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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transaction period from_____________ to ______________
Commission File Number:
0-10238
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U.S. ENERGY SYSTEMS, INC.
Delaware 52-1216347
(State or Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
515 N. Flagler Drive
Suite 702
West Palm Beach, FL 33401
(Address of Principal Executive Offices)
(561)820-9779
(Issuer's Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Check whether the issuer: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes __X__ No _____
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
distribution of securities under a plan confirmed by a court.
Yes __X___ No _____
State the number of shares outstanding of each of issuer's classes of
common equity, as of April 30, 1997:
Title of Class Number of Shares
-------------- ----------------
Common 4,334,193
Transitional Small Business Disclosure Format (check one):
Yes _____ No __X___
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Part I - Financial Information
Item 1 - Financial Statements
U.S. ENERGY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
April 30,1997
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . $ 2,409,000
Accounts receivable . . . . . . . . . . . . . . 241,000
Note receivable . . . . . . . . . . . . . . . . 278,000
Other current assets. . . . . . . . . . . . . . 90,000
-------------
Total current assets . . . . . . . . . . . 3,018,000
Property, plant and equipment. . . . . . . . . . . . 4,128,000
Note receivable. . . . . . . . . . . . . . . . . . . 1,200,000
Investments in Joint Ventures. . . . . . . . . . . . 1,643,000
Other assets . . . . . . . . . . . . . . . . . . . . 150,000
-------------
Total. . . . . . . . . . . . . . . . . . . $ 10,139,000
=============
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses . . . . . $ 807,000
Pre-reorganization taxes payable. . . . . . . . 231,000
-------------
Total current liabilities . . . . . . . . . 1,038,000
Convertible subordinated secured debentures . . . . . 875,000
Other liabilities . . . . . . . . . . . . . . . . . . 36,000
-------------
Total liabilities . . . . . . . . . . . . . 1,949,000
-------------
Minority interests. . . . . . . . . . . . . . . . . . 494,000
-------------
STOCKHOLDERS' EQUITY
Common stock. . . . . . . . . . . . . . . . . . . . . 43,000
Additional paid-in capital . . . . . . . . . . . . . 12,718,000
Accumulated (deficit) . . . . . . . . . . . . . . . . (5,065,000)
-------------
Total stockholders' equity . . . . . . . . . . . 7,696,000
-------------
Total. . . . . . . . . . . . . . . . . . . . . . $10,139,000
=============
See notes to financial statements.
</TABLE>
U.S. ENERGY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended April 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1996
----------- -----------
Revenues. . . . . . . . . . . . . . . . $ 375,000 $ -
Operating expenses. . . . . . . . . . . 199,000 -
----------- -----------
Gross profit. . . . . . . . . . . . . . 176,000 -
Selling, general and administrative
expenses . . . . . . . . . . . . . . 330,000 221,000
----------- -----------
Operating (loss). . . . . . . . . . . . (154,000) (221,000)
----------- -----------
Interest income . . . . . . . . . . . . 48,000 -
Interest expense. . . . . . . . . . . . (39,000) (170,000)
Loss from Joint Ventures. . . . . . . . (26,000) (39,000)
----------- -----------
Net (loss). . . . . . . . . . . . . . . $ (171,000) $ (430,000)
=========== ===========
Dividends on preferred stock. . . . . . - (14,000)
=========== ===========
Net (loss) applicable to common stock . $ (171,000) $ (444,000)
=========== ===========
Net (loss) per common share . . . . . . $ (0.04) $ (1.01)
=========== ===========
Weighted average shares outstanding . . 4,334,193 439,622
=========== ===========
</TABLE>
See notes to financial statements.
U.S. ENERGY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended April 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1996
------------ ------------
Cash flows from operating activities:
Net (loss) . . . . . . . . . . . . . . . . $ (171,000) $ (430,000)
Adjustments to reconcile net (loss) to
net cash (used in) operating activities:
Amortization of debt discount. . . . . . - 5,000
Amortization of deferred financing and
registration costs . . . . . . . . . . - 19,000
Amortization of purchase price in excess
of equity in Joint Ventures. . . . . . 15,000 14,000
Equity in (income)/loss of Joint Ventures,
net of distributions . . . . . . . . . 7,000 25,000
Depreciation provision . . . . . . . . . 34,000 -
Changes in operating assets and liabilities:
Decrease in current assets . . . . . . 6,000 15,000
(Increase) in other assets . . . . . . (37,000) -
Increase/(decrease) in accounts payable
and accrued expenses . . . . . . . . (204,000) 280,000
------------ ------------
Net cash (used in) operating activities. (350,000) (72,000)
------------ ------------
Cash flows from investing activities:
Loans to Reno Energy LLC, net of
repayments . . . . . . . . . . . . . . . (1,178,000) -
Equipment and leasehold improve-
ments purchases. . . . . . . . . . . . . (51,000) -
----------- ------------
Net cash (used in) investing activities. (1,229,000) -
------------ ------------
Cash flows from financing activities:
Proceeds from loans payable and preferred
stocks . . . . . . . . . . . . . . . . . - 125,000
Deferred registration costs. . . . . . . . - (58,000)
Payment of pre-organization taxes. . . . . (152,000) 1,000
Advances from Joint Ventures . . . . . . . 5,000 4,000
Payment of convertible subordinated
secured debentures . . . . . . . . . . . (150,000) -
Contributions by minority investors. . . . 160,000 -
------------ ------------
Net cash (used in)/provided by
financing activities . . . . . . . . . (137,000) 72,000
------------ ------------
NET INCREASE (DECREASE) IN CASH. . . . . . . (1,716,000) -
Cash - beginning of period . . . . . . . . . 4,125,000 2,000
------------ ------------
CASH - END OF PERIOD . . . . . . . . . . . . $ 2,409,000 $ 2,000
============ ============
Supplemental disclosure of cash flow information:
Cash paid for interest . . . . . . . . . $ 29,000 $ 34,000
Supplemental schedule of non cash financing
activities. . . . . . . . . . . . . . . . . None None
See notes to financial statements.
</TABLE>
U. S. ENERGY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Three Months Ended April 30, 1997 and 1996
(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.
For further information see Management's Discussion and Analysis
of Financial Condition and Operating Results, and refer to the financial
statements and footnotes included in the Company's Annual Report on
Form 10-KSB for its fiscal year ended January 31, 1997.
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.
Item 2 - Management's Discussion and Analysis or Plan of Operation
U.S. ENERGY SYSTEMS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three Months Ended April 30, 1997 Compared to Three Months Ended April 30,
1996
Results of Operations
Revenues and operating expenses in the first quarter of 1997 ("First
Quarter 1997") were generated primarily from Steamboat Envirosystems, LLC,
the owner of a geothermal facility in which the Company did not hold an
equity interest a year earlier. The resulting gross profit to the Company
in First Quarter 1997 was $176,000, compared to no revenue in the first
quarter of 1996 ("First Quarter 1996").
Selling, general and administrative expenses increased to $330,000 in
First Quarter 1997, as compared to $221,000 in First Quarter 1996. The
material elements in these totals are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1996
-------- --------
Salaries and consulting fees $127,000 $121,000
Steamboat Royalties 52,000 -
Legal and professional fees 50,000 51,000
Insurance 34,000 -
All other 67,000 49,000
-------- --------
Total $330,000 $221,000
======== ========
</TABLE>
Interest expense in First Quarter 1997 totaled $39,000, compared to
$170,000 in First Quarter 1996, as a result of the Company's debt
reduction. Interest income in the amount of $48,000 was earned in first
Quarter 1997 on cash balances arising from the proceeds of the public
offering. The Company had no interest income in First Quarter 1996.
Loss From Joint Ventures breaks down as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1996
--------- ---------
Lehi Independent Power Associates, L.C. $ 17,000 $ 21,000
Plymouth Cogeneration Limited Partnership 9,000 18,000
--------- ---------
Loss from Joint Ventures $ 26,000 $ 39,000
========= =========
</TABLE>
Liquidity and Capital Resources
The Company had a working capital of $1,980,000 and stockholders'
equity of $7,696,000 at April 30, 1997, as compared to deficits of
$2,342,000 and $3,159,000, respectively, at April 30, 1996. The Company's
increase in working capital and stockholders' equity is mainly a result
of the Company's public offering of its securities on December 6, 1996.
The Company's subsidiary, USE Geothermal, LLC ("USE GEO"), had
previously made a loan of $300,000 (the "Original Loan") to Reno Energy
LLC ("Reno Energy"), payable over three years at interest of 9% per annum.
The first payment against this loan was received on March 31, 1997. The
principal unpaid at April 30, 1997 is $278,000.
In consideration for having made the Original Loan, USE GEO was
granted an option to acquire a 50% equity interest in Reno Energy on or
before December 31, 1996 for $1,000,000. The expiration date of the option
was subsequently extended at an additional cost of $100,000 and at an
increased exercise price of $1,200,000.
Rather than exercising its option, on April 10, 1997, USE GEO
entered into and consummated a convertible loan agreement with Reno
Energy (the "Loan"), pursuant to which the Company, through USE GEO,
loaned Reno Energy an additional $1,200,000 and received a note
(the "Note") in return. The Note matures on April 10, 2027, subject to
acceleration upon the occurrence of certain events of default. The Note
accrues interest at a rate of 12% per annum while the Reno Facility is
being developed (interest being payable when the Reno Facility commences
commercial operations), provided that such interest will be waived in the
event USE GEO exercises its new option (the "Option") to convert the
Note to an equity interest in Reno Energy. After the Reno Facility has
commenced commercial operations, Reno Energy will be required to pay interest
on the note based on a percentage (currently 50%) of (i) Reno Energy's net
cash flow from operations and (ii) net cash proceeds from certain capital
transactions, after payment of certain distributions to members of Reno
Energy. The Note is secured by a first lien on all of the assets of Reno
Energy and is personally guaranteed by Reno Energy's members. Such personal
guarantees are, in turn, secured by a first lien and pledge of the
respective guarantors' membership interest in Reno Energy.
In consideration for making the Loan, USE GEO was granted the
Option, pursuant to which USE GEO may convert, for no additional
consideration, at any time prior to the maturity of the Note, its right
to receive principal repayment of the Note into a 50% membership interest
in Reno Energy. This percentage will be adjusted proportionately in the
event of additional funding of Reno Energy by USE GEO or Reno Energy's
members prior to the Exercise of the Option.
The total of the Loan and the Original Loan as of April 30, 1997 is
$1,478,000.
Minority investors in USE GEO contributed $160,000 during the First
Quarter 1997.
During the First Quarter 1997, the Company paid $152,000 to taxing
authorities in partial settlement of pre-reorganization tax claims. The
Company also repaid three holders of convertible secured debentures
totaling $150,000.
Part II - Other Information
Item 1 - Legal Proceedings
Reference is made to the Registrant's Annual Report on Form 10-KSB
for the year ended January 31, 1997 for a description of material legal
proceedings. There have been no material developments since the
Registrants' last report with respect to the previously disclosed legal
proceeding.
Item 2 - Changes in Securities
None.
Item 3 - Defaults upon Senior Securities
None.
Item 4 - Submission of Matters to a Vote of Security Holders
None.
Item 5 - Other Information
Not applicable.
Item 6 - Exhibits and Reports on Form 8-k
(a) Exhibits
Exhibit 27 - Financial Data Schedule (for the use of the
Commission only)
(b) Reports on Form 8-K
A Form 8-K, relating to an event which occurred on April 10,
1997, was filed with the Commission on April 18, 1997. The Form 8-K was
filed in connection with the consummation of a $1.2 million convertible
loan agreement between USE Geothermal LLC, a Nevada limited liability
company which is 86.5% owned by the Company and Reno Energy LLC. Certain
material loan documents were filed with the Form 8-K.
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: May 23, 1997
U. S. Energy Systems, Inc.
By:___/s/_ Richard H. Nelson___________
Richard H. Nelson
President and Chief Executive Officer
By:___/s/__Seymour J. Beder_____________
Seymour J. Beder
Chief Financial and Accounting Officer and Controller
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> APR-30-1997
<CASH> 2,409,000
<SECURITIES> 0
<RECEIVABLES> 241,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,018,000
<PP&E> 4,186,000
<DEPRECIATION> 58,000
<TOTAL-ASSETS> 10,139,000
<CURRENT-LIABILITIES> 1,038,000
<BONDS> 875,000
0
0
<COMMON> 43,000
<OTHER-SE> 7,653,000
<TOTAL-LIABILITY-AND-EQUITY> 10,139,000
<SALES> 0
<TOTAL-REVENUES> 375,000
<CGS> 0
<TOTAL-COSTS> 199,000
<OTHER-EXPENSES> 330,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,000
<INCOME-PRETAX> (171,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (171,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (171,000)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
