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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934
UNITED ENERGY CORP.
(Exact Name of Registrant as Specified in Its Charter)
Nevada 223342379
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(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization Identification No.)
600 Meadowlands Parkway, Secaucus, N.J. 07094
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(Address of Principal Executive Offices) (Zip Code)
(201) 842-0288
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Securities to be registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
To Be So Registered Each Class Is To Be Registered
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Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock par value $.01 per share
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(Title of Class)
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(Title of Class)
Index to Exhibits at page 33
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UNITED ENERGY CORP.
INDEX TO
REGISTRATION STATEMENT
ON FORM 10
<TABLE>
<CAPTION>
ITEM PAGE
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<S> <C>
Item 1. Business ........................................................................3
Item 2. Financial Information ..........................................................11
Item 3. Properties .....................................................................19
Item 4. Security Ownership of Certain Beneficial Owners and Management .................19
Item 5. Directors and Executive Officers ...............................................21
Item 6. Executive Compensation .........................................................23
Item 7. Certain Relationships and Related Transactions .................................25
Item 8. Legal Proceedings ..............................................................25
Item 9. Market Price of and Dividends on the Registrant's Common Equity and
Related Stockholder Matters ....................................................25
Item 10. Recent Sales of Unregistered Securities ........................................26
Item 11. Description of Registrant's Securities to be Registered ........................28
Item 12. Indemnification of Directors and Officers ......................................29
Item 13. Financial Statements and Supplementary Data ....................................30
Item 14. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ...........................................................30
Item 15. Financial Statements and Exhibits ..............................................31
Signature Page .................................................................32
Index to Exhibits ..............................................................33
Financial Statements ...........................................................34
</TABLE>
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ITEM I. BUSINESS
BUSINESS OF THE COMPANY
A. HISTORY
United Energy Corp. (referred to variously as the "Company", "United
Energy" and "we") was incorporated in 1971 as Aztec Silver Mining Co., a Nevada
corporation. For several years thereafter, the Company pursued its basic
business through the acquisition of silver mining claims but without any
commercial success. In the late 1970's the Company decided to change its primary
business focus to the acquisition and exploitation of coal and oil shale leases
in Wyoming. Coincident with that change in its business focus, the Company
changed its name from Aztec Silver Mining Co. to United Energy Corp. Despite
early successes, the oil and coal operations ultimately proved to be
unsuccessful, and, as a result, the Company abandoned its leases, paid off its
debts and became a dormant organization.
The Company first became a publicly held corporation in 1972-73 through
a Regulation A offering of a total of 3,000,000 shares of its common stock, to
raise a total of $300,000. As a result, through subsequent sales and resales of
the publicly held stock, by the time the Company became a dormant organization,
it had approximately 290 shareholders holding a total of 12,549,480 shares of
common stock.
The Company continued in this dormant state until October of 1995 when
control of the Company was acquired by Mr. Ronald Wilen and Mr. Robert Seaman
and several other investors. The purpose of the acquisition in 1995 was to
enable Mr. Wilen and his associates to place certain privately held assets
previously owned by them into United Energy Corp. The initial transfer of assets
took place in March of 1996 with the acquisition of 100% of the shares of Nor
Industries, Inc. and the Scitech Group, Inc. and resulted in the issuance of
1,050,000 additional shares to Mr. Wilen and his associates. As a result of the
acquisition of these assets in March 1996, United Energy Corp. became engaged in
the manufacture and sale of pressroom equipment for the printing industry. While
the manufacturing and distribution of printing equipment provided substantial
cash
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flows and revenues during the Company's fiscal year ended March 31, 1997, the
operations of this business also produced significant expenses and required
considerable capital. Also, as the equipment was placed in service, the Company
was faced with the prospect of having to increase its product liability coverage
significantly.
During the same time that the Company was engaged in the manufacture of
printing equipment, it was also developing certain chemical products useful to
the printing industry. In particular, the Company developed an
environmentally-safe press wash to be used in cleaning ink from printing
presses. When the Company discovered that a very small amount of the cleaning
compound could be used to remove oil-based ink from an entire printing press,
the Company began to explore the application of the compound to the maintenance
of producing oil and gas wells. All of the tests of this cleaning product, now
re-named KH-30(R), proved to be highly successful and resulted in production
increases of between two and five times from paraffin-affected oil and gas
wells. After consulting petroleum engineering firms, the Company decided to
focus its energy on the manufacturing and marketing of its KH-30(R) oil well
cleaner and, at the same time, decided to shut down the relatively expensive
printing equipment manufacturing operation. This operation was discontinued
during the fiscal year ended March 31, 1998.
CURRENT BUSINESS OPERATIONS AND PRINCIPAL PRODUCTS
During the fiscal year ended March 31, 1998 the Company put in place a
number of distributors for its KH-30(R) oil and gas well cleaner, entered into
testing and evaluation arrangements with leading oil service companies both in
the United States and internationally and proceeded to file patent applications
on KH-30(R) in most of the major oil-producing countries around the world. As a
result of these activities, KH-30(R) has been utilized in over 100 oil and gas
wells, having many different characteristics, and located in many different
regions of the world. When applied in accordance with United Energy's
recommended procedures, KH-30(R) has generally resulted in production increases
of between two and five times in paraffin-affected oil and gas wells. On many
occasions proper usage has increased production as much as 10 times. KH-30(R) is
now patented in OAPI (Africa) which includes these countries: Burkina Faso,
Benin, Central African Republic, Congo, Cote d'Ivoir, Cameroon, Babon, Guinea,
Guinea-Bissau, Mali,
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Mauritania, Niger, Senegal, Chad and Togo. It is also separately patented in
Venezuela and Nigeria. The Company has 16 additional country patent applications
(including European Community, U.S. and Canada) pending.
DESCRIPTION OF KH-30
KH-30(R) is an environmentally-safe, non-petroleum based product that
is non-toxic and will biodegrade. KH-30(R) has a period of operational
effectiveness in an oil or gas well that far exceeds the effectiveness period of
other products currently in use, usually lasting between 60-90 days before
retreatment is required. Moreover, the use of KH-30(R) in the well has
additional beneficial effects "downstream" resulting in cleaner flow lines and
holding tanks. KH-30(R) has also been tested to be refinery compatible in that
it contains no materials that are harmful to the refining process.
MARKETING OF KH-30
Although United Energy believes that the application of KH-30(R) on a
continuous basis will result in higher production and lower lease operating
costs, the introduction of KH-30(R) into the oil and gas producing industry has
been extremely difficult. Many entrenched players such as the "hot oilers" and
the major oil service companies who benefit from high mark-ups on their
proprietary products, have no incentive to promote the use of KH-30(R).
Moreover, oil production engineers are extremely reluctant to risk damage to a
well from a product that does not have the endorsement and backing of a major
enterprise. Consequently, the pace of introduction of KH-30(R) has been much
less rapid than the Company initially expected.
Two events have occurred during the fiscal year ended March 31, 2000
which, in management's opinion, could lead to significantly increased sales of
KH-30(R). The first was the signing in August 1999 of an overseas marketing
agreement with International Research and Development Inc. ("IRD") of La Jolla,
California, pursuant to which, after a six month start up period, IRD has stated
that it expects to begin selling KH-30(R) into the international markets,
generating sales revenues at the rate of $20,000,000 per year. As of June 1,
2000 IRD had not sold
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any United Energy products. The second event, which occurred in March of 2000,
was the signing of a joint marketing agreement between United Energy and
ChemTech, a company operating world-wide in the design and administration of
chemical treatment programs for the oil and gas industry. ChemTech is located in
the Louisiana oil and gas belt with easy access to the Gulf of Mexico. ChemTech
is a division of Smith International Inc., a New York Stock Exchange- listed
company and a major player in the oil service industry worldwide. There are two
elements of the marketing arrangement which should prove beneficial to United
Energy. The first is that neither ChemTech nor Smith International has an
in-house product which competes directly with KH-30(R), and the second is that
the world-wide reputation of Smith International should help to provide
credibility for United Energy's KH-30(R) product in the universe of the major
oil producers.
OTHER PRODUCTS AND SERVICES OF UNITED ENERGY
United Energy considers its primary business focus to be the
development, manufacture and sale of environmentally-safe specialty chemical
products. In this regard, the Company first developed a follow-on product to
KH-30(R) using much of the same technology to provide an enhanced means for
cleaning asphalt mixing and recycling plants. This product, called AD-30, and
its companion product AC-30 for compressed asphalt, have been test marketed by a
major asphalt equipment manufacturer, Gentec(R) Asphalt Equipment, and are now
ready for international distribution.
Also, in further pursuit of the above goal, United Energy acquired in
November 1998 all of the outstanding shares of Green Globe Industries, Inc. in
exchange for 30,000 shares of United Energy common stock. GreenGlobe is operated
as a separate subsidiary of United Energy and sells its products under the
tradename Qualchem(TM). The acquisition of Green Globe gives United Energy
access to the chemistry and product lines of Green Globe which include
environmentally-safe paint strippers and cleaners, many of which have been
qualified for use by the U.S. Military. Of particular note in the Green Globe
line was the development of dual package cleaning and drying "wipes" which
produce a clear, non-reflective coating on glasses, computer screens and
instrument panels. The "wipes" were developed for, and have received U.S.
Military approval for, the cleaning of the instrument panels of combat aircraft.
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Green Globe's chemists have recently developed an environmentally-safe
fire-retardant agent named FR-15. FR-15 begins as a concentrate which can be
mixed with varying amounts of water, depending on the anticipated use. A fire,
once sprayed with an FR-15 mixture, will not re-ignite. This product can also be
used to reduce odors, such as those from decomposing garbage, and for soil
remediation following petroleum-based contamination.
Another one of United Energy's specialty chemical products is a
photo-sensitive coating that is applied to paper to produce what is known in the
printing industry as proofing paper or "blue line" paper. The Company developed
this formulation over several years of testing. The Company's patent attorneys
have informed the Company that the formulation is technically within the public
domain as being within the scope of an expired duPont patent. However, the exact
formulation utilized by the Company has not been able to be duplicated by others
and is protected by the Company as a trade secret.
The Company introduced its proofing paper product in June of 1999. By
March of 2000, sales of the product had increased to more than $200,000 per
month and amounted to a total of $1,724,695 during the fiscal year ended March
31, 2000.
MARKETING
United Energy markets its products primarily through independent
distributors. This is particularly true of our UNIPROOF(R) proofing paper
product where there are many well established distributors in the printing and
graphic arts business. We are currently selling primarily to one master graphic
arts distributor, International Film Distributors, Inc., who sub-distributes to
others. In the future we may sell directly to major distributors and give area
exclusives to some based on maintenance of minimum sales volumes.
In the past we have marketed our KH-30(R) oil well cleaner primarily
through independent distributors and have followed that pattern in our
arrangements with International Research and
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Development for international sales, and with ChemTech (a division of Smith
International) pursuant to our joint marketing agreement with them.
Thus far, we have no special inventory requirements with respect to our
principal products. We are committed to our distributors to maintain a
reasonable supply of products as needed to meet their anticipated levels of
sales and, as our business grows we will have to maintain higher levels of
inventory. At some point we may be able to shift some portion of the inventory
requirement to our distributors. Currently, our five largest customers account
for $1,770,476 (68.5%) and our largest customer accounts for $1,053,389 (41%) of
our total fiscal year 2000 revenues of $2,585,556.
All of our products up to this point are sold domestically in US
dollars and, therefore, we have had no foreign currency fluctuation risk. Any
international sales through International Research and Development are payable
by IRD to us in US dollars within two days of receiving a copy of our shipping
papers.
PARTICULAR CIRCUMSTANCES RELATED TO THE MANUFACTURE AND SALE OF THE COMPANY'S
PRODUCTS
All of the raw materials necessary for the manufacture of the Company's
products are generally available from multiple sources, although the Company has
negotiated favorable arrangements with its current suppliers and would have to
repeat the process if one or more of its current suppliers were no longer to be
able to supply the raw materials. The Company's chemical products are generally
manufactured by contract blenders at a number of different locations. This
method of manufacture has reduced the need for the Company to invest in
facilities and hire the employees to staff them. Chemical blenders are bound by
confidentiality agreements where appropriate, and are relatively easy to
replace.
The Company is not responsible for any environmental expenditures with
respect to the manufacturing of its products. First of all, the chemical
products on which the Company concentrates are generally "environmentally-safe"
products in that they are low in toxicity and rank high in biodegradability.
Secondly, any environmental issues involved in manufacturing are the
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responsibility of the blending facilities, provided they receive adequate and
accurate information from the Company as to the constituents of the chemicals
involved.
Currently, the photosensitive coating for the Company's UNIPROOF(R)
proofing paper is applied by an independent coater who is bound by a
confidentiality agreement. We believe this facility has the capacity to meet our
production needs for the foreseeable future and also meets all environmental
manufacturing restrictions now or expected to be enacted.
RISKS ASSOCIATED WITH CONCENTRATION OF CUSTOMERS AND SUPPLIERS
As stated above, even though the Company receives its raw materials
from a limited number of suppliers, it believes that the materials are not
unique and can be obtained from other sources. All of the Company's UNIPROOF(R)
proofing paper is manufactured at one location. This does create a certain
degree of risk in the event that something should happen to curtail production
at that location. However, the Company has chosen to limit production sources
for UNIPROOF(R) because of the confidential nature of the formulation for the
photosensitive coating.
There are currently five major customers for the Company's products:
International Film Distributors, Inc. (41% of revenue); Besco Graphics Systems
Corp. (9%), Graphline, Inc., (9.0%) and Hennigan Litho Supply Corp., (6%) for
the Company's graphic arts (UNIPROOF(R)) products, and ChemTech (4%) for the
Company's KH-30(R) oil well cleaning product. The Company believes that these
customers can be replaced if they were to cease to act as distributors, although
the arrangement with ChemTech for the sale of KH-30(R) is viewed as particularly
advantageous by the Company. Most of the graphic arts dealers are well
established companies and create little risk as to non-payment. Where this is
not the case, the Company has attempted to secure its receivables through
assignment of the proceeds of the product sales by the distributor.
EMPLOYEES
At March 31, 2000, the Company employed 10 persons and had available
the services of five others under consulting or product/production cooperation
arrangements. The latter
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arrangement is meant to encompass a situation where a chemist, engineer or
significant marketing person is engaged by an organization under contract with
the Company to manufacture or market one or more of the Company's products.
There are currently two persons in that category.
None of the Company's employees is represented by a union. The Company
considers its relations with its employees to be good.
RESEARCH AND DEVELOPMENT
All of the Company's products are fully developed and ready for market.
This is the result of research and development expenditures averaging in excess
of $250,000 per year over the last three fiscal years. The Company has had
available the services of two research chemists and one production chemist, as
well as two petroleum geologists, to aid in the development of its products. A
significant amount of market adaptation has taken place in the field involving
the development of application procedures for products. We do not anticipate
having to make significant research and development expenditures on existing
products in the future. However, we do expect to continue to develop new
products to complement our existing product lines.
BACKLOG
Our order backlog both at the beginning of the last fiscal year and at
the end of such year was insignificant as we generally ship product as orders
are received.
COMPETITION
With respect to all of our specialty chemical products, we compete
directly or indirectly with other producers of products with similar uses most
of which are more established companies and have greater resources than we have.
Generally, we compete with others by offering lower prices and better service.
However, our KH-30(R) and AD-30 cleaners are more expensive, and with these
products we have to compete by emphasizing product effectiveness and
environmental safety.
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With respect to our formulations which are proprietary, as described
above, we have attempted to patent our KH-30(R) oil well cleaner in the
principal oil producing countries world-wide. We believe the basic patent to be
strong and that it will help our competitive position. However, we are aware
that others may try to imitate our product or invalidate our patents. We have in
the past vigorously enforced our trade secrets such as the one relating to our
UNIPROOF(R) proofing paper, and intend to continue to do so in the future.
However, we recognize that intellectual property rights provide less than
complete protection. To the best of our knowledge no one else is currently
producing a product similar to KH-30(R).
In the case of our UNIPROOF(R) proofing paper, our principal
competition is E.I. duPont de Neumours and Co. which controls in excess of 95%
of the U.S. proofing paper market of $80-$100 million per year. Currently we
have been able to compete with du Pont in terms of better prices and service. We
believe the market will welcome an alternative to duPont and we plan to continue
our current marketing practices.
ITEM 2. SELECTED CONSOLIDATED FINANCIAL DATA
UNITED ENERGY CORPORATION
SUMMARY OF OPERATIONS
The following historical selected consolidated financial data for the
fiscal years ended March 31, 1996, 1997, 1998, 1999 and 2000 is derived from our
audited financial statements and their notes included elsewhere in this
registration statement on Form 10. The data presented below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the audited consolidated financial statements and
accompanying notes appearing elsewhere.
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FISCAL YEAR ENDED MARCH 31, 2000, 1999, 1998, 1997, 1996
<TABLE>
<CAPTION>
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CONSOLIDATED 2000 1999 1998 1997 1996
STATEMENT OF OPERATIONS DATA
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<S> <C> <C> <C> <C> <C>
Operating Revenues 2,585,556 1,191,583 1,942,142 1,172,551 85,243
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Cost of goods sold 1,368,727 1,115,779 1,729,968 694,706 27,334
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Gross profit 1,216,829 75,804 212,174 477,845 57,909
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Selling, G&A 1,051,494 774,056 766,931 727,796 59,635
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Interest income (expense), net 2,424 (3,402) 14,427 3,159 1,415
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Income (loss) before
discontinued operations 145,445 (702,284) (571,616) (256,724) (47,856)
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(Loss) from discontinued operations 0 (35,333) (45,699) (480,321) (231,412)
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Income tax 0 0 0 0 0
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Net income (loss) 145,445 (737,617) (617,315) (737,045) (279,268)
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Retained earnings (deficit)beginning (2,369,587) (1,631,970) (1,014,655) (277,610) 1,658
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Retained Earnings (deficit) end (2,224,142) (2,369,587) (1,631,970) (1,014,655) (277,610)
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Earnings (loss) per share 0.01 (0.05) (0.04) (0.06) (0.02)
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Cash dividends paid 0 0 0 0 0
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</TABLE>
AS OF MARCH 31, 2000, 1999, 1998, 1997, 1996
<TABLE>
<CAPTION>
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CONSOLIDATED 2000 1999 1998 1997 1996
BALANCE SHEET DATA
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<S> <C> <C> <C> <C> <C>
Total working capital 318,651 41,448 199,142 (129,733) (298,276)
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Total assets 1,314,843 565,749 569,762 257,835 181,208
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Total liabilities 765,591 289,232 301,628 342,686 458,014
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Total long term debt 0 0 0 0 0
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Total stockholder's equity 549,252 276,517 268,134 (84,851) (276,806)
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Total shares outstanding 15,830,270 15,681,270 15,149,936 14,408,616 12,890,616
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</TABLE>
CAUTIONARY NOTE REGARDING
FORWARD-LOOKING STATEMENTS
This registration statement contains forward-looking statements. These
statements are not historical facts, but rather are based on our current
expectations, estimates and projections about our industry, our beliefs and
assumptions. Words including "may," "could," "would," "should", "will,"
"anticipates," "expects," "intends," "plans," "projects," "believes," "seeks,"
"estimates" and similar expressions are intended to identify forward-looking
statements. These statements are not guarantees of future performance and are
subject to certain risks, uncertainties and other factors,
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some of which remain beyond our control, are difficult to predict and could
cause actual results to differ materially from those expressed or forecasted in
the forward-looking statements. We caution you not to place undue reliance on
these forward-looking statements, which reflect our management's view only as of
the date of this registration statement. We are not obligated to update these
statements or publicly release the result of any revisions to them to reflect
events or circumstances after the date of this document or to reflect the
occurrence of unanticipated events.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following management's discussion and analysis of financial
condition and results of operations should be read in conjunction with our
consolidated financial statements and notes to those statements appearing
elsewhere in this registration statement. In addition to historical information,
the management's discussion and analysis of financial condition and results of
operations as well as other parts of this registration statement may contain
forward-looking statements that involve risks and uncertainties. Our actual
results could differ materially from those anticipated in the forward-looking
statements.
OVERVIEW
During fiscal 1998, we changed our business to focus on
environmentally-safe, specialty chemicals and closed our printing equipment
division. Also during fiscal 1998, we had substantial revenues from a graphic
arts distributorship.
Our largest customers accounted for 41%, 23% and 33% of revenues in
each of the fiscal years ended March 31, 2000, 1999 and 1998. Our second largest
customers accounted for 9.5%, 17% and 30%, respectively, in each of such years.
No other customer accounted for more than 10% of our revenues during
the same periods.
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RESULTS OF OPERATIONS
COMPARISON OF FISCAL YEAR ENDED MARCH 31, 2000 TO FISCAL YEAR ENDED MARCH 31,
1999
SALES
Sales increased to $2,585,556 for the year ended March 31, 2000 from
$1,191,583 for the year ended March 31, 1999. The $1,393,973, or 117%, increase
in sales was derived principally from sales of our UNIPROOF(R) proofing paper,
which was introduced in June 1999. Our three largest customers accounted for 59
% of revenues for the year ended March 31, 2000 compared with 42% for the year
ended March 31, 1999.
COST OF SALES
Cost of sales increased to $1,368,727 but dropped to 53% of sales, for
the year ended March 31, 2000 from $1,115,779 or 94% of sales, for the year
ended March 31, 1999. This was primarily due to production and sale of the
proofing paper, which has a higher gross margin relative to our other products.
OPERATING COSTS AND EXPENSES
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $1,051,494, or 41% of sales, for the year
ended March 31, 2000 from $774,056, or 65% of sales, for the year ended March
31, 1999. This increase was attributable primarily to the hiring of additional
employees and outside consultants.
Interest Expense, Net of Interest Income. Interest expense and interest
income were not significant in either fiscal year.
Net Income. For the year ended March 31, 2000, our net income totaled
$145,445, or 6% of sales, as compared to a loss of $737,617 for the year ended
March 31, 1999. This increase is the
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result of improvements in sales volume and production of higher margin products,
in particular the UNIPROOF(R) proofing paper. The loss from discontinued
operations was zero in fiscal 2000 compared to $35,333 in fiscal 1999.
COMPARISON OF FISCAL YEAR ENDED MARCH 31, 1999 TO FISCAL YEAR ENDED MARCH 31,
1998
SALES
Sales decreased to $1,191,583 for the year ended March 31, 1999 from
$1,942,142 for the year ended March 31, 1998. The $750,559, or 39%, decrease in
sales was mainly attributed to decreased sales of printing equipment, due to the
closing of that division. Our three largest customers accounted for 42% of
revenues for the year ended March 31, 1999 compared with 68% for the year ended
March 31, 1998.
COST OF SALES
Cost of sales for the year ended March 31, 1999 were $1,115,779 or 94%
of sales, compared to $1,729,968 for the year ended March 31, 1998, or 89% of
sales. The decrease in amount resulted primarily from the cessation of equipment
manufacturing, and the increase in percentage of sales occurred because of
reduced fiscal 1999 revenues.
OPERATING COSTS AND EXPENSES
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $774,056, or 65% of sales, for the year
ended March 31, 1999, from $766,931, or 39% of sales, for the year ended March
31, 1998. This increase of $7,125 stemmed primarily from increased research and
development and the Company's efforts to introduce its KH-30 oil well cleaner.
The increase in percentage of sales was due primarily to lower sales while these
activities were occurring.
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Interest Expense, Net of Interest Income. Interest expense and interest
income were not significant in either fiscal year.
Net Loss. For the year ended March 31, 1999, our net loss totaled
$737,617 as compared to a net loss of $617,315 for the year ended March 31,
1998. This increase in the amount of loss can be attributed to lower overall
sales and to increased expenditures in fiscal 1999 related to efforts to
introduce KH-30(R) and development expenses for the UNIPROOF(R) proofing paper.
The fiscal 1999 loss from discontinued operations was $45,699 compared with a
fiscal 1998 loss from discontinued operations of $480,321.
COMPARISON OF FISCAL YEAR ENDED MARCH 31, 1998 TO FISCAL YEAR ENDED MARCH 31,
1997
SALES
Sales increased to $1,942,142 for the year ended March 31, 1998 from
$1,172,551 for the year ended March 31, 1997. The $769,591, or 66%, increase in
sales was mainly attributed to increased sales of the printing and graphic arts
equipment division. Our three largest customers accounted for 68% of revenues
for the year ended March 31, 1998.
COST OF SALES
Cost of sales for the year ended March 31, 1998 were $1,729,968, or 89%
of sales, compared to $694,706 for the year ended March 31, 1997, or 59% of
sales. The higher cost of sales in 1998 was the result of costs associated with
the discontinued equipment division, as well as higher sales volume of lower
margin graphic arts products.
OPERATING COSTS AND EXPENSES
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $766,931, or 39% of sales, for the year
ended March 31, 1997 from $727,796, or 62% of sales, for the year ended March
31, 1997. The decrease in the percentage of sales was
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due primarily to the increase in sales as compared to stable selling, general
and administrative expenses.
Interest Expense, Net of Interest Income. Interest expense and interest
income were not significant in either fiscal year.
Net Loss. For the year ended March 31, 1998, our net loss totalled
$617,315 as compared to a net loss of $737,945 for the year ended March 31,
1997. The difference can be attributed to an increase in sales and stable
selling, general and administrative expenses, offsetting the increase in cost of
sales. The fiscal 1998 loss from discontinued operations was $480,321 compared
to $231,412 in fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
Since the acquisition of United Energy in 1995, we have financed our
operations through equity contributions from principals and from third parties
supplemented by funds generated by our business. As of March 31, 2000, we had
$46,008 in cash, accounts receivable of $445,949 and inventories of $592,285.
Net Cash Provided by Financing and Operating Activities. Net cash
generated from financing activities decreased to $356,271 for the year ended
March 31, 2000 from $554,628 for the year ended March 31, 1999, a net decrease
of $198,357. The higher amount in 1999 had been needed to cover net losses in
that year. Financing in fiscal year 2000 was used primarily for working capital
needed to cover increased accounts receivable and increased inventory.
Due to our increased inventory and cost of sales in fiscal 2000,
accounts payable and accrued expenses increased $120,008 to $385,176 at fiscal
year end 2000 from $265,088 in 1999. However, in 2000, due to our expanding
business, sales increased to approximately $2,585,556 in 2000 from $1,191,583 in
1999 and our net income increased to $145,445 compared to a loss of $737,617 in
fiscal 1999.
17
<PAGE> 18
At March 31, 2000, accounts receivable increased to $445,949, a
$336,221, or 306% increase, over the balance at March 31, 1999 of $109,737. Most
of the increase was related to our increased sales volume during fiscal 2000.
Also, there were a number of large orders shipped in the fourth quarter of
fiscal 2000 for which payment had not been received at fiscal year end.
Inventories at March 31, 2000 were $592,285, an increase of $545,790
from the balance of $46,495 at March 31, 1999. Most of the increase was due to
raw materials acquired just before fiscal year end.
Our capital requirements have grown, consistent with the growth of our
operations and staffing. We expect our capital requirements to continue to
increase in order to expand and maintain our growth and to remain a competitive
force in our industry. We believe that the capital currently available to us
will be sufficient to sustain our current level of operations. However, to be
able to grow and to take advantage of anticipated opportunities we will need
additional capital. We believe such capital will be available to us on
reasonable terms.
REPORTING BY SEGMENTS
The Company considers itself to be primarily a specialty chemicals
company because of its decision in fiscal 1998 to close its printing equipment
division and focus primarily on the sale of its KH-30(R) oil well cleaner and
related products. However, a significant portion of its revenues has been
related to the printing and the graphic arts industry. This will continue to be
the case in the future if sales of our UNIPROOF(R) proofing paper continue to
increase. Also, during the past three fiscal years, the Company has derived
additional revenues by acting as a graphic arts products distributor.
The following table shows the proportion of total revenues by segment
in each of the last three fiscal years.
18
<PAGE> 19
<TABLE>
<CAPTION>
SPECIALTY
---------
FISCAL YEAR GRAPHIC ARTS CHEMICALS
----------- ------------ ---------
<S> <C> <C>
1998 $ 1,861,850 $ 80,292
1999 890,458 301,125
2000 1,970,701 615,215
</TABLE>
STATEMENT REGARDING INFLATION
The Company does not believe that inflation in the cost of its raw
materials has had or will have any significant negative impact on its operations
in the past or in the future.
STATEMENT REGARDING MARKET RISK
The Company does not engage in any transactions involving financial
instruments or in hedging transactions with respect to its operations.
ITEM 3. PROPERTIES
As of March 31, 2000, the Company had $46,008 in cash, inventory of
$592,285, receivables of $445,949, patents valued at $140,789 and other assets,
totaling $1,314,843, as listed on its balance sheet. It rents 9,600 sq. feet of
space at 600 Meadowlands Parkway, Secaucus, New Jersey 07094 at a monthly rent
of $7,720. The Company uses contract chemical blending and manufacturing
facilities in various locations around the United States for the manufacture of
its products.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 31, 2000, information
regarding the beneficial ownership of shares by each person known by the Company
to own more than five percent of the outstanding shares, by each of the
directors/officers, and by the directors/officers as a group.
19
<PAGE> 20
HOLDERS OF GREATER THAN 5% OF CLASS
<TABLE>
<CAPTION>
Name & Address Amount of and Nature
-------------- --------------------
Title of Class of Beneficial Owner Beneficial Ownership* Percent of Class*
-------------- ------------------- --------------------- -----------------
<S> <C> <C> <C>
Common Stock Ronald Wilen 3,570,600 22.5%
United Energy Corp. (Direct)
600 Meadowlands Pkwy.
Secaucus, N.J. 07094
Common Stock Robert L. Seaman 1,861,627 11.8%
515 Madison Ave. (Direct)
New York, NY 10022
Total of all shareholdings 5,431,627 34.3%
-------------------------- --------- -----
of greater than 5%
------------------
</TABLE>
*Both Mr. Wilen and Mr. Seaman have been granted options to acquire an
additional 750,000 shares of common stock. Those shares have not been included.
The options are not yet exercisable and are not likely to become exercisable
within 90 days, because they were granted pursuant to an option plan which must
be approved by the shareholders of the Company.
SPECIAL STOCK OPTION FOR INTERNATIONAL RESEARCH AND DEVELOPMENT
In addition to the stock options reported above for Mr. Wilen and Mr.
Seaman, under an agreement with International Research and Development ("IRD")
dated August 25, 1999, IRD has the right to acquire up to 2,250,000 shares of
United Energy common stock, provided that IRD achieves $20,000,000 in sales of
United Energy products within a period of 18 months from August 25, 1999. The
price at which each option may be exercised is 50% of the closing price of
United Energy common stock on the date IRD achieves $10,000,000 in sales for
750,000 shares (a vesting date); 50% of the closing price on the date IRD
achieves an additional $5,000,000 in sales (a vesting date) and 50% of the
closing price on the date IRD achieves a further $5,000,000 in sales (a vesting
date). Each option must be exercised within six months of its respective vesting
date. Any option not vested at the end of 18 months from August 25, 1999 will
expire. As of June 1, 2000, IRD had not sold any United Energy products.
20
<PAGE> 21
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
Title of Class Name of Beneficial Owner Amount and Nature of Percent of Class*
-------------- ------------------------ -------------------- -----------------
Beneficial Ownership*
---------------------
<S> <C> <C> <C>
Common Stock Ronald Wilen 3,570,000 22.5%
Nor Industries, Inc. (Direct)
600 Meadowlands Parkway
Secaucus, N.J. 07094
(Director & President)
Common Stock Robert L. Seaman 1,861,627 11.8%
515 Madison Ave., Suite 3200 (Direct)
New York, NY 10022
(Director & Executive Vice Pres.)
Total shareholdings of 5,431,627 34.3%
---------------------- --------- -----
directors & officers
--------------------
</TABLE>
*Both Mr. Wilen and Mr. Seaman have been granted options to acquire an
additional 750,000 shares of common stock. Those shares have not been included.
The options are not yet exercisable and are not likely to become exercisable
within 90 days, because they were granted pursuant to an option plan which must
be approved by the shareholders of the Company.
There are no arrangements known to the Company which could result in a
change of control of the Company.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table shows the positions held by the Company's executive
officers and directors during the fiscal year ended March 31, 2000. Directors
are appointed annually and serve until the next annual meeting of the Company's
stockholders, and until their successors have been elected and have qualified.
Officers are appointed to their positions, and continue in such positions, at
the discretion of the directors.
21
<PAGE> 22
<TABLE>
<CAPTION>
Name Age Position Held such positions since
---- --- -------- -------------------------
<S> <C> <C> <C>
Ronald Wilen 61 President, 1995
Director
Robert Seaman 58 Executive Vice President, 1995
Secretary/Treasurer, Director
</TABLE>
There are no family relationships among Officers and/or Directors.
RONALD WILEN
Since October 1995 Mr. Wilen has been primarily engaged as the chief
executive officer of United Energy Corp., serving as its President and as one of
its two directors. Mr. Wilen has also served during the period as the President
of Nor Industries, Inc., the principal subsidiary of United Energy. In the
period from April 1995 through October 1995 Mr. Wilen was primarily engaged in
overseeing the development of the assets which are now part of United Energy,
assembling the team of administrative and technical personnel to run United
Energy and in arranging for the acquisition of the Company which took place in
October 1995.
Mr. Wilen spends approximately 100% of his business time on the affairs
of United Energy.
ROBERT SEAMAN
Since October 1995 Mr. Seaman has served as the Executive Vice
President, Secretary/Treasurer and General Counsel of United Energy Corp. From
April through October of 1995, Mr. Seaman assisted in the acquisition of United
Energy.
For the same five-year period Mr. Seaman has continued to serve a
number of clients as a private corporate attorney practicing from an office at
515 Madison Ave. New York, NY 10022. Mr. Seaman has been a practicing attorney
in New York since 1969, primarily in the areas of corporate, securities and
commercial law. Mr. Seaman spends approximately 40% of his business time on the
affairs of United Energy.
22
<PAGE> 23
Mr. Seaman serves on the boards of directors of several private,
non-public companies. Also, since January 1999 he has held the position of
President and Director of Quantitative Methods Corporation. Quantitative has a
class of securities registered under Section 15(d) of the Securities Exchange
Act and is publicly traded. Quantitative is an early development stage company
headquartered in Montreal, Canada which hopes to acquire and develop a portfolio
of emerging e-commerce companies. Mr. Seaman spends approximately 10% of his
business time on the affairs of Quantitative Methods.
There are no family relationships among the directors and/or executive
officers of United Energy Corp. There are no persons other than Mr. Wilen and
Mr. Seaman who could be deemed either "promotors" or "controlling persons" with
respect to United Energy Corp.
ITEM 6. EXECUTIVE COMPENSATION
During the three fiscal years ended March 31, 2000 the Company had no
arrangements for the remuneration of its officers and directors, except that
they were entitled to receive reimbursement for actual, demonstrable
out-of-pocket expenses, including travel expenses, if any, made on the Company's
behalf. The Company will pay compensation to the officers and directors elected
in 2000, if at all, at a rate yet to be determined by the board of directors.
The following table sets forth the compensation, if any, and the nature
of such compensation, received from the Company by Mr. Wilen and Mr. Seaman, the
only two executive officers of the Company during each of the last three fiscal
years.
23
<PAGE> 24
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
-------------------------------------------------------------------------
Name Securities All
And Other Restricted Underlying Other
Principal Fiscal Annual Stock Options LTIP Compen-
Position Year Salary Bonus Compensation Award SARs Payouts sation
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ronald 2000 0 0 (1) 0 750,000 0 0
Wilen, -------------------------------------------------------------------------------------------------
1999 0 0 (1) 0 0 0 0
-------------------------------------------------------------------------------------------------
President 1998 0 0 (1) 0 0 0 0
----------------------------------------------------------------------------------------------------------------
Robert 2000 0 0 0 750,000 0 0
Seaman, -------------------------------------------------------------------------------------------------
Executive 1999 0 0 0 0 0 0
Vice -------------------------------------------------------------------------------------------------
President 1998 0 0 0 0 0 0
----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company pays for an automobile used by Mr. Wilen under a
monthly lease of $450. It also pays medical insurance for Mr. Wilen at a rate of
$556.59 per month.
On May 3, 1999 the Company adopted a comprehensive stock option plan
for its officers employees and consultants. Also, on May 3, 1999 the board of
directors of the Company acting in its capacity as the stock option committee
awarded options to purchase 750,000 shares of the Company's common stock to each
of Mr. Wilen and Mr. Seaman. The options so granted are exercisable at a price
of $1.50 per share (the closing price on the date of grant) and are valid for a
term of 10 years. However, none of such options may be exercised until (a) the
option plan has been approved by the shareholders (which has not yet occurred)
and the Company has achieved net income from operations (which did occur for the
fiscal year ended March 31, 2000). Additional information relating to such
options is set out in the table below.
24
<PAGE> 25
OPTIONS/SAR GRANTS IN LAST YEAR*
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
Individual Grants
--------------------------------------------------------------------------- Potential Realization
Percent of Value At Assumed Rates Of
Number of Total Stock Price Appreciation
Securities Options/ For
Name Underlying SARs Exercise Expiration Option Term
Options/ Granted To Of Date
SARs Employees Base Price -----------------------------
Granted In Fiscal ($/Sh)
Year 5% ($) 10% ($)
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Ronald 750,000 50% $1.50 5/3/09 $375,000 $750,000
Wilen
---------------------------------------------------------------------------------------------------------
Robert 750,000 50% $1.50 5/3/09 $375,000 $750,000
Seaman
---------------------------------------------------------------------------------------------------------
</TABLE>
*None of the options shown have been exercised. They cannot be
exercised until the 1999 Comprehensive Stock Option Plan has been approved by
the shareholders of the Company.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the last fiscal year no officer, director, nominee for election
as a director or associate of such officer, director or nominee is, or was,
indebted to the Company or engaged in any other transactions with the Company.
No such transactions are proposed.
ITEM 8. LEGAL PROCEEDINGS
In the opinion of management, there are no material legal proceedings
in process against the Company and none are threatened.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDERS MATTERS
As of March 31, 2000, there were 490 record holders of the Company's
common stock and there were 15,830,270 shares outstanding. The Company has not
previously declared or paid any
25
<PAGE> 26
dividends on its common stock and does not anticipate declaring any dividends in
the foreseeable future.
The following table shows United Energy's high and low sales prices as
quoted on the NASD Bulletin Board by quarter during each of the Company's last
three fiscal years.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
FISCAL YEAR HIGH SALES PRICE LOW SALES PRICE
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
1997 First Quarter 1 5/16 3/4
-----------------------------------------------------------------------------------------
Second Quarter 2 13/16 1
-----------------------------------------------------------------------------------------
Third Quarter 6 5/16 2 1/2
-----------------------------------------------------------------------------------------
Fourth Quarter 5 5/16 2 1/8
-----------------------------------------------------------------------------------------
1998 First Quarter 3 9/16 2 1/2
-----------------------------------------------------------------------------------------
Second Quarter 2 15/16 1 9/16
-----------------------------------------------------------------------------------------
Third Quarter 2 11/16 1 1/16
-----------------------------------------------------------------------------------------
Fourth Quarter 2 3/16 1 9/16
-----------------------------------------------------------------------------------------
1999 First Quarter 2 1 7/16
-----------------------------------------------------------------------------------------
Second Quarter 4 2
-----------------------------------------------------------------------------------------
Third Quarter 2 11/16 1 15/16
-----------------------------------------------------------------------------------------
Fourth Quarter 3 1/2 1.81
-----------------------------------------------------------------------------------------
2000 First Quarter* 3 1/2 4 1/8
-----------------------------------------------------------------------------------------
</TABLE>
*Through 5/1/00
The Company's common stock has been traded on the NASD Bulletin Board
since 1995 under the symbol UNRG. The aggregate market value of the stock held
by non-affiliates on March 31, 2000 was $36,565,581. On May 3, 2000 the
Company's common stock began trading on the over-the-counter market under the
same symbol.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
Registrant has made the following sales of unregistered securities
during its last three fiscal years. In all cases the shares sold were of its
common stock, par value $.01 per share.
26
<PAGE> 27
<TABLE>
<CAPTION>
DATE NAME OF NUMBER
OF SALE PURCHASER OF SHARES CONSIDERATION
<S> <C> <C> <C>
3/1/00 William G. Ford 1,000 Services Rendered
1/5/00 James McKeever 3,000 Services Rendered
10/29/99 Presidio Ltd. Partners 50,000 Services Rendered
7/16/99 Relevant Investments Ltd. 100,000 $200,000 cash
5/13/99 James Farinella 45,000 Litigation Settlement
5/12/99 Relevant Investments Ltd. 150,000 $150,000 cash
12/1/98 Leap International 60,000 Services Rendered
12/1/98 Micro Data Solutions 15,000 Services Rendered
12/1/98 Robert Guinta 25,000 Services Rendered
10/23/98 Relevant Investments Ltd. 200,000 $200,000 cash
9/9/98 Relevant Investments Ltd. 100,000 $150,000 cash
1/15/98 Relevant Investments Ltd. 100,000 $300,000 cash
8/5/97 Martin Rappaport 75,000 $112,000 cash
7/1/97 Kenneth Deffeyes 10,000 Services Rendered
7/1/97 John Guarino 30,000 Services Rendered
5/30/97 Beta Industries, Inc, 545,627 $400,000 cash
5/21/97 Charles Malette 166,000 $100,000 cash
5/21/97 Martin Rappaport 200,000 $120,000 cash
</TABLE>
All of the above transactions were made in reliance upon the exemption
from registration provided by Section 4(2) of the Securities Act of 1933, as
amended.
All of the individuals or entities who received shares for services
rendered were non-employee consultants to the Company at the time the shares
were received and had rendered services in such consulting capacities in a
variety of areas of expertise. In each instance the number
27
<PAGE> 28
of shares issued was a negotiated amount, based upon the perceived value of the
services, recent market prices of the Company's stock adjusted for the fact that
the stock was restricted at the time of issuance, and other factors deemed
pertinent by the Company.
The Farinella settlement was made on advice of counsel to avoid further
litigation costs.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
United Energy's authorized capital stock consists of 100,000,000 shares
of common stock, par value $.01 per share. The stock being registered is our
common stock of which there were 15,830,270 shares outstanding as of March 31,
2000.
DESCRIPTION OF COMMON STOCK
Holders of our common stock are entitled to one vote for each share
held on all matters submitted to a vote of stockholders and do not have
cumulative voting rights. Accordingly, holders of a majority of the shares of
our common stock entitled to vote in any election of directors may elect all of
the directors standing for election. Holders of our common stock are entitled to
receive dividends ratably, if any, as may be declared from time to time by our
board of directors out of funds legally available therefor. Upon the
liquidation, dissolution or winding up of the Company, the holders of our common
stock are entitled ratably to our net assets available after the payment of all
liabilities. Holders of our common stock have no preemptive, subscription,
redemption or conversion rights, and there are no redemption or sinking fund
provisions applicable to the common stock. The outstanding shares of our common
stock are validly issued, duly authorized, fully paid and nonassessable.
The above review of the terms of our common stock is a summary and does
not contain all the information that may be important. For more complete
information, please refer to our certificate of incorporation which is filed as
an exhibit to this registration statement.
28
<PAGE> 29
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Board of Directors has authorized the Company to provide a general
indemnification to officers, directors, employees and agents regarding any
claims or liabilities incurred in the course of their employment.
The Company was organized as a corporation in the state of Nevada on
July 7, 1971. The Nevada business corporation law, Nevada Revised Statues
Section Section 78.7502, provides that each officer, director, employee and
agent of the Company may be indemnified by it against certain costs, expenses
and liabilities which he or she may incur in his or her capacity as such. A copy
of the applicable provisions of Nevada law is set forth below.
SECTION 78.7502. DISCRETIONARY AND MANDATORY INDEMNIFICATION OF OFFICERS,
DIRECTORS, EMPLOYEES AND AGENTS: GENERAL PROVISIONS.
STATUTE TEXT
"1. A corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, except an action by or in the right of
the corporation, by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with the action, suit or proceeding if he
acted in good faith and in a manner which he reasonably believed to be
in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause
to believe his conduct was unlawful. The termination of any action,
suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, does not, of itself, create
a presumption that the person did not act in good faith and in a manner
which he reasonably believed to be in or not opposed to the best
interests of the corporation, and that, with respect to any criminal
action or proceeding, he had reasonable cause to believe that his
conduct was unlawful."
"2. A corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was
a director, officer, employee or agent of the
29
<PAGE> 30
corporation, or is or was serving at the request of the corporation as
a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses,
including amounts paid in settlement and attorneys' fees actually and
reasonably incurred by him in connection with the defense or settlement
of the action or suit if he acted in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interests of
the corporation. Indemnification may not be made for any claim, issue
or matter as to which such a person has been adjudged by a court of
competent jurisdiction, after exhaustion of all appeals therefrom, to
be liable to the corporation or for amounts paid in settlement to the
corporation, unless and only to the extent that the court in which the
action or suit was brought or other court of competent jurisdiction
determines upon application that in view of all the circumstances of
the case, the person is fairly and reasonably entitled to indemnity for
such expenses as the court deems proper."
"3. To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense
of any action, suit or proceeding referred to in subsections 1 and 2,
or in defense of any claim, issue or matter therein, the corporation
shall indemnify him against expenses, including attorneys' fees,
actually and reasonably incurred by him in connection with the defense"
ITEM 13. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements for the three most recent fiscal
years ended March 31, 2000, 1999 and 1998 are attached.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no disagreements between the Company and our prior or
current accountants on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure. Prior to the
fiscal year ended March 31, 1999 our financial statements were audited by Jones,
Jensen & Co. of Salt Lake City, Utah. We changed to Arthur Andersen LLP to audit
our financial statements as of, and for the fiscal years ended, March 31, 1999
and 2000, primarily because of geographical convenience.
30
<PAGE> 31
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
The financial statements and exhibits filed as a part of this Form 10 are as
follows:
(a)(1) FINANCIAL STATEMENTS
Reports of Independent Accountants
Consolidated Balance Sheets as of March 31, 2000, 1999, 1998
Consolidated Statements of Operations for the Fiscal Years ended March
31, 2000, 1999, 1998
Consolidated Statements of Shareholders' Equity for the Fiscal Years
ended March 31, 2000, 1999, 1998
Consolidated Statements of Cash Flows for the Fiscal Years ended March
31, 2000, 1999, 1998
Notes to Consolidated Financial Statements for the Fiscal Years ended
March 31, 2000, 1999, 1998
(a)(2) EXHIBITS: See page 33 et seq. for Index to Exhibits and
Exhibits.
31
<PAGE> 32
SIGNATURES
Pursuant to the requirements of Sections 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
UNITED ENERGY CORP.
----------------------------------------------------------------------
(Registrant)
By \s\ Ronald Wilen 6/8/00
----------------------------------------------------------------------
RONALD WILEN, President (Date)
By \s\ Robert Seaman 6/8/00
----------------------------------------------------------------------
ROBERT L. SEAMAN, Principal Financial Officer (Date)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By \s\ Ronald Wilen 6/8/00
----------------------------------------------------------------------
RONALD WILEN, Director (Date)
By \s\ Robert Seaman 6/8/00
----------------------------------------------------------------------
ROBERT L. SEAMAN, Director (Date)
32
<PAGE> 33
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Item
------------
Number
<S> <C>
(3) (I) Articles of Incorporation
(II) By-Laws
(4) Instruments Defining the Rights of Security Holders
(a) Articles of Incorporation: Articles Fourth, Fifth and Seventh
(b) By-Laws: Article I: Sections: Six, Seven, Eight, Nine, Ten;
Article II: Section Nine: Article IV: Section Two
(c) Form of Stock Certificate of the Company
(10) Material Contracts
(a) 1999 Comprehensive Stock Option Plan
(b) Distribution Agreement and Option Agreement with International
Research and Development dated August 25, 1999
(c) Joint Marketing Agreement with ChemTech (a Division of
Smith International) dated March 2, 2000
(11) Statement re Computation of Per Share Earnings
(12) Statement re Computation of Ratios (not applicable)
(13) Annual Report to Shareholders- (no such report has been produced)
(16) Letter re Change in Certifying Accountant
(18) Letter re Accounting Principles (not applicable)
(21) List of Subsidiaries
</TABLE>
33
<PAGE> 34
UNITED ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
TOGETHER WITH AUDITORS' REPORT
<PAGE> 35
INDEX
<TABLE>
<CAPTION>
Page
--------
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 1
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of March 31, 2000 and 1999 2
Consolidated Statements of Operations for the Years Ended March 31, 2000 and 1999 3
Consolidated Statements of Stockholders' Equity for the Years Ended March 31, 2000 and 1999 4
Consolidated Statements of Cash Flows for the Years Ended March 31, 2000 and 1999 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6-11
</TABLE>
<PAGE> 36
ARTHUR ANDERSEN
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
United Energy Corporation:
We have audited the accompanying consolidated balance sheets of United Energy
Corporation (a Nevada corporation) and subsidiaries as of March 31, 2000 and
1999, and the related consolidated statements of operations, stockholders'
equity and cash flows for the years ended March 31, 2000 and 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of United Energy
Corporation and subsidiaries as of March 31, 2000, and the results of their
operations and their cash flows for the years ended March 31, 2000 and 1999, in
conformity with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raises substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 3. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ ARTHUR ANDERSEN LLP
New York, New York
April 28, 2000
<PAGE> 37
UNITED ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
ASSETS 2000 1999
------ -------------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 46,008 $ 172,448
Accounts receivable, net of allowance for doubtful accounts of $18,260
and $18,260, respectively 445,949 109,737
Inventory (Note 6) 592,285 48,495
-------------- --------------
Total current assets 1,084,242 330,680
PROPERTY AND EQUIPMENT, net of accumulated depreciation and
amortization of $17,320 and $13,311, respectively 9,661 13,670
OTHER ASSETS:
Goodwill, net of accumulated amortization of $7,957 and $0, respectively 78,566 82,544
Patent, net of accumulated amortization of $9,479 and $0, respectively 140,789 134,116
Other assets 1,585 4,739
-------------- --------------
Total assets $ 1,314,843 $ 565,749
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 385,176 $ 265,088
Accounts payable to shareholders 350,000 -
Related party loans payable (Note 4) 24,718 12,077
Revolving line of credit (Note 7) 5,697 12,067
-------------- --------------
Total current liabilities 765,591 289,232
-------------- --------------
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY:
Common stock; 100,000,000 shares authorized of $0.01 par value,
15,830,270 and 15,681,270 shares issued and outstanding,
respectively 158,302 156,812
Additional paid-in capital 2,640,092 2,514,292
Stock subscription receivable (25,000) (25,000)
Accumulated deficit (2,224,142) (2,369,587)
-------------- --------------
Total stockholders' equity 549,252 276,517
-------------- --------------
Total liabilities and stockholders' equity $ 1,314,843 $ 565,749
============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
2
<PAGE> 38
UNITED ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
-------------- --------------
<S> <C> <C>
REVENUES, net $ 2,585,556 $ 1,191,583
COST OF GOODS SOLD 1,368,727 1,115,779
-------------- --------------
Gross profit 1,216,829 75,804
-------------- --------------
OPERATING EXPENSES:
General and administrative 1,051,494 774,056
Depreciation and amortization 17,466 7,434
-------------- --------------
Total operating expenses 1,068,960 781,490
-------------- --------------
Income (loss) from operations 147,869 (705,686)
-------------- --------------
OTHER INCOME (EXPENSE), net:
Interest income 10,028 4,770
Interest expense (12,452) (1,368)
-------------- --------------
Total other income (expense), net (2,424) 3,402
-------------- --------------
Income (loss) from continuing operations 145,445 (702,284)
LOSS FROM DISCONTINUED OPERATIONS (Note 5) - (35,333)
-------------- --------------
Net income (loss) $ 145,445 $ (737,617)
============== ==============
BASIC AND DILUTED LOSS PER SHARE:
Income (loss) from continuing operations $ 0.01 $ (0.05)
Loss from discontinued operations - (0.00)
--------------- -------------
Total basic income (loss) per share $ 0.01 $ (0.05)
=============== =============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING,
basic and diluted 15,740,853 15,355,635
=============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
<PAGE> 39
UNITED ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
Common Stock Additional Stock
--------------------------- Paid-in Subscription Accumulated
Shares Amount Capital Receivable Deficit Total
------------ ------------ ------------ ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, March 31, 1998 15,149,936 $ 151,499 $ 1,851,605 $ (103,000) $ (1,631,970) $ 268,134
Common stock issued 400,000 4,000 496,000 - - 500,000
Common stock issued to
acquire Green Globe
Industries, Inc. 30,000 300 50,700 - - 51,000
Common stock issued to
former shareholder 1,334 13 (13) - - -
Common stock issued for
services received 100,000 1,000 139,000 - - 140,000
Receipt of cash from and
write-off of portion
of stock subscription
receivable - - (23,000) 78,000 - 55,000
Net loss - - - - (737,617) (737,617)
------------ ------------ ------------ ------------- ------------- --------------
BALANCE, March 31, 1999 15,681,270 156,812 2,514,292 (25,000) (2,369,587) 276,517
Common stock issued for
services received 149,000 1,490 125,800 - - 127,290
Net income - - - - 145,445 145,445
------------ ------------ ------------ ------------- -------------- --------------
BALANCE, March 31, 2000 15,830,270 $ 158,302 $ 2,640,092 $ (25,000) $ (2,224,142) $ 549,252
============ ============ ============ ============= ============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE> 40
UNITED ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 145,445 $ (737,617)
Adjustments to reconcile net income (loss) to net cash used in operating
activities-
Depreciation and amortization 17,465 7,434
Noncash consulting expense 127,290 140,000
Changes in operating assets and liabilities-
(Increase) decrease in accounts receivable (336,212) 37,942
Increase in inventory (543,790) (19,366)
Decrease (increase) in other assets, net 3,154 (939)
Increase (decrease) in accounts payable and accrued expenses 120,088 (55,646)
-------------- --------------
Net cash used in operating activities (466,560) (628,192)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for acquisition of property and equipment - (1,506)
Payments for patent (16,151) (76,744)
-------------- --------------
Net cash used in investing activities (16,151) (78,250)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on line of credit (6,370) (6,949)
Proceeds from loans payable to related party 12,641 6,577
Proceeds from accounts payable to shareholders 350,000 -
Proceeds from stock subscription receivable - 55,000
Proceeds from issuance of common stock - 500,000
-------------- --------------
Net cash provided by financing activities 356,271 554,628
-------------- --------------
Net decrease in cash and cash equivalents (126,440) (151,814)
CASH AND CASH EQUIVALENTS, beginning of year 172,448 324,262
-------------- --------------
CASH AND CASH EQUIVALENTS, end of year $ 46,008 $ 172,448
============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest $ 12,452 $ 1,368
Income taxes 800 600
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:
Forgiveness of stock subscription receivable $ - $ 23,000
Common stock issued for acquisition of Green Globe Industries, Inc. - 51,000
DETAILS OF ACQUISITION:
Fair value of assets acquired $ 8,099
Goodwill 86,523
Liabilities assumed (43,622)
--------------
Fair value of common stock issued $ 51,000
==============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE> 41
UNITED ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
United Energy Corporation and subsidiaries (collectively, the "Company") was
incorporated in Nevada on July 7, 1971. The Company was originally organized to
engage in mining-related activities. The Company was unable to raise sufficient
capital for its mining activities; therefore, its operations ceased.
On March 13, 1996, the Company completed an Agreement and Plan of Reorganization
with Nor-Graphics, Inc. ("Nor") and Scitech Group, Inc. ("Scitech"), whereby the
Company issued 1,050,000 shares of its common stock in exchange for all of the
outstanding common stock of Nor and Scitech.
Nor was incorporated in Delaware on September 1, 1994. On May 12, 1995,
Nor-Graphics, Inc. changed its name to Nor-Graphics Industries, Inc. Nor has two
primary divisions, graphic arts and specialty chemicals. Initially, the graphic
arts division had focused primarily on its line of patented, high-speed
computer-controlled sheeters, batchers and sorters. The graphics art division
has also developed a new proofing paper product. In the specialty chemicals
division, Nor has developed a proprietary compound that is used in the
production of oil and gas.
Scitech was incorporated in Delaware on June 12, 1995. Its principal business
activities include operating as a contract consulting research and development
organization primarily in the area of chemical products.
The acquisition of Nor was treated as a recapitalization. The shareholders of
Nor controlled the Company after acquisition. There were no adjustments to the
carrying value of the assets or liabilities of Nor in the exchange.
On September 1, 1998, the Company took control over the operations of Green
Globe Industries, Inc. ("Green Globe"), in anticipation of purchasing Green
Globe. On November 11, 1998, the Company issued 30,000 shares of its common
stock in exchange for all outstanding common stock of Green Globe (Note 10).
Green Globe was incorporated in New Jersey on June 20, 1996. Green Globe has
authorization to sell specialty chemicals to the U.S. Military.
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of United Energy
Corporation, Nor, Scitech and Green Globe. All intercompany transactions and
accounts have been eliminated in consolidation.
Revenue Recognition
The Company's primary source of revenue is from the sales of its products. The
Company recognizes revenue upon shipment to its customers.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments with a maturity of three
months or less when purchased.
6
<PAGE> 42
UNITED ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation and
amortization. Minor additions and renewals are expensed in the year incurred.
Major additions and renewals are capitalized and depreciated over their
estimated useful lives. Depreciation of the computer equipment is computed on a
straight-line basis over an estimated useful life of five years. All other
equipment, including lathes and drill presses, is depreciated on a straight-line
basis over an estimated useful life of seven years. The leasehold improvements
are depreciated using the straight-line basis over 39.5 years. Depreciation
expense for the years ended March 31, 2000 and 1999 was $4,009 and $7,434,
respectively.
Property and equipment consist of the following at March 31, 2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
------------- -------------
<S> <C> <C>
Furniture and fixtures $ 18,707 $ 18,707
Machinery and equipment 5,597 5,597
Leasehold improvement 2,677 2,677
------------- -------------
26,981 26,981
Less- Accumulated depreciation and amortization (17,320) (13,311)
------------- -------------
Property and equipment, net $ 9,661 $ 13,670
============= =============
</TABLE>
Patents
The Company capitalizes legal costs incurred to obtain patents. Amortization
will begin when the patent is approved using the straight-line basis over the
estimated useful life of 15 years.
Accounting for Long-Lived Assets
The Company accounts for long-lived assets in accordance with the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of." This statement establishes financial accounting and reporting standards for
the impairment of long-lived assets, certain identifiable intangibles, and
goodwill related to those assets to be held and used, and for long-lived assets
and certain identifiable intangibles to be disposed of. Management has performed
a review of all long-lived assets and has determined that no impairment of their
carrying values has occurred as of March 31, 2000.
Income Taxes
The Company accounts for income taxes using the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their tax
bases for operating profit and tax liability carryforward. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets or liabilities of a
change in tax rates is recognized in the period that the tax change occurs. The
Company has elected to file its income tax returns using the accrual basis of
accounting.
7
<PAGE> 43
UNITED ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
Per Share Data
During 1997, SFAS No. 128, "Earnings per Share," was issued and became effective
for the Company's March 31, 1998 financial statements. SFAS No. 128 establishes
new standards for computing and presenting earnings per share ("EPS"). The new
standard requires the presentation of basic EPS and diluted EPS. Basic EPS is
calculated by dividing income available to common shareholders by the weighted
average number of shares of common stock outstanding during the period. Diluted
EPS is calculated by dividing income available to common shareholders by the
weighted average number of common shares outstanding adjusted to reflect
potentially dilutive securities. The Company has no outstanding equity
instruments that would be considered common stock equivalents under SFAS No.
128, therefore, there is no difference between basic and diluted per share data.
Concentrations of Risk
Accounts Receivable
The Company has one account receivable, which accounts for 42% of the
total accounts receivable. Credit losses, if any, have been provided for
in the financial statements and are based on management's expectations.
The Company does not believe that it is subject to any unusual risks, nor
significant risks, in the normal course of business.
Significant Customers
The Company's revenues from major customers, as a percentage of revenues,
for the years ended March 31, 2000 and 1999, are as follows:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Customer A 0% 23%
Customer B 40 17
</TABLE>
Vendors
The Company has one vendor, which accounts for over 31% and 89% of the
Company's supplies purchases for the years ended March 31, 2000 and 1999,
respectively.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. GOING CONCERN
The accompanying financial statements have been prepared on a going concern
basis. The Company has incurred negative cash flows from operations and has an
accumulated deficit of approximately $2.2. Million. To date, the Company has
been dependent on debt and equity financing to fund its operations.
8
<PAGE> 44
UNITED ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
The Company plans to significantly increase sales of its cleaning products and
proofing paper. The Company has several products, which are ready for market.
These products are expected to generate significant revenues in the near future.
The officers of the Company have committed to covering the operating expenses in
the interim.
4. RELATED PARTY LOANS PAYABLE
The Company had a loan payable to an individual who is a major shareholder of
the Company. The loan payable as of March 31, 2000 was $24,718. This note is
unsecured, noninterest bearing and due upon demand.
5. LOSS FROM DISCONTINUED OPERATIONS
On June 10, 1997, the Board of Directors of the Company decided to discontinue
the operations of the equipment division and concentrate its efforts on the sale
of proprietary chemicals and other products. The disposal was effected by
discontinuing efforts associated with the equipment division. The equipment
division generated general and administrative expenses of $35,333 during the
year ended March 31, 1999, resulting in loss from discontinued operations. The
Company retains no assets, which were attributable to the equipment division. No
income tax benefit has been attributed to the loss from discontinued operations.
6. INVENTORY
Inventory consists of the following at March 31, 2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
------------- -------------
<S> <C> <C>
Paper $ 507,987 $ -
Blended chemical 76,601 40,797
Film 5,040 5,040
Other raw materials 2,657 2,658
------------- -------------
Total inventory $ 592,285 $ 48,495
============= =============
</TABLE>
The inventory is valued at the lower of cost or market.
7. REVOLVING LINE OF CREDIT
The revolving line of credit allows the Company to borrow up to $25,000 from a
local bank. The interest is calculated at prime plus 1.5%. This line of credit
automatically renews annually at June 30. All of the Company's office equipment
has been pledged as collateral for the line of credit.
8. COMMITMENTS AND CONTINGENCIES
Litigation
The Company, in its normal course of business, is subject to certain litigation.
In the opinion of the Company's management, settlements of litigation will not
have a material adverse effect on the Company's results of operations, financial
position or cash flows.
9
<PAGE> 45
UNITED ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
9. SEGMENT REPORTING
The Company's total revenues, income from operations and identifiable assets by
segment for the year ended March 31, 2000, are as follows:
<TABLE>
<CAPTION>
Graphic Specialty
Arts Chemicals Total
------------ ------------ ------------
<S> <C> <C> <C>
Revenues $ 1,970,701 $ 614,855 $ 2,585,556
============
Gross profit $ 1,216,829
Corporate expenses 1,071,384
------------
Income from continuing operations $ 145,445
============
Accounts receivable $ 303,104 $ 142,845 $ 445,949
Corporate assets 868,894
------------
Total assets $ 1,314,843
============
</TABLE>
The Company's total revenues and loss from operations by segment for the year
ended March 31, 1999, are as follows:
<TABLE>
<CAPTION>
Graphic Specialty
Arts Chemicals Total
------------ ------------ --------------
<S> <C> <C> <C>
Revenues $ 890,458 $ 301,125 $ 1,191,583
==============
Gross profit $ 75,804
Corporate expenses (778,088)
--------------
Loss from continuing operations $ (702,284)
==============
Accounts receivable $ 72,274 $ 37,463 $ 109,737
Corporate assets 456,012
Total assets $ 565,749
=============
</TABLE>
10. ACQUISITION
On September 1, 1998, the Company acquired the operations of Green Globe for
30,000 shares of restricted common stock of the Company, valued at $51,000. The
shares of restricted stock were delivered upon closing, November 12, 1998, in
exchange for all outstanding shares of common stock of Green Globe.
In addition to the issuance of common stock, the Company will pay the former
shareholders of Green Globe an earnout. The earnout is payable over five years,
commencing January 1, 1999. Annual payments are calculated as the maximum of
$20,000 per year or one-third of net income of Green Globe. The maximum
cumulative payment for the five years is approximately $80,000.
10
<PAGE> 46
UNITED ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
This acquisition was accounted for as a purchase. The difference between the
market value of the restricted common stock and the recorded net assets of Green
Globe has been reflected as goodwill and will be amortized over 15 years,
commencing from the acquisition date.
Pro forma information for Green Globe is not material.
11. INCOME TAXES
As of March 31, 2000 and 1999, the Company had a net operating loss carryforward
of approximately $2,765,000 and $2,140,000, respectively, which is available to
reduce its future taxable income and expires at various dates between 2016
through 2019. A full valuation allowance of approximately $63,000 and $728,000,
respectively, has been established against the deferred tax assets due to the
uncertainties surrounding the utilization of the carryforward and limitations
resulting from a change in control. There are no other significant timing
differences.
12. STOCK OPTION PLANS
On May 3, 1999, the Board of Directors approved the 1999 Comprehensive Stock
Option Plan (the "1999 Plan"). Under the 1999 Plan, the Company is authorized to
grant stock options, the exercise of which would allow up to an aggregate of
2,000,000 shares of the Company's common stock to be acquired by the holders of
said awards. The awards can take the form of Incentive Stock Options ("ISOs") or
Nonstatutory Stock Options ("NSOs"). ISOs and NSOs are to be granted in terms
not to exceed ten years. The exercise price of the ISOs and NSOs will be no less
than the market price of the Company's common stock on the date of grant.
Adoption of the 1999 Plan is pending shareholder approval.
Also, on May 3, 1999 the board of directors of the Company acting in its
capacity as the stock option committee awarded options to purchase 750,000
shares of the Company's common stock to each of Mr. Wilen and Mr. Seaman, the
Company's President and Executive Vice President, respectively. The options so
granted are exercisable at a price of $1.50 per share (the closing price at the
date of grant) and are valid for a term of 10 years. However, none of such
options may be exercised until (a) the option plan has been approved by the
shareholders (which has not yet occurred) and the Company has achieved net
income from operations (which did occur for the fiscal year ended March 31,
2000).
In addition to the stock options reported above for Mr. Wilen and Mr. Seaman,
under an agreement with an international marketing firm, International Research
and Development, Inc. ("IRD") dated August 25, 1999, IRD has the right to
acquire up to 2,250,000 shares of UEC common stock, provided that IRD achieves
$20,000,000 in sales of UEC products within a period of 18 months from August
25, 1999. The price at which each option may be exercised is 50% of the closing
price of United Energy common stock on the date IRD achieves $10,000,000 in
sales for 750,000 shares (a vesting date); 50% of the closing price on the date
IRD achieves an additional $5,000,000 in sales (a vesting date) and 50% of the
closing price on the date IRD achieves a further $5,000,000 in sales (a vesting
date). Each option must be exercised within six months of its respective vesting
date. Any option not vested at the end of 18 months from August 25, 1999 will
expire. As of May 15, 2000, IRD had not sold any United Energy products.
13. STOCKHOLDERS' EQUITY
During 1999, the Company issued an aggregate of 149,000 shares of common stock
in exchange for consulting services. These issuances were recorded as an
increase to equity and consulting expense for the fair value of the shares of
common stock on their respective grant dates.
11
<PAGE> 47
UNITED ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
TOGETHER WITH AUDITORS' REPORT
<PAGE> 48
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 1
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheet as of March 31, 1999 2
Consolidated Statements of Operations for the Years Ended
March 31, 1999 and 1998 3
Consolidated Statements of Stockholders' Equity (Deficit) for the Years
Ended March 31, 1999 and 1998 4
Consolidated Statements of Cash Flows for the Years Ended
March 31, 1999 and 1998 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6-11
</TABLE>
<PAGE> 49
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
United Energy Corporation:
We have audited the accompanying consolidated balance sheet of United Energy
Corporation (a Nevada corporation) and subsidiaries as of March 31, 1999, and
the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for the years ended March 31, 1999 and 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of United Energy
Corporation and subsidiaries as of March 31, 1999, and the results of their
operations and their cash flows for the years ended March 31, 1999 and 1998, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has suffered recurring losses from operations
and has incurred negative cash flows from operations that raises substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 3. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/s/ ARTHUR ANDERSEN LLP
New York, New York
September 24, 1999
<PAGE> 50
-4-
UNITED ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 172,448
Accounts receivable, net of allowance for doubtful accounts of $18,260 109,737
Inventory (Note 6) 48,495
--------------
Total current assets 330,680
PROPERTY AND EQUIPMENT, net of accumulated depreciation and
amortization of $13,311 13,670
OTHER ASSETS:
Goodwill 82,544
Patent 134,116
Other assets 4,739
--------------
Total assets $ 565,749
==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 265,088
Related party loans payable (Note 4) 12,067
Revolving line of credit (Note 7) 12,077
--------------
Total current liabilities 289,232
--------------
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock; 100,000,000 shares authorized of $0.01 par value,
15,681,270 shares issued and outstanding 156,812
Additional paid-in capital 2,514,292
Stock subscription receivable (25,000)
Accumulated deficit (2,369,587)
--------------
Total stockholders' equity 276,517
--------------
Total liabilities and stockholders' equity $ 565,749
==============
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
<PAGE> 51
-5-
UNITED ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
REVENUES, net $ 1,191,583 $ 1,942,142
COST OF GOODS SOLD 1,115,779 1,729,968
-------------- --------------
Gross profit 75,804 212,174
-------------- --------------
OPERATING EXPENSES:
General and administrative 774,056 766,931
Depreciation and amortization 7,434 2,432
-------------- --------------
Total operating expenses 781,490 769,363
-------------- --------------
Loss from operations (705,686) (557,189)
-------------- --------------
OTHER INCOME (EXPENSE):
Interest income 4,770 1,410
Interest expense (1,368) (15,837)
-------------- --------------
Total other income (expense) 3,402 (14,427)
-------------- --------------
Loss from continuing operations (702,284) (571,616)
LOSS FROM DISCONTINUED OPERATIONS (Note 5) (35,333) (45,699)
-------------- --------------
Net loss $ (737,617) $ (617,315)
============== ==============
BASIC AND DILUTED LOSS PER SHARE:
Loss from continuing operations $ (0.05) $ (0.04)
Loss from discontinued operations (0.00) (0.00)
-------------- --------------
Total basic and diluted loss per share $ (0.05) $ (0.04)
============== ==============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING,
basic and diluted 15,355,635 14,432,860
============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE> 52
-6-
UNITED ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
Additional Stock
Common Stock Paid-in Subscription Accumulated
Shares Amount Capital Receivable Deficit Total
<S> <C> <C> <C> <C> <C> <C>
BALANCE, March 31, 1997 14,408,616 $ 144,086 $ 785,718 $ - $ (1,014,655) $ (84,851)
Common stock issued 1,011,627 10,116 909,884 (103,000) - 817,000
Common stock issued for
services received 115,000 1,150 152,150 - - 153,300
Cancellation of shares
issued to acquire
Nor-Graphics
Industries, Inc. (385,307) (3,853) 3,853 - - -
Net loss - - - - (617,315) (617,315)
------------ ------------ ------------ ----------- ------------- --------------
BALANCE, March 31, 1998 15,149,936 151,499 1,851,605 (103,000) (1,631,970) 268,134
Common stock issued 400,000 4,000 496,000 - - 500,000
Common stock issued to
acquire Green Globe
Industries, Inc. 30,000 300 50,700 - - 51,000
Common stock issued to
former shareholder 1,334 13 (13) - - -
Common stock issued for
services received 100,000 1,000 139,000 - - 140,000
Receipt of cash from and
write-off of portion
of stock subscription
receivable - - (23,000) 78,000 - 55,000
Net loss - - - - (737,617) (737,617)
------------ ------------ ------------ ----------- ------------- --------------
BALANCE, March 31, 1999 15,681,270 $ 156,812 $ 2,514,292 $ (25,000) $ (2,369,587) $ 276,517
============ ============ ============ =========== ============= ==============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE> 53
-7-
UNITED ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (737,617) $ (617,315)
Adjustments to reconcile net loss to net cash used in operating
activities-
Depreciation and amortization 7,434 2,432
Noncash consulting expense 140,000 153,300
Changes in operating assets and liabilities-
Decrease (increase) in accounts receivable 37,942 (33,405)
(Increase) decrease in inventory (19,366) 14,110
Increase in other assets (939) (335)
Increase in other receivables - (1,636)
(Decrease) increase in accounts payable and accrued expenses (55,646) 9,503
-------------- --------------
Net cash used in operating activities (628,192) (473,346)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for acquisition of property and equipment (1,506) -
Payments for patent (76,744) (24,271)
-------------- --------------
Net cash used in investing activities (78,250) (24,271)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on line of credit (6,949) (2,298)
Proceeds from loans payable to related party 6,577 (48,262)
Proceeds from stock subscription receivable 55,000 -
Proceeds from issuance of common stock 500,000 817,000
-------------- --------------
Net cash provided by financing activities 554,628 766,440
-------------- --------------
Net (decrease) increase in cash and cash equivalents (151,814) 268,823
CASH AND CASH EQUIVALENTS, beginning of year 324,262 55,439
-------------- --------------
CASH AND CASH EQUIVALENTS, end of year $ 172,448 $ 324,262
============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest $ 1,368 $ 15,837
Income taxes 600 -
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:
Forgiveness of stock subscription receivable $ 23,000 $ -
Common stock issued for acquisition of Green Globe
Industries, Inc. 51,000 -
DETAILS OF ACQUISITION:
Fair value of assets acquired $ 8,099 $ -
Goodwill 86,523 -
Liabilities assumed (43,622) -
-------------- --------------
Fair value of common stock issued $ 51,000 $ -
============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE> 54
-8-
UNITED ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
1. ORGANIZATION AND DESCRIPTION
OF BUSINESS
United Energy Corporation and subsidiaries (collectively, the "Company") was
incorporated in Nevada on July 7, 1971. The Company was originally organized to
engage in mining-related activities. The Company was unable to raise sufficient
capital for its mining activities; therefore, its operations ceased.
On March 13, 1996, the Company completed an Agreement and Plan of Reorganization
with Nor-Graphics, Inc. ("Nor") and Scitech Group, Inc. ("Scitech"), whereby the
Company issued 1,050,000 shares of its common stock in exchange for all of the
outstanding common stock of Nor and Scitech. The acquisition of Nor was treated
as a recapitalization. The shareholders of Nor controlled the Company after the
acquisition. As a result, there were no adjustments to the carrying value of the
assets or liabilities of Nor in the exchange.
Nor was incorporated in Delaware on September 1, 1994. On May 12, 1995,
Nor-Graphics, Inc. changed its name to Nor-Graphics Industries, Inc. Nor has two
primary divisions, graphic arts and specialty chemicals. The graphic arts
division focuses on its line of patented, high-speed computer-controlled
sheeters, batchers and sorters. In the specialty chemicals division, Nor has
developed a proprietary compound that is used in the production of oil and gas.
Scitech was incorporated in Delaware on June 12, 1995. Its principal business
activities include operating as a contract consulting research and development
organization primarily in the area of chemicals products.
In the fiscal year ended March 31, 1998, the Company canceled a net of 385,307
of the shares issued in the acquisition of Nor and Scitech in connection with
its determination to discontinue the operations of those companies.
On September 1, 1998, the Company took control over the operations of Green
Globe Industries, Inc. ("Green Globe"), in anticipation of purchasing Green
Globe. On November 11, 1998, the Company issued 30,000 shares of its common
stock in exchange for all outstanding common stock of Green Globe (Note 10).
Green Globe was incorporated in New Jersey on June 20, 1996. Green Globe has
authorization to sell specialty chemicals to the U.S. Military.
<PAGE> 55
-9-
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of United Energy
Corporation, Nor, Scitech and Green Globe. All intercompany transactions and
accounts have been eliminated in consolidation.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments with a maturity of three
months or less when purchased.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation and
amortization. Minor additions and renewals are expensed in the year incurred.
Major additions and renewals are capitalized and depreciated over their
estimated useful lives. Depreciation of the computer equipment is computed on a
straight-line basis over an estimated useful life of 5 years. All other
equipment, including lathes and drill presses, is depreciated on a straight-line
basis over an estimated useful life of 7 years. The leasehold improvements are
depreciated using the straight-line basis over 5 years. Depreciation expense for
the years ended March 31, 1999 and 1998 was $7,434 and $2,432, respectively.
Property and equipment consist of the following at March 31, 1999:
<TABLE>
<S> <C>
Furniture and fixtures $ 18,707
Machinery and equipment 5,597
Leasehold improvement 2,677
-------------
26,981
Less- Accumulated depreciation and amortization (13,311)
-------------
Property and equipment, net $ 13,670
=============
</TABLE>
Patents
The Company capitalizes legal costs incurred to obtain patents. Amortization
will begin when the patent is approved using the straight-line basis over the
estimated useful life of 15 years.
Accounting for Long-Lived Assets
The Company accounts for long-lived assets in accordance with the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." This statement establishes financial accounting and reporting standards for
the impairment of long-lived assets, certain identifiable intangibles, and
goodwill related to those assets to be held and used, and for long-lived assets
and certain identifiable intangibles to be disposed of. Management has performed
a review of all long-lived assets and has determined that no impairment of their
carrying values has occurred as of March 31, 1998.
<PAGE> 56
-10-
Income Taxes
The Company accounts for income taxes using the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their tax
bases for operating profit and tax liability carryforward. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets or liabilities of a
change in tax rates is recognized in the period that the tax change occurs. The
Company has elected to file its income tax returns using the accrual basis of
accounting.
Per Share Data
During 1997, SFAS No. 128, "Earnings per Share," was issued and became effective
for the Company's March 31, 1998 financial statements. SFAS No. 128 establishes
new standards for computing and presenting earnings per share ("EPS"). The new
standard requires the presentation of basic EPS and diluted EPS. Basic EPS is
calculated by dividing income available to common shareholders by the weighted
average number of shares of common stock outstanding during the period. Diluted
EPS is calculated by dividing income available to common shareholders by the
weighted average number of common shares outstanding adjusted to reflect
potentially dilutive securities. The Company has no outstanding equity
instruments that would be considered common stock equivalents under SFAS No.
128, therefore, there is no difference between basic and diluted per share data.
Concentrations of Risk
Accounts Receivable
The Company has one account receivable which accounts for 38% of the total
accounts receivable. Credit losses, if any, have been provided for in the
financial statements and are based on management's expectations. The
Company does not believe that it is subject to any unusual risks, nor
significant risks, in the normal course of business.
<PAGE> 57
-11-
Significant Customers
The Company's revenue from major customers, as a percentage of revenues,
for the years ended March 31, 1999 and 1998, are as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Customer A 23% 33%
Customer B 2% 30%
Customer C 17% -
</TABLE>
Vendors
The Company has one vendor which accounts for over 89% and 77% of the
Company's supplies purchases for the years ended March 31, 1999 and 1998,
respectively.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. GOING CONCERN
Since the completion of the reorganization between the Company, Nor and Scitech
in 1996, the Company has sustained net losses totaling approximately $2.4
million and recurring negative cash flow from operations. To date, the Company
has been dependent upon equity financing to fund its operating losses.
Currently, the Company has limited debt financing available under its revolving
line of credit.
The Company's plans include focusing on sales of its environmentally-safe
products and has signed contracts for the sale of its products to international
distributors and the U.S. military. There is no guarantee that sales or other
activities will generate sufficient working capital to sustain operations for
the next twelve months.
4. RELATED PARTY LOANS PAYABLE
The Company had a loan payable to an individual who is a major shareholder of
Nor. The loan payable as of March 31, 1999 was $12,077. This note is unsecured,
non-interest bearing and due upon demand.
5. LOSS FROM DISCONTINUED OPERATIONS
On June 10, 1997, the Board of Directors of the Company decided to discontinue
the operations of their equipment division and concentrate its efforts on the
sale of proprietary products. The equipment division assembled, installed and
maintained in-line finishing equipment for the printing
<PAGE> 58
-12-
industry, typically graphic arts printers and publishing companies.
The disposal was effected by discontinuing efforts associated with the equipment
division. The equipment division generated general and administrative expenses
of $35,333 and $45,699 during the years ended March 31, 1999 and 1998,
respectively, resulting in the loss from discontinued operations. The Company
retains no assets which were attributable to the equipment division. No income
tax benefit has been attributed to the loss from discontinued operations.
6. INVENTORY
Inventory consists of the following at March 31, 1999:
<TABLE>
<S> <C>
Blended chemical $ 40,797
Film 5,040
Other raw materials 2,658
-------------
Total inventory $ 48,495
=============
</TABLE>
The inventory is valued at the lower of cost or market.
7. REVOLVING LINE OF CREDIT
The revolving line of credit allows the Company to borrow up to $25,000 from a
local bank. The interest is calculated at prime plus 1.5%. This line of credit
automatically renews annually at June 30. All of the Company's fixed assets have
been pledged as collateral for the line of credit.
8. COMMITMENTS AND CONTINGENCIES
Litigation
The Company, in its normal course of business, is subject to certain litigation.
In the opinion of the Company's management, settlements of litigation will not
have a material adverse effect on the Company's results of operations, financial
position or cash flows.
9. SEGMENT REPORTING
The Company's total revenues, loss from operations and identifiable assets by
segment for the year ended March 31, 1999, are as follows:
<TABLE>
<CAPTION>
Graphic Specialty
Arts Chemicals Total
<S> <C> <C> <C>
Revenues $ 890,458 $ 301,125 $ 1,191,583
============
Gross profit $ 75,804
Corporate expenses (778,088)
------------
Loss from continuing operations $ (702,284)
============
Accounts receivable $ 72,274 $ 37,463 $ 109,737
Corporate assets 456,012
------------
Total assets $ 565,749
============
</TABLE>
<PAGE> 59
-13-
The Company's total revenues and loss from operations by segment for the year
ended March 31, 1998, are as follows:
<TABLE>
<CAPTION>
Graphic Specialty
Arts Chemicals Total
<S> <C> <C> <C>
Revenues $ 1,861,850 $ 80,292 $ 1,942,142
============
Loss from operations $ 212,174
Corporate expenses (783,790)
------------
Loss from continuing operations $ (571,616)
============
</TABLE>
10. ACQUISITION
On September 1, 1998, the Company acquired the operations of Green Globe for
30,000 shares of restricted common stock of the Company. The shares of
restricted stock were delivered upon closing, November 12, 1998, in exchange for
all outstanding shares of common stock of Green Globe.
In addition to the issuance of common stock, the Company will pay the former
shareholders of Green Globe an earnout. The earnout is payable over five years,
commencing January 1, 1999. Annual payments are calculated as the maximum of
$20,000 per year or one-third of net income of Green Globe. The maximum
cumulative payment for the five years is approximately $80,000.
This acquisition was accounted for as a purchase. The difference between the
market value of the restricted common stock and the recorded net assets of Green
Globe has been reflected as goodwill and will be amortized over 15 years,
commencing from the acquisition date.
Pro forma information for Green Globe is not material.
11. INCOME TAXES
As of March 31, 1999 and 1998, the Company had a net operating loss carryforward
of approximately $2,273,000 and $1,545,000, respectively, which is available to
reduce its future taxable income and expires at various dates between 2016
through 2019. A full valuation allowance of approximately $773,000 and $525,000,
respectively, has been established against the deferred tax assets due to the
uncertainties surrounding the utilization of the carryforward. There are no
other significant timing differences.
12. SUBSEQUENT EVENTS
On May 3, 1999, the Board of Directors approved the 1999 Comprehensive Stock
Option Plan (the "1999 Plan"). Under the 1999 Plan, the Company is authorized to
grant stock options, the exercise of which would allow up to an aggregate of
2,000,000 shares of the Company's common stock to be acquired by the holders of
said awards. The awards can take the form of Incentive Stock Options ("ISOs") or
Nonstatutory Stock Options ("NSOs"). ISOs and NSOs are to be granted in terms
not to exceed ten years. The exercise price of the ISOs and NSOs will be no less
than the market price of the Company's common stock on the date of grant.
Adoption of the 1999 Plan is pending shareholder approval.
On May 15, 1999, the Company issued 45,000 shares of its common stock, with an
aggregate market value of approximately $70,000, in settlement of litigation.
<PAGE> 60
UNITED ENERGY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
<PAGE> 61
C O N T E N T S
<TABLE>
<S> <C>
Independent Auditors' Report ............................................................................. 3
Consolidated Balance Sheet................................................................................ 4
Consolidated Statements of Operations .................................................................... 5
Consolidated Statements of Stockholders' Equity........................................................... 6
Consolidated Statements of Cash Flows .................................................................... 7
Notes to the Consolidated Financial Statements ........................................................... 9
</TABLE>
<PAGE> 62
[LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
United Energy Corporation and Subsidiaries
East Rutherford, New Jersey
We have audited the accompanying consolidated balance sheet of United Energy
Corporation and Subsidiaries as of March 31, 1998, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the years
ended March 31, 1998 and 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects the financial position of United Energy
Corporation and Subsidiaries as of March 31, 1998 and the results of their
operations and their cash flows for the years ended March 31, 1998 and 1997, in
conformity with generally accepted accounting principles.
/s/ JONES, JENSEN & COMPANY
Jones, Jensen & Company
Salt Lake City, Utah
September 18, 1998
<PAGE> 63
UNITED ENERGY CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
<TABLE>
<CAPTION>
ASSETS
------
March 31,
1998
-----------------
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 324,262
Accounts receivable (net) (Note 2) 147,679
Inventory (Note 6) 29,129
-----------------
Total Current Assets 501,070
-----------------
PROPERTY AND EQUIPMENT (Note 2) 7,520
-----------------
OTHER ASSETS
Patent (Note 2) 57,372
Prepaid expenses 2,164
Other receivable 1,636
-----------------
Total Other Assets 61,172
-----------------
TOTAL ASSETS $ 569,762
=================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable $ 274,722
Accrued expenses 2,390
Related party loans payable (Note 3) 5,500
Revolving line of credit (Note 7) 19,016
-----------------
Total Current Liabilities 301,628
-----------------
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY
Common stock; 100,000,000 shares authorized of $0.01
par value, 15,149,936 shares issued and outstanding 151,499
Additional paid-in capital 1,851,605
Stock subscription receivable (103,000 )
Accumulated deficit (1,631,970 )
-----------------
Total Stockholders' Equity 268,134
-----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 569,762
=================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
4
<PAGE> 64
UNITED ENERGY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the Years Ended
March 31,
---------------------------------------
1998 1997
----------------- -----------------
<S> <C> <C>
SALES (NET) $ 1,942,142 $ 1,172,551
COST OF SALES 1,729,968 694,706
----------------- -----------------
GROSS MARGIN 212,174 477,845
----------------- -----------------
OPERATING EXPENSES
General and administrative 766,931 727,796
Depreciation 2,432 3,614
----------------- -----------------
Total Operating Expenses 769,363 731,410
----------------- -----------------
Loss from Operations (557,189) (253,565 )
----------------- -----------------
OTHER INCOME (EXPENSE)
Interest income 1,410 -
Interest expense (15,837) (3,159)
----------------- -----------------
Total Other Income Expense (14,427) (3,159)
----------------- -----------------
Loss Before Loss from Discontinued Operations (571,616) (256,724)
LOSS FROM DISCONTINUED OPERATIONS (Note 5) (45,699) (480,321)
----------------- -----------------
NET (LOSS) $ (617,315) $ (737,045)
================= =================
BASIC LOSS PER SHARE
Loss before loss from discontinued operations $ (0.04) $ (0.02)
Loss from discontinued operations (0.00) (0.04)
----------------- -----------------
Total Basic Loss per Share $ (0.04) $ (0.06)
================= =================
DILUTED LOSS PER SHARE
Loss before loss from discontinued operations $ (0.04) $ (0.02)
Loss from discontinued operations (0.00) (0.04)
----------------- -----------------
Total Diluted Loss per Share $ (0.04) $ (0.06)
================= =================
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 14,432,860 13,169,008
================= =================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
5
<PAGE> 65
UNITED ENERGY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Common Stock Additional Stock
---------------------------- Paid-in Subscription Accumulated
Shares Amount Capital Receivable Deficit
------------ ------------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1996 12,890,616 $ 128,906 $ (128,102) $ - $ (277,610)
Common stock issued for cash at
an average of $0.63 per share 1,418,000 14,180 885,820 - -
Common stock issued for services,
valued at $0.29 per share 100,000 1,000 28,000 - -
Net loss for the year ended
March 31, 1997 - - - - (737,045)
------------ ------------- -------------- ------------ -------------
Balance, March 31, 1997 14,408,616 144,086 785,718 - (1,014,655)
Common stock issued for cash
at an average of $0.95 per share 1,011,627 10,116 909,884 (103,000) -
Common stock issued for services,
valued at $1.02 per share 115,000 1,150 152,150 - -
Cancellation of shares issued
to acquire Nor-Graphics
Industries, Inc. (385,307) (3,853) 3,853 - -
Net loss for the year ended
March 31, 1998 - - - - (617,315)
------------ ------------- -------------- ------------ -------------
Balance, March 31, 1998 15,149,936 $ 151,499 $ 1,851,605 $ (103,000) $ (1,631,970)
============ ============= ============== ============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
6
<PAGE> 66
UNITED ENERGY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Years Ended
March 31,
---------------------------------------
1998 1997
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (617,315) $ (737,045)
Adjustments to reconcile net (loss) to net cash used by
operating activities:
Depreciation 2,432 3,614
Common stock issued for services 153,300 29,000
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (33,405) (91,945)
(Increase) decrease in inventory 14,110 77,297
(Increase) decrease in prepaid expenses (335) (609)
(Increase) decrease in other receivables (1,636) -
Increase (decrease) in accounts payable and other current
liabilities 9,503 131,654
Increase (decrease) in customer deposits - (186,240)
----------------- -----------------
Net Cash Used by Operating Activities (473,346) (774,274)
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments on patent (24,271) (26,417)
----------------- -----------------
Net Cash Used by Investing Activities (24,271) (26,417)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on line of credit (2,298) (2,022)
Payments on notes payable - related (48,262) (58,720)
Common stock issued for cash 817,000 900,000
----------------- -----------------
Net Cash Provided by Financing Activities $ 766,440 $ 839,258
----------------- -----------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
7
<PAGE> 67
UNITED ENERGY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
For the Years Ended
March 31,
---------------------------------------
1998 1997
----------------- -----------------
<S> <C> <C>
NET INCREASE IN CASH $ 268,823 $ 38,567
CASH AT BEGINNING OF YEAR 55,439 16,872
----------------- -----------------
CASH AT END OF YEAR $ 324,262 $ 55,439
================= =================
SUPPLEMENTAL CASH FLOW INFORMATION
CASH PAID FOR:
Interest $ 15,837 $ 3,159
Income taxes $ - $ -
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
8
<PAGE> 68
UNITED ENERGY CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 1998
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
United Energy Corporation and Subsidiaries (The Company) was
incorporated under the laws of the State of Nevada on July 7,
1971. The Company was organized to engage in mining related
activities. The Company was unable to raise sufficient capital for
its mining activities, therefore its operations ceased. Prior to
the acquisition of Nor-Graphics Industries, Inc., and the Scitech
Group, Inc., the Company had been seeking to merge with an
existing, operating company prior to the acquisition. The Company
was considered a development stage company as defined in SFAS No.
7.
Nor-Graphics, Inc. (Nor) was incorporated under the laws of the
State of Delaware on September 1, 1994. On May 12, 1995,
Nor-Graphics, Inc. changed its name to Nor-Graphics Industries,
Inc. Nor has two primary divisions, graphic arts and specialty
chemicals. The graphic arts division focuses on its line of
patented, high speed computer controlled sheeters, batchers and
sorters. The specialty chemicals division is focused on the two
industries of graphic arts and energy. In graphic arts, Nor is
involved in a line of press-room cleaners which are non-toxic and
biodegradable. In the energy division, Nor has developed a
proprietary compound that is used in the production of oil and
gas. The Company has discontinued all operations of The Graphic
Arts Division and is now focusing its efforts on the KH-30
compound (Note 5).
Scitech Group, Inc. (Scitech) was incorporated under the laws of
the State of Delaware on June 12, 1995. Its principal business
activities include operating as a contract consulting and research
and development organization primarily in the areas of chemicals
products. Scitech is inactive at this time.
On March 13, 1996, the Company and Nor and Scitech completed an
Agreement and Plan of Reorganization whereby the Company issued
1,050,000 shares of its common stock in exchange for all of the
outstanding common stock of Nor and Scitech. Immediately prior to
the Agreement and Plan of Reorganization, the Company had
11,840,616 shares issued and outstanding.
The acquisition was accounted for as a recapitalization of Nor
because the shareholders of Nor controlled the Company after
acquisition. Therefore, Nor is treated as the acquiring entity.
There were no adjustments to the carrying value of the assets or
liabilities of Nor in the exchange. The Company is the acquiring
entity for legal purposes and Nor is the surviving entity for
accounting purposes.
In the fiscal year ended March 31, 1998, the Company canceled a
net of 385,307 of the shares issued in acquisition of Nor and
Scitech in connection with its determination to discontinue the
operations of those companies.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Method
The Company's consolidated financial statements are prepared using
the accrual method of accounting. The Company has elected a March
31 year end.
9
<PAGE> 69
UNITED ENERGY CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
b. Principles of Consolidation
The consolidated financial statements included the accounts of
United Energy Corporation, Nor and Scitech. All intercompany
transactions and accounts have been eliminated.
c. Loss Per Share
The computation of loss per share of common stock is based on the
weighted average number of shares outstanding during the period of
the financial statements.
d. Provision for Taxes
At March 31, 1998, the Company has net operating loss
carryforwards of approximately, $1,600,000 that may be offset
against future taxable income through 2013. No tax benefit has
been reported in the financial statements, because the Company
believes there may be 50% or greater chance the carryforwards will
expire unused. Accordingly, the potential tax benefits of the loss
carryforwards are offset by a valuation allowance of the same
amount.
e. Cash and Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.
f. Property and Equipment
Property and equipment are recorded at cost. Minor additions and
renewals are expensed in the year incurred. Major additions and
renewals are capitalized and depreciated over their estimated
useful lives. Depreciation of the computer equipment is computed
on an accelerated method over a 5 year life, all other equipment
including lathes and drill presses are depreciated on an
accelerated method over a 7 year life. The leasehold improvements
are depreciated using the straight line method over 39.5 years.
Depreciation expense for the years ended March 31, 1998 and 1997
was $2,432 and $3,614, respectively.
10
<PAGE> 70
UNITED ENERGY CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
f. Property and Equipment (Continued)
Property and equipment consists of the following:
<TABLE>
<CAPTION>
March 31,
1998
---------------
<S> <C>
Computer equipment $ 6,564
Telephone system 2,700
Office furniture 1,344
Machinery 4,091
Leasehold improvements 2,677
Less: accumulated depreciation (9,856)
---------------
Net Property and Equipment $ 7,520
===============
</TABLE>
g. Accounts Receivable
Accounts receivable are shown net of the allowance for doubtful
accounts. This amount was determined to be $18,260 at March 31,
1998, after writing off all accounts determined to be
uncollectible.
h. Patents
The Company has embarked on a significant patent application
process for a patent entitled "Cleaning compositions for oil well
lines, casings and equipment and methods of use". The legal costs
are being capitalized as incurred. Amortization will begin when the
patent is approved and will be spread over the estimated useful
life of the patent.
i. Concentrations of Risk
Accounts Receivable
The Company has one account receivable which account for 77% of the
total accounts receivable. An allowance for $18,260 has been
established for this account. Credit losses, if any, have been
provided for in the financial statements and are based on
management's expectations. The Company does not believe that it is
subject to any unusual risks, nor significant risks in the normal
course of business.
Significant Customers
The Company has two customers which account for over 63% of the
Company's revenue.
Vendors
The Company has one vendor which accounts for over 77% of the
Company's supplies.
11
<PAGE> 71
UNITED ENERGY CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
j. Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
NOTE 3 - RELATED PARTY LOANS PAYABLE
The Company had a note payable to an individual, who is a major
shareholder of Nor. The note payable as of March 31, 1998 was
$5,500. This note is unsecured, non-interest bearing and due upon
demand.
NOTE 4 - GOING CONCERN
The Company's financial statements are prepared using generally
accepted accounting principles applicable to a going concern which
contemplates the realization of assets and liquidation of
liabilities in the normal course of business. The Company has
incurred losses from its inception through March 31, 1998. The
Company plans to significantly increase sales of its cleaning
products. The officers of the Company have committed to covering
the operating expenses in the interim.
NOTE 5 - LOSS FROM DISCONTINUED OPERATIONS
On June 10, 1997, the Board of Directors of the Company decided to
discontinued the operations of the Equipment Division and
concentrate its efforts on the KH-30 oil well cleaner and other
proprietary products. The disposal was effected by discontinuing
efforts associated with the Equipment Division. The following is a
summary of income (loss) from operations of the discontinued
Equipment Division.
<TABLE>
<CAPTION>
1998 1997
-------------- ---------------
<S> <C> <C>
SALES - EQUIPMENT DIVISION $ - $ -
COST OF SALES - EQUIPMENT DIVISION - 189,852
-------------- ---------------
GROSS MARGIN - (189,852)
OPERATING EXPENSES
Research and development - -
General and administrative 45,699 290,469
-------------- ---------------
Total Operating Expenses (45,699) (290,469)
-------------- ---------------
Loss From Discontinued Operations $ (45,699) $ (480,321)
============== ===============
</TABLE>
12
<PAGE> 72
UNITED ENERGY CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 1998
NOTE 5 - LOSS FROM DISCONTINUED OPERATIONS (Continued)
The Company retains no assets which were attributable to the
Equipment Division. No income tax benefit has been attributed to
the loss from discontinued operations.
NOTE 6 - INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
March 31,
1998
----------------
<S> <C>
Blended chemical $ 21,154
Film 6,862
Other raw materials 1,113
----------------
Total Inventory $ 29,129
================
</TABLE>
The inventory is valued at the lower of cost or market.
NOTE 7 - REVOLVING LINE OF CREDIT
The revolving line of credit allows the Company to borrow up to
$25,000 from a local bank. The interest is calculated at prime
plus 1.5%. This line of credit renews annually at June 30. All
of the Company's fixed assets have been pledged as collateral
for the line of credit.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Litigation
The Company is a defendant in 3 lawsuits which claim Breach of
Contract and other items regarding the discontinued Machine
Division. Management does not believe that the outcome of these
actions will have a material effect on the consolidated
financial statements. The Company has accrued the amount of the
estimated liability to be incurred in the lawsuits.
NOTE 9 - STOCK OPTION PLAN
On January 17, 1997, the Company established a comprehensive
stock optio n plan. 1,000,000 shares of the Company's common
stock were reserved for options of which 250,000 were granted on
that date. The options are exercisable at the closing price of
the common stock on the date of the Grant of $0.44 per share
with the understanding that none of the options granted can be
exercised until the Company has achieved net income from
operations.
13
