UNITED
ENERGY CORP. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
December
31,
2007
|
|
March
31,
2007
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,254,216
|
|
$
|
2,863,906
|
|
Accounts
receivable, net of allowance for doubtful
accounts of $5,718 and
$5,879, respectively
|
|
|
64,254
|
|
|
64,466
|
|
Inventory
|
|
|
234,688
|
|
|
138,798
|
|
Prepaid
expenses and other current assets
|
|
|
135,443
|
|
|
128,216
|
|
Assets
of discontinued operations
|
|
|
-
|
|
|
4,507
|
|
Total
current assets
|
|
|
1,688,601
|
|
|
3,199,893
|
|
|
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT, net of accumulated
depreciation and amortization of
$430,477 and $435,703 respectively
|
|
|
55,765
|
|
|
88,081
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS:
|
|
|
|
|
|
|
|
Goodwill,
net
|
|
|
15,499
|
|
|
15,499
|
|
Patents,
net of accumulated amortization of $177,337
and $150,861,
respectively
|
|
|
374,779
|
|
|
345,889
|
|
Loans
receivable
|
|
|
55,877
|
|
|
1,864
|
|
Deposits
|
|
|
1,385
|
|
|
1,385
|
|
Total
assets
|
|
$
|
2,191,906
|
|
$
|
3,652,611
|
|
The
accompanying notes are an integral part of these consolidated financial
statements
UNITED
ENERGY CORP. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
December
31,
|
|
March
31,
|
|
|
|
2007
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
Accounts
payable
|
|
$
|
153,353
|
|
$
|
133,135
|
|
Accrued
expenses
|
|
|
105,270
|
|
|
99,226
|
|
Due
to related parties
|
|
|
244,141
|
|
|
244,141
|
|
Total
current liabilities
|
|
|
502,764
|
|
|
476,502
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY:
|
|
|
|
|
|
|
|
Series
A Convertible Preferred Stock: $8,000
stated value, 420 shares
authorized; 3 shares issued and outstanding as of
December
31, 2007 and March 31, 2007
|
|
|
24,000
|
|
|
24,000
|
|
Common
stock: $0.01 par value 100,000,000 shares
authorized; 31,030,115 shares
issued and
outstanding as of December 31, 2007 and March 31,
2007
|
|
|
310,301
|
|
|
310,301
|
|
Additional
paid-in capital
|
|
|
21,714,365
|
|
|
21,540,041
|
|
Accumulated
deficit
|
|
|
(20,359,524
|
)
|
|
(18,698,233
|
)
|
Total
stockholders' equity
|
|
|
1,689,142
|
|
|
3,176,109
|
|
Total
liabilities and stockholders' equity
|
|
$
|
2,191,906
|
|
$
|
3,652,611
|
|
The
accompanying notes are an integral part of these consolidated financial
statements
UNITED
ENERGY CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
For
the Three Months
Ended
December 31,
|
|
For
the Nine Months
Ended
December 31,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES,
net
|
|
$
|
103,691
|
|
$
|
112,843
|
|
$
|
493,708
|
|
$
|
636,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST
OF GOODS SOLD
|
|
|
67,311
|
|
|
67,282
|
|
|
256,409
|
|
|
276,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
36,380
|
|
|
45,561
|
|
|
237,299
|
|
|
360,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
629,837
|
|
|
716,979
|
|
|
1,908,864
|
|
|
2,190,624
|
|
Depreciation
and amortization
|
|
|
12,372
|
|
|
19,473
|
|
|
49,894
|
|
|
56,881
|
|
Total
operating expenses
|
|
|
642,209
|
|
|
736,452
|
|
|
1,958,758
|
|
|
2,247,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(605,829
|
)
|
|
(690,891
|
)
|
|
(1,721,459
|
)
|
|
(1,886,882
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
11,455
|
|
|
41,157
|
|
|
63,096
|
|
|
134,655
|
|
Interest
expense
|
|
|
(527
|
)
|
|
(696
|
)
|
|
(1,848
|
)
|
|
(1,925
|
)
|
Total
other expense, net
|
|
|
10,928
|
|
|
40,461
|
|
|
61,248
|
|
|
132,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss from continuing operations
|
|
|
(594,901
|
)
|
|
(650,430
|
)
|
|
(1,660,211
|
)
|
|
(1,754,152
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DISCONTINUED
OPERATIONS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from discontinued operations
|
|
|
-
|
|
|
35
|
|
|
-
|
|
|
(15,900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(594,901
|
)
|
|
(650,395
|
)
|
|
(1,660,211
|
)
|
|
(1,770,052
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
dividends
|
|
|
(360
|
)
|
|
(360
|
)
|
|
(1,080
|
)
|
|
(1,166
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss applicable to common shareholders
|
|
$
|
(595,261
|
)
|
$
|
(650,755
|
)
|
$
|
(1,661,291
|
)
|
$
|
(1,771,218
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
AND DILUTED LOSS PER SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
(0.02
|
)
|
|
(0.02
|
)
|
|
(0.05
|
)
|
|
(0.06
|
)
|
Income
(loss) from discontinued operations
|
|
|
0.00
|
|
|
0.00
|
|
|
0.00
|
|
|
0.00
|
|
Total
basic and diluted loss per share
|
|
$
|
(0.02
|
)
|
$
|
(0.02
|
)
|
$
|
(0.05
|
)
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF SHARES,
OUTSTANDING,
basic and diluted
|
|
|
31,030,115
|
|
|
31,030,115
|
|
|
31,030,115
|
|
|
31,029,070
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
UNITED
ENERGY CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR
THE NINE MONTHS ENDED DECEMBER 31, 2007 (UNAUDITED)
|
|
|
|
|
|
Preferred
Stock
|
|
Additional
Paid-
In
Capital
|
|
Accumulated
Deficit
|
|
Total
|
|
|
|
Common
Stock
|
|
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
April 1, 2007
|
|
|
31,030,115
|
|
$
|
310,301
|
|
$
|
24,000
|
|
$
|
21,540,041
|
|
$
|
(18,698,233
|
)
|
$
|
3,176,109
|
|
Compensation
expense associated with options
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
174,324
|
|
|
—
|
|
|
174,324
|
|
Dividends
accrued on preferred shares
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,080
|
)
|
|
(1,080
|
)
|
Net
loss
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,660,211
|
)
|
|
(1,660,211
|
)
|
BALANCE,
December 31, 2007
|
|
|
31,030,115
|
|
$
|
310,301
|
|
$
|
24,000
|
|
$
|
21,714,365
|
|
$
|
(20,359,524
|
)
|
$
|
1,689,142
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
UNITED
ENERGY CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE NINE MONTHS ENDED DECEMBER 31, 2007 AND 2006
|
|
2007
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
Net
loss from continuing operations
|
|
$
|
(1,660,211
|
)
|
$
|
(1,754,152
|
)
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net loss to net cash used in operating activities
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
59,685
|
|
|
69,821
|
|
Compensation
expense associated with options
|
|
|
174,324
|
|
|
235,970
|
|
Asset
transferred in legal settlement
|
|
|
5,003
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Changes
in operating assets and liabilities
|
|
|
|
|
|
|
|
Decrease
in accounts receivable, net
|
|
|
212
|
|
|
3,496
|
|
Increase
in inventory
|
|
|
(95,891
|
)
|
|
(8,066
|
)
|
Increase
in prepaid expenses and
other
current assets
|
|
|
(7,226
|
)
|
|
(3,816
|
)
|
Increase
(decrease) in accounts payable and
accrued
expenses
|
|
|
26,263
|
|
|
(90,384
|
)
|
Net
cash used in continuing operations
|
|
|
(1,497,841
|
)
|
|
(1,547,131
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM DISCONTINUED OPERATIONS:
|
|
|
|
|
|
|
|
Net
loss from discontinuing operations
|
|
|
-
|
|
|
(15,900
|
)
|
Decrease
in accounts receivable, net
|
|
|
31
|
|
|
-
|
|
Decrease
in note receivable, net
|
|
|
4,476
|
|
|
15,000
|
|
Net
cash provided by (used in) discontinuing operations
|
|
|
4,507
|
|
|
(900
|
)
|
Net
cash used in operating activities
|
|
|
(1,493,334
|
)
|
|
(1,548,031
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Loans
receivable
|
|
|
(54,014
|
)
|
|
(2,340
|
)
|
Payments
for acquisition of property and equipment
|
|
|
(5,896
|
)
|
|
(3,710
|
)
|
Payments
for patents
|
|
|
(55,366
|
)
|
|
(40,231
|
)
|
|
|
|
|
|
|
|
|
Cash
used in investing activities
|
|
|
(115,276
|
)
|
|
(46,281
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Payments
of related party payable
|
|
|
-
|
|
|
(200,000
|
)
|
Proceeds
from the exercise of stock options
|
|
|
-
|
|
|
13,875
|
|
Preferred
stock dividend
|
|
|
(1,080
|
)
|
|
(1,166
|
)
|
|
|
|
|
|
|
|
|
Net
cash used in financing activities
|
|
|
(1,080
|
)
|
|
(187,291
|
)
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
(1,609,690
|
)
|
|
(1,781,603
|
)
|
CASH
AND CASH EQUIVALENTS, beginning of period
|
|
|
2,863,906
|
|
|
5,194,748
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, end of period
|
|
$
|
1,254,216
|
|
$
|
3,413,145
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
UNITED
ENERGY CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE NINE MONTHS ENDED DECEMBER 31, 2007 AND 2006
|
|
2007
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
Cash
paid during the period
|
|
|
|
|
|
Interest
|
|
$
|
1,848
|
|
$
|
1,925
|
|
Income
taxes
|
|
$
|
3,320
|
|
$
|
1,235
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
UNITED
ENERGY CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007 (Unaudited)
1.
|
BASIS
OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|
Basis
of presentation
The
accompanying unaudited consolidated financial statements of United Energy Corp.
(the “Company”) have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-QSB of Regulation S-B. Accordingly, they do not include
all of the information and notes 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
December 31, 2007 (unaudited) and the results of its operations for the three
months and nine months ended December 31, 2007 and 2006 (unaudited) and cash
flows for the three months and nine months ended December 31, 2007 and 2006
(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 months and
nine
months ended December 31, 2007 are not necessarily indicative of the operating
results that may be expected for the year ending March 31, 2008.
The
consolidated balance sheet as of March 31, 2007 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-KSB for the fiscal
year ended March 31, 2007.
Going
Concern
- During
the past two fiscal years ended March 31, 2007 and 2006, the Company has
recorded aggregate losses from continuing operations of $6,343,952 and has
incurred total negative cash flow from continuing operations of $3,838,682
for
the same two-year period. During the nine months ended December 31, 2007 the
Company experienced a net loss from continuing operations of $1,660,211 and
negative cash flow from continuing operations of $1,497,841. These matters
raise
substantial doubt about the Company’s ability to continue as a going concern.
The Company’s consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
The
Company’s continued existence is dependent upon several factors, including
increased sales volume, collection of existing receivables and the ability
to
achieve profitability from the sale of the Company’s product lines. In order to
increase its cash flow
,
the
Company is continuing its efforts to stimulate sales and cut back expenses
not
directly supporting its sales and marketing efforts.
UNITED
ENERGY CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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.
3.
|
DISCONTINUED
OPERATIONS
|
During
the fiscal year ended March 31, 2007, the Company discontinued the sale of
its
Uniproof proofing paper as a result the graphic arts segment became discontinued
operations.
The
financial position and results of operations described above are presented
as
assets and liabilities of discontinued operations in the consolidated balance
sheets for all periods presented in accordance with SFAS No. 144
.
A
summary
of discontinued operations for the nine months ended December 31, 2007 and
2006
is as follows:
|
|
2007
|
|
2006
|
|
Revenues
|
|
$
|
-
|
|
$
|
1,127
|
|
Cost
of goods sold
|
|
|
-
|
|
|
1,059
|
|
Gross
profit
|
|
|
-
|
|
|
68
|
|
Operating
expenses
|
|
|
-
|
|
|
|
|
Selling,
general and administrative
|
|
|
-
|
|
|
15,968
|
|
Loss
from discontinued operations
|
|
$
|
-
|
|
$
|
(15,900
|
)
|
A
summary
of assets and liabilities of discontinued operations as of December 31, 2007
and
March 31, 2007 is as follows:
|
|
December
31,
|
|
March
31,
|
|
|
|
2007
|
|
2007
|
|
Accounts
receivable
|
|
$
|
-
|
|
$
|
31
|
|
Notes
receivable
|
|
|
-
|
|
|
4,476
|
|
Assets
of discontinued operations
|
|
$
|
-
|
|
$
|
4,507
|
|
Inventory
consists of the following:
|
|
December
31,
|
|
March
31,
|
|
|
|
2007
|
|
2007
|
|
Blended
chemicals
|
|
$
|
175,517
|
|
$
|
93,814
|
|
Raw
materials
|
|
|
59,171
|
|
|
44,984
|
|
Total
inventory
|
|
$
|
234,688
|
|
$
|
138,798
|
|
UNITED
ENERGY CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5.
|
RELATED-PARTY
TRANSACTIONS
|
The
Company has an amount due to Robert Seaman, a shareholder and former director
of
the Company. Amount due to the related party as of December 31, 2007 and 2006
is
$244,141. This amount is unsecured, non-interest bearing and due upon demand.
Martin
Rappaport, a major shareholder and director of the Company, owned the property
through September 2007 from which the Company leases the 9,600 square foot
facility it occupies in Secaucus, New Jersey. The Company pays approximately
$115,200 per year under the lease, excluding real estate taxes. The Company
believes that the lease is at fair market value with leases for similar
facilities.
During
April 2007, the Company entered into an employment agreement with the Chief
Executive Officer, President and Secretary, Ron Wilen. See note 6 for additional
information.
During
August 2005, Ron Wilen and the former Chief Executive Officer, Brian King,
each
loaned the Company $100,000. The loans were both unsecured, non-interest bearing
and due upon demand. These loans were repaid in April 2006.
6.
|
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 compensation committee.
UNITED
ENERGY CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Fair
Value of Stock Options
For
disclosure purposes under SFAS No. 123 and SFAS No. 123(R), 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:
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Expected
life (in years)
|
|
|
10
|
|
|
10
|
|
|
|
|
|
|
|
|
|
Risk-free
interest rate
|
|
|
4.54
|
%
|
|
4.54
|
%
|
|
|
|
|
|
|
|
|
Volatility
|
|
|
81.4
|
|
|
98.5
|
|
|
|
|
|
|
|
|
|
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
$1.16 for the nine months ended December 31, 2007.
Summary
Stock Option Activity
The
following table summarizes stock option information with respect to all stock
options for the nine months ended December 31, 2007:
|
|
Number
of
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
|
Aggregate
Intrinsic
Value
|
|
Options
outstanding April 1, 2007
|
|
|
3,502,500
|
|
$
|
1.17
|
|
|
7.16
|
|
|
|
|
Granted
|
|
|
250,000
|
|
$
|
1.00
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Options
outstanding December 31, 2007
|
|
|
3,752,500
|
|
$
|
1.16
|
|
|
6.24
|
|
|
|
|
Vested
and expected to vest–end of quarter
|
|
|
3,752,500
|
|
$
|
1.16
|
|
|
6.24
|
|
$
|
—
|
|
Exercisable–end
of quarter
|
|
|
3,478,621
|
|
$
|
1.16
|
|
|
6.33
|
|
$
|
—
|
|
During
the nine months ended December 31, 2007, pursuant to the terms of an employment
agreement dated April 17, 2007, with Ronald Wilen, Chief Executive Officer,
President and Secretary, 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. The initial grant of 50,000 stock
options will be granted out of the 2001 Equity Incentive Plan at the one year
anniversary. In addition, the stock option to purchase 135,000 shares has been
reserved for Mr. Wilen out of the 2001 Equity Incentive Plan. After the
reservation described in the
immediately
preceding sentence, no shares remain available for grant out of the 2001 Equity
Incentive Plan. Thus, the remaining stock options to purchase 65,000 shares
granted to Mr. Wilen will be non-qualified stock options, unless the Company
amends the 2001 Equity Incentive Plan in order to increase the number of shares
that may be granted pursuant to such plan or adopts a new stock option plan.
UNITED
ENERGY CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Options
outstanding at December 31, 2007 have an exercise price ranging between $0.70
to
$2.05.
The
aggregate intrinsic value in the table above represents the total intrinsic
value (the difference between the Company’s closing stock price on December 31,
2007 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 December 31, 2007. This amount changes based upon
changes in the fair market value of the Company’s stock. As of December 31,
2007, $128,918 of the total unrecognized compensation costs related to stock
options is expected to be recognized over a period of one year and three
months.
7.
|
COMMITMENTS
AND CONTINGENCIES
|
Litigation
Sales
Commission Claim
In
July
2002, an action was commenced against us in the Court of Common Pleas of South
Carolina, Pickens County, brought by Quantum International Technology, LLC
and
Richard J. Barrett. Plaintiffs allege that they were retained as a sales
representative of ours and in that capacity made sales of our products to the
United States government and to commercial entities. Plaintiffs further allege
that we failed to pay to plaintiffs agreed commissions at the rate of 20% of
gross sales of our products made by plaintiffs. The complaint seeks an
accounting, compensatory damages in the amount of all unpaid commissions plus
interest thereon, and punitive damages in an amount triple the compensatory
damages, plus legal fees and costs. Plaintiffs maintain that they are entitled
to receive an aggregate of approximately $350,000 in compensatory and punitive
damages, interest and costs. In September 2003, the action was transferred
from
the court in Pickens County to a Master in Equity sitting in Greenville, South
Carolina and was removed from the trial docket. The action, if tried, will
be
tried without a jury. No trial date has been scheduled. We believe, based on
the
advice of counsel, we have meritorious defenses to the claims asserted in the
action and intend to vigorously defend the case. The outcome of this matter
cannot be determined at this time.
In
March
2007, the Company commenced an action against Applied Force and Samuel Miller
III in the Superior Court of New Jersey, Law Division - Bergen County for the
recovery of two of the Company’s vehicles and certain additional claims. The
defendants, Applied Force and Samuel Miller III, have filed a counterclaim
for
recovery of alleged storage fees in the amount of $126,784 and certain alleged
service fees in the amount of $1,275. A settlement agreement and mutual release
was entered into during August 2007 and the action was dismissed on September
18, 2007. As part of the settlement the Company transferred title of a truck
to
the defendant.
Item
2
|
Management's
Discussion and Analysis or Plan of
Operation
|
CAUTIONARY
STATEMENT RELATING TO FORWARD-LOOKING STATEMENTS
The
matters discussed in this Form 10-QSB 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-QSB 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-KSB for the fiscal year ended
March 31, 2007. 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.
We have developed a system referred to as our “S2 system,” to work with our
environmentally friendly paraffin dispersants products. This technology produces
high volumes of steam and heat at variable pressures and temperatures to
completely dissolve most deposits of paraffin and asphaltene within oil wells,
pipelines or storage tanks. The S2 system apparatus is portable, compact and
easy to use. We are further developing the process to enhance and support sales
of K-Line of Chemical Products for the oil industry and for other potential
applications. Our patent on the S2 system expired in January 2007; however,
we
have filed a patent application with respect to certain improvements,
modifications and enhancements to the S2 system.
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 have recently
entered into an amended and restated non-exclusive distribution agreement with
Champion Technologies Inc. for the sale and distribution of our K-Line of
patented specialty chemical solutions. The agreement is for a term of three
(3)
years and grants Champion Technologies Inc. certain rights to blend, dilute
and
utilize our products to manufacture and sell different products. We have also
recently entered into a non-exclusive Master Purchase Agreement with Petrobras
America Inc. for the sale and distribution of our K-Line of patented specialty
chemical solutions. The agreements do not provide for any minimum amounts to
be
purchased. We are also currently negotiating potential working arrangements
with
several other companies however, there can be no assurance that any of these
arrangements will be entered into or, if entered into, (as well as the
agreements with Champion Technologies and Petrobras America Inc.) will be
successful.
We
provide our K-Line of Chemical Products and our Green Globe Products to our
customers and generated revenues of $493,708 for the nine month period ended
December 31, 2007 and $636,684 for the nine month period ended December 31,
2006.
RESULTS
OF OPERATIONS
Three
Months Ended December 31, 2007 Compared to the Three Months Ended December
31,
2006
Revenues
.
Revenues for the three months ended December 31, 2007 were $103,691, a $9,152,
or 8% decrease from revenues of $112,843 in the comparable three months of
2006.
Revenues from our K-Line of Chemical Products decreased by $30,185 to $57,093
or
35% compared to $87,278 in the comparable three months ended December 31, 2006,
offset by an increase of $21,033 to $46,598 or 82% compared to $25,565 in the
comparable three months ended December 31, 2006 in our Green Globe/Qualchem
military sales.
Cost
of Goods Sold
.
Cost of
goods sold increased $29, or 0% to $67,311 or 65% of revenue, for the three
months ended December 31, 2007 from $67,282, or 60% of revenues for the three
months ended December 31, 2006. Cost of goods sold from our K-Line of Chemical
Products sales decreased by $24,773 to $27,614 or 47% compared to $52,387 in
the
comparable three months ended December 31, 2006, offset by an increase of
$24,802 to $39,697 or 167% compared to $14,895 in the comparable three months
ended December 31, 2006 in cost of goods sold of our Green Globe/Qualchem
military sales.
Gross
Profit
.
Gross
profit for the three months ended December 31, 2007, decreased by $9,181, or
20%
to $36,380 or 35% of revenues compared with $45,561 or 40% of revenues in the
prior period. The decrease in gross profit and gross profit percentage reflects
the lower levels of sales of our K-Line of Chemical Products.
Operating
Costs and Expenses
Selling,
general and Administrative Expenses
.
Selling, general and administrative expenses decreased $87,142 to $629,837
or
607% of sales for the three months ended December 31, 2007 compared with
$716,979 or 635% of sales for the three months ended December 31 2006. The
decrease in selling, general and administrative expenses is primarily related
to
a decrease in professional fees partially offset by an increase in travel and
entertainment expenses.
Depreciation
and Amortization
.
Depreciation and amortization decreased $7,101 or 36% to $12,372 for the three
months ended December 31, 2007 compared with $19,473 in the corresponding period
in 2006. The decrease in depreciation and amortization is due to the Company’s
use of an accelerated method of depreciation, offset by a slight increase in
fixed assets.
Interest
Income
.
The
Company had interest income of $11,455 for the three months ended December
31,
2007 compared with $41,157 in the corresponding period in 2006. The decrease
was
due to the use of cash received in connection with the private placement in
March 2006.
Interest
Expense
.
Interest expense remained relatively constant for the three months ended
December 31, 2007 as compared to December 31, 2006.
Net
Loss
.
The
three months ended December 31, 2007 resulted in a net loss of $594,901 or
$0.02
per share as compared to a net loss of $650,395 or $0.02 per share for the
three
months ended December 31, 2006. The average number of shares of common stock
used in calculating earnings per share remained the same.
Nine
Months Ended December 31, 2007 Compared to the Nine Months Ended December 31,
2006
Revenues
.
Revenues for the nine months ended December 31, 2007 were $493,708, a $142,976
or 22% decrease from revenues of $636,684 in the comparable nine months ended
December 31, 2006. Revenues from our K-Line of Chemical Products decreased
by
$315,641 to $240,934 or 57% compared to $556,575 in the comparable nine months
ended December 31, 2006, offset by an increase of $172,665 to $252,774 or 216%
compared to $80,109 in the comparable nine months ended December 31, 2006 in
our
Green Globe/Qualchem military sales.
Cost
of Goods Sold
.
Cost of
goods sold decreased $19,652, or 7% to $256,409 or 52% of revenues, for the
nine
months ended December 31, 2007 from $276,061 or 43% of revenues, for the nine
months ended December 31, 2006. The decrease in cost of goods sold was due
to
the lower sales level in the period compared to the comparable period in 2006.
The increase in cost of goods sold as a percentage of revenues was due to the
higher sales of our Green Globe/Qualchem military sales. Cost of goods sold
from
our K-Line of Chemical Products decreased by $101,468 to $117,416 or 46%
compared to $218,884 in the comparable nine months ended December 31, 2006,
offset by an increase of $81,816 to $138,993 or 143% compared to $57,177 in
the
comparable nine months ended December 31, 2006 in cost of goods sold of our
Green Globe/Qualchem military sales.
Gross
Profit
.
Gross
profit for the nine months ended December 31, 2007, decreased by $123,324 or
34%
to $237,299 or 48% of revenues compared with $360,623 or 57% of revenues in
the
prior period. The decrease in gross profit and gross profit percentage reflects
the lower levels of sales of our K-Line of Chemical Products.
Operating
Costs and Expenses
Selling,
General and Administrative Expenses
.
Selling, general and administrative expenses decreased $281,760 to $1,908,864
or
378% of revenues for the nine months ended December 31, 2007 compared with
$2,190,624 or 344% of revenues for the nine months ended December 31, 2006.
The
decrease in selling, general and administrative expenses was primarily related
to a decrease in professional fees and bad debts partially offset by an increase
in travel and entertainment expenses and higher salaries due to the addition
of
employees offset by a reduction in option costs charged for employees.
Depreciation
and Amortization
.
Depreciation and amortization decreased $6,987 or 12% to $49,894 for the nine
months ended December 31, 2007 compared with $56,881 in the corresponding period
in 2006. The decrease in depreciation and amortization is due to the Company’s
use of an accelerated method of depreciation, offset by a slight increase in
fixed assets.
Interest
Income
.
The
Company had interest income of $63,096 for the nine months ended December 31,
2007 compared with $134,655 in the corresponding period in 2006. The decrease
was due to the use of cash received in connection with the private placement
in
March 2006.
Interest
Expense
.
Interest expense remained relatively constant for the nine months ended December
31, 2007 as compared to December 31, 2006.
Net
Loss
.
The
nine months ended December 31, 2007 resulted in a net loss of $1,660,211 or
$0.05 per share as compared to a net loss of $1,770,052 or $0.06 per share
for
the nine months ended December 31, 2006. The average number of shares of common
stock used in calculating earnings per share increased 1,045 shares to
31,030,115 as a result of 12,500 shares issued in connection with the exercise
of stock options.
Liquidity
and Capital Resources
As
of
December 31, 2007, the Company had $1,254,216 in cash and cash equivalents,
as
compared to $2,863,906 at March 31, 2007.
The
$1,609,690 decrease in cash and cash equivalents was due to net cash used in
continuing operations of $1,497,841, net cash used in investing activities
of
$115,276 and net cash used in financing activities of $1,080. Cash used in
investing activities consisted of employee loans of $4,014, other loans of
$50,000, fixed asset purchases of $5,896, and payment for patents of $55,366.
Cash used in financing activities consisted of preferred stock dividends of
$1,080.
As
of
December 31, 2007 the Company’s backlog included $211,096 of chemical sales.
Backlog represents products that the Company’s customers have committed to
purchase. The Company’s backlog is subject to fluctuations and is not
necessarily indicative of future sales.
During
the past two fiscal years ended March 31, 2007 and 2006, the Company has
recorded aggregate losses from continuing operations of $6,343,952 and has
incurred total negative cash flow from continuing operations of $3,838,682
for
the same two-year period. During the nine months ended December 31, 2007, the
Company experienced a net loss from continuing operations of $1,660,211 and
negative cash flow from continuing operations of $1,497,841. The Company does
not currently have an operating line of credit. These matters raise substantial
doubt about the Company’s ability to continue as a going concern. The Company’s
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
The
Company’s continued existence is dependent upon several factors, including
increased sales volume, collection of existing receivables and the ability
to
achieve profitability from the sale of the Company’s product lines. In order to
increase its cash flow
,
the
Company is continuing its efforts to stimulate sales and cut back expenses
not
directly supporting its sales and marketing efforts.
Concentration
of Risk
Sales
to
two of our customers, accounted for approximately 63% and 57% of our sales
for
the nine months ending December 31, 2007 and 2006.
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.