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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 June 30, 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 other 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
(Registrant's telephone number, Including area code)
Registrant
Indicate by check mark whether the issuer: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes |X| No |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes |X| No |_|
State the number of shares outstanding of each of issuer's classes of
common equity, as of August 14, 2003:
Title of Class Number of Shares
Common Stock 11,950,524
================================================================================
1
U.S. ENERGY SYSTEMS, INC. AND SUBSIDIARIES
CONTENTS
PART I: FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2003 and December 31, 2002 ........... 3
Consolidated Statements of Operations for the three and six months
ended June 30, 2003 and 2002 .................................................... 4
Consolidated Statements of Changes in Stockholders' Equity for the six
months ended June 30, 2003 and 2002 ............................................. 5 & 6
Consolidated Statements of Cash Flow for the six months ended June 30, 2003
and 2002 ........................................................................ 7
Notes to Consolidated Financial Statements ...................................... 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations .................................................................... 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk .................... 13
Item 4. Controls and Procedures ....................................................... 13
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K .............................................. 14
Signature ............................................................................. 21, 22
2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
U.S. ENERGY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in Thousands)
ASSETS June 30, 2003 December 31, 2002
(Unaudited) (Audited)
------------- ------------
Current Assets:
Cash ............................................................................... $ 5,358 $ 2,968
Restricted Cash .................................................................... 16,062 13,247
Accounts Receivable (less allowance for doubtful accounts $1,200,000) .............. 10,424 9,851
Installments Sale Partnership Interest and Interest Receivable, Current Portion .... 5,777 4,421
Other Current Assets ............................................................... 2,549 2,339
--------- ---------
Total Current Assets, Net ..................................................... 40,170 32,826
Property, Plant and Equipment, Net ................................................. 64,768 65,468
Construction in Progress ........................................................... 3,542 3,076
Installment Sale Partnership Interest, less Current Portion ........................ 13,696 14,945
Notes Receivable ................................................................... 59,022 51,450
Investments ........................................................................ 7,945 7,613
Deferred Costs, including Debt Issuance Costs, Net of Accumulated Amortization ..... 3,025 2,745
Goodwill ........................................................................... 28,148 28,148
Deferred Tax Asset ................................................................. 17,805 17,405
Other Assets ....................................................................... 261 571
--------- ---------
Total Assets .................................................................. $ 238,382 $ 224,247
========= =========
LIABILITIES
Current Liabilities:
Current Portion Long-term Debt ..................................................... 6,310 $ 6,050
Notes Payable - Stockholder ........................................................ 6,132 6,132
Accounts Payable and Accrued Expenses .............................................. 13,188 14,276
Deferred Revenue Installment Sale Partnership Interest, Current Portion ............ 1,007 1,007
--------- ---------
Total Current Liabilities ..................................................... 26,637 27,465
Long-Term Debt less Current Portion ................................................ 118,268 111,692
Notes Payable - Stockholder ........................................................ 4,772 4,798
Deferred Revenue Installment Sale Partnership Interest, less Current Portion ....... 5,412 6,085
Rate Incentive Liability ........................................................... 18,940 15,200
Advances from Joint Ventures ....................................................... 102 102
--------- ---------
Total Liabilities ............................................................. 174,131 165,342
--------- ---------
Minority Interests ................................................................. 18,090 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 12,333,974 ............ 124 123
Treasury Stock, 383,450 Shares of Common Stock at Cost ................................... (1,805) (1,805)
Additional Paid-in Capital ............................................................... 65,302 65,720
Accumulated Deficit ...................................................................... (20,383) (23,154)
Foreign Currency Translation Adjustment .................................................. 2,911 701
--------- ---------
Stockholders' Equity ............................................................... 46,161 41,597
--------- ---------
Total Liabilities and Stockholders' Equity ......................................... $ 238,382 $ 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 SIX MONTHS ENDED
----------------------------- -----------------------------
June 30, 2003 June 30, 2002 June 30, 2003 June 30, 2002
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------- ------------- ------------- -------------
Revenues ........................................................... $ 10,657 $ 10,772 $ 22,506 $ 20,652
-------- -------- -------- --------
Costs and Expenses:
Operating Expenses ........................................... 6,271 5,395 12,600 11,498
Operating ,general and administrative expenses-non recurring . -- -- -- 10,234
General and administrative expenses .......................... 1,406 1,991 2,925 3,713
Depreciation and Amortization ................................ 1,133 1,307 2,277 2,625
Loss (gain) from Joint Ventures .............................. -- (60) -- (75)
-------- -------- -------- --------
Total Costs and Expenses ........................................... 8,810 8,633 17,802 27,995
-------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS ...................................... 1,847 2,139 4,704 (7,343)
Interest Income .................................................... 298 455 635 850
Interest Expense ................................................... (2,196) (2,102) (4,377) (4,373)
Dividend Income .................................................... 41 20 41
Minority Interest .................................................. (287) (405) (782) (388)
-------- -------- -------- --------
Income (loss) before Taxes ......................................... (338) 128 200 (11,213)
Income Tax Benefit ................................................. 618 190 1,152 5,255
-------- -------- -------- --------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES .............. 280 318 1,352 (5,958)
Gain on disposal of subsidiary (net of income tax of $887 in 2003
and, $113 in 2002) ................................................. 1,419 170 1,419 170
Cumulative effect of Accounting change on years prior to 2002
(Net of Income Tax Benefit of $546) ............................. -- -- (754)
-------- -------- -------- --------
NET INCOME (LOSS) .................................................. 1,699 488 2,771 (6,542)
Dividends on Preferred Stock ....................................... (209) (211) (419) (416)
-------- -------- -------- --------
INCOME (LOSS) APPLICABLE TO COMMON STOCK ........................... $ 1,490 $ 277 $ 2,352 $ (6,958)
======== ======== ======== ========
INCOME (LOSS) PER SHARE OF COMMON STOCK:
Income (Loss) per Share of Common Stock - Basic .............. $ 0.12 $ 0.02 $ 0.20 $ (0.57)
======== ======== ======== ========
Income (Loss) per Share of Common Stock - Diluted ............ $ 0.10 $ 0.03 $ 0.16 $ (0.57)
======== ======== ======== ========
Weighted Average Number of Common Stock Outstanding - Basic ..... 11,950 12,202 11,950 12,203
Weighted Average Number of Common Stock Outstanding - Diluted ... 17,115 17,617 17,115 12,203
======== ======== ======== ========
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
Net Income (Loss) ........................................... $ 1,968 $ 488 $ 3,041 $ (6,542)
Foreign Currency Translation Adjustment ...................... 2,295 (37) 2,210 (8)
-------- -------- -------- --------
Total Comprehensive Income (Loss) ................................. $ 4,263 $ 451 $ 5,251 $ (6,550)
======== ======== ======== ========
See notes to consolidated financial statements
4
See notes to consolidated financial statements
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 Stock Preferred Stock
Series B Series C Series D
- -------------------------------------------------------------------------------------------------
No. of No. of No. of
Shares Amount Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------
Balance - December 31, 2001 368 -- 100,000 $ 1 1,138,888 $11
- -------------------------------------------------------------------------------------------------
Shares Issued for Exercised
Options and Warrants -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------
Issuance of Common Stock -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------
Treasury Stock -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------
Foreign Currency Tra0nslation
Adjustment -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------
Net Loss for the year ended
December 31, 2002 -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------
Dividends on Preferred Stock:
- -------------------------------------------------------------------------------------------------
Series B -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------
Series C -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------
Series D -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------
Balance - December 31, 2002 368 -- 100,000 $ 1 1,138,888 $11
=================================================================================================
- ----------------------------------------------------------------------------------------------------
Treasury Stock Common Stock
- ----------------------------------------------------------------------------------------------------
Additional
No. of No. of Paid in
Shares Amount Shares Amount Capital
- ----------------------------------------------------------------------------------------------------
Balance - December 31, 2001 (114,700) $ (495) 12,065,000 $121 $ 65,647
- ----------------------------------------------------------------------------------------------------
Shares Issued for Exercised
Options and Warrants -- -- 120,637 1 230
- ----------------------------------------------------------------------------------------------------
Issuance of Common Stock -- -- 147,976 1 674
- ----------------------------------------------------------------------------------------------------
Treasury Stock (268,750) (1,310) -- -- --
- ----------------------------------------------------------------------------------------------------
Foreign Currency Tra0nslation
Adjustment -- -- -- -- --
- ----------------------------------------------------------------------------------------------------
Net Loss for the year ended
December 31, 2002 -- -- -- -- --
- ----------------------------------------------------------------------------------------------------
Dividends on Preferred Stock:
- ----------------------------------------------------------------------------------------------------
Series B -- -- -- -- (36)
- ----------------------------------------------------------------------------------------------------
Series C -- -- -- -- (180)
- ----------------------------------------------------------------------------------------------------
Series D -- -- -- -- (615)
- ----------------------------------------------------------------------------------------------------
Balance - December 31, 2002 (383,450) $(1,805) 12,333,613 $123 $ 65,720
====================================================================================================
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Foreign
Currency
Translation Accumulated
Adjustment Deficit Total
- --------------------------------------------------------------------------
Balance - December 31, 2001 $406 $ (7,733) $ 57,958
- --------------------------------------------------------------------------
Shares Issued for Exercised
Options and Warrants -- -- 231
- --------------------------------------------------------------------------
Issuance of Common Stock -- -- 675
- --------------------------------------------------------------------------
Treasury Stock -- -- (1,310)
- --------------------------------------------------------------------------
Foreign Currency Tra0nslation
Adjustment 295 -- 295
- --------------------------------------------------------------------------
Net Loss for the year ended
December 31, 2002 -- (15,421) (15,421)
- --------------------------------------------------------------------------
Dividends on Preferred Stock:
- --------------------------------------------------------------------------
Series B -- -- (36)
- --------------------------------------------------------------------------
Series C -- -- (180)
- --------------------------------------------------------------------------
Series D -- -- (615)
- --------------------------------------------------------------------------
Balance - December 31, 2002 $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 SIX MONTHS ENDED JUNE 30, 2003 (UNAUDITED)
(in Thousands, except Share Data)
- -------------------------------------------------------------------------------------------------------------------------------
PREFERRED PREFERRED PREFERRED
STOCK SERIES B STOCK SERIES C STOCK SERIES D TREASURY STOCK
- -------------------------------------------------------------------------------------------------------------------------------
Number Number Number Number
of of of of
Shares Amount Shares Amount Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 2002 368 -- 100,000 $ 1 1,138,888 $11 (383,450) $(1,805)
- -------------------------------------------------------------------------------------------------------------------------------
Shares Issued for Exercised
Options and Warrants
- -------------------------------------------------------------------------------------------------------------------------------
Issuance of Common Stock
- -------------------------------------------------------------------------------------------------------------------------------
Foreign Currency Translation
Adjustment
- -------------------------------------------------------------------------------------------------------------------------------
Net Income for the six months
ended June 30, 2003
- -------------------------------------------------------------------------------------------------------------------------------
Dividends on Preferred Stock:
- -------------------------------------------------------------------------------------------------------------------------------
Series B
- -------------------------------------------------------------------------------------------------------------------------------
Series C
- -------------------------------------------------------------------------------------------------------------------------------
Series D
- -------------------------------------------------------------------------------------------------------------------------------
Balance -June 30, 2003 368 100,000 $ 1 1,138,888 $11 (383,450) $(1,805)
===============================================================================================================================
- ---------------------------------------------------------------------------------------------------------------
COMMON STOCK
- ---------------------------------------------------------------------------------------------------------------
Additional Accumulated
Number Paid-In Comprehensive Accumulated
of Shares Amount Capital Income Deficit Total
- ---------------------------------------------------------------------------------------------------------------
Balance - December 31, 2002 12,333,613 $123 $ 65,720 $ 701 $(23,154) $41,597
- ---------------------------------------------------------------------------------------------------------------
Shares Issued for Exercised
Options and Warrants
- ---------------------------------------------------------------------------------------------------------------
Issuance of Common Stock 361 1 1
- ---------------------------------------------------------------------------------------------------------------
Foreign Currency Translation
Adjustment 2,210 2,210
- ---------------------------------------------------------------------------------------------------------------
Net Income for the six months
ended June 30, 2003 2,771 2,771
- ---------------------------------------------------------------------------------------------------------------
Dividends on Preferred Stock:
- ---------------------------------------------------------------------------------------------------------------
Series B (18) (18)
- ---------------------------------------------------------------------------------------------------------------
Series C (90) (90)
- ---------------------------------------------------------------------------------------------------------------
Series D (310) (310)
- ---------------------------------------------------------------------------------------------------------------
Balance -June 30, 2003 12,133,974 $124 $ 65,302 $2,911 $(20,383) $46,161
===============================================================================================================
See notes to consolidated financial statements
6
U.S. ENERGY SYSTEMS, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in Thousands)
SIX MONTHS ENDED
June 30, 2003 June 30, 2002
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) ........................................................ $ 2,771 $ (6,542)
Adjustments to reconcile Net Income to Net Cash provided by (used in)
Operating Activities:
Depreciation and Amortization ....................................... 2,176 2,625
Gain on Sale of Segment ............................................. (1,419) (170)
Recognition of Development Costs .................................... -- 1,900
Minority Interest Income ............................................ 782 388
Deferred Tax Asset .................................................. (400) (5,597)
Write Down of Fixed Assets .......................................... -- 3,893
Write Down of Investments ........................................... -- 830
Equity in (Gain) Loss of Joint Ventures ............................. -- (75)
Cumulative Effects of Accounting Change on Years Prior to 2002
(Net of Income Tax of $546) ......................................... -- 754
Changes In:
Accounts Receivable and Other ....................................... (708) 2,026
Other Current Assets ................................................ (210) 273
Other Assets ........................................................ 310 1,448
Accounts Payable and Accrued Expenses ............................... (588) 249
Minority Interest Liability ......................................... -- 5,181
Deferred Revenue and Other .......................................... (673) (538)
Rate Incentive Liability ............................................ 3,740 2,561
-------- --------
Net Cash provided by Operating Activities ................................ 5,781 9,206
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in Investments .................................................... 1,974 (136)
Acquisitions of Property and Equipment ................................... (1,474) (494)
Change in Property and Equipment ......................................... -- (57,250)
Construction in Progress ................................................. (466) (763)
Deferred Financial Costs ................................................. (280) (1,233)
-------- --------
Net Cash( provided by) used in Investing Activities ...................... (246) (59,876)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of Long-Term Debt ................................................ (1,121) (2,474)
Proceeds from Notes Receivable ........................................... (107) 686
Net Proceeds from Long Term Debt ......................................... 1,418 45,613
Proceeds from Exercise of Options and Warrants ........................... -- 231
Dividends on Preferred Stock ............................................. (418) (416)
Debt Issuance Costs ...................................................... (102) (19)
-------- --------
Net Cash used in (provided by) Financing Activities ...................... (330) 43,621
-------- --------
NET INCREASE (DECREASE) IN CASH ................................................ 5,205 (7049)
Cash - Beginning of period ............................................... 16,215 25,415
Cash - End of period ..................................................... $ 21,420 $ 18,366
-------- --------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid for Interest ................................................... $ 3,348 $ 3,045
-------- --------
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Issuance of Common Stock for Investment in SEFL .......................... -- $ 769
======== ========
See notes to consolidated financial statements
7
U.S. ENERGY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND JUNE 30, 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 Regulation 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 six 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 on 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 six month financial statements for the period ended June 30, 2003, reflects
an increase in the deferred tax asset due to the use of accelerated deprecation
for tax purposes in this period.
The six-month financial statements for the period ended June 30, 2002, reflects
an increase in the deferred tax asset due to an increase in net operating loss
carry-forwards in this period.
NOTE D - ADDITIONAL CAPITAL
For the six months ended June 30, 2003, no stock options were exercised. For the
six months ended June 30, 2002, 98,500 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.
A Swedish bank provided SEFL with approximately $45 million of long term
financing on a non-recourse
8
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 six month period ended June 30, 2002.
NOTE G - SALE OF SUBSIDIARIES
On June 30, 2002, the Company sold its shares of USE Enviro Systems Inc to KGS
Environmental, LLC, an employee-led partnership for approximately $ 1.7 million,
which included cash consideration and the assumption of debt. This sale resulted
in a net of tax loss of $ 1.6 million. The sale of USE Enviro Systems Inc, a
domestic provider of environmental services, including recycling and
remediation, was part of the Company's previously announced strategy to divest
or discontinue non-core operations.
Effective June 30, 2003, the company sold its 95% membership interest in US
Energy Geothermal LLC to a subsidiary of Ormat Nevada, Inc. for approximately
$1.0 million in cash. As part of such transaction the purchaser and Ormat
Nevada, Inc. agreed to indemnify the Company against certain liabilities
including the pending lawsuit brought against US Energy Geothermal LLC by
Geothermal Development Associates and Delphi Security up to the amount of the
purchase price.
The following pro forma combined revenue and net income is provided as if the
sale of U.S. Energy Geothermal LLC had taken place effective January 1, 2003:
As of June 30,
2003
--------------
U.S. Energy
Geothermal Adjusted
U.S. Energy LLC U.S. Energy
Revenues $22,506 $ 1,003 $21,503
======= ======= =======
Net Income $ 2,771 $ 155 $ 2,616
======= ======= =======
Earnings Per Share
Basic $ 0.20 $ 0.01 $ 0.19
======= ======= =======
Diluted $ 0.16 $ 0.01 $ 0.15
======= ======= =======
Weighted average number of shares outstanding - Basic 11,950 11,950 11,950
Weighted average number of shares outstanding - Diluted 17,115 17,115 17,115
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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, 2001, 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
9
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. 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 half 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 of 2002 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.
During the first half of 2003 we continued our plan to evaluate certain
businesses in connection with a transition to a provider of energy services
under long-term contracts. As discussed above, we sold our ownership in US
Energy Geothermal LLC and will continue to avail ourselves of opportunities to
obtain lower cost funding options in order to pursue growth opportunities.
Additionally, the Company has reserved $268,000, net of taxes, related to
unexpected issues arising in the implementation of a new tariff structure for
the clients of four district heating assets, which have been financed by SEFL
(see Note E). This reserve is equal to the second quarter earnings related to
the SEFL Investment. Following is a discussion of the Results of Operations and
Liquidity and Capital Resources during the first half of 2003.
The Operations Group is comprised of the Biogas, Canada and SEFL consolidated
subsidiaries of the Company. The Corporate Group is comprised of US Energy
Systems Corporate and through June 30, 2003 U.S. Energy Geothermal LLC.
Revenues for the three month and six month periods ended June 30, 2003 and 2002
were as follows:
Three Months Ended Six Months Ended
(in thousands) (in thousands)
------------------------------ ------------------------------
June 30, 2003 June 30, 2002 June 30, 2003 June 30, 2002
------------- ------------- ------------- -------------
Operations Group $10,054 $ 9,170 $21,170 $17,346
Corporate Group 603 1,602 1,336 3,306
------- ------- ------- -------
Total $10,657 $10,772 $22,506 $20,652
======= ======= ======= =======
Total revenues decreased by $115,000 or 1.1% in the three months ended June
30,2003 ("Second Quarter 2003") as compared to the three months ended June 30,
2002 ("Second Quarter 2002"). This decrease in revenues reflects a reduction of
$999,000 due principally to the sale of USE Enviro Systems Inc, which was
partially offset by increased revenues of $884,000 due to increased sales in the
Biogas and Canadian businesses reflecting increased rates charged to customers
resulting from fuel price increases. Total revenues increased by $1,854,000 or
9.0% in the six months ended June 30,2003 ("First Half 2003")compared with the
six months ended June 30, 2002 ("First Half 2002") mainly due to increased sales
in the Biogas and Canadian businesses , which were partially offset by the sale
of USE Enviro Systems Inc. The increased revenues in Biogas reflects an increase
in revenue due to increased production of electricity at certain sites and
reimbursement payments and fees received from the owners of the gas collection
systems for expansion work performed by Biogas on behalf of such owners.
The Operations Group's Operating Income for the Second Quarter 2003 compared
with the First Quarter 2003 decreased by $706,000 or 24.5% due principally to
the seasonality of demand in the Canadian energy operations and a decrease in
Biogas margins in the Second Quarter of 2003 for scheduled maintenance outages
and associated expenses.
Operating expenses for the three and six month periods ended June 30, 2003 and
2002 were as follows:
Three Months Ended Six Months Ended
(in thousands) (in thousands)
------------------------------ ------------------------------
June 30, 2003 June 30, 2002 June 30, 2003 June 30, 2002
------------- ------------- ------------- -------------
Operations Group $ 6,059 $ 4,176 $12,200 $ 9,306
Corporate Group 212 1,219 400 2,192
------- ------- ------- -------
Total $ 6,271 $ 5,395 $12,600 $11,498
======= ======= ======= =======
Operating expenses increased by $876,000 or 16.2% in the Second Quarter 2003 as
compared to the Second Quarter 2002 mainly due to an increase in the price of
fuel that is offset by related revenues in the
10
Canadian business. In addition, operating expenses increased due to costs
related to expansion of the gas collection systems. The decrease in operating
expenses for the Corporate Group is due principally to the sale of USE Enviro
Systems Inc.
Operating expenses increased by $1,102,000 or 9.6% in the First Half 2003
compared with the First Half 2002 mainly due to an increase in fuel consumed in
the production of energy in Canada and due to an increase in purchases made on
behalf of and sold to the landfill gas sites Biogas is responsible for
operating. The decrease in operating expenses for the Corporate Group is due
principally to the sale of USE Enviro Systems Inc.
The components of general and administrative expenses for the three and six
month periods were as follows:
Three Months Ended Six Months Ended
(in thousands) (in thousands)
------------------------------ ------------------------------
June 30, 2003 June 30, 2002 June 30, 2003 June 30, 2002
------------- ------------- ------------- -------------
Salaries and Consulting $ 476 $ 968 $ 1,218 $ 1,585
Legal and Professional 209 298 325 615
Insurance 175 245 387 388
Corporate Expenses 81 289 370 434
Other 465 191 625 691
------- ------- ------- -------
Total $ 1,406 $ 1,991 $ 2,925 $ 3,713
======= ======= ======= =======
General & administrative expenses decreased by $585,000 or 29.4% in the Second
Quarter 2003 as compared to the Second Quarter 2002 mainly due to a decrease in
salary expenses at US Energy Systems and the sale of USE Enviro Systems Inc. In
addition, the Second Quarter expenses include the $268,000 reserve related to
the SEFL investment which is reflected in "Other" expenses.
General & administrative expenses decreased by $788,000 or 21.2% in the First
Half 2003 compared with the First Half 2002 mainly due to a decrease in salary
expenses at US Energy Systems and the sale of USE Enviro Systems Inc. In
addition, legal and professional expenses decreased considerably in 2003 as
compared with 2002 due to the deferral of costs associated with current efforts
to pursue growth opportunities in 2003 and higher than expected legal costs
incurred in the first half of 2002 related to the acquisition of SEFL.
Depreciation and amortization expense decreased by $174,000 in the three months
ended June 30, 2003 and by $348,000 in the six months ended June 30,2003 mainly
due to the sale of USE Enviro Systems Inc and a higher average depreciable life
of assets.
Interest income decreased by $157,000 in the three months ended June 30,2003 and
by $215,000 in the six months ended June 30,2003 due to lower market interest
rates and lower interest earnings on decreased average cash balances.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2003, cash and cash equivalents totaled approximately $21,420,000 of
which $5,358,000 was unrestricted, compared with $2,968,000 of unrestricted cash
at December 31, 2002. In connection with notes payable by certain Biogas
subsidiaries, the lender required these subsidiaries to maintain various
restricted cash accounts, which, at June 30, 2003, amounted to $16,062,000. 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. The increase in cash for the first six months of 2003 reflects
the sale of USE Geothermal LLC.
During the six months ended June 30, 2003, cash flow of $5,781,000 from
operating activities was used to fund the $246,000 of investing activities. An
overall increase in cash of $5,205,000 was achieved in first half of 2003.
Cash flow from operating activities during the six months ended June 30, 2003
was $5,781,000 compared
11
with $9,206,000 at June 30, 2002.
Our consolidated working capital was $13,533,000 at June 30, 2003 compared with
$5,361,000 at December 31, 2002.
In the first half of 2003 the change in foreign currency exchange affected the
holdings, particularly related to our SEFL subsidiary, and resulted in both the
value of the assets and the liabilities increasing compared with the initial
investment. Management feels that the change in value is expected to be
temporary, and therefore no permanent adjustments will be made.
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.
On August 7, 2003, the Company filed a Proxy Statement (the "Proxy") for its
Annual Meeting of Stockholders currently scheduled for September 9, 2003. Among
other things, the Proxy seeks stockholder approval of a plan to sell the stock,
assets or a combination of the foregoing of our two principal subsidiaries USE
Canada Holdings Corp. and Biogas subject to certain conditions set forth in the
Proxy. If the stockholders approve such plan and if sales are consummated
pursuant to the plan we would expect that, among other things, the Company's
liquidity and capital resource position would be improved through the receipt of
cash proceeds from such sales, the Company's long-term debt would be
substantially reduced since such debt would either be assumed or paid by the
purchaser(s), and, the Company's revenues and operating expenses would be
substantially reduced. The Proxy contains a pro-forma analysis of the impact of
a sale under the plan on the Corporation's financial statement. (See Proxy -
Proposal 1 - to Approve and Adopt the Plan - Pro Forma Financial Information).
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 in Form 10-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
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.
12
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) 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)
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)
13
Exhibit
Number Description
- ------- -----------
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)
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)
14
Exhibit
Number Description
- ------- -----------
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)
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)
15
Exhibit
Number Description
- ------- -----------
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)
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)
16
Exhibit
Number Description
- ------- -----------
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
Exhibit
Number Description
- ------- -----------
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)
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.
10.83 Amendment No. 4 dated as of the 13th day of March, 2003 to the
Indemnification Agreement.
10.84 Amendment No. 3 dated as of the 10th day February, 2003 to the
Escrow Agreement.
10.85 Amendment No. 4 dated as of the 13th day of March, 2003 to the
Escrow Agreement.
10.86 Amendment No. 5 dated as of the 15th day of April, 2003 to the
Escrow Agreement
10.87 Amendment No. 6 dated as of the 14th day of May, 2003 to the Escrow
Agreement
10.88 Amendment No. 7 dated as of the 11th day of June, 2003 to the Escrow
Agreement
10.89 Amendment No. 8 dated as of the 27th day of June, 2003 to the Escrow
Agreement
10.90 Amendment No. 9 dated as of the 11th day of July, 2003 to the Escrow
Agreement
10.91 Amendment No. 10 dated as of the 28th day of July, 2003 to the
Escrow Agreement
10.92 Amendment No. 5 dated as of the 15th day of April, 2003 to the
Indemnification Agreement
10.93 Amendment No. 6 dated as of the 14th day of May, 2003 to the
Indemnification Agreement
10.94 Amendment No. 7 dated as of the 11th day of June, 2003 to the
Indemnification Agreement
10.95 Amendment No. 8 dated as of the 27th day of June, 2003 to the
Indemnification Agreement
10.96 Amendment No. 9 dated as of the 11th day of July, 2003 to the
Indemnification Agreement
10.97 Amendment No. 10 dated as of the 28th day of July, 2003 to the
Indemnification Agreement
31.1 Rule 13a-14(a)/15d-14(a) certifications.
31.2 Rule 13a-14(a)/15d-14(a) certifications.
32 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.
18
Exhibit
Number Description
- ------- -----------
(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) 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
19
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has caused this quarterly report on Form 10-QSB to be signed on
its behalf by the undersigned duly authorized.
Dated: August 14, 2003
U. S. ENERGY SYSTEMS, INC.
By: /s/ Goran Mornhed
--------------------------------------------
Goran Morhhed
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Thomas Noonan
--------------------------------------------
Thomas Noonan
Chief Accounting Officer
(Principal Accounting and Financial Officer)
20