USEY

[David Randolph]

U.S. Energy Systems, Inc. (USEY). The Group's principal activities are to manage, develop, operate and own small-to-medium-sized energy facilities. The Group owned and financed 23 green energy, district energy and cogeneration projects in North America and Europe. The customers include industrial and commercial concerns and local wholesale energy suppliers, such as utilities and marketers.

USEY is up 100% in just 3 days, but it still is pretty much undervalued. The market cap is just $29.17M. Insiders have been buying stocks lately. Net loss was greatly diminished in comparison with the year ago results. The company recently made this agreement:

«U.S. Energy Systems soars on asset purchase partnership news (USEY) By Michael Baron
NEW YORK (MarketWatch) -- Shares of U.S. Energy Systems (USEY) soared $1.37, or 111.4%, to $2.60 in pre-market action on Instinet early Wednesday. After Thursday's closing bell, the White Plains, N.Y., provider of energy outsourcing services said it has agreed to purchase certain assets in the United Kingdom in partnership with VTEX Energy Inc. and Marathon Capital LLC for roughly $60 million. The company plans to fund about $5 million of the purchase price for the assets, which include gas field licenses with provable and recoverable gas reserves estimated to exceed 60 billion cubic feet, gas gathering and processing systems and a related gas turbine power plant with a capacity ranging from 40-45 megawatts.»

I've read some more information on this deal and I find it has many advantages for USEY. With a market cap of just $29.17M and this kind of projects I guess USEY may run another 100% on top of the double it already made.

Therefore I will buy USEY at today's open for the 3 Stocks on Fire Portfolio.

[David Randolph]

I've read some news and particularly the last 10-Q report from the company and I find the information a bit misleading.

On the first table it says «values in thousands», and that would tell me the company has $52.6M in cash and cash equivalents. That would be awesome, since the market cap is just $31.21M. On www.marketwatch.com it says the company has $44M in cash.

But, if we read the rest of the report in detail, we see that information isn't correct, and the company has just about $52,000 in cash and cash equivalents. If we keep on reading we get to the conclusion that the company is selling peanuts, it is a very small company indeed in terms of revenues. It's almost like it had no operations prior to this deal:

U.S. Energy Systems soars on asset purchase partnership news

This is why the market cap is so small, $31.21M. Does this deal alone brings enough value for the stock to rise more?

Let me disclose the info I got on the deal:

«Item 1.01 Entry into a Material Definitive Agreement

        On October 7, 2005, we entered into an agreement with Marathon Capital, LLC ("Marathon"), VTEX Energy Inc. and its wholly owned subsidiary, Viking International Petroleum, PLC (collectively "VTEX"; we, VTEX and Marathon are referred to collectively as the "Acquirors") pursuant to which the Acquirors agreed to jointly acquire certain energy assets in the United Kingdom. The assets to be acquired include gas field licenses (with provable and recoverable gas reserves estimated to exceed 60 billion cubic feet), gas gathering and processing systems and a related gas turbine power plant with a capacity ranging from of 40-45 megawatts.

        The Acquirors will organize an entity ("Newco") to acquire these assets. Twenty-five percent (25%) of Newco will be owned by each of Marathon and VTEX in consideration of their contribution of assets and/or services and 50% will be owned by an entity we organize ("Investco") in consideration of our capital contribution described below.

        We are obligated to make an equity contribution of up to $5 million in Investco, subject to reduction as described below; Investco will fund the expenses of the proposed acquisition and will contribute its capital, through Newco, toward the purchase price for these assets. Though Investco is currently wholly owned by us, Marathon or VTEX may elect, during the 60 days following the signing of this agreement, to co-invest (or purchase a portion of our interests) up to $2 million in Investco and acquire up to 33.333% of the equity interests therein at a 10%-20% premium to our investment cost. Our $5 million commitment to Investco may be reduced by an amount equal to the investment in Investco made by or on behalf of Marathon or VTEX.

        Distributions from Newco shall generally be 90% to Investco and 5% to each of Marathon and VTEX until Investco recoups its entire investment in Newco together with 12% interest per annum; thereafter, Newco's distributions will be 50% to Investco and 25% to each of Marathon and VTEX. Distributions from Investco shall be made on a pro-rata basis based on the member's equity interest therein.

        It is anticipated that the aggregate purchase price for the assets will be approximately $60 million, of which approximately $5 million be funded by us through our capital contribution to Investco described above; additional funding is to be provided through project financing secured by the acquired assets.

        The Acquirors intend to negotiate additional documentation setting forth their respective rights and responsibilities regarding their ownership interests in Investco and Newco, the proposed acquisition of these assets and the related financing arrangements. No assurance can be given that we will acquire these assets or that this transaction will be profitable to us.

        There are no other current relationships between us and any of the other Acquirors other than our short term convertible loan to Marathon of $500,000.
Section 2 – Financial Information

Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant

        The information set forth in Item 1.01 is hereby incorporated by reference to the extent necessary to respond to Item 2.03.
Section 8 – Other Events
Item 8.01 Other Events.

        We have set October 31, 2005 as the record date for determining stockholders entitled to notice of and to vote at our annual meeting of stockholders; such meeting is currently scheduled to be held on December 6, 2005. »

I have some doubts that this deal alone will bring a lot of value to USEY. The deal may not even come to be a reality. Perhaps some investors have been misguided by that erroneous table on the last 10-Q from the company, which says «thousands» and the truth is there are no thousands, just units 

I guess this purchase was a mistake. What shall a speculator do when he perceives or feels he made a trading mistake? He should correct that mistake by selling the position. That's what I'll do at tomorrow's open, I'll take a loss on USEY.

[kslifka]

David,

Looking at the USEY's quarterly report, I'm pretty sure all their numbers are in the thousands even though it's not blatantly stated.

                                         THREE MONTHS ENDED               SIX MONTHS ENDED
                              ----------------------------   -----------------------------
                                      June 30, 2005  June 30, 2004   June 30, 2005   June 30, 2004
                                              -------------  -------------   -------------   -------------
Salary and Benefits                   $      543     $      754       $    1,033       $    1,441
Insurance                                         75             48               88               95
Corporate Expenses                         405            458              803              981
Countryside Development Fee            72             69              131               69
Directors' Fees and Expenses              47             85              163               83
Royalty Expense                                81            129              212              153
                                                  ----------     ----------            ----------       ----------
Totals                                   $    1,223     $    1,543       $    2,430       $    2,822
                                      ==========     ==========       ==========     



With 35 employees I would think that the salary and benefits would be greater than $543.  It has to be implied to be $543,000.

Even in the text portion.  "Depreciation and amortization expenses were $1,096 and $2,191 for the three and six month periods ended June 30, 2005. This represents increases of $8 and $125, respectively above that recorded for the corresponding 2004 periods." 

Correct me if I'm wrong, but I think these numbers are all representing the thousands???

However, I have no idea about the latest deal.

[kslifka]

Upon further research I found more proof that the numbers are in (000's). I highlighted the notation below.  Here is a copy of the 10-Q download from USEY's website.

U.S. ENERGY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
ASSETS                                                                       June 30, 2005     December 31, 2004
(Unaudited) (Audited, As Restated)
Current Assets:
Cash........................................................................................... $14,206 $15,982
Restricted Cash and Marketable Securities ..........................................30,210 29,609
Accounts Receivable (less allowance for doubtful accounts of $46 and
$107 in 2005 and 2004, respectively)................................................ 4,884 4,857
Installment Sale Partnership Interest and Interest Receivable, Current
Portion ............................................................................................1,401 2,494
Other Current Assets .........................................................................1,921 1,639
Total Current Assets, Net ...................................................................52,622 54,581
Property, Plant and Equipment, Net .................................................... 40,555 41,901
Construction in Progress.......................................................................198     198
Installment Sale Partnership Interest, less Current Portion.........................23,114 23,537
Investments .......................................................................................1,187 801
Debt Issuance Costs, Net of Accumulated Amortization..............................10,871 11,266
Goodwill .............................................................................................26,618 26,618
Foreign Currency Hedge..........................................................................1,651 2,414
Deferred Tax Asset .............................................................................. 15,147 14,605
Other Assets.............................................................................................. 56 11
Total Assets ...................................................................................$172,019 $175,932
LIABILITIES
Current Liabilities:
Current Portion Long-Term Debt................................................................$1,572 $1,517
Accounts Payable and Accrued Expenses......................................................3,461 4,057
Deferred Revenue Installment Sale Partnership Interest, Current
Portion ........................................................................................................397 398
Total Current Liabilities ..............................................................................5,430 5,972
Long-Term Debt less Current Portion ........................................................ 83,804 86,297
Deferred Revenue Installment Sale Partnership Interest, less Current
Portion ...................................................................................................16,500 16,699
Deferred Royalty........................................................................................ 5,553 5,686
Illinois Subsidy Liability ...............................................................................29,429 26,346
Total Liabilities.......................................................................................140,716 141,000
Minority Interests.......................................................................................2,858 4,329

[LiveLife]

Another nice pick David!

I am holding NVAX, so I am transferring more money into Scottrade account to buy USEY.

Keep up the good work!

[David Randolph]

Upon further research I found more proof that the numbers are in (000's). I highlighted the notation below.  Here is a copy of the 10-Q download from USEY's website.

U.S. ENERGY SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

Yes, I know it says thousands. But if you read the complete 10-Q report, near the end it says:

«LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2005, unrestricted cash amounted to $14,206 compared with $15,982 of
unrestricted cash at December 31, 2004. The debt arrangements between the
Countryside Fund and the USEB projects require these subsidiaries to maintain
various restricted cash accounts, which, at June 30, 2005, amounted to $30,072.
Included in the restricted cash and marketable securities is $22,638 that is
managed by a professional investment manager under investment allocation
parameters established by the Company and USEB. The amounts managed by the
professional manager, as of June 30, 2005, included $13,798 invested in equity
fund accounts, $7,552 invested in debt accounts, and $1,288 being held in cash
or cash equivalent accounts. The cost basis of the investments, which have been
invested since July 2004, is $21,026.»

I believe there's an error on that table, unfortunately numbers are not in «thousands». Since many people believe the numbers are in thousands, and possibly that explains the 100% rise in 3 days, I will SELL the stock at today's open.

[Stocky2000]

this is moving again

[Stocky2000]

What a nice 2 year chart....ready to pop i am in   Amep is moving...usey moves too..it seems the oil gas sector waking up...winter is approaching...oil at bottom...first cold days..up we go

[Stocky2000]