SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

(MARK ONE)

[X]        QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
           ACT OF 1934

           For the quarterly period ended March 31, 2002

[ ]        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT

           FOR THE TRANSITION PERIOD FROM ______________ TO ______________

                             COMMISSION FILE NUMBER:
                                     0-10238

                            U.S. ENERGY SYSTEMS, INC.

          Delaware                                              52-1216347
 (State or Jurisdiction of                                   (I.R.S. Employer
Incorporation or Organization)                            Identification Number)

                           One North Lexington Avenue
                                  Fourth Floor
                             White Plains, NY 10601
                    (Address of Principal Executive Offices)

                                 (914) 993-6443
                (Issuer's Telephone Number, Including Area Code)

    Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
                                                  Yes  [X]          No  [  ]
    State the number of shares outstanding of each of issuer's classes of common
equity, as of May 11, 2002:


           Title of Class                              Number of Shares
           --------------                              ----------------
              Common                                      12,313,370

 Transitional Small Business Disclosure Format (check one):   Yes [  ]   No  [X]


================================================================================

                    U.S. ENERGY SYSTEMS, INC AND SUBSIDIARIES

<PAGE>

                                    CONTENTS


<TABLE>
<CAPTION>
<S>                                                                                             <C>
                                                                                               PAGE
PART I

Balance sheet as of March 31, 2002 and December 31, 2001.........................................3

Statements of operations for the three months ended March 31, 2002 and for the
three months ended March 31, 2001................................................................4

Statements of changes in stockholders' equity for the three months ended March 31, 2002..........5

Statements of cash flows for the three months ended March 31, 2002 and for the three months ended March 31,
2001.............................................................................................6

Notes to consolidated financial statements.......................................................................................7

PART II

Item 2 - Changes in Securities...................................................................12

Item 6 - Exhibits................................................................................12

</TABLE>


                    U.S. ENERGY SYSTEMS, INC AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
<S>                                                                                           <C>                  <C>

                                                                                              March 31, 2002      December 31, 2001
                                                                                               (unaudited)            (audited)
ASSETS                                                                                          ---------              -------
Current assets:
Cash    .................................................................................      $  4,848,000          $ 10,658,000
Restricted cash..........................................................................        17,930,000            14,757,000
Accounts receivable (less allowance for doubtful accounts $715,000 and $580,000, respectively)    7,911,000            10,597,000
Installment sale partnership interest and interest receivable.................................    2,967,000             3,064,000
Other current assets..........................................................................    2,189,000             2,610,000
                                                                                                 ----------            ----------
Total current assets..........................................................................   35,845,000            41,686,000

Property, plant and equipment, net............................................................   67,350,000            71,612,000
Construction in progress......................................................................    2,811,000             2,339,000
Installment Sale Partnership Interest, less current portion...................................   16,717,000            17,168,000
Notes receivable, less current portion........................................................   56,803,000                     -
Investments...................................................................................    9,218,000            10,026,000
Deferred costs, including debt issuance costs, net of accumulated amortization................    4,660,000             5,237,000
Goodwill, net.................................................................................   29,122,000            30,639,000
Deferred tax asset............................................................................   16,773,000            11,034,000
Other assets..................................................................................      915,000             1,768,000
                                                                                                -----------           -----------
Total assets.................................................................................. $240,214,000          $191,509,000
                                                                                                ===========           ===========
LIABILITIES
Current liabilities:
Current portion long-term debt................................................................ $  7,004,000          $  6,167,000
Notes payable - stockholder...................................................................    5,391,000             5,391,000
Accounts payable and accrued expenses.........................................................   15,998,000            12,705,000
Deferred revenue installment sale partnership interest, current portion.......................    1,039,000             1,048,000
                                                                                                 ----------            ----------
Total current liabilities.....................................................................   29,432,000            25,311,000
                                                                                                 ----------            ----------
Long-term debt - less current portion.........................................................   115,293,000           70,686,000
Notes payable - stockholder...................................................................     5,552,000            5,552,000
Deferred revenue installment sale partnership interest, less current portion..................     6,971,000            7,229,000
Rate incentive liability......................................................................    10,922,000            9,581,000
Advances from joint ventures..................................................................       102,000              102,000
                                                                                                  ----------          -----------
Total liabilities.............................................................................   168,272,000          118,461,000
                                                                                                 -----------          -----------
Minority interests............................................................................    20,239,000           15,090,000
                                                                                                 -----------          -----------
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......................         1,000               1,000
Series D, cumulative, convertible, issued and outstanding 1,138,888 shares....................        11,000              11,000
Common stock, $.01 par value, authorized 50,000,000 shares; issued 12,318,000.................       124,000             121,000
Treasury stock, 114,700 shares of common stock at cost........................................      (495,000)           (495,000)
Additional paid-in capital....................................................................    66,389,000          65,647,000
Accumulated deficit...........................................................................   (14,762,000)         (7,733,000)
Accumulated other comprehensive income........................................................       435,000             406,000
                                                                                                  ----------           ---------
Stockholders' Equity..........................................................................    51,703,000          57,958,000
                                                                                                  ----------          ----------
Total liabilities and Stockholder's Equity.................................................... $ 240,214,000        $191,509,000
                                                                                                 ===========         ===========
</TABLE>

                 See notes to consolidated financial statements

                                       3

<PAGE>


                    U.S. ENERGY SYSTEMS, INC AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
<S>                                                                                             <C>      <C>           <C>

                                                                                                          Three Months Ended
                                                                                                  March 31, 2002     March 31, 2001
                                                                                                   (Unaudited)         (Unaudited)
                                                                                                  --------------     --------------

Revenues.....................................................................................     $   9,880,000        $ 5,264,000
Costs and expenses:                                                                                  ----------          ---------
Operating expenses ..........................................................................         6,103,000          2,278,000
General and administrative expenses..........................................................         1,722,000          1,038,000
Operating, general and administrative - non-recurring........................................        10,234,000                  -
Depreciation and amortization................................................................         1,318,000            203,000
Loss (Gain) from joint ventures..............................................................           (15,000)            14,000
                                                                                                      ---------          ---------
Total costs and expenses.....................................................................        19,362,000          3,533,000
                                                                                                     ----------          ---------
INCOME (LOSS) FROM OPERATIONS................................................................        (9,482,000)         1,731,000

Interest income..............................................................................           395,000            261,000
Interest expense.............................................................................        (2,270,000)           (25,000)
Minority interest............................................................................            17,000                 __
                                                                                                      ---------          ---------
Income (Loss) before taxes...................................................................       (11,340,000)         1,967,000
Income tax benefit...........................................................................         5,065,000                __
                                                                                                     ----------          ---------
INCOME BEFORE CUMMULATIVE EFFECT OF ACCOUNTING CHANGES.......................................       ($6,275,000)        $1,967,000

Cummulative effect of accounting change on years prior to 2002
   (net of income tax of $546,000)...........................................................          (754,000)                 -
                                                                                                        -------           ---------
NET INCOME (LOSS)............................................................................       $(7,029,000)        $ 1,967,000

Dividends on preferred stock.................................................................          (205,000)           (236,000)
                                                                                                      ---------           ---------
INCOME (LOSS) APPLICABLE TO COMMON STOCK.....................................................       ($7,234,000)         $1,731,000
                                                                                                      =========          ==========
INCOME (LOSS) PER SHARE OF COMMON STOCK:
Income (loss) per share of common stock - basic..............................................        $    (0.59)         $     0.22
                                                                                                       ========          ==========
Income (loss)per share of common stock - diluted.............................................        $    (0.59)         $     0.12
                                                                                                       ========          ==========
Weighted average number of common stock outstanding - basic..................................         12,174,775          7,757,601
                                                                                                      ==========         ==========
Weighted average number of common stock outstanding - diluted................................         12,174,775         14,537,183
                                                                                                      ==========         ==========
OTHER COMPREHENSIVE (LOSS), NET OF TAX
Net  (Loss)..................................................................................       $ (7,029,000)
Foreign currency translation adjustment......................................................             29,000
                                                                                                       ---------
Total comprehensive (Loss)...................................................................        $(7,000,000)
                                                                                                       =========
                 See notes to consolidated financial statements

</TABLE>
                                       4

                    U.S. ENERGY SYSTEMS, INC AND SUBSIDIARIES
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
              FOR THE THREE MONTHS ENDED MARCH 31, 2002 (UNAUDITED)


<TABLE>
<CAPTION>
<S>                             <C>                      <C>                    <C>                     <C>
                                Preferred Stock         Preferred Stock         Preferred Stock
                                   Series B             Series C                Series D                Treasury Stock
                                ----------------        -----------------       -----------------       --------------
                                Number                  Number                  Number                  Number
                                  Of                    Of                      Of                      Of
                                Shares   Amount         Shares     Amount       Shares    Amount        Shares      Amount
                                -------- ------         --------   -------      --------  --------      -------     ------


BALANCE - DECEMBER 31, 2001      368          -         100,000    $1,000       1,138,888  $11,000      (114,700)   $(495,000)

Shares issued for exercised
options and warrants

Issuance of common stock

Comprehensive income
Net income for the three
months ended March 31, 2002

Dividends on Preferred Stock:

     Series B

     Series C

     Series D
                                -------- -------       --------  --------       ---------  ------       --------    --------

BALANCE - March 31, 2002         368      $   -         100,000    $1,000       1,138,888  $11,000      (114,700)   $(495,000)
                                ======== =======       ========  ========       =========  =======      ========    =========

                 See notes to consolidated financial statements

</TABLE>

                                       5

<PAGE>

                    U.S. ENERGY SYSTEMS, INC AND SUBSIDIARIES
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
              FOR THE THREE MONTHS ENDED MARCH 31, 2002 (UNAUDITED)


<TABLE>
<CAPTION>
<S>                               <C>                  <C>           <C>           <C>            <C>
                                  Common Stock         Additional    Accumulated
                                ------------------
                                Number                  Paid-in     Comprehensive  Accumulated
                                  Of
                                Shares       Amount      Capital        Income      Deficit          Total
                                --------    -------      --------    ------------- --------          -----


BALANCE - DECEMBER 31, 2001     12,065,000  $121,000   $65,647,000    $406,000    (7,733,000)     $ 57,958,000

Shares issued for exercised
options and warrants                85,000     1,000       180,000                                     181,000

Issuance of common stock           168,000     2,000       767,000                                     769,000

Comprehensive income                                             -      29,000                          29,000
Net income for the three
months ended March 31, 2002
                                                                                  (7,029,000)       (7,029,000)
Dividends on Preferred Stock:

     Series B                                               (9,000)                                     (9,000)

     Series C                                              (44,000)                                    (44,000)

     Series D                                             (152,000)                                   (152,000)
                                 ---------  --------       -------   ---------- ------------          ---------

BALANCE - March 31, 2002         12,318,00  $124,000    $66,389,000   $435,000  $(14,762,000)      $ 51,703,000
                                 =========  ========     =========   ========== =============        ==========
                 See notes to consolidated financial statements

</TABLE>

                                       5

<PAGE>

                    U.S. ENERGY SYSTEMS, INC AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
<S>                                                                                                     <C>             <C>
                                                                                                          Three Months Ended
                                                                                                         March 31,    March 31,
                                                                                                          2002          2001
                                                                                                        (Unaudited)  (Unaudited)
                                                                                                         ---------    ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income (Loss)............................................................................        $ (7,029,000) $ 1,967,000
   Adjustments to reconcile net income to net cash provided by (used in) operating activities:
   Depreciation and amortization................................................................           1,318,000      203,000
   Equity in loss of joint venture..............................................................                   -       14,000
   Write down effects of FASB No. 142...........................................................             754,000            -
   Recognition of development costs.............................................................           1,900,000            -
   Minority interest............................................................................           5,149,000            -
   Deferred Income Tax Benefit..................................................................          (5,611,000)           -
   Changes in:
   Accounts receivable and other................................................................           2,793,000     (171,000)
   Other current assets.........................................................................             421,000      322,000
   Other assets.................................................................................             853,000     (121,000)
   Accounts payable and accrued expenses........................................................           3,293,000      382,000
   Deferred revenue and other...................................................................            (758,000)           -
   Rate incentive liability.....................................................................           1,341,000            -
                                                                                                           ---------    ---------

   Net cash provided by operating activities....................................................           4,424,000    2,596,000
                                                                                                           ---------    ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Change in Investments........................................................................           1,487,000            -
   Acquisitions of property and equipment........................................................           (410,000)    (355,000)
   Change in property and equipment..............................................................          3,354,000            -
   Construction in progress......................................................................           (472,000)           -
   Deferred acquisition costs....................................................................                 -      (113,000)
                                                                                                            ---------     -------
         Net cash provided by investing activities                                                         3,959,000     (468,000)
                                                                                                            ---------     -------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Payment of partial redemption of convertible subordinated debentures..........................                  -      (16,000)
   Payment of long-term debt.....................................................................           (354,000)     (62,000)
   Proceeds from long-term debt..................................................................         45,613,000       30,000
   Payment of notes payable......................................................................                  -      (53,000)
   Proceeds from sale of common stock............................................................                  -      206,000
   Proceeds from note receivables................................................................            548,000            -
   Financing of energy projects...................................................................       (56,803,000)           -
   Proceeds from exercise of options and warrants.................................................           181,000            -
   Dividends on preferred stock...................................................................          (205,000)    (236,000)
                                                                                                          ----------     --------
   Net cash used for financing activities.........................................................       (11,020,000)    (131,000)
                                                                                                          ----------    ---------
NET INCREASE IN CASH..............................................................................        (2,637,000)   1,997,000
Cash - beginning of year..........................................................................        25,415,000    5,435,000
                                                                                                          ----------    ---------
CASH - END OF YEAR................................................................................      $ 22,778,000   $7,432,000
                                                                                                          ==========    =========
Supplemental disclosure of cash flow information:
   Cash paid for interest........................................................................        $ 2,270,000   $   24,000

SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING ACTIVITIES:
Issuance of Common Stock for investment in SEFL..................................................        $   769,000            -

</TABLE>
                                        6

<PAGE>
                    U.S. ENERGY SYSTEMS, INC AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
          FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND MARCH 31, 2001

NOTE A - BASIS OF PRESENTATION

U.S. Energy Systems, Inc. and subsidiaries (collectively the "Company") provides
customer-focused energy outsourcing services, including the management,
development, operation, and ownership of small-to-medium-sized energy facilities
typically located in close proximity to our customers. Our customers include
large retail energy consumers, such as industrial and commercial concerns, as
well as local wholesale energy suppliers, such as utilities and marketers. The
energy generation facilities in our portfolio utilize high efficiency combined
heat and power ("CHP") technology and/or clean renewable fuels, such as biogas,
biomass fuel and geothermal energy.

    The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with instructions to Form 10-QSB and, accordingly,
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal accruals) considered
necessary for a fair presentation have been included. The results for the three
months are not necessarily indicative of results for the full year.

NOTE B - NET INCOME (LOSS) PER SHARE

         Net Income (Loss) per share has been computed on the basis of the
weighted average number of shares outstanding during the periods. In case of
(Loss), common stock equivalents have not been included in the computation since
their inclusion would be anti-dilutive.

NOTE C - INCOME TAXES

         The three-month financial statement reflects an increase in the
deferred tax asset due to the operating and general and administrative non-
recurring expense recognized in this quarter.

NOTE D - ADDITIONAL CAPITAL

         For the three months ended March 31, 2002 stock options of 85,127 were
exercised, resulting in the receipt of a total of $181,000 in cash.

NOTE E - INVESTMENTS
     Scandinavian Energy Finance, Limited / EnergiSystem Sverige. In March,
2002, together with EIC Electricity SA ("EIC"), a Swiss investment company
specializing in energy investments, we formed a joint venture, Scandinavian
Energy Finance, Limited ("SEFL") and financed a new Swedish energy group,
EnergiSystem Sverige AB (EnergiSystem). SEFL has a 25 year option to acquire 90%
of the fully diluted equity of EnergiSystem for a nominal sum. As part of the
transaction, EnergiSystem acquired seven operating district energy systems and
several late-stage development projects. Currently, the operations provide
biomass-fueled energy to 800 customers serving the equivalent of approximately
30,000 households in ten communities in the vicinity of Stockholm, Sweden. A
significant portion of the energy is provided under long-term contracts. The
energy market in Sweden is deregulated, and district energy markets are not
subject to government rate regulation.

     SEFL provided approximately $56 million to EnergiSystem in the form of
financing. Approximately $45 million of this amount was made in the form of a
senior secured convertible debenture to EnergiSystem and approximately $11
million was in the form of a subordinated loan to EnergiSystem. The senior
secured convertible debenture carries an interest rate of approximately 6%
during the first 2 years and 9% thereafter. The subordinated loan carries an
interest rate of approximately 13%.

     USE Canada Energy Corp (USE Canada) has a service agreement with an
approximate annual value of $400,000 with EnergiSystem under which it will
provide consulting services relating to EnergiSystem operations, technology,
development and growth.

     We hold 51% of the voting interests of SEFL and EIC holds 49% of the voting
interests. We invested approximately $5 million in cash and 167,976 of our
common shares, valued at approximately $769,000 in SEFL, and EIC invested its
proportionate share in cash. Each partner is required to fund an additional $1
million within two years.

     A Swedish bank provided SEFL with approximately $45 million of long term
financing on a non-recourse basis to SEFL's stockholders. The financing carries
a variable interest rate of the Stockholm Inter-Bank Offered Rate (STIBOR) plus
30 basis points per annum, capped at 4.7% for the first 5 years and a rate of
STIBOR plus 110 basis points per annum thereafter. The loan has a 25 year term
with no amortization during the first ten years.

                                       7
<PAGE>

                    U.S. ENERGY SYSTEMS, INC AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
          FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND MARCH 31, 2001

NOTE F - CHANGE IN ACCOUNTING PRINCIPLE

The Company recorded a change in accounting principle due to the write-off of
the remaining balance of Goodwill for USE Energy Environmental Corp. as required
in Financial Accounting Standard Board Statement No. 142 Goodwill and Other
Intangible Assets. This write-down is shown net of taxes in the statement of
operations for the three month period ended March 31, 2002.

                                       8

<PAGE>

ITEM II      MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The following discusses U. S. Energy Systems, Inc.'s operating results and
financial condition

RESULTS OF OPERATIONS

    The Company announced, in its form 10-KSB for the period ended 12/31/01,
that it will undertake an evaluation of certain business units in connection
with its transition to a provider of energy outsourcing services. The evaluation
focused on the Company's geothermal businesses, environmental consulting
operations, certain joint venture initiatives and corporate development
strategies. As a result, the Company has implemented a plan to redirect certain
of its operating units and portions of recently acquired operations that were
either unprofitable or unrelated to the Company's core business functions and,
thus, inconsistent with its business goal to provide long-term energy services
to large energy consumers in its target markets that generate stable earnings to
shareholders. As part of this effort, the Company also has abandoned plans for
several developmental projects. The redirection of these business units and
assets will be completed in an orderly manner and will aim to maximize value for
shareholders. This rationalization process will likely be accomplished through
the sale, divestiture or discontinuation of the relevant business unit, asset or
activity. The Company believes it is a prudent step at this juncture to adjust
valuations and take charges on business units and assets unrelated to its core
focus.

    Revenues for the three month periods were as follows:

                                                      Three Months Ended
                                              March 31, 2002    March 31, 2001
                                              --------------    --------------
       Operations Group..................      $ 9,880,000        $ 5,264,000
       Corporate Group...................              --                --
                                                 ---------          ---------
                                               $ 9,880,000        $ 5,264,000
                                                 =========          =========


    Total revenues increased by $4,616,000 or 88% in the three months ended
March 31,2002 ("First Quarter 2002") as compared to the three months ended March
31, 2001 ( "First Quarter 2001") mainly due to the acquisition of U.S. Energy
Biogas Corp. (USE Biogas) and USE Canada in the second quarter of 2001. USE
Biogas is included in our results for all periods since May 1, 2001. USE Canada
is included since its acquisition on June 11, 2001. In addition, SEFL revenues
are included for the 19 day period since March 12, 2002. The Core Operations
(USE Biogas, USE Canada and SEFL) contributed $8,291,000, or 84% to the First
Quarter 2002 revenue total.

                                       9
<PAGE>

              Operating expense for the three month periods were as followed:

                                                    Three Months Ended
                                          March 31, 2002         March 31, 2001
                                          --------------         --------------
              Operations Group.........    $ 6,103,000            $ 2,278,000
              Corporate Group..........            --                     --
                                             ---------              ---------
                                           $ 6,103,000            $ 2,278,000
                                             =========              =========

     Recurring operating expenses increased by 168%, or $3,825,000 to $6,103,000
in First Quarter 2002 compared to First Quarter 2001 due to the acquisition of
the Biogas and Canadian businesses in the second quarter of 2001. Biogas is
included in our results for all periods since May 1, 2001. USE Canada is
included since its acquisition on June 11, 2001.

      Of the total First Quarter 2002 operations group expense, $4,827,000, or
79% was incurred by the Core Operations.

        The Company has recorded $10,234,000 of operating, general and
administrative non-recurring expenses. On the operating expense side, these
non-recurring expenses result from the adjustment of tangible assets held at
subsidiaries such as fixed assets and investments as well as the recognition of
deferred projects and acquisition costs. Accruals for potential costs related to
the potential sale, divestiture or discontinuation of certain business units
were made in the first quarter as part of both operating and general and
administrative expense.

    Additionally,  the Company  recognized a change in accounting  principle of
$754,000 (net of income tax benefit of $546,000) to reflect the  application of
FASB No. 142 against the recorded goodwill of U.S. Energy Environmental Corp.


    The components of general and administrative expenses for the three month
periods are as follows:
                                                      Three Months Ended
                                               March 31, 2002     March 31, 2001
                                               --------------     --------------
       Salaries and consulting.............    $   759,000        $   387,000
       Legal and professional..............        207,000            187,000
       Insurance...........................        375,000             91,000
       Corporate expenses..................         25,000             95,000
       Other...............................        356,000            278,000
                                                 ---------          ---------
                 Total                          $1,722,000         $1,038,000
                                                 =========          =========

     General & administrative expenses increased by $684,000 or 66% in First
Quarter 2002 over First Quarter 2001 due to general and administrative costs
added in association with the operations of the newly acquired businesses.

    General and administration expenses related to the Core Operations totaled
$833,000 for the first quarter.

     Depreciation and amortization expense increased to $1,318,000 in the First
Quarter 2002 compared to $203,000 in the First Quarter 2001, mainly due to
increased investment in depreciable assets.

        Net Income for Core Operations was $257,000 before non-recurring charges
in the First Quarter 2002.

    The increase in interest income of $134,000 in First Quarter 2002 over First
Quarter 2001 is primarily due to higher interest earnings on increased average
cash balances during the quarter. Interest expense increased to $2,270,000 in
2002 compared to $25,000 in 2001 due to debt associated with the three
acquisitions previously described.

    Dividends paid on Preferred stock in First Quarter 2002 totaled $205,000,
compared to $236,000 in First Quarter 2001.

                                      10

<PAGE>

                    LIQUIDITY AND CAPITAL RESOURCES

     At March 31, 2002, cash and equivalents totaled approximately $22,778,000,
of which $4,848,000 was unrestricted, as compared to $10,658,000 of unrestricted
cash at December 31, 2001. In connection with notes payable by certain  USE
Biogas subsidiaries, the lender required these subsidiaries to maintain various
restricted cash accounts, which, at March 31, 2002, amounted to $17,930,000.
This amount also includes approximately $1.6 million of funds the Company set
aside to ensure the payment of dividends on certain series of our preferred
stock. These funds were set apart in conjunction with the approval of our plan
of recapitalization.

     During the three months ended March 31, 2002, cash flow of $4,424,000 from
operating activities and $3,959,000 from investing activities was used to
partially fund the $11,020,000 of financing activities, and caused a $2,637,000
decrease in cash. The financing of the transactions related to SEFL resulted in
notes receivable of approximately $56,000,000 were was partially funded by
proceeds of $45,613,000 from long term debt.

     Cash flow from operating activities during the three months ended March 31,
2002 was $4,424,000 as compared to $2,596,000 at March 31, 2001.

     Our consolidated working capital (including $17,930,000 of restricted cash)
was $6,413,000 at March 31, 2002 compared to $16,375,000 at December 31, 2001.

    We believe our cash position and projected cash flow from operations are
sufficient to satisfy our commitments for the next twelve months.


CAUTIONARY STATEMENT RELATING TO FORWARD LOOKING STATEMENTS

    This Form 10-QSB contains certain "forward looking statements" which
represent our expectations or beliefs, including, but not limited to, statements
concerning industry performance and our operations, performance, financial
condition, growth and strategies. For this purpose, any statements contained in
this Form 10-QSB that are not statements of historical fact may be deemed to be
forward looking statements. Without limiting the generality of the foregoing,
words such as "may," "will," "expect," "believe," "anticipate," "intend,"
"could," "estimate" or "continue" or the negative or other variations thereof or
comparable terminology are intended to identify certain forward-looking
statements. These statements by their nature involve substantial risks and
uncertainties, certain of which are beyond our control, and actual results may
differ materially depending on a variety of important factors which are noted
herein, including but not limited to the potential impact of competition,
changes in local or regional economic conditions, our ability to continue our
growth strategy, dependence on management and key personnel, supervision and
regulation issues and the ability to find financing on terms suitable to us.
Additional factors which may impact our business, prospects, operating results
and financial condition are described under the caption "Risk Factors" in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 2001 and
the Company's Registration Statement on Form S-3 filed on April 30, 2002 and
declared effective on May 7, 2002 (SEC File No. 333-87264).

                                       11
<PAGE>

PART II

Item  2 - Changes in Securities

        On or about March 11, 2002 the Company issued 167,976 shares of common
stock as part of its investment in SEFL.  The shares were issued, without
registration, pursuant to exemption provided by Regulation S. section 4(2) of
the Securities Act of 1933, as amended.

ITEM 6 - Exhibits

a.  Exhibits.


Exhibit
Number        Description
-------       -----------
<TABLE>
<CAPTION>
<S>                                                                             <C>

2.1           Merger Agreement by and between the Company,  USENVIRO Merger Corp.,  American  Enviro-Services,  Inc.,
              and the Shareholders of American Enviro-Services, Dated as of August 4, 1997(4)

2.2           Subscription  Agreement  dated as of  August  23,  2000,  by and among  U.S.  Energy  System  Castlebridge,
              LLC  ("USE  Sub"), Kemper-Castlebridge, Inc., ("KC"), GKM II Corporation ("GKM") and Castlebridge Partners,
              LLC ("Castlebridge") (9)

2.3           Agreement and Plan of  Reorganization  and Merger dated as of November 28, 2000, by and among U.S.
              Energy  Systems,  Inc. ("US Energy"),  USE  Acquisition  Corp.  ("US Energy Sub"),  and Zahren  Alternative
              Power Corp.  ("Zapco")  (without  schedules or exhibits) (the "Merger Agreement").  (11)

2.4           Amendment No 1 dated December 11, 2000 to the Merger Agreement (11)

2.5           Amendment No. 2 dated December 19, 2000 to the Merger Agreement

2.6           Amendment No. 3 dated January 19, 2000 to the Merger Agreement

2.7           Amendment No. 4 dated February 23, 2000 to the Merger Agreement

3.1           Restated Certificate of Incorporation of the Company filed with the Secretary of State of Delaware(1)

3.2           By-Laws of the Company(2)

3.3           Articles of Organization of Steamboat Envirosystems, L.C.(1)

3.4           Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Company (10)

3.5           Certificate of Increase of Series A Convertible Preferred Stock of the Company (10)

3.6           Amended and Restated By-Laws of US Energy (11)

3.7           Form of Certificate of Designation for US Energy's Series C Preferred Stock

3.8           Form of Certificate of Designation for US Energy's Series D Preferred Stock

3.9           Certificate of Correction to Certificate of Designation of Series A Preferred Stock

3.10          Certificate of Correction to Certificate of Designation of Series B Preferred Stock

4.1           Specimen Stock Certificate(1)

4.2           Form of Warrant(1)

4.3           Form of Warrant Agreement(1)

4.4           Form of Representative's Purchase Option(1)

4.5           Certificate  of  Designation  of Series A  Convertible  Preferred  Stock of the Company as filed
              with the Secretary of State of Delaware on March 23, 1998(7)

4.6           Certificate of Designation of Series B Convertible  Preferred  Stock of the Company as filed with
              the Secretary of the State of Delaware(14)

4.7           Amended and Restated Plan of  Recapitalization  dated as of July 31, 2000 by and between the Company
              and the parties identified therein.

4.8           Form of Series B Warrant to Purchase Shares of Common Stock(10)

</TABLE>

                                       12

<PAGE>

<TABLE>
<CAPTION>
<S>                                                                             <C>

4.9           Form of Series C Redeemable Common Stock Purchase Warrant of US Energy (11)

10.1          Plan of Reorganization of Cogenic Energy Systems, Inc.(2)

10.2          8% Convertible Subordinated Debenture due 2004(2)

10.5          Purchase Agreement, dated as of January 24, 1994, between Lehi Co-Gen Associates, L.C. and
              Lehi Envirosystems, Inc.(2)

10.6          Operating Agreement among Far West Capital, Inc., Suma Corporation and Lehi Envirosystems, Inc.
              dated January 24, 1994(2)

10.7          Form of Purchase and Sale Agreement between Far West Capital,  Inc., Far West Electric Energy Fund,
              L.P., 1-A Enterprises,  the Company and Steamboat LLC(1)

10.8          Form of Operation and Maintenance Agreement between Steamboat LLC and S.B. Geo, Inc.(1)

10.9          Letter Agreement,  dated as of November 8, 1994,  between the Company,  PSC Cogeneration
              Limited  Partnership,  Central Hudson Cogeneration, Inc. and Independent Energy Finance Corporation(1)

10.10         Agreement among the Company, Plymouth Envirosystems,  Inc., IEC Plymouth, Inc. and Independent
              Energy Finance Corporation dated November 16, 1994(1)

10.11         Amended and Restated  Agreement of Limited  Partnership of Plymouth  Cogeneration  Limited  Partnership
              among PSC Cogeneration Limited Partnership, Central Hudson Cogeneration, Inc. and Plymouth Envirosystems,
              Inc. dated November 1, 1994(1)

10.12         Amended and Restated  Agreement of Limited  Partnership  of PSC  Cogeneration  Limited  Partnership
              among IEC Plymouth,  Inc., Independent Energy Finance Corporation and Plymouth Envirosystems, Inc. dated
              December 28, 1994(1)

10.13         Purchase and Sale  Agreement,  dated as of December 31, 1995,  between the Company,  Far West Capital,
              Inc., Far West Electric Energy Fund, L.P., 1-A Enterprises and Steamboat Enviro systems, LLC(1)

10.13(a)      Letter Agreement, dated September 25, 1996, between the Company and Far West Capital, Inc.(1)

10.16         Security Agreement and Financing  Statement among the Company,  Lehi  Envirosystems,  Inc.,
              Plymouth  Envirosystems,  Inc. and Anchor Capital Company, LLC dated June 14, 1995, as amended(1)

10.20         Lease dated September 1, 1995 between the Company and Gaedeke Holdings, Ltd.(1)

10.21         Documents related to Private Placement(1)

10.21(a)      Certificate of Designations(1)

10.22         Purchase  Agreement  between the Company and  Westinghouse  Electric  Corporation  dated as of
              November 6, 1995 and  amendments thereof(1)

10.25(a)      Long-Term  Agreement for the Purchase and Sale of Electricity  Between Sierra Pacific Power
              Company and Far West Capital,  Inc. dated October 29, 1988(1)

10.25(b)      Assignment of Interest, dated December 10, 1988 by and between Far West Capital, Inc. and 1-A Enterprises(1)

10.25(c)      Letter dated August 18, 1989 by Gerald W.  Canning,  Vice  President of Electric  Resources,
              consenting  to the  Assignment of Interest on behalf of Sierra Pacific Power Company(1)

10.26(a)      Agreement for the Purchase and Sale of Electricity,  dated as of November 18, 1983 between
              Geothermal  Development  Associates and Sierra Pacific Power Company(1)

10.26(b)      Amendment to Agreement for Purchase and Sale of Electricity,  dated March 6, 1987, by and between
              Far West Hydroelectric  Fund, Ltd. and Sierra Pacific Power Company(1)

10.27         Loan and Option Agreement dated August,  1996 by and among NRG Company,  LLC and Reno Energy,  LLC and
              ART, LLC and FWC Energy, LLC, and amendments thereto(1)

</TABLE>
                                       13

<TABLE>
<CAPTION>
<S>                                                                             <C>

10.28         Promissory Note dated August 9, 1996 for $300,000 from Reno Energy, LLC to NRG Company, LLC(1)

10.29         Letter of Intent dated July 15, 1996 on behalf of Reno Energy, LLC(1)

10.30         Limited Liability Company Operating Agreement of NRG Company, LLC dated as of September 8, 1996,
              and amendments thereto(1)

10.31         Form of Limited Liability Company Operating Agreement of Steamboat, Envirosystems, L.C. dated as of
              October, 1996(1)

10.32         Form of Debenture Conversion Agreement(1)

10.33(a)      First Amended and Restated Loan and Option  Agreement,  dated April 9, 1997, by and between USE
              Geothermal LLC, and Reno Energy LLC, ART, LLC and FWC Energy, LLC(3)

10.33(b)      Note in the amount of $1,200,000, dated as of April 9, 1997, made by Reno Energy LLC in favor
              of USE Geothermal LLC(3)

10.33(c)      Security Agreement, dated as of April 9, 1997, made by Reno Energy LLC in favor of USE Geothermal LLC(3)

10.33(d)      Form of Security  Agreement and Collateral  Assignment,  entered into by and between USE Geothermal
              LLC and both FWC Energy LLC and ART LLC(3)

10.33(e)      Guaranty Agreement, dated as of April 9, 1997, made by FWC Energy LLC and ART LLC in favor of USE
              Geothermal LLC(3)

10.34         1996 Stock Option Plan(5)

10.35         Form of 9% Convertible Subordinated Secured Debenture due 2004(6)

10.36         Form of Employment Agreement by and between the Company and Howard Nevins(4)

10.37         Subscription Agreement, dated March 20, 1998, between the Company and Energy Systems Investors, LLC(7)

10.38         Registration Rights Agreement, dated March 20, 1998, between the Company and Energy Systems Investors, LLC(7)

10.39         Amended and Restated Stock Option  Agreement  between the Company and Lawrence I. Schneider  dated May 10,
              2000 with respect to 750,000 shares of the Company Common Stock (10)

10.40         Amended and Restated Stock Option Agreement  between the Company and Goran Mornhed dated May 10, 2000
              with respect to 1,000,000 shares of the Company Common Stock (10)

10.41         Pledge Agreement dated as of July 31, 2000 by and between the Company and Energy Systems Investors, L.L.C. (10)

10.42         Limited Recourse Promissory Note dated July 31, 2000 issued by Energy Systems Investors, L.L.C.
              in favor of the Company (10)

10.43         Stockholders'  and Voting Agreement dated as of November 28, 2000 by and among AJG Financial
              Services,  Inc.,  Bernard Zahren, Environmental Opportunities Fund, Environmental Opportunities
              Fund/Cayman,  Finova Mezzanine Capital Corp., Frederic Rose, M & R Associates,  Martin F.
              Laughlin,  Michael J. Carolyn and Richard J. Augustine  (collectively,  the "Zapco Stockholders"),  US
              Energy, Cinergy Solutions, Inc. ("Cinergy Solutions") and certain stockholders of US Energy.  (11)

10.44         Termination  Fee  Agreement  dated as of November 28, 2000 by and among US Energy,  Zapco and Cinergy
              Energy  Solutions,  Inc. ("Cinergy Energy").  (11)

10.45         Indemnification  Agreement dated as of November 28, 2000 by and among the Zapco Stockholders,  Zapco,
              US Energy, US Energy Sub and Cinergy Energy.  (11)

10.46         Escrow Agreement dated November 28, 2000 by and among the Zapco  Stockholders,  Zapco, US Energy,
              US Energy Sub, Cinergy Energy and Tannenbaum Helpern Syracuse & Hirschtritt LLP as Escrow Agent.  (11)

10.47         Registration Rights Agreement dated November 28, 2000 by and among US Energy and the Zapco Stockholders.  (11)

10.48         Employment Agreement dated November 28, 2000 by and between US Energy and Bernard Zahren.  (11)

</TABLE>
                                       14

<PAGE>

<TABLE>
<CAPTION>
<S>                                                                             <C>

10.49         Form of Stock Option Agreement to be entered into by and between US Energy and Bernard Zahren.  (11)

10.50         Performance Guaranty dated as November 28, 2000 of US Energy.(11)

10.51         Performance Guaranty of Cinergy Solutions Holding Company, Inc. dated as of November 28, 2000.  (11)

10.52         Subscription Agreement dated as of November 28, 2000 by and among US Energy, US Energy
              Sub and Cinergy Energy.  (11)

10.53         Stockholders Agreement dated as of November 28, 2000 by and among US Energy, US Energy Sub
              and Cinergy Energy.  (11)

10.54         Indemnification Agreement dated as of November 28, 2000 by and among US Energy, US Energy
              Sub and Cinergy Energy. (11)

10.55         Employment Agreement dated as of May 10, 2000 by and between the Company and Lawrence Schneider(13)

10.56         Employment Agreement dated as of May 10, 2000 by and between the Company and Goran Mornhed(13)

10.57         2000 Executive Incentive Compensation Plan(13)

10.58         2000 Executive Bonus Plan(13)

10.59         Stock Option Agreement between the Company and Lawrence Schneider with respect to 1,000,000
              shares of Common Stock(13)

10.60         Stock Option Agreement between the Company and Goran Mornhed with respect to 187,500
              shares of Common Stock.(13)

10.61         Stock Option Agreement between the Company and Goran Mornhed with respect to 562,500 shares of
              Common Stock(13)

99.2          Second Amended and Restated  Operating  Agreement dated as of August 23, 2000 by and between
              USE Sub, KC, GKM and Castlebridge. (12)
----------
(1)   Incorporated by reference to the Company's Registration Statement on Form SB-2 (File No. 333-94612).

(2)   Incorporated by reference to the Company's Annual Report on Form 10-KSB for the year ended January 31, 1994.

(3)   Incorporated by reference to the Company's Current Report on Form 8-K filed on April 24, 1997.

(4)   Incorporated by reference to the Company's Current Report on Form 8-K dated August 12, 1997.

(5)   Incorporated by reference to the Company's Annual Report on Form 10-KSB for the year ended January 31, 1997.

(6)   Incorporated by reference to the Company's Current Report on Form 8-K dated August 18, 1997.

(7)   Incorporated by reference to the Company's Current Report on Form 8-K filed on March 26, 1998.

(8)   Incorporated by reference to the Company's Annual Report on Form 10-KSB for the year ended January 31, 1998.

(9)   Incorporated by reference to the Company's Current Report on Form 8-K/A filed on September 5, 2000.

(10) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB for the quarter ended July 31, 2000.

(11) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB for the quarter ended October 31, 2000.

(12) Incorporated by reference to the Company's Registration Statement on Form S-3 filed on February 20, 2001.

(13) Incorporated by reference to the Company's Current Report on Form 8-K dated May 4, 2000.

(14) Incorporated by reference to the Company's Annual Report on Form 10-KSB for the year ended January 31, 1999.

</TABLE>
                                       15


<PAGE>

                   U.S. ENERGY SYSTEMS, INC AND SUBSIDIARIES

SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act, the Issuer has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

Dated: May 15, 2002



/s/ LAWRENCE I. SCHNEIDER
    ---------------------
    Lawrence I. Schneider
    Chairman of the Board
    (Principal Executive Officer)


/s/ ROBERT C. BENSON
    --------------------
    Robert C. Benson
    Chief Financial Officer
    (Principal Financial and Accounting Officer)


                                       16

<PAGE>