense.................................................... (2,223) (2,270)
Dividend Income..................................................... 20 -
Minority Interest................................................... (496) 17
----------------- ----------------
Income (loss) before Taxes.......................................... 533 (11,340)
Income Tax Benefit.................................................. 487 5,065
----------------- ----------------
Income Before Cumulative Effect of Accounting Changes............... 1,020 (6,275)
Cumulative effect of Accounting change on years prior to 2002
(Net of Income Tax of $546,000).................................. - (754)
----------------- ----------------
Net Income (Loss)................................................... 1,020 (7,029)
Dividends on Preferred Stock........................................ (209) (205)
----------------- ----------------
Income (Loss) Per applicable to common stock........................ $ 811 $(7,234)
================= ================
Income (Loss) per share of common stock:
Income (Loss) per Share of Common Stock - Basic................ $ .07 $ (0.59)
================= ================
Income (Loss) per Share of Common Stock - Diluted.............. $ .06 $ (0.59)
================= ================
Weighted Average Number of Common Stock Outstanding - Basic.... 11,950,163 12,174,775
================= ================
Weighted Average Number of Common Stock Outstanding - Diluted.. 17,115,089 12,174,775
================= ================
Other Comprehensive Income (Loss), Net of Tax
Net Income (Loss)............................................. $ 1,020 $ (7,029)
Foreign Currency Translation Adjustment........................ (85) 29
----------------- ----------------
Total Comprehensive Income (Loss).................................. $ 935 $ (7,000)
================= ================
See notes to consolidated financial statements
4
U.S. ENERGY SYSTEMS, INC AND SUBSIDIARIES
FOR THE YEAR ENDED DECEMBER 31, 2002
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in Thousands, except Share Data)
----------------- ---------------- ----------------- ----------------- ------------------
Preferred Stock Preferred Preferred Stock Preferred Stock Treasury Stock
Series A Stock Series B Series C Series D
- ----------------------------- ----------------- ---------------- ----------------- ----------------- ------------------
No. Amount No. Amount No. Amount No. Amount No. Amount
of of of of of
Shares Shares Shares Shares Shares
- ----------------------------- -------- -------- ------- -------- -------- -------- --------- ------- --------- --------
Balance - December 31,2001 - - 386 - 100,000 $1 1,138,888 $11 (114,700) $(495)
Shares Issued for
Exercised Options and
Warrants - - - - - - - - - -
Issuance of Common Stock - - - - - - - - - -
Treasury Stock - - - - - - - - (268,750) (1,310)
Foreign Currency
Translation Adjustment - - - - - - - - - -
Net Loss for the year
ended December 31, 2002 - - - - - - - - - -
Dividends on Preferred
Stock:
Series B - - - - - - - - - -
Series C - - - - - - - - - -
Series D - - - - - - - - - -
- ----------------------------- -------- -------- ------- -------- -------- -------- --------- ------- --------- --------
- - 386 - 100,00 $1 1,138,888 $11 (383,450) $(1,805)
Balance - December 31, 2002
============================= ======== ======== ======= ======== ======== ======== ========= ======= ========= ========
See notes to consolidated financial statements
5
(con't)
U.S. ENERGY SYSTEMS, INC AND SUBSIDIARIES
FOR THE YEAR ENDED DECEMBER 31, 2002
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in Thousands, except Share Data)
Common Stock
---------------------------------------------------------------------
No. Additional Foreign
Shares Amount Paid In Translation Accumulated
Capital Adjustment Deficit Total
---------- ------- -------- ----------- --------- -----
Balance - December 31,2001 12,065,000 $121 $ 65,647 $ 406 $(7,733) $57,958
Shares Issued for
Exercised Options and
Warrants 120,637 1 230 - - 231
Issuance of Common Stock 147,976 1 674 - - 675
Treasury Stock - - - - - (1,310)
Foreign Currency
Translation Adjustment - - - 295 - 295
Net Loss for the year
ended December 31, 2002 - - - - (15,421) (15,421)
Dividends on Preferred
Stock:
Series B - - (36) - - (36)
Series C - - (180) - - (180)
Series D - - (615) - - (615)
- -------------------------- ---------- -------- -------- -------- --------- --------
Balance - December 31, 2002 12,333,613 $ 123 $65,720 $701 $(23,154) $41,597
======================================= ======== ======== ======== ========= =========
See notes to consolidated financial statements
5
U.S. Energy Systems, Inc And Subsidiaries
Consolidated Statements Of Changes In Stockholders' Equity
For The Three Months Ended March 31, 2003 (Unaudited)
(in Thousands, except Share Data)
Preferred Stock Preferred Stock Preferred Stock
Series B Series C Series D Treasury Stock Common Stock
------------------ ----------------- ------------------- -------------------- --------------------
Number Number Number Number Number
of of of of of
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
--------- -------- -------- -------- ---------- -------- --------- ---------- ---------- ---------
Balance - December 31, 2002 386 - 100,000 $1 1,138,888 $11 (383,450) $(1,805) 12,333,613 $123
Shares Issued for Exercised
Options and Warrants
Issuance of Common Stock
Foreign Currency Translation
Adjustment
Net Income for the three months
ended March 31, 2003
Dividends on Preferred Stock:
Series B
Series C
Series D
--------- -------- -------- -------- ---------- -------- --------- ---------- ---------- ---------
Balance - March 31, 2003 368 - 100,000 $1 1,138,888 $11 (383,450) $(1,805) 12,333,613 $123
========= ======== ======== ======== ========== ======== ========= ========== ========== =========
See notes to consolidated financial statements
6
(CON'T)
U.S. Energy Systems, Inc And Subsidiaries
Consolidated Statements Of Changes In Stockholders' Equity
For The Three Months Ended March 31, 2003 (Unaudited)
(in Thousands, except Share Data)
----------- --------------- ------------ --------
Additional Accumulated
Paid-In Comprehensive Accumulated
Capital Income Deficit Total
----------- --------------- ---------- ----------
Balance - December 31, 2002 $65,720 $701 $(23,154) $41,597
Shares Issued for Exercised
Options and Warrants
Issuance of Common Stock
Foreign Currency Translation
Adjustment (85) (85)
Net Income for the three months
ended March 31, 2003 1,020 1,020
Dividends on Preferred Stock:
Series B (9) (9)
Series C (45) (45)
Series D (155) (155)
----------- ------------ ------------ ----------
Balance - March 31, 2003 $65,511 $616 $ (22,134) $42,323
=========== ============ ============ ==========
See notes to consolidated financial statements
6
U.S. Energy Systems, Inc And Subsidiaries
Consolidated Statements Of Cash Flows
(in Thousands)
Three Months Ended
-------------------------------------
March 31, 2003 March 31, 2002
(Unaudited) (Unaudited)
----------------- ----------------
Cash Flows from operating activities:
Net Income (Loss).................................................................. $ 1,020 $ (7,029)
Adjustments to reconcile Net Income to Net Cash provided by (used in )
Operating Activities:
Depreciation and Amortization.................................................. 1,182 1,318
Write-down of Goodwill......................................................... - 1,300
Recognition of Development Costs............................................... - 1,900
Minority Interest.............................................................. 496 5,149
Deferred Tax Asset............................................................. (487) (5,739)
Changes In:
Accounts Receivable and Other.................................................. (826) 2,793
Other Current Assets........................................................... (297) 421
Other Assets................................................................... 339 853
Accounts Payable and Accrued Expenses.......................................... (574) 3,293
Deferred Revenue and Other..................................................... (406) (1,176)
Rate Incentive Liability....................................................... 2,019 1,341
----------------- ----------------
Net Cash provided by Operating Activities.......................................... 2,466 4,424
----------------- ----------------
Cash Flows from investing activities:
Change in Investments.............................................................. (6) 1,487
Acquisitions of Property and Equipment............................................. (263) (410)
Change in Property and Equipment................................................... - 3,354
Construction in Progress........................................................... (868) (472)
Deferred Financial Costs........................................................... (367) -
----------------- ----------------
Net Cash( provided by) used in Investing Activities................................ (1,504) 3,959
----------------- ----------------
Cash flows from financing activities:
Payment of Long-Term Debt.......................................................... (1,122) (354)
Additional Long-Term Debt.......................................................... 1,654 45,613
Proceeds from Note Receivables..................................................... 251 548
Financing of Energy Projects....................................................... - (56,803)
Proceeds from Exercise of Options and Warrants..................................... - 181
Dividends on Preferred Stock....................................................... (209) (205)
----------------- ----------------
Net Cash used in (provided by) Financing Activities................................ 574 (11,020)
----------------- ----------------
Net Increase (DECREASE ) in cash........................................................ 1,536 (2,637)
Cash - Beginning of Year........................................................... 16,215 25,415
----------------- ----------------
Cash - End of Year................................................................. $17,751 $22,778
================= ================
Supplemental Disclosure of Cash Flow Information:
Cash Paid for Interest............................................................. $ 1,482 $ 2,270
================= ================
Supplemental Disclosure of non-cash financing activities:
Issuance of Common Stock for Investment in SEFL.................................... - $ 675
------------------- ================
See notes to consolidated financial statements
7
U.S. Energy Systems, Inc. And Subsidiaries
Notes To Consolidated Financial Statements (Unaudited)
For The Three Months Ended March 31, 2003 And March 31, 2002
Note A - Basis Of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with instructions to Form 10-Q and Regulations S-X, and
accordingly, do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal accruals)
considered necessary for a fair presentation have been included. The results for
the three months are not necessarily indicative of results for the full year.
For a more complete discussion of significant accounting policies and certain
other information, you should refer to the financial statements included in the
U.S. Energy Systems Inc.'s (the "Company") Annual Report Form 10-KSB for the
year ended December 31, 2002, as amended.
Note B - Net Income (Loss) Per Share
Net Income (Loss) per share has been computed on the basis of the weighted
average number of shares outstanding during the periods. In case of (Loss),
common stock equivalents have not been included in the computation since their
inclusion would be anti-dilutive.
Note C - Income Taxes
The three month financial statements for the period ended March 31, 2003,
reflects an increase in the deferred tax asset due to the use of accelerated
deprecation for tax purposes in this quarter.
The three-month financial statements for the period ended March 31, 2002,
reflects an increase in the deferred tax asset due to an increase in net
operating loss carry-forwards in this quarter.
Note D - Additional Capital
For the three months ended March 31, 2003, no stock options were exercised. For
the three months ended March 31, 2002, 120,637 stock options were exercised,
resulting in the receipt of a total of $231,000 in cash.
Note E - Investments
Scandinavian Energy Finance, Limited / EnergiSystem Sverige. In March 2002,
together with EIC Electricity SA ("EIC"), a Swiss investment company
specializing in energy investments, we formed a joint venture, Scandinavian
Energy Finance, Limited ("SEFL") and financed a new Swedish energy group,
EnergiSystem Sverige AB ("EnergiSystem"). SEFL has a 25 year option to acquire
90% of the fully diluted equity of EnergiSystem for a nominal sum. As part of
the transaction, EnergiSystem acquired seven operating district energy systems
and several late-stage development projects. Currently, the operations provide
biomass-fueled energy to 800 customers serving the equivalent of approximately
30,000 households in ten communities in the vicinity of Stockholm, Sweden. A
significant portion of the energy is provided under long-term contracts. The
energy market in Sweden is deregulated, and district energy markets are not
subject to government rate regulation.
SEFL provided approximately $56 million to EnergiSystem in the form of
financing. Approximately $45 million of this amount was made in the form of a
senior secured convertible debenture to EnergiSystem and approximately $11
million was in the form of a subordinated loan to EnergiSystem. The senior
secured convertible debenture carries an interest rate of approximately 6%
during the first 2 years and 9% thereafter. The subordinated loan carries an
interest rate of approximately 13%.
We hold 51% of the voting interests of SEFL and EIC holds 49% of the voting
interests. We invested approximately $5 million in cash and 167,976 of our
common shares, valued at approximately $769,000 in SEFL, and EIC invested its
proportionate share in cash.
8
A Swedish bank provided SEFL with approximately $45 million of long term
financing on a non-recourse basis to SEFL's stockholders. The financing carries
a variable interest rate of the Stockholm Inter-Bank Offered Rate ("STIBOR")
plus 30 basis points per annum, capped at 4.7% for the first 5 years and a rate
of STIBOR plus 110 basis points per annum thereafter. The loan has a 25 year
term with no amortization during the first ten years.
Note F - Change in Accounting Principle
The Company recorded a change in accounting principle due to the write-off of
the remaining balance of Goodwill for USE Enviro Systems Inc as required in
Financial Accounting Standard Board Statement No. 142 Goodwill and Other
Intangible Assets. This write-off is shown net of taxes in the statement of
operations for the three month period ended March 31, 2002.
Item 2. Management's Discussion and Analysis or Plan of Operation
The following discusses U. S. Energy Systems, Inc.'s operating results and
financial condition:
Results Of Operations
In our Annual Report on Form 10-KSB for the year ended December 31, 2002, as
amended, we reported that we would undertake an evaluation of certain business
units in connection with our transition to a provider of energy outsourcing
services. The evaluation focused on the Company's geothermal businesses,
environmental consulting operations, certain joint venture initiatives and
corporate development strategies. As a result, the Company implemented a plan to
redirect certain of its operating units and portions of recently acquired
operations that were either unprofitable or unrelated to the Company's core
business functions and, thus, inconsistent with its business goal to provide
long-term energy services to large energy consumers in its target markets and
generate stable earnings to stockholders. As part of this effort, the Company
also abandoned plans for several development projects. The redirection of these
business units and assets was partially completed in fiscal year 2002 in an
orderly manner and was undertaken to maximize value for shareholders. The
implementation of these efforts were accomplished through the sale, divestiture
or discontinuation of the relevant business unit, asset or activity. The Company
believed it to be a prudent step in 2002 to adjust valuations and take charges
on business units and assets unrelated to its core focus.
The Company recorded $10,234,000 of operating, general and administrative
non-recurring expenses in the first quarter of 2002. On the operating expense
side, these non-recurring expenses resulted from the adjustment of tangible
assets held at subsidiaries such as fixed assets and investments as well as the
recognition of deferred projects and acquisition costs by USE corporate.
Accruals for potential costs related to the possible sale, divestiture or
discontinuation of certain business units were made in the first and fourth
quarter as part of both operating and general and administrative expense.
Additionally, in the first quarter of 2002 the Company recognized a change in
accounting principle of $754,000 (net of $546,000 tax) to reflect the
application of FASB No. 142 against the recorded goodwill of U.S. Energy
Environmental Corp.
Revenues for the three month periods ended March 31, 2003 and 2002 were as
follows:
Three Months Ended
(in thousands)
------------------------------------
March 31, 2003 March 31, 2002
---------------- ----------------
Operations Group $11,812 $9,880
Corporate Group 165 -
---------------- ----------------
$11,977 $9,880
================ ================
Total revenues increased by $2,097,000 or 21% in the three months ended March
31,2003 ("First Quarter 2003") as compared to the three months ended March 31,
2002 ("First Quarter 2002") mainly due to higher sales volume in the Biogas and
Canadian businesses in the First Quarter of 2003 and a full quarter of SEFL
9
revenues as compared to the 19-day period in the First Quarter 2002. Finally,
revenue of $1,255,000 from USE Enviro, which was sold on June 30, 2002, is
included in the First Quarter 2002. If a comparison is made between First
Quarter 2003 to First Quarter 2002 excluding USE Enviro revenue, then First
Quarter 2003 revenue increased $3,352,000 or 39%.
Operating expense for the three month periods were as followed:
Three Months Ended
(in thousands)
------------------------------------
March 31, 2003 March 31, 2002
---------------- ----------------
Operations Group $6,273 $6,103
Corporate Group - -
---------------- ----------------
$6,273 $6,103
================ ================
Operating expenses increased by 3%, or approximately $170,000 to $6,273,000 in
First Quarter 2003 compared to First Quarter 2002. Additionally, operating
expense of $1,039,000 from the USE Enviro subsidiary, which was sold on June 30,
2002, is included in the First Quarter 2002. If a comparison is made between
First Quarter 2003 to First Quarter 2002 operating expenses excluding USE Enviro
operating expenses, then First Quarter 2003 operating expenses increased
$1,209,000 or 24%. This increase is mainly due to the inclusion for the full
quarter of operating expenses for SEFL as compared to the 19-day period in the
First Quarter 2002 and increases in overtime and maintenance expenses in the
Biogas and Canadian business due to increased demand.
The components of general and administrative expenses for the three month
periods were as follows:
Three Months Ended
(in thousands)
------------------------------------
March 31, 2003 March 31, 2002
---------------- ----------------
Salaries and Consulting $ 725 $ 759
Legal and Professional 217 207
Insurance 425 375
Corporate Expenses 35 25
Other 225 356
---------------- ----------------
Total $1,627 $1,722
================ ================
General & administrative expenses decreased by $95,000 or 6% in First Quarter
2003 from First Quarter 2002. Additionally, general and administrative expenses
of $196,000 from USE Enviro, which was sold on June 30, 2002, is included in the
First Quarter 2002. If a comparison is made between First Quarter 2003 and First
Quarter 2002 general and administrative expenses excluding USE Enviro general
and administrative expense, then First Quarter 2003 general and administrative
expenses increased $101,000 or 7%. This reflects an increase in compensation,
including severance payouts, and in support services, e.g. telephone, utilities,
supplies.
Depreciation and amortization expense decreased to $1,182,000 in the First
Quarter 2003 compared to $1,318,000 in the First Quarter 2002, mainly due to a
higher average depreciable life of the assets in First Quarter 2003. First
Quarter 2002 depreciation and amortization expense, excluding USE Enviro, would
have been $1,210,000 and would be a decrease compared to First Quarter of 2003
of $28,000 or 2%.
The decrease in interest income of $58,000 in First Quarter 2003 over First
Quarter 2002 is primarily due to lower interest earnings on decreased average
cash balances during the quarter and lower market rates. Interest expense
decreased $47,000 to $2,223,000 in First Quarter 2003 compared to First Quarter
2002 of $2,270,000.
Liquidity And Capital Resources
At March 31, 2003, cash and cash equivalents totaled approximately $17,751,000
of which $3,253,000 was unrestricted, as compared to $2,968,000 of unrestricted
cash at December 31, 2002. In connection with notes payable by certain Biogas
10
subsidiaries, the lender required these subsidiaries to maintain various
restricted cash accounts, which, at March 31, 2003, amounted to $14,498,000.
This amount also includes approximately $1.2 million of funds the Company set
aside to ensure the payment of dividends on certain series of our preferred
stock. These funds were set apart in conjunction with the approval of our plan
of recapitalization.
During the three months ended March 31, 2003, cash flow of $2,466,000 from
operating activities and $574,000 from financing activities were used to fund
the $1,504,000 of investing activities. An overall increase in cash of
$1,536,000 was still achieved in First Quarter 2003.
Cash flow from operating activities during the three months ended March 31, 2003
was $2,466,000 as compared to $4,424,000 at March 31, 2002.
Our consolidated working capital was $8,914,000 at March 31, 2003 compared to
$5,361,000 at December 31, 2002.
We continue to evaluate current and forecasted cash flow as a basis to determine
financing operating requirements and capital expenditures. We believe that we
will have sufficient liquidity from cash flow from operations, sales of assets,
and working capital to satisfy all obligations under outstanding indebtedness
and to refinance a shareholder loan to certain Biogas subsidiaries relating to
the Morris Illinois project which has come due, to make current a shareholder
loan to Biogas of which interest and scheduled amortization payments are past
due, to finance anticipated capital expenditures and to fund working capital
requirements for the next twelve months.
Cautionary Statement Relating To Forward Looking Statements
This Form 10-Q contains certain "forward looking statements" which represent our
expectations or beliefs, including, but not limited to, statements concerning
industry performance and our operations, performance, financial condition,
growth and strategies. For this purpose, any statements contained in this Form
10-Q that are not statements of historical fact may be deemed to be forward
looking statements. Without limiting the generality of the foregoing, words such
as "may," "will," "expect," "believe," "anticipate," "intend," "could,"
"estimate" or "continue" or the negative or other variations thereof or
comparable terminology are intended to identify certain forward-looking
statements. These statements by their nature involve substantial risks and
uncertainties, certain of which are beyond our control, and actual results may
differ materially depending on a variety of important factors which are noted
herein, including but not limited to the potential impact of competition,
changes in local or regional economic conditions, our ability to continue our
growth strategy, dependence on management and key personnel, supervision and
regulation issues and the ability to find financing on terms suitable to us.
Additional factors which may impact our business, prospects, operating results
and financial condition are described under the caption "Risk Factors" in our
Annual Report on Form 10-KSB for the year ended December 31, 2002, as amended
Item 3: Quantitative and Qualitative Disclosures About Market Risk
We are exposed to various types of market risk in the normal course of our
business, including the impact of interest rate changes, foreign currency
exchange rate fluctuations, changes in equity investment prices and changes in
corporate tax rates.
It is our general policy to not enter into any interest rate, foreign currency
or derivative transactions as a hedge against these market risks as the
underling assets and investments are long-term in nature. This issue is
discussed in more detail on Form-KSB for the period ended December 31, 2002, as
amended.
Item 4: Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
The Company has established a series of systems and procedures to assure
full and timely disclosure of material information respecting the Company.
Our Chief Executive Officer and Chief Accounting Officer (the person who
performs the functions of the Chief Financial Officer), based on their
11
evaluation of our systems of internal controls and procedures as of a date
within 90 days of the filing date of this report, concluded that our
disclosure controls and procedures are effective in alerting them on a
timely basis to material information relating to us (including our
consolidated subsidiaries) required to be included in our periodic SEC
filings.
(b) Changes in Internal Controls
There were no changes in our internal controls or in other factors that
would significantly affect these controls subsequent to the date of their
evaluation.
Part II _ Other Information
ITEM 6 - Exhibits
Exhibit
Number Description
- -------------- ------------------------------------------------------------------------------------------------------
2.1 Merger Agreement by and between the Company, USENVIRO Merger Corp., American Enviro-Services, Inc.,
and the shareholders of American Enviro-Services, dated as of August 4, 1997 (4)
- -------------- ------------------------------------------------------------------------------------------------------
2.2 Subscription Agreement dated as of August 23, 2000, by and among U.S. Energy System Castlebridge,
LLC ("USE Sub"), Kemper-Castlebridge, Inc., ("KC"), GKM II Corporation ("GKM") and Castlebridge
Partners, LLC ("Castlebridge") (9)
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2.3 Agreement and Plan of Reorganization and Merger dated as of November 28, 2000, by and among U.S.
Energy Systems, Inc. ("US Energy"), USE Acquisition Corp. ("US Energy Sub"), and Zahren Alternative
Power Corp. ("Zapco") (without schedules or exhibits) (the "Merger Agreement"). (11)
- -------------- ------------------------------------------------------------------------------------------------------
2.4 Amendment No 1 dated as of the 11th day of December, 2000 to the Merger Agreement. (11)
- -------------- ------------------------------------------------------------------------------------------------------
2.5 Amendment No. 2 dated as of the 19th day of December, 2000 to the Merger Agreement. (15)
- -------------- ------------------------------------------------------------------------------------------------------
2.6 Amendment No. 3 dated as of the 19th day of January, 2001 to the Merger Agreement. (15)
- -------------- ------------------------------------------------------------------------------------------------------
2.7 Amendment No. 4 dated as of the 23rd day of February, 2001 to the Merger Agreement. (15)
- -------------- ------------------------------------------------------------------------------------------------------
2.8 Amendment No. 5 dated April 30, 2001 to the Merger Agreement. (16)
- -------------- ------------------------------------------------------------------------------------------------------
2.9 Stock Purchase Agreement dated as of June 11, 2001 by and between USE Canada Acquisition Corp. and
Trigen-Canada Company LLC. (17)
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2.10 Amendment No. 6 dated as of November 1, 2002 to the merger Agreement. (18)
- -------------- ------------------------------------------------------------------------------------------------------
2.11 Amendment No. 7 dated as of the 10th day of February, 2003 to the Merger Agreement. (19)
- -------------- ------------------------------------------------------------------------------------------------------
2.12 Amendment No. 8 dated as of the 13th day of March, 2003 to the Merger Agreement. (19)
- -------------- ------------------------------------------------------------------------------------------------------
3.1 Restated Certificate of Incorporation of the Company filed with the Secretary of State of Delaware.
(1)
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3.2 By-Laws of the Company (2)
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3.3 Articles of Organization of Steamboat Envirosystems, L.C (1)
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3.4 Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Company (10)
- -------------- ------------------------------------------------------------------------------------------------------
3.5 Certificate of Increase of Series A Convertible Preferred Stock of the Company (10)
- -------------- ------------------------------------------------------------------------------------------------------
3.6 Amended and Restated By-Laws of US Energy (11)
- -------------- ------------------------------------------------------------------------------------------------------
3.7 Form of Certificate of Designation for US Energy's Series C Preferred Stock (15)
- -------------- ------------------------------------------------------------------------------------------------------
3.8 Form of Certificate of Designation for US Energy's Series D Preferred Stock (15)
- -------------- ------------------------------------------------------------------------------------------------------
12
3.9 Certificate of Correction to Certificate of Designation of Series A Preferred Stock (15)
- -------------- ------------------------------------------------------------------------------------------------------
3.10 Certificate of Correction to Certificate of Designation of Series B Preferred Stock (15)
- -------------- ------------------------------------------------------------------------------------------------------
4.1 Specimen Stock Certificate (1)
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4.2 Form of Warrant (1)
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4.3 Form of Warrant Agreement (1)
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4.4 Form of Representative's Purchase Option (1)
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4.5 Certificate of Designation of Series A Convertible Preferred Stock of the Company as filed with the
Secretary of State of Delaware on March 23, 1998 (7)
- -------------- ------------------------------------------------------------------------------------------------------
4.6 Certificate of Designation of Series B Convertible Preferred Stock of the Company as filed with the
Secretary of the State of Delaware (14)
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4.7 Amended and Restated Plan of Recapitalization dated as of July 31, 2000 by and between the Company
and the parties identified therein. (15)
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4.8 Form of Series B Warrant to Purchase Shares of Common Stock (10)
- -------------- ------------------------------------------------------------------------------------------------------
4.9 Form of Series C Redeemable Common Stock Purchase Warrant of US Energy (11)
- -------------- ------------------------------------------------------------------------------------------------------
10.1 Plan of Reorganization of Cogenic Energy Systems, Inc. (2)
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10.2 8% Convertible Subordinated Debenture due 2004 (2)
- -------------- ------------------------------------------------------------------------------------------------------
10.5 Purchase Agreement, dated as of January 24, 1994, between Lehi Co-Gen Associates, L.C. and Lehi
Envirosystems, Inc. (2)
- -------------- ------------------------------------------------------------------------------------------------------
10.6 Operating Agreement among Far West Capital, Inc., Suma Corporation and Lehi Envirosystems, Inc.
dated January 24, 1994 (2)
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10.7 Form of Purchase and Sale Agreement between Far West Capital, Inc., Far West Electric Energy Fund,
and L.P., 1-A Enterprises, the Company and Steamboat LLC (1)
- -------------- ------------------------------------------------------------------------------------------------------
10.8 Form of Operation and Maintenance Agreement between Steamboat LLC and S.B. Geo, Inc. (1)
- -------------- ------------------------------------------------------------------------------------------------------
10.9 Letter Agreement, dated as of November 8, 1994, between the Company, PSC Cogeneration Limited
Partnership, Central Hudson Cogeneration, Inc. and Independent Energy Finance Corporation (1)
- -------------- ------------------------------------------------------------------------------------------------------
10.10 Agreement among the Company, Plymouth Envirosystems, Inc., IEC Plymouth, Inc. and Independent Energy
Finance Corporation dated November 16, 1994 (1)
- -------------- ------------------------------------------------------------------------------------------------------
10.11 Amended and Restated Agreement of Limited Partnership of Plymouth Cogeneration Limited Partnership
between PSC Cogeneration Limited Partnership, Central Hudson Cogeneration, Inc. and Plymouth
Envirosystems, Inc. dated November 1, 1994 (1)
- -------------- ------------------------------------------------------------------------------------------------------
10.12 Amended and Restated Agreement of Limited Partnership of PSC Cogeneration Limited Partnership among
IEC Plymouth, Inc., Independent Energy Finance Corporation and Plymouth Envirosystems, Inc. dated
December 28, 1994 (1)
- -------------- ------------------------------------------------------------------------------------------------------
10.13 Purchase and Sale Agreement, dated as of December 31, 1995, between the Company, Far West Capital,
Inc., Far West Electric Energy Fund, L.P., 1-A Enterprises and Steamboat Enviro systems, LLC (1)
- -------------- ------------------------------------------------------------------------------------------------------
10.13(a) Letter Agreement, dated September 25, 1996, between the Company and Far West Capital, Inc. (1)
- -------------- ------------------------------------------------------------------------------------------------------
13
10.16 Security Agreement and Financing Statement among the Company, Lehi Envirosystems, Inc., Plymouth
Envirosystems, Inc. and Anchor Capital Company, LLC dated June 14, 1995, as amended (1)
- -------------- ------------------------------------------------------------------------------------------------------
10.20 Lease dated September 1, 1995 between the Company and Gaedeke Holdings, Ltd. (1)
- -------------- ------------------------------------------------------------------------------------------------------
10.21 Documents related to Private Placement (1)
- -------------- ------------------------------------------------------------------------------------------------------
10.21(a) Certificate of Designations (1)
- -------------- ------------------------------------------------------------------------------------------------------
10.22 Purchase Agreement between the Company and Westinghouse Electric Corporation dated as of November 6,
1995 and amendments thereof (1)
- -------------- ------------------------------------------------------------------------------------------------------
10.25(a) Long-Term Agreement for the Purchase and Sale of Electricity
Between Sierra Pacific Power Company and Far West Capital, Inc.
dated October 29, 1988 (1)
- -------------- ------------------------------------------------------------------------------------------------------
10.25(b) Assignment of Interest, dated December 10, 1988 by and between Far West Capital, Inc. and 1-A
Enterprises (1)
- -------------- ------------------------------------------------------------------------------------------------------
10.25(c) Letter dated August 18, 1989 by Gerald W. Canning, Vice President
of Electric Resources, consenting to the Assignment of Interest
on behalf of Sierra Pacific Power Company (1)
- ------------------------------------------------------------------------------------------------------
10.26(a) Agreement for the Purchase and Sale of Electricity, dated as of November 18, 1983 between Geothermal
Development Associates and Sierra Pacific Power Company (1)
- -------------- ------------------------------------------------------------------------------------------------------
10.26(b) Amendment to Agreement for Purchase and Sale of Electricity,
dated March 6, 1987, by and between Far West Hydroelectric Fund,
Ltd. and Sierra Pacific Power Company (1)
- -------------- ------------------------------------------------------------------------------------------------------
10.27 Loan and Option Agreement dated August, 1996 by and among NRG Company, LLC and Reno Energy, LLC and
ART, LLC and FWC Energy, LLC, and amendments thereto (1)
- -------------- ------------------------------------------------------------------------------------------------------
10.28 Promissory Note dated August 9, 1996 for $300,000 from Reno Energy, LLC to NRG Company, LLC (1)
- -------------- ------------------------------------------------------------------------------------------------------
10.29 Letter of Intent dated July 15, 1996 on behalf of Reno Energy, LLC (1)
- -------------- ------------------------------------------------------------------------------------------------------
10.30 Limited Liability Company Operating Agreement of NRG Company, LLC dated as of September 8, 1996, and
amendments thereto (1)
- -------------- ------------------------------------------------------------------------------------------------------
10.31 Form of Limited Liability Company Operating Agreement of Steamboat, Envirosystems, L.C. dated as of
October, 1996 (1)
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10.32 Form of Debenture Conversion Agreement (1)
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10.33(a) First Amended and Restated Loan and Option Agreement, dated April 9, 1997, by and between USE Geothermal,
LLC, and Reno Energy LLC, ART, LLC and FWC Energy, LLC (3)
- -------------- ------------------------------------------------------------------------------------------------------
10.33(b) Note in the amount of $1,200,000, dated as of April 9, 1997, made by Reno Energy LLC in favor of USE
Geothermal, LLC (3)
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10.33(c) Security Agreement, dated as of April 9, 1997, made by Reno Energy LLC in favor of USE Geothermal,
LLC (3)
- -------------- ------------------------------------------------------------------------------------------------------
10.33(d) Form of Security Agreement and Collateral Assignment, entered into by and between USE Geothermal, LLC and both FWC
Energy LLC and ART LLC (3)
- -------------- ------------------------------------------------------------------------------------------------------
10.33(e) Guaranty Agreement, dated as of April 9, 1997, made by FWC Energy LLC and ART LLC in favor of USE
Geothermal, LLC (3)
- -------------- ------------------------------------------------------------------------------------------------------
10.34 1996 Stock Option Plan (5)
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10.35 Form of 9% Convertible Subordinated Secured Debenture due 2004 (6)
- -------------- ------------------------------------------------------------------------------------------------------
10.36 Form of Employment Agreement by and between the Company and Howard Nevins (4)
- -------------- ------------------------------------------------------------------------------------------------------
14
10.37 Subscription Agreement, dated March 20, 1998, between the Company and Energy Systems Investors, LLC
(7)
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10.38 Registration Rights Agreement, dated March 20, 1998, between the Company and Energy Systems
Investors, LLC (7)
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10.39 Amended and Restated Stock Option Agreement between the Company and Lawrence I. Schneider dated May
10, 2000 with respect to 750,000 shares of the Company Common Stock (10)
- -------------- ------------------------------------------------------------------------------------------------------
10.40 Amended and Restated Stock Option Agreement between the Company and Goran Mornhed dated May 10, 2000
with respect to 1,000,000 shares of the Company Common Stock (10)
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10.41 Pledge Agreement dated as of July 31, 2000 by and between the Company and Energy Systems Investors,
L.L.C. (10)
- -------------- ------------------------------------------------------------------------------------------------------
10.42 Limited Recourse Promissory Note dated July 31, 2000 issued by Energy Systems Investors, L.L.C. in
favor of the Company (10)
- -------------- ------------------------------------------------------------------------------------------------------
10.43 Stockholders' and Voting Agreement dated as of November 28, 2000 by and among AJG Financial
Services, Inc., Bernard Zahren, Environmental Opportunities Fund, Environmental Opportunities
Fund/Cayman, Finova Mezzanine Capital Corp., Frederic Rose, M & R Associates, Martin F. Laughlin,
Michael J. Carolyn and Richard J. Augustine (collectively, the "Zapco Stockholders"), US Energy,
Cinergy Solutions, Inc. ("Cinergy Solutions") and certain stockholders of US Energy. (11)
- -------------- ------------------------------------------------------------------------------------------------------
10.44 Termination Fee Agreement dated as of November 28, 2000 by and among US Energy, Zapco and Cinergy
Energy Solutions, Inc. ("Cinergy Energy"). (11)
- -------------- ------------------------------------------------------------------------------------------------------
10.45 Indemnification Agreement dated as of November 28, 2000 by and among the Zapco Stockholders, Zapco,
US Energy, US Energy Sub and Cinergy Energy. (11)
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10.46 Escrow Agreement dated November 28, 2000 by and among the Zapco Stockholders, Zapco, US Energy, US
Energy Sub, Cinergy Energy and Tannenbaum Helpern Syracuse & Hirschtritt LLP as Escrow Agent. (11)
- -------------- ------------------------------------------------------------------------------------------------------
10.47 Registration Rights Agreement dated November 28, 2000 by and among US Energy and the Zapco
Stockholders. (11)
- -------------- ------------------------------------------------------------------------------------------------------
10.48 Employment Agreement dated November 28, 2000 by and between US Energy and Bernard Zahren. (11)
- ------------- ------------------------------------------------------------------------------------------------------
10.49 Form of Stock Option Agreement to be entered into by and between US Energy and Bernard Zahren. (11)
- -------------- ------------------------------------------------------------------------------------------------------
10.50 Performance Guaranty dated as November 28, 2000 of US Energy.(11)
- -------------- ------------------------------------------------------------------------------------------------------
10.51 Performance Guaranty of Cinergy Solutions Holding Company, Inc. dated as of November 28, 2000. (11)
- -------------- ------------------------------------------------------------------------------------------------------
10.52 Subscription Agreement dated as of November 28, 2000 by and among US Energy, US Energy Sub and
Cinergy Energy. (11)
- -------------- ------------------------------------------------------------------------------------------------------
10.53 Stockholders Agreement dated as of November 28, 2000 by and among US Energy, US Energy Sub and
Cinergy Energy. (11)
- -------------- ------------------------------------------------------------------------------------------------------
10.54 Indemnification Agreement dated as of November 28, 2000 by and among US Energy, US Energy Sub and
Cinergy Energy. (11)
- -------------- ------------------------------------------------------------------------------------------------------
10.55 Employment Agreement dated as of May 10, 2000 by and between the Company and Lawrence Schneider (13)
- -------------- ------------------------------------------------------------------------------------------------------
10.56 Employment Agreement dated as of May 10, 2000 by and between the Company and Goran Mornhed (13)
- -------------- ------------------------------------------------------------------------------------------------------
10.57 2000 Executive Incentive Compensation Plan (13)
- -------------- ------------------------------------------------------------------------------------------------------
10.58 2000 Executive Bonus Plan (13)
- ------------- ------------------------------------------------------------------------------------------------------
15
10.59 Stock Option Agreement between the Company and Lawrence Schneider with respect to 1,000,000 shares
of Common Stock (13)
- -------------- ------------------------------------------------------------------------------------------------------
10.60 Stock Option Agreement between the Company and Goran Mornhed with respect to 187,500 shares of
Common Stock (13)
- -------------- ------------------------------------------------------------------------------------------------------
10.61 Stock Option Agreement between the Company and Goran Mornhed with respect to 562,500 shares of
Common Stock (13)
- ------------- ------------------------------------------------------------------------------------------------------
10.62 Standby Payment Agreement dated as of June 11, 2001 by and among U. S. Energy Systems, Inc., USE
Canada Acquisition Corp. and AJG Financial Services, Inc.(17)
- -------------- ------------------------------------------------------------------------------------------------------
10.63 Promissory Note dated June 11, 2001 made by USE Canada Acquisition Corp. in favor of Trigen - Canada
Company LLC (17)
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10.64 Guaranty made as of June 11, 2001 by USE Energy Systems, Inc. in favor of Trigen - Canada Company
LLC and the other person identified therein (17)
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10.65 Development Incentive Plan (18)
- -------------- ------------------------------------------------------------------------------------------------------
10.66 Corporate Incentive Plan (18)
- -------------- ------------------------------------------------------------------------------------------------------
10.67 Finance Incentive Plan (18)
- -------------- ------------------------------------------------------------------------------------------------------
10.68 Employment Agreement dated as of August 20, 2001 between the Company and Allen J. Rothman (18)
- -------------- ------------------------------------------------------------------------------------------------------
10.69 Employment Agreement dated as of January 1, 2002 between the Company and Edward Campana (18)
- -------------- ------------------------------------------------------------------------------------------------------
10.70 Employment Agreement dated as of September 8, 2000 between the Company and Henry Schneider (18)
- -------------- ------------------------------------------------------------------------------------------------------
10.71 Shareholder Agreement dated March 2002 by and among Scandinavian Energy Finance Limited, Endoray
Investments BV, US Energy Systems, Inc., EIC Investments (Jersey) Limited and A&A EIC Electricity
Investment Company (18)
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10.72 Financing Agreement dated as of March 11, 2002 by and between Scandinavian Energy Finance Limited and
Gigantissimo 2321 AB n/k/a EnergiSystems Sverige AB (18)
- -------------- ------------------------------------------------------------------------------------------------------
10.73 Conditions on Gigantissimo 2321 AB n/k/a EnergiSystems Sverige AB's Convertible Debenture Loan
2002-2027 (18)
- -------------- ------------------------------------------------------------------------------------------------------
10.74 Subordinated Loan Agreement dated as of March 11, 2002 between Gigantissimo 2324 AB to be renamed
Narvarme Acquisition I and AB Scandinavian Energy Finance Limited (18)
- -------------- ------------------------------------------------------------------------------------------------------
10.75 Shareholders Agreement dated as of March 11, 2002 by and among Goran Ernstson, Scandinavian Energy
Finance Limited, Lansforsakringar Liv Forsakringsaktiebolag for the shares of Gigantissimo 2321 AB n/k/a
EnergiSystem Sverige AB (18)
- -------------- ------------------------------------------------------------------------------------------------------
10.76 Security Holders Agreement dated as of March 11, 2002 between Scandinavian Energy Finance Limited
and Goran Ernstson (18)
- -------------- ------------------------------------------------------------------------------------------------------
10.77 Option Agreement dated as of March 7, 2002 by and between Goran Ernstson and Scandinavian Energy
Finance Limited (18)
- -------------- ------------------------------------------------------------------------------------------------------
10.78 Amendment No. 1 to Escrow Agreement dated as of May 22, 2001 by and among the Zapco stockholders,
Zapco, US Energy, USE Acquisition Corp., Cinergy Energy and Tannenbaum Helpern Syracuse &
Hirschtritt LLP as Escrow Agent (18)
- -------------- ------------------------------------------------------------------------------------------------------
10.79 Amendment No. 1 to Indemnification Agreement dated as of May 11, 2001 by and among the Zapco
stockholders, Zapco, US Energy, USE Acquisition Corp. and Cinergy Energy (18)
- -------------- ------------------------------------------------------------------------------------------------------
10.80 Amendment No. 2 to Indemnification Agreement dated as of Npvember 1, 2002 by and among stockholders,
Zapco, US Energy, USE Acquisition Corp. and Cinergy Energy (18)
- -------------- ------------------------------------------------------------------------------------------------------
16
10.81 Amendment No. 2 to Escrow Agreement dated as of November 1, 2002 by and amoung the Zapco
stockholders, Zapco, US Energy, USE Acquisition Corp., Cinergy Energy and Tannebaum Helpern
Syracuse & Hirschtritt LLP as Escrow Agent. (18)
- -------------- ------------------------------------------------------------------------------------------------------
10.82 Amendment No. 3 dated as of the 10th day of February, 2003 to the Indemnification Agreement. (19)
- -------------- ------------------------------------------------------------------------------------------------------
10.83 Amendment No. 4 dated as of the 13th day of March, 2003 to the Indemnification Agreement. (19)
- -------------- ------------------------------------------------------------------------------------------------------
10.84 Amendment No. 3 dated as of the 10th day February, 2003 to the Escrow Agreement. (19)
- -------------- ------------------------------------------------------------------------------------------------------
10.85 Amendment No. 4 dated as of the 13th day of March, 2003 to the Escrow Agreement. (19)
- -------------- ------------------------------------------------------------------------------------------------------
99.2 Second Amended and Restated Operating Agreement dated as of August 23, 2000 by and between USE Sub,
KC, GKM and Castlebridge. (12)
- -------------- ------------------------------------------------------------------------------------------------------
(1) Incorporated by reference to the Company's Registration Statement on Form SB-2 (File No. 333-94612).
- -------------- ------------------------------------------------------------------------------------------------------
(2) Incorporated by reference to the Company's Annual Report on Form 10-KSB for the year ended January
31, 1994.
- -------------- ------------------------------------------------------------------------------------------------------
(3) Incorporated by reference to the Company's Current Report on Form 8-K filed on April 24, 1997.
- -------------- ------------------------------------------------------------------------------------------------------
(4) Incorporated by reference to the Company's Current Report on Form 8-K dated August 12, 1997.
- -------------- ------------------------------------------------------------------------------------------------------
(5) Incorporated by reference to the Company's Annual Report on Form 10-KSB for the year ended January
31, 1997.
- -------------- ------------------------------------------------------------------------------------------------------
(6) Incorporated by reference to the Company's Current Report on Form 8-K dated August 18, 1997.
- -------------- ------------------------------------------------------------------------------------------------------
(7) Incorporated by reference to the Company's Current Report on Form 8-K filed on March 26, 1998.
- -------------- ------------------------------------------------------------------------------------------------------
(8) Incorporated by reference to the Company's Annual Report on Form 10-KSB for the year ended January
31, 1998.
- -------------- ------------------------------------------------------------------------------------------------------
(9) Incorporated by reference to the Company's Current Report on Form 8-K/A filed on September 5, 2000.
- -------------- ------------------------------------------------------------------------------------------------------
(10) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB for the quarter ended
July 31, 2000.
- -------------- ------------------------------------------------------------------------------------------------------
(11) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB for the quarter ended
October 31, 2000.
- -------------- ------------------------------------------------------------------------------------------------------
(12) Incorporated by reference to the Company's Registration Statement on Form S-3 filed on February 20,
2001.
- -------------- ------------------------------------------------------------------------------------------------------
(13) Incorporated by reference to the Company's Current Report on Form 8-K dated May 4, 2000.
- -------------- ------------------------------------------------------------------------------------------------------
(14) Incorporated by reference to the Company's Annual Report on Form 10-KSB for the year ended January
31, 1999.
- -------------- ------------------------------------------------------------------------------------------------------
(15) Incorporated by reference to the Company's Report on Form 10-KSB for the period ended December 31,
2000.
- -------------- ------------------------------------------------------------------------------------------------------
(16) Incorporated by reference to the Company's Post-Effective Amendment to Registration Statement on
Form Series SB-2 filed on May 14, 2001.
- -------------- ------------------------------------------------------------------------------------------------------
17
(17) Incorporated by reference to the Company's Current Report on Form 8-K dated June 11, 2001.
- -------------- ------------------------------------------------------------------------------------------------------
(18) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB dated August 14, 2002
- -------------- ------------------------------------------------------------------------------------------------------
(19) Incorporated by reference to the Company's Report on Form 10-KSB for the period ended December 31,
2002.
- -------------- ------------------------------------------------------------------------------------------------------
(b) REPORTS ON FORM 8-K
None.
18
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned U.S. ENERGY SYSTEMS, INC., thereunto duly authorized.
Dated: May 15, 2003
By: /s/ Goran Mornhed
-------------
Goran Mornhed
Chief Executive Officer
(Principal Executive Officer)
/s/ Francis D. Fitzgerald
---------------------
Francis D. Fitzgerald
Chief Financial Officer
(Principal Financial and Accounting Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of US Energy Systems Inc (the "Company")
on Form 10-Q for the quarter ending March 31, 2003 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), Goran Mornhed, the
Chief Executive Officer and Francis D. Fitzgerald, the Chief Accounting Officer,
certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
Dated: May 15, 2003
/s/ Goran Mornhed
-------------
Goran Mornhed
Chief Executive Officer
(Principal Executive Officer)
/s/ Francis D. Fitzgerald
---------------------
Francis D. Fitzgerald
Chief Accounting Officer
(Principal Accounting Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Goran Mornhed, the Chief Executive Officer, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of U.S. Energy Systems
Inc.
2. Based upon my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report.
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: May 15, 2003
/s/ Goran Mornhed
-------------
Goran Mornhed
Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Francis D. Fitzgerald, the Chief Accounting Officer, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of U.S. Energy Systems
Inc.
2. Based upon my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report.
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days of this quarterly report (the
"Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: May 15, 2003
/s/ Francis D. Fitzgerald
---------------------
Francis D. Fitzgerald
Chief Accounting Officer
(Principal Accounting Officer)