**SECURITIES      AND EXCHANGE COMMISSION**

**WASHINGTON,      DC 20549 **

**FORM      10-Q/A/2**

|   | [X] | **QUARTERLY                REPORT PURSUANT TO SECTION 13 OR 15****(d)                OF****THE                SECURITIES EXCHANGE ACT OF                1934** |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

**TRANSITION      REPORT PURSUANT TO SECTION 13 OR 15**
**(d)      **
**OF      THE EXCHANGE ACT FOR THE TRANSITION PERIOD FROM **
**      TO **
** **

**.**

**U.S.      ENERGY SYSTEMS, INC.**

**Delaware**
**52-1216347**

**One      North Lexington Avenue**

**Fifteenth      Floor**

**White      Plains, NY 10601**

**(914)      993-6443**

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**U.S.      ENERGY SYSTEMS, INC. AND SUBSIDIARIES**

**CONTENTS**

| **PART                I: Financial Information**                                                                                                            |                      |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------|
|                                                                                                                                                        | **PAGE**                  |
| **Item****1:** Financial                Statements                                                                                                     |                      |
|                                                                                                                                                        |                      |
| Overview                                                                                                                                                    | 2                         |
|                                                                                                                                                        |                      |
|                                                                                                                                                        |                      |
| Consolidated                Balance Sheets as of June 30, 2004 and December 31, 2003                                                                        | 4                         |
|                                                                                                                                                        |                      |
|                                                                                                                                                        |                      |
| Consolidated                Statements of Operations for the three months and six months ended                June                30, 2004 and 2003         | 5                         |
|                                                                                                                                                        |                      |
|                                                                                                                                                        |                      |
| Consolidated                Statements of Changes in Stockholders’ Equity for the six months ended                June 30, 2004 and for the year 2003 |  6,                7 |
|                                                                                                                                                        |                      |
|                                                                                                                                                        |                      |
| Consolidated                Statements of Cash Flow for the six months ended June 30, 2004 and                2003                                          | 8                         |
|  Notes                to Consolidated Financial Statements                                                                                             |   9             |
|                                                                                                                                                        |                      |
|                                                                                                                                                        |                      |
| **Item                2:**Management’s                Discussion and Analysis of Financial Condition and Results of                Operations         |  16                  |
|                                                                                                                                                        |                      |
| **Item                3:**Quantitative                and Qualitative Disclosures About Market Risk                                                         | 19                        |
|                                                                                                                                                        |                      |
| **Item                4:**Controls                and Proceedures                                                                                           | 19                        |
|                                                                                                                                                        |                      |
| **PART                II. Other Information**                                                                                                               |                      |
|                                                                                                                                                        |                      |
| **Item                6:**                Exhibits and Reports on Form 8-K                                                                                  | 19                        |
|                                                                                                                                                        |                      |
| Signatures                                                                                                                                                  | 20                        |

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**U.S.      ENERGY SYSTEMS, INC. AND SUBSIDIARIES**

**CONSOLIDATED      BALANCE SHEETS**

*(in      Thousands)*

| **ASSETS**                                                                                                                                                                                                                                                     |   | **June                30, 2004****(Restated/                Unaudited)** |    |  **December                31, 2003****(Audited)** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------|---------|---------------------------------------------------------|--------|
| Current                Assets:                                                                                                                                                                                                                                 |   |                                                                     |    |                                                    |   |
| Cash                                                                                                                                                                                                                                                           |   | $                                                                        | 21,009  |                                                    | $      | 3,210 |   |
| Restricted                Cash and Marketable Securities                                                                                                                                                                                                       |   |                                                                     | 25,754  |                                                    |   | 17,703 |   |
| Accounts                Receivable (less allowance for doubtful accounts of $1,313 in 2004                and                2003)                                                                                                                             |   |                                                                     | 5,889   |                                                    |   | 9,105 |   |
| Notes                Receivable                                                                                                                                                                                                                                |   |                                                                     | 2,434   |                                                    |   | 2,678 |   |
| Other                Current Assets                                                                                                                                                                                                                            |   |                                                                     | 2,426   |                                                    |   | 3,664 |   |
| Total                Current Assets                                                                                                                                                                                                                            |   |                                                                     | 57,512  |                                                    |   | 36,360 |   |
|                                                                                                                                                                                                                                                           |   |                                                                     |    |                                                    |   |   |   |
| Property,                Plant and Equipment (less accumulated depreciation of $ 23,259 and                $21,750)                                                                                                                                            |   |                                                                     | 42,175  |                                                    |   | 43,729 |   |
| Construction                in Progress                                                                                                                                                                                                                        |   |                                                                     | -       |                                                    |   | 595 |   |
| Notes                Receivable, less Current Portion                                                                                                                                                                                                          |   |                                                                     | 24,448  |                                                    |   | 14,234 |   |
| Investments                                                                                                                                                                                                                                                    |   |                                                                     | 1,755   |                                                    |   | 8,251 |   |
| Debt                Issuance Costs Net of Accumulated Amortization                                                                                                                                                                                             |   |                                                                     | 11,704  |                                                    |   | 2,405 |   |
| Foreign                Currency Hedge                                                                                                                                                                                                                          |   |                                                                     | (207    | )                                                       |   | -- |   |
| Deferred                Tax Asset                                                                                                                                                                                                                              |   |                                                                     | 12,015  |                                                    |   | 11,812 |   |
| Other                Assets                                                                                                                                                                                                                                    |   |                                                                     | -       |                                                    |   | 257 |   |
| Assets                to be Disposed of                                                                                                                                                                                                                        |   |                                                                     | -       |                                                    |   | 28,180 |   |
| Goodwill                                                                                                                                                                                                                                                       |   |                                                                     | 26,618  |                                                    |   | 26,218 |   |
| Total                Assets                                                                                                                                                                                                                                    |   | $                                                                        | 176,020 |                                                    | $      | 172,041 |   |
|                                                                                                                                                                                                                                                           |   |                                                                     |    |                                                    |   |   |   |
| **LIABILITIES**                                                                                                                                                                                                                                                |   |                                                                     |    |                                                    |   |   |   |
| Current                Liabilities:                                                                                                                                                                                                                            |   |                                                                     |    |                                                    |   |   |   |
| Current                Portion Long-term Debt                                                                                                                                                                                                                  |   | $                                                                        | 1,300   |                                                    | $      | 4,928 |   |
| Notes                Payable - Stockholder ....................................................................................                |   |                                                                     | 1,053   |                                                    |   | 688 |   |
| Accounts                Payable and Accrued Expenses                                                                                                                                                                                                           |   |                                                                     | 5,889   |                                                    |   | 5,887 |   |
| Deferred                Revenue Installment Sale Partnership Interest, Current                Portion                                                                                                                                                          |   |                                                                     | 345     |                                                    |   | 1,007 |   |
| Total                Current Liabilities                                                                                                                                                                                                                       |   |                                                                     | 8,587   |                                                    |   | 12,510 |   |
|                                                                                                                                                                                                                                                           |   |                                                                     |    |                                                    |   |   |   |
| Long-Term                Debt less Current Portion                                                                                                                                                                                                             |   |                                                                     | 78,646  |                                                    |   | 53,827 |   |
| Notes                Payable - Stockholder                                                                                                                                                                                                                     |   |                                                                     | 4,676   |                                                    |   | 10,641 |   |
| Deferred                Revenue Installment Sale Partnership Interest, less Current                Portion                                                                                                                                                     |   |                                                                     | 16,915  |                                                    |   | 5,105 |   |
| Deferred                Royalty Liability ............................................................................................ |   |                                                                     | 5,844   |                                                    |   | -- |   |
| Rate                Incentive Liability                                                                                                                                                                                                                        |   |                                                                     | 23,765  |                                                    |   | 20,652 |   |
| Advances                from Joint Ventures                                                                                                                                                                                                                    |   |                                                                     | 102     |                                                    |   | 102 |   |
| Liabilities                to be Disposed of                                                                                                                                                                                                                   |   |                                                                     | -       |                                                    |   | 21,745 |   |
| Total                Liabilities                                                                                                                                                                                                                               |   |                                                                     | 138,535 |                                                    |   | 124,582 |   |
|                                                                                                                                                                                                                                                           |   |                                                                     |    |                                                    |   |   |   |
| Minority                Interests                                                                                                                                                                                                                              |   |                                                                     | 5,000   |                                                    |   | 8,374 |   |
|                                                                                                                                                                                                                                                           |   |                                                                     |    |                                                    |   |   |   |
| **STOCKHOLDERS’                EQUITY**                                                                                                                                                                                                                  |   |                                                                     |    |                                                    |   |   |   |
| Preferred                Stock, $.01 par Value, Authorized 10,000,000 Shares:                                                                                                                                                                                  |   |                                                                     |    |                                                    |   |   |   |
| Series                B, Cumulative, Convertible, Issued and Outstanding 368                Shares                                                                                                                                                             |   |                                                                     | ----    |                                                    |   | ---- |   |
| Series                C Cumulative, Convertible, Issued and Outstanding 100,000                Shares                                                                                                                                                          |   |                                                                     | 1       |                                                    |   | 1 |   |
| Series                D, Cumulative, Convertible, Issued and Outstanding 1,138,888                Shares                                                                                                                                                       |   |                                                                     | 11      |                                                    |   | 11 |   |
|                                                                                                                                                                                                                                                           |   |                                                                     |    |                                                    |   |   |   |
| Common                Stock, $.01 par Value, Authorized 50,000,000 Shares, issued                12,333,974                                                                                                                                                    |   |                                                                     | 123     |                                                    |   | 123 |   |
| Treasury                Stock, 443,263 Shares of Common Stock and 2667 shares of preferred                stock,                at cost                                                                                                                        |   |                                                                     | (2,204  | )                                                       |   | (2,204 | ) |
| Additional                Paid-in Capital                                                                                                                                                                                                                      |   |                                                                     | 64,477  |                                                    |   | 64,891 |   |
| Accumulated                Deficit                                                                                                                                                                                                                             |   |                                                                     | (29,878 | )                                                       |   | (24,159 | ) |
| Other                Comprehensive Income                                                                                                                                                                                                                      |   |                                                                     | (45     | )                                                       |   | 422 |   |
| Total                Stockholders’ Equity                                                                                                                                                                                                                |   |                                                                     | 32,485  |                                                    |   | 39,085 |   |
| Total                Liabilities and Stockholders’ Equity                                                                                                                                                                                                |   | $                                                                        | 176,020 |                                                    | $      | 172,041 |   |

*See      notes to consolidated financial statements*

*which      are an integral part of the financial statements*

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**U.S.      ENERGY SYSTEMS, INC. AND SUBSIDIARIES**

**CONSOLIDATED      STATEMENTS OF OPERATIONS**

**(Unaudited)**

|                                                                                                                                                                                                                                                                                       |   | **THREE                  MONTHS ENDED** |    | **SIX                  MONTHS ENDED** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|---------|---------------------------------------|--------|
|                                                                                                                                                                                                                                                                                       |   | **June                  30, 2004**      |    | **June                  30, 2003**    |   | **June                  30, 2004** |   | **June                  30, 2003** |   |
|                                                                                                                                                                                                                                                                                       |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| Revenues                                                                                                                                                                                                                                                                                   |   | $                                       | 4,479   |                                  | $      | 7,230 |   | $ | 9,596 |   | $ | 14,409 |   |
|                                                                                                                                                                                                                                                                                       |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| Costs                  and expenses:                                                                                                                                                                                                                                                       |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| Operating                  Expenses                                                                                                                                                                                                                                                        |   |                                    | 2,714   |                                  |   | 4,098 |   |   | 4,931 |   |   | 7,033 |   |
| General                  and Administrative Expenses                                                                                                                                                                                                                                       |   |                                    | 960     |                                  |   | 979 |   |   | 1,682 |   |   | 2,239 |   |
| Depreciation                  and Amortization                                                                                                                                                                                                                                             |   |                                    | 1,088   |                                  |   | 845 |   |   | 2,066 |   |   | 1,780 |   |
| Reserve                  for SEFL Investment ..................................................                                                                                                                            |   |                                    | 476     |                                  |   | - |   |   | 8,176 |   |   | - |   |
| Total                  Costs and Expenses                                                                                                                                                                                                                                                  |   |                                    | 5,238   |                                  |   | 5,922 |   |   | 16,855 |   |   | 11,052 |   |
|                                                                                                                                                                                                                                                                                       |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| (Loss)/Income                  From Operations                                                                                                                                                                                                                                             |   |                                    | (759    | )                                     |   | 1,308 |   |   | (7,259 | ) |   | 3,357 |   |
| Interest                  Income                                                                                                                                                                                                                                                           |   |                                    | 780     |                                  |   | 278 |   |   | 1,128 |   |   | 606 |   |
| Dividend                  Income ....................................................................                                                                                              |   |                                    | -       |                                  |   | - |   |   | 15 |   |   | 20 |   |
| Foreign                  Currency Transaction Income                                                                                                                                                                                                                                       |   |                                    | 1,148   |                                  |   | - |   |   | 1,148 |   |   | - |   |
| Interest                  Expense                                                                                                                                                                                                                                                          |   |                                    | (2,588  | )                                     |   | (1,818 | ) |   | (4,436 | ) |   | (3,741 | ) |
| Transaction                  Cost Expenses .........................................................                                                                                                               |   |                                    | (12,230 | )                                     |   | - |   |   | (12,230 | ) |   | - |   |
| Minority                  Interest                                                                                                                                                                                                                                                         |   |                                    | 5,707   |                                  |   | (103 | ) |   | 5,700 |   |   | (358 | ) |
|                                                                                                                                                                                                                                                                                       |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| Loss                  Before Taxes                                                                                                                                                                                                                                                         |   |                                    | (7,942  | )                                     |   | (335 | ) |   | (15,934 | ) |   | (116 | ) |
| Income                  Tax Benefit....................................                                                                                                                                                                        |   |                                    | (406    | )                                     |   | 217 |   |   | 3,160 |   |   | 226 |   |
| Income                  (loss) Before Discontinued Operations and Gain on Sale of                  Subsidiaries........................................................................... |   |                                    | (8,348  | )                                     |   | (118 | ) |   | (12,774 | ) |   | 110 |   |
|                                                                                                                                                                                                                                                                                       |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| Income                  From Discontinued Operations (Net of Tax)                                                                                                                                                                                                                          |   |                                    | 43      |                                  |   | 232 |   |   | 495 |   |   | 740 |   |
| Gain                  on Sale of Subsidiaries and Partnership Interest (Net of Income                  Tax                  -2004-$2,795 and 2003-$887) ....................................................           |   |                                    | 6,560   |                                  |   | 1,419 |   |   | 6,560 |   |   | 1,419 |   |
|                                                                                                                                                                                                                                                                                       |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| NET                  INCOME(LOSS)                                                                                                                                                                                                                                                          |   |                                    | (1,745  | )                                     |   | 1,533 |   |   | 5,719 |   |   | 2,269 |   |
|                                                                                                                                                                                                                                                                                       |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| DIVIDENDS                  ON PREFERRED STOCK ........................................                                                                                                                                                 |   |                                    | (207    | )                                     |   | (210 | ) |   | (414 | ) |   | (419 | ) |
|                                                                                                                                                                                                                                                                                       |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| NET                  INCOME(LOSS) APPLICABLE TO COMMON STOCK                                                                                                                                                                                                                               |   | $                                       | (1,952  | )                                     | $      | 1,323 |   | $ | (6,133 | ) | $ | 1,850 |   |
|                                                                                                                                                                                                                                                                                       |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| INCOME                  PER SHARE OF COMMON STOCK:                                                                                                                                                                                                                                         |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| Income(Loss)                  Per Share of Common Stock - Basic                                                                                                                                                                                                                            |   | $                                       | (0.16   | )                                     | $      | 0.11 |   | $ | (0.52 | ) | $ | 0.15 |   |
| Income                  Per Share of Common Stock - Diluted                                                                                                                                                                                                                                |   | $                                       | --      |                                  | $      | 0.09 |   | $ | -- |   | $ | 0.13 |   |
|                                                                                                                                                                                                                                                                                       |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| Weighted                  Average Number of Common Shares Outstanding - Basic                                                                                                                                                                                                              |   |                                    | 11,890  |                                  |   | 11,950 |   |   | 11,890 |   |   | 11,950 |   |
| Weighted                  Average Number of Common Shares Outstanding - Diluted                                                                                                                                                                                                            |   |                                    | 17,053  |                                  |   | 17,115 |   |   | 17,053 |   |   | 17,115 |   |
|                                                                                                                                                                                                                                                                                       |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| OTHER                  COMPREHENSIVE INCOME, NET OF TAX:                                                                                                                                                                                                                                   |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| Net                  Income(Loss)                                                                                                                                                                                                                                                          |   | $                                       | (1,745  | )                                     | $      | 1,533 |   | $ | (5,719 | ) | $ | 2,269 |   |
| Gain                  (Loss) on Foreign Currency Translation                                                                                                                                                                                                                               |   |                                    | (467    | )                                     |   | 2,295 |   |   | (467 | ) |   | 2,210 |   |
| Total                  Comprehensive Income(Loss)                                                                                                                                                                                                                                          |   | $                                       | (2,212  | )                                     | $      | 3,828 |   | $ | (6,186 | ) | $ | 4,479 |   |
|                                                                                                                                                                                                                                                                                       |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |

**U.S.      ENERGY SYSTEMS, INC AND SUBSIDIARIES**

**CONSOLIDATED      STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY **

**FOR      THE YEAR ENDED DECEMBER 31, 2003**

**Audited**

*(in      Thousands Except Share Data)*

|                                                           | **Preferred                Stock Series B** | **Preferred                Stock Series C** | **Preferred                Stock Series D** | **Treasury                Stock** | **Common                Stock**     |
|----------------------------------------------------------------|---------------------------------------------|---------------------------------------------|---------------------------------------------|-----------------------------------|-------------------------------------|
|                                                           | **No.                of****Shares**         | **Amount**                                  | **No.                of****Shares**         | **Amount**                        | **No.                of****Shares** | **Amount** | **No.                of****Shares** | **Amount** | **No.                of****Shares** | **Amount** | **Additional                Paid in Capital** | **Foreign                Currency Translation Adjustment** | **Accumulated                Deficit** | **Total** |
| Balance                - Dec. 31, 2002 as Previously Reported  | 368                                         | —                                     | 100,000                                     | $1                                | 1,138,888                           | $11 | (383,450) | $(1,805) | 12,333,613 | $123 | $65,720 | $701 | $(23,154) | $41,597 |
| Adjustments                                                    | —                                     | —                                     | —                                     | —                           | —                             | — | — | — | — | — | — | — | (2,843) |   (2,843) |
| Balance                - Dec. 31, 2002 as Adjusted             | 368                                         |                                        | 100,000                                     | 1                                 | 1,138,888                           | 11 | (383,450) |   (1,805) | 12,333,613 | 123 | 65,720 | 701 |   (25,997) | 38,754 |
| Issuance                of Common Stock                        |                                        |                                        |                                        |                              |                                |   |   |   | 361 |   |   |   |   |   |
| Foreign                Currency Translation Adjustment         |                                        |                                        |                                        |                              |                                |   |   |   |   |   |   | (279) |   | (279) |
| Treasury                Stock                                  |                                        |                                        |                                        |                              |                                |   | (62,480) | (399) |   |   |   |   |   | (399) |
| Net                Income for the Year Ended December 31, 2003 |                                        |                                        |                                        |                              |                                |   |   |   |   |   |   |   | 1,838 | 1,838 |
| Dividends                on Preferred Stock:                   |                                        |                                        |                                        |                              |                                |   |   |   |   |   |   |   |   |   |
| Series                B                                        |                                        |                                        |                                        |                              |                                |   |   |   |   |   | (34) |   |   | (34) |
| Series                C                                        |                                        |                                        |                                        |                              |                                |   |   |   |   |   | (180) |   |   | (180) |
| Series                D                                        |                                        |                                        |                                        |                              |                                |   |   |   |   |   | (615) |   |   |                     (615)   |
| Balance                -December                31, 2003       | 368                                         | -                                           | 100,000                                     | $1                                | 1,138,888                           | $11 | (445,930) | $(2,204) | 12,333,974 | $123 | $64,891 | $422 | $(24,159) | $39,085 |

*See      notes to consolidated financial statements*

*which      are an integral part of the financial statements*

----

**U.S.      ENERGY SYSTEMS, INC AND SUBSIDIARIES**

**CONSOLIDATED      STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY**

**FOR      THE SIX MONTHS ENDED JUNE 30, 2004**

**(Unaudited)**

*(in      Thousands)*

|                                                       | **Preferred                Stock Series B** | **Preferred                Stock Series C** | **Preferred                Stock Series D** | **Treasury                Stock** | **Common                Stock**     |
|------------------------------------------------------------|---------------------------------------------|---------------------------------------------|---------------------------------------------|-----------------------------------|-------------------------------------|
|                                                       | **No.                of****Shares**         | **Amount**                                  | **No.                of****Shares**         | **Amount**                        | **No.                of****Shares** | **Amount** | **No.                of****Shares** | **Amount** | **No.                of****Shares** | **Amount** | **Additional                Paid in Capital** | **Foreign                Currency Translation Adjustment** | **Accumulated                Deficit** | **Total** |
| Balance                - Dec. 31, 2003                     | 368                                         | -                                           | 100,000                                     | $                1                | 1,138,888                           | $11 | (445,930) | $(2,204) | 12,333,974 | $123 | $64,891 | $422 | $(24,159) | $39,085 |
| Issuance                of Common Stock                    |                                        |                                        |                                        |                              |                                |   |   |   |   |   |   |   |   |   |
| Foreign                Currency Translation Adjustment     |                                        |                                        |                                        |                              |                                |   |   |   |   |   |   | (467) |   | (467) |
| Treasury                Stock                              |                                        |                                        |                                        |                              |                                |   |   |   |   |   |   |   |   |   |
| Net                Loss for Six Months Ended June 30, 2004 |                                        |                                        |                                        |                              |                                |   |   |   |   |   |   |   | (5,719) | (5,719) |
| Dividends                on Preferred Stock:               |                                        |                                        |                                        |                              |                                |   |   |   |   |   |   |   |   |   |
| Series                B                                    |                                        |                                        |                                        |                              |                                |   |   |   |   |   | (16) |   |   | (16) |
| Series                C                                    |                                        |                                        |                                        |                              |                                |   |   |   |   |   | (90) |   |   | (90) |
| Series                D                                    |                                        |                                        |                                        |                              |                                |   |   |   |   |   | (308) |   |   | (308) |
| Balance                -June                30, 2004       | 368                                         | -                                           | 100,000                                     | $                1                | 1,138,888                           | $11 | (445,930) | $(2,204) | 12,333,974 | $123 | $                64,477 | $(45) | $ (29,878) | $32,485 |

*See      notes to consolidated financial statements*

*which      are an integral part of the financial statements*

**U.S.      ENERGY SYSTEMS, INC AND SUBSIDIARIES**

**CONSOLIDATED      STATEMENTS OF CASH FLOWS**

*(in      Thousands)*

|                                                                                                                                                                                                                                                                                                |   | **Six                Months Ended** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                |   | **June                30, 2004**    |   | **June                30, 2003** |   |
| CASH                FLOWS FROM OPERATING ACTIVITIES:                                                                                                                                                                                                                                                |   |                                |   |   |   |
| Net                Income...................................................................................................................    |   | $(5,719)                            |   | $2,269 |   |
| Adjustments                to reconcile Net Income to Net Cash provided by (used in ) Operating                Activities:                                                                                                                                                                          |   |                                |   |   |   |
| Depreciation..........................................................................................................                                  |   | 1,807                               |   | 1,660 |   |
| Amortization.........................................................................................................                                   |   | 259                                 |   | 120 |   |
| Minority                Interest Expense...........................................................................................                                             |   | (5,702)                             |   | 358 |   |
| Income                Tax Benefit..................................................................................................                                 |   | (3,159)                             |   | 644 |   |
| Gain                on Sale of Subsidiaries .......................................................................................                                                 |   | (6,560)                             |   | (1,419) |   |
| Foreign                Currency Hedge...........................................................................................                                            |   | (207)                               |   | ----- |   |
| Foreign                Currency Transaction Income............................................................................                                                                  |   | (1,363)                             |   | 2,210 |   |
| Reserve                for Investment in SEFL                                                                                                                                                                                                                                                       |   | 8,176                               |   | ----- |   |
| Changes                In:                                                                                                                                                                                                                                                                          |   |                                |   |   |   |
| Accounts                and Notes Receivable Trade                                                                                                                                                                                                                                                  |   | 3,216                               |   | (4,331) |   |
| Other                Current Assets                                                                                                                                                                                                                                                                 |   | 1,238                               |   | (261) |   |
| Other                Assets                                                                                                                                                                                                                                                                         |   | 257                                 |   | (1,324) |   |
| Accounts                Payable and Accrued Expenses                                                                                                                                                                                                                                                |   | 265                                 |   | 2,015 |   |
| Deferred                Revenue and Other                                                                                                                                                                                                                                                           |   | (350)                               |   | (673) |   |
| Rate                Incentive Liability                                                                                                                                                                                                                                                             |   | 3,113                               |   | 3,740 |   |
| Net                Effect of Discontinued Operations                                                                                                                                                                                                                                                |   | -                                   |   | (111) |   |
| Net                Cash Provided by Operating Activities                                                                                                                                                                                                                                            |   | (4,729)                             |   | 4,897 |   |
|                                                                                                                                                                                                                                                                                                |   |                                |   |   |   |
| CASH                FLOWS FROM INVESTING ACTIVITIES:                                                                                                                                                                                                                                                |   |                                |   |   |   |
| Change                in Investments                                                                                                                                                                                                                                                                |   | 15,638                              |   | 1,087 |   |
| Acquisitions                of Property and Equipment                                                                                                                                                                                                                                               |   | (253)                               |   | (1,235) |   |
| Construction                in Progress                                                                                                                                                                                                                                                             |   | 595                                 |   | 1,673 |   |
| Goodwill                ................................................................................................................... |   | (400)                               |   | ----- |   |
| Net                Cash Used in Investing Activities                                                                                                                                                                                                                                                |   | 15,580                              |   | 1,525 |   |
|                                                                                                                                                                                                                                                                                                |   |                                |   |   |   |
| CASH                FLOWS FROM FINANCING ACTIVITIES:                                                                                                                                                                                                                                                |   |                                |   |   |   |
| Proceeds                from Notes Receivable ........................................................................................                                          |   | 1,528                               |   | (107) |   |
| Proceeds                from Long-Term Debt                                                                                                                                                                                                                                                         |   |                                | 23,849 |   |   | (1,121 | ) |
| Payments                of Long Term Debt ..........................................................................................                                        |   |                                | (6,250 | ) |   | ----- |   |
| Debt                Issuance Costs                                                                                                                                                                                                                                                                  |   |                                | (9,558 | ) |   | (400 | ) |
| Deferred                Royalty Liability ................................................................................................                          |   |                                | 5,844  |   |   | ----- |   |
| Dividends                on Preferred Stock                                                                                                                                                                                                                                                         |   |                                | (414   | ) |   | (418 | ) |
| Net                Cash Used in Financing Activities                                                                                                                                                                                                                                                |   |                                | 14,999 |   |   | (2,046 | ) |
|                                                                                                                                                                                                                                                                                                |   |                                |   |   |   |   |   |
| NET                INCREASE IN CASH                                                                                                                                                                                                                                                                 |   |                                | 25,850 |   |   | 4,376 |   |
|                                                                                                                                                                                                                                                                                                |   |                                |   |   |   |   |   |
| Cash,                restricted cash and equivalents - beginning of                period...............................................................                                                        |   |                                | 20,913 |   |   | 15,103 |   |
| **Cash,                restricted cash and equivalents - end of period**..................................................................                                                                      |   | $                                   | 46,763 |   | $ | 19,479 |   |
|                                                                                                                                                                                                                                                                                                |   |                                |   |   |   |   |   |
| Supplemental                disclosure of cash flow information:                                                                                                                                                                                                                                    |   |                                |   |   |   |   |   |
| Cash                paid for interest.......................................................................................................                |   | $                                   | 3,465  |   | $ | 3,348 |   |
| Contingent                Note Receivable ..............................................................................................                                |   |                                | 2,502  |   |   | ----- |   |
| Note                Receivable from Sale of Partnership                Interest.....................................................................                                                    |   |                                | 14,000 |   |   | ----- |   |

*See      notes to consolidated financial statements*

*which      are an integral part of the financial statements*

----

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

**NOTE      A - BASIS OF PRESENTATION **

**NOTE      B - RESTATEMENT**

| **1.  ** | **Foreign                Currency Transaction** |
|--------------------|-------------------------------------------------|

| **2.  ** | **Gain                Recognition** |
|--------------------|-------------------------------------|

| ** ****CONSOLIDATED                  BALANCE SHEET AT JUNE 30, 2004**  |   |
|----------------------------------------------------------------------------------|--------|
|                                                                             |   | **AFTER                  FOREIGN CURRENCY TRANSACTION AND GAIN RECOGNITION                  RESTATEMENT** |   | **AFTER                  FOREIGN CURRENCY TRANSACTION RESTATEMENT** |   | **AS                  ORIGINALLY REPORTED** |   |
| Foreign                  Currency Hedge                                          |   | $ | (207 | ) | $ | (207 | ) | $ | ----- |   |
| Deferred                  Tax Asset                                              |   | $ | 12,015 |   | $ | 12,015 |   | $ | 12,372 |   |
| Total                  Assets                                                    |   | $ | 176,020 |   | $ | 176,020 |   | $ | 176,584 |   |
| Long-Term                  Debt                                                  |   | $ | 79,946 |   | $ | 79,946 |   | $ | 81,154 |   |
| Deferred                  Revenue                                                |   | $ | 17,260 |   | $ | 3,260 |   | $ | 3,260 |   |
| Minority                  Interests                                              |   | $ | 5,000 |   | $ | 11,402 |   | $ | 11,087 |   |
| Total                  Liabilities                                               |   | $ | 143,535 |   | $ | 135,937 |   | $ | 136,830 |   |
| Accumulated                  Deficit                                             |   | $ | (29,878 | ) | $ | (22,280 | ) | $ | (22,654 | ) |
| Acc.                  Other Comprehensive Income                                 |   | $ | (45 | ) | $ | (45 | ) | $ | ----- |   |
| Total                  Stockholder Equity                                        |   | $ | 32,485 |   | $ | 40,083 |   | $ | 39,754 |   |
| Total                  Liabilities and Stockholder Equity                        |   | $ | 176,020 |   | $ | 176,020 |   | $ | 176,584 |   |

| **STATEMENT                    OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30,                    2004** |   |
|------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                       |   | **AFTER                    FOREIGN CURRENCY TRANSACTION AND GAIN RECOGNITION                    RESTATEMENT** |   | **AFTER                    FOREIGN CURRENCY TRANSACTION RESTATEMENT** |   | **AS                    ORIGINALLY REPORTED** |   |
| Foreign                    Currency Transaction Income                                                     |   | $ | 1,148 |   | $ | 1,148 |   | $ | ----- |   |
| Gain                    on Sale of Subsidiary                                                              |   | $ | 6,560 |   | $ | 9,944 |   | $ | 9,944 |   |
| Minority                    Interest                                                                       |   | $ | 5,707 |   | $ | 3,841 |   | $ | 4,156 |   |
| Income                    Tax Benefit(Expense)                                                             |   | $ | (406 | ) | $ | 5,674 |   | $ | 6,133 |   |
| Net                    Income(Loss)                                                                        |   | $ | (1,745 | ) | $ | 5,853 |   | $ | 5,479 |   |
| Net                    Income(Loss) Applicable to Common                    Stock                          |   | $ | (1,952 | ) | $ | 5,646 |   | $ | 5,272 |   |
| Income(Loss)                    Per Share of Common Stock                                                  |   | $ | (0.16 | ) | $ | 0.47 |   | $ | 0.44 |   |

| **STATEMENT                  OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30,                  2004** |   |
|------------------------------------------------------------------------------------------------------|--------|
|                                                                                                 |   |
|                                                                                                 |   | **AFTER                  FOREIGN CURRENCY TRANSACTION AND GAIN RECOGNITION                  RESTATEMENT** |   | **AFTER                  FOREIGN CURRENCY TRANSACTION RESTATEMENT** |   | **AS                  ORIGINALLY REPORTED** |   |
| Foreign                  Currency Transaction Income                                                 |   | $ | 1,148 |   | $ | 1,148 |   | $ | ----- |   |
| Gain                  on Sale of Subsidiary                                                          |   | $ | 6,560 |   | $ | 9,944 |   | $ | 9,944 |   |
| Minority                  Interest                                                                   |   | $ | 5,702 |   | $ | 3,836 |   | $ | 4,151 |   |
| Income                  Tax Benefit                                                                  |   | $ | 3,160 |   | $ | 9,240 |   | $ | 9,688 |   |
| Net                  Income(Loss)                                                                    |   | $ | (5,719 | ) | $ | 1,879 |   | $ | 1,505 |   |
| Net                  Income(Loss) Applicable to Common                  Stock                        |   | $ | (6,133 | ) | $ | 1,465 |   | $ | 1,091 |   |
| Income                  Per Share of Common Stock                                                    |   | $ | (0.52 | ) | $ | 0.12 |   | $ | 0.09 |   |

**NOTE      C - NET INCOME (LOSS) PER SHARE **

**NOTE      D — STOCK-BASED COMPENSATION**

**NOTE      E — FOREIGN CURRENCY**

**NOTE      F — INVESTMENTS IN DERIVATIVES**

**NOTE      G - INCOME TAXES **

**NOTE      H - ADDITIONAL CAPITAL **

**NOTE      I - INVESTMENTS**

*Scandinavian      Energy Finance, Limited / EnergiSystem i Sverige AB*

**NOTE      J — FOREIGN CURRENCY TRANSACTIONS**

| Currency                Exchange Rate at Loan Origination, April 8, 2004                              |   | $ | 1.3140 |   |
|-------------------------------------------------------------------------------------------------------|--------|---|--------|--------|
| Currency                Exchange Rate as of June 30, 2004                                             |   | $ | 1.3338 |   |
| Cumulative                Translation Adjustments Beginning Of Reporting Period                       |   | $ | 0      |   |
| Cumulative                Translation Adjustments End Of Reporting Period                             |   | $ | 1,148  |   |
| Aggregate                Adjustment for the Current Reporting Period Income/                (Expense) |   | $ | 1,148  |   |
| Deferred                Income Taxes Allocated To Adjustment in the Reporting                Period   |   | $ | (436   | )      |

**NOTE      K - OTHER COMPREHENSIVE INCOME/(LOSS)**

**NOTE      L- ACCOUNTING CHANGES**

| **(dollars                in thousands)** |
|-------------------------------------------|
| **Balance                Sheet:**         |   |   |   |   |
|                                      | **Deferred                Tax Asset** | **Goodwill** | **Minority                Interest** | **Retained                Earnings** |
|  Year                2003            |  $(7,283) |  $(430) |  $(3,528) |  $(4,185) |

| **Statements                of Operation:**           |                                 |                                  |                          |
|-------------------------------------------------------|--------------------------------------|---------------------------------------|-------------------------------|
|                                                  | **Minority                Interest** | **Income                Tax Expense** | **Net                Income** |
|  Year                2003                        |  $1,132                         |  $(2,474)                        |  $(1,342)                |
|  Three                Months Ended June 30, 2003 |  183                            |  (401)                           |  (218)                   |
|  Six                Months Ended June 30, 2003   |  424                            |  (926)                           |  (502)                   |

**NOTE      M- SALE OF SUBSIDIARIES**

**Introduction**

**Sale      of Canadian District Energy Systems**

**USEB      Loans**

**USEB      Royalty Interest**

oyalty      interest (the “Royalty Interest”) in USEB for $6,000, entitling it to receive a      quarterly amount (the "Royalty") from USEB that is determined by reference      to,      and limited by, USEB’s distributable cash flow (determined in accordance with      the royalty agreement). The Royalty Interest is convertible generally at any      time on or after April, 2024 or on or after the prepayment in full of the USEB      Loans, into non-voting common shares of USEB, representing 49% of the common      shares of USEB outstanding at the time of conversion. Upon conversion of the      Royalty Interest, Countryside Canada's right to receive the Royalty will      terminate. The amount of the Royalty payable to Countryside Canada depends      upon      whether the Royalty Interest has become convertible. For each fiscal quarter      prior to the quarter in which the Royalty Interest becomes convertible, the      amount of the Royalty payable to Countryside Canada will be equal to 7% of      USEB’s distributable cash flow plus 1.8% of USEB’s revenues (determined in      accordance with the royalty agreement), but in any event, the Royalty payment      will be subject to the Distribution Cap (described below). After the Royalty      Interest becomes convertible, but remains unconverted, the Royalty will be      equal      to 49% of USEB’s distributable cash flow, subject to the Distribution      Cap.

**Development      Agreement with Cinergy and US Energy**

**Improvement      Agreement with USEB and CPIF**

**AJG      Genco Transaction**

**NOTE      N- BASIS OF PRESENTATION**

**NOTE      O - TRANSACTION AND DEBT ISSUANCE COSTS**

**NOTE      P— DISCONTINUED OPERATIONS**

|                                               |   | **Year                2003**  |   |
|----------------------------------------------------|--------|------------------------------------|--------|
| Assets:                                            |   |                               |   |   |
| Cash                                               |   | $                                  | 676    |   |
| Accounts                Receivable                 |   |                               | 1,813  |   |
| Other                Current Assets                |   |                               | 833    |   |
| Property                Plant and Equipment        |   |                               | 22,948 |   |
| Deferred                Tax Asset                  |   |                               | 1,678  |   |
| Other                Assets                        |   |                               | 232    |   |
| Total                Assets                        |   | $                                  | 28,180 |   |
|                                               |   |                               |   |   |
| Liabilities:                                       |   |                               |   |   |
| Current                Portion of Long Term Debt   |   | $                                  | 2,013  |   |
| Accounts                Payable and Other          |   |                               | 2,316  |   |
| Long                Term Debt less Current Portion |   |                               | 17,416 |   |
| Total                Liabilities                   |   | $                                  | 21,745 |   |

**ITEM      2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS      OF      OPERATIONS**

**RESULTS      OF OPERATIONS**

|                                                 |   |                **                   Three Months Ended****                      (in thousands)** |   |                **Six                Months Ended****(in                thousands)** |   |
|------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------|--------|
|                                                 |   | **June                30, 2004**                                                                                                                   |   |  **June                30, 2003**                                                   |   | **June                30, 2004** |   |  **June                30, 2003** |   |
| SEFL                Revenues                         |   | $                                                                                                                                                  | -      |                                                                                     | $      | 1,137 |   | $ | - |   | $ | 2,238 |   |
| Non-Recurring                Revenues                |   |                                                                                                                                               | -      |                                                                                     |   | 1,275 |   |   | - |   |   | 2,241 |   |
| Loss                in Investment of Subsidy Reserve |   |                                                                                                                                               | (399   | )                                                                                        |   | - |   |   | (399 | ) |   | - |   |
| Total                                                |   | $                                                                                                                                                  | (399   | )                                                                                        | $      | 2,412 |   | $ | (399 | ) | $ | 4,479 |   |

|                                     |   | **Three                  Months Ended****(in                  thousands)** |   | **Six                  Months Ended****(in                  thousands)** |   |
|------------------------------------------|--------|----------------------------------------------------------------------------|--------|--------------------------------------------------------------------------|--------|
|                                     |   | **June                  30, 2004**                                         |   | **June                  30, 2003**                                       |   | **June                  30, 2004** |   | **June                  30, 2003** |   |
| SEFL                  Operating Expenses |   | $                                                                          | -      |                                                                     | $      | 715 |   | $ | - |   | $ | 1,470 |   |
| Non-Recurring                  Expenses  |   |                                                                       | -      |                                                                     |   | 755 |   |   | - |   |   | 711 |   |
| $                  -                     |   |                                                                       |   |                                                                     | $      | 1,470 |   | $ | - |   | $ | 2,181 |   |

|                                                             |   | **Three                    Months Ended****(in                    thousands)** |   | **Six                    Months Ended****(in                    thousands)** |   |
|------------------------------------------------------------------|--------|--------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------|--------|
|                                                             |   | **June                    30, 2004**                                           |   | **June                    30, 2003**                                         |   | **June                    30, 2004** |   | **June                    30, 2003** |   |
| Salaries,                    Incentives & Other Compensation |   | $                                                                              | 4,013  |                                                                         | $      | 380 |   | $ | 4,283 |   | $ | 999 |   |
| Legal                    and Professional                        |   |                                                                           | 103    |                                                                         |   | 79 |   |   | 231 |   |   | 286 |   |
| Insurance                                                        |   |                                                                           | 183    |                                                                         |   | 201 |   |   | 279 |   |   | 327 |   |
| Corporate                    Expenses                            |   |                                                                           | 162    |                                                                         |   | 335 |   |   | 214 |   |   | 370 |   |
| Other                                                            |   |                                                                           | (40    | )                                                                            |   | (16 | ) |   | 135 |   |   | 257 |   |
| CPIF                    Transaction Costs                        |   |                                                                           | 1,378  |                                                                         |   | 0 |   |   | 1,378 |   |   | 0 |   |
| CPIF                    Expense Reimbursement                    |   |                                                                           | (4,839 | )                                                                            |   | 0 |   |   | (4,839 | ) |   | 0 |   |
| Total                                                            |   | $                                                                              | 960    |                                                                         | $      | 979 |   | $ | 1,682 |   | $ | 2,239 |   |

**LIQUIDITY      AND CAPITAL RESOURCES**

**CAUTIONARY      STATEMENT RELATING TO FORWARD LOOKING STATEMENTS**

**Item      3: Quantitative and Qualitative Disclosures about Market      Risk**

**Item      4: Controls and Procedures**

**PART      II - OTHER INFORMATION**

**Item      6 - Exhibits and Reports on Form 8-K**

| Exhibit | Description                                                                                         |
|---------|-----------------------------------------------------------------------------------------------------|
| 18.1    | Letter                dated August 22, 2005 from Kostin, Ruffkess & Company,                LLC |
| 31.1    | Rule                13a-14(a)/15d-14(a) certifications.                                             |
| 31.2    | Rule                13a-14(a)/15d-14(a) certifications.                                             |
| 32.1    | Section                1350 certification.                                                          |
| (b)     | Reports                on Form 8-K                                                                  |
|    | None                                                                                                |
|    |                                                                                                |

----

**SIGNATURES**

| /s/                Asher E. Fogel                           |   |                                 |
|-------------------------------------------------------------|--------|--------------------------------------|
| Asher                E. Fogel                               |   | Dated:                March 13, 2006 |
| Chief                Executive Officer                      |   |                                 |
| (Principal                Executive Officer)                |   |                                 |
|                                                        |   |                                 |
|                                                        |   |                                 |
|                                                        |   |                                 |
|                                                        |   |                                 |
| /s/                Richard J. Augustine                     |   |                                 |
| Richard                J. Augustine                         |   | Dated:                March 13, 2006 |
| Chief                Accounting Officer                     |   |                                 |
| (Principal                Accounting and Financial Officer) |   |                                 |