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

                       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, 2001

[  ]       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)

 Fiscal year changed from January 31 to December 31 effective December 31, 2000
              (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 May 11, 2001:

              Title of Class                                Number of Shares
              --------------                                ----------------
                Common                                       9,827,041

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


================================================================================
<PAGE>
 PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements

                   U.S. ENERGY SYSTEMS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

<S>                                                                                   <C>           <C>
                                                                                       March 31,   December 31,
                                                                                         2001          2000
                                                                                       ---------   -----------
                                                                                      (unaudited)   (audited)
                   ASSETS
                   Current assets:
                      Cash.......................................................    $  7,432,000  $  5,435,000
                      Accounts receivable (less allowance for doubtful accounts
                       $100,000 and $15,000, respectively).......................       3,031,000     2,860,000
                      Other current assets.......................................         503,000       825,000
                                                                                       ----------     ---------
                        Total current assets.....................................      10,966,000     9,120,000

                   Property, plant and equipment, net............................       6,159,000     5,965,000
                   Notes receivable, less current portion........................       1,754,000     1,754,000
                   Accrued interest receivable...................................         459,000       459,000
                   Investments in joint ventures:
                      Lehi Independent Power Associates, L.C.....................         846,000       853,000
                      Plymouth Cogeneration Limited Partnership..................         456,000       455,000
                      Marathon Capital, LLC......................................       1,013,000     1,013,000
                      Castlebridge Partners, LLC.................................       3,060,000     3,073,000
                   Deferred acquisition costs....................................         788,000       675,000
                   Deferred financing costs......................................         557,000       557,000
                   Goodwill, net.................................................       1,641,000     1,678,000
                   Deferred tax asset............................................       1,200,000     1,200,000
                   Other assets..................................................         344,000        223000
                                                                                       ----------    ----------
                                                                                     $ 29,243,000  $ 27,025,000
                                                                                       ==========    ==========
                   LIABILITIES
                   Current liabilities:
                      Current portion of long-term debt..........................    $    220,000  $    220,000
                      Notes payable - bank.......................................         247,000       300,000
                      Accounts payable and accrued expenses......................       1,931,000     1,535,000
                      Payable to estate of former officer........................          78,000        92,000
                                                                                        ---------     ---------
                        Total current liabilities................................       2,476,000     2,147,000

                   Long-term debt, less current portion..........................         505,000       537,000
                   Convertible subordinated secured debentures...................         186,000       202,000
                   Advances from joint ventures..................................         102,000       102,000
                                                                                          -------       -------
                        Total long-term liabilities..............................         793,000       841,000
                                                                                          -------       -------
                        Total liabilities........................................       3,269,000     2,988,000
                                                                                        ---------     ---------
                   Minority interests............................................         559,000       559,000
                                                                                        ---------     ---------
                   Contingencies

                   STOCKHOLDERS' EQUITY
                   Preferred stock, $.01 par value, authorized 10,000,000 shares:
                      Series A, cumulative, convertible, issued and outstanding
                   1,338,888
                        shares (liquidation value of $10,399,110)................          11,000        11,000
                      Series B, cumulative, convertible, issued and outstanding
                   398 shares....................................................               -             -
                   Common stock, $.01 par value, authorized 50,000,000 shares;
                   issued
                      7,777,308 shares and 7,695,558 shares, respectively........          77,000        77,000
                   Treasury stock, 7,600 shares of common stock at cost..........         (15,000)      (15,000)
                   Stock subscription receivable.................................      (7,741,000)   (7,741,000)
                   Additional paid-in capital....................................      45,454,000    45,484,000
                   Accumulated deficit...........................................     (12,371,000)  (14,338,000)
                                                                                       ----------    ----------
                        Total stockholders' equity...............................      25,415,000    23,478,000
                                                                                       ----------    ----------
                                                                                     $ 29,243,000  $ 27,025,000
                                                                                       ==========    ==========
</TABLE>
                     See notes to financial statements

                                        2
<PAGE>
                   U.S. ENERGY SYSTEMS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
<TABLE>
<CAPTION>

<S>                                                                                <C>               <C>
                                                                                        Three Months Ended
                                                                                   ---------------------------
                                                                                    March 31,         April 30,
                                                                                      2001              2000
                                                                                    ---------         ---------
               Revenues.....................................................      $5,264,000        $1,108,000
                                                                                   ---------         ---------
               Costs and expenses:
                   Operating expenses.......................................       2,278,000           788,000
                   General and administrative expenses......................       1,038,000           444,000
                   Litigation settlements and costs.........................               -             2,000
                   Depreciation and amortization............................         203,000           165,000
                   Loss from joint ventures.................................          14,000            39,000
                                                                                   ---------         ---------
                        Total costs and expenses............................       3,533,000         1,438,000
                                                                                   ---------         ---------
               Income (loss) from operations................................       1,731,000          (330,000)

               Interest income..............................................         261,000            15,000
               Interest expense.............................................         (25,000)          (36,000)
                                                                                   ---------           -------
               Income (loss) before taxes...................................       1,967,000          (351,000)

               Income tax provision.........................................               -                 -
                                                                                   ---------           -------
               NET INCOME (LOSS)............................................      $1,967,000        $ (351,000)



               NET INCOME (LOSS)............................................      $1,967,000        $ (351,000)
               Dividends on preferred stock.................................        (236,000)          (68,000)
                                                                                   ---------            ------

               INCOME (LOSS) APPLICABLE TO COMMON STOCK.....................      $1,731,000        $ (419,000)
                                                                                   =========           =======


               INCOME (LOSS) PER SHARE OF COMMON STOCK:
                   Income (loss) per share of common stock - basic..........      $      0.22       $     (0.07)
                                                                                    =========          ========
                   Income (loss) per share of common stock - diluted........      $      0.12       $     (0.07)
                                                                                    =========          ========

               Weighted average number of common shares outstanding - basic.        7,757,601          5,672,613
                                                                                    =========          =========
               Weighted average number of common shares outstanding -
                  diluted...................................................       14,537,183          5,672,613
                                                                                   ==========          =========

</TABLE>
                       See notes to financial statements

                                       3
<PAGE>


                      U.S. ENERGY SYSTEMS AND SUBSIDIARIES
            CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                        Three Months Ended March 31, 2001
                                   (Unaudited)
<TABLE>
<CAPTION>

<S>                                       <C>                <C>                 <C>                               <C>
                                          Preferred Stock   Preferred Stock
                                             Series A           Series B         Treasury Stock                   Common Stock
                                         ------------------ -----------------   -------------------              ------------------
                                         Number             Number              Number                           Number
                                          of                of                  of                  Subscription   of
                                         Shares    Amount   Shares    Amount    Shares    Amount    Receivable   Shares    Amount
                                         --------  -------- --------  -------   -------  ---------- -----------  --------  --------
BALANCE - DECEMBER 31, 2000..........    1,138,888  $11,000  398                (7,600)  $(15,000)  (7,741,000)  7,695,558 $77,000
                                                                                                                    81,750   (*)
Shares issued for exercised options..

Net income for the three months ended
   March 31, 2001....................
Dividends on Preferred Stock:
   Series A..........................
   Series B..........................
                                         --------  -------- -------             ------  ---------- -----------  ---------  --------
BALANCE - MARCH 31, 2001.............    1,138,888  $11,000  398
                                                                                (7,600)  $(15,000)  (7,741,000)  7,777,308  $77,000
                                         ========  ======== =======             =======  ========== ===========  =========  ========
</TABLE>
(*) Less than $1,000

                        See notes to financial statements
<PAGE>


                      U.S. ENERGY SYSTEMS AND SUBSIDIARIES
            CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                        Three Months Ended March 31, 2001
                                   (Unaudited)


                                         Additional
                                          Paid-in     Accumulated
                                          Capital       Deficit         Total
                                         ----------  -------------  ------------
BALANCE - DECEMBER 31, 2000..........   $45,484,000  (14,338,000)   23,478,000
Shares issued for exercised options..       206,000                    206,000

Net income for the three months ended
   March 31, 2001....................                  1,967,000     1,967,000
Dividends on Preferred Stock:
   Series A..........................      (227,000)                  (227,000)
   Series B..........................        (9,000)                    (9,000)
                                         -----------  ------------  ------------
BALANCE - MARCH 31, 2001.............   $45,454,000   $(12,371,000)  $25,415,000
                                         ==========  ============== ============
(*) Less than $1,000

                       See notes to financial statements

                                       4

<PAGE>


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


<TABLE>
<CAPTION>

<S>                                                                                  <C>                        <C>
                                                                                            Three  Months Ended,
                                                                                     --------------------------------
                                                                                     March 31,              April 30,
                                                                                        2001                   2000
                                                                                     ---------              ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income (loss)..................................................            1,967,000                (351,000)
     Adjustments to reconcile net income (loss) to net cash provided by
    (used in) operating activities:
        Depreciation and amortization...................................              203,000                 165,000
        Equity in loss of joint ventures..................................             14,000                  39,000
        Changes in:
           Accounts  and notes receivable, trade..........................           (171,000)                (40,000)
           Other current assets...........................................            322,000                (199,000)
           Other assets...................................................           (121,000)                (59,000)
           Accounts payable and accrued expenses..........................            382,000                 (88,000)
           Litigation settlement payable..................................                                   (900,000)
           Life insurance proceeds, net of costs and expenses.............                                    958,000
                                                                                    ---------                 -------
        Net cash provided by (used in) operating activities...............          2,596,000                (475,000)
                                                                                    ---------                 -------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Loans to Reno Energy, LLC............................................                                     (1,000)
     Acquisition of equipment and leasehold improvements..................           (355,000)               (180,000)
     Deferred acquisition costs...........................................           (113,000)                (53,000)
                                                                                      -------                 --------
        Net cash used in investing activities.............................           (468,000)               (234,000)
                                                                                      --------                --------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Payments of notes payable............................................            (53,000)               (152,000)
     Payments of convertible subordinated secured debentures..............            (16,000)
     Payments of long-term debt...........................................            (62,000)                 79,000
     Proceeds from long-term debt.........................................             30,000
     Proceeds from issuance of common stock...............................            206,000               3,217,000
     Dividends on preferred stock.........................................           (236,000)                (68,000)
     Advances from joint ventures.........................................                                     12,000
                                                                                      ---------              ---------
        Net cash provided by (used in) activities.........................           (131,000)              3,088,000
                                                                                      ---------             ----------

NET INCREASE (DECREASE) IN CASH                                                     1,997,000               2,379,000
Cash - beginning of period................................................          5,435,000                 301,000
                                                                                    ----------              ----------

     CASH - END OF PERIOD.................................................        $ 7,432,000            $  2,680,000
                                                                                    ==========              =========

Supplemental disclosure of cash flow information:
     Cash paid for
interest                                                                          $    24,000           $     41,000

Supplemental schedule of non-cash financing activities                                   None                   None

</TABLE>
                        See notes to financial statements

                                      5
<PAGE>
                   U.S. ENERGY SYSTEMS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              THREE MONTHS ENDED MARCH 31, 2001 AND APRIL 30, 2000
                                   (UNAUDITED)


NOTE 1 - BASIS OF PRESENTATION

    We changed our fiscal  year end from  January 31 to December  31  effective
December 31, 2000. We have  not recast data for  the comparative periods as such
recasting  is  not practical. Furthermore, we do  not experience  significant
seasonality in  our results of operations and  cash flows and such a restatement
is  not cost justified.  Our financial  statements compare the  calendar quarter
ended March 31, 2001 with the  fiscal quarter ended April 30, 2000.  We  believe
that  such a  comparison  provides a reliable  basis for  comparing results  of
operations and cash flows for the two quarters

    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.

    For further  information,  see "Management's Discussion and Analysis or Plan
of Operation",  and refer to the financial statements and footnotes included  in
our Annual Report on Form 10-KSB for the year ended December 31, 2000.


NOTE 2 - 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 3 - INCOME  TAXES

    The financial statements do not include a provision for taxes due to further
utilization  of operating loss carry  forwards. The  utilization of  this  carry
forward  resulted  in a tax  saving in  the current  quarter of  approximately
$700,000


NOTE 4 - ADDITIONAL CAPITAL

    Between January 1, 2001 and March 31, 2001, we received a total of  $206,000
as a result of the exercise  of  81,750 stock options.


NOTE 5 - MERGER

     On May 11, 2001, we completed  our  merger  with  Zahren Alternative  Power
Corporation ("Zapco").  Zapco is a developer, owner and operator of landfill gas
and cogeneration projects in the United States.

     In the merger, we paid or have issued to Zapco's stockholders the following
aggregate merger consideration for their Zapco shares:

                                       6

<PAGE>

o        $12 million in cash,

o        a contingent  cash payment of $800,000 to be paid eighteen  (18) months
         after the merger,  subject to reduction for claims for indemnification
         that we may have,

o        1,800,000 shares of our common stock,

o        100,000 shares of our Series C Convertible  Preferred Stock,  which is
         entitled  to  an aggregate of $3  million upon  liquidation  or  other
         similar event,  provides for annual  cash  dividends in  the aggregate
         amount of $270,000  (subject to reduction to an aggregate of  $180,000
         annually under specific circumstances),  and which are convertible into
         an aggregate of 500,000 shares of our common stock (600,000  shares if
         900 days after the merger,  the average  closing price of  our  common
         stock is less than $4.80) subject to anti-dilution adjustment,

o        our five-year Series  C warrants to  purchase 366,666 shares  of  our
         common stock at an exercise price of $6.00 per share.

     We also  issued to  Zapco's employees options to  acquire  an aggregate of
914,000 shares of our common stock at  a weighted average exercise  price of
approximately $6.37 per share.

     Approximately $11.5 million of the cash consideration payable to the Zapco
stockholders  was funded by an  affiliate of  Cinergy Corp. which, immediately
prior to the merger, invested this  sum in the entity that effected the merger.
As a result of this investment and the merger, we and  the Cinergy affiliate are
the sole stockholders of Zapco. We own approximately 54.3% of the equity and 80%
of the voting power (with exceptions generally for matters outside the course of
business) of Zapco and the Cinergy affiliate owns 45.7% of the equity and 20% of
the voting power of Zapco.

     The following pro forma combined consolidated  balance sheet and  statement
of operations is provided as if the merger had taken  place at  January 1, 2001.
It is management's opinion  that Zapco's statement  of operations for the three
months ended March 31, 2001 is  not indicative of future results (see Note 4 to
the Pro Forma Statement of Operations).

                                       7
<PAGE>

                   U. S. Energy Systems, Inc. and Subsidiaries
                  Pro Forma Combined Consolidated Balance Sheet
                                 March 31, 2001

<TABLE>
<CAPTION>

<S>                                      <C>              <C>          <C>               <C>              <C>

                                          U. S. Energy      Zapco                                          U. S. Energy
                                           Historical     Historical                                         Pro Forma
                                            March 31,     March 31,           Merger Adjustments             March 31,
                                                                        --------------------------------
                                              2001           2001           Debit            Credit            2001
                                          ----------------------------- --------------   ---------------   --------------

      Cash..............................  $   7,432,000 $  12,686,000   $   7,741,000 (5)$  12,000,000  (2)$  27,359,000
                                                                           11,500,000 (1)
      Other current assets..............      3,534,000     8,159,000                                         11,693,000
                                             ----------    ----------      ----------       ----------        ----------

      Total current assets..............     10,966,000    20,845,000      19,241,000       12,000,000        39,052,000

      Property, plant and equipment.....      6,159,000    39,194,000      17,899,000 (3)      382,000  (6)   62,870,000
      Intangibles.......................      1,641,000       415,000       5,000,000 (3)                      7,056,000
      Other non-current assets..........     10,477,000    38,805,000                                         49,282,000
                                             ----------    ----------      ----------       ----------       -----------

      Total assets......................  $  29,243,000 $  99,259,000   $  42,140,000    $  12,382,000     $ 158,260,000
                                             ==========    ==========                                        ===========

      Current liabilities...............  $   2,476,000 $  20,481,000                                      $  22,957,000
      Long-term debt....................        793,000    65,227,000                                         66,020,000
      Other non-current liabilities.....                   11,306,000                                         11,306,000
                                              ---------    ----------                                        -----------

      Total liabilities.................  $   3,269,000 $  97,014,000                                      $ 100,283,000

      Minority interest.................        559,000       514,000         852,000 (4)   11,500,000  (1)   11,546,000
                                                                              175,000 (6)

      Stockholders' equity..............     25,415,000     1,731,000       1,731,000 (3)    3,000,000  (2)   46,431,000
                                                                              207,000 (6)    9,630,000  (2)
                                                                                             7,741,000  (5)
                                                                                               852,000  (4)
                                             ----------     ----------       ---------       ---------        -----------


      Total liabilities and stockholders'
        equity..........................  $  29,243,000 $  99,259,000   $  45,105,000    $  45,105,000     $ 158,260,000
                                             ==========    ==========      ==========       ==========       ===========
</TABLE>
     __________________
     Notes to Pro Forma Balance Sheet
(1)      Investment of $11,500,000 by Cinergy for 45.74 % of Zapco.
(2)      Payment of $24,630,000 consideration to Zapco stockholders' in cash and
         capital stock.
(3)      Merger  transaction.  Allocation  of the $24,630,000 consideration will
         be  determined  based upon  appraisal of assets  and liabilities. For
         purposes of  this presentation,   $5,000,000 of  the  consideration is
         allocated to goodwill and the remainder of $17,899,000 to fixed assets.
(4)      $852,000 represents Cinergy's 45.74% minority interest in Zapco's three
         month net loss for the period ended March 31, 2001.
(5)      Receipt of subscription receivable in the amount of $7,741,000.
(6)      Depreciation  and  amortization on purchase  price  allocated to fixed
         assets and  goodwill. (Approximately $175,000 represents  Cinergy's
         45.74% interest in Zapco.)

                                       8
<PAGE>


                   U. S. Energy Systems, Inc. and Subsidiaries
             Pro Forma Combined Consolidated Statement of Operations

<TABLE>
<CAPTION>

<S>                                    <C>              <C>              <C>                 <C>                 <C>
                                       U. S. Energy      Zapco                                                  U. S. Energy
                                        Historical      Historical                                                Pro Forma
                                       Three Months    Three Months                                              Three Months
                                        Ended March       Ended                                                     Ended
                                            31,          March 31,               Merger Adjustments               March 31,
                                                                          ---------------------------------
                                           2001            2001               Debit              Credit              2001
                                       -------------- ----------------    --------------      -------------     ---------------
    Revenues..........................  $   5,264,000  $   3,684,000                                            $   8,948,000
    Operating expenses................     (3,330,000)    (3,764,000)                                              (7,094,000)
                                            ---------      ---------                                                ----------

    Earnings before interest, taxes,
      depreciation and amortization ..  $   1,934,000  $     (80,000)                                           $   1,854,000
                                            ---------      ---------                                                ----------

    Interest income (expense).........        236,000       (966,000)                                                (730,000)
    Depreciation and amortization.....       (203,000)      (893,000)      $  382,000 (3)                          (1,478,000)
    Other expenses....................                      (444,000)                                                (444,000)
    Income tax benefit................                       521,000                                                  521,000
                                            ---------        -------          --------                              ---------

    Net income (loss) after taxes.....  $   1,967,000  $  (1,862,000) (4)  $  382,000                           $    (277,000)
                                            ----------     ---------          --------                              ---------

    Minority interest ................                       852,000  (1)                   $  175,000 (3)          1,027,000
    Dividends on preferred stock......       (236,000)                                                               (236,000)
                                            ---------       --------          --------         -------              ---------

    Net income (loss) applicable to
      common stock....................  $   1,731,000  $  (1,010,000) (4)  $  382,000       $  175,000          $     514,000
                                            =========      =========          =======          =======              =========
    Income per share of common stock -
      basic...........................                                                                          $        .05
                                                                                                                    =========
    Income per share of common stock -
      diluted.........................                                                                          $        .03
                                                                                                                    =========
    Weighted average number of common
      shares outstanding - basic (2)..                                                                              9,773,934
    Weighted average number of common                                                                               =========
      shares outstanding  - diluted (2)                                                                            16,553,516
                                                                                                                   ==========
</TABLE>
    _______________________________
    Notes to Pro Forma Statements of Operations Relating to Zapco
(1) Cinergy's 45.74% minority interest in Zapco's three month net loss.
(2) 1,800,000 shares of common stock issued in consideration of Zapco merger and
    216,333 issued to ZFC Royalty  Partners are  included in  the basic weighted
    average number of common shares outstanding.
(3) Depreciation and amortization  on purchase  price allocated  to fixed assets
    and goodwill. (Approximately $175,000 represents  Cinergy's 45.74%  interest
    in Zapco.)
(4) (a) Revenues and  profits from  Yankee Energy  Gas  Company ("YESCO")  not
        included, since transaction closed on March 30, 2001. The scope of YESCO
        operations is  17 megawatts ("MW") and  increased Zapco's  megawatt
        capacity from 43 MW to 60 MW, an increase of 40%.
    (b) Revenues from the Dalton and SPSA plants are not included at full level
        due to construction.  The Dalton construction  is  completed  and being
        commissioned.  The SPSA construction is expected to be completed in June
        2001.
    (c) Revenues and profits are lower than they will be on an ongoing basis, as
        production at several sites is currently ramping up.

                                       9
<PAGE>

    (d) Costs for the quarter  include internal  and external  non-recurring or
        extraordinary  expenses associated  with the YESCO transaction  and the
        merger with U. S. Energy Systems, Inc.

NOTE 6 - SUBSEQUENT EVENT

      We have an exclusive right to acquire an energy project from a major power
      producer.  Due diligence is in progress.

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

    The following discusses U. S. Energy Systems, Inc.'s operating results  and
financial condition  without giving effect to the merger with Zapco, which  was
completed in May 2001.

                  Three Months Ended March 31, 2001 Compared to
                        Three Months Ended April 30, 2000

RESULTS OF OPERATIONS

    Revenues for the three month periods were as follows:

<TABLE>
<CAPTION>

<S>                                                                <C>                 <C>
                                                                         Three Months Ended
                                                                   March 31, 2001     April 30, 2000
                                                                   --------------     --------------
             Energy Division...................................     $ 4,204,000       $  375,000
             Environmental Division............................       1,060,000          773,000
                                                                      ---------        ---------
                                                                    $ 5,264,000       $1,108,000
                                                                      =========        =========
</TABLE>

--------------------------------------------------------------------------------
    Total revenues  increased by $4,156,000 or 375% in the three months ended
March 31,2001  ("First  Quarter 2001") as  compared to  the three  months ended
April 30, 2000 ( "First Quarter  2000").  Energy Division revenues  increased by
$3,829,000 or 1,021% during  First Quarter 2001 compared  to First Quarter 2000
due to higher market rates for  electricity  in First Quarter 2001 in comparison
to First Quarter  2000.  The  Environmental  Division  showed a revenue increase
of $327,000 or 45%  compared to First Quarter 2000,  due to expanded operations.

    Operating  Expenses increased  by  189% , or  approximately $1,490,000  to
$2,278,000 in First Quarter 2001 compared to First Quarter 2000.  The following
table provides a breakdown of the Company's operating expenses.

<TABLE>
<CAPTION>

<S>                                                               <C>               <C>
                                                                        Three Months Ended
                                                                  March 31, 2001    April 30, 2000
                                                                  --------------------------------

             Energy Division...................................     $ 1,522,000    $ 232,000
             Environmental Division............................         756,000      556,000
                                                                      ---------      -------
                                                                    $ 2,278,000    $ 788,000
                                                                      =========      =======
</TABLE>

   Operating expenses for the Energy Division,  including royalties,  increased
$1,290,000  or approximately  556% in First  Quarter 2001  as compared  to First
Quarter  2000. The  increases are  primarily  attributable  to higher royalties,
including provisions  for  both gross  revenue  and  net  revenue royalties  of
Steamboat  1. The  Environmental Division  operating expenses  increased  by
$200,000  or approximately 36 %  in the First  Quarter 2001  when compared with
First Quarter 2000 as a result of expanded operations.

                                       10
<PAGE>

    General &  administrative  expenses  increased by $594,000 or 134% in First
Quarter 2001 over First  Quarter 2000 due to increased efforts in  developments
of new  projects.  This also  reflects an increase in staff and levels of staff
compensation.  An additional provision for doubtful accounts of $85,000 was made
during the quarter.

    The components of general and administrative expenses for the three month
periods are as follows:

<TABLE>
<CAPTION>

<S>                                                                <C>                 <C>
                                                                      Three Months Ended
                                                                  March 31, 2001   April 30, 2000
                                                                  --------------   --------------
             Salaries and consulting...........................   $  387,000      $   208,000
             Legal and professional............................      187,000           60,000
             Insurance.........................................
                                                                      91,000           37,000
             Corporate expenses................................
                                                                      95,000           35,000
             Other.............................................      278,000          104,000
                                                                   ---------          -------
                       Total...................................   $1,038,000      $   444,000
                                                                   =========          =======
</TABLE>

    Depreciation expense, which includes the amortization of goodwill, increased
to $ 203,000 the three months ending March 31, 2001 compared to $165,000 in  the
three months ending April 30, 2000, due to increased investment  in  depreciable
assets.

    Losses (Gains)  from  Joint Ventures  for the  periods set forth below  are
detailed as follows:

<TABLE>
<CAPTION>

<S>                                                                <C>              <C>
                                                                       Three Months Ended
                                                                    March 31,       April 30,
                                                                     2001             2000
                                                                    ---------        ---------

             Lehi Independent Power Associates, L.C. ..........    $     0          $     0
             Plymouth Cogeneration  Limited Partnership .......     (1,000)          39,000
             Castlebridge Partners, LLC........................     15,000                0
                                                                    -------          ------
                       Total...................................    $14,000          $39,000
                                                                    ======           ======
</TABLE>
    The Castlebridge investment was made on August 23, 2000.

    The increase in interest income of $246,000 in First Quarter 2001 over First
Quarter  2000  is primarily  due to  interest on the  stock subscription  note
receivable and also due to higher interest earnings on increased cash balances

    Dividends paid on Preferred stock for the  three-months ended March 31, 2000
totaled  $236,000,  compared to $68,000 in the quarter ended April 30, 2000. The
increase was due primarily to the  additional  investment in Series A Preferred
stock of $7,750,000 in July 2000.

LIQUIDITY AND CAPITAL RESOURCES

    At March 31, 2001, cash and equivalents  totaled approximately $7,432,000 as
compared to  $5,435,000 at December 31, 2000, an increase of $1,997,000.  During
the three months ended March 31, 2001, cash flow  from  operations of $2,596,000
was used  to fund $468,000  in investing  activities and $131,000  in  financing
activities, and provided the increase in cash.  Our working capital increased to
$8,490,000 at March 31, 2001 from $6,973,000 at December 31, 2000, primarily due
to the improvement  in net  income from our operations.  Subsequent to March 31,
2001, a stock subscription receivable (i.e., a $7.7 million  note  payable to us
in  consideration  for the  issuance of 861,110 shares of Series  A Preferred
Stock), was paid, further increasing our cash position.  Our cash and projected
cash flow from operations are sufficient  to satisfy our  operating commitments
for the next twelve months.

    During  First  Quarter 2001 we had  cash flow  from operating activities of
$2,596,000 compared with  cash used in operating activities of $475,000 in First
Quarter  2000.  The improvement was  chiefly due to  higher net  income  which
resulted principally from increased Energy Division revenues.  The quarter ended
April 30, 2000  included the  receipt of cash  proceeds  from a life  insurance

                                       11
<PAGE>

policy on our  former President, which net of expenses  paid during  the period,
amounted to $958,000.  During that  quarter we also paid the $900,000 litigation
settlements note that had been issued in the previous year.

    The $468,000  used  in investing  activities during  First Quarter 2001,
compared to $234,000  used in the  First Quarter 2000, included  $113,000  of
deferred costs expended on pending acquisitions as compared to $53,000 in  First
Quarter 2000.  Cash used for acquisition  of equipment totaled $355,000 in First
Quarter 2001 as compared to $180,000 in the earlier year.

    Cash used in financing activities in First Quarter 2001 totaled $131,000, as
compared to $3,088,000 cash  provided by financing  activities  in First Quarter
2000.  The primary item in the earlier year was the receipt of proceeds from the
exercise of warrants and options resulting in net cash of $3,217,000.

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  Post
Effective  Amendment No. 3 to Registration  Statement on Form SB-2 (SEC File No.
333-04612).

                           PART II - OTHER INFORMATION

ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

    At our annual meeting of stockholders on April 2, 2000, the following votes
    were taken:

1.  The Agreement and plan of Reorganization and merger by and among ourselves,
    Zapco and USE Acquisition Corp. and the related investments and issuance of
    common stock was approved. (Votes in favor totaled 8,486,803, 486,824
    opposed, and 16,253 abstained)
2.  Irving Levine, Stanleigh G. Fox, Asher Fogel, Bernard J. Zahren and Mark P.
    Strauch were elected to three-year terms as directors.  The terms of Mr.
    Zahren and Mr. Strauch commenced at the time of the merger with Zapco.
    (Votes in Favor totaled 8,511,611 and 478,271 withheld authority. Mr. Fogel
    resigned contemporaneously with the completion of the merger.
3.  Our Amended and Restated Plan of Recapitalization was adopted ( Votes in
    favor 8,423,879, opposed  484,280, and 81,721 abstained.)
4.  Our 2000 Executive Incentive Compensation Plan was adopted  (Votes in favor
    totaled 7,977,518, opposed 918,921, and 93,443 abstained.
5.  Our 2000 Executive Bonus Plan was adopted (Votes in favor totaled
    8,041,856 , opposed 865,521, and 82,404 abstained)


Item 5 - OTHER INFORMATION

     On May 11, 2001, we completed  our merger  with Zahren  Alternative  Power
                                       12
<PAGE>

Corporation ("Zapco").  Zapco is a developer, owner and operator of landfill gas
and  cogeneration projects  in the United States. Zapco has  been engaged  since
1981, through predecessor and  successor entities, in  the  development, design,
construction, financing, ownership and operation of  a diverse group of landfill
gas  based projects  and one  cogeneration project.  The landfill  gas  projects
principally collect landfill  gas and convert it  into a fuel for the production
of electricity.  The power produced from these landfill gas-to-energy facilities
is generally sold under long-term fixed price contracts.  Zapco  also  owns  and
operates  projects which  capture and  process landfill gas and deliver it  by
pipeline to industrial  customers for  use  in  their  boilers. Zapco  has
approximately 28 distinct projects engaged in co-generation and landfill gas-to-
energy related products and services in operation. Zapco's electrical generating
plants are qualifying facilities under the Public Utility Regulatory Policy Act
of 1978.  As  of   December 31, 1998,  1999 and 2000, Zapco  had installed
generating capacity of  25, 36 and 43 megawatts,  respectively, and  now has 60
megawatts of installed generating capacity.

     In the merger, we paid or have issued to Zapco's stockholders the following
aggregate merger consideration for their Zapco shares:

o        $12 million in cash,

o        a contingent  cash payment of $800,000 to be paid eighteen  (18) months
         after the merger, subject to  reduction for claims for  indemnification
         that we may have,

o        1,800,000 shares of our common stock,

o        100,000 shares of  our Series C Convertible  Preferred Stock,  which is
         entitled  to  an aggregate  of $3 million  upon liquidation  or  other
         similar event,  provides for  annual cash  dividends in  the  aggregate
         amount of $270,000  (subject to reduction to an aggregate of  $180,000
         annually under specific  circumstances), and which are convertible into
         an aggregate of 500,000 shares of our common stock (600,000  shares if
         900 days  after  the merger,  the average closing  price  of our common
         stock is less than $4.80) subject to anti-dilution adjustment,

o        our five-year Series C  warrants to purchase  366,666 shares  of  our
         common stock at an exercise price of $6.00 per share.

     We also issued to Zapco's employees options  to acquire  an  aggregate  of
914,000 shares  of  our common stock at  a  weighted average exercise  price of
approximately $6.37 per share.

     Approximately $11.5 million of the cash consideration payable to the  Zapco
stockholders  was funded by  an affiliate of  Cinergy Corp. which, immediately
prior  to  the merger, invested this  sum in our  subsidiary that effected the
merger.  As a result of  this investment and  the merger, we  and the  Cinerg y
affiliate are the sole stockholders of Zapco. We own approximately 54.3% of the
equity and 80% of the  voting power (with exceptions  generally for  matters
outside the course of business) of Zapco and the Cinergy affiliate owns 45.7% of
the equity and 20% of the voting power of Zapco.

ITEM 6 - EXHIBITS

(a)      Exhibits

                  2.1   Merger Agreement by and between the Company, AES 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. ("USE
                        Acquisition Corp."), 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(15)

                  2.6   Amendment No. 3 dated January 19, 2001 to the Merger
                        Agreement(15)

                  2.7   Amendment No. 4 dated February 23, 2001 to the Merger
                        Agreement(15)

                                       13
<PAGE>
                  2.8    Amendment No. 5 dated April 30, 2001 to the Merger
                         Agreement (16)

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

                  3.2    Amended and Restated By-Laws of the Company(11)

                  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(15)

                  3.8    Form of Certificate of Designation for US Energy's
                         Series D Preferred Stock(15)

                  3.9    Certificate of Correction to Certificate of Designation
                         of Series A Preferred Stock(15)

                  3.10    Certificate of Correction to Certificate of
                          Designation of Series B Preferred Stock(15)

                  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. (15)

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

                  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)

                                       15

<PAGE>

                  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)

                  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. Carolan 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, USE Acquisition Corp. and Cinergy Energy. (11)

                  10.46   Escrow Agreement dated November 28, 2000 by and among
                          the Zapco Stockholders, Zapco, US Energy, USE
                          Acquisition Corp., 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)

                  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, USE Acquisition Corp. and
                          Cinergy Energy. (11)

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

                  10.54   Indemnification Agreement dated as of November 28,
                          2000 by and among US Energy, USE Acquisition Corp. 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)

                                       15

<PAGE>


                  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)

                  21.1    Subsidiaries of the Company (15)

                  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.
                  (15)    Incorporated by reference to the Company's Report on
                          Form 10-KSB for the period ended December 31, 2000.
                  (16)    Incorporated by reference to the Company's
                          Post-Effective Amendment to Registration Statement  on
                          Form Series SB-2 filed on May 14, 2001


         (b) Reports on Form 8-K

                  None


                                       16
<PAGE>


                                   SIGNATURES
         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: May 18, 2001


U. S. Energy Systems, Inc.


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


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


                                       17