<PAGE>   1

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


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   ----------

                                   FORM 10-QSB

(MARK ONE)

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

                 FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1998

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

      TRANSACTIONS PERIOD FROM __________ TO __________


                             COMMISSION FILE NUMBER:
                                     0-10238

                            U.S. ENERGY SYSTEMS, INC.



                DELAWARE                                   52-1216347
       (STATE OR JURISDICTION OF                       (I.R.S. EMPLOYER
     INCORPORATION OR ORGANIZATION)                  IDENTIFICATION NUMBER)


                              515 N. FLAGLER DRIVE
                                    SUITE 702
                            WEST PALM BEACH, FL 33401
                    (Address of Principal Executive Offices)

                                 (561) 820-9779
                (Issuer's Telephone Number, Including Area Code)


                                       N/A
              (Former Name, Former Address and Former Fiscal Year,
                         if Changed Since Last Report)

     Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.

                                 Yes [X] No [ ]


     Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after distribution of
securities under a plan confirmed by a court.

                                 Yes [X] No [ ]


     State the number of shares outstanding of each of issuer's classes of
common equity, as of October 31, 1998:

              Title of Class              Number of Shares
              --------------              ----------------
                  Common                     5,160,605


           Transitional Small Business Disclosure Format (check One):

                                 Yes [ ] No [X]



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

<PAGE>   2
                PART I - FINANCIAL INFORMATION


Item 1 - Financial Statements



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

<TABLE>
<CAPTION>
                                                                                  October 31, 1998   January 31, 1998
                                                                                    (Unaudited)
                                                                                  ----------------   ----------------
<S>                                                                                 <C>                <C>         
                                     ASSETS
Current assets:
     Cash ....................................................................      $  1,088,000       $    319,000
     Accounts receivable (less allowance for doubtful accounts $11,000) ......           693,000            757,000
     Notes receivable - current portion ......................................           127,000            105,000
     Other current assets ....................................................           222,000            276,000
                                                                                    ------------       ------------
         Total current assets ................................................         2,130,000          1,457,000

Property, plant and equipment, net ...........................................         5,866,000          5,780,000
Notes receivable, less current portion .......................................         1,877,000          1,799,000
Investments in joint ventures:
         Lehi Independent Power Associates, L.C ..............................           956,000            984,000
         Plymouth Cogeneration Limited Partnership ...........................           525,000            549,000
Goodwill, net ................................................................         1,974,000          2,053,000
Other assets .................................................................           882,000            407,000
                                                                                    ------------       ------------
         Total ...............................................................      $ 14,210,000       $ 13,029,000
                                                                                    ============       ============

                                   LIABILITIES

Current liabilities:
     Current portion of long-term debt .......................................      $     97,000       $     85,000
     Notes payable - bank ....................................................           231,000            200,000
     Accounts payable ........................................................           382,000            460,000
     Accrued expenses ........................................................           390,000            470,000
     Royalties payable .......................................................            54,000            428,000
                                                                                    ------------       ------------
         Total current liabilities ...........................................         1,154,000          1,643,000

Long-term debt, less current portion .........................................           383,000            397,000
Convertible subordinated secured debentures (including due to related
     parties of $80,000) .....................................................           875,000            875,000
Advances from joint ventures .................................................            41,000             41,000
                                                                                    ------------       ------------
         Total liabilities ...................................................         2,453,000          2,956,000
                                                                                    ------------       ------------
Minority interests ...........................................................           504,000            504,000
                                                                                    ------------       ------------

Commitments and contingencies

                              STOCKHOLDERS' EQUITY

Preferred stock, $.01 par value, authorized 10,000,000 shares; issued and
     outstanding, 250,000 ....................................................             3,000                 --
Common stock, $.01 par value, authorized 50,000,000 shares; issued and
     outstanding, 5,160,605 ..................................................            51,000             51,000
Additional paid-in capital ...................................................        17,641,000         15,454,000
Accumulated deficit ..........................................................        (6,442,000)        (5,936,000)
                                                                                    ------------       ------------
         Total stockholders' equity ..........................................        11,253,000          9,569,000
                                                                                    ------------       ------------
         Total ...............................................................      $ 14,210,000       $ 13,029,000
                                                                                    ============       ============


</TABLE>

                        See notes to financial statements


                                      A-2


<PAGE>   3



                    U.S ENERGY SYSTEMS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)



<TABLE>
<CAPTION>
                                                                    Three months Ended                      Nine months Ended
                                                                         October 31,                          October 31,
                                                               -----------------------------       -----------------------------
                                                                   1998              1997              1998               1997
                                                               -----------       -----------       -----------       -----------

<S>                                                            <C>               <C>               <C>               <C>        
Revenues ....................................................  $ 1,117,000       $   795,000       $ 3,020,000       $ 1,537,000
                                                               ===========       ===========       ===========       ===========

Cost and expenses:
     Operating expenses (Note A) ............................      595,000           344,000         1,672,000           683,000
     Administrative expenses ................................      481,000           434,000         1,484,000         1,119,000
     Litigation costs .......................................           --           105,000            47,000           252,000
     Depreciation and amortization ..........................       89,000            70,000           264,000           144,000
     Loss from joint ventures ...............................       18,000            34,000            57,000            94,000
                                                               -----------       -----------       -----------       -----------
                                                                 1,183,000           987,000         3,524,000         2,292,000
                                                               -----------       -----------       -----------       -----------
(Loss) before interest income (expense) .....................      (66,000)         (192,000)         (504,000)         (755,000)
Interest income .............................................       78,000            29,000           226,000           118,000
Interest expense ............................................      (29,000)          (35,000)         (105,000)          (93,000)
                                                               -----------       -----------       -----------       -----------
Net (loss) before extraordinary item ........................      (17,000)         (198,000)         (383,000)         (730,000)

Extraordinary gain from restructuring of liabilities ........           --                --                --            36,000
                                                               -----------       -----------       -----------       -----------

Net (loss) ..................................................      (17,000)         (198,000)         (383,000)         (694,000)

Dividends on preferred stock ................................      (51,000)               --          (123,000)               --
                                                               -----------       -----------       -----------       -----------

Net (loss) applicable to common stock .......................  $   (68,000)      $  (198,000)      $  (506,000)      $  (694,000)
                                                               ===========       ===========       ===========       ===========

Net (loss) per common share, basic and diluted ..............  $     (0.01)      $     (0.04)      $     (0.10)      $     (0.15)
                                                               ===========       ===========       ===========       ===========

Weighted average shares outstanding, basic
     and diluted ............................................    5,160,605         4,885,628         5,160,605         4,520,022
                                                               ===========       ===========       ===========       ===========



Note A: Certain depreciation expenses are 
     included in operating expenses:                           $    41,000       $        --       $   107,000       $        --

</TABLE>


                        See notes to financial statements




                                       A-3


<PAGE>   4


                      U.S. ENERGY SYSTEMS AND SUBSIDIARIES
                  CONSOLIDATED STATEMENT OF CHANGES IN CAPITAL
                       Nine Months Ended October 31, 1998
                                  (Unaudited)
                                        


<TABLE>
<CAPTION>
                                              Preferred Stock                        Common Stock
                                         ---------------------------        --------------------------
                                                                                                           
                                           Number                              Number                     
                                         of Shares          Amount           of Shares         Amount      
                                         ---------       -----------         ---------      -----------    
<S>                                      <S>              <C>                <C>            <C>            
Balance, January 31, 1998                       --                --         5,160,609      $    51,000    

Net proceeds from sale of                  
     preferred stock                       250,000       $     3,000         

Cash paid for fractional shares                                                     (4) 

Net (Loss) for the nine months
     ended October 31, 1998                               

                                           -------       -----------         ---------      -----------    
Balance, October 31, 1998                  250,000       $     3,000         5,160,605      $    51,000    
                                           =======       ===========         =========      ===========    


</TABLE>


<TABLE>
<CAPTION>
                                         
                                         
                                          Additional
                                            Paid-in        Accumulated
                                            Capital          Deficit             Total
                                          -----------      -----------       -----------
<S>                                       <C>              <C>               <C>        
Balance, January 31, 1998                 $15,454,000      $(5,936,000)      $ 9,569,000

Net proceeds from sale of                
     preferred stock                        2,187,000                          2,190,000

Cash paid for fractional shares          

Net (Loss) for the nine months
     ended October 31, 1998                                   (506,000)         (506,000)
                                          -----------      -----------       -----------
Balance, October 31, 1998                 $17,641,000      $(6,442,000)      $11,253,000
                                          ===========      ===========       ===========


</TABLE>



                        See notes to financial statements.



                                      A-4


<PAGE>   5
                   U.S. ENERGY SYSTEMS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                   Nine Months Ended October 31, 1998 and 1997
                                   (Unaudited)



 
<TABLE>
<CAPTION>
                                                                                               1998               1997
                                                                                           -----------       -----------
<S>                                                                                        <C>               <C>         
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss ........................................................................      $  (383,000)      $  (694,000)
    Adjustments to reconcile net loss to net cash used in operating activities:
       Depreciation and amortization ................................................          371,000           144,000
       Equity in loss of joint ventures .............................................           52,000           111,000
       Gain from restructuring of liabilities .......................................               --           (36,000)
       Changes in:
          Accounts receivable .......................................................           64,000           (49,000)
          Other current assets ......................................................           54,000            67,000
          Other assets ..............................................................         (475,000)          (58,000)
          Accounts payable and accrued expenses .....................................         (158,000)         (235,000)
          Royalties payable .........................................................         (374,000)           19,000
          Accrued interest on pre-reorganization taxes payable ......................               --           (67,000)
                                                                                           -----------       -----------
       Net cash used in operating activities ........................................         (849,000)         (798,000)
                                                                                           -----------       -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Acquisition of business .........................................................          (27,000)         (362,000)
    Notes Receivable ................................................................          (10,000)            8,000
    Loans to Reno Energy, LLC .......................................................         (164,000)       (1,408,000)
    Repayments of loan by Reno Energy, LLC ..........................................           74,000            68,000
    Acquisition of equipment and leasehold improvements .............................         (351,000)         (245,000)
                                                                                           -----------       -----------
       Net cash used in investing activities ........................................         (478,000)       (1,939,000)
                                                                                           -----------       -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from sale of preferred stock ...........................................        2,190,000                --
    Payment of dividends on preferred stock .........................................         (123,000)               --
    Proceeds from notes payable .....................................................           31,000            87,000
    Payment of convertible subordinated secured debentures ..........................               --          (150,000)
    Payment of pre-organization taxes payable .......................................               --          (311,000)
    Payment of long-term debt .......................................................           (2,000)         (140,000)
    Minority equity investment in subsidiary ........................................               --           120,000
    Advances from joint ventures ....................................................               --            10,000
                                                                                           -----------       -----------
       Net cash provided by (used in) financing activities ..........................        2,096,000          (384,000)
                                                                                           -----------       -----------

NET INCREASE (DECREASE) IN CASH .....................................................          769,000        (3,121,000)
Cash - beginning of period ..........................................................          319,000         4,125,000
                                                                                           -----------       -----------
CASH - END OF PERIOD ................................................................      $ 1,088,000       $ 1,004,000
                                                                                           ===========       ===========


Supplemental disclosure of cash flow information:
    Cash paid for interest ..........................................................      $    95,000       $   111,000

Supplemental schedule of non cash financing activities
    Common stock issued for acquisition of subsidiary ...............................             None       $ 2,394,000

</TABLE>


                        See notes to financial statements




                                      A-5

<PAGE>   6



                   U.S. ENERGY SYSTEMS, INC. AND SUBSIDIARIES


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   NINE MONTHS ENDED OCTOBER 31, 1998 AND 1997
                                   (UNAUDITED)



NOTE 1 - BASIS OF PRESENTATION

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

     For further information see Management's Discussion and Analysis of
Financial Condition and Operating Results, and refer to the financial statements
and footnotes included in the Company's Annual Report on Form 10-KSB/A for its
fiscal year ended January 31, 1998.


NOTE 2 - NET (LOSS) PER SHARE

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


NOTE 3 - ADDITIONAL CAPITAL

     At the Annual Meeting of the Company on August 26, 1998, a Proposal was
approved to issue an option to purchase up to 888,888 shares of the Company's
Series A Convertible Preferred Stock in a private placement. If fully exercised,
this would provide an investment of $8,000,000 in the Company. The terms and
conditions of the additional option are the same as those in the original
private placement of 250,000 shares of the Series A Convertible Preferred Stock
which was issued on March 23, 1998. The new option was granted to the same
optionee.


NOTE 4 - CONTINGENCIES

     On March 27, 1997, the Company filed for a declaratory judgement against
Enviro Partners, LP ("Enviro") and other partners of the Enviro Limited
Partnership. On March 28, 1997, Enviro counterclaimed seeking $6,000,000 of
damages. Management believes the counterclaim has no merit and intends to
contest vigorously. However, the outcome is presently indeterminable. Full
details can be found in the Company's Form 10-KSB/A for January 31, 1998.





                                      A-6

<PAGE>   7



Item 2 - Management's Discussion and Analysis or Plan of Operation.

                   U.S. ENERGY SYSTEMS, INC. AND SUBSIDIARIES

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                 Nine Months Ended October 31, 1998 Compared to
                       Nine Months Ended October 31, 1997

RESULTS OF OPERATIONS

     Revenues for the nine months ended October 31, 1998 ("First Nine Months
1998") totaled $3,020,000 as against $1,520,000 in the nine months ended October
31, 1997 ("First Nine Months 1997"). This consisted of $1,311,000 from the
operations of Steamboat Envirosystems, LLC ("Steamboat") compared to $1,163,000
in the same period of the previous year, and $1,709,000 from the operations of
American Enviro-Services, Inc. and Commonwealth Petroleum Recycling, Inc.
("together AES") which were acquired on August 18, 1997 and January 5, 1998
respectively. Revenues of AES for the period from August 18, 1997 to October 31,
1997 had totaled $357,000.

     Operating expenses are those costs directly related to the production of
revenues, and totaled $1,672,000 in First Nine Months 1998, compared to $683,000
in First Nine Months 1997, when AES was included only for the period August 18,
1997 to October 31, 1997. Steamboat incurred operating expenses amounting to
$482,000 in First Nine Months 1998, compared to $504,000 in First Nine Months
1997. AES operating expenses in the 1998 period amounted to $1,190,000,
including operations depreciation charges of $107,000. For the shorter period of
1997 AES operating expenses totaled $179,000.

     Administrative expenses in First Nine Months 1998 increased to $1,484,000
from $1,119,000 in the same period a year earlier, primarily due to the
inclusion of AES for the full nine month period in 1998. Administrative expenses
were 49% of revenues in the 1998 period, compared to 73% in the same period of
1997.

     Material elements in administrative expenses for First Nine Months 1998
compared to First Nine Months 1997 were as follows:

<TABLE>
<CAPTION>
                                                                           1998           1997
                                                                       ----------      ----------
<S>                                                                       <C>             <C>    
          AES, as explained above                                      $  311,000      $   62,000
          Exclusive of AES:
                               Salaries and consulting fees               380,000         390,000
                               Steamboat royalties                        184,000         164,000
                               Legal and professional fees                157,000         131,000
                               Insurance                                   94,000         104,000
                               Corporate expenses                         166,000          82,000
                               Other                                      192,000         186,000
                                                                       ----------      ----------
          Total                                                        $1,484,000      $1,119,000
                                                                       ==========      ==========

</TABLE>


     Corporate expenses increased primarily due to regulatory and state fees
associated with the increase in numbers of shares authorized, and increased
costs of shareholder relations.

     Litigation costs decreased to $47,000 in First Nine Months 1998 from
$252,000 in the same period a year earlier due to the settlement of certain
actions in the earlier year, and the fact that the one remaining action is
awaiting court decision on the Company's application for summary judgment.



                                      A-7
<PAGE>   8



     Depreciation and amortization charges increased to $264,000 in First Nine
Months 1998, compared to $144,000 in the earlier year when AES was included only
for the period from August 18, 1997 to October 31, 1997.

     Loss from Joint Ventures is broken down as follows:

<TABLE>
<CAPTION>
                                                                1998          1997
                                                              -------      -------
<S>                                                           <C>          <C>    
          Lehi Independent Power Associates, LC               $33,000      $48,000
          Plymouth Cogeneration Limited Partnership            24,000       46,000
                                                              -------      -------
          Loss from Joint Ventures                            $57,000      $94,000
                                                              =======      =======
</TABLE>


     The Company's net (loss) for First Nine Months 1998 was $383,000 as
compared to a net (loss) of $694,000 for the same period a year earlier. In
addition, dividends paid on preferred stock for the period through October 31,
1998 totaled $123,000. There were no such dividends in the prior year since the
Preferred Stock was not issued until March 1998.

     The quarter ended October 31, 1998 provided, for the first time, positive
earnings before interest, taxes, depreciation and amortization (EBITDA) of
$67,000. The nine month EBITDA is a negative ($120,000). EBITDA for the same
periods in 1997 were a negative ($122,000) for the three months and ($611,000)
for the nine months.


<TABLE>
<CAPTION>
                                               Three Months Ended October 31,       Nine Months Ended October 31,
                                               ------------------------------      ------------------------------
                                                  1998               1997              1998              1997
                                               -----------       ------------      -----------       ------------
<S>                                            <C>               <C>               <C>               <C>        
Revenues                                       $ 1,117,000       $   795,000       $ 3,020,000       $ 1,537,000

Operating expenses                                (553,000)         (344,000)       (1,565,000)         (683,000)

Administrative expenses,
             inclusive of litigation
             costs but exclusive of
             state income taxes                   (479,000)         (539,000)       (1,518,000)       (1,371,000)

Loss from joint ventures                           (18,000)          (34,000)          (57,000)          (94,000)
                                               -----------       -----------       -----------       -----------
Earnings, positive or (negative)
             before interest, taxes,
             depreciation and
             amortization                      $    67,000       $  (122,000)      $  (120,000)      $  (611,000)
                                               ===========       ===========       ===========       ===========
</TABLE>


LIQUIDITY AND CAPITAL RESOURCES

     During First Nine Months 1998, cash used in operations totaled $849,000, as
compared to $798,000 in the same period a year earlier. The increase in cash
flow provided by depreciation and amortization of $371,000 in the 1998 period,
compared to $144,000 in the same period in the prior year was due to the fact
that AES is now included for the full term, whereas in the 1997 period it was
included only from August 18, 1997 to October 31, 1997. Cash was used as a
result of other assets increasing by $475,000 in the 1998 period, compared to
$58,000 in the 1997 period, due mainly to increases in deferred acquisition
costs. Cash was also used to reduce royalties payable when a payment of $385,000
in deferred royalties and interest was paid to Sierra Pacific Power Company in
June, 1998.




                                      A-8
<PAGE>   9



     Cash used in investing activities amounted to $478,000 in First Nine Months
1998 as compared to $1,939,000 in First Nine Months 1997. The 1997 figure
included $1,408,000 in new loans to Reno Energy, LLC, whereas only $164,000 in
new loans were made to Reno in the 1998 period.

     Cash totaling $2,096,000 was provided from financing activities during
First Nine Months 1998, primarily representing the proceeds of the sale of
Series A Convertible Preferred Stock to Energy Systems Investors, LLC, in a
private placement. The Company, therefore, had working capital of $976,000 at
October 31, and believes that it has sufficient liquidity to enable it to meet
the working capital requirements of its existing operations.

     At the Annual Meeting on August 26, 1998 the stockholders approved the
issuance to Energy Systems Investors, LLC, of an option to purchase up to
888,888 shares of the Company's Series A Convertible Preferred Stock at an
aggregate purchase price of approximately $8.0 million, on the same terms and
conditions as the original 250,000 shares of the Series A Convertible Preferred
Stock already held by Energy Systems Investors, LLC. If exercised, management
expects that this option will provide the Company with funds for possible future
acquisitions and internal expansion as well as for general working capital.

     Sierra Pacific Power Company agreed to a stipulation effective July 20,
1998, which raises the rates paid under the power purchase agreement for power
produced by the Steamboat 1 plant. These rates will also be applied to power
production of Steamboat plant 1-A when its present rate structure ends in
December 1998.


YEAR 2000 COMPLIANCE

     The Company has assessed the issues associated with the programming code in
existing computer systems with respect to a two digit year value as the Year
2000 approaches and believes that its internal systems are in full compliance.

     In addition, the Company has communicated with suppliers and customers with
whom it does significant business to determine their Year 2000 Compliance
readiness and the extent to which the Company is vulnerable to any third party
Year 2000 issues. The Company believes that only Sierra Pacific Power Company
("Sierra"), to which the Company sells power from its Steamboat facilities, may
be affected by the programming code problem to an extent which could have a
material adverse effect on the Company. Sierra has assured the Company, however,
that the interface with the Steamboat facilities is in compliance with Year 2000
requirements. However, there can be no guarantee that the systems of other
companies on which the Company's systems rely will be timely converted, or that
a failure to convert by another company, or a conversion that is incompatible
with the Company's systems, would not have a material adverse effect on the
Company.

     The total cost to the Company of these Year 2000 Compliance activities has
not been and is not anticipated to be material to its financial position or
results of operations in any given year. This is based on the Company
management's best estimates, which were derived utilizing numerous assumptions
of future events including the continued availability of certain resources,
third party modification plans and other factors. However, there can be no
guarantee that these estimates will be achieved and actual results could differ
from those plans.




                                      A-9

<PAGE>   10





           CAUTIONARY STATEMENT RELATING TO FORWARD LOOKING STATEMENTS

     The foregoing Management's Discussion and Analysis may contain forward
looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, which represent, or may be considered as representing, the Company's
expectations or beliefs concerning future events, including, but not limited to
statements regarding growth in sales of the Company's services and products,
profit margins and the sufficiency of the Company's cash flow for its future
liquidity and capital resource needs. These forward looking statements are
further qualified by important factors that could cause actual results to differ
materially from those in the forward looking statements. These factors include,
without limitation, the effect of competition, the Company's dependence on
certain consumers of the Company's electricity output, market acceptance of the
Company's services and the effects of governmental regulation. Results actually
achieved may differ materially from expected results included in these
statements as a result of these or other factors.


















                                      A-10

<PAGE>   11




                           PART II - OTHER INFORMATION


ITEM 1  - LEGAL PROCEEDINGS

     Reference is made to the Registrant's Annual Report on Form 10-KSB for the
year ended January 31, 1998 for a description of material legal proceedings.
There have been no material developments since the Registrant's last report with
respect to the previously disclosed legal proceeding.

ITEM 2 - CHANGES IN SECURITIES

     On March 25, 1998 the Company issued 250,000 shares of its Series A
Convertible Preferred Stock in a private placement with Energy Systems
Investors, LLC, for $2,250,000. Each share of Preferred Stock is currently
convertible into four shares of common stock of the Company at a conversion
price of $2.25 per share, and carries a dividend of 9% per annum. The issuance
was made in reliance on an exemption from the registration requirements of the
Securities Act of 1933, as amended. Proceeds from the sale have been used for
general working capital purposes. At the Company's Annual Stockholders Meeting
on August 26, 1998, the stockholders approved granting to Energy Systems
Investors, LLC, an option to acquire up to 888,888 additional shares of the
Company's Series A Convertible Preferred Stock at an aggregate purchase price of
approximately $8.0 million on the same terms and conditions. The stockholders
also approved the increase in the number of authorized shares of the common
stock of the Company from 35,000,000 to 50,000,000 and to increase the number of
authorized shares of preferred stock of the Company from 5,000,000 to
10,000,000.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

     None

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     At the Annual Meeting of Stockholders of the Company on August 26, 1998,
Howard A. Nevins and Lawrence I. Schneider were elected as Class I directors, to
serve for three year terms. (5,422,089 votes were in favor, none opposed, and
63,896 votes were withheld.) Theodore Rosen, Richard H. Nelson, and Evan Evans
are the other directors whose terms of office continued after the meeting. The
stockholders also approved amending the Company's Certificate of Incorporation
to increase the number of authorized shares of the common stock of the Company,
par value $.01 per share, from 35,000,000 to 50,000,000 and to increase the
number of authorized shares of preferred stock of the Company, par value $.01
per share, from 5,000,000 to 10,000,000. (3,278,547 votes were cast in favor,
252,932 votes opposed, and 33,200 votes were withheld.) The stockholders also
approved the issuance to Energy Systems Investors, LLC, of an option to purchase
up to 888,888 shares of the Company's Series A Convertible Preferred Stock at an
aggregate purchase price of approximately $8.0 million, on the same terms and
conditions as the original 250,000 shares of the Series A Convertible Preferred
Stock already held by Energy Systems Investors, LLC. (2,084,882 votes were cast
in favor, 415,584 votes opposed, and 64,213 were withheld.)

ITEM 5 - OTHER INFORMATION

     None





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<PAGE>   12



ITEM 6 - EXHIBITS

     (a)   Exhibits

             27  Financial Data Schedule.

     (b)   Reports on Form 8-K

             None.



     Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned duly authorized.

Dated: December 5, 1998


U.S. Energy Systems, Inc.


By:  /s/ Richard H. Nelson                  
     -------------------------------------
     Richard H. Nelson
     President and Chief Executive Officer



By:  /s/ Seymour J. Beder                   
     -------------------------------------
     Seymour J. Beder
     Chief Financial and Accounting Officer







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