**SECURITIES      AND EXCHANGE COMMISSION**

**WASHINGTON,      DC 20549 **

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

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

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

**.**

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

|   | **Delaware**                                   |   | **52-1216347**                        |
|--------|------------------------------------------------|--------|---------------------------------------|
|   | (State                or other jurisdiction of |   | (I.R.S.                Employer       |
|   | incorporation                or organization)  |   | Identification                Number) |

**One      North Lexington Avenue**

**Fifteenth      Floor**

**White      Plains, NY 10601**

**(914)      993-6443**

----

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

**CONTENTS**

| **PART                I: Financial Information**                                                                                                                                            |                      |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------|
|                                                                                                                                                                                        | **PAGE**                  |
| **Item****1:** Financial                Statements                                                                                                                                     |                      |
|                                                                                                                                                                                        |                      |
| Consolidated                Balance Sheets as of September 30, 2004 and December 31,                2003                                                                                    | 4                         |
|                                                                                                                                                                                        |                      |
|                                                                                                                                                                                        |                      |
| Consolidated                Statements of Operations and Comprehensive Income/(Losses) for the                three                months and nine months ended September 30, 2004 and 2003 |  5                   |
|                                                                                                                                                                                        |                      |
|                                                                                                                                                                                        |                      |
| Consolidated                Statements of Changes in Stockholders’ Equity for the nine months ended                September 30, 2004 and for the year 2003                           |  6,                7 |
|                                                                                                                                                                                        |                      |
|                                                                                                                                                                                        |                      |
| Consolidated                Statements of Cash Flow for the nine months ended September 30, 2004                and                2003                                                     | 8                         |
|                                                                                                                                                                                        |                      |
|                                                                                                                                                                                        |                      |
| Notes                to Consolidated Financial Statements                                                                                                                                   | 9                         |
|                                                                                                                                                                                        |                      |
|                                                                                                                                                                                        |                      |
| **Item                2:**Management’s                Discussion and Analysis of Financial Condition and Results of                Operations                                         | 16                        |
|                                                                                                                                                                                        |                      |
| **Item                3:**Quantitative                and Qualitative Disclosures About Market Risk                                                                                         | 20                        |
|                                                                                                                                                                                        |                      |
| **Item                4:**Controls                and Procedures                                                                                                                            | 20                        |
|                                                                                                                                                                                        |                      |
|                                                                                                                                                                                        |                      |
| **PART                II. Other Information**                                                                                                                                               |                      |
|                                                                                                                                                                                        |                      |
| **Item                6:**                Exhibits and Reports on Form 8-K                                                                                                                  | 20                        |
|                                                                                                                                                                                        |                      |
| Signatures                                                                                                                                                                                  | 21                        |

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

**CONSOLIDATED      BALANCE SHEETS**

*(in      Thousands)*

| **ASSETS**                                                                                                                               | **Sept.                30, 2004****(Restated/****Unaudited)** |   |  **Dec.                31, 2003****(Audited)** |
|------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------|--------|-----------------------------------------------------|
| Current                Assets:                                                                                                           |                                                          |   |                                                |
| Cash                                                                                                                                     | $                16,794                                       |   | $                3,210                              |
| Restricted                Cash                                                                                                           | 10,577                                                        |   | 17,703                                              |
| Restricted                Investments                                                                                                    | 17,539                                                        |   | ---                                                 |
| Accounts                Receivable                                                                                                       | 5,632                                                         |   | 9,105                                               |
| Notes                Receivable                                                                                                          | 3,108                                                         |   | 2,678                                               |
| Other                Current Assets                                                                                                      | 2,838                                                         |   | 3,664                                               |
| Total                Current Assets                                                                                                      | 56,488                                                        |   | 36,360                                              |
|                                                                                                                                     |                                                          |   |                                                |
| Property,                Plant and Equipment (Net of Accumulated Depreciation)                                                 | 41,454                                                        |   | 43,729                                              |
| Construction                in Progress                                                                                                  | ---                                                           |   | 595                                                 |
| Notes                Receivable, less Current Portion                                                                                    | 23,987                                                        |   | 14,234                                              |
| Investments                                                                                                                              | 1,766                                                         |   | 8,251                                               |
| Debt                Issuance Costs (Net of Accumulated Amortization)                                                                     | 11,463                                                        |   | 2,405                                               |
| Deferred                Tax Asset                                                                                                        | 12,178                                                        |   | 11,812                                              |
| Other                Assets                                                                                                              | 7                                                             |   | 257                                                 |
| Foreign                Currency Hedge                                                                                                    | 1,189                                                         |   | --                                                  |
| Assets                to be Disposed of                                                                                                  | ---                                                           |   | 28,180                                              |
| Goodwill                                                                                                                                 | 26,619                                                        |   | 26,218                                              |
| Total                Assets                                                                                                              | $                175,151                                      |   | $                172,041                            |
|                                                                                                                                     |                                                          |   |                                                |
| **LIABILITIES**                                                                                                                          |                                                          |   |                                                |
| Current                Liabilities:                                                                                                      |                                                          |   |                                                |
| Current                Portion Long-term Debt                                                                                            | $1,410                                                        |   | $4,928                                              |
| Notes                Payable - Stockholder                                                                                               | ---                                                           |   | 688                                                 |
| Accounts                Payable and Accrued Expenses                                                                                     | 4,248                                                         |   | 5,887                                               |
| Deferred                Revenue Installment Sale Partnership Interest, Current                Portion                                    | 307                                                           |   | 1,007                                               |
| Total                Current Liabilities                                                                                                 | 5,965                                                         |   | 12,510                                              |
|                                                                                                                                     |                                                          |   |                                                |
| Long-Term                Debt less Current Portion                                                                                       | 82,782                                                        |   | 53,827                                              |
| Notes                Payable - Stockholder                                                                                               | ---                                                           |   | 10,641                                              |
| Deferred                Revenue Installment Sale Partnership Interest, less Current                Portion                               | 16,867                                                        |   | 5,105                                               |
| Deferred                Royalty Liability                                                                                                | 5,686                                                         |   | --                                                  |
| Rate                Incentive Liability                                                                                                  | 25,027                                                        |   | 20,652                                              |
| Advances                from Joint Ventures                                                                                              | ---                                                           |   | 102                                                 |
| Liabilities                to be Disposed of                                                                                             | ---                                                           |   | 21,745                                              |
| Total                Liabilities                                                                                                         | 136,327                                                       |   | 124,582                                             |
|                                                                                                                                     |                                                          |   |                                                |
| Minority                Interests                                                                                                        | 7,099                                                         |   | 8,374                                               |
|                                                                                                                                     |                                                          |   |                                                |
| **STOCKHOLDERS’                EQUITY**                                                                                            |                                                          |   |                                                |
| Preferred                Stock, $.01 par Value, Authorized 10,000,000 Shares:                                                            |                                                          |   |                                                |
| Series                B, Cumulative, Convertible, Issued and Outstanding 368                Shares                                       | ----                                                          |   | ----                                                |
| Series                C Cumulative, Convertible, Issued and Outstanding 100,000                Shares                                    | 1                                                             |   | 1                                                   |
| Series                D, Cumulative, Convertible, Issued and Outstanding 1,138,888                Shares                                 | 11                                                            |   | 11                                                  |
| Common                Stock, $.01 par Value, Authorized 50,000,000 Shares, issued                12,333,974                              | 123                                                           |   | 123                                                 |
| Treasury                Stock, 443,263 Shares of Common Stock and 2,667 shares of preferred                stock,                at cost | (2,204)                                                       |   | (2,204)                                             |
| Additional                Paid-in Capital                                                                                                | 64,270                                                        |   | 64,891                                              |
| Accumulated                Deficit                                                                                                       | (30,553)                                                      |   | (24,159)                                            |
| Other                Comprehensive Income/(Loss)                                                                                         | 77                                                            |   | 422                                                 |
| Stockholders’                Equity                                                                                                | 31,725                                                        |   | 39,085                                              |
| Total                Liabilities and Stockholders’ Equity                                                                          | $                175,151                                      |   | $                172,041                            |

*See      notes to consolidated financial statements*

----

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

**CONSOLIDATED      STATEMENTS OF OPERATIONS AND OTHER COMPRENHENSIVE INCOME**

**(Unaudited)**

|                                                                                                                                                                                                                                  |   | **THREE                MONTHS ENDED** |   | **NINE                MONTHS ENDED** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|--------|--------------------------------------|--------|
|                                                                                                                                                                                                                                  |   | **Sept.                    30, 2004** |   | **Sept.                30, 2003**    |   | **Sept.                30, 2004** |   | **Sept.                30, 2003** |   |
|                                                                                                                                                                                                                                  |   |                                  |   |                                 |   |   |   |   |   |
| Revenues.............................................................................................         |   | $                                     | 6,213  |                                 | $      | 8,706 |   | $ | 15,809 |   | $ | 28,939 |   |
|                                                                                                                                                                                                                                  |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| Costs                and expenses:                                                                                                                                                                                                    |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| Operating                Expenses.............................................................................                    |   |                                  | 2,523  |                                 |   | 4,309 |   |   | 7,454 |   |   | 15,479 |   |
| General                and Administrative Expenses........................................................                                                    |   |                                  | 1,733  |                                 |   | 1,764 |   |   | 3,415 |   |   | 4,793 |   |
| Depreciation                and Amortization...............................................................                                       |   |                                  | 1,232  |                                 |   | 1,078 |   |   | 3,298 |   |   | 3,354 |   |
| (Gain)                from joint ventures......................................................................                               |   |                                  | -      |                                 |   | (227 | ) |   | - |   |   | (556 | ) |
| Reserve                for SEFL Investment..................................................................                                      |   |                                  | (1,087 | )                                    |   | - |   |   | 7,089 |   |   | - |   |
| Total                Costs and Expenses...............................................................                                            |   |                                  | 4,401  |                                 |   | 6,924 |   |   | 21,256 |   |   | 23,070 |   |
|                                                                                                                                                                                                                                  |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| Income                (Loss) From Operations..................................................................                                    |   |                                  | 1,812  |                                 |   | 1,782 |   |   | (5,447 | ) |   | 5,869 |   |
| -                                                                                                                                                                                                                                     |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| Interest                Income......................................................................................  |   |                                  | 806    |                                 |   | 454 |   |   | 1,933 |   |   | 1,084 |   |
| Dividend                Income....................................................................................        |   |                                  | -      |                                 |   | - |   |   | 15 |   |   | 20 |   |
| Other                Income (Loss)...............................................................................             |   |                                  | 2,313  |                                 |   | - |   |   | 2,313 |   |   | - |   |
| Foreign                Currency Transaction Expense                                                                                                                                                                                   |   |                                  | (4,346 | )                                    |   | - |   |   | (3,198 | ) |   | - |   |
| Interest                Expense....................................................................................   |   |                                  | (2,406 | )                                    |   | (2,312 | ) |   | (6,842 | ) |   | (6,689 | ) |
| Transaction                Cost Expenses .......................................................................                          |   |                                  | 45     |                                 |   | - |   |   | (12,185 | ) |   | - |   |
| Minority                Interest....................................................................................      |   |                                  | 525    |                                 |   | (291 | ) |   | 6,227 |   |   | (771 | ) |
|                                                                                                                                                                                                                                  |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| Income                / (Loss) Before Taxes.....................................................................                              |   |                                  | (1,251 | )                                    |   | (367 | ) |   | (17,184 | ) |   | (487 | ) |
| Income                Tax Benefit/(Expense)....................................................................                                   |   |                                  | 575    |                                 |   | 1,084 |   |   | 3,735 |   |   | 2,513 |   |
| Income                (Loss) Before Discontinued Operations and Gain on Sale of                Subsidiaries.......                                                                                                            |   |                                  | (676   | )                                    |   | 717 |   |   | (13,449 | ) |   | 2,026 |   |
|                                                                                                                                                                                                                                  |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| Income                From Discontinued Operations (Net of Tax)..........................................                                                                         |   |                                  | -      |                                 |   | - |   |   | 495 |   |   | - |   |
| Gain                on Sale of Subsidiaries and Partnership Interest(Net                of Income Tax -2004-$2,795 and 2003-$887)...........................................  |   |                                  | -      |                                 |   | - |   |   | 6,560 |   |   | 1,419 |   |
|                                                                                                                                                                                                                                  |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| NET                INCOME(LOSS) ..................................................................................... |   |                                  | (676   | )                                    |   | 717 |   |   | (6,394 | ) |   | 3,445 |   |
|                                                                                                                                                                                                                                  |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| DIVIDENDS                ON PREFERRED STOCK .......................................................                                                               |   |                                  | (207   | )                                    |   | (209 | ) |   | (621 | ) |   | (627 | ) |
|                                                                                                                                                                                                                                  |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| INCOME(LOSS)                APPLICABLE TO COMMON STOCK............................................                                                                            |   | $                                     | (883   | )                                    | $      | 508 |   | $ | (7,015 | ) | $ | 2,818 |   |
|                                                                                                                                                                                                                                  |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| INCOME                (LOSS) PER SHARE OF COMMON STOCK:                                                                                                                                                                               |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| Income                Per Share of Common Stock - Basic...............................................                                                                    |   | $                                     | (.07   | )                                    | $      | .04 |   | $ | (.59 | ) | $ | .24 |   |
| Income                Per Share of Common Stock - Diluted.............................................                                                                        |   | $                                     | --     |                                 | $      | .03 |   | $ | .-- |   | $ | .16 |   |
|                                                                                                                                                                                                                                  |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| Weighted                Average Number of Common Shares Outstanding -                Basic......................                                                                                          |   |                                  | 11,890 |                                 |   | 11,950 |   |   | 11,890 |   |   | 11,950 |   |
| Weighted                Average Number of Common Shares Outstanding -                Diluted....................                                                                                              |   |                                  | 17,053 |                                 |   | 17,115 |   |   | 17,053 |   |   | 17,115 |   |
|                                                                                                                                                                                                                                  |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| OTHER                COMPREHENSIVE INCOME(LOSS), NET OF TAX:                                                                                                                                                                          |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| Net                Income(Loss).................................................................................              |   | $                                     | (676   | )                                    | $      | 717 |   | $ | (6,394 | ) | $ | 3,445 |   |
| Comprehensive                Income/(Loss)..................................................................                                      |   |                                  | 122    |                                 |   | (1,798 | ) |   | (345 | ) |   | (413 | ) |
| Total                Comprehensive Income(Loss)...................................................                                                                |   | $                                     | (554   | )                                    | $      | (1,081 | ) | $ | (6,739 | ) | $ | 3,032 |   |
|                                                                                                                                                                                                                                  |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |

*See      notes to consolidated financial statements*

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

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

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

**(Audited)**

*(in      Thousands, except Share Data)*

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

*See      notes to consolidated financial statements*

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

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

**FOR      THE NINE MONTHS ENDED SEPTEMBER 30, 2004**

**UNADUITED**

*(in      Thousands, except Share Data)*

|                                                             | **Preferred                Stock Series B** | **Preferred                Stock Series C** | **Preferred                Stock Series D** | **Treasury                Stock** | **Common                Stock**     |
|------------------------------------------------------------------|---------------------------------------------|---------------------------------------------|---------------------------------------------|-----------------------------------|-------------------------------------|
|                                                             | **No.                of****Shares**         | **Amount**                                  | **No.                of****Shares**         | **Amount**                        | **No.                of****Shares** | **Amount** | **No.                of****Shares** | **Amount** | **No.                of****Shares** | **Amount** | **Additional                Paid in Capital** | **Other                Comprehensive Loss** | **Accumulated                Deficit** | **Total** |
| Balance                - Dec. 31, 2003                           | 368                                         | -                                           | 100,000                                     | $                1                | 1,138,888                           | $11 | (445,930) | $(2,204) | 12,333,974 | $123 | $64,891 | $422 | $(24,159) | $39,085 |
| Issuance                of Common Stock                          |                                        |                                        |                                        |                              |                                |   |   |   |   |   |   |   |   |   |
| Foreign                Currency Translation Adjustment           |                                        |                                        |                                        |                              |                                |   |   |   |   |   |   |   |   |   |
| Unrealized                Losses                                 |                                        |                                        |                                        |                              |                                |   |   |   |   |   |   | (345) |   | (345) |
| Treasury                Stock                                    |                                        |                                        |                                        |                              |                                |   |   |   |   |   |   |   |   |   |
| Net                Loss for Nine Months Ended September 30, 2004 |                                        |                                        |                                        |                              |                                |   |   |   |   |   |   |   | (6,394) | (6,394) |
| Dividends                on Preferred Stock:                     |                                        |                                        |                                        |                              |                                |   |   |   |   |   |   |   |   |   |
| Series                B                                          |                                        |                                        |                                        |                              |                                |   |   |   |   |   |  (25) |   |   | (25) |
| Series                C                                          |                                        |                                        |                                        |                              |                                |   |   |   |   |   | (135) |   |   | (135) |
| Series                D                                          |                                        |                                        |                                        |                              |                                |   |   |   |   |   | (461) |   |   | (461) |
| Balance                -September                30, 2004        | 368                                         | -                                           | 100,000                                     | $                1                | 1,138,888                           | $11 | (445,930) | $(2,204) | 12,333,974 | $123 | $                64,270 | $77 | $                (30,553) | $(31,725) |

*See      notes to consolidated financial statements*

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

**CONSOLIDATED      STATEMENTS OF CASH FLOWS**

**UNAUDITED**

*(in      Thousands)*

|                                                                                                                                                                                                                                                                                         | **Nine                Months Ended** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------|
|                                                                                                                                                                                                                                                                                         | **Sept.                30, 2004**    |   | **Sept                30, 2003** |
| CASH                FLOWS FROM OPERATING ACTIVITIES:                                                                                                                                                                                                                                         |                                 |   |   |
| Net                Income(Loss)                                                                                                                                                                                                                                                              | $(6,394)                             |   | $3,445 |
| Adjustments                to reconcile Net Income to Net Cash provided by (used in ) Operating                Activities:                                                                                                                                                                   |                                 |   |   |
| Depreciation....................................................................................................                                         | 2,799                                |   | 3,354 |
| Amortization......................................................................................................                                   | 500                                  |   | --- |
| Minority                Interest Expense/Liability                                                                                                                                                                                                                                           | 860                                  |   | 586 |
| Income                Tax Benefit                                                                                                                                                                                                                                                            | 7,705                                |   | (1,952) |
| Foreign                Currency Transaction                                                                                                                                                                                                                                                  | 3,198                                |   | --- |
| Gain                on Sale of Subsidiaries ...................................................................................                                                  | (20,561)                             |   | (1,419) |
| Reserve                for Investment in SEFL ..............................................................................                                                         | 8,337                                |   | --- |
| Changes                In:                                                                                                                                                                                                                                                                   |                                 |   |   |
| Accounts                and Notes Receivable Trade                                                                                                                                                                                                                                           | 3,473                                |   | 1,525 |
| Other                Current Assets                                                                                                                                                                                                                                                          | 826                                  |   | (1,755) |
| Other                Assets                                                                                                                                                                                                                                                                  | 250                                  |   | 11 |
| Accounts                Payable and Accrued Expenses                                                                                                                                                                                                                                         | (1,741)                              |   | (27) |
| Deferred                Revenue and Other                                                                                                                                                                                                                                                    | (2,938)                              |   | 468 |
| Rate                Incentive Liability                                                                                                                                                                                                                                                      | 4,375                                |   | 4,710 |
| Net                Effect of Discontinued Operations                                                                                                                                                                                                                                         | ---                                  |   | --- |
| Net                Cash Provided by Operating Activities                                                                                                                                                                                                                                     | 689                                  |   | 8,946 |
|                                                                                                                                                                                                                                                                                         |                                 |   |   |
| CASH                FLOWS FROM INVESTING ACTIVITIES:                                                                                                                                                                                                                                         |                                 |   |   |
| Restricted                Investments................................................................................................                            | (18,068)                             |   | --- |
| Change                in Investments ...............................................................................................                             | 15,776                               |   | (885) |
| Acquisitions                of Property and Equipment                                                                                                                                                                                                                                        | (524)                                |   | (1,924) |
| Construction                in Progress                                                                                                                                                                                                                                                      | 595                                  |   | (1,244) |
| Goodwill                ................................................................................................................ | (400)                                |   | --- |
| Net                Cash Used by Investing Activities                                                                                                                                                                                                                                         | (2,621)                              |   | (4,053) |
|                                                                                                                                                                                                                                                                                         |                                 |   |   |
| CASH                FLOWS FROM FINANCING ACTIVITIES:                                                                                                                                                                                                                                         |                                 |   |   |
| Proceeds                from Notes Receivable .....................................................................................                                          | 69                                   |   | --- |
| Proceeds                from Long-Term Debt                                                                                                                                                                                                                                                  | 22,088                               |   | --- |
| Payments                of Long Term Debt ........................................................................................                                       | (9,274)                              |   | (1,121) |
| Debt                Issuance Costs                                                                                                                                                                                                                                                           | (9,558)                              |   | --- |
| Deferred                Royalty Liability...........................................................................................                                 | 5,686                                |   | --- |
| Transaction                Cost Expenses ............................................................................................                                    | ---                                  |   | --- |
| Dividends                on Preferred Stock                                                                                                                                                                                                                                                  | (621)                                |   | (627) |
| Net                Cash Provided by or Used in Financing Activities                                                                                                                                                                                                                          | 8,390                                |   | (1,748) |
|                                                                                                                                                                                                                                                                                         |                                 |   |   |
| NET                INCREASE IN CASH                                                                                                                                                                                                                                                          | 6,458                                |   | 3,145 |
|                                                                                                                                                                                                                                                                                         |                                 |   |   |
| Cash,                restricted cash and cash equivalents - beginning of                period....................................................                                                                       | 20,913                               |   | 16,215 |
| Cash,                restricted cash and cash equivalents - end of                period...........................................................                                                                  | $27,371                              |   | $19,360 |
|                                                                                                                                                                                                                                                                                         |                                 |   |   |
| Supplemental                disclosure of cash flow information:                                                                                                                                                                                                                             |                                 |   |   |
| Cash                paid for interest..................................................................................................                      | $5,452                               |   | $5,181 |
| Contingent                Note Receivable ........................................................................................                                       | 2,502                                |   | --- |
| Note                Receivable from Sale of Partnership                Interest.................................................................                                                         | 14,000                               |   | --- |
| Gain                on Acquisition of Debt                                                                                                                                                                                                                                                   | 2,728                                |   | --- |

*See      notes to consolidated financial statements*

----

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

**NOTE      A - BASIS OF PRESENTATION **

**NOTE      B - RESTATEMENT**

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

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

----

| **CONSOLIDATED                  BALANCE SHEET AT SEPTEMBER 30, 2004** |   |
|-----------------------------------------------------------------------|--------|
|                                                                  |   |
|                                                                  |   | **AFTER                  FOREIGN CURRENCY TRANSACTION AND GAIN RECOGNITION                  RESTATEMENT** |   | **AFTER                  FOREIGN CURRENCY TRANSACTION RESTATEMENT** |   | **AS                  ORIGINALLY REPORTED** |   |
| Foreign                  Currency Hedge                               |   | $ | 1,189 |   | $ | 1,189 |   | $ | 1,213 |   |
| Deferred                  Tax Asset                                   |   | $ | 12,178 |   | $ | 12,178 |   | $ | 10,954 |   |
| Total                  Assets                                         |   | $ | 175,151 |   | $ | 175,151 |   | $ | 173,951 |   |
| Long-Term                  Debt                                       |   | $ | 84,192 |   | $ | 84,192 |   | $ | 80,842 |   |
| Deferred                  Revenue                                     |   | $ | 17,174 |   | $ | 3,174 |   | $ | 3,174 |   |
| Minority                  Interests                                   |   | $ | 7,099 |   | $ | 13,501 |   | $ | 14,381 |   |
| Total                  Liabilities                                    |   | $ | 143,426 |   | $ | 135,828 |   | $ | 133,358 |   |
| Accumulated                  Deficit                                  |   | $ | (30,553 | ) | $ | (22,235 | ) | $ | (21,910 | ) |
| Acc.                  Other Comprehensive Income                      |   | $ | (77 | ) | $ | (77 | ) | $ | 302 |   |
| Total                  Stockholder Equity                             |   | $ | 31,725 |   | $ | 39,323 |   | $ | 40,593 |   |
| Total                  Liabilities and Stockholder Equity             |   | $ | 175,151 |   | $ | 175,151 |   | $ | 173,951 |   |

| **STATEMENT                  OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30,                  2004** |   |
|-------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                        |   | **AFTER                  FOREIGN CURRENCY TRANSACTION AND GAIN RECOGNITION                  RESTATEMENT** |   | **AFTER                  FOREIGN CURRENCY TRANSACTION RESTATEMENT** |   | **AS                  ORIGINALLY REPORTED** |   |
| Foreign                  Currency Transaction Expense                                                       |   | $ | (4,346 | ) | $ | (4,346 | ) | $ | ----- |   |
| Gain                  on Sale of Subsidiary                                                                 |   | $ | ---- |   | $ | ---- |   | $ | ----- |   |
| Minority                  Interest                                                                          |   | $ | 525 |   | $ | 525 |   | $ | (670 | ) |
| Income                  Tax Benefit(Expense)                                                                |   | $ | 575 |   | $ | 575 |   | $ | (1,157 | ) |
| Net                  Income(Loss)                                                                           |   | $ | (676 | ) | $ | (676 | ) | $ | 743 |   |
| Net                  Income(Loss) Applicable to Common                  Stock                               |   | $ | (883 | ) | $ | (883 | ) | $ | 536 |   |
| Income(Loss)                  Per Share of Common Stock                                                     |   | $ | (0.07 | ) | $ | (0.07 | ) | $ | 0.04 |   |

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

**NOTE      D — STOCK-BASED COMPENSATION**

**NOTE      E — FOREIGN CURRENCY**

**NOTE      F — INVESTMENTS IN DERIVATIVES**

**NOTE      G - INCOME TAXES **

**NOTE      H - ADDITIONAL CAPITAL **

**NOTE      I- INVESTMENTS**

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

----

**NOTE      J — FOREIGN CURRENCY TRANSACTIONS**

| Currency                  Exchange Rate at Loan Origination, April 8, 2004 |   | $      | 1.3140 |   |
|----------------------------------------------------------------------------|--------|--------|--------|--------|
| Currency                  Exchange Rate as of June 30, 2004                |   | $      | 1.3338 |   |
| Currency                  Exchange Rate as of September 30, 2004           |   | $      | 1.2616 |   |
| Cumulative                  Translation Adjustments Beginning              |   |   |   |   |
| Of                  Reporting Period                                       |   | $      | 1,148  |   |
| Cumulative                  Translation Adjustments End                    |   |   |   |   |
| Of                  Reporting Period                                       |   | $      | (3,198 | )      |
| Aggregate                  Adjustment for the Current                      |   |   |   |   |
| Reporting                  Period Income/ (Expense)                        |   | $      | (4,346 | )      |
| Deferred                  Income Taxes Allocated                           |   |   |   |   |
| To                  Adjustment in the Reporting Period                     |   | $      | 1,732  |   |

----

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

**NOTE      L - ACCOUNTING CHANGES**

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

**NOTE      M - SALE OF SUBSIDIARIES**

**Introduction**

**Sale      of Canadian District Energy Systems**

**USEB      Loans**

----

**USEB      Royalty Interest**

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

**Development      Agreement with Cinergy and US Energy**

**Improvement      Agreement with USEB and CPIF**

----

**AJG      Genco Transaction**

**NOTE      N - BASIS OF PRESENTATION**

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

----

**NOTE      P — DISCONTINUED OPERATIONS**

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

**NOTE      Q — OTHER INCOME - ACQUISITION OF INDEBTEDNESS**

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

**RESULTS      OF OPERATIONS**

----

|                                     |   | **Three                  Months Ended****(in                  thousands)** |   | **Nine                  Months Ended****(in                  thousands)** |   |
|------------------------------------------|--------|----------------------------------------------------------------------------|--------|---------------------------------------------------------------------------|--------|
|                                     |   | **Sept.                  30, 2004**                                        |   | **Sept.                  30, 2003**                                       |   | **Sept.                  30, 2004** |   | **Sept.                  30, 2003** |   |
| USE                  Canada Revenues     |   |                                                                       | -      |                                                                      | $      | 2,315 |   |   | - |   | $ | 9,456 |   |
| USE                  Geothermal Revenues |   |                                                                       | -      |                                                                      |   | - |   |   | - |   |   | 1,003 |   |
| Total                                    |   |                                                                       | -      |                                                                      | $      | 2,315 |   |   | - |   | $ | 10,459 |   |

|                                               |   | **Three                    Months Ended****(in                    thousands)** |                                  | **Nine                    Months Ended****(in                    thousands)** |   |
|----------------------------------------------------|--------|--------------------------------------------------------------------------------|---------------------------------------|-------------------------------------------------------------------------------|--------|
|                                               |   |                                                                           | **Sept.                    30, 2004** |                                                                          |   | **Sept.                    30, 2003** |   |   | **Sept.                    30, 2004** |   |   | **Sept.                    30, 2003** |   |
| USE                      Canada Operating Expenses |   |                                                                           | -                                     |                                                                          | $      | 1,494 |   |   | - |   | $ | 6,702 |   |
| USE                    Geothermal Operating   |   |                                                                           | -                                     |                                                                          |   | - |   |   | - |   |   | 400 |   |
|                                               |   |                                                                           | -                                     |                                                                          | $      | 1,494 |   |   | - |   | $ | 7,102 |   |

|                                                           |   | **Three                  Months Ended****(in                  thousands)** |   | **Nine                  Months Ended****(in                  thousands)** |   |
|----------------------------------------------------------------|--------|----------------------------------------------------------------------------|--------|---------------------------------------------------------------------------|--------|
|                                                           |   | **Sept.                  30, 2004**                                        |   | **Sept.                  30, 2003**                                       |   | **Sept.                  30, 2004** |   | **Sept.                  30,2003** |   |
| Salaries,                  Incentives & Other Compensation |   | $                                                                          | 423    |                                                                      | $      | 527 |   | $ | 4,706 |   | $ | 1,745 |   |
| Legal                  and Professional                        |   |                                                                       | 89     |                                                                      |   | 231 |   |   | 320 |   |   | 556 |   |
| Insurance                                                      |   |                                                                       | 110    |                                                                      |   | 117 |   |   | 389 |   |   | 504 |   |
| Corporate                  Expenses                            |   |                                                                       | 132    |                                                                      |   | 286 |   |   | 346 |   |   | 656 |   |
| Other                                                          |   |                                                                       | 979    |                                                                      |   | 603 |   |   | 1,115 |   |   | 1,332 |   |
| CPIF                  Transaction Costs                        |   |                                                                       | -      |                                                                      |   | - |   |   | 1,378 |   |   | - |   |
| CPIF                  Expense Reimbursement                    |   |                                                                       | -      |                                                                      |   | - |   |   | (4,839 | ) |   | - |   |
| Total                                                          |   | $                                                                          | 1,733  |                                                                      | $      | 1,764 |   | $ | 3,415 |   | $ | 4,793 |   |

|                            |   | **Three                  Months Ended****(in                  thousands)** |                                | **Nine                  Months Ended****(in                  thousands)** |   |
|---------------------------------|--------|----------------------------------------------------------------------------|-------------------------------------|---------------------------------------------------------------------------|--------|
|                            |   |                                                                       | **Sept.                  30, 2004** |                                                                      |   | **Sept.                  30, 2003** |   |   | **Sept.                  30, 2004** |   |   | **Sept.                  30, 2003** |   |
| USE                  Canada     |   |                                                                       | -                                   |                                                                      | $      | 186 |   |   | - |   | $ | 550 |   |
| USE                  Geothermal |   |                                                                       | -                                   |                                                                      |   | - |   |   | - |   |   | 322 |   |
| -                               |   |                                                                       |                                |                                                                      | $      | 186 |   |   | - |   | $ | 872 |   |

|                                         |   | **Three                  Months Ended****(in                  thousands)** |                                | **Nine                  Months Ended****(in                  thousands)** |   |
|----------------------------------------------|--------|----------------------------------------------------------------------------|-------------------------------------|---------------------------------------------------------------------------|--------|
|                                         |   |                                                                       | **Sept.                  30, 2004** |                                                                      |   | **Sept.                  30, 2003** |   |   | **Sept.                  30, 2004** |   |   | **Sept.                  30, 2003** |   |
| USE                  Canada Depreciation     |   |                                                                       | -                                   |                                                                      | $      | 194 |   |   | - |   | $ | 565 |   |
| USE                  Geothermal Depreciation |   |                                                                       | -                                   |                                                                      |   | - |   |   | - |   |   | 126 |   |
| -                                            |   |                                                                       |                                |                                                                      | $      | 194 |   |   | - |   | $ | 691 |   |

----

|                                                            |   | **Three                  Months Ended****(in                  thousands)** |                                            | **Nine                  Months Ended****(in                  thousands)** |   |
|-----------------------------------------------------------------|--------|----------------------------------------------------------------------------|-------------------------------------------------|---------------------------------------------------------------------------|--------|
|                                                                 |   |                                                                       |  **Sept.                  30, 2004**  |                                                                      |   | **Sept.                  30, 2003** |   |   | **Sept.                  30, 2004** |   |   | **Sept.                  30, 2003** |   |
|                      USE Canada Interest Expense |   |                                                                       | -                                               |                                                                      | $      | 326 |   |   | - |   | $ | 963 |   |
|                      USE Geothermal Interest     |   |                                                                       | -                                               |                                                                      |   | - |   |   | - |   |   | - |   |
| Expense                                                         |   |                                                                       |   -                                   |                                                                      | $      | 194 |   |   | - |   | $ | 963 |   |

----

**LIQUIDITY      AND CAPITAL RESOURCES**

|                                                              |   | **As                  of September 30, 2004****(in                  thousands)** |   | **As                  of December 31, 2003****(in                  thousands)** |   |
|-------------------------------------------------------------------|--------|----------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------|--------|
| Illinois                  Reserve Account - Cash                  |   | $                                                                                | 3,016  |                                                                            | $      | 11,192 |   |
| Illinois                  Reserve Account - Marketable Securities |   |                                                                             | 17,539 |                                                                            |   | - |   |
| Debt                  Service Reserve Account                     |   |                                                                             | 2,005  |                                                                            |   | - |   |
| Construction                  Reserve Account                     |   |                                                                             | 4,010  |                                                                            |   | - |   |
| Lender                  Reserve Account                           |   |                                                                             | -      |                                                                            |   | 5,750 |   |
| Dividend                  Reserve Account                         |   |                                                                             | 1,408  |                                                                            |   | 731 |   |
| Other                  Reserve Accounts                           |   |                                                                             | 138    |                                                                            |   | 30 |   |
| Total                                                             |   | $                                                                                | 28,116 |                                                                            | $      | 17,703 |   |

----

**CAUTIONARY      STATEMENT RELATING TO FORWARD LOOKING STATEMENTS**

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

**Item      4: Controls and Procedures**

**PART      II - Other Information**

**Item      6 - Exhibits**

| **Exhibit****Number** | **Description**                                                                                     |
|-----------------------|-----------------------------------------------------------------------------------------------------|
| 18.1                  | Letter                dated August 22, 2005 from Kostin, Ruffkess & Company,                LLC |
| 13.1                  | Rule                13a-14(a)/15d-14(a) certifications.                                             |
| 31.2                  | Rule                13a-14(a)/15d-14(a) certifications.                                             |
| 32.1                  | Section                1350 certification.                                                          |

----

**SIGNATURES**

| /s/                  Asher E. Fogel                           |   |                                   |
|---------------------------------------------------------------|--------|----------------------------------------|
| Asher                  E. Fogel                               |   | Dated:                  March 13, 2005 |
| Chief                  Executive Officer                      |   |                                   |
| (Principal                  Executive Officer)                |   |                                   |
|                                                          |   |                                   |
|                                                          |   |                                   |
|                                                          |   |                                   |
|                                                          |   |                                   |
| /s/                  Richard J. Augustine                     |   |                                   |
| Richard                  J. Augustine                         |   | Dated:                  March 13, 2005 |
| Chief                  Accounting Officer                     |   |                                   |
| (Principal                  Accounting and Financial Officer) |   |                                   |