<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) AUGUST 18, 1997
-------------------------------
U.S. ENERGY SYSTEMS, INC.
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 0-10238 52-1216347
- ----------------------------- ------------------------- ---------------------
(STATE OR OTHER JURISDICTION (COMMISSION (IRS EMPLOYER
OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.)
515 NORTH FLAGLER DRIVE, SUITE 702, WEST PALM BEACH, FL 33401
- -------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (561) 820-9779
----------------------------
N/A
- -------------------------------------------------------------------------------
(FORMER NAME OR FORMER ADDRESS; IF CHANGED SINCE LAST REPORT)
Page 1 of ___ pages.
Exhibit Index at Page ___.
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On August 4, 1997, U.S. Energy Systems, Inc. (the "Company") entered
into a definitive merger agreement with American Enviro-Services, Inc., an
Indiana corporation ("AES"), pursuant to which AES would become a wholly-owned
subsidiary of the Company (the "Merger"). AES, which operates from its Newburgh,
Indiana facility, provides multifaceted environmental services primarily
in the Midwestern United States. The Merger was consummated on August 18, 1997.
In connection with the consummation of the Merger, which was accounted
for under the purchase method of accounting, the Company issued 665,000 shares
of its Common Stock and paid $150,000 in cash to the shareholders of AES. The
aggregate purchase price was determined by the Company's Board of Directors
based upon an analysis of projected future cash flows, comparable companies and
comparable transactions. The cash portion of the purchase price was paid from
the Company's working capital reserves.
In addition, Howard Nevins signed a three-year employment agreement
with the Company to continue to serve as the President of AES and to serve as
Executive Vice President of the Company's Environmental Division. Mr. Nevins was
also appointed to the Board of Directors of the Company.
2
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
a. Financial Statements of Business Acquired.
<TABLE>
<S> <C>
American Enviro-Services, LLC
Independent Auditor's Report........................................................... 4
Balance Sheets as of June 30, 1997 (unaudited) and December 31, 1996................... 5
Statements of Income and Members' Equity for the Six Months Ended June 30, 1997 and
1996 (unaudited) and the Year Ended December 31, 1996............................... 6
Statements of Cash Flows for the Six Months Ended June 30, 1997 and 1996 (unaudited)
and the Year Ended December 31, 1996................................................ 7
Notes to Financial Statements.......................................................... 8
</TABLE>
b. Pro Forma Financial Information.
<TABLE>
<S> <C>
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
July 31, 1997....................................................................... 15
Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet...................... 16
Unaudited Pro Forma Condensed Consolidated Statements of Operations for the Six Months
Ended July 31, 1997 and the Year Ended January 31, 1997............................. 17
Notes to Unaudited Pro Forma Condensed Statements of Operations........................ 18
</TABLE>
c. Exhibits
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NUMBER
------- ----------- -----------
<S> <C> <C>
2.1 Merger Agreement by and between U.S. Energy Systems, Inc.,
AES Merger Corp., American Enviro-Services, Inc., and the
Shareholders of American Enviro-Services, dated as of August 4,
1997.*
10.1 Form of Employment Agreement by and between U.S. Energy
Systems, Inc. and Howard Nevins.*
99.1 Press release dated August 19, 1997, announcing the
consummation of the Merger.**
*Incorporated by reference to the Company's Current Report on
Form 8-K dated August 12, 1997.
**Incorporated by reference to the Company's Current Report on
Form 8-K dated August 18, 1997.
</TABLE>
3
<PAGE> 4
Independent Auditors' Report
To the Members of
American Enviro-Services, LLC
We have audited the accompanying balance sheet of American Enviro-Services, LLC,
as of December 31, 1996, and the related statements of income and members'
equity, and cash flows for the year then ended. These financial statements are
the responsibility of the company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Enviro-Services, LLC,
as of December 31, 1996, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
The financial statements presented as of June 30, 1997 and for the six-month
periods ended June 30, 1996 and June 30,1997 were reviewed by us, and our report
thereon, dated August 14, 1997, stated we were not aware of any material
modifications that should be made to those statements for them to be in
conformity with generally accepted accounting principles. However, a review is
substantially less in scope than an audit and does not provide a basis for the
expression an opinion on the financial statements taken as a whole.
Brown, Smith & Settle, LLC
Evansville, Indiana
August 14, 1997
4
<PAGE> 5
AMERICAN ENVIRO-SERVICES, LLC
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
------------ ------------
1997
1996 (Unaudited)
------------ ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Accounts receivable - trade,
net of allowance for bad
debts of $3,315, $11,200,
respectively $ 140,810 $ 476,530
Accounts receivable - member 0 7,920
Employee Advances 600 1,425
Inventory 3,940 9,800
Prepaid Insurance 985 6,471
------------ ------------
TOTAL CURRENT ASSETS 146,335 502,146
------------ ------------
PROPERTY AND EQUIPMENT 416,308 726,530
Less accumulated depreciation 28,449 51,610
------------ ------------
387,859 674,920
------------ ------------
OTHER ASSETS
Loan costs, net 2,756 2,705
Organization costs, net 113 94
------------ ------------
2,869 2,799
------------ ------------
$ 537,063 $ 1,179,865
============ ============
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES
Bank overdraft $ 19,101 $ 10,856
Notes payable 0 76,000
Current maturities of
long-term debt 25,019 36,545
Accounts payable 110,293 95,400
Accrued interest 0 2,645
Accrued and withheld taxes 2,928 6,979
------------ ------------
TOTAL CURRENT LIABILITIES 157,341 228,425
------------ ------------
LONG-TERM DEBT,
less current maturities 154,256 386,154
------------ ------------
MEMBERS' EQUITY 225,466 565,286
------------ ------------
$ 537,063 $ 1,179,865
============ ============
</TABLE>
See accompanying notes and independent auditors' report.
5
<PAGE> 6
AMERICAN ENVIRO-SERVICES, LLC
STATEMENTS OF INCOME AND MEMBERS' EQUITY
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, June 30,
------------ --------------------------
1997 1996
1996 (Unaudited) (Unaudited)
------------ ------------ ------------
<S> <C> <C> <C>
REVENUE $ 612,608 $ 791,882 $ 199,094
DIRECT COSTS 404,540 402,248 140,338
------------ ------------ ------------
GROSS PROFIT 208,068 389,634 58,756
GENERAL AND
ADMINISTRATIVE EXPENSES 102,893 99,077 48,317
------------ ------------ ------------
INCOME FROM OPERATIONS 105,175 290,557 10,439
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Loss on disposal of assets 0 (3,558) 0
Rental income 0 2,271 0
Miscellaneous income 8,950 1,401 6,754
Interest expense (6,754) (16,851) (2,772)
------------ ------------ ------------
2,196 (16,737) 3,982
------------ ------------ ------------
NET INCOME 107,371 273,820 14,421
MEMBERS' EQUITY - BEGINNING 34,693 225,466 34,693
CAPITAL CONTRIBUTED 106,300 66,000 60,398
LESS DRAWS 22,898 0 22,898
------------ ------------ ------------
MEMBERS' EQUITY - ENDING $ 225,466 $ 565,286 $ 86,614
============ ============ ============
</TABLE>
See accompanying notes and independent auditors' report.
6
<PAGE> 7
AMERICAN ENVIRO-SERVICES, LLC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, June 30,
------------ --------------------------
1997 1996
1996 (Unaudited) (Unaudited)
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 107,371 $ 273,820 $ 14,421
Adjustments for non-cash
transactions:
Depreciation and amortization 21,852 25,146 9,996
Provision for bad debts 3,315 7,885 6,298
Loss on disposal of assets 0 3,558 0
Changes in assets and
liabilities:
Accounts receivable (45,734) (351,525) 34,721
Employee advances (200) (825) (100)
Inventory (1,126) (5,860) (3,963)
Prepaid insurance 1,665 (5,486) (2,770)
Other assets (2,756) 0 0
Accounts payable 40,248 (14,893) (44,345)
Accrued interest 0 2,645 0
Accrued and withheld taxes 2,515 4,051 1,829
------------ ------------ ------------
Net cash provided by (used in)
operating activities 127,150 (61,484) 16,087
------------ ------------ ------------
INVESTING ACTIVITIES
Purchases of property
and equipment (332,667) (315,695) (24,640)
------------ ------------ ------------
Net cash used in
investing activities (332,667) (315,695) (24,640)
------------ ------------ ------------
FINANCING ACTIVITIES
Net increase (decrease) in
bank overdraft 19,101 (8,245) 6,775
Proceeds from notes payable
and long-term debt 482,122 539,144 97,797
Repayments of notes payable
and long-term debt (379,540) (219,720) (133,951)
Capital contributions 106,300 66,000 60,398
Members' draws (22,898) 0 (22,898)
------------ ------------ ------------
Net cash provided by
financing activities 205,085 377,179 8,121
------------ ------------ ------------
Decrease in cash (432) 0 (432)
------------ ------------ ------------
Cash at beginning of year 432 0 432
------------ ------------ ------------
Cash at end of year $ 0 $ 0 $ 0
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION
- -------------------------------------------------
Cash paid for interest $ 6,754 $ 16,851 $ 2,772
============ ============ ============
</TABLE>
See accompanying notes and independent auditors' report.
7
<PAGE> 8
AMERICAN ENVIRO-SERVICES, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(Unaudited with respect to June 30, 1997 and June 30, 1996)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Nature of Business
- ------------------
American Enviro-Services, LLC provides a wide range of environmental services
which includes collecting and recycling used motor and industrial oils and
waters. Recycled oils are used by industrial burners. American Enviro-Services,
LLC also provides a complete line of environmental remedial services. The
company responds to emergency spill situations. American Enviro-Services, LLC
operates primarily in southern Indiana, southern Illinois, western Kentucky, and
southeastern Missouri.
Income Taxes
- ------------
The company is not a taxpaying entity for federal and state income tax purposes,
and thus no income tax expense has been recorded in the financial statements.
Income of the company is taxed to the members in their respective income tax
returns. The members customarily make withdrawals to pay their personal tax
liabilities.
Cash and Cash Equivalents
- -------------------------
The company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Inventory
- ---------
Inventory is stated at the lower of cost or market.
Property and Equipment
- ----------------------
Property and equipment are carried at cost. Expenditures for replacements are
capitalized and the replaced items are retired. Maintenance and repairs are
charged to operations as incurred. Provisions for depreciation of property and
equipment have been computed on the straight-line method using estimated
economic lives.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
Advertising
- -----------
The company follows the policy of charging the costs of advertising to expense
as incurred.
Amortization
- ------------
Organization costs are being amortized over a five-year period using the
straight-line method. Prepaid loan costs are being amortized over the life of
the mortgage using the straight-line method.
8
<PAGE> 9
AMERICAN ENVIRO-SERVICES, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(Unaudited with respect to June 30, 1997 and June 30, 1996)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- ---------------------------------------------------------------
Interim Statements
- ------------------
The financial statement information presented as of June 30, 1997 and for the
six-month periods ended June 30, 1997 and 1996 has been reviewed and in the
opinion of management contains all adjustments necessary for a fair presentation
of such financial information. Results of operations for interim periods are not
necessarily indicative of those to be achieved for full fiscal years.
NOTE 2 - ACCOUNTS RECEIVABLE
- ----------------------------
Accounts receivable at June 30, 1997 includes a receivable from the Kentucky
Office of the Petroleum Tank and Environmental Assurance Fund in the amount of
$334,412, which is for work completed to date on an environmental site in
Robards, Kentucky. American Enviro-Services, LLC is working under a base
contract that has been estimated and approved at $870,000. The job began in
February, 1997. The accounts receivable represents work completed through June
30, 1997. A portion of the contract amount will be received when the preliminary
site investigation is finished. The remaining unpaid balance will be due when
remedial action is completed. The state of Kentucky will review the work
performed and determine the amount to be received by American Enviro-Services,
LLC.
NOTE 3 - PROPERTY AND EQUIPMENT
- -------------------------------
Property and equipment at December 31, 1996 and June 30, 1997, consisted of the
following:
<TABLE>
<CAPTION>
December 31, June 30,
------------ ---------
1997
1996 (Unaudited)
------------ -----------
<S> <C> <C>
Land $ 30,628 $ 30,628
Building 238,989 447,154
Equipment 49,031 115,381
Office equipment
and furnishings 5,703 17,756
Vehicles 91,957 115,611
Total property and
equipment 416,308 726,530
Less accumulated
depreciation 28,449 51,610
--------- ---------
Property and equipment
- net $ 387,859 $ 674,920
========= =========
</TABLE>
Depreciation expense for the year ended December 31, 1996, and the six months
ended June 30, 1997 and 1996, was $21,814, $25,076 and $9,978, respectively.
9
<PAGE> 10
AMERICAN ENVIRO-SERVICES, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Unaudited with respect to June 30, 1997 and June 30, 1996)
NOTE 4 - NOTES PAYABLE
- ----------------------
Notes payable at December 31, 1996 and June 30, 1997, consisted of the
following:
<TABLE>
<CAPTION>
December 31, June 30,
------------ ----------
1997
1996 (Unaudited)
------------ -----------
<S> <C> <C>
Lines of credit, Old National
Bank, maximum of $200,000,
prime plus .5% $100,000 due December
16, 1997 (A) $100,000 due
October 27, 1997 (A) $ 0 $ 76,000
=========
</TABLE>
(A) Inventory, accounts receivable, equipment and general intangibles pledged as
collateral. Personally guaranteed by the members.
NOTE 5 - LONG-TERM DEBT
- -----------------------
Long-term debt at December 31, 1996 and June 30, 1997, consisted of the
following:
<TABLE>
<CAPTION>
December 31, June 30,
------------ -----------
1997
1996 (Unaudited)
------------ -----------
<S> <C> <C>
Construction loan payable,
Old National Bank, prime
plus .5%, interest only
until completion, converted
to long-term debt in March
1997 (B) $ 146,856 $ 0
Mortgage payable, Old National
Bank, prime plus .5%, $3,246
per month, due May 2017 (B) 0 373,404
Note payable, Old National Bank,
10.4%, $745 per month, due
October, 1998 (A) 14,182 10,429
Note payable, Old National Bank,
8%, $428 per month, due July,
1997 (A) 2,921 426
Note payable, Old National Bank,
11.5%, $610 per month, due
June, 1997 (A) 3,541 0
</TABLE>
10
<PAGE> 11
AMERICAN ENVIRO-SERVICES, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Unaudited with respect to June 30, 1997 and June 30, 1996)
\NOTE 5 - LONG-TERM DEBT (CONTINUED)
- -----------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Note payable, Old National Bank,
12.2%, $614 per month, due
September, 1998 (A) 11,775 8,620
Note Payable, Citizens National
Bank, 8.8%, $821 per month,
due June, 1999 (A) 0 18,000
Note Payable, National City
Bank, 8.3%, $483 per month,
due September, 1999 (A) 0 11,820
--------- ---------
179,275 422,699
Less current maturities 25,019 36,545
--------- ---------
Long-term debt $ 154,256 $ 386,154
========= =========
</TABLE>
(A) Specific equipment pledged as collateral.
(B) Land and building pledged as collateral. Personally guaranteed by the
members.
The aggregate amount of such required payments, principal and interest, at
December 31, 1996 and June 30, 1997, is as follows:
<TABLE>
<CAPTION>
December 31, June 30,
------------ ----------
1997
1996 (Unaudited)
----------- -----------
<S> <C> <C>
1997 $ 44,822 $ 74,835
1998 54,169 58,667
1999 38,940 40,395
2000 38,940 38,948
2001 38,940 38,948
Thereafter 0 580,973
-------- ---------
Total 215,811 832,766
Less amount
representing interest 36,536 410,067
--------- ---------
Total $ 179,275 $ 422,699
========= =========
</TABLE>
11
<PAGE> 12
AMERICAN ENVIRO-SERVICES, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Unaudited with respect to June 30, 1997 and June 30, 1996)
NOTE 6 - MAJOR CUSTOMERS
- ------------------------
During the year ended December 31, 1996, and the six-month periods ended June
30, 1997 and 1996, American Enviro-Services, LLC had earned revenue from the
following major customers:
<TABLE>
<CAPTION>
Percentage
of Total
December 31, 1996 Amount Revenue
- ------------------ ------- -------
<S> <C> <C>
Goodyear Tire and Rubber Co. $ 75,006 12%
Ser Oil Service, Inc. $ 91,177 15%
June 30, 1997 (Unaudited)
- -------------------------
Kentucky Office of the
Petroleum Tank and
Environmental Assurance
Fund $ 340,391 43%
June 30, 1996 (Unaudited)
- -------------------------
Ser Oil Service, Inc. $ 45,343 23%
Hunter Environmental $ 59,229 30%
</TABLE>
NOTE 7 - DEFERRED INCOME
- ------------------------
American Enviro-Services, LLC had deferred income for income tax purposes as of
December 31, 1996, June 30, 1997 and 1996, because of the differences between
the periods in which transactions affect taxable income and the periods in which
they enter into the determination of income in the financial statements.
Specifically, those transactions relate to the differences in book depreciation
and tax depreciation, which is based on methods prescribed by the Internal
Revenue Service, accounting for uncollectible accounts which uses the allowance
method for financial statement purposes and the direct write off method for tax
purposes and the application of Internal Revenue Service code section 754 to
step up the tax basis of assets for new investors. For income tax purposes,
depreciation has been computed on the modified accelerated cost recovery systems
utilizing U.S. Internal Revenue Service estimated useful lives. When beneficial,
for income tax purposes, limited amounts of expense deduction are taken as
allowed by the U.S. Internal Revenue Code Section 179.
NOTE 8 - TRANSACTIONS WITH RELATED PARTIES
- ------------------------------------------
American Enviro-Services, LLC is related, through common ownership, to Midwest
Custom Chemicals, Inc., Quality Environmental Laboratories, LLC, and Trey
Exploration, Inc. Office space and management is shared by all related entities.
12
<PAGE> 13
AMERICAN ENVIRO-SERVICES, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Unaudited with respect to June 30, 1997 and June 30, 1996)
NOTE 8 - TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
- ------------------------------------------------------
Transactions with related companies include payments for chemical purchases and
lab analysis, reimbursements of accounting and management costs, and receipts
for office rental. American Enviro-Services, LLC had the following activity with
related parties for the year ended December 31 1996, and the six months ended
June 30, 1997 and 1996:
<TABLE>
<CAPTION>
December 31, June 30,
------------ -----------------------
1997 1996
1996 (Unaudited) (Unaudited)
------------ ----------- -----------
<S> <C> <C> <C>
Total Related Party Payments $ 59,936 $ 57,592 $ 36,824
======== ======== ========
Total Related Party Receipts $ 0 $ 2,270 $ 0
======== ======== ========
Total Related Party
Accounts Payable $ 4,403 $ 20,659 $ 2,729
======== ======== ========
Total Related Party
Accounts Receivable $ 0 $ 7,920 $ 0
======== ======== ========
</TABLE>
NOTE 9 - CONCENTRATION OF CREDIT RISK
- -------------------------------------
The company provides services primarily in southern Indiana, southern Illinois,
western Kentucky and southeast Missouri. The company extends credit to
customers, substantially all of which are industrial and commercial operations.
At June 30, 1997 the accounts receivable from the Kentucky Office of the
Petroleum Tank and Environmental Assurance Fund was $334,412 or 70% of accounts
receivable.
NOTE 10 - LIMITED LIABILITY COMPANY
- -----------------------------------
As stated in the company agreement, American Enviro-Services, LLC operates as a
limited liability partnership. Member's liability is limited in accordance with
Indiana state law.
NOTE 11 EMPLOYEE BENEFIT PLAN
- -----------------------------
The company started a Saving Incentive Match Plan (SIMPLE) effective March 1,
1997. The plan covers substantially all of its employees. The company matches
employee contributions up to three percent of wages. The company's contribution
to the plan for the six months ended June 30, 1997 was $ 1,590.
13
<PAGE> 14
AMERICAN ENVIRO-SERVICES, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Unaudited with respect to June 30, 1997 and June 30, 1996)
NOTE 12 - SUBSEQUENT EVENTS - INCORPORATION AND MERGER
- ------------------------------------------------------
The company's assets, liabilities and operations were transferred to
American Enviro-Services, Inc. on August 4, 1997, by means of a tax-free
incorporation.
American Enviro-Services, Inc. was acquired b U.S. Energy Systems, Inc.
effective August 18, 1997.
A liability for the members' and shareholders' income tax on 1997 taxable income
earned prior to acquisition has been assumed by American Enviro-Services, Inc.
NOTE 13 - OTHER SUBSEQUENT EVENTS
- ---------------------------------
In June, 1997 Midwest Custom Chemical, Inc. began charging American
Enviro-Services, LLC $4,150 per month for management services.
The Company has contracted with Ware Energy for the building of a boiler room on
the property. A payment of $13,500 for work in progress as of June 30, 1997 is
included in property and equipment. The remaining unpaid balance of $25,798
became payable in August, 1997 upon completion of the project.
14
<PAGE> 15
U. S. ENERGY SYSTEMS, INC. AND SUBSIDIARIES SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JULY 31, 1997
The following Pro Forma Condensed Consolidated Balance Sheet gives effect to the
acquisition of American Enviro-Services, Inc. as if it had occurred on July 31,
1997. The historical balance sheet of American Enviro-Services, Inc. ("AES") is
as of June 30, 1997.
<TABLE>
<CAPTION>
Pro Forma
Adjustments
USE AES ------------------------- Pro
Historical Historical Consolidated Debit Credit Forma
--------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash $ 2,007,000 $ (11,000) $ 1,996,000 $ a $ 150,000 $1,675,000
b 51,000
d 120,000
Accounts receivable 212,000 476,000 688,000 688,000
Note receivable 255,000 - 255,000 255,000
Inventory - 10,000 10,000 10,000
Other current assets 62,000 16,000 78,000 78,000
--------------------------------------- ----------
Total current assets 2,536,000 491,000 3,027,000 2,706,000
Property, plant and
equipment, net 4,128,000 675,000 4,803,000 4,803,000
Note receivable 1,275,000 1,275,000 1,275,000
Investments in joint
ventures 1,588,000 1,588,000 1,588,000
Deferred acquisition costs 90,000 90,000 c 28,000 62,000
Other assets 150,000 3,000 153,000 153,000
Goodwill 1,996,000 a 2,099,000
103,000 b
158,000 c
--------------------------------------- -----------
TOTAL $ 9,767,000 $1,169,000 $10,936,000 $12,686,000
======================================= ===========
LIABILITIES
Current liabilities:
Accounts payable and
accrued expenses $ 844,000 $ 105,000 $ 949,000 c 130,000 $ 1,079,000
Notes payable - 76,000 76,000 76,000
Current maturities, long
term debt - 37,000 37,000 37,000
Pre-reorganization taxes
payable 186,000 186,000 186,000
--------------------------------------- -----------
Total current
liabilities 1,030,000 218,000 1,248,000 1,378,000
Long term debt 875,000 386,000 1,261,000 120,000 d 1,141,000
Other liabilities 37,000 - 37,000 37,000
--------------------------------------- -----------
Total liabilities 1,942,000 604,000 2,546,000 2,556,000
--------------------------------------- -----------
Minority interests 454,000 - 454,000 454,000
--------------------------------------- -----------
STOCKHOLDERS' EQUITY
Common stock 43,000 43,000 a 7,000 50,000
Additional paid-in capital 12,718,000 12,718,000 a 2,404,000 15,174,000
b 52,000
Accumulated (deficit) (5,390,000) (5,390,000) (5,390,000)
Members' equity 565,000 565,000 565,000 a -
=================================================================================
TOTAL $ 9,767,000 $1,169,000 $10,936,000 $2,942,000 $2,942,000 $12,844,000
=================================================================================
</TABLE>
15
<PAGE> 16
U.S. ENERGY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(a) To reflect purchase of American Enviro-Services, Inc. for 665,000 shares of
Common Stock and $150,000 in cash. Common stock on August 18, 1997, the date
of the purchase, closed at $3.625.
665,000 shares at $3.625= $2,410,625
Cash 150,000
----------
Gross cost of acquisition 2,560,625
Rounded to 2,561,000
Less equity of AES 565,000
==========
Actual cost of acquisition $1,996,000
==========
Note: Options granted to sellers are not valued as they were issued under
employment contracts at market price of stock.
(b) To reflect payment of commissions incurred in connection with the
acquisition
Cash $ 50,580
Stock 11,430 $3.625 41,434
Options 6,000 $1.810 10,860
--------
Total Commissions $102,874
========
Rounded to $103,000
(c) Legal and professional expenses in connection with the acquisition
Reflected in Balance Sheet as Deferred Acquisition Costs $ 28,000
Incurred subsequent to Balance Sheet date 130,000
--------
$158,000
========
(d) To reflect payment of $120,000 to reduce AES mortgage debt
16
<PAGE> 17
U.S. ENERGY SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
The following Pro Forma Condensed Consolidated Statements of Operations
consolidates the results of operations of the Company for the year ended
January 31, 1997 and the six months ended July 31, 1997 with the results of
operations of American Enviro-Services, Inc. ("AES") for the year ended
December 31, 1996 and six months ended June 30, 1997 as if the acquisition had
taken place at the beginning of the periods in a transaction accounted for as a
purchase AES has had a fiscal year end of December 31 which differs from the
fiscal year end of the Company. The Pro Forma Condensed Consolidated Statements
of Operations also gives effect to the following (a) Acquisition of AES for
665,000 shares of Common Stock plus $150,000 in cash (b) issuance of 11,430
shares of Common Stock as commission on the acquisition.
<TABLE>
<CAPTION> Year Ended January 31, 1997
-----------------------------------------------------------------------
Adjusted
USE AES Pro Forma Pro Forma
Historical Historical Consolidated Adjustments Consolidated
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 266,000 $613,000 $ 879,000 $ 879,000
Operating expenses 162,000 405,000 567,000 567,000
----------- -------- ----------- -----------
Gross profit 104,000 208,000 312,000 312,000
----------- -------- ----------- -----------
Selling, general and administrative
expenses 1,159,000 103,000 1,262,000 $112,000 a 1,374,000
Litigation expenses - -
----------- -------- ----------- -----------
Operating profit (loss) (1,055,000) 105,000 (950,000) (1,062,000)
Interest income 18,000 18,000 18,000
Interest expense (823,000) (7,000) (830,000) (830,000)
Miscellaneous income
Loss from Joint Ventures 9,000 9,000 9,000
Amortization of Goodwill (163,000) (163,000) (163,000)
140,000 a (140,000)
----------- -------- ----------- -----------
Net profit (loss) before
extraordinary item (2,023,000) 107,000 (1,916,000) (2,168,000)
Extraordinary gain (loss)
from restructuring of liabilities (25,000) (25,000) (25,000)
----------- ----------- -----------
Net profit (loss) (2,048,000) $107,000 $(1,941,000) $(2,193,000)
======== =========== ===========
Fair value of common shares
issued over carrying amount
of preferred stock (633,000) (633,000) (633,000)
----------- ----------- -----------
(Loss) applicable to
common stock $(2,681,000) $(2,574,000) $(2,826,000)
=========== =========== ===========
Per share of common stock
(Loss) before extraordinary
item $ (2.56) $ (1.63)
=========== ===========
Net (loss) $ (2.58) $ (1.65)
=========== ===========
Shares used in computing net
(loss) per common share 1,037,239 1,713,669
=========== ===========
</TABLE>
<TABLE>
<CAPTION> Six Months Ended July 31, 1997
------------------------------------------------------------------------
Adjusted
USE AES Pro Forma Pro Forma
Historical Historical Consolidated Adjustments Consolidated
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 742,000 $792,000 $ 1,534,000 $ 1,534,000
Operating expenses 412,000 402,000 814,000 814,000
----------- -------- ----------- -----------
Gross profit 330,000 390,000 720,000 720,000
----------- -------- ----------- -----------
Selling, general and administrative
expenses 685,000 99,000 784,000 $ 56,000 a 840,000
Litigation expenses 147,000 147,000 147,000
----------- -------- ----------- -----------
Operating profit (loss) (502,000) 291,000 (211,000) (267,000)
Interest income 89,000 89,000 89,000
Interest expense (59,000) (17,000) (76,000) (76,000)
Miscellaneous income - -
Loss from Joint Ventures (60,000) - (60,000) (60,000)
Amortization of Goodwill 70,000 c (70,000)
----------- -------- ----------- -----------
Net profit (loss) before
extraordinary item (532,000) 274,000 (258,000) (384,000)
Extraordinary gain (loss)
from restructuring of
liabilities 36,000 36,000 36,000
----------- ----------- -----------
Net profit (loss) $ (496,000) $274,000 $ (222,000) $ (348,000)
=========== ======== =========== ===========
Fair value of common shares
issued over carrying amount
of preferred stock
(Loss) applicable to common stock
Per share of common stock
(Loss) before extraordinary item
Net (loss) $ (0.11) $ (0.07)
=========== ===========
Shares used in computing net
(loss) per common share 4,334,190 b 5,010,620
=========== ===========
</TABLE>
17
<PAGE> 18
U.S. ENERGY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENTS
(a) Employment contracts that would have been in effect call for a total of
$112,000 per annum in executive salaries not previously included.
(b) Pro forma net income per share is based on the weighted average number of
shares outstanding plus the shares issued in the AES acquisition.
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
January 31, July, 31
1997 1997
------------ ------------
Adjusted Adjusted
Pro Forma Pro Forma
Consolidated Consolidated
------------ ------------
<S> <C> <C>
Pre-acquisition shares 1,037,239 4,334,190
Issued to previous owners of AES 665,000 665,000
Issued as commissions on acquisitions
of AES 11,430 11,430
--------- ---------
1,713,669 5,010,620
========= =========
</TABLE>
(c) Amortization of goodwill arising from the AES acquisition over 15 years.
$2,099,000 amortized over 15 years $140,000 annually
$ 70,000 semi-annually
(d) Depreciation of AES plant and equipment is already included in AES'
selling, general and administrative expenses.
18
<PAGE> 19
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amended report to be signed on its behalf by the
undersigned hereunto duly authorized.
November 3, 1997 U.S. ENERGY SYSTEMS, INC.
By: /s/ Seymour J. Beder
---------------------------------------
Seymour J. Beder
Chief Financial Officer, Controller and
Treasurer
19
