-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, V/i5CJ8kVvBL5eVzUNQU0/2wYE+xmO5oCbLqaxpZZK0hC+yv3L3tIhSCyinBdiSy FAB3T7dkCmZ8ho07WGUUhw== 0000950144-97-011464.txt : 19971104 0000950144-97-011464.hdr.sgml : 19971104 ACCESSION NUMBER: 0000950144-97-011464 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970818 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19971103 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: U S ENERGY SYSTEMS INC CENTRAL INDEX KEY: 0000351917 STANDARD INDUSTRIAL CLASSIFICATION: MOTORS & GENERATORS [3621] IRS NUMBER: 521216347 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-10238 FILM NUMBER: 97706782 BUSINESS ADDRESS: STREET 1: 515 N FLAGLER DR STREET 2: STE 702 CITY: WEST PALM BEACH STATE: FL ZIP: 33401 BUSINESS PHONE: 5618209779 MAIL ADDRESS: STREET 1: 515 NORTH FLAGLER DRIVE STREET 2: SUITE 702 CITY: WEST PALM BEACH STATE: FL ZIP: 33401 FORMER COMPANY: FORMER CONFORMED NAME: U S ENVIROSYSTEMS INC /DE/ DATE OF NAME CHANGE: 19960607 8-K/A 1 U.S. ENERGY SYSTEM, INC. FORM 8-K/A 08/18/97 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 ___. 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 3 ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. a. Financial Statements of Business Acquired. 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
b. Pro Forma Financial Information. 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
c. Exhibits
EXHIBIT SEQUENTIAL NO. DESCRIPTION PAGE NUMBER ------- ----------- ----------- 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.
3 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 5 AMERICAN ENVIRO-SERVICES, LLC BALANCE SHEETS
December 31, June 30, ------------ ------------ 1997 1996 (Unaudited) ------------ ------------ ASSETS 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 ============ ============
See accompanying notes and independent auditors' report. 5 6 AMERICAN ENVIRO-SERVICES, LLC STATEMENTS OF INCOME AND MEMBERS' EQUITY
Six Months Year Ended Ended December 31, June 30, ------------ -------------------------- 1997 1996 1996 (Unaudited) (Unaudited) ------------ ------------ ------------ 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 ============ ============ ============
See accompanying notes and independent auditors' report. 6 7 AMERICAN ENVIRO-SERVICES, LLC STATEMENTS OF CASH FLOWS
Six Months Year Ended Ended December 31, June 30, ------------ -------------------------- 1997 1996 1996 (Unaudited) (Unaudited) ------------ ------------ ------------ 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 ============ ============ ============
See accompanying notes and independent auditors' report. 7 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 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:
December 31, June 30, ------------ --------- 1997 1996 (Unaudited) ------------ ----------- 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 ========= =========
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 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:
December 31, June 30, ------------ ---------- 1997 1996 (Unaudited) ------------ ----------- 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 =========
(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:
December 31, June 30, ------------ ----------- 1997 1996 (Unaudited) ------------ ----------- 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
10 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) - -----------------------------------
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 ========= =========
(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:
December 31, June 30, ------------ ---------- 1997 1996 (Unaudited) ----------- ----------- 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 ========= =========
11 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:
Percentage of Total December 31, 1996 Amount Revenue - ------------------ ------- ------- 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%
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 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:
December 31, June 30, ------------ ----------------------- 1997 1996 1996 (Unaudited) (Unaudited) ------------ ----------- ----------- 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 ======== ======== ========
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 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 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.
Pro Forma Adjustments USE AES ------------------------- Pro Historical Historical Consolidated Debit Credit Forma -------------------------------------------------------------------------------- ASSETS 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 =================================================================================
15 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 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.
Year Ended January 31, 1997 ----------------------------------------------------------------------- Adjusted USE AES Pro Forma Pro Forma Historical Historical Consolidated Adjustments Consolidated ----------------------------------------------------------------------- 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 =========== ===========
Six Months Ended July 31, 1997 ------------------------------------------------------------------------ Adjusted USE AES Pro Forma Pro Forma Historical Historical Consolidated Adjustments Consolidated ----------------------------------------------------------------------- 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 =========== ===========
17 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.
Six Months Year Ended Ended January 31, July, 31 1997 1997 ------------ ------------ Adjusted Adjusted Pro Forma Pro Forma Consolidated Consolidated ------------ ------------ 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 ========= =========
(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 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 -----END PRIVACY-ENHANCED MESSAGE-----