.S. Energy Systems (NASDAQ: USEY) took a tumble today after reporting its business and financial update, sending its shares plunging 40 percent to the lowest point it’s seen all year.It’s easy to see why the company’s stock plummeted after the financials were posted; according to the release, the company had previously reported it had insufficient funds to cover the expansion of its UK gas assets, assets the company acquired only last year and that cover over 100,000 acres of natural gas properties in North Yorkshire, England. After reading on, however, it’s pretty obvious that “insufficient funds” is an understatement.
“Based on forecasts provided to the company by independent third party engineers, the capital expenditure requirements for completion of the planned expansion … are expected to significantly exceed the current capital expenditure budget by $36 million and may exceed that amount by more than 100 percent,” the report stated. “Absent a refinancing or the raising of additional capital by the company in an amount sufficient to meet the capital requirements for the expansion, the company will not have sufficient funds to complete the expansion of the UK gas assets.
“Failure to complete the expansion of the UK gas assets will result in the company’s inability to generate sufficient revenue to service the debt under the UK financing agreements,” the report added.
The rest of the report is equally bleak. The report goes on to state that “there can be no assurance that the company will have sufficient cash flow … fund anticipated cash requirements for the next 12 months,” and that the company has a projected shortfall in the UK for 2007 of $3.2 million.
The most interesting piece of information is at the end of the report. Yesterday, the company’s board of directors took action to suspend Grant Emms, the CEO and director of UK Energy Systems Ltd – the subsidiary chiefly involved with the management of the gas assets – with pay and other contractual benefits pending an investigation by the company’s audit committee. Joseph Reynolds, who has been the UK subsidiary’s Program Director, will now serve as the interim CEO.
Share prices fell from $2.25 a share to $1.37 a share today. The company’s media relations firm, Kekst and Company, refused to comment on the drop, saying that the press release contained “everything the company felt was appropriate to discuss.”