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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report PURSUANT TO section 13 or 15(d) OF the securities
exchange act of 1934
For the quarterly period ended March 31, 2004
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 other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One North Lexington Avenue
Fifteenth Floor
White Plains, NY 10601
(Address of Principal Executive Offices)
(914) 993-6443
(Registrant's telephone number, Including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
State the number of shares outstanding of each of issuer's classes of common
equity, as of May 14, 2004:
Title of Class Number of Shares
Common Stock 11,890,711
Shares of Common Stock
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
U.S. Energy Systems, Inc. And Subsidiaries
Consolidated Balance Sheets
(in Thousands)
ASSETS March 31, 2004 December 31, 2003
(Unaudited) (Audited)
---------------- -------------------
Current Assets:
Cash.......................................................................... $ 1,889 $ 3,210
Restricted Cash............................................................... 18,987 17,703
Accounts Receivable (less allowance for doubtful accounts $1,313)............. 8,842 9,105
Installment Sales Partnership Interest and Interest Receivable, Current Portion 2,536 2,678
Other Current Assets.......................................................... 3,147 3,664
---------------- -------------------
Total Current Assets...................................................... 35,401 36,360
Property, Plant and Equipment (less accumulated depreciation of $22,792 and 42,892 43,729
$21,750).............
Construction in Progress...................................................... 696 595
Installment Sale Partnership Interest, less Current Portion................... 12,788 12,987
Notes Receivable.............................................................. ------- 1,247
Investments................................................................... 1,915 8,251
Deferred Costs, including Debt Issuance Costs, Net of Accumulated Amortization 2,345 2,405
Goodwill...................................................................... 26,218 26,218
Deferred Tax Asset............................................................ 15,102 11,812
Other Assets.................................................................. 2,377 257
Assets to be disposed of................................................... 28,908 28,180
---------------- -------------------
Total Assets.............................................................. $168,642 $172,041
================ ===================
LIABILITIES
Current Liabilities:
Current Portion Long-term Debt................................................ $4,831 $4,928
Notes Payable - Stockholder 688 688
Accounts Payable and Accrued Expenses......................................... 6,388 5,887
Deferred Revenue Installment Sale Partnership Interest, Current Portion....... 1,007 1,007
---------------- -------------------
Total Current Liabilities................................................. 12,914 12,510
Long-Term Debt less Current Portion........................................... 52,772 53,827
Notes Payable - Stockholder................................................... 10,641 10,641
Deferred Revenue Installment Sale Partnership Interest, less Current Portion.. 4,927 5,105
Rate Incentive Liability...................................................... 22,006 20,652
Advances from Joint Ventures.................................................. 102 102
Liabilities to be Disposed of................................................. 22,106 21,745
--------------- ------------------
Total Liabilities......................................................... 125,468 124,582
---------------- ------------------
Minority Interests......................................................... 8,379 8,374
---------------- -------------------
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 12,333,974...... 123 123
Treasury Stock, 443,263 Shares of Common Stock and 2667 shares of preferred stock, at (2,204) (2,204)
cost ..............................................................................
Additional Paid-in Capital......................................................... 64,684 64,891
Accumulated Deficit................................................................ (28,133) (24,159)
Foreign Currency Translation Adjustment............................................ 313 422
---------------- -------------------
Stockholders' Equity.......................................................... 34,795 39,085
---------------- -------------------
Total Liabilities and Stockholders' Equity.................................... $168,642 $172,041
================ ===================
See notes to consolidated financial statements
2
U.S. Energy Systems, Inc. And Subsidiaries
Consolidated Statements Of Operations
AND COMPREHENSIVE INCOME
(in Thousands, except Earning per Share)
Three Months Ended
March 31, 2004 March 31, 2003
(Unaudited) (Unaudited)
-------------- --------------
Revenues............................................................ $ 5,117 $ 7,179
Costs and Expenses:
Operating Expenses............................................. 2,218 2,935
General and Administrative Expenses............................ 8,422 1,260
Depreciation and Amortization.................................. 978 935
Total Costs and Expenses............................................ 11,618 5,130
Income (LOSS) From Operations....................................... (6,501) 2,049
Interest Income..................................................... 347 328
Interest Expense.................................................... (1,848) (1,923)
Dividend Income..................................................... 15 20
Minority Interest................................................... (5) (255)
Income (loss) before Taxes.......................................... (7,992) 219
Income Tax Benefit.................................................. 3,566 9
Income (LOSS) Before DISCONTINUED OPERATIONS ....................... (4,426) 228
Income from Discontinued Operations (Net of Tax) 452 508
Net Income (LOSS)................................................... (3,974) 736
Dividends on Preferred Stock........................................ (207) (209)
Income (LOSS) applicable to common stock........................... $(4,181) $ 527
------ ------
Income (LOSS) per share of common stock:
Income per Share of Common Stock - Basic....................... $ (.35) $ .04
------ ------
Income per Share of Common Stock - Diluted..................... $ (.35) $ .04
------ ------
Weighted Average Number of Common Stock Outstanding - Basic.... 11,891 11,950
-------- ------
Weighted Average Number of Common Stock Outstanding - Diluted.. 17,053 17,115
-------- ------
Other Comprehensive Income (LOSS), Net of Tax
Net Income (LOSS).............................................. $(3,974) $ 736
Foreign Currency Translation Adjustment........................ (109) (85)
Total Comprehensive Income (LOSS) .................................. $(4,083) $ 651
====== =====
See notes to consolidated financial statements
3
U.S. ENERGY SYSTEMS, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2003
(in Thousands, except Share Data)
Preferred Stock Preferred Stock Preferred Stock Treasury Stock
Series B Series C Series D
--------------- --------------- --------------- --------------
No. of Amount No. of Amount No. of Amount No. of Amount No. of Amount
Shares Shares Shares Shares Shares
- ----------------------- ---------- ---------- ---------- ---------- ----------- ---------- ---------- ---------- ---------- --------
Balance - Dec. 31,
2002 as previously
reported 368 -- 100,000 $ 1 1,138,888 $ 11 (383,450) $(1,805) 12,333,613 $ 123
- ----------------------- ---------- ---------- ---------- ---------- ----------- ---------- ---------- ---------- ---------- --------
Adjustments -- -- -- -- -- -- -- -- -- --
- ----------------------- ---------- ---------- ---------- ---------- ----------- ---------- ---------- ---------- ---------- --------
Balance - Dec. 31,
2002 as adjusted 368 100,000 1 1,138,888 11 (383,450) (1,805) 12,333,613 123
- ----------------------- ---------- ---------- ---------- ---------- ----------- ---------- ---------- ---------- ---------- --------
Issuance of Common
Stock 361
- ----------------------- ---------- ---------- ---------- ---------- ----------- ---------- ---------- ---------- ---------- --------
Foreign Currency
Translation Adjustment
- ----------------------- ---------- ---------- ---------- ---------- ----------- ---------- ---------- ---------- ---------- --------
Treasury Stock (62,480) (399)
- ----------------------- ---------- ---------- ---------- ---------- ----------- ---------- ---------- ---------- ---------- --------
Net Income for the
year ended December
31, 2003
- ----------------------- ---------- ---------- ---------- ---------- ----------- ---------- ---------- ---------- ---------- --------
Dividends on
Preferred Stock:
- ----------------------- ---------- ---------- ---------- ---------- ----------- ---------- ---------- ---------- ---------- --------
Series B
- ----------------------- ---------- ---------- ---------- ---------- ----------- ---------- ---------- ---------- ---------- --------
Series C
- ----------------------- ---------- ---------- ---------- ---------- ----------- ---------- ---------- ---------- ---------- --------
Series D
- ----------------------- ---------- ---------- ---------- ---------- ----------- ---------- ---------- ---------- ---------- --------
Balance - 368 100,000 $ 1 1,138,888 $ 11 (445,930) $(2,204) 12,333,974 $ 123
December 31, 2003
======================= ========== ========== ========== ========== =========== ========== ========== ========== ========== ========
See notes to consolidated financial statements
4
U.S. ENERGY SYSTEMS, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2003
(in Thousands, except Share Data)
Common Stock
--------------
Additional Foreign Accumulated Total
Paid In Currency Deficit
Capital Translation
Adjustment
- ----------------------- --------- ---------- ---------- -----------
Balance - Dec. 31,
2002 as previously
reported $65,720 $ 701 $(23,154) $41,597
- ----------------------- ---------- ---------- ---------- -----------
Adjustments -- -- (2,843) (2,843)
- ----------------------- ---------- ---------- ---------- -----------
Balance - Dec. 31,
2002 as adjusted 65,720 701 (25,997) 38,754
- ----------------------- ---------- ---------- ---------- -----------
Issuance of Common
Stock
- ----------------------- ---------- ---------- ---------- -----------
Foreign Currency
Translation Adjustment (279) (279)
- ----------------------- ---------- ---------- ---------- -----------
Treasury Stock (62,480) (399)
- ----------------------- ---------- ---------- ---------- -----------
Net Income for the
year ended December
31, 2003
Dividends on
Preferred Stock:
- ----------------------- ---------- ---------- ---------- -----------
Series B (34) (34)
- ----------------------- ---------- ---------- ---------- -----------
Series C (180) (180)
- ----------------------- ---------- ---------- ---------- -----------
Series D (615) (615)
- ----------------------- ---------- ---------- ---------- -----------
Balance - $64,891 $ 422 $(24,159) $39,085
December 31, 2003
======================= ========== ========== ========== ===========
See notes to consolidated financial statements
4 (CON'T)
U.S. Energy Systems, Inc And Subsidiaries
Consolidated Statements Of Changes In Stockholders' Equity
FOR THE THREE MONTHS ENDED MARCH 31, 2004
(in Thousands, except Share Data)
Preferred Stock Preferred Stock Preferred Stock Treasury Stock
Series B Series C Series D
- ------------------------- ---------------- ----------------- ----------------------- ---------------
No. of Amount No. of Amount No. of Amount No. of Amount No. of Amount
Shares Shares Shares Shares Shares
- ------------------------- -------- -------- ------------ -------- ------------- ---------- ---------- ---------- ---------- --------
Balance - Dec. 31, 2003 368 100,000 $1 1,138,888 $ 11 (445,930) $(2,204) 12,333,974 $ 123
- ------------------------- -------- -------- ------------ -------- ------------- ---------- ---------- ---------- ---------- --------
Issuance of Common Stock
- ------------------------- -------- -------- ------------ -------- ------------- ---------- ---------- ---------- ---------- --------
Foreign Currency
Translation Adjustment
- ------------------------- -------- -------- ------------ -------- ------------- ---------- ---------- ---------- ---------- --------
Treasury Stock
- ------------------------- -------- -------- ------------ -------- ------------- ---------- ---------- ---------- ---------- --------
Net Income for Three
Months ended March 31,
2004
- ------------------------- -------- -------- ------------ -------- ------------- ---------- ---------- ---------- ---------- --------
Dividends on Preferred
Stock:
- ------------------------- -------- -------- ------------ -------- ------------- ---------- ---------- ---------- ---------- --------
Series B
- ------------------------- -------- -------- ------------ -------- ------------- ---------- ---------- ---------- ---------- --------
Series C
- ------------------------- -------- -------- ------------ -------- ------------- ---------- ---------- ---------- ---------- --------
Series D
- ------------------------- -------- -------- ------------ -------- ------------- ---------- ---------- ---------- ---------- --------
Balance - 368 100,000 $1 1,138,888 $ 11 (445,930) $(2,204) 12,333,974 $ 123
March 31, 2004
========================= ======== ======== ============ ======== ============= ========== ========== ========== ========== ========
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, 2004
(in Thousands, except Share Data)
Common Stock
Additional Foreign Accumulated Total
Paid in Currency Deficit
Capital Translation
Adjustment
- ------------------------- --------- ---------- ---------- ----------
Balance - Dec. 31, 2003 $64,891 $ 422 $(24,159) $ 39,085
- ------------------------- -------- -------- ------------ --------
Issuance of Common Stock
- ------------------------- -------- -------- ------------ --------
Foreign Currency
Translation Adjustment (109) (109)
- ------------------------- -------- -------- ------------ --------
Treasury Stock
- ------------------------- -------- -------- ------------ --------
Net Income for Three
Months ended March 31,
2004 (3,974) (3,974)
- ------------------------- -------- -------- ------------ --------
Dividends on Preferred
Stock:
- ------------------------- -------- -------- ------------ --------
Series B (8) (8)
- ------------------------- -------- -------- ------------ --------
Series C (45) (45)
- ------------------------- -------- -------- ------------ --------
Series D (154) (154)
- ------------------------- -------- -------- ------------ --------
Balance - $64,684 $ 313 $(28,133) $34,795
March 31, 2004
========================= ======== ======== ============ ========
See notes to consolidated financial statements
5 (Con't)
U.S. Energy Systems, Inc And Subsidiaries
Consolidated Statements Of Cash Flows
(in Thousands)
Three Months Ended
----------------- -- ----------------
March 31, 2004 March 31, 2003
----------------- ----------------
Cash Flows from operating activities:
Net Income (Loss).................................................................. $(3,974) $736
Adjustments to reconcile Net Income to Net Cash provided by (used in )
Operating Activities:
Depreciation................................................................... 918 876
Amortization................................................................... 60 59
Minority Interest Expense...................................................... 5 255
Deferred Tax Asset............................................................. (3,566) (9)
Changes In:
Accounts and Notes Receivable Trade............................................ 1,510 (316)
Other Current Assets........................................................... 517 (334)
Other Assets................................................................... (2,120) 2,653
Accounts Payable and Accrued Expenses.......................................... 777 1,421
Deferred Revenue and Other..................................................... (178) (407)
Rate Incentive Liability....................................................... 1,354 2,019
Foreign Currency Translation Adjustment........................................ (109) (85)
Valuation Allowance on Investment.............................................. 6,336 -----
Net Effect of Discontinued Operations.............................................. (367) (3,520)
----------------- ----------------
Net Cash Provided by Operating Activities.......................................... 1,163 3,348
- ----------------- ----------------
----------------- ----------------
Cash Flows from investing activities:
Change in Investments.............................................................. ------- (6)
Acquisitions of Property and Equipment............................................. (81) (1,048)
Construction in Progress........................................................... (101) 582
Net Cash Used in Investing Activities................................................... (182) (472)
----------------- ----------------
----------------- ----------------
Cash flows from financing activities:
Proceeds from Notes Receivable 341 251
Payment of Long-Term Debt.......................................................... (1,152) (943)
Debt Issuance Costs................................................................ ---- (397)
Dividends on Preferred Stock....................................................... (207) (209)
Net Cash Used in Financing Activities................................................... (1,018) (1,298)
----------------- ----------------
----------------- ----------------
Net Increase (DECREASE ) in cash........................................................ (37) 1,578
----------------- ----------------
----------------- ----------------
Cash, restricted cash and equivalents - beginning of period 20,913 15,103
Cash, restricted cash and equivalents - end of period $20,876 $16,681
================= ================
Supplemental disclosure of cash flow information:
Cash paid for interest $1,107 $1,204
================= ================
See notes to consolidated financial statements
6
Notes To Consolidated Financial Statements (Unaudited)
Note A - Basis Of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with instructions to Form 10-Q and Regulation S-X, and
accordingly, do not include all of the information and footnotes required by
accounting principles generally accepted in the United States 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-K/A for the year ended December 31, 2003, 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 periods ended March 31, 2004 and
2003, reflect an increase in the deferred tax asset due to an increase in net
operating loss carry-forwards in these periods.
Note D - Additional Capital
For the three months ended March 31, 2004, and 2003, no stock options were
exercised.
Note E - Investments
Scandinavian Energy Finance, Limited / EnergiSystem i Sverige AB. 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 i Sverige AB ("EnergiSystem"). SEFL had a 25 year option to acquire
90% of the fully diluted equity of EnergiSystem for a nominal sum which it
exercised in December 2003. 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% per
annum during the first 2 years and 9% thereafter. The subordinated loan carries
an interest rate of approximately 13%. 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.
We initially 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.
On September 30, 2003 U.S. Energy Systems sold a 2% interest in SEFL (See Note
H) to Borg Energi AB for $223,000. Due to the issuance of additional common
stock to EIC for additional investments in the fourth quarter of 2003, the
Company's ownership interest in SEFL was reduced to 32% and is accounted for
using the equity method. The current investment in SEFL including equity
investments, inter-company loans and unrepatriated retained earnings amounts to
approximately $7.5 million. (See note I)
7
Note F - Accounting Changes
The Company's accounting policy pertaining to the financial accounting of the
Illinois rate incentives received by its Illinois-based biogas to energy
projects was changed effective as of April 1, 2001. The change in tax accounting
had no impact on consolidated cash flow.
Following is a summary of the prior period adjustments made to the audited
financial statements:
(dollars in thousands)
Balance Sheet: --------------------
Deferred Tax Minority Retained
Asset Goodwill Interest Earnings
------------ -------- -------- --------
Year 2003 $(7,283) $(430) $(3,528) $(4,185)
============ ======== ========= =========
Statements of Operation:
Minority Income Tax Net Income
Interest Expense
-------- ---------- -----------
Year 2003 $1,132 $(2,474) $(1,342)
Three Months Ended March 31,2003 240 (524) (284)
NOTE G POST CLOSING ITEM - SALE OF SUBSIDIARIES
Introduction
On April 8, 2004 Countryside Power Income Fund, a newly formed Canadian income
fund (the "Fund"), completed its initial public offering of trust units in
Canada pursuant to which it raised approximately $102 million in net proceeds.
All amounts reflected herein are stated in US dollars and the exchange rate used
is the rate effective as of April 8, 2004 of Cdn $1.33 to US $1.00. In
connection with such offering, one or more of US Energy Biogas Corporation
("USEB") and the Company completed the transactions described below. The Company
owns 54.25% and Cinergy Energy Solutions owns 45.74% of USEB. The following is a
summary of the terms of such transactions and such summary is qualified in its
entirety by reference to the applicable transaction document. The inclusion of
the descriptions of these transactions involving the Fund does not constitute an
acknowledgement that such transactions constitute related party transactions.
Sale of Canadian District Energy System and USEB Loans
On closing, the Countryside Fund using a portion of the proceeds of the initial
public offering and a Cdn $30 million draw down from the credit facility
purchased all of the capital stock of USE Canada Holdings Corp ("USE Canada"),
our wholly owned subsidiary that owned two Canadian based district energy
systems, for approximately $15.2 million, was sold to the Fund. The sale price
was determined pursuant to arms-length negotiation between us and the Fund, with
the involvement of the underwriters of the Fund's initial public offering.
Countryside Canada Power, Inc. ("Countryside Canada"), a subsidiary of the Fund,
purchased the existing senior debt relating to certain of USEB's projects
("Existing Loans") from the holders thereof. One of such holders, AJG Financial
Services Inc., a subsidiary ("AJG") of Arthur J. Gallagher, Inc., was paid an
aggregate of $6,419,800 (inclusive of principal and accrued interest) for its
portion of the Existing Loans. AJG or its affiliates beneficially own more than
five percent of our common stock
Upon acquisition of the Existing Loans, a subsidiary of the Fund advanced
additional funds ("Additional Advances") to Biogas and amended the Existing
Loans to, among other things, cover the Additional Advances. Including the
Additional Advances, the USEB Loans have a principal amount of approximately $81
million. (The USEB Loans are denominated in Canadian dollars and the principal
amount of such loans is Cdn$107 million. USEB has currency hedges in place to
hedge its currency exchange exposure on debt service payments for the first
three years of the term of the USEB Loan). The loans purchased by Countryside
Canada are obligations of USEB, which obligations are secured by a first ranking
lien held by Countryside Canada on all of USEB's assets (with specified
exceptions) and are generally guaranteed by USEB's subsidiaries. The guaranty
obligations of the USEB subsidiaries are secured by the assets of such
subsidiaries (with specified exceptions). The interest rate on the USEB Loans is
11% per annum, principal and interest is payable monthly, and the loans mature
in 2019, subject to mandatory prepayment upon the occurrence of specified events
and prepayment at the election of the lender after ten years.
8
USEB Royalty Interest
Countryside Canada acquired a royalty interest (the "Royalty Interest") in USEB
for $6,000,000, entitling it to receive a quarterly amount (the "Royalty") from
USEB that is determined by reference to, and limited by, USEB's distributable
cash flow (determined in accordance with the royalty agreement). The Royalty
Interest is convertible generally at any time on or after April, 2024 or on or
after the prepayment in full of the USEB Loans, into non-voting common shares of
USEB, representing 49% of the common shares of USEB outstanding at the time of
conversion. Upon conversion of the Royalty Interest, Countryside Canada's right
to receive the Royalty will terminate. The amount of the Royalty payable to
Countryside Canada depends upon whether the Royalty Interest has become
convertible. For each fiscal quarter prior to the quarter in which the Royalty
Interest becomes convertible, the amount of the Royalty payable to Countryside
Canada will be equal to 7% of USEB's distributable cash flow plus 1.8% of USEB's
revenues (determined in accordance with the royalty agreement), but in any
event, the Royalty payment will be subject to the Distribution Cap (described
below). After the Royalty Interest becomes convertible, but remains unconverted,
the Royalty will be equal to 49% of USEB's distributable cash flow, subject to
the Distribution Cap.
The Royalty Interest terminates upon the refinancing of the USEB Loans or the
liquidation or sale of substantially all of the USEB operating assets, in which
case Countryside Canada will be entitled to receive, subject to the Distribution
Cap, $6 million (the "Return Amount") and 49% of the net residual proceeds (as
determined pursuant to the royalty agreement). Notwithstanding the above, no
amount will be payable to Countryside Canada under the Royalty Interest unless,
in the case of the Return Amount, 500% of such amount is distributed
concurrently to the USEB shareholders in respect of their common shares of USEB
and, in all other cases, at least 104.09% of such amount is distributed
concurrently to the USEB shareholders in respect of their common shares of USEB
(the "Distribution Cap").
The Countryside fund transaction including the sale of USE Canada, the USEB
Loans, and the USEB Royalty Interest provided approximately $12 million of
additional working capital, growth capital and reserves to USEB and more than
$20 million in additional cash proceeds to the Company. The estimated after tax
gain on the Countryside Fund transaction amounts to approximately $9 million.
NOTE H - BASIS OF PRESENTATION
As indicated in Note E the Company formed a joint venture Scandinavian Energy
Finance, Limited ("SEFL") for the distribution of Biomas-fueled energy to 800
customers in Sweden. The Company originally acquired a 51% interest in the SEFL
venture for approximately $5.8 million and, accordingly, the joint venture's
financial statement had been consolidated with the Company's Financial
Statements. Effective September 30, 2003 the Company sold a 2% interest in the
SEFL venture for $231,000 reducing its interest to 49%. The Company's interest
was further reduced to 32% in the Fourth Quarter of 2003. The Company's
investment in the SEFL joint venture is being accounted for using the equity
method. The deconsolidation of the SEFL Joint Venture had a significant effect
on the Company's consolidated total assets. Due to the current litigation
outlined in Note I, the Company did not record any earnings or management fees
associated with SEFL in the first quarter of 2004. The Company's investment in
SEFL as of March 31, 2004 amounts to $7.5 million.
Due to the change in accounting of the reporting entity, certain Balance Sheet
accounts in the year 2003 were reduced as follows:
Notes receivable $52,726
Long-term debt 45,398
Minority interest liability 5,944
9
NOTE I - COMMITMENTS AND CONTINGENCIES
The Company owns a 32% interest in SEFL. SEFL owns a 90% interest in
Energisystems Sveriege AB (ESS), itself a holding company owning 100% interests
in various Swedish companies which own and operate district heating systems. In
2004, the former owner of the district heating systems commenced an action
claiming that it was entitled to a contingent payment of 6.5 million Kronor
($861,000) arising out of the 2002 sale of the systems to ESS and seeking to
declare ESS bankrupt under Swedish law due to its failure to pay a debt that
could not be disputed reasonably. ESS defended that action on the grounds among
others that (i) the debt was not due, (ii) ESS had valid counterclaims against
the former seller off-setting the debt and (iii) ESS had reasonable grounds for
disputing the claim. On March 19, 2004, a Swedish district court found for the
former owner and declared ESS bankrupt. On April 7, 2004 an intermediate
appellate court affirmed the district court action. On May 10, 2004 the Swedish
Supreme Court granted ESS leave to appeal the appellate court's affirmation of
the bankruptcy declaration. The Supreme Court will hear the appeal on May 26,
2004.
The ESS bankruptcy is an event of default under the loan agreement between
Lantbrikskredit AB (LBK) and the ESS group. Such default, unless cured in a
timely manner, would be grounds for accelerating the loan from LBK to SEFL. SEFL
has proposed a cure of the event of default to LBK. LBK has not responded to
SEFL's proposal.
If ESS prevails in its appeal before the Supreme Court the Company expects that
the ESS bankruptcy would be vacated and the bankruptcy, as a ground for LBK's
acceleration of its loans would be eliminated.
However, if the Supreme Court affirms the ESS bankruptcy determination and if
SEFL fails to cure the default under the loan from LBK to the ESS group of
arising from such bankruptcy, LBK will have the right to accelerate its loan to
SEFL. Under such circumstances, the Company expects that its investment in SEFL
would be adversely affected in a material adverse manner. Based on the
foregoing, the Company reserved $7.7 million for its SEFL investment in first
quarter 2004.
NOTE J -- DISCONTINUED OPERATIONS
The Company sold its' USE Canada operation to the Countryside Fund. The closing
date of the sale was April 8, 2004. The sale of USE Canada results in that
entity becoming a discontinued operation. Assets and liabilities to be disposed
of comprise the following:
March 31,2004 Year 2003
Assets: ------------- ---------
Cash $ 1,065 $ 676
Accounts Receivable 2,054 1,813
Other Current Assets 971 833
Property Plant and Equipment 22,900 22,948
Deferred Tax Asset 1,655 1,678
Other Assets 263 232
====== ======
Total Assets $ 28,908 $ 28,180
======= ======
Liabilities:
Current Portion of Long Term Debt $ 2,312 $ 2,013
Accounts Payable and Other 2,572 2,316
Long Term Debt less Current Portion 17,222 17,416
====== ======
Total Liabilities $ 22,106 $ 21,745
====== ======
These assets and liabilities are reflected on the Balance Sheet under the
caption "Assets to be disposed of" and "Liabilities to be disposed of".
Total revenues for USE Canada in the first quarter of 2004 and 2003 were
$4,320,000 and $4,230,000, respectively. USE Canada was purchased by the Company
on June 11, 2001.
The Company sold Geothermal, LLC on June 30, 2003. Revenues for Geothermal, LLC
for the first three months of 2003 were $568,000.
Item 2. Management's Discussion and Analysis of financial condition and RESULTS
OF Operations
Results Of Operations
The revenues and expenses reported for financial statement purposes are lower
than reported in previous years due to a number of events affecting U.S Energy
Systems (USEY). These events include: the sale of USE Canada to the Countryside
Fund, the accounting for SEFL under the Equity method and the sale of Geothermal
LLC. USE Canada and Geothermal LLC are reflected on the statement of operations
under the caption "Income from Discontinued Operations" See Notes H, I and J to
the financial statements.
10
Total revenues decreased $2,062,000 or 28.7% in the three months ended March 31,
2004 compared with the three months ended March 31, 2003. With 2003 revenues
adjusted for the effect of SEFL, the elimination of the revenue associated with
pass through billings to the Gascos in 2003, the loss of revenues from the
shut-down of the Readville facility due to a contract termination and
adjustments for prior period activity, comparative revenues remained stable
showing a slight increase of less then 1%. Revenues for the three month period
ended March 31, 2004 were $5,117,000 compared with the adjusted 2003 amount of
$5,112,000. For comparative purposes first quarter 2003 revenues were adjusted
for SEFL revenues, of $1,101,000, pass through billings to the Gascos of
$429,000, Readville revenues of $349,000, and charges to Gascos for construction
and engineering of $188,000 in the prior year.
Total operating expenses decreased $717,000 or 24.4% in the first quarter of
2004 compared with the first quarter of 2003. After adjusting 2003 operating
expenses for the effect of SEFL, the elimination of expenses associated with the
pass through of billings to the Gascos in 2003, expenses associated with the
Readville facility and adjustments for other period activity, operating expenses
remained stable, increasing slightly by less then 1%. Operating expenses for the
three month period ended March 31, 2004 were $2,218,000 compared with the
adjusted 2003 amount of $2,214,000. For comparative purposes first quarter 2003
operating expenses were adjusted for SEFL operating expenses of $755,000,
intercompany expenses which were offset by pass through billings to the Gascos
of $439,000, Readville expenses of $54,000, offset by reimbursement for Gasco
related expenses in prior years of $527,000.
The components of general and administrative expenses for the three month
periods were as follows:
Three Months Ended
(in thousands)
March 31, 2004 March 31, 2003
-------------- --------------
Salaries and Consulting $ 271 $ 619
Legal and Professional 128 207
Insurance 96 126
Corporate Expenses 52 35
SEFL Reserve 7,700 ---
Other 175 273
--------------- ----------------
Total $8,422 $ 1,260
================ -- ================
General and administrative expenses decreased by $538,000 or 42.7% in the first
three months of 2004 compared with the first three months of 2003, excluding the
SEFL reserve of $7.7 million. The change in accounting for SEFL did not affect
general and administrative expenses. The large decrease in general and
administrative expenses reflects the transfer to accounts receivable of
approximately $420,000 of administrative labor and expenses associated with the
establishment of the Countryside Power Income Fund. These costs were reimbursed
to USEY when the fund closed on April 8, 2004.
Excluding the general and administrative costs allocated to the Countryside
Power Income Fund and the SEFL reserve, total general and administrative
expenses decreased by $118,000 in the first quarter of 2004 compared with the
first quarter of 2003.
As indicated in Note I the Company established a reserve for the SEFL investment
in the amount of $7.7 million. This reserve includes the entire investment in
SEFL and management fees recorded in the first quarter of 2003 that were not
previously reserved.
Depreciation and amortization expense increased by $43,000 or 4.6% in the first
quarter of 2004 compared with the first quarter of 2003 due principally to
increased equipment.
Interest income increased by $19,000 or 5.8% in the first quarter of 2004
compared with the first quarter of 2003 reflecting increased cash balances
offset by lower interest rates.
Interest expense decreased by 75,000 or 3.9% in the first quarter of 2004
compared with the first quarter of 2003 reflecting a lower amount of outstanding
debt.
11
Provision for income taxes resulted in a tax benefit for the first quarter of
2004 amounting to $3,566,000 due principally to the SEFL reserve.
Liquidity And Capital Resources
At March 31, 2004, cash and cash equivalents totaled approximately $20,876,000
of which $1,889,000 was unrestricted, compared with $3,210,000 of unrestricted
cash at December 31, 2003. In connection with notes payable by certain Biogas
subsidiaries, the lender required these subsidiaries to maintain various
restricted cash accounts, which, at March 31, 2004, amounted to $18,987,000.
This amount also includes approximately $740,000 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, 2004, cash flow of $1,163,000 from
operating activities were used to fund the $1,018,000 of financing activities
and $182,000 of investing activities. Cash balances remained relatively flat in
the first quarter of 2004 compared with December 31, 2003.
Cash flow provided by operating activities during the three months ended March
31, 2004 was $1,163,000 compared with $3,348,000 at March 31, 2003. The decrease
in operating cash flow reflects the recording of the aforementioned reserve for
SEFL.
Our consolidated working capital (including $18,987,000 of restricted cash)
decreased to $22,487,000 at March 31, 2004 from $23,850,000 at December 31, 2003
reflecting relatively minor variations in a number of working capital items.
We continue to evaluate current and forecasted cash flow as a basis to determine
financing operating requirements and capital expenditures. We believe that we
have sufficient cash flow from operations and working capital including
unrestricted cash on hand to satisfy all obligations under outstanding
indebtedness, to finance anticipated capital expenditures and to fund working
capital requirements during the next twelve months. The additional capital
provided by the Countryside Fund transaction may provide the Company with the
ability to realize additional growth opportunities.
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 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-K for the year ended December 31, 2003, 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.
12
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 in our Annual Report on Form 10-K for the year ended
December 31, 2003, 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), carried out an
evaluation of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this report. Based on
such evaluation, they 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.
PART II - Other Information
Item 1: Legal Proceedings
Re: Information in Note I of notes to our financial statements is
incorporated herein by this reference.
13
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Description
Number
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)
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)
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)
2.13 Amendment No. 9 dated as of the 15th day of April, 2003 to the Merger Agreement
2.14 Amendment No. 10 dated as of the 14th day of May, 2003 to the Merger Agreement
2.15 Amendment No. 11 dated as of the 11th day of June, 2003 to the Merger Agreement
2.16 Amendment No. 12 dated as of the 29th day of June, 2003 to the Merger Agreement
2.17 Amendment No. 13 dated as of the 11th day of July, 2003 to the Merger Agreement
2.18 Amendment No. 14 dated as of the 28th day of July, 2003 to the Merger Agreement
3.1 Restated Certificate of Incorporation of the Company filed with the Secretary of State of
Delaware. (1)
3.2 By-Laws of the Company (2)
3.3 Articles of Organization of Steamboat Envirosystems, L.C (1)
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)
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)
4.2 Form of Warrant (1)
4.3 Form of Warrant Agreement (1)
4.4 Form of Representative's Purchase Option (1)
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)
14
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)
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)
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)
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)
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)
15
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)
10.32 Form of Debenture Conversion Agreement (1)
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)
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)
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)
10.37 Subscription Agreement, dated March 20, 1998, between the Company and Energy Systems Investors,
LLC (7)
10.38 Registration Rights Agreement, dated March 20, 1998, between the Company and Energy Systems
Investors, LLC (7)
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)
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)
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)
16
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)
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)
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)
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)
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)
17
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 November 1, 2002 by and among
stockholders, Zapco, US Energy, USE Acquisition Corp. and Cinergy Energy (18)
10.81 Amendment No. 2 to Escrow Agreement dated as of November 1, 2002 by and among the Zapco
stockholders, Zapco, US Energy, USE Acquisition Corp., Cinergy Energy and Tannebaum Helpern
Syracuse & Hirschtritt LLP as Escrow Agent. (18)
10.80a Agreement by and among AJG Financial, as agent, US Energy,
Cinergy Energy, US Energy Biogas and Tannenbaum, Halpern as
agent dated as of October 16, 2003. (20)
10.81b Amendment No. 15 to indemnification Agreement dated as of October 16, 2003 by an among major
stockholders, US Energy Biogas Corp, US Energy and Cinergy Energy. (20)
10.82 Escrow letter by and among, Tannenbaum, Halpern escrow agent, AJG Financial, Cinergy Energy, US
Energy, US Energy Biogas Corp. (20)
10.83 Amended and Restated Subordinated Note from US Energy Biogas Corp. to AJG Financial Services,
Inc. (20)
10.84 Amendment No. 1 to Shareholders Agreement by and among SEEFL, Endoray, US Energy and EIC dated as
of February 2003. (20)
10.85 Amendment No. 2 to Shareholders Agreement by and among SEFL, Endoray, US Energy, Borg Energy and
EIC dated as of October 1, 2003. (20)
10.86 Loan Agreement dated as of August 20, 2003 between SEFL and EIC. (20)
10.87 Loan Agreement dated as of November 3, 2003. (20)
10.88 2003 Finance Incentive Plan. (20)
10.89 2003 Development Incentive Plan. (20)
10.90 Royalty Agreement dated as of April 8, 2004 by and between US Energy Biogas Corporation, Countryside Canada Power
Inc.,
the Registrant and Cinergy Energy Solutions Inc.
10.91 Amendment to Note Purchase Agreement dated as of April 8, 2004 by and between US Energy Biogas Corp., Avon Energy
Partners, LLC and the other parties identified therein.
10.92 Amendment to Indenture of Trust and Security Agreement dated as of April 8, 2004 by and among US Energy Biogas
Corp., Countryside Canada Power Inc. and the other parties identified therein.
10.93 Amendment dated April 8, 2004 among BMC Energy LLC, Countryside Canada Power Inc. and the other parties
identified therein to the (i) Security Agreement dated as of May 2, 2001 among BMC Energy LLC, Countryside
Canada Power Inc. (as successor to AJG Financial Services, Inc.) and the other parties identified therein and
(ii) Cash Collateral Pledge and Security Agreement dated as of April 30, 2001 among BMC Energy LLC,
Countryside Canada Power Inc. (as successor to ABB Energy Capital LLC)
and the other parties identified therein.
31.1 Rule 13a-14(a)/15d-14(a) certifications.
31.2 Rule 13a-14(a)/15d-14(a) certifications.
32.1 Section 1350 certification.
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.
18
(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) 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.
(20) Incorporated by reference to the Company's Report on Form 10-K for the period ended September 31,
2003, as amended.
(b) Reports on Form 8-K
(1) US Energy Systems Announces Accounting Changes - February 25, 2004 Item 5 & 7
(2) US Energy Systems Announces Establishment of Canadian Income Fund - February 25, 2004 Items 7 & 9
19
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
U. S. ENERGY SYSTEMS, INC.
By: /s/ Goran Mornhed
-------------
Goran Mornhed Dated: May 14, 2004
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Thomas Noonan
-------------
Thomas Noonan Dated: May 14, 2004
Chief Accounting Officer
(Principal Accounting and Financial Officer)
20