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

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-Q

(Mark One)

      |X|   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
            EXCHANGE ACT OF 1934

            For the quarterly period ended June 30, 2003

                                       OR

      |_|   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 other 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
              (Registrant's telephone number, Including area code)

                                   Registrant

Indicate by check mark whether the issuer: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 |_|

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

                             Yes |X|         No |_|

      State the number of shares outstanding of each of issuer's classes of
common equity, as of August 14, 2003:

      Title of Class                                       Number of Shares
       Common Stock                                           11,950,524

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


                                       1
<PAGE>

                   U.S. ENERGY SYSTEMS, INC. AND SUBSIDIARIES

                                    CONTENTS

PART I: FINANCIAL INFORMATION

<TABLE>
<CAPTION>
                                                                                            PAGE
<S>                                                                                       <C>
Item 1. Financial Statements

      Consolidated Balance Sheets as of June 30, 2003 and December 31, 2002 ...........        3

      Consolidated Statements of Operations for the three and six months
      ended June 30, 2003 and 2002 ....................................................        4

      Consolidated Statements of Changes in Stockholders' Equity for the six
      months ended June 30, 2003 and 2002 .............................................    5 & 6

      Consolidated Statements of Cash Flow for the six months ended  June 30, 2003
      and 2002 ........................................................................        7

      Notes to Consolidated Financial Statements ......................................        8

Item 2. Management's Discussion and Analysis of Financial Condition and Results of
        Operations ....................................................................       12

Item 3. Quantitative and Qualitative Disclosures About Market Risk ....................       13

Item 4. Controls and Procedures .......................................................       13

PART II: OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K ..............................................       14

Signature .............................................................................   21, 22
</TABLE>


                                       2
<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

                   U.S. ENERGY SYSTEMS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                 (in Thousands)

<TABLE>
<CAPTION>
ASSETS                                                                                       June 30, 2003   December 31, 2002
                                                                                               (Unaudited)        (Audited)
                                                                                             -------------     ------------
<S>                                                                                              <C>              <C>
Current Assets:
      Cash ...............................................................................       $   5,358        $   2,968
      Restricted Cash ....................................................................          16,062           13,247
      Accounts Receivable (less allowance for doubtful accounts $1,200,000) ..............          10,424            9,851
      Installments Sale Partnership Interest and Interest Receivable, Current Portion ....           5,777            4,421
      Other Current Assets ...............................................................           2,549            2,339
                                                                                                 ---------        ---------
           Total Current Assets, Net .....................................................          40,170           32,826

      Property, Plant and Equipment, Net .................................................          64,768           65,468
      Construction in Progress ...........................................................           3,542            3,076
      Installment Sale Partnership Interest, less Current Portion ........................          13,696           14,945
      Notes Receivable ...................................................................          59,022           51,450
      Investments ........................................................................           7,945            7,613
      Deferred Costs, including Debt Issuance Costs, Net of Accumulated Amortization .....           3,025            2,745
      Goodwill ...........................................................................          28,148           28,148
      Deferred Tax Asset .................................................................          17,805           17,405
      Other Assets .......................................................................             261              571
                                                                                                 ---------        ---------
           Total Assets ..................................................................       $ 238,382        $ 224,247
                                                                                                 =========        =========

LIABILITIES
Current Liabilities:
      Current Portion Long-term Debt .....................................................           6,310        $   6,050
      Notes Payable - Stockholder ........................................................           6,132            6,132
      Accounts Payable and Accrued Expenses ..............................................          13,188           14,276
      Deferred Revenue Installment Sale Partnership Interest, Current Portion ............           1,007            1,007
                                                                                                 ---------        ---------
           Total Current Liabilities .....................................................          26,637           27,465

      Long-Term Debt less Current Portion ................................................         118,268          111,692
      Notes Payable - Stockholder ........................................................           4,772            4,798
      Deferred Revenue Installment Sale Partnership Interest, less Current Portion .......           5,412            6,085
      Rate Incentive Liability ...........................................................          18,940           15,200
      Advances from Joint Ventures .......................................................             102              102
                                                                                                 ---------        ---------
           Total Liabilities .............................................................         174,131          165,342
                                                                                                 ---------        ---------

      Minority Interests .................................................................          18,090           17,308
                                                                                                 ---------        ---------

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 ............             124              123
Treasury Stock, 383,450 Shares of Common Stock at Cost ...................................          (1,805)          (1,805)
Additional Paid-in Capital ...............................................................          65,302           65,720
Accumulated Deficit ......................................................................         (20,383)         (23,154)
Foreign Currency Translation Adjustment ..................................................           2,911              701
                                                                                                 ---------        ---------
      Stockholders' Equity ...............................................................          46,161           41,597
                                                                                                 ---------        ---------
      Total Liabilities and Stockholders' Equity .........................................       $ 238,382        $ 224,247
                                                                                                 =========        =========
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

                 See notes to consolidated financial statements


                                       3
<PAGE>

                   U.S. ENERGY SYSTEMS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (in Thousands, except Earning per Share)

<TABLE>
<CAPTION>
                                                                          THREE MONTHS ENDED               SIX MONTHS ENDED
                                                                     -----------------------------   -----------------------------
                                                                     June 30, 2003   June 30, 2002   June 30, 2003   June 30, 2002
                                                                      (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)
                                                                     -------------   -------------   -------------   -------------
<S>                                                                     <C>             <C>             <C>             <C>
Revenues ...........................................................    $ 10,657        $ 10,772        $ 22,506        $ 20,652
                                                                        --------        --------        --------        --------
Costs and Expenses:
      Operating Expenses ...........................................       6,271           5,395          12,600          11,498
      Operating ,general and administrative expenses-non recurring .          --              --              --          10,234
      General and administrative expenses ..........................       1,406           1,991           2,925           3,713
      Depreciation and Amortization ................................       1,133           1,307           2,277           2,625
      Loss (gain) from Joint Ventures ..............................          --             (60)             --             (75)
                                                                        --------        --------        --------        --------
Total Costs and Expenses ...........................................       8,810           8,633          17,802          27,995
                                                                        --------        --------        --------        --------

INCOME (LOSS) FROM OPERATIONS ......................................       1,847           2,139           4,704          (7,343)

Interest Income ....................................................         298             455             635             850
Interest Expense ...................................................      (2,196)         (2,102)         (4,377)         (4,373)
Dividend Income ....................................................                          41              20              41
Minority Interest ..................................................        (287)           (405)           (782)           (388)
                                                                        --------        --------        --------        --------

Income (loss) before Taxes .........................................        (338)            128             200         (11,213)
Income Tax Benefit .................................................         618             190           1,152           5,255
                                                                        --------        --------        --------        --------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES ..............         280             318           1,352          (5,958)
Gain on disposal of subsidiary (net of income tax of $887 in 2003
and, $113 in 2002) .................................................       1,419             170           1,419             170
Cumulative effect of Accounting change on years prior to 2002
   (Net of Income Tax Benefit of $546) .............................          --              --                            (754)
                                                                        --------        --------        --------        --------

NET INCOME (LOSS) ..................................................       1,699             488           2,771          (6,542)

Dividends on Preferred Stock .......................................        (209)           (211)           (419)           (416)
                                                                        --------        --------        --------        --------

INCOME (LOSS) APPLICABLE TO COMMON STOCK ...........................    $  1,490        $    277        $  2,352        $ (6,958)
                                                                        ========        ========        ========        ========

INCOME (LOSS) PER SHARE OF COMMON STOCK:
      Income (Loss) per Share of Common Stock - Basic ..............    $   0.12        $   0.02        $   0.20        $  (0.57)
                                                                        ========        ========        ========        ========
      Income (Loss) per Share of Common Stock - Diluted ............    $   0.10        $   0.03        $   0.16        $  (0.57)
                                                                        ========        ========        ========        ========

   Weighted Average Number of Common Stock Outstanding - Basic .....      11,950          12,202          11,950          12,203
   Weighted Average Number of Common Stock Outstanding - Diluted ...      17,115          17,617          17,115          12,203
                                                                        ========        ========        ========        ========

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
      Net  Income (Loss) ...........................................    $  1,968        $    488        $  3,041        $ (6,542)
      Foreign Currency Translation Adjustment ......................       2,295             (37)          2,210              (8)
                                                                        --------        --------        --------        --------

Total Comprehensive  Income (Loss) .................................    $  4,263        $    451        $  5,251        $ (6,550)
                                                                        ========        ========        ========        ========
</TABLE>

                 See notes to consolidated financial statements


                                       4
<PAGE>

                 See notes to consolidated financial statements
                    U.S. ENERGY SYSTEMS, INC AND SUBSIDIARIES
                      FOR THE YEAR ENDED DECEMBER 31, 2002
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                        (in Thousands, except Share Data)

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
                                Preferred Stock        Preferred Stock         Preferred Stock
                                Series B               Series C                Series D
-------------------------------------------------------------------------------------------------


                                No. of                No. of                     No. of
                                Shares   Amount        Shares    Amount          Shares    Amount
-------------------------------------------------------------------------------------------------
<S>                                <C>      <C>       <C>           <C>       <C>             <C>
Balance - December 31, 2001        368       --       100,000       $ 1       1,138,888       $11
-------------------------------------------------------------------------------------------------
Shares Issued for Exercised
Options and Warrants                --       --            --        --              --        --
-------------------------------------------------------------------------------------------------

Issuance of Common Stock            --       --            --        --              --        --
-------------------------------------------------------------------------------------------------

Treasury Stock                      --       --            --        --              --        --
-------------------------------------------------------------------------------------------------

Foreign Currency Tra0nslation
Adjustment                          --       --            --        --              --        --
-------------------------------------------------------------------------------------------------

Net Loss for the year ended
December 31, 2002                   --       --            --        --              --        --
-------------------------------------------------------------------------------------------------

Dividends on Preferred Stock:
-------------------------------------------------------------------------------------------------
Series B                            --       --            --        --              --        --
-------------------------------------------------------------------------------------------------
Series C                            --       --            --        --              --        --
-------------------------------------------------------------------------------------------------
Series D                            --       --            --        --              --        --
-------------------------------------------------------------------------------------------------

Balance - December 31, 2002        368       --       100,000       $ 1       1,138,888       $11
=================================================================================================

<CAPTION>
----------------------------------------------------------------------------------------------------

                                  Treasury Stock                   Common Stock
----------------------------------------------------------------------------------------------------

                                                                                         Additional
                                  No. of                           No. of                   Paid in
                                  Shares         Amount            Shares     Amount        Capital
----------------------------------------------------------------------------------------------------
<S>                             <C>             <C>            <C>              <C>        <C>
Balance - December 31, 2001     (114,700)       $  (495)       12,065,000       $121       $ 65,647
----------------------------------------------------------------------------------------------------
Shares Issued for Exercised
Options and Warrants                  --             --           120,637          1            230
----------------------------------------------------------------------------------------------------

Issuance of Common Stock              --             --           147,976          1            674
----------------------------------------------------------------------------------------------------

Treasury Stock                  (268,750)        (1,310)               --         --             --
----------------------------------------------------------------------------------------------------

Foreign Currency Tra0nslation
Adjustment                            --             --                --         --             --
----------------------------------------------------------------------------------------------------

Net Loss for the year ended
December 31, 2002                     --             --                --         --             --
----------------------------------------------------------------------------------------------------

Dividends on Preferred Stock:
----------------------------------------------------------------------------------------------------
Series B                              --             --                --         --            (36)
----------------------------------------------------------------------------------------------------
Series C                              --             --                --         --           (180)
----------------------------------------------------------------------------------------------------
Series D                              --             --                --         --           (615)
----------------------------------------------------------------------------------------------------

Balance - December 31, 2002     (383,450)       $(1,805)       12,333,613       $123       $ 65,720
====================================================================================================

<CAPTION>
--------------------------------------------------------------------------


--------------------------------------------------------------------------
                                    Foreign
                                   Currency
                                Translation    Accumulated
                                 Adjustment        Deficit           Total
--------------------------------------------------------------------------
<S>                                    <C>        <C>             <C>
Balance - December 31, 2001            $406       $ (7,733)       $ 57,958
--------------------------------------------------------------------------
Shares Issued for Exercised
Options and Warrants                     --             --             231
--------------------------------------------------------------------------

Issuance of Common Stock                 --             --             675
--------------------------------------------------------------------------

Treasury Stock                           --             --          (1,310)
--------------------------------------------------------------------------

Foreign Currency Tra0nslation
Adjustment                              295             --             295
--------------------------------------------------------------------------

Net Loss for the year ended
December 31, 2002                        --        (15,421)        (15,421)
--------------------------------------------------------------------------

Dividends on Preferred Stock:
--------------------------------------------------------------------------
Series B                                 --             --             (36)
--------------------------------------------------------------------------
Series C                                 --             --            (180)
--------------------------------------------------------------------------
Series D                                 --             --            (615)
--------------------------------------------------------------------------

Balance - December 31, 2002            $701       $(23,154)       $ 41,597
==========================================================================
</TABLE>

                 See notes to consolidated financial statements


                                       5
<PAGE>

                    U.S. ENERGY SYSTEMS, INC AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
               FOR THE SIX MONTHS ENDED JUNE 30, 2003 (UNAUDITED)
                        (in Thousands, except Share Data)

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
                                        PREFERRED           PREFERRED                PREFERRED
                                     STOCK SERIES B       STOCK SERIES C           STOCK SERIES D            TREASURY STOCK
-------------------------------------------------------------------------------------------------------------------------------
                                    Number               Number                  Number                   Number
                                      of                   of                      of                       of
                                    Shares     Amount    Shares     Amount       Shares       Amount      Shares        Amount
-------------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>         <C>     <C>         <C>        <C>             <C>      <C>           <C>
Balance - December 31, 2002          368         --      100,000     $ 1        1,138,888       $11      (383,450)     $(1,805)
-------------------------------------------------------------------------------------------------------------------------------

Shares Issued for Exercised
   Options and Warrants
-------------------------------------------------------------------------------------------------------------------------------

Issuance of Common Stock
-------------------------------------------------------------------------------------------------------------------------------
   Foreign Currency Translation
   Adjustment
-------------------------------------------------------------------------------------------------------------------------------

Net Income for the six months
ended June 30, 2003
-------------------------------------------------------------------------------------------------------------------------------

Dividends on Preferred Stock:
-------------------------------------------------------------------------------------------------------------------------------
   Series B
-------------------------------------------------------------------------------------------------------------------------------
   Series C
-------------------------------------------------------------------------------------------------------------------------------
   Series D
-------------------------------------------------------------------------------------------------------------------------------

Balance -June 30, 2003               368                 100,000     $ 1        1,138,888       $11      (383,450)     $(1,805)
===============================================================================================================================


<CAPTION>
---------------------------------------------------------------------------------------------------------------

                                             COMMON STOCK
---------------------------------------------------------------------------------------------------------------
                                                             Additional    Accumulated
                                    Number                     Paid-In    Comprehensive   Accumulated
                                    of Shares      Amount      Capital        Income        Deficit     Total
---------------------------------------------------------------------------------------------------------------
<S>                                 <C>            <C>        <C>             <C>          <C>         <C>
Balance - December 31, 2002         12,333,613     $123       $ 65,720        $  701       $(23,154)   $41,597
---------------------------------------------------------------------------------------------------------------

Shares Issued for Exercised
   Options and Warrants
---------------------------------------------------------------------------------------------------------------

Issuance of Common Stock                  361         1                                                      1
---------------------------------------------------------------------------------------------------------------
   Foreign Currency Translation
   Adjustment                                                                  2,210                     2,210
---------------------------------------------------------------------------------------------------------------

Net Income for the six months
ended June 30, 2003                                                                           2,771      2,771
---------------------------------------------------------------------------------------------------------------

Dividends on Preferred Stock:
---------------------------------------------------------------------------------------------------------------
   Series B                                                        (18)                                    (18)
---------------------------------------------------------------------------------------------------------------
   Series C                                                        (90)                                    (90)
---------------------------------------------------------------------------------------------------------------
   Series D                                                       (310)                                   (310)
---------------------------------------------------------------------------------------------------------------

Balance -June 30, 2003             12,133,974      $124       $ 65,302        $2,911       $(20,383)   $46,161
===============================================================================================================
</TABLE>

                 See notes to consolidated financial statements


                                       6
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                          SIX MONTHS ENDED
                                                                                  June 30, 2003     June 30, 2002
                                                                                    (Unaudited)       (Unaudited)
<S>                                                                                    <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
      Net Income (Loss) ........................................................       $  2,771          $ (6,542)

      Adjustments to reconcile Net Income to Net Cash provided by (used in)
      Operating Activities:
           Depreciation and Amortization .......................................          2,176             2,625
           Gain on Sale of Segment .............................................         (1,419)             (170)
           Recognition of Development Costs ....................................             --             1,900
           Minority Interest Income ............................................            782               388
           Deferred Tax Asset ..................................................           (400)           (5,597)
           Write Down of Fixed Assets ..........................................             --             3,893
           Write Down of Investments ...........................................             --               830
           Equity in (Gain) Loss of Joint Ventures .............................             --               (75)
           Cumulative Effects of Accounting Change on Years Prior to 2002
           (Net of Income Tax of $546) .........................................             --               754
      Changes In:
           Accounts Receivable and Other .......................................           (708)            2,026
           Other Current Assets ................................................           (210)              273
           Other Assets ........................................................            310             1,448
           Accounts Payable and Accrued Expenses ...............................           (588)              249
           Minority Interest Liability .........................................             --             5,181
           Deferred Revenue and Other ..........................................           (673)             (538)
           Rate Incentive Liability ............................................          3,740             2,561
                                                                                       --------          --------
      Net Cash provided by Operating Activities ................................          5,781             9,206
                                                                                       --------          --------

CASH FLOWS FROM INVESTING ACTIVITIES:
      Change in Investments ....................................................          1,974              (136)
      Acquisitions of Property and Equipment ...................................         (1,474)             (494)
      Change in Property and Equipment .........................................             --           (57,250)
      Construction in Progress .................................................           (466)             (763)
      Deferred Financial Costs .................................................           (280)           (1,233)
                                                                                       --------          --------
      Net Cash( provided by) used in Investing Activities ......................           (246)          (59,876)
                                                                                       --------          --------

CASH FLOWS FROM FINANCING ACTIVITIES:
      Payment of Long-Term Debt ................................................         (1,121)           (2,474)
      Proceeds from Notes Receivable ...........................................           (107)              686
      Net Proceeds from Long Term Debt .........................................          1,418            45,613
      Proceeds from Exercise of Options and Warrants ...........................             --               231
      Dividends on Preferred Stock .............................................           (418)             (416)
      Debt Issuance Costs ......................................................           (102)              (19)
                                                                                       --------          --------
      Net Cash used in (provided by) Financing Activities ......................           (330)           43,621
                                                                                       --------          --------

NET INCREASE (DECREASE) IN CASH ................................................          5,205             (7049)
      Cash - Beginning of period ...............................................         16,215            25,415
      Cash - End of period .....................................................       $ 21,420          $ 18,366
                                                                                       --------          --------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
      Cash Paid for Interest ...................................................       $  3,348          $  3,045
                                                                                       --------          --------
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
      Issuance of Common Stock for Investment in SEFL ..........................             --          $    769
                                                                                       ========          ========
</TABLE>

                 See notes to consolidated financial statements


                                       7
<PAGE>

                   U.S. ENERGY SYSTEMS, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
       FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND JUNE 30, 2002

NOTE A - BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with instructions to Form 10-Q and Regulation S-X, 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 six months are not necessarily indicative of results for the full year. For
a more complete discussion of significant accounting policies and certain other
information, you should refer to the financial statements included in the U.S.
Energy Systems Inc.'s (the "Company") Annual Report on Form 10-KSB for the year
ended December 31, 2002, as amended.

NOTE B - NET INCOME (LOSS) PER SHARE

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

NOTE C - INCOME TAXES

The six month financial statements for the period ended June 30, 2003, reflects
an increase in the deferred tax asset due to the use of accelerated deprecation
for tax purposes in this period.

The six-month financial statements for the period ended June 30, 2002, reflects
an increase in the deferred tax asset due to an increase in net operating loss
carry-forwards in this period.

NOTE D - ADDITIONAL CAPITAL

For the six months ended June 30, 2003, no stock options were exercised. For the
six months ended June 30, 2002, 98,500 stock options were exercised, resulting
in the receipt of a total of $ 231,000 in cash.

NOTE E - INVESTMENTS

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

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

We hold 51% of the voting interests of SEFL and EIC holds 49% of the voting
interests. We invested approximately $5 million in cash and 167,976 of our
common shares, valued at approximately $769,000 in SEFL, and EIC invested its
proportionate share in cash.

A Swedish bank provided SEFL with approximately $45 million of long term
financing on a non-recourse


                                       8
<PAGE>

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

NOTE F - CHANGE IN ACCOUNTING PRINCIPLE

The Company recorded a change in accounting principle due to the write-off of
the remaining balance of Goodwill for USE Enviro Systems Inc as required in
Financial Accounting Standard Board Statement No. 142 Goodwill and Other
Intangible Assets. This write-off is shown net of taxes in the statement of
operations for the six month period ended June 30, 2002.

NOTE G - SALE OF SUBSIDIARIES

On June 30, 2002, the Company sold its shares of USE Enviro Systems Inc to KGS
Environmental, LLC, an employee-led partnership for approximately $ 1.7 million,
which included cash consideration and the assumption of debt. This sale resulted
in a net of tax loss of $ 1.6 million. The sale of USE Enviro Systems Inc, a
domestic provider of environmental services, including recycling and
remediation, was part of the Company's previously announced strategy to divest
or discontinue non-core operations.

Effective June 30, 2003, the company sold its 95% membership interest in US
Energy Geothermal LLC to a subsidiary of Ormat Nevada, Inc. for approximately
$1.0 million in cash. As part of such transaction the purchaser and Ormat
Nevada, Inc. agreed to indemnify the Company against certain liabilities
including the pending lawsuit brought against US Energy Geothermal LLC by
Geothermal Development Associates and Delphi Security up to the amount of the
purchase price.

The following pro forma combined revenue and net income is provided as if the
sale of U.S. Energy Geothermal LLC had taken place effective January 1, 2003:

<TABLE>
<CAPTION>
                                                                          As of June 30,
                                                                               2003
                                                                          --------------
                                                                            U.S. Energy
                                                                             Geothermal      Adjusted
                                                             U.S. Energy        LLC        U.S. Energy
<S>                                                            <C>            <C>            <C>
Revenues                                                       $22,506        $ 1,003        $21,503
                                                               =======        =======        =======

Net Income                                                     $ 2,771        $   155        $ 2,616
                                                               =======        =======        =======

Earnings Per Share
     Basic                                                     $  0.20        $  0.01        $  0.19
                                                               =======        =======        =======
     Diluted                                                   $  0.16        $  0.01        $  0.15
                                                               =======        =======        =======
Weighted average number of shares outstanding - Basic           11,950         11,950         11,950
Weighted average number of shares outstanding - Diluted         17,115         17,115         17,115
</TABLE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION

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

RESULTS OF OPERATIONS

In our Annual Report on Form 10-KSB for the year ended December 31, 2001, as
amended, we reported that we would undertake an evaluation of certain business
units in connection with our transition to a provider of energy outsourcing
services. The evaluation focused on the Company's geothermal businesses,
environmental consulting operations, certain joint venture initiatives and
corporate development strategies. As a result, the Company implemented a plan to
redirect certain of its operating units and portions of


                                       9
<PAGE>

recently acquired operations that were either unprofitable or unrelated to the
Company's core business functions and, thus, inconsistent with its business goal
to provide long-term energy services to large energy consumers in its target
markets and generate stable earnings to stockholders. As part of this effort,
the Company also abandoned plans for several development projects. The
redirection of these business units and assets was partially completed in fiscal
year 2002 in an orderly manner. The implementation of these efforts were
accomplished through the sale, divestiture or discontinuation of the relevant
business unit, asset or activity. The Company believed it to be a prudent step
in 2002 to adjust valuations and take charges on business units and assets
unrelated to its core focus.

The Company recorded $10,234,000 of operating, general and administrative
non-recurring expenses in the first half of 2002. On the operating expense side,
these non-recurring expenses resulted from the adjustment of tangible assets
held at subsidiaries such as fixed assets and investments as well as the
recognition of deferred projects and acquisition costs by USE corporate.
Accruals for potential costs related to the possible sale, divestiture or
discontinuation of certain business units were made in the first and fourth
quarter of 2002 as part of both operating and general and administrative
expense.

Additionally, in the first quarter of 2002 the Company recognized a change in
accounting principle of $754,000 (net of $546,000 tax) to reflect the
application of FASB No. 142 against the recorded goodwill of U.S. Energy
Environmental Corp.

During the first half of 2003 we continued our plan to evaluate certain
businesses in connection with a transition to a provider of energy services
under long-term contracts. As discussed above, we sold our ownership in US
Energy Geothermal LLC and will continue to avail ourselves of opportunities to
obtain lower cost funding options in order to pursue growth opportunities.
Additionally, the Company has reserved $268,000, net of taxes, related to
unexpected issues arising in the implementation of a new tariff structure for
the clients of four district heating assets, which have been financed by SEFL
(see Note E). This reserve is equal to the second quarter earnings related to
the SEFL Investment. Following is a discussion of the Results of Operations and
Liquidity and Capital Resources during the first half of 2003.

The Operations Group is comprised of the Biogas, Canada and SEFL consolidated
subsidiaries of the Company. The Corporate Group is comprised of US Energy
Systems Corporate and through June 30, 2003 U.S. Energy Geothermal LLC.

Revenues for the three month and six month periods ended June 30, 2003 and 2002
were as follows:

<TABLE>
<CAPTION>
                             Three Months Ended                 Six Months Ended
                               (in thousands)                    (in thousands)
                       ------------------------------    ------------------------------
                       June 30, 2003    June 30, 2002    June 30, 2003    June 30, 2002
                       -------------    -------------    -------------    -------------
<S>                       <C>              <C>              <C>              <C>
Operations Group          $10,054          $ 9,170          $21,170          $17,346
Corporate Group               603            1,602            1,336            3,306
                          -------          -------          -------          -------
Total                     $10,657          $10,772          $22,506          $20,652
                          =======          =======          =======          =======
</TABLE>

Total revenues decreased by $115,000 or 1.1% in the three months ended June
30,2003 ("Second Quarter 2003") as compared to the three months ended June 30,
2002 ("Second Quarter 2002"). This decrease in revenues reflects a reduction of
$999,000 due principally to the sale of USE Enviro Systems Inc, which was
partially offset by increased revenues of $884,000 due to increased sales in the
Biogas and Canadian businesses reflecting increased rates charged to customers
resulting from fuel price increases. Total revenues increased by $1,854,000 or
9.0% in the six months ended June 30,2003 ("First Half 2003")compared with the
six months ended June 30, 2002 ("First Half 2002") mainly due to increased sales
in the Biogas and Canadian businesses , which were partially offset by the sale
of USE Enviro Systems Inc. The increased revenues in Biogas reflects an increase
in revenue due to increased production of electricity at certain sites and
reimbursement payments and fees received from the owners of the gas collection
systems for expansion work performed by Biogas on behalf of such owners.

The Operations Group's Operating Income for the Second Quarter 2003 compared
with the First Quarter 2003 decreased by $706,000 or 24.5% due principally to
the seasonality of demand in the Canadian energy operations and a decrease in
Biogas margins in the Second Quarter of 2003 for scheduled maintenance outages
and associated expenses.

Operating expenses for the three and six month periods ended June 30, 2003 and
2002 were as follows:

<TABLE>
<CAPTION>
                             Three Months Ended                 Six Months Ended
                               (in thousands)                    (in thousands)
                       ------------------------------    ------------------------------
                       June 30, 2003    June 30, 2002    June 30, 2003    June 30, 2002
                       -------------    -------------    -------------    -------------
<S>                       <C>              <C>              <C>              <C>
Operations Group          $ 6,059          $ 4,176          $12,200          $ 9,306
Corporate Group               212            1,219              400            2,192
                          -------          -------          -------          -------
Total                     $ 6,271          $ 5,395          $12,600          $11,498
                          =======          =======          =======          =======
</TABLE>

Operating expenses increased by $876,000 or 16.2% in the Second Quarter 2003 as
compared to the Second Quarter 2002 mainly due to an increase in the price of
fuel that is offset by related revenues in the


                                       10
<PAGE>

Canadian business. In addition, operating expenses increased due to costs
related to expansion of the gas collection systems. The decrease in operating
expenses for the Corporate Group is due principally to the sale of USE Enviro
Systems Inc.

Operating expenses increased by $1,102,000 or 9.6% in the First Half 2003
compared with the First Half 2002 mainly due to an increase in fuel consumed in
the production of energy in Canada and due to an increase in purchases made on
behalf of and sold to the landfill gas sites Biogas is responsible for
operating. The decrease in operating expenses for the Corporate Group is due
principally to the sale of USE Enviro Systems Inc.

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

<TABLE>
<CAPTION>
                                 Three Months Ended                 Six Months Ended
                                   (in thousands)                    (in thousands)
                           ------------------------------    ------------------------------
                           June 30, 2003    June 30, 2002    June 30, 2003    June 30, 2002
                           -------------    -------------    -------------    -------------
<S>                           <C>              <C>              <C>              <C>
Salaries and Consulting       $   476          $   968          $ 1,218          $ 1,585
Legal and Professional            209              298              325              615
Insurance                         175              245              387              388
Corporate Expenses                 81              289              370              434
Other                             465              191              625              691
                              -------          -------          -------          -------
Total                         $ 1,406          $ 1,991          $ 2,925          $ 3,713
                              =======          =======          =======          =======
</TABLE>

General & administrative expenses decreased by $585,000 or 29.4% in the Second
Quarter 2003 as compared to the Second Quarter 2002 mainly due to a decrease in
salary expenses at US Energy Systems and the sale of USE Enviro Systems Inc. In
addition, the Second Quarter expenses include the $268,000 reserve related to
the SEFL investment which is reflected in "Other" expenses.

General & administrative expenses decreased by $788,000 or 21.2% in the First
Half 2003 compared with the First Half 2002 mainly due to a decrease in salary
expenses at US Energy Systems and the sale of USE Enviro Systems Inc. In
addition, legal and professional expenses decreased considerably in 2003 as
compared with 2002 due to the deferral of costs associated with current efforts
to pursue growth opportunities in 2003 and higher than expected legal costs
incurred in the first half of 2002 related to the acquisition of SEFL.

Depreciation and amortization expense decreased by $174,000 in the three months
ended June 30, 2003 and by $348,000 in the six months ended June 30,2003 mainly
due to the sale of USE Enviro Systems Inc and a higher average depreciable life
of assets.

Interest income decreased by $157,000 in the three months ended June 30,2003 and
by $215,000 in the six months ended June 30,2003 due to lower market interest
rates and lower interest earnings on decreased average cash balances.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2003, cash and cash equivalents totaled approximately $21,420,000 of
which $5,358,000 was unrestricted, compared with $2,968,000 of unrestricted cash
at December 31, 2002. In connection with notes payable by certain Biogas
subsidiaries, the lender required these subsidiaries to maintain various
restricted cash accounts, which, at June 30, 2003, amounted to $16,062,000. This
amount also includes approximately $1.2 million of funds the Company set aside
to ensure the payment of dividends on certain series of our preferred stock.
These funds were set apart in conjunction with the approval of our plan of
recapitalization. The increase in cash for the first six months of 2003 reflects
the sale of USE Geothermal LLC.

During the six months ended June 30, 2003, cash flow of $5,781,000 from
operating activities was used to fund the $246,000 of investing activities. An
overall increase in cash of $5,205,000 was achieved in first half of 2003.

Cash flow from operating activities during the six months ended June 30, 2003
was $5,781,000 compared


                                       11
<PAGE>

with $9,206,000 at June 30, 2002.

Our consolidated working capital was $13,533,000 at June 30, 2003 compared with
$5,361,000 at December 31, 2002.

In the first half of 2003 the change in foreign currency exchange affected the
holdings, particularly related to our SEFL subsidiary, and resulted in both the
value of the assets and the liabilities increasing compared with the initial
investment. Management feels that the change in value is expected to be
temporary, and therefore no permanent adjustments will be made.

We continue to evaluate current and forecasted cash flow as a basis to determine
financing operating requirements and capital expenditures. We believe that we
will have sufficient liquidity from cash flow from operations, sales of assets,
and working capital to satisfy all obligations under outstanding indebtedness
and to refinance a shareholder loan to certain Biogas subsidiaries relating to
the Morris Illinois project which has come due, to make current a shareholder
loan to Biogas of which interest and scheduled amortization payments are past
due, to finance anticipated capital expenditures and to fund working capital
requirements for the next twelve months.

On August 7, 2003, the Company filed a Proxy Statement (the "Proxy") for its
Annual Meeting of Stockholders currently scheduled for September 9, 2003. Among
other things, the Proxy seeks stockholder approval of a plan to sell the stock,
assets or a combination of the foregoing of our two principal subsidiaries USE
Canada Holdings Corp. and Biogas subject to certain conditions set forth in the
Proxy. If the stockholders approve such plan and if sales are consummated
pursuant to the plan we would expect that, among other things, the Company's
liquidity and capital resource position would be improved through the receipt of
cash proceeds from such sales, the Company's long-term debt would be
substantially reduced since such debt would either be assumed or paid by the
purchaser(s), and, the Company's revenues and operating expenses would be
substantially reduced. The Proxy contains a pro-forma analysis of the impact of
a sale under the plan on the Corporation's financial statement. (See Proxy -
Proposal 1 - to Approve and Adopt the Plan - Pro Forma Financial Information).

CAUTIONARY STATEMENT RELATING TO FORWARD LOOKING STATEMENTS

This Form 10-Q 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-Q 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 our
Annual Report on Form 10-KSB for the year ended December 31, 2002, as amended.

Item 3: Quantitative and Qualitative Disclosures About Market Risk

We are exposed to various types of market risk in the normal course of our
business, including the impact of interest rate changes, foreign currency
exchange rate fluctuations, changes in equity investment prices and changes in
corporate tax rates.

It is our general policy to not enter into any interest rate, foreign currency
or derivative transactions as a hedge against these market risks as the
underling assets and investments are long-term in nature. This issue is
discussed in more detail in Form 10-KSB for the period ended December 31, 2002,
as amended.

Item 4: Controls and Procedures

(a)   Evaluation of Disclosure Controls and Procedures

      The Company has established a series of systems and procedures to assure
      full and timely disclosure of material information respecting the Company.
      Our Chief Executive Officer and Chief Accounting Officer (the person who
      performs the functions of the Chief Financial Officer), based on their
      evaluation of our systems of internal controls and procedures as of a date
      within 90 days of the filing date of this report, concluded that our
      disclosure controls and procedures are effective in alerting them on a
      timely basis to material information relating to us (including our
      consolidated subsidiaries) required to be included in our periodic SEC
      filings.

(b)   Changes in Internal Controls

      There were no changes in our internal controls or in other factors that
      would significantly affect these controls subsequent to the date of their
      evaluation.


                                       12
<PAGE>

                           PART II - OTHER INFORMATION

Item 6 - Exhibits and Reports on Form 8-K

      (a)   Exhibits

Exhibit
Number      Description
-------     -----------

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

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

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

2.4         Amendment No 1 dated as of the 11th day of December, 2000 to the
            Merger Agreement. (11)

2.5         Amendment No. 2 dated as of the 19th day of December, 2000 to the
            Merger Agreement. (15)

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

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

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

2.9         Stock Purchase Agreement dated as of June 11, 2001 by and between
            USE Canada Acquisition Corp. and Trigen-Canada Company LLC. (17)

2.10        Amendment No. 6 dated as of November 1, 2002 to the merger
            Agreement. (18)

2.11        Amendment No. 7 dated as of the 10th day of February, 2003 to the
            Merger Agreement. (19)

2.12        Amendment No. 8 dated as of the 13th day of March, 2003 to the
            Merger Agreement. (19)

2.13        Amendment No. 9 dated as of the 15th day of April, 2003 to the
            Merger Agreement

2.14        Amendment No. 10 dated as of the 14th day of May, 2003 to the Merger
            Agreement

2.15        Amendment No. 11 dated as of the 11th day of June, 2003 to the
            Merger Agreement

2.16        Amendment No. 12 dated as of the 29th day of June, 2003 to the
            Merger Agreement

2.17        Amendment No. 13 dated as of the 11th day of July, 2003 to the
            Merger Agreement

2.18        Amendment No. 14 dated as of the 28th day of July, 2003 to the
            Merger Agreement

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

3.2         By-Laws of the Company (2)

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

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


                                       13
<PAGE>

Exhibit
Number      Description
-------     -----------

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, and 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 between 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)


                                       14
<PAGE>

Exhibit
Number      Description
-------     -----------

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

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

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

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

10.21       Documents related to Private Placement (1)

10.21(a)    Certificate of Designations (1)

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

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

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

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

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

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

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

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)


                                       15
<PAGE>

Exhibit
Number      Description
-------     -----------

10.34       1996 Stock Option Plan (5)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


                                       16
<PAGE>

Exhibit
Number      Description
-------     -----------

10.57       2000 Executive Incentive Compensation Plan (13)

10.58       2000 Executive Bonus Plan (13)

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

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

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

10.62       Standby Payment Agreement dated as of June 11, 2001 by and among U.
            S. Energy Systems, Inc., USE Canada Acquisition Corp. and AJG
            Financial Services, Inc.(17)

10.63       Promissory Note dated June 11, 2001 made by USE Canada Acquisition
            Corp. in favor of Trigen - Canada Company LLC (17)

10.64       Guaranty made as of June 11, 2001 by USE Energy Systems, Inc. in
            favor of Trigen - Canada Company LLC and the other person identified
            therein (17)

10.65       Development Incentive Plan (18)

10.66       Corporate Incentive Plan (18)

10.67       Finance Incentive Plan (18)

10.68       Employment Agreement dated as of August 20, 2001 between the Company
            and Allen J. Rothman (18)

10.69       Employment Agreement dated as of January 1, 2002 between the Company
            and Edward Campana (18)

10.70       Employment Agreement dated as of September 8, 2000 between the
            Company and Henry Schneider (18)

10.71       Shareholder Agreement dated March 2002 by and among Scandinavian
            Energy Finance Limited, Endoray Investments BV, US Energy Systems,
            Inc., EIC Investments (Jersey) Limited and A&A EIC Electricity
            Investment Company (18)

10.72       Financing Agreement dated as of March 11, 2002 by and between
            Scandinavian Energy Finance Limited and Gigantissimo 2321 AB n/k/a
            EnergiSystems Sverige AB (18)

10.73       Conditions on Gigantissimo 2321 AB n/k/a EnergiSystems Sverige AB's
            Convertible Debenture Loan 2002-2027 (18)

10.74       Subordinated Loan Agreement dated as of March 11, 2002 between
            Gigantissimo 2324 AB to be renamed Narvarme Acquisition I and AB
            Scandinavian Energy Finance Limited (18)

10.75       Shareholders Agreement dated as of March 11, 2002 by and among Goran
            Ernstson, Scandinavian Energy Finance Limited, Lansforsakringar Liv
            Forsakringsaktiebolag for the shares of Gigantissimo 2321 AB n/k/a
            EnergiSystem Sverige AB (18)

10.76       Security Holders Agreement dated as of March 11, 2002 between
            Scandinavian Energy Finance Limited and Goran Ernstson (18)

10.77       Option Agreement dated as of March 7, 2002 by and between Goran
            Ernstson and Scandinavian Energy Finance Limited (18)

10.78       Amendment No. 1 to Escrow Agreement dated as of May 22, 2001 by and
            among the Zapco stockholders, Zapco, US Energy, USE Acquisition
            Corp., Cinergy Energy and Tannenbaum Helpern Syracuse & Hirschtritt
            LLP as Escrow Agent (18)


                                       17
<PAGE>

Exhibit
Number      Description
-------     -----------

10.79       Amendment No. 1 to Indemnification Agreement dated as of May 11,
            2001 by and among the Zapco stockholders, Zapco, US Energy, USE
            Acquisition Corp. and Cinergy Energy (18)

10.80       Amendment No. 2 to Indemnification Agreement dated as of Npvember 1,
            2002 by and among stockholders, Zapco, US Energy, USE Acquisition
            Corp. and Cinergy Energy (18)

10.81       Amendment No. 2 to Escrow Agreement dated as of November 1, 2002 by
            and amoung the Zapco stockholders, Zapco, US Energy, USE Acquisition
            Corp., Cinergy Energy and Tannebaum Helpern Syracuse & Hirschtritt
            LLP as Escrow Agent. (18)

10.82       Amendment No. 3 dated as of the 10th day of February, 2003 to the
            Indemnification Agreement.

10.83       Amendment No. 4 dated as of the 13th day of March, 2003 to the
            Indemnification Agreement.

10.84       Amendment No. 3 dated as of the 10th day February, 2003 to the
            Escrow Agreement.

10.85       Amendment No. 4 dated as of the 13th day of March, 2003 to the
            Escrow Agreement.

10.86       Amendment No. 5 dated as of the 15th day of April, 2003 to the
            Escrow Agreement

10.87       Amendment No. 6 dated as of the 14th day of May, 2003 to the Escrow
            Agreement

10.88       Amendment No. 7 dated as of the 11th day of June, 2003 to the Escrow
            Agreement

10.89       Amendment No. 8 dated as of the 27th day of June, 2003 to the Escrow
            Agreement

10.90       Amendment No. 9 dated as of the 11th day of July, 2003 to the Escrow
            Agreement

10.91       Amendment No. 10 dated as of the 28th day of July, 2003 to the
            Escrow Agreement

10.92       Amendment No. 5 dated as of the 15th day of April, 2003 to the
            Indemnification Agreement

10.93       Amendment No. 6 dated as of the 14th day of May, 2003 to the
            Indemnification Agreement

10.94       Amendment No. 7 dated as of the 11th day of June, 2003 to the
            Indemnification Agreement

10.95       Amendment No. 8 dated as of the 27th day of June, 2003 to the
            Indemnification Agreement

10.96       Amendment No. 9 dated as of the 11th day of July, 2003 to the
            Indemnification Agreement

10.97       Amendment No. 10 dated as of the 28th day of July, 2003 to the
            Indemnification Agreement

31.1        Rule 13a-14(a)/15d-14(a) certifications.

31.2        Rule 13a-14(a)/15d-14(a) certifications.

32          Section 1350 certification.

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.


                                       18
<PAGE>

Exhibit
Number      Description
-------     -----------

(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.

(17)        Incorporated by reference to the Company's Current Report on Form
            8-K dated June 11, 2001.

(18)        Incorporated by reference to the Company's Quarterly Report on Form
            10-QSB dated August 14, 2002

(19)        Incorporated by reference to the Company's Report on Form 10-KSB for
            the period ended December 31, 2002.

      (b)   Reports on Form 8-K

            None


                                       19
<PAGE>

                                   SIGNATURES

      Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has caused this quarterly report on Form 10-QSB to be signed on
its behalf by the undersigned duly authorized.

Dated: August 14, 2003

U. S. ENERGY SYSTEMS, INC.


By: /s/ Goran Mornhed
    --------------------------------------------
    Goran Morhhed
    Chief Executive Officer
    (Principal Executive Officer)


By: /s/ Thomas Noonan
    --------------------------------------------
    Thomas Noonan
    Chief Accounting Officer
    (Principal Accounting and Financial Officer)


                                       20