SECURITIES AND EXCHANGE
COMMISSION WASHINGTON, D.C. 20549
--------------------
FORM 10-QSB/A
(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, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
FOR THE TRANSACTION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER:
0-10238
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 [ ] No [X]
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 May 31, 2000:
Title of Class Number of Shares
-------------- ----------------
Common 6,214,538
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
A-1
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
U.S. ENERGY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
April 30, 2000 January 31, 2000
(unaudited) (audited)
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 2,680,000 $ 301,000
Accounts receivable (less allowance for doubtful accounts $15,000) 572,000 532,000
Notes receivable - current portion 20,000 20,000
Other current assets 551,000 352,000
Life insurance claim receivable 1,001,000
------------ ------------
Total current assets 3,823,000 2,206,000
Property, plant and equipment, net 5,932,000 5,881,000
Notes receivable, less current portion 1,753,000 1,752,000
Accrued interest receivable 459,000 459,000
Investments in joint ventures:
Lehi Independent Power Associates, L.C 872,000 886,000
Plymouth Cogeneration Limited Partnership 445,000 470,000
Deferred acquisition costs 450,000 397,000
Deferred financing costs 557,000 480,000
Goodwill, net 1,760,000 1,796,000
Other assets 9,000 27,000
------------ ------------
$ 16,060,000 $ 14,354,000
============ ============
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 188,000 $ 169,000
Note payable - bank 148,000 300,000
Accounts payable and accrued expenses 629,000 717,000
Payable to estate of former officer 332,000 375,000
Litigation settlement payable 900,000
------------ ------------
Total current liabilities 1,297,000 2,461,000
Long-term debt, less current portion 444,000 384,000
Convertible subordinated debentures 366,000 366,000
Advances from joint ventures 102,000 90,000
------------ ------------
Total liabilities 2,209,000 3,301,000
------------ ------------
Minority interests 559,000 559,000
------------ ------------
Contingencies
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, authorized 10,000,000 shares:
Series A, cumulative, convertible, issued and outstanding 277,778
shares (liquidation value of $2,556,000) 3,000 3,000
Series B, cumulative, convertible, issued and outstanding 509 shares -- --
Common stock, $.01 par value, authorized 50,000,000 shares; issued
6,190,469 and 5,364,124 shares as of April 30, 2000 and January 31,
2000, respectively 62,000 54,000
Treasury stock, 7,600 shares of common stock at cost (15,000) (15,000)
Additional paid-in capital 21,566,000 18,425,000
Accumulated deficit (8,324,000) (7,973,000)
------------ ------------
13,292,000 10,494,000
------------ ------------
$ 16,060,000 $ 14,354,000
============ ============
</TABLE>
See notes to financial statements
A-2
<PAGE>
U.S. ENERGY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended April 30,
----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Revenues $ 1,108,000 $ 902,000
----------- -----------
Cost and expenses:
Operating expenses 741,000 594,000
Administrative expenses 491,000 466,000
Litigation settlements and costs 2,000 1,000
Depreciation and amortization 165,000 134,000
----------- -----------
1,399,000 1,195,000
----------- -----------
Loss before interest income (expense) and extraordinary item (291,000) (293,000)
Interest income 15,000 70,000
Interest expense (36,000) (35,000)
Equity in loss from joint ventures (39,000) (24,000)
Minority interest -- (5,000)
----------- -----------
Loss before extraordinary item (351,000) (287,000)
Extraordinary gain on exchange of debentures to preferred stock -- 69,000
----------- -----------
NET LOSS (351,000) (218,000)
Dividends on preferred stock (68,000) (55,000)
----------- -----------
LOSS APPLICABLE TO COMMON STOCK $ (419,000) $ (273,000)
=========== ===========
LOSS PER SHARE OF COMMON STOCK - BASIC AND DILUTED:
LOSS BEFORE EXTRAORDINARY ITEM $ (0.07) $ (0.07)
EXTRAORDINARY ITEM $ -- $ 0.02
----------- -----------
NET LOSS $ (0.07) $ (0.05)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 5,672,613 5,156,488
=========== ===========
</TABLE>
See notes to financial statements
A-3
<PAGE>
U.S. ENERGY SYSTEMS AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN CAPITAL
Three Months Ended April 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Preferred Stock -- Series A Preferred Stock -- Series B Treasury Stock
---------------------------- --------------------------- ----------------------------
Number Number Number
of Shares Amount of Shares Amount of Shares Amount
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE , JANUARY 31, 2000 250,000 3,000 509 (*) (7,600) (15,000)
Cash paid for fractional shares
Shares issued for exercised warrants
Shares issued for excercised options
Net (Loss) for the quarter
ended April 30, 2000
Dividends on Preferreed Stock:
Series A
Series B
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, APRIL 30, 2000 250,000 $ 3,000 509 $ -- (7,600) $ (15,000)
=========== =========== =========== =========== =========== ===========
<CAPTION>
Common Stock
--------------------------- ----------- ----------- -----------
Additional
Number Paid-in Accumulated
of Shares Amount Capital Deficit Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE , JANUARY 31, 2000 5,356,524 $ 54,000 $18,425,000 $(7,973,000) $10,494,000
Cash paid for fractional shares (2)
Shares issued for exercised warrants 689,447 7,000 2,751,000 2,758,000
Shares issued for excercised options 144,500 1,000 458,000 459,000
Net (Loss) for the quarter
ended April 30, 2000 (351,000) (351,000)
Dividends on Preferreed Stock:
Series A (56,000) (56,000)
Series B (12,000) (12,000)
----------- ----------- ----------- ----------- -----------
BALANCE, APRIL 30, 2000 6,190,469 $ 62,000 $21,566,000 $(8,324,000) $13,292,000
=========== =========== =========== =========== ===========
</TABLE>
(*) Less than $1,000
See notes to financial statements
A-4
<PAGE>
U.S. ENERGY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended April 30,
----------------------------
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (351,000) $ (218,000)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization 165,000 134,000
Equity in loss of joint ventures 39,000 24,000
Minority interest -- 5,000
Gain from exchange of debentures for preferred stock -- (69,000)
Changes in:
Accounts and notes receivable, trade (40,000) 408,000
Other current assets (199,000) (175,000)
Other assets (59,000) (50,000)
Accounts payable and accrued expenses (88,000) (38,000)
Litigation settlement payable (900,000)
Life insurance proceeds, net of costs and expenses 958,000 --
----------- -----------
Net cash provided by (used in) operating activities (475,000) 21,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans to Reno Energy LLC (1,000) (30,000)
Repayments of loan by Reno Energy, LLC -- 29,000
Acquisition of equipment and leasehold improvements (180,000) (74,000)
Deferred acquisition costs (53,000) (59,000)
----------- -----------
Net cash used in investing activities (234,000) (134,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of notes payable (152,000) (197,000)
Payment of long-term debt 79,000 (20,000)
Proceeds from exercise of options and warrants 3,217,000 --
Purchase of treasury shares -- (12,000)
Dividends on preferred stock (68,000) (55,000)
Advances from joint ventures 12,000 17,000
----------- -----------
Net cash provided by (used in) financing activities 3,088,000 (267,000)
----------- -----------
NET INCREASE (DECREASE) IN CASH 2,379,000 (380,000)
Cash - beginning of period 301,000 776,000
----------- -----------
CASH - END OF PERIOD $ 2,680,000 $ 396,000
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 41,000 $ 32,000
Supplemental schedule of non cash financing activities None None
</TABLE>
See notes to financial statements
A-5
<PAGE>
U.S. ENERGY SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED APRIL 30, 2000 AND 1999
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated 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 Results of Operations, 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, 2000.
NOTE 2 - 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.
NOTE 3 - ADDITIONAL CAPITAL
Between February 1, 2000 and April 30, 2000 we received $2,758,000 from the
exercise of 689,447 public warrants. During the same period we also received a
total of $459,000 as a result of the exercise of 144,500 stock options.
Item 2 - Management's Discussion and Analysis or Plan of Operation
THREE MONTHS ENDED APRIL 30, 2000 COMPARED TO THREE MONTHS ENDED APRIL 30, 1999
RESULTS OF OPERATIONS
Revenues increased 23% or approximately $206,000, to $1,108,000 for the
three months ended April 30, 2000 ("First Quarter 2000") as compared to the
three months ended April 30, 1999 ("First Quarter 1999). First Quarter 2000
revenues are comprised of $375,000 from the Energy Division and $733,000 from
the Environmental Division, as compared to $252,000 and $650,000, respectively,
for First Quarter 1999. The 49%, or approximately $123,000, increase as compared
to the First Quarter 1999 revenues generated from the Energy Division resulted
from increased rates paid for power produced this year. It is expected that
power rates will continue to be higher than in the past. The 13% or
approximately $83,000 increase in revenues from the Environmental Division
resulted from an increased service area and increased capabilities in the
services we provide.
Operating expenses, costs directly related to the production of revenues,
increased 25%, or approximately $147,000 to $741,000 in the First Quarter 2000
as compared to $594,000 in First Quarter 1999. The following table provides a
breakdown of the Company's operating expenses.
FIRST QUARTER 2000 FIRST QUARTER 1999
------------------ ------------------
Energy Division $ 185,000 $ 171,000
Environmental Division 556,000 423,000
--------- ---------
$ 741,000 $ 594,000
========= =========
A-6
<PAGE>
Operating expenses for the Energy Division were 8% or approximately $14,000
higher in the First Quarter 2000 compared to the previous year. This increase
primarily resulted from certain necessary equipment repairs occurring during the
current period. The 31%, or approximately $133,000, increase in the
Environmental Division's operating expenses was essentially caused by the
Division's expansion of business operations.
Administrative expenses in First Quarter 2000 increased to $492,000 from
$466,000 in First Quarter 1999. The composition of these amounts is listed
below:
2000 1999
-------- --------
Salaries and consulting costs $208,000 $202,000
Steamboat royalties 47,000 35,000
Legal and professional fees 60,000 58,000
Insurance 37,000 42,000
Corporate expenses 35,000 31,000
Other 104,000 98,000
-------- --------
$491,000 $466,000
======== ========
Depreciation expense, which includes amortization of goodwill, increased to
$165,000 in First Quarter 2000 from $134,000 in the same quarter of the previous
year due to increased investment in depreciable assets necessary in positioning
the Company for growth.
During First Quarter 2000 we earned $15,000 in interest credits on our cash
balances, compared to $70,000 in the same period a year earlier. This is a
direct result of the lower cash balances we were carrying until the last month
of the period, when the warrants and options were exercised. We also incurred
interest charges of $36,000 in the current quarter compared to $35,000 a year
earlier.
Losses from Joint Ventures for the three months ended April 30 are detailed
as follows:
2000 1999
---- ----
Lehi Independent Power Associates, L.C $14,000 $15,000
Plymouth Cogeneration Limited Partnership 25,000 9,000
------- -------
$39,000 $24,000
======= =======
As a result of the above, the Company's net loss for the First Quarter 2000
was $351,000 as compared to a net loss of $218,000 for the same period a year
earlier. The 1999 period included an extraordinary gain of $69,000 from the
exchange of the Company's Convertible Subordinated Debentures for Series B
Convertible Preferred Stock. On an EBITDA (earnings before interest, taxes,
depreciation and amortization) basis, and exclusive of dividends and
extraordinary items, net loss for First Quarter 2000 was $165,000 compared to
$180,000 in the 1999 quarter.
The nature of the markets in which our two divisions operate is such that
the first quarter of the year is not as strong as the later quarters. The Energy
Division benefits from the usual higher energy prices in warmer months. The
Environmental Division experiences increased operations in the later months. The
two divisions showed the following results for the April 30 quarter:
Energy Division Environmental Division
--------------------- ----------------------
2000 1999 2000 1999
---- ---- ---- ----
Net Income (Loss) $ 80,000 ($14,000) ($47,000) $ 25,000
EBITDA $122,000 $26,000 $52,000 $128,000
Dividends paid on preferred stock for the quarter totaled $68,000, compared
to $55,000 in the previous year. The increase is primarily a result of the
$250,000 additional investment in Series A Preferred Stock in June, 1999.
A-7
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At April 30, 2000, cash totaled approximately $2,680,000, as compared to
$301,000 at April 30, 1999, an increase of $2,379,000. Cash flow from financing
activities of $3,088,000, primarily from proceeds from exercise of warrants and
options, was used to fund $475,000 in operating activities and $234,000 of
investing activities, and provided the increase in cash and in working capital.
During the first three months of Fiscal 2000, the Company used $475,000
cash in operating activities compared with $21,000 of cash provided by
operations in the like period last year. Non-recurring items included the
receipt of life insurance proceeds of a policy on our former President, which,
net of expenses paid during the quarter, amounted to $958,000. We also paid the
$900,000 litigation settlement note.
The $234,000 used in investing activities in the First Quarter 2000
compared to $134,000 in First Quarter 1999 included $53,000 of deferred costs
expended on pending acquisitions as compared to $59,000 in the earlier year.
Cash applied to acquisition of equipment amounted to $180,000 in the current
year as compared to $74,000 in the earlier year.
Cash provided by financing activities in First Quarter 2000 totaled
$3,088,000 primarily as a result of the $3,217,000 proceeds from the exercise of
warrants and options. In First Quarter 1999 financing activities used cash of
$267,000 primarily for the payment of notes payable.
Our receipt of net proceeds of $2,758,000 from the exercise of warrants and
$459,000 from the exercise of options was the primary reason for our working
capital increasing to $2,526,000 at April 30, 2000 from a deficit of $255,000 at
January 31, 2000.
CAUTIONARY STATEMENT RELATING TO FORWARD LOOKING STATEMENTS
This Form 10-QSB contains certain "forward looking statements" which
represent the Company's expectations or beliefs, including, but not limited to,
statements concerning industry performance and the Company's operations,
performance, financial condition, growth and strategies. For this purpose, any
statements contained in this Form 10-QSB 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 the Company's
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, the ability of the Company to continue its growth strategy,
dependence on management and key personnel, supervision and regulation issues
and the ability to find financing on terms suitable to the company.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None.
ITEM 2 - CHANGES IN SECURITIES
On May 10, 2000, a total of 24,069 shares of our Common Stock were issued
to Energy Systems Investors, LLC ("ESI") and Lawrence I. Schneider pursuant to
the anti-dilution provisions set forth in the original agreement pursuant to
which ESI and Mr. Schneider invested in the Company. The clause provided that if
any non-operational, extraordinary or non-recurring event affecting our equity
in an amount greater than $500,000 occurred within 24 months of their purchase
of our Series A Preferred Stock, and which arose from circumstances existing
prior to their investment, shares of common stock would be issued under a
A-8
<PAGE>
formula specified in the agreement. The settlement of our lawsuit with Enviro
Partners, LP and Energy Management Corporation for $900,000 triggered this
anti-dilution protection, resulting in the issuance of 21,662 shares to ESI and
2,407 shares to Mr. Schneider.
In December 1999, the Board of Directors agreed to pay Mr. Lawrence
Schneider a fee of $275,000 for his substantial efforts in connection with the
pending acquisition of the additional geothermal power plants known as Steamboat
2 and 3. Mr. Schneider received 187,234 shares of our common stock in lieu of
such cash payment, and options to acquire 46,800 shares of common stock at an
exercise price of $2.9375 per share.
All of the above shares were issued pursuant to an exemption provided by Section
4(2) of the Securities Act of 1933, as amended..
ITEM 3- DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5 - OTHER INFORMATION
None.
A-9
<PAGE>
ITEM 6 - EXHIBITS
(a) Exhibits
2.1 Merger Agreement by and between the Company, AES Merger Corp.,
American Enviro-Services, Inc., and the Shareholders of American
Enviro-Services, dated as of August 4, 1997 (3)
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)
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 (4)
4.6 Certificate of Designation of Series B Convertible Preferred
Stock of the Company as filed with the Secretary of State of
Delaware (5)
--------------------------------------------------------------------------------
(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
dated August 12, 1997.
(4) Incorporated by reference to the Company's Current Report on Form 8-K
filed on March 26, 1998.
(5) Incorporated by reference to the Company's Annual report on Form
10-KSB for the year ended January 31, 1999.
(b) Reports on Form 8-K
None.
A-10
<PAGE>
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has caused this Amendment No. 1 to its Quarterly Report on Form
10-QSB to be signed on its behalf by the undersigned duly authorized
Dated: June 19, 2000
U. S. Energy Systems, Inc.
By: /s/Lawrence I. Schneider
-----------------------------
Lawrence I. Schneider
Chief Executive Officer
By: /s/ Seymour J. Beder
-----------------------------
Seymour J. Beder
Chief Financial and Accounting Officer
A-11
