UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
|
þ
|
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the quarterly period ended
September 30, 2010
or
|
¨
|
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the transition period from ________ to __________
Commission
File No. 000-30841
UNITED
ENERGY CORP.
(Exact
name of registrant as specified in its charter)
|
Nevada
(State
or other jurisdiction of
incorporation
or organization)
|
22
-
3342379
(I.R.S.
Employer Identification No.)
|
600
Meadowlands Parkway #20, Secaucus, N.J. 07094
(Address
of principal executive offices)
(Registrant's
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding
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.
þ
Yes
¨
No
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes
¨
No
þ
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
|
Large
accelerated filer
¨
|
Accelerated
filer
¨
|
|
|
|
|
Non-accelerated
filer
¨
(Do
not check if a smaller reporting company)
|
Smaller
reporting company
þ
|
Indicate
by check mark whether the registrant is a shell company (as defined in rule
12b-2 of the Exchange Act. Yes
¨
No
þ
As of
November 17, 2010, 31,504,449 shares of common stock, par value $.01 per share,
were outstanding.
INDEX
|
PART
I. FINANCIAL INFORMATION
|
|
|
|
|
|
Item
1.
|
Financial
Statements
|
3
|
|
|
|
|
|
|
Consolidated
balance sheets September 30, 2010 (Unaudited) and March 31,
2010
|
3-4
|
|
|
|
|
|
|
Consolidated
statements of operations for the three months and six months ended
September 30, 2010 (Unaudited) and 2009 (Unaudited)
|
5
|
|
|
|
|
|
|
Consolidated
statement of stockholders' equity for the six months ended September 30,
2010 (Unaudited)
|
6
|
|
|
|
|
|
|
Consolidated
statements of cash flows for the six months ended September 30, 2010
(Unaudited) and 2009 (Unaudited)
|
7-8
|
|
|
|
|
|
|
Notes
to consolidated financial statements
|
9-13
|
|
|
|
|
|
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
13-16
|
|
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
16
|
|
|
|
|
|
Item
4.
|
Controls
and Procedures
|
17
|
|
|
|
|
|
PART
II. OTHER INFORMATION
|
|
|
|
|
|
Item
1.
|
Legal
Proceedings
|
18
|
|
|
|
|
|
Item
1A.
|
Risk
Factors
|
18
|
|
|
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
18
|
|
|
|
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
18
|
|
|
|
|
|
Item
4.
|
(Removed
and Reserved)
|
18
|
|
|
|
|
|
Item
5.
|
Other
Information
|
18
|
|
|
|
|
|
Item
6.
|
Exhibits
|
18
|
|
|
|
|
|
Signatures
|
|
19
|
Item
1.
Financial
Statements
UNITED
ENERGY CORP. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
|
September 30,
|
|
|
March 31,
|
|
|
|
|
2010
|
|
|
2010
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
150,447
|
|
|
$
|
311,506
|
|
|
Accounts
receivable, net of allowance for doubtful accounts of $72,719 and $77,211,
respectively
|
|
|
303,816
|
|
|
|
190,915
|
|
|
Inventory
|
|
|
77,772
|
|
|
|
80,870
|
|
|
Prepaid
expenses and other current assets
|
|
|
21,429
|
|
|
|
62,827
|
|
|
Loan
receivable, net of reserve of $25,000
|
|
|
25,000
|
|
|
|
25,000
|
|
|
Total
current assets
|
|
|
578,464
|
|
|
|
671,118
|
|
|
|
|
|
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT, net of accumulated depreciation and amortization of
$467,103 and $492,121 respectively
|
|
|
68,520
|
|
|
|
79,050
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS:
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
15,499
|
|
|
|
15,499
|
|
|
Patents,
net of accumulated amortization of $299,653 and $280,306,
respectively
|
|
|
300,064
|
|
|
|
317,318
|
|
|
Loans
receivable
|
|
|
38,864
|
|
|
|
35,793
|
|
|
Deposits
|
|
|
14,185
|
|
|
|
1,385
|
|
|
Total
assets
|
|
$
|
1,015,596
|
|
|
$
|
1,120,163
|
|
The
accompanying notes are an integral part of these unaudited consolidated
financial statements
UNITED
ENERGY CORP. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
|
September 30,
|
|
|
March 31,
|
|
|
|
|
2010
|
|
|
2010
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
323,578
|
|
|
$
|
234,948
|
|
|
Accrued
expenses
|
|
|
266,545
|
|
|
|
362,925
|
|
|
Convertible
term note
|
|
|
30,000
|
|
|
|
30,000
|
|
|
Due
to related parties
|
|
|
464,781
|
|
|
|
453,781
|
|
|
Total
current liabilities
|
|
|
1,084,904
|
|
|
|
1,081,654
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY (DEFICIT):
|
|
|
|
|
|
|
|
|
|
Preferred
Stock: 100,000 shares authorized; Series A Convertible Preferred Stock:
$8,000 stated value, 3 shares issued and outstanding as of September 30,
2010 and March 31, 2010
|
|
|
24,000
|
|
|
|
24,000
|
|
|
Common
stock: $0.01 par value 100,000,000 shares authorized; 31,504,449 shares
issued and outstanding as of September 30, 2010 and March 31,
2010
|
|
|
315,045
|
|
|
|
315,045
|
|
|
Additional
paid-in capital
|
|
|
23,286,248
|
|
|
|
23,245,536
|
|
|
Accumulated
deficit
|
|
|
(23,694,601
|
)
|
|
|
(23,546,072
|
)
|
|
Total
stockholders' equity (deficit)
|
|
|
(69,308
|
)
|
|
|
38,509
|
|
|
Total
liabilities and stockholders' equity (deficit)
|
|
$
|
1,015,596
|
|
|
$
|
1,120,163
|
|
The
accompanying notes are an integral part of these unaudited consolidated
financial statements
UNITED
ENERGY CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
For the Three Months
|
|
|
For the Six Months
|
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES,
net
|
|
$
|
439,321
|
|
|
$
|
613,202
|
|
|
$
|
882,826
|
|
|
$
|
1,007,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST
OF GOODS SOLD
|
|
|
164,914
|
|
|
|
231,845
|
|
|
|
337,379
|
|
|
|
385,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
274,407
|
|
|
|
381,357
|
|
|
|
545,447
|
|
|
|
621,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
309,363
|
|
|
|
790,606
|
|
|
|
578,075
|
|
|
|
1,141,638
|
|
|
Research
and development
|
|
|
35,813
|
|
|
|
64,143
|
|
|
|
70,969
|
|
|
|
115,639
|
|
|
Gain
on sale of asset
|
|
|
(8,000
|
)
|
|
|
-
|
|
|
|
(8,000
|
)
|
|
|
-
|
|
|
Depreciation
and amortization
|
|
|
11,596
|
|
|
|
12,435
|
|
|
|
23,164
|
|
|
|
24,512
|
|
|
Total
operating expenses
|
|
|
348,772
|
|
|
|
867,184
|
|
|
|
664,208
|
|
|
|
1,281,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(74,365
|
)
|
|
|
(485,827
|
)
|
|
|
(118,761
|
)
|
|
|
(660,142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
1
|
|
|
|
7
|
|
|
|
7
|
|
|
|
14
|
|
|
Interest
expense
|
|
|
(14,062
|
)
|
|
|
(11,878
|
)
|
|
|
(29,055
|
)
|
|
|
(19,423
|
)
|
|
Total
other income (expense), net
|
|
|
(14,061
|
)
|
|
|
(11,871
|
)
|
|
|
(29,048
|
)
|
|
|
(19,409
|
)
|
|
Net
loss
|
|
|
(88,426
|
)
|
|
|
(497,698
|
)
|
|
|
(147,809
|
)
|
|
|
(679,551
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PREFERRED
DIVIDENDS
|
|
|
(360
|
)
|
|
|
(360
|
)
|
|
|
(720
|
)
|
|
|
(720
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss applicable to common shareholders
|
|
$
|
(88,786
|
)
|
|
$
|
(498,058
|
)
|
|
$
|
(148,529
|
)
|
|
$
|
(680,271
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
AND DILUTED LOSS PER SHARE:
|
|
$
|
(0.00
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
AND DILUTED WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
|
|
|
31,504,449
|
|
|
|
31,328,587
|
|
|
|
31,504,449
|
|
|
|
31,255,192
|
|
The
accompanying notes are an integral part of these unaudited consolidated
financial statements.
UNITED
ENERGY CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 2010 (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Preferred
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Stock
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
April 1, 2010
|
|
|
31,504,449
|
|
|
$
|
315,045
|
|
|
$
|
24,000
|
|
|
$
|
23,245,536
|
|
|
$
|
(23,546,072
|
)
|
|
$
|
38,509
|
|
|
Compensation
expense associated with options
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
712
|
|
|
|
-
|
|
|
|
712
|
|
|
Compensation
expense associated with warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
40,000
|
|
|
|
-
|
|
|
|
40,000
|
|
|
Dividends
accrued on preferred shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(720
|
)
|
|
|
(720
|
)
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(147,809
|
)
|
|
|
(147,809
|
)
|
|
BALANCE,
September 30, 2010
|
|
|
31,504,449
|
|
|
$
|
315,045
|
|
|
$
|
24,000
|
|
|
$
|
23,286,248
|
|
|
$
|
(23,694,601
|
)
|
|
$
|
(69,308
|
)
|
The
accompanying notes are an integral part of these unaudited consolidated
financial statements.
UNITED
ENERGY CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
Net
loss from continuing operations
|
|
$
|
(147,809
|
)
|
|
$
|
(679,551
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
29,877
|
|
|
|
34,694
|
|
|
Allowance
for doubtful accounts
|
|
|
(4,492
|
)
|
|
|
18,680
|
|
|
|
|
|
(8,000
|
)
|
|
|
-
|
|
|
Compensation
expense associated with warants
|
|
|
40,000
|
|
|
|
524,385
|
|
|
Compensation
expense associated with options
|
|
|
712
|
|
|
|
712
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(108,409
|
)
|
|
|
(221,185
|
)
|
|
Inventory
|
|
|
3,098
|
|
|
|
30,092
|
|
|
Prepaid
expenses and other current assets
|
|
|
41,399
|
|
|
|
47,648
|
|
|
Deposits
|
|
|
(12,800
|
)
|
|
|
-
|
|
|
Accounts
payable and accrued expenses
|
|
|
(7,751
|
)
|
|
|
1,679
|
|
|
Net
cash used in operating activities
|
|
|
(174,175
|
)
|
|
|
(242,846
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Employee
loans
|
|
|
(3,071
|
)
|
|
|
(1,023
|
)
|
|
Proceeds
from sale of asset
|
|
|
8,000
|
|
|
|
-
|
|
|
Payments
for acquisition of property and equipment
|
|
|
-
|
|
|
|
(985
|
)
|
|
Payments
for patents
|
|
|
(2,093
|
)
|
|
|
(3,699
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
provided by (used in) investing activities
|
|
|
2,836
|
|
|
|
(5,707
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Proceeds
from related party payable
|
|
|
11,000
|
|
|
|
303,781
|
|
|
Preferred
stock dividend
|
|
|
(720
|
)
|
|
|
(720
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
10,280
|
|
|
|
303,061
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(161,059
|
)
|
|
|
54,508
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, beginning of period
|
|
|
311,506
|
|
|
|
56,372
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, end of period
|
|
$
|
150,447
|
|
|
$
|
110,880
|
|
UNITED
ENERGY CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period
|
|
|
|
|
|
|
|
Interest
|
|
$
|
899
|
|
|
$
|
886
|
|
|
Income
taxes
|
|
$
|
1,700
|
|
|
$
|
1,040
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Conversion
of note payable into common stock
|
|
$
|
-
|
|
|
$
|
35,000
|
|
The
accompanying notes are an integral part of these unaudited consolidated
financial statements.
UNITED
ENERGY CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2010 (Unaudited)
|
1.
|
BASIS
OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|
Basis
of presentation
Interim
Financial Statements
The
accompanying unaudited consolidated financial statements of United Energy Corp.
(“we”, “United Energy” or the “Company”) have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, the unaudited interim financial statements furnished herein
include all adjustments necessary for a fair presentation of the Company's
financial position at September 30, 2010 (unaudited) and the results of its
operations for the three and six months ended September 30, 2010 and 2009
(unaudited) and cash flows for the three and six months ended September 30, 2010
and 2009 (unaudited). All such adjustments are of a normal and recurring nature.
Interim financial statements are prepared on a basis consistent with the
Company's annual financial statements. Results of operations for the three and
six months ended September 30, 2010 and 2009 are not necessarily indicative of
the operating results that may be expected for the year ending March 31,
2011.
The
consolidated balance sheet as of March 31, 2010 has been derived from the
audited financial statements at that date but does not include all of the
information and notes required by accounting principles generally accepted in
the United States for complete financial statements.
For further information, refer to the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the fiscal year ended March 31,
2010.
Going
Concern
– The accompanying
consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America which
contemplate continuation of the Company as a going concern. However, the Company
has year-end losses from operations and has an accumulated deficit of
$23,694,601 as of September 30, 2010.
During the six months ended September
30, 2010 the Company experienced a net loss from operations of $147,809 and a
negative cash flow from operations of $158,175. These matters raise substantial
doubt about the Company’s ability to continue as a going concern. Our
consolidated financial statements do not include any adjustment that might
result from the outcome of this uncertainty
.
Our
continued existence is dependent upon several factors, including raising
additional funds through loans, additional sales of its equity securities,
increased sales volumes and the ability to achieve profitability from the sales
of our product lines. In order to increase our cash flow, we are continuing our
efforts to stimulate sales and cut back expenses not directly supporting our
sales and marketing efforts.
There can
be no assurance that we will be successful in stimulating sales or reducing
expenses to levels sufficient to generate cash flow sufficient to fund our
anticipated liquidity requirements. There also can be no assurance that
available financing will be available, or if available, that such financing will
be on terms acceptable to us.
Basic
earnings per share is computed by dividing net income available to common
shareholders by the weighted average number of common shares outstanding during
the period. Diluted earnings per share reflects the potential dilution that
could occur if stock options and other commitments to issue common stock were
exercised or equity awards vest resulting in the issuance of common stock that
could increase the number of shares outstanding and lower the earnings per share
of the Company’s common stock. This calculation is not done for periods in a
loss position as this would be antidilutive. As of September 30, 2010, there
were stock options and warrants that would have been included in the computation
of diluted earnings per share that could potentially dilute basic earnings per
share in the future, however, the Company is in a loss position and the result
of the computation would be antidilutive.
|
3
|
RECENTLY
ISSUED ACCOUNTING STANDARDS
|
Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles
In August 2010, the FASB issued
Accounting Standard Updates No. 2010-21 (ASU No. 2010-21) “Accounting for
Technical Amendments to Various SEC Rules and Schedules” and No. 2010-22 (ASU
No. 2010-22) “Accounting for Various Topics – Technical Corrections to SEC
Paragraphs”. ASU No 2010-21 amends various SEC paragraphs pursuant to the
issuance of Release no. 33-9026: Technical Amendments to Rules, Forms, Schedules
and Codification of Financial Reporting Policies. ASU No. 2010-22 amends various
SEC paragraphs based on external comments received and the issuance of SAB 112,
which amends or rescinds portions of certain SAB topics. Both ASU No. 2010-21
and ASU No. 2010-22 are effective upon issuance. The amendments in ASU No.
2010-21 and No. 2010-22 will not have a material impact on the Company’s
financial statements.
A variety
of proposed or otherwise potential accounting standards are currently under
study by standard-setting organizations and various regulatory agencies. Because
of the tentative and preliminary nature of these proposed standards, management
has not determined whether implementation of such proposed standards would be
material to the Company’s consolidated financial statements.
On
November 6, 2009, the Company issued a convertible term note in the amount of
$30,000, which accrues interest at 7% per year. Principal and interest is
payable on demand. The holder of this term note has the option to convert all or
a portion of the note (including principal and interest) into shares of common
stock at any time at a conversion price of $0.21 per share. The conversion price
is subject to adjustment for stock splits, stock dividends and similar
events.
The preparation of consolidated
financial statements in accordance with accounting principals generally accepted
in the United States of America requires the Company to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and
liabilities.
On an on-going basis, the Company
evaluates its estimates, including those related to option and warrant values,
bad debts, inventories, intangible assets, contingencies and litigation. The
Company bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.
Inventory consists of the
following:
|
|
|
September 30,
|
|
|
March 31,
|
|
|
|
|
2010
|
|
|
2010
|
|
|
Blended
chemicals
|
|
$
|
20,677
|
|
|
$
|
29,734
|
|
|
Raw
materials
|
|
|
57,095
|
|
|
|
51,136
|
|
|
Total
inventory
|
|
$
|
77,772
|
|
|
$
|
80,870
|
|
|
7.
|
FAIR
VALUE MEASUREMENT
|
Fair value of certain of the Company’s
financial instruments including cash and cash equivalents, inventory, account
payable, accrued expenses, notes payables, and other accrued liabilities
approximate cost because of their short maturities. The Company measures and
reports fair value in accordance with ASC 820, “Fair Value Measurements and
Disclosure” defines fair value, establishes a framework for measuring fair value
in accordance with generally accepted accounting principles and expands
disclosures about fair value investments.
Fair
value, as defined in ASC 820, is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The fair value of an asset should reflect
its highest and best use by market participants, principal (or most
advantageous) markets, and an in-use or an in-exchange valuation premise. The
fair value of a liability should reflect the risk of nonperformance, which
includes, among other things, the Company’s credit risk.
Valuation
techniques are generally classified into three categories: the market approach;
the income approach; and the cost approach. The selection and application of one
or more of the techniques may require significant judgment and are primarily
dependent upon the characteristics of the asset or liability, and the quality
and availability of inputs. Valuation techniques used to measure fair value
under ASC 820 must maximize the use of observable inputs and minimize the use of
unobservable inputs. ASC 820 also provides fair value hierarchy for inputs and
resulting measurement as follows:
Level
1
Quoted
prices (unadjusted) in active markets that are accessible at the measurement
date for identical assets or liabilities;
Level
2
Quoted
prices for similar assets or liabilities in active markets; quoted prices for
identical or similar assets or liabilities in markets that are not active;
inputs other than quoted prices that are observable for the asset or liability;
and inputs that are derived principally from or corroborated by observable
market data for substantially the full term of the assets or liabilities;
and
Level
3
Unobservable
inputs for the asset or liability that are supported by little or no market
activity and that are significant to the fair values.
Fair
value measurements are required to be disclosed by the Level within the fair
value hierarchy in which the fair value measurements in their entirety fall.
Fair value measurements using significant unobservable inputs (in Level 3
measurements) are subject to expanded disclosure requirements including a
reconciliation of the beginning and ending balances, separately presenting
changes during the period attributable to the following: (i) total gains or
losses for the period (realized and unrealized), segregating those gains or
losses included in earnings, and a description of where those gains or losses
included in earning are reported in the statement of income.
As of
September 30, 2010, the Company does not possess any long-term monetary or
nonmonetary financial instruments whose fair value is measured on a recurring
basis. The Company possesses financial instruments of a short-term nature, such
as cash, prepaid expenses, accounts receivable, loans receivable, accounts
payable, accrued expenses and convertible notes, whose fair value can be
approximated due to their short term maturity.
|
8.
|
EMPLOYEE
BENEFITS PLAN
|
Stock
Option Plans
In August
2001, the Company’s stockholders approved the 2001 Equity Incentive Plan (the
“2001 Plan”), which provides for the grant of stock options to purchase up to
2,000,000 shares of common stock to any employee, non-employee director, or
consultant at the Board’s discretion. Under the 2001 Plan, these options may be
exercised for a period up to ten years from the date of grant. Options issued to
employees are exercisable upon vesting, which can range between the dates of the
grant to up to 5 years
.
An
amendment and restatement of the 2001 Equity Incentive Plan increasing the
number of shares for a total of 4,000,000 was approved by the Board of Directors
on May 29, 2002 and was approved by the shareholders at the annual
meeting.
Under the 2001 Plan, options are
granted to non-employee directors upon election at the annual meeting of
stockholders at a purchase price equal to the fair market value on the date of
grant. In addition, the non-employee director stock options shall be exercisable
in full twelve months after the date of grant unless determined otherwise by the
board.
Fair
Value of Stock Options
For disclosure purposes under FASB
guidance now codified as ASC Topic 505, the fair value of each option grant is
estimated on the date of grant using the Black-Scholes option valuation model
with the following weighted-average assumptions:
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Expected
life (in
years)
|
|
|
10
|
|
|
|
10
|
|
|
Risk-free
interest rate
|
|
|
4.54
|
%
|
|
|
4.54
|
%
|
|
Volatility
|
|
|
191.2
|
|
|
|
169.4
|
|
|
Dividend
yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Utilizing
these assumptions, the weighted average fair value of options granted with an
exercise price equal to their fair market value at the date of the grant is
$1.05 for the six months ended September 30, 2010.
Summary
Stock Option Activity
The following table summarizes stock
option information with respect to all stock options for the quarter ended
September 30, 2010:
|
|
|
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
|
|
|
|
Options
outstanding April 1, 2010
|
|
|
3,287,500
|
|
|
$
|
1.05
|
|
|
|
4.67
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(40,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
outstanding September 30, 2010
|
|
|
3,247,500
|
|
|
$
|
1.06
|
|
|
|
4.22
|
|
|
|
|
|
Vested
and expected to vest–end of quarter
|
|
|
3,247,500
|
|
|
$
|
1.06
|
|
|
|
4.22
|
|
|
$
|
—
|
|
|
Exercisable–end
of quarter
|
|
|
3,172,500
|
|
|
$
|
1.06
|
|
|
|
4.16
|
|
|
$
|
—
|
|
Pursuant
to the terms of an employment agreement with Ronald Wilen, Chief Executive
Officer, President, Secretary and Director of the Company dated April 17, 2007,
for each of the next five (5) years of the term of the agreement (commencing
with April 17, 2008), Mr. Wilen will receive an option to purchase fifty
thousand (50,000) shares of common stock of the Company. The exercise price with
respect to any option granted pursuant to the employment agreement shall be the
fair market value of the common stock underlying such option on the date such
option was granted.
Options
outstanding at September 30, 2010 have an exercise price ranging between $0.09
to $2.05.
The aggregate intrinsic
value in the table above represents the total intrinsic value (the difference
between United Energy’s closing stock price on September 30, 2010 and the
exercise price, multiplied by the number of in–the–money options) that would
have been received by the option holders had vested option holders exercised
their options on September 30, 2010. This amount changes based upon changes in
the fair market value of United Energy’s stock. As of September 30, 2010, 2,133
of the total unrecognized compensation costs related to stock options are
expected to be recognized over a period of one year and six months.
The Company did not have any material
subsequent events to disclose from the balance sheet date to the filing date.
The Company evaluated subsequent events through November 17,
2010.
|
Item
2
|
Management's Discussion and
Analysis of Financial Condition and Results of
Operations
|
CAUTIONARY
STATEMENT RELATING TO FORWARD-LOOKING STATEMENTS
The
matters discussed in this Form 10-Q contain certain forward-looking statements
and involve risks and uncertainties (including changing market conditions,
competitive and regulatory matters, etc.) detailed in the disclosure contained
in this Form 10-Q and the other filings with the Securities and Exchange
Commission made by us from time to time. The discussion of our liquidity,
capital resources and results of operations, including forward-looking
statements pertaining to such matters, does not take into account the effects of
any changes to our operations. Accordingly, actual results could differ
materially from those projected in the forward-looking statements as a result of
a number of factors, including those identified herein and those discussed under
the heading “Risk Factors” in the Company’s 10-K for the fiscal year ended March
31, 2010. This item should be read in conjunction with the financial statements
and other items contained elsewhere in the report. Unless the context otherwise
requires, “we”, “our”, “us”, the “Company” and similar phrases refer to United
Energy Corp.
Overview
We
develop and distribute environmentally friendly specialty chemical products with
applications in several industries and markets. Our current line of products
includes our K-Line of Chemical Products for the oil industry and related
products.
Through
our wholly owned subsidiary, Green Globe Industries, Inc., we provide the U.S.
military with a variety of solvents, paint strippers and cleaners under our
trade name “Qualchem.” Green Globe is a qualified supplier for the U.S. military
and has sales contracts currently in place with no minimum purchase
requirements, which are renewable at the option of the U.S.
Military.
A key
component of our business strategy is to pursue collaborative joint working and
marketing arrangements with established international oil and oil service
companies. We intend to enter into these relationships to more rapidly and
economically introduce our K-Line of Chemical Products to the worldwide
marketplace for refinery, tank and pipeline cleaning services.
We
provide our K-Line of Chemical Products and our Green Globe Products to our
customers and generated revenues of $882,826 for the six-month period ended
September 30, 2010 and $1,007,206 for the six-month period ended September 30,
2009.
RESULTS
OF OPERATIONS
Three
Months Ended September 30, 2010 Compared to the Three Months Ended September 30,
2009
Revenues
. Revenues for the
three months ended September 30, 2010 were $439,321, a $173,881, or 28% decrease
from revenues of $613,202 in the comparable three months of 2009. Revenues from
our K-Line of Chemical Products decreased by $140,832 to $411,048 or 26%
compared to $551,880 in the comparable three months ended September 30, 2009,
and revenues from our Green Globe/Qualchem military sales decreased by $33,049
to $28,273 or 54% compared to $61,322 in the comparable three months ended
September 30, 2009.
Cost of Goods Sold
. Cost of
goods sold decreased $66,931, or 29% to $164,914 or 38% of revenues, for the
three months of September 30, 2010 from $231,845 or 38% of revenues, for the
three months of September 30, 2009. The decrease in cost of goods sold was due
to the lower sales level in the period compared to the comparable period in
2009. Cost of goods sold from our K-Line of Chemical Products decreased by
$54,305 to $151,790 or 26% compared to $206,095 in the comparable three months
ended September 30, 2009, and cost of goods sold by our Green Globe/Qualchem
military sales decreased by $12,626 to $13,124 or 49% compared to $25,750 in the
comparable three months ended September 30, 2009.
Gross Profit
. Gross profit
for the three months ended September 30, 2010, decreased by $106,950, or 28% to
$274,407 or 62% of sales compared with $381,357 or 62% of sales in the prior
period. The decrease in gross profit reflects the lower levels of
sales.
Operating
Costs and Expenses
Selling, General and Administrative
Expenses
. Selling, general and administrative expenses decreased $481,243
to $309,363 or 70% of sales for the three months ended September 30, 2010
compared with $790,606 or 129% of sales for the three months ended September 30,
2009. The decrease in general and administrative expenses is primarily related
to a decrease in financing costs associated with the issuance of warrants and in
insurance expenses, professional fees, salaries, employee benefits and travel
and entertainment.
Research and Development.
Research and development expenses decreased $28,330 to $35,813 or 8% of sales
for the three months ended September 30, 2010 compared with $64,143 or 10% of
sales for the three months ended September 30, 2009. The decrease in research
and development expenses was primarily related to a decrease in lab supplies and
salaries.
Depreciation and
Amortization
. Depreciation and amortization remained relatively constant
for the three months ended September 30, 2010 as compared with September 30,
2009.
Interest Income
. Interest
income remained relatively constant for the six months ended September 30, 2010
as compared with September 30, 2009.
Gain on sale of asset.
During
the period ended September 30, 2010, the company sold a fully depreciated
vehicle for $8,000.
Interest Expense
. The Company
had interest expense of $14,062 for the three months ended September 30, 2010
compared with $11,878 in the corresponding period in 2009. The increase was due
to the indebtedness outstanding on the loans by directors and their
affiliates.
Net Loss
. The three months
ended September 30, 2010 resulted in a net loss of $88,426 or $0.00 per share as
compared to a net loss of $497,698 or $0.02 per share for the three months ended
September 30, 2009. The average number of shares of common stock used in
calculating earnings per share increased 175,862 shares to 31,504,444 as a
result of 175,862 shares issued in the connection with the exercise of
warrants.
Six
Months Ended September 30, 2010 Compared to the Six Months Ended September 30,
2009
Revenues
. Revenues for the
six-month period ended September 30, 2010 were $882,826, a $124,380 or 12%
decrease from revenues of $1,007,206 in the comparable six-month period ended
September 30, 2009. Revenues from our K-Line of Chemical Products decreased by
$45,157 to $822,401 or 5% compared to $867,558 in the comparable six months
ended September 30, 2009, and revenues from our Green Globe/Qualchem military
sales decreased by $79,223 to $60,425 or 57% compared to $139,648 in the
comparable six months ended September 30, 2009.
Cost of Goods Sold
. Cost of
goods sold decreased $48,180, or 13% to $337,379 or 38% of revenues, for the
six-month period ended September 30, 2010 from $385,559 or 38% of revenues, for
the six-month period ended September 30, 2009. The decrease in cost of goods
sold was due to the lower sales level in the period compared to the comparable
period in 2009. Cost of goods sold from our K-Line of Chemical Products
decreased by $15,813 to $309,390 or 5% compared to $325,203 in the comparable
six months ended September 30, 2009, and cost of goods sold from our Green
Globe/Qualchem military sales decreased by $32,367 to $27,989 or 54% compared to
$60,356 in the comparable six months ended September 30, 2009.
Gross Profit
. Gross profit
for the six months ended September 30, 2010, decreased by $76,200, or 12% to
$545,447 or 62% of revenues compared with $621,647 or 62% of revenues in the
prior period. The decrease in gross profit reflects the lower levels of sales of
our Specialty Chemicals and Green Globe/Qualchem military sales
Operating
Costs and Expenses
Selling, General and Administrative
Expenses
. Selling, general and administrative expenses decreased $563,563
to $578,075 or 65% of revenues for the six months ended September 30, 2010
compared with $1,141,638 or 113% of revenues for the six months ended September
30, 2009. The decrease in selling, general and administrative expenses was
primarily related to a decrease in financing costs associated with the issuance
of warrants and in insurance expenses, professional fees, salaries, employee
benefits and travel and entertainment.
Research and Development.
Research and development expenses decreased $44,670 to $70,969 or 8% of sales
for the six months ended September 30, 2010 compared with $115,639 or 11% of
sales for the six months ended September 30, 2009. The decrease in research and
development expenses was related to a decrease in lab supplies and
salaries.
Depreciation and
Amortization
. Depreciation and amortization remained relatively constant
for the six months ended September 30, 2010 as compared with September 30,
2009.
Interest Income
. Interest
income remained relatively constant for the six months ended September 30, 2010
as compared with September 30, 2009.
Gain on sale of asset.
During
the period ended September 30, 2010, the company sold a fully depreciated
vehicle for $8,000.
Interest Expense
. The Company
had interest expense of $29,055 for the six months ended September 30, 2010
compared with $19,423 in the corresponding period in 2009. The increase was due
to the indebtedness outstanding on the loans by directors and their
affiliates.
Net Loss
. The six months
ended September 30, 2010 resulted in a net loss of $147,809 or $0.00 per share
as compared to a net loss of $679,551 or $0.02 per share for the six months
ended September 30, 2009. The average number of shares of common stock used in
calculating earnings per share increased 249,257 shares to 31,504,449 as a
result of 298,472 shares issued in connection with the conversion of the
convertible note and 175,862 shares issued in the connection with the exercise
of warrants.
Liquidity
and Capital Resources
As of
September 30, 2010, the Company had $150,447 in cash and cash equivalents, as
compared to $311,506 at March 31, 2010.
The
$161,059 decrease in cash and cash equivalents was due to net cash used in
operations of $174,175, net cash provided by investing activities of $2,836 and
net cash provided by financing
activities
of $10,280. Cash
provided by investing activities consisted of proceeds from sale of
asset of $8,000, offset by patent purchases of $2,093 and employee loans of
$3,071. Cash provided by financing activities consisted of related party loans
of $11,000, offset by preferred stock dividends of $720.
The accompanying consolidated financial
statements have been prepared in conformity with accounting principles generally
accepted in the United States of America which contemplate continuation of the
Company as a going concern. However, the Company has year-end losses from
operations and has an accumulated deficit of $23,694,601 as of September 30,
2010.
During the six
months ended September 30, 2010 the Company experienced a net loss from
operations of $147,809 and a negative cash flow from operations of $158,175.
These matters raise substantial doubt about the Company’s ability to continue as
a going concern. Our consolidated financial statements do not include any
adjustment that might result from the outcome of this
uncertainty
.
Our
continued existence is dependent upon several factors, including raising
additional funds through loans, additional sales of its equity securities,
increased sales volumes and the ability to achieve profitability from the sales
of our product lines. In order to increase our cash flow, we are continuing our
efforts to stimulate sales and cut back expenses not directly supporting our
sales and marketing efforts.
There can
be no assurance that we will be successful in stimulating sales or reducing
expenses to levels sufficient to generate cash flow sufficient to fund our
anticipated liquidity requirements. There also can be no assurance that
available financing will be available, or if available, that such financing will
be on terms acceptable to us.
Concentration
of Risk
Sales to our top three customers,
accounted for approximately 82% of revenue, or $725,112, for the six-month
period ending September 30, 2009 and sales to our top four customers, accounted
for approximately 85% of our revenue, or $854,786, for the three-month period
ending September 30, 2009.
Sales to our top customer, for the
six-month period ending September 30, 2010 were $461,112.
Off-Balance
Sheet Arrangements
We do not
currently have any off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that are material to our
stockholders.
|
Item 3.
|
Quantitative and Qualitative
Disclosures About Market
Risks.
|
Not
applicable
|
Item 4.
|
Controls and
Procedures.
|
Evaluation
of the Company's Disclosure Controls and Procedures
We
carried out an evaluation, under the supervision and with the participation of
the Company's management, including our Chief Executive Officer and our
Principal Accounting Officer (Interim Chief Financial Officer), of the
effectiveness of our “disclosure controls and procedures” (as defined in Rules
13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of
September 30, 2010. Based upon that evaluation, the Chief Executive Officer and
the Principal Accounting Officer (Interim Chief Financial Officer) concluded
that our disclosure controls and procedures are effective, in all material
respects, with respect to the recording, processing, summarizing, and reporting,
within the time periods specified in the Securities and Exchange Commission's
rules and forms, of information required to be disclosed by us in the reports
that we file or submit under the Exchange Act. In designing and evaluating our
“disclosure controls and procedures” (as defined in Rules 13a-15(e) or 15d-15(e)
of the Securities Exchange Act of 1934, as amended), management recognized that
any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurances of achieving the desired control objectives,
as ours are designed to do, and management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and
procedures.
Changes
in Control Over Financial Reporting
Management
has not identified any change in our internal control over financial reporting
that occurred during the second quarter ended September 30, 2010 that has
materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.
PART
II
OTHER
INFORMATION
|
Item
1.
|
Legal
Proceedings
|
None.
Not applicable.
|
Item 2.
|
Unregistered
Sales of Equity Securities and Use of
Proceeds
|
In August
2010, the Company issued warrants to acquire 1,000,000 shares of Common Stock in
the aggregate to members of its Board of Directors as compensation for their
services. The Company did not receive any proceeds from the issuance of the
warrants. The warrants were issued pursuant to the exemption from registration
provided by Section 4 (2) of the Securities Act of 1933, as
amended.
|
Item
3.
|
Defaults Upon Senior
Securities
|
None
|
Item
4.
|
(
Removed and
Reserved)
|
|
Item
5.
|
Other
Information
|
None
|
|
31.1
|
Chief
Executive Officer’s Certificate, pursuant to Rule 13a-14(a)/ 15d-14(a) of
the Exchange Act.
|
|
|
31.2
|
Chief
Financial Officer’s Certificate, pursuant to Rule 13a-14(a)/ 15d-14(a) of
the Exchange Act
|
|
|
32.1
|
Chief
Executive Officer’s Certificate, pursuant to Section 1350 of Chapter 63 of
Title 18 of the United States Code (18 U.S.C.
1350).
|
|
|
32.2
|
Chief
Financial Officer’s Certificate, pursuant to Section 1350 of Chapter 63 of
Title 18 of the United States Code (18 U.S.C.
1350).
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this Report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
Dated: November
17, 2010
|
|
UNITED
ENERGY CORP.
|
|
|
|
|
|
|
By:
|
/s/ Ronald Wilen
|
|
|
|
Ronal
Wilen,
|
|
|
|
Chief
Executive Officer
|
|
|
|
(as
principal executive officer)
|
|
|
|
|
|
|
By:
|
/s/ James McKeever
|
|
|
|
James
McKeever,
|
|
|
|
Interim
Chief Financial Officer
|
|
|
|
(as
principal financial and accounting
officer)
|
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