U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended April 30, 1996
---------------------------
[ ] Transition report under 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.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
DELAWARE 52-1216347
------------------------------------ --------------
(State or Other Jurisdiction of (I.R.S.
Incorporation or Organization) Employer
Identification
No.)
515 N. FLAGLER DRIVE, SUITE 202, WEST PALM BEACH, FL 33401
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(Address of Principal Executive Offices)
(407)820-9779
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(Issuer's Telephone Number, Including Area Code)
U.S. ENVIROSYSTEMS, INC.
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes No X
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange Act after
the distribution of securities under a plan confirmed by a court.
Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: April 30 -
------------
439,650 shares outstanding
----------------------------
Transitional Small Business Disclosure Format (check one):
Yes No X
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<PAGE>
U. S. ENERGY SYSTEMS, INC. AND SUBSIDIARIES
(FORMERLY U. S. ENVIROSYSTEMS, INC.)
BALANCE SHEET
APRIL 30, 1996
ASSETS
Current Assets:
Cash in banks $ 2,000
Other current assets 1,000
----------
Total Current Assets 3,000
Investment in joint ventures at equity:
Lehi Independent Power Associates, L.C. 1,150,000
Plymouth Cogeneration Limited Partnership 684,000
Other Assets:
Steamboat Envirosystems Deposit 53,000
Deferred costs of new registration 108,000
----------
TOTAL $1,998,000
==========
LIABILITIES
Current Liabilities:
Accounts payable $ 389,000
Accrued expenses 864,000
----------
Total Accounts Payable and
Accrued Expenses 1,253,000
Income taxes payable current 182,000
Loans payable 910,000
----------
Total Current Liabilities 2,345,000
Convertible subordinated debentures 1,525,000
Notes payable, including $
to related parties 970,000
Deferred interest on debentures 114,000
Income taxes and interest payable 184,000
Other deferred payables 19,000
----------
TOTAL LIABILITIES 5,157,000
CAPITAL DEFICIENCY
Common Stock, $0.01 Par Value,
authorized 35,000,000 shares,
issued and outstanding 439,650
shares, after giving effect to
reverse split of 1 for 40 4,000
Preferred Stock, $0.01 Par Value,
authorized 5,000,000 shares,
issued and outstanding 57,500 shares
Total liquidation value $575,000. 1,000
Additional paid-in-capital 112,000
Accumulated deficit (3,276,000)
----------
TOTAL CAPITAL DEFICIENCY (3,159,000)
----------
TOTAL $1,998,000
==========
See notes to financial statements
<PAGE>
U. S. ENERGY SYSTEMS, INC. AND SUBSIDIARIES
(FORMERLY U. S. ENVIROSYSTEMS, INC.)
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
THREE MONTHS ENDED
APRIL 30
----------------------
1996 1995
---- ----
<S> <C> <C> <C>
Revenues $ -- $ -- 0.00
--------- --------- -----------
Selling and Administrative Expense 235,000 212,000 235,126.27
Interest Expense 170,000 99,000 169,147.17
Loss from Joint Ventures 25,000 24,000 25,253.46
--------- --------- -----------
Total Expenses 430,000 335,000 429,526.90
--------- --------- -----------
(Loss) from Operations $(430,000) $(335,000) -429,526.90
========= ========= ===========
Net (Loss) Per Share $ (0.98) $ (0.77)
========= =========
Weighted Average Shares Outstanding
(After giving effect to 1 for
40 reverse split) 439,622 436,167
</TABLE>
See notes to financial statements
<PAGE>
U. S. ENERGY SYSTEMS, INC. AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED
APRIL 30
--------------------------
1996 1995
---- ----
Net (loss) $(430,000) $(335,000)
Adjustment to reconcile net (loss) to net cash
(used in) operating activities:
Amortization of debt discount 5,000 3,000
Amortization of deferred financing costs 19,000
Amortization of purchase price over the
net assets acquired 14,000 14,000
Accrued interest, allowed tax claims
payable 4,000 2,000
Deferred interest on debentures 53,000
Accrued interest on notes payable 28,000 25,000
Allowed tax claims, non-current (12,000)
Deferred Officers' salaries 138,000 52,000
Equity in loss from joint ventures 25,000 24,000
Changes in operating assets and
liabilities:
Increase in accounts payable &
accrued expenses 114,000 70,000
Increase in allowed tax claims
current 14,000
(Decrease) in payroll taxes payable (10,000)
--------- --------
Net cash (used in) operating
activities (68,000) (100,000)
------------ ---------
Cash flows from financing activities:
Repayment of Officer's loan 16,000
Loans from Officers and Directors 40,000
Proceeds of additional secured debt 25,000
Proceeds from issuance of common stock 9,000
Proceeds from loans payable 125,000
Payment of income taxes payable (3,000)
Advances from joint ventures 4,000 3,000
Deferred registration costs (58,000)
------------ ---------
Net cash provided by financing
activities 68,000 93,000
------------ ---------
NET (DECREASE) IN CASH 0 (7,000)
Cash beginning of period 2,000 8,000
------------ ---------
Cash end of period 2,000 1,000
============ =========
Supplemental disclosure of cash flow
information: 34,000 15,000
Cash paid for interest
Supplemental schedule of noncash financing none none
activity:
Supplemental schedule of noncash investing none none
activity:
See notes to financial statements
<PAGE>
U. S. ENERGY SYSTEMS, INC. AND SUBSIDIARIES
(FORMERLY U. S. ENVIROSYSTEMS, INC.)
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL DEFICIENCY
(Unaudited)
<TABLE>
Preferred Stock Common Stock
------------------- ----------------------------------
Additional
Number of Number of Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
-------- ------ --------- ------ ---------- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - January 31,
1996 57,500 $ 1,000 439,650 $ 4,000 $ 112,000 $(2,846,000) $(2,729,000)
Net (loss) for the three
months ended April 30,
1996 (430,000) (430,000)
------ -------- ------- -------- --------- ----------- -----------
Balance - April 30, 1996 57,500 $ 1,000 439,650 $ 4,000 $ 112,000 $(3,276,000) $(3,159,000)
====== ======== ======= ======== ========= =========== ===========
</TABLE>
See notes to financial statements
<PAGE>
U.S. ENERGY SYSTEMS, INC. AND SUBSIDIARIES
(FORMERLY U.S. ENVIROSYSTEMS, INC.)
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED APRIL 30, 1996 AND 1995
(Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited condensed financial
statements have been prepared in accordance with
instructions to Form 10-QSB and, accordingly, do not
include all of the information and footnotes required
by generally accepted accounting principles for
complete financial statements. In the opinion of
management, all adjustments (consisting of normal
accruals) considered necessary for a fair presentation
have been included. The results for the three months
are not necessarily indicative of results for the full
year.
Note 2 - Income Taxes
No income tax provisions have been made due to losses
incurred. Deferred income tax benefits have been fully
reserved due to the uncertainty of future realization.
Note 3 - Net (Loss) Per Share
Net (Loss) per share has been computed on the basis of
the weighted average number of shares outstanding
during the period. Common stock equivalents have not
been included in the computation since their inclusion
would be anti-dilutive or immaterial. All references
to shares and per share amounts have been adjusted
retroactively to reflect the reverse split of the
Company's Common Stock which became effective on May
10, 1996.
Note 4 - Subsequent Events
The Company has filed a Schedule 14C Information
Statement with the Securities and Exchange Commission
stating that the Company's name is being changed to
U.S. Energy Systems, Inc. to avoid confusion with
another company, and to be more representative of the
Company's business. The name change will become
effective on June 27, 1996.
The stockholders of the Company, at the 1995 annual
meeting and its adjournments, approved a reverse split
of the Company's Common Stock one new share for forty
old shares. The effective date set by the Board of
Directors was May 10, 1996. This has been given
retroactive effect in this filing, and all references
to shares and per share amounts have been adjusted to
reflect the reverse split.
ON-GOING PROJECTS
-----------------
Lehi, Utah. As previously reported, in December 1995,
Lehi Independent Power Associates, L.C. ("LIPA")
concluded a sale of non-essential parts and commenced
plans to bring the remaining 10 megawatt engines to
operational readiness. Restoring the engines to
reliable service is necessary before either a power
purchase agreement for the 10 megawatts can be
negotiated with the municipal power authority or,
alteratively, a sale of the 10 megawatt engines can be
concluded with interested parties. LIPA has received
such a purchase bid which it is currently evaluating.
If the 10 megawatt engines are sold, it would be LIPA's
intent to acquire larger, more efficient gas turbines
which could be accommodated under the air permit. The
Company and its partners believe the market for
electricity in the Utah area will continue to grow.
Summary of the Income Statement of LIPA for the three
(3) months ended March 31, 1996:
Total Revenue None
Expenses $11,000
Depreciation 3,000
-------
Net Loss ($14,000)
USE Share 50%
Plymouth, New Hampshire. The study regarding expanding
the facility to 10 megawatts from its present 2.5
megawatts is still under way. The purpose would be to
provide power to two other state college campuses.
Further plans are under development to install special
fuel treatment equipment which will allow the existing
engines to burn less costly and more efficient fuels.
Fuel savings would be shared equally between the
college and the partnership, Plymouth Cogeneration
Limited Partnership ("Plymouth").
Summary of Income Statement of Plymouth for the three
(3) months ended March 31, 1996:
Total Revenues $290,000
Operating Expenses 157,000
--------
Operating Income 133,000
Interest Expense (Net) 93,000
Depreciation 74,000
--------
Net Loss ($34,000)
USE Share 50%
Steamboat Geothermal Power Plants. The Company's
agreements, subject to financing, to form a limited
liability company ("Steamboat LLC"), which will own two
geothermal power plants, awaits only the completion of
the private and public financing for the Company more
fully described below in Note 5. It is expected that
this will be completed during June and July.
Shopping Malls. The joint development company which was
formed by the Company and Cowen Investment Group has
been informed by the mall owner that the contract for
the first mall cannot be drawn before mid-July at the
earliest. When that is signed, construction will begin
within 60 days.
U.S. Virgin Islands. The contract with Bluebeard Holding
Company for construction of a 2 megawatt cogeneration
project for Bluebeard's Castle in St. Thomas, U.S.
Virgin Islands, is expected to be signed during June.
Engineering drawings are in the preliminary draft
stage.
NEW PROJECTS
------------
Other potential projects are being explored by the
Company. These include power plants in India, Panama,
Israel, New York, Illinois, and elsewhere in the
Caribbean basin.
LEGAL PROCEEDINGS
-----------------
The suit brought by the owner of a farm adjacent to the
LIPA facility in Lehi, Utah, is being heard by the
court. While depositions are being taken, LIPA
continues to explore settlement options with the
plaintiff. Neither the Company nor its partners
believe that the plaintiff has a strong case, but
settlement might be less costly than further extensive
work on testing and on litigation.
Note 5 - Additional Financing and Related Party Transactions
On May 3, 1996, the Company filed with the Securities
and Exchange Commission a Registration Statement on
Form SB-2 for a public offering of 1,625,000 shares of
Common Stock at $4.00 per share, and 1,625,000
Redeemable Common Stock Purchase Warrants at ten cents
per Warrant. Each Warrant entitles the holder to
purchase one share of Common Stock for $4.00 during the
four-year period commencing one year from the date of
the offering. The underwriters, Gaines Berland, Inc.,
have the option to purchase an additional 243,750
shares of Common Stock and 243,750 Redeemable Common
Stock Purchase Warrants to cover over-allotments, if
any. The total of this offering to the public, before
the exercise of the underwriters' over-allotment
option, will be $6,662,500.
The Company has also signed contracts with two private
investors for a total of $3,500,000 in Preferred Stock
and Private Warrants, to be closed concurrently with
the closing of the public underwriting described above.
1,600,000 shares of 11% Preferred Stock is to be sold
to Enviro Partners, L.P. for $3,100,000, and 500,000
Private Warrants are to be sold to Energy Management
Corporation for $400,000.
Further details will be found in Form 10-KSB of January
31, 1996.
<PAGE>
U.S. ENERGY SYSTEMS, INC. AND SUBSIDIARIES
(FORMERLY U.S. ENVIROSYSTEMS, INC.)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Three Months Ended April 30, 1996 Compared to 1995
The periods had no revenues. The losses shown were made up of
the following major elements:
1996 1995
---- ----
Selling and administrative
expenses:
Salaries and consulting fees $121,000 $ 84,000
Legal and professional fees 51,000 33,000
Corporate expenses 6,000 32,000
All other 57,000 63,000
-------- --------
Total selling and $235,000 $212,000
administrative expenses
Interest expenses $170,000 $ 99,000
Consulting agreements which began during 1995 and were not in
existence during the 1995 quarter accounted for the increase in
salaries and consulting fees.
Legal and professional fees were higher in the current quarter
due to the additional costs related to the additional bridge
loans, amortized over the terms of the loans. Costs incurred in
connection with the public and private financing have been
deferred. As of April 30, 1996, these amounted to $108,000.
Interest expenses increased in the 1996 quarter due principally
to the additional borrowings in bridge loans, which came into
being starting in June 1995.
The three-month joint venture loss totaling $25,000 was similar
to the previous year's $24,000, and was composed of $7,000 from
Lehi Independent Power Associates, L.C., and $18,000 from
Plymouth Cogeneration Limited Partnership.
Liquidity and Capital Resources
During the 1996 quarter, cash flow has been carefully conserved.
Salaries have been deferred and additional bridge loan borrowings
amounting to $125,000 were received. 50% of interest payments to
holders of the subordinated debentures continue to be deferred,
by agreement of the bondholders.
As of April 30, 1996, the Company had a working capital
deficiency of $2,342,000 and a capital deficiency of $3,159,000.
This compared with $860,000 and $1,736,000 respectively a year
earlier. The private and public offerings described in Note 5
above will bring both capital and working capital to positive
figures.
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the Registrant has caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
Date: June 14, 1996
U.S. Energy Systems, Inc.
(Formerly U.S. Envirosystems, Inc.)
By: /s/ Richard H. Nelson
--------------------------------------
Richard H. Nelson
President and Chief Executive Officer
By: /s/ Seymour J. Beder
---------------------------------------
Seymour J. Beder
Chief Accounting Officer and
Controller
<PAGE>
EXHIBIT INDEX
Exhibit Description
------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM U.S.
ENERGY SYSTEMS, INC.'S (FORMERLY U.S. ENVIROSYSTEMS, INC.) BALANCE SHEETS,
CONSOLIDATED STATEMENT OF OPERATIONS, STATEMENT OF CASH FLOWS AND
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL DEFICIENCY FOR THE PERIOD
ENDED APRIL 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> APR-30-1996
<CASH> 2,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,998,000
<CURRENT-LIABILITIES> 2,345,000
<BONDS> 1,525,000
0
1,000
<COMMON> 4,000
<OTHER-SE> (3,164,000)
<TOTAL-LIABILITY-AND-EQUITY> 1,998,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 260,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 70,000
<INCOME-PRETAX> (430,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (430,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (430,000)
<EPS-PRIMARY> (.98)
<EPS-DILUTED> (.98)
</TABLE>
