-----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, UDi6VFwRq1BV3lLEd8btIZXRPsFQa9/xH4mcLB2C7R3btOSR3wfAzrh57kWeCCNI D1bDvpSyfAIKUFrrWTyhqw== 0000950144-99-014079.txt : 19991216 0000950144-99-014079.hdr.sgml : 19991216 ACCESSION NUMBER: 0000950144-99-014079 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991031 FILED AS OF DATE: 19991215 FILER: COMPANY DATA: COMPANY CONFORMED NAME: U S ENERGY SYSTEMS INC CENTRAL INDEX KEY: 0000351917 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC, GAS & SANITARY SERVICES [4900] IRS NUMBER: 521216347 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-10238 FILM NUMBER: 99774891 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 10QSB 1 US ENERGY SYSTEMS 10QSB F0R 10/31/99 1 =============================================================================== 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 OCTOBER 31, 1999 [ ] 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 [ 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 issuer's classes of common equity, as of September 14, 1999: TITLE OF CLASS NUMBER OF SHARES - -------------- ---------------- Common 5,153,005 Transitional Small Business Disclosure Format (check one): Yes [ ] No [ X ] ================================================================================ 2 PART I - FINANCIAL INFORMATION Item 1 - Financial Statements U.S. ENERGY SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
October 31, January 31, 1999 1999 ------------ ------------ (unaudited) ASSETS Current assets: Cash $ 195,000 $ 776,000 Accounts receivable (less allowance for doubtful accounts $15,000) 832,000 763,000 Notes receivable - current portion 40,000 196,000 Prepaid expenses and other current assets 291,000 355,000 ------------ ------------ Total current assets 1,358,000 2,090,000 Property, plant and equipment, net 5,859,000 5,832,000 Notes receivable, less current portion 1,990,000 1,883,000 Investments in joint ventures: Lehi Independent Power Associates, L.C. 899,000 939,000 Plymouth Cogeneration Limited Partnership 479,000 503,000 Goodwill, net 1,831,000 1,939,000 Deferred acquisition costs 830,000 668,000 Other assets 467,000 317,000 ------------ ------------ $ 13,713,000 $ 14,171,000 ============ ============ LIABILITIES Current liabilities: Current portion of long-term debt $ 112,000 $ 114,000 Notes payable - bank 300,000 300,000 Accounts payable and accrued expenses 1,001,000 892,000 Accounts payable and accrued expenses for litigation settlement 223,000 -- ------------ ------------ Total current liabilities 1,636,000 1,306,000 Long-term debt, less current portion 429,000 396,000 Litigation settlement liability (see note 4) 900,000 -- Convertible subordinated secured debentures 366,000 875,000 Advances from joint ventures 74,000 57,000 ------------ ------------ Total liabilities 3,405,000 2,634,000 ------------ ------------ Minority interests 540,000 524,000 ------------ ------------ Commitments and 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 $2,551,000) 3,000 3,000 Series B, cumulative, convertible, issued and outstanding 509 shares -- -- Common stock, $.01 par value, authorized 50,000,000 shares; issued and outstanding 5,160,605 shares 51,000 51,000 Treasury stock, 7,600 shares of common stock at cost (15,000) (3,000) Additional paid-in capital 17,970,000 17,467,000 Accumulated deficit (8,241,000) (6,505,000) ------------ ------------ Total stockholders' equity 9,768,000 11,013,000 ------------ ------------ $ 13,713,000 $ 14,171,000 ============ ============
See notes to financial statements 2 3 U.S. ENERGY SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended October 31, Nine Months Ended October 31, -------------------------------- ------------------------------- 1999 1998 1999 1998 ----------- ----------------- ------------- --------------- Revenues $ 1,378,000 $ 1,117,000 $ 3,241,000 $ 3,020,000 ----------- ----------- ----------- ----------- Costs and expenses: Operating expenses 817,000 554,000 2,053,000 1,565,000 Administrative expenses 503,000 481,000 1,445,000 1,484,000 Depreciation 151,000 130,000 429,000 371,000 Loss from joint ventures 27,000 18,000 69,000 57,000 ----------- ----------- ----------- ----------- 1,498,000 1,183,000 3,996,000 3,477,000 ----------- ----------- ----------- ----------- (120,000) (66,000) (755,000) (457,000) Interest income 66,000 78,000 204,000 226,000 Interest expense (42,000) (29,000) (100,000) (105,000) Minority interest (5,000) -- (16,000) -- ----------- ----------- ----------- ----------- Loss before litigation settlement costs and extraordinary item (101,000) (17,000) (667,000) (336,000) Litigation settlement costs -- -- 1,138,000 47,000 ----------- ----------- ----------- ----------- Loss before extraordinary item (101,000) (17,000) (1,805,000) (383,000) Extraordinary gain on exchange of debentures to preferred stock -- -- 69,000 -- ----------- ----------- ----------- ----------- Net loss (101,000) (17,000) (1,736,000) (383,000) Dividends on preferred stock (60,000) (51,000) (179,000) (123,000) ----------- ----------- ----------- ----------- Loss applicable to common stock $ (161,000) $ (68,000) $(1,915,000) $ (506,000) =========== =========== =========== =========== Loss per share of common stock - basic and diluted: Loss applicable to common stock before extraordinary item $ (0.03) $ (0.01) $ (0.38) $ (0.10) =========== =========== =========== =========== Net loss applicable to common stock $ (0.03) $ (0.01) $ (0.37) $ (0.10) =========== =========== =========== =========== Weighted average number of common share outstanding 5,153,005 5,160,605 5,154,141 5,160,605 =========== =========== =========== ===========
See notes to financial statements 3 4 U.S. ENERGY SYSTEMS AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN CAPITAL NINE MONTHS ENDED OCTOBER 31, 1999 (UNAUDITED)
Preferred Stock - Series A Preferred Stock - Series B Treasury Stock --------------------------- --------------=------------ --------------------------- Number Number Number of Shares Amount of Shares Amount of Shares Amount --------- ------ --------- ------ --------- ------ Balance, January 31, 1999 250,000 $ 3,000 -- -- (2,600) $ (3,000) Treasury stock (5,000) (12,000) Shares issued in connection with private placement offering 27,778 (*) Series B Preferred Stock issued in exchange for debentures 509 (*) Change related to modification of warrant terms Net (Loss) for the nine months ended October 31, 1999 Dividends on Preferred Stock: Series A Series B ------- ------------ --- ----- ------ -------- Balance, October 31, 1999 277,778 $ 3,000 509 $ -- (7,600) $ (15,000) ======= ============ === ===== ====== ========
Common Stock -------------------------- Additional Number Paid-in Accumulated of Shares Amount Capital Deficit Total --------- ------ ------- ------- ----- Balance, January 31, 1999 5,160,605 $ 51,000 $ 17,467,000 $ (6,505,000) $ 11,013,000 Treasury stock (12,000) Shares issued in connection with private placement offering 234,000 234,000 Series B Preferred Stock issued in exchange for debentures 433,000 433,000 Change related to modification of warrant terms 15,000 15,000 Net (Loss) for the nine months ended October 31, 1999 (1,736,000) (1,736,000) Dividends on Preferred Stock: Series A (155,000) (155,000) Series B (24,000) (24,000) --------- ------------ ------------ ------------ ------------ Balance, October 31, 1999 5,160,605 $ 51,000 $ 17,970,000 $ (8,241,000) $ 9,768,000 ========= ============ ============ ============ ============
- ------------------ (*) Less than $1,000 See notes to financial statements 4 5 U.S. ENERGY SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Nine Months Ended October 31, ----------------------------- 1999 1998 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss (1,736,000) (383,000) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 429,000 371,000 Equity in loss of joint ventures 64,000 52,000 Minority interest 16,000 -- Gain on exchange of debentures for preferred stock (69,000) -- Changes in: Accounts receivable (69,000) 64,000 Other current assets 64,000 54,000 Other assets (142,000) (190,000) Accounts payable and accrued expenses 109,000 (532,000) Accounts payable and accrued expenses for litigation settlement 1,123,000 -- -------- -------- Net cash used in operating activities (211,000) (564,000) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of business -- (27,000) Loans to Reno Energy, LLC (109,000) (164,000) Repayments of loan by Reno Energy, LLC 158,000 74,000 Acquisition of equipment and leasehold improvements (348,000) (351,000) Deferred acquisition costs (162,000) (295,000) ----------- ----------- Net cash used in investing activities (461,000) (763,000) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from sale of preferred stock 234,000 2,190,000 Proceeds from notes payable -- 31,000 Purchase of treasury shares (12,000) -- Payment of long-term debt (99,000) (2,000) Proceeds from long-term debt 130,000 -- Dividends on preferred stock (179,000) (123,000) Advances from joint ventures 17,000 -- ----------- ----------- Net cash provided by financing activities 91,000 2,096,000 ----------- ----------- NET INCREASE (DECREASE) IN CASH (581,000) 769,000 Cash - beginning of period 776,000 319,000 -------- -------- CASH - END OF PERIOD $ 195,000 $ 1,088,000 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ 67,000 $ 95,000 SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCIANG ACTIVITIES None None
5 6 U.S. ENERGY SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED OCTOBER 31, 1999 AND 1998 (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 and nine month periods 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, 1999. 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 On March 8, 1999 the holders of $509,000 of the Company's 9% Convertible Subordinated Debentures exchanged their debentures for 509 shares of the Company's 9% Series B Convertible Preferred Stock. As of October 31, 1999, $366,000 of the Convertible Subordinated Debentures remained outstanding. The exchange also resulted in an extraordinary gain of $69,000, which was reflected in the results for the nine months ended October 31, 1999. During the quarter ended April 30, 1999 the Company purchased for the treasury a total of 5,000 shares of its common stock. The total number of shares of common stock now in the Company's treasury is 7,600. On August 26, 1998, the Company granted to Energy Systems Investors, LLC, an option to acquire up to 888,888 shares of the Company's Series A Convertible Preferred Stock at an aggregate purchase price of approximately $8.0 million. Energy Systems Investors, LLC ("ESI"), a Delaware limited liability company, is controlled by Lawrence I. Schneider, a director of the Company. Each share of Series A Preferred Stock is currently convertible into four shares of Common Stock of the Company at a conversion price of $2.25 per share and carries a dividend of 9% per annum. On June 15, 1999, ESI exercised a portion of such option and acquired 27,778 shares of its Series A Convertible Preferred Stock for $250,000 ($9.00 per share). Net proceeds to the Company were $234,000. The remainder of the option remains open. 6 7 U.S. ENERGY SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED OCTOBER 31, 1999 AND 1998 (UNAUDITED) (CONTINUED) NOTE 4 - CONTINGENCIES None 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 and Nine Months Ended October 31, 1999 Compared to Three Months and Nine Months Ended October 31, 1998 RESULTS OF OPERATIONS Revenues for the three and nine month periods were as follows:
Three Months Ended October 31, Nine Months Ended October 31, ------------------------------------- ------------------------------------- 1999 1998 1999 1998 ---------------- ---------------- ----------------- --------------- Energy Division $ 357,000 $ 538,000 $ 899,000 $ 1,311,000 Environmental Division 1,021,000 579,000 2,342,000 1,709,000 ---------------- ---------------- ----------------- --------------- $1,378,000 $1,117,000 $3,241,000 $ 3,020,000 ================ ================ ================= ===============
Energy Division revenues decreased by approximately $181,000 or 34% in the three month period and approximately $412,000 or 31% in the nine month period, which resulted from a change in the rate basis. During 1998, the Company's Steamboat 1A facility was still under a contractual long term fixed rate schedule which provided higher rates than the current contractual rate schedule which uses fluctuating open market rates. In addition, the change from fixed rates to market rates was during the colder months which are typically the months of lowest revenue when the open market rates paid for electricity are the lowest of the year. Environmental Division revenues increased by 76% in the three month period and 37% in the nine month period, or approximately $442,000 and $633,000 respectively, as a result of expanded operations and new contracts in water treatment and oil recycling. 7 8 Operating expenses, costs directly related to the production of revenues, were as follows:
Three Months Ended October 31, Nine Months Ended October 31, -------------------------------------- ------------------------------------- 1999 1998 1999 1998 ---------------- ---------------- ----------------- --------------- Energy Division $167,000 $170,000 $ 527,000 $ 482,000 Environmental Division 650,000 384,000 1,526,000 1,083,000 ---------------- ---------------- ----------------- --------------- $817,000 $554,000 $ 2,053,000 $ 1,565,000 ================ ================ ================= ===============
Comparing 1999 to 1998, operating expenses for the Energy Division decreased 2% or approximately $3,000 in the three month period, and increased 9%, or approximately $45,000 in the nine month periods. Certain necessary equipment repairs made during the first six months of the year primarily accounted for the increase in the nine month period. In line with the Environmental Division's enlarged business operations and increased revenue, operating expenses increased 70% and 41%, or approximately $267,000 and $443,000, respectively. Depreciation charges previously reported as part of 1998 operating expenses in the Environmental Division have been reclassified to the Depreciation line in the Statement of Operations. Administrative expenses in the three and nine month periods were $503,000 and $1,445,000, respectively, in the current fiscal year as compared to $481,000 and $1,484,000, respectively, in the 1998 year. Material elements for the comparative periods were as follows:
Three Months Ended October 31, Nine Months Ended October 31, -------------------------------------- ------------------------------------- 1999 1998 1999 1998 ---------------- ---------------- ----------------- --------------- Salaries and consulting $195,000 $176,000 $ 607,000 $ 551,000 Steamboat royalties 50,000 76,000 121,000 184,000 Legal and professional 58,000 43,000 198,000 198,000 Insurance 36,000 40,000 123,000 114,000 Corporate expenses 60,000 65,000 138,000 166,000 State income taxes 20,000 7,000 27,000 7,000 Other 84,000 74,000 231,000 264,000 ---------------- ---------------- ----------------- --------------- $503,000 $481,000 $ 1,445,000 $ 1,484,000 ================ ================ ================= ===============
In September 1999, an agreement was reached in connection with litigation in which the Company has been involved, and as a consequence operating results for the nine months ended October 31, 1999 reflect a charge of $1,138,000. Details of the case may be found under Legal Proceedings, Part II, Item 1 of this Form 10-QSB. 8 9 Depreciation expense, which includes amortization of goodwill, increased to $151,000 and $429,000 in the three and nine month periods ending October 31, 1999, respectively, compared to $130,000 and $371,000, respectively, in the same periods of 1998 due to increased investment in depreciable assets. Losses from Joint Ventures, Lehi Independent Power Associates, L.C. and Plymouth Cogeneration Limited Partnership, are detailed as follows:
Three Months Ended October 31, Nine Months Ended October 31, -------------------------------------- ------------------------------------- 1999 1998 1999 1998 ---------------- ---------------- ----------------- --------------- Lehi $13,000 $15,000 $ 44,000 $ 33,000 Plymouth 14,000 7,000 25,000 24,000 ---------------- ---------------- ----------------- --------------- $27,000 $22,000 $69,000 $57,000 ================ ================ ================= ===============
The Company's net loss for the three and the nine month periods ended October 31, 1999 was $101,000 and $1,736,000, respectively, as compared to a net loss of $17,000 and $383,000, respectively, for the same periods a year earlier. The nine month increase of $1,353,000 was primarily a result of the non-operational one-time charge of $1,138,000 for the costs related to settlement of the litigation described in Legal Proceedings in this Form 10-QSB. The net loss in the nine months ended October 31, 1999 included an extraordinary gain of $69,000 from the exchange of a portion of the Company's Convertible Subordinated Debentures for Series B Convertible Preferred Stock. Dividends paid on preferred stock for the three and nine months of 1999 totaled $60,000 and $179,000, respectively, compared to $51,000 and $123,000, respectively, in the like periods of the previous year. The increase was due to the issuance of additional shares of Series A Preferred Stock in June 1999, and the issuance of shares of Series B Preferred Stock in March 1999. LIQUIDITY AND CAPITAL RESOURCES At October 31, 1999 cash totaled approximately $195,000 as compared to $776,000 at January 31, 1999. The $581,000 decrease in cash, along with $91,000 from financing activities, was used to fund $211,000 of operating activities and $461,000 of investing activities. During the first nine months of 1999 the Company used $211,000 in operating activities compared with $564,000 used in operating activities in the like period last year. During the 1999 period accounts payable and accrued expenses increased by $109,000. In the 1998 period accounts payable and accrued expenses were reduced by $532,000, of which the payment of accrued royalties of $374,000 was the single largest item. In the current six month period accounts payable and accrued expenses for the litigation settlement amounted to $1,123,000. There was no similar provision in the 1998 period. 9 10 The Company used $461,000 in investing activities in the first nine months of 1999 compared to $763,000 in the like period of 1998. Loans to Reno Energy decreased to $109,000 from $164,000 and repayments of such loans increased to $158,000 from $74,000. Costs of new equipment, primarily for the Environmental Division, totaled $348,000 in the first six months of 1999 compared to $351,000 in the 1998 period. Costs incurred in connection with pending acquisitions were $162,000 in the 1999 period compared to $295,000 in the same period in 1998. Cash provided by financing activities in the first nine months of 1999 was a net of $91,000, with $234,000 having been provided by the sale of additional Series A Convertible Preferred Stock to ESI as described in Note 3 to the Financial Statements. In the first nine months of 1999, the Company repurchased 5,000 shares of its Common Stock for $12,000. During the same period, $99,000 was applied to payment of long term debt. Dividends on preferred stock were $179,000 in the current year. In the first nine months of 1998 financing activities provided cash of $2,096,000 primarily from the sale of the Series A Convertible Preferred Stock to ESI in a private placement. During September 1999, the Company entered into an agreement for the settlement of litigation. The $900,000 settlement is due in November 2000, and bears an interest rate of 9%. At July 31, 1999 the Company recorded a charge of $1,138,000 which includes the settlement cost and related legal expenses. During October 1999 the Company extended certain outstanding warrants for the purchase of common stock by one year to October 31, 2000, resulting in a charge of $15,000. The Company's working capital was a negative $278,000 at October 31, 1999 compared to $784,000 at January 31, 1999. 10 11 YEAR 2000 COMPUTER ISSUE The Company has assessed the issues associated with the programming code in its existing computer systems with respect to a two-digit year value as the year 2000 approaches and believes its internal systems are in full compliance. In addition, the Company has communicated with its major suppliers and customers to determine their year 2000 compliance readiness and the extent to which the Company is vulnerable to any third party year 2000 issues. The Company believes that only Sierra Pacific Power Company ("Sierra"), to which the Company sells power from its Energy Division facilities, may be affected by the programming code problem to an extent that could have a material adverse effect on the Company. Sierra has assured the Company that its internal programs will be in compliance and that the interface with the Company's facilities is in compliance with year 2000 requirements. However, there can be no guarantee that the systems of other companies on whom the Company's systems rely will be timely converted, or that a failure to convert by another company, or a conversion that is incompatible with the Company's systems, would not have a material adverse effect on the Company. The Company continues to review possible contingency plans in this respect. The total cost to the Company of these year 2000 compliance activities has not been, and is not anticipated to be, material to its financial position or results of operations in any given year. This is based on management's best estimates, which were derived utilizing numerous assumptions of future events including the continued availability of certain resources, third party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ from those plans. No contingency plans are believed necessary in light of the assurances received from suppliers and customers. 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 an inability to find financing on terms suitable to the company. 11 12 PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS On March 1, 1997, the Company filed suit for declaratory judgement in the United States District Court for the Southern District of New York against ENVIRO PARTNERS, L.P. ET AL AND ENERGY MANAGEMENT CORPORATION in connection with a financing transaction in 1996 that was never consummated. Enviro Partners, L.P. and Energy Management Corporation filed a counter suit against the Company for damages amounting to $6 million based upon breach of contract in connection with the 1996 financing transaction. On September 17, 1999 the parties filed notice of an agreement in principle settling the action with the court, and the Company recorded a charge on its books at July 31, 1999 in the amount of $1,138,000, which includes the settlement amount of $900,000 and related legal costs. The agreement was executed effective September 1, 1999. In spite of the fact that it believed that the Company's position in the case would have prevailed, management concluded that the substantial additional costs associated with a trial, combined with the extensive consumption of management time and the uncertainty of outcome of a jury proceeding, made a settlement the prudent course of action. ITEM 2 - CHANGES IN SECURITIES On November 15, 1999, after the end of the Company's third quarter, the Company issued an aggregate of 20,357 shares of common stock at a price of $1.15 per share to Theodore Rosen, Richard Nelson, Henry Schneider, Seymour J. Beder, all officers of the Company, in lieu of their respective salaries for the month of November 1999. The restricted shares were issued pursuant to the Company's 1998 Stock Option Plan. On March 8, 1999 the holders of $509,000 of the Company's 9% Convertible Subordinated Debentures exchanged their debentures for 509 shares of the Company's 9% Series B Convertible Preferred Stock. This exchange replaces $509,000 of debt with preferred stock, leaving $366,000 as debenture debt. The exchange also resulted in an extraordinary gain of $69,000. The issuance was made in reliance on an exemption from the registration requirements of the Securities Act of 1933, as amended. During the nine months ended October 31, 1999 the Company purchased for the treasury a total of 7,600 shares of its common stock, which remain in treasury. On August 26, 1998, the Company's stockholders approved granting to Energy Systems Investors an option to acquire up to 888,888 shares of the Company's Series A Convertible Preferred Stock at an aggregate purchase price of approximately $8.0 million. On June 9, 1999 the Company received the first $250,000 of the $8 million option granted to Energy Systems Investors, and issued 27,778 shares of Series A Preferred Stock to Energy Systems Investors. The issuance was made in reliance on an exemption from the registration requirements of the Securities Act of 1933, as amended. ITEM 3- DEFAULTS UPON SENIOR SECURITIES None. 12 13 ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Annual Meeting of Stockholders of the Company on November 16, 1999, Evan Evans, Allen J. Rothman and Henry N. Schneider were elected as Class II directors, to serve for three year terms, and Richard T. Brandt was elected as Class I director, to serve for a one year term (5,235,389 votes were in favor, 47,475 votes against, and none withheld.) Richard H. Nelson, Howard Nevins, Theodore Rosen and Lawrence I. Schneider are the other directors whose terms of office continued after the meeting. ITEM 5 - OTHER INFORMATION None. ITEM 6 - EXHIBITS (a) Exhibits 27 -- Financial Data Schedule. (b) Reports on Form 8-K None. 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 duly authorized Dated: December 15, 1999 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 13 EX-27.1 2 FINANCIAL DATA SCHEDULE
5 9-MOS JAN-31-1999 AUG-01-1999 OCT-31-1999 195,000 0 847,000 15,000 9,000 1,358,000 6,756,000 897,000 13,713,000 1,636,000 366,000 0 3,000 51,000 9,714,000 13,713,000 0 3,241,000 0 2,053,000 1,943,000 0 100,000 (1,915,000) 0 (1,915,000) 0 0 0 (1,915,000) (.38) (.37)
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