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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
AMENDMENT NO. 1 TO
FORM 10/A1
COMMISSION FILE NO. 000-30841
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
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization Identification No.)
600 Meadowlands Parkway, Secaucus, N.J. 07094
(Address of Principal Executive Offices) (Zip Code)
(201) 842-0288
Securities to be registered pursuant to Section 12(b) of the Act:
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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
________________________________________________________________________________
(Title of Class)
(Title of Class)
Index to Exhibits at page 37
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UNITED ENERGY CORP.
INDEX TO AMENDMENT NO. 1 TO
REGISTRATION STATEMENT
ON FORM 10
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ITEM PAGE
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Item 1. Business .......................................................... 3
Item 2. Financial Information ............................................. 12
Item 3. Properties ........................................................ 22
Item 4. Security Ownership of Certain Beneficial Owners and Management .... 23
Item 5. Directors and Executive Officers .................................. 25
Item 6. Executive Compensation ............................................ 26
Item 7. Certain Relationships and Related Transactions .................... 28
Item 8. Legal Proceedings ................................................. 28
Item 9. Market Price of and Dividends on the Registrant's Common Equity and
Related Stockholder Matters ....................................... 28
Item 10. Recent Sales of Unregistered Securities ........................... 30
Item 11. Description of Registrant's Securities to be Registered ........... 31
Item 12. Indemnification of Directors and Officers ......................... 32
Item 13. Financial Statements and Supplementary Information ................ 34
Item 14. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure .............................................. 34
Item 15. Financial Statements and Exhibits ................................. 34
Signature Page .................................................... 37
Index to Exhibits ................................................. 38
Financial Statements .............................................. 39
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ITEM I. BUSINESS
BUSINESS OF THE COMPANY
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
already owned by them into United Energy Corp. which would allow public
investors to acquire an interest in such assets. In return the private investors
could hope to achieve liquidity and a fair market valuation for their
investments. 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.
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While the manufacturing and distribution of printing equipment provided
substantial cash 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.
During the Company's four fiscal years ended March 31, 1996, 1997, 1998
and 1999, the efforts to achieve profitable operations through the sale of
pressroom equipment, and research and development and initial marketing expense
for the Company's current product lines resulted in cumulative losses totaling
$2,369,587. During fiscal year 2000, the Company achieved operating income of
$145,445.
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 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
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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'Ivoire, Cameroon,
Gabon, Guinea, Guinea-Bissau, Mali, Mauritania, Niger, Senegal, Chad and Togo.
It is also separately patented in the United States, Venezuela and Nigeria. The
Company has 15 additional country patent applications (including European
Community 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 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.
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Two events have occurred during the fiscal year ended March 31, 2000
which, in management's opinion, could lead to 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 . However, as
of December 1, 2000 IRD had not sold 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. To date our sales of
KH-30(R) to or through Chemtech have amounted to approximately $200,000.
Our agreements with IRD and Chemtech are included as exhibits to this
registration statement and should be read for the additional information they
contain.
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 distribution.
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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.
United Energy'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, to the best of the Company's knowledge, 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.
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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 have been selling primarily to one master graphic
arts distributor, International Film Distributors, Inc., who sub-distributes to
others.
On September 22, 2000 we entered into an agreement with the Alameda
Company of Anaheim California which grants them exclusive distribution rights in
the Western Hemisphere (North, South and Central America and the Caribbean) for
our UNIPROOF(R) proofing paper. As part of the arrangement Alameda has agreed to
buy all of our existing UNIPROOF(R) inventory for $798,100, and we are turning
over to them all of our existing customers within the above territory.
The contract with Alameda covers the years 2001 and 2002 and is
renewable annually thereafter provided they meet certain minimum product
purchase levels. To maintain exclusivity for 2001 and 2002 they must purchase
from us a total of 13,394, 641 sq. ft ($3,348,660) in 2001 and 16,073,568 sq.
ft. ($4,018,392) in 2002. Future minimums and prices are to be agreed upon. For
more information, please see our agreement with Alameda which is included as an
exhibit to this registration statement.
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 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. Our five largest customers accounted for
$1,770,476 (68.5%) and our largest customer accounted for $1,053,389 (41%) of
our total fiscal year 2000 revenues of $2,585,556.
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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
relatively easy to replace and are bound by confidentiality agreements, where
appropriate, which obligate the recipient not to disclose or use proprietary
information of the Company.
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
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 which obligates the recipient not to disclose or use
confidential information of the Company 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.
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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 were in the last fiscal year 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. By
virtue of the contract signed on September 22, 2000 the Company expects that the
Alameda Company will become the single largest customer for the Company's
Graphic Arts products.
EMPLOYEES
At November 1, 2000, the Company employed 10 persons and had available
the services of five others under consulting or product/production cooperation
arrangements. The latter 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.
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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 principal 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.
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
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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 INFORMATION
The following selected consolidated financial information for the
fiscal years ended March 31, 1996, 1997, 1998, 1999 and 2000 is derived from our
audited financial statements and the notes thereto. The statement of operations
information for the three-year period ended March 31, 2000 and the balance sheet
information as of March 31, 1999 and 2000 is derived from the consolidated
financial statements of United Energy Corporation, which have been audited by
Arthur Andersen LLP, independent public accountants, and are included elsewhere
in this registration statement on Form 10. The statement of operations
information for the years ended March 31, 1996 and 1997, and the balance sheet
information as of March 31, 1996, 1997 and 1998, is derived from the
consolidated financial statements of United Energy Corporation, which have been
audited by Jones, Jensen and Company, independent public accountants, and which
are not included in this registration statement on Form 10. The information
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 included elsewhere.
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FISCAL YEAR ENDED MARCH 31, 2000, 1999, 1998, 1997, 1996
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CONSOLIDATED 2000 1999 1998 1997 1996
STATEMENT OF OPERATIONS DATA
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<S> <C> <C> <C> <C> <C>
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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 145,445 (702,284) (571,616) (256,724) (47,856)
discontinued operations
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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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AS OF MARCH 31, 2000, 1999, 1998, 1997, 1996
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CONSOLIDATED 2000 1999 1998 1997 1996
BALANCE SHEET DATA
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<S> <C> <C> <C> <C> <C>
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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>
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.
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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. This activity added approximately $1,000,000 to our fiscal
1998 revenues but produced very little profit. We ceased to act as a distributor
in 1999 when we began to manufacture our UNIPROOF(R) proofing paper. We are now
selling this product to many of the customers we had serviced as a graphic arts
distributor. During the Company's four fiscal years ended March 31, 1996, 1997,
1998 and 1999, the efforts to achieve profitable operations through the sale of
pressroom equipment, and research and development and initial marketing expenses
for the Company's current product lines resulted in cumulative losses totaling
$2,369,587. During fiscal year 2000, the Company achieved operating income of
$145,445.
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. Please see page 10 of this amended Form 10 for a listing of our recent
principal customers. Also please note that the recent contract with the Alameda
Company could have the effect of making them our largest customer.
STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES AND PROCEDURES
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. SFAS No. 133 (as
amended by SFAS No. 137) is effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000. The Company does not enter into derivative
instruments or engage in hedging activities as defined in SFAS No. 133.
Accordingly, management has determined that adoption of this standard will have
no impact on the Company's financial statements.
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During March 2000, the FASB issued interpretation No. 44, "Accounting
for Certain Transactions Involving Stock Compensation," which clarifies the
application of APB Opinion No. 25, regarding (a) the definition of an employee
for purposes of applying APB Opinion No. 25, (b) the criteria for determining
whether a plan qualifies as a noncompensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. Interpretation No. 44 is effective on July 1,
2000. Certain events as defined by Interpretation No. 44, may require earlier
consideration if they occurred after December 14, 1998 or January 12, 2000,
depending on the event, although no financial statement effect would be
recognized until July 1, 2000. The effects of applying Interpretation No. 44 are
recognized prospectively. The Company has reviewed its stock compensation events
and does not believe that Interpretation No. 44 will have a material impact on
its financial position or its results of operations.
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No.
101, "Revenue Recognition in Financial Statements." SAB No. 101 expresses the
views of the SEC staff in applying generally accepted accounting principles to
certain revenue recognition issues. In June 2000, the SEC issued SAB No. 101B to
defer the effective date of the implementation of SAB No. 101 until the fourth
quarter of fiscal 2000. The Company is currently evaluating the impact of
adopting this SAB, but does not believe that this SAB will have a material
impact on its financial position or its results of operations.
The Company has not provided any current or deferred US federal, state
or foreign income tax provision or benefit for any of the periods presented
because we have experienced operating losses since inception. Utilization of our
net operating loss carryforwards, which begin to expire in 2010, may be subject
to certain limitations under Section 382 of the Internal Revenue Code of 1986,
as amended and other limitations under state tax laws. We have provided a full
valuation allowance on the deferred tax asset, consisting primarily of net
operating loss carryforwards, because of uncertainty regarding its reliability.
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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 and accounted for $1,724,695 in revenues. 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 $1,051,495, 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
16
<PAGE> 17
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.
17
<PAGE> 18
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 $35,333 compared with a
fiscal 1998 loss from discontinued operations of $45,699.
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
18
<PAGE> 19
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 $737,045 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 $45,699, compared
to $480,321 in fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
Since the acquisition of United Energy in 1995, we have financed our
operations through loans and 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 $120,088 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.
19
<PAGE> 20
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 the increased sales volume of our UNIPROOF(R)
proofing paper 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 $543,790
from the balance of $48,495 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 become a competitive
force in the proofing paper and specialty chemical industries. We have incurred
continuing significant negative cash flows from operations. Continued operations
have relied primarily on financing activities. Our market shares in these
markets are not currently quantitative, although we believe them to be very
small. 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.
In June 2000, the Company obtained a $1,000,000 line of credit from
Fleet Bank, N.A. Borrowings under the credit line bear interest at the prime
rate, payable monthly. Amounts owed under the credit line are subject to
repayment on demand at any time and for any reason. Borrowings under the line
must be reduced to zero for a period of 30 consecutive days in any twelve month
period.
Amounts borrowed under the credit line are secured by the following:
(i) A continuing security interest in all accounts and accounts
receivable, contracts, contract rights, general intangibles, instruments,
documents, chattel paper, all obligations, in whatever form, owing to the
Company and all rights in the merchandise or services which gave rise to any of
the foregoing, whether now existing or hereafter arising, now or hereafter
received by or belonging or owing to the Company and in the proceeds thereof,
and in all goods including (a) all
20
<PAGE> 21
inventory, including raw materials, work in process, and other tangible personal
property held for sale or lease or furnished or to be furnished under contracts
of service or used or consumed in the Company's business, wherever located,
whether now existing or hereafter arising, now or hereafter received by or
belonging to the Company, and in the proceeds and products thereof, and (b) all
machinery, equipment, furnishings, fixtures and other tangible personal property
(with all accessions thereto) used or bought for use primarily in business,
wherever located, whether now existing or hereafter arising, now or hereafter
received by or belonging to the Company, and in the proceeds and products
thereof, including without limitation tax refunds and insurance proceeds on any
of the foregoing.
(ii) a pledge of 750,000 shares of the Company's common stock held in
treasury and
(iii) the guarantee of a shareholder of the Company.
The credit line also carries certain income and balance sheet tests
that the Company must meet quarterly and annually. The several documents setting
forth the Company's rights and obligations with respect to the credit line are
filed as exhibits to this registration statement and readers are referred to
them for more complete information.
To date, the Company has borrowed $160,000 under the credit line for
working capital to fill orders for its UNIPROOF(R) proofing paper. The Company
does not expect to borrow more than an additional $40,000 under the credit line
during the next six months. However, any projections of future cash needs and
cash flows are subject to substantial uncertainty as to whether we will have the
funds necessary to repay obligations under this line of credit should the
amounts owed become due upon demand by FleetBank. This uncertainty may also
negatively affect our ability to continue as a going concern.
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
21
<PAGE> 22
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.
<TABLE>
<CAPTION>
SPECIALTY
FISCAL YEAR GRAPHIC ARTS CHEMICALS
<S> <C> <C>
1998 $ 1,861,850 $ 80,292
1999 890,458 301,125
2000 1,970,701 614,855
</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.
22
<PAGE> 23
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.
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. We expect to submit such stock
option plan for approval no later than March 31, 2001.
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
23
<PAGE> 24
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 November 1, 2000, IRD had not sold any United Energy products.
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. We expect to submit such stock
option plan for approval no later than March 31, 2001.
There are no arrangements known to the Company which could result in a
change of control of the Company.
24
<PAGE> 25
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.
<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.
25
<PAGE> 26
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.
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.
26
<PAGE> 27
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
------------------------------------------------------------------------
Name Other Securities LTIP All
And Annual Restricted Underlying Payouts Other
Principal Fiscal Salary Bonus Compen- Stock Options Compen-
Position Year sation Award SARs sation
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ronald Wilen, 2000 0 0 (1) 0 750,000 0 0
President -------------------------------------------------------------------------------------------------
1999 0 0 (1) 0 0 0 0
-------------------------------------------------------------------------------------------------
1998 0 0 (1) 0 0 0 0
------------------------------------------------------------------------------------------------------------------
Robert Seaman, 2000 0 0 0 750,000 0 0
Executive -------------------------------------------------------------------------------------------------
Vice President 1999 0 0 0 0 0 0
-------------------------------------------------------------------------------------------------
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 $1.50 per share (the closing price on the date of grant) and are valid for a
term of 10 years. However, none of such options may be exercised until (a) the
option plan has been approved by the shareholders (which has not yet occurred)*
and the Company has achieved net income from operations (which did occur for the
fiscal year ended March 31, 2000). Additional information relating to such
options is set out in the table below.
*The Company expects to submit the stock option plan to the
stockholders for approval no later than March 31, 2001.
27
<PAGE> 28
OPTIONS/SAR GRANTS IN LAST YEAR*
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
Individual Grants
-------------------------------------------------------------------------------
Percent of
Number of
Securities Total Options/ Potential Realization
Underlying SARs Value At Assumed Rates Of
Options/ Granted To Exercise Of Stock Price Appreciation
SARs Employees Base Price Expiration For
Name Granted In Fiscal Year ($/Sh) Date Option Term
---------------------------
5% ($) 10% ($)
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Ronald Wilen 750,000 50% $1.50 5/3/09 $375,000 $750,000
----------------------------------------------------------------------------------------------------------
Robert Seaman 750,000 50% $1.50 5/3/09 $375,000 $750,000
----------------------------------------------------------------------------------------------------------
</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. The Company expects to submit the stock option
plan for approval no later than March 31, 2001.
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 STOCKHOLDER MATTERS
As of September 29, 2000, there were 485 record holders of the
Company's common stock and there were 15,830,270 shares outstanding. In
addition, as of such date, there were a further
28
<PAGE> 29
750,000 shares held in the name of the Company as treasury shares. The Company
has not previously declared or paid any 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 bid prices as
quoted on the NASD Bulletin Board by quarter during each of the Company's last
three fiscal years and on the OTC "Pink Sheets" since May 3, 2000. Such quotes
reflect inter-dealer prices, without retail markup, mark-down or commissions and
may not represent actual transactions. This information below was obtained from
those organizations, for the respective periods.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
FISCAL YEAR QUARTER HIGH BID LOW BID
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 First Quarter 1.28125 0.5625
--------------------------------------------------------------------------------------
Second Quarter 3.1875 0.90625
--------------------------------------------------------------------------------------
Third Quarter 8.4375 2.15625
--------------------------------------------------------------------------------------
Fourth Quarter 5.25 1.9375
--------------------------------------------------------------------------------------
1999 First Quarter 3.5625 2.3125
--------------------------------------------------------------------------------------
Second Quarter 2.96875 1.3125
--------------------------------------------------------------------------------------
Third Quarter 2.9375 0.84375
--------------------------------------------------------------------------------------
Fourth Quarter 2.5 1.4375
--------------------------------------------------------------------------------------
2000 First Quarter 1.875 1.125
--------------------------------------------------------------------------------------
Second Quarter 4.0625 1.75
--------------------------------------------------------------------------------------
Third Quarter 2.9375 1.71875
--------------------------------------------------------------------------------------
Fourth Quarter 3.531 1.5
--------------------------------------------------------------------------------------
2001 First Quarter 3.875 1.75
--------------------------------------------------------------------------------------
Second Quarter 2.70 1.40
--------------------------------------------------------------------------------------
Third Quarter 3.0 1.90
--------------------------------------------------------------------------------------
</TABLE>
*Through 10/27/00
The Company's common stock has been traded on the NASD Bulletin Board
since 1995 under the symbol UNRG. On May 3, 2000 the Company's common stock
began trading on the over-the-counter market. The change to the OTC ("pink
sheets") market has disturbed many stockholders who fear their liquidity will be
diminished. Thus far, the impact on the Company's ability to attract capital has
been minimal. On September 29, 2000, the Company's stock price closed at $2.63
per share. The aggregate market value of the stock held by non-affiliates on
September 29, 2000 was $27,348,431. For information concerning principal
shareholders, please see "Security Ownership of Certain Beneficial Owners and
Management" on page 23.
29
<PAGE> 30
Management believes that of those persons or entities which acquired
restricted shares within the last two years, approximately 225,000 of such
shares which remain unsold are capable of being sold immediately under Rule 144.
In addition, management is currently able to utilize Rule 144 to effect
immediate sales of up to 316,604 shares, although management currently has no
intention of making any such sales.
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.
<TABLE>
<CAPTION>
DATE NAME OF NUMBER OF
OF SALE PURCHASER SHARES CONSIDERATION
------- --------- ------ -------------
<S> <C> <C> <C>
3/1/00 William G. Ford 1,000 Services Rendered
($2,000)
1/5/00 James McKeever 3,000 Services Rendered
($6,000)
10/29/99 Presidio Ltd. Partners 50,000 Services Rendered
($70,000)
7/16/99 Relevant Investments Ltd. 100,000 $200,000 cash
5/13/99 James Farinella 45,000 Litigation Settlement
($50,000-$70,000)
5/12/99 Relevant Investments Ltd. 150,000 $150,000 cash
12/1/98 Leap International 60,000 Services Rendered
($84,000)
12/1/98 Micro Data Solutions 15,000 Services Rendered
($21,000)
12/1/98 Robert Guinta 25,000 Services Rendered
($35,000)
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
</TABLE>
30
<PAGE> 31
<TABLE>
<S> <C> <C> <C>
8/5/97 Martin Rappaport 75,000 $112,000 cash
7/1/97 Kenneth Deffeyes 10,000 Services Rendered
($10,000)
7/1/97 John Guarino 30,000 Services Rendered
($31,000)
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, as a private transaction not involving any public offering.
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. For accounting purposes all shares issued were
issued at the fair market value, as determined by the Company, on the issuance
or measurement date.
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 September
29, 2000.
31
<PAGE> 32
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.
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.
32
<PAGE> 33
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 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
33
<PAGE> 34
attorneys' fees, actually and reasonably incurred by him in connection
with the defense"
ITEM 13. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements as of March 31, 2000 and 1999, and
for the 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, 1998 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, 1998,
1999 and 2000, primarily because of geographical convenience.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
The financial statements and exhibits filed as a part of this Amendment No. 1 to
this Form 10 are as follows:
(a) FINANCIAL STATEMENTS
Report of Independent Public Accountants
Consolidated Balance Sheets as of March 31, 2000 and 1999
Consolidated Statements of Operations for the Fiscal Years ended March
31, 2000, 1999 and 1998
Consolidated Statements of Stockholders' Equity for the Fiscal Years
ended March 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for the Fiscal Years ended March
31, 2000, 1999 and 1998
34
<PAGE> 35
Notes to Consolidated Financial Statements
(b) EXHIBITS
Credit Line Agreement (with related documents) with Fleet Bank, N.A.
entered into during June 2000
Distribution Agreement with the Alameda Company dated September 22,
2000
Financial Data Schedule
(c) SCHEDULES
Schedule I-
Condensed Financial Information of the Registrant
Schedule II-
Valuation and Qualifying Accounts
35
<PAGE> 36
SCHEDULE II
UNITED ENERGY CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
BALANCE AT CHARGED TO CHARGED BALANCE AT
BEGINNING COST AND TO OTHER END OF
FOR THE PERIOD OF PERIOD EXPENSES ACCOUNTS DEDUCTION PERIOD
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
APRIL 1, 1997 TO
MARCH 31, 1998 $18,260 - - - $18,260
APRIL 1, 1998 TO
MARCH 31, 1999 $18,260 - - - $18,260
APRIL 1, 1999 TO
MARCH 31, 2000 $18,260 - - - $18,260
</TABLE>
36
<PAGE> 37
SIGNATURES
Pursuant to the requirements of Sections 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this Amendment No. 1 to its
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized.
<TABLE>
<CAPTION>
UNITED ENERGY CORP.
----------------------------------------------------------------------------------------------------------
(Registrant)
<S> <C> <C>
By \s\ Ronald Wilen 12/15/00
-------------------------------------------------------------------------------------------------
RONALD WILEN, President (Date)
By \s\ Robert Seaman 12/15/00
-------------------------------------------------------------------------------------------------
ROBERT L. SEAMAN, Principal Financial Officer (Date)
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Amendment No. 1 to its registration statement has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
<TABLE>
<S> <C> <C>
By \s\ Ronald Wilen 12/15/00
-------------------------------------------------------------------------------------------------
RONALD WILEN, Director (Date)
By \s\ Robert Seaman 12/15/00
-------------------------------------------------------------------------------------------------
ROBERT L. SEAMAN, Director (Date)
</TABLE>
37
<PAGE> 38
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Item
Number
<S> <C> <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
(d) Credit Line Agreement (with related documents) with Fleet Bank, N.A entered
into during June 2000**
(e) Distribution Agreement with the Alameda Company dated September 22, 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*
(27) Financial Data Schedule
</TABLE>
*filed with original Form 10 on June 20, 2000.
**filed herewith.
38
<PAGE> 39
UNITED ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2000, 1999 AND 1998
TOGETHER WITH AUDITORS' REPORT
<PAGE> 40
UNITED ENERGY CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<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, 1999 and 1998 3
Consolidated Statements of Stockholders' Equity for the Years Ended March 31, 2000,
1999 and 1998 4
Consolidated Statements of Cash Flows for the Years Ended March 31, 2000, 1999 and 1998 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6-14
</TABLE>
<PAGE> 41
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, 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 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 1999, and the results of
their operations and their cash flows for the years ended March 31, 2000, 1999
and 1998, 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 incurred recurring negative cash flows
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.
Our audit was made for the purpose of forming an opinion on the basic financial
statements as a whole. The schedules listed in the index of financial statements
are presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements. These
schedules have been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly state in all material
respects the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
New York, New York
April 28, 2000 (except with respect to the matter discussed in Note 14, as to
which the date is December 6, 2000)
<PAGE> 42
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 $3,980, 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.
<PAGE> 43
UNITED ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 2000, 1999 AND 1998
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
REVENUES, net $ 2,585,556 $ 1,191,583 $ 1,942,142
COST OF GOODS SOLD 1,368,727 1,115,779 1,729,968
------------ ------------ ------------
Gross profit 1,216,829 75,804 212,174
------------ ------------ ------------
OPERATING EXPENSES:
General and administrative 1,051,495 774,056 766,931
Depreciation and amortization 17,465 7,434 2,432
------------ ------------ ------------
Total operating expenses 1,068,960 781,490 769,363
------------ ------------ ------------
Income (loss) from operations 147,869 (705,686) (557,189)
------------ ------------ ------------
OTHER INCOME (EXPENSE), net:
Interest income 10,028 4,770 1,410
Interest expense (12,452) (1,368) (15,837)
------------ ------------ ------------
Total other (expense) income, net (2,424) 3,402 (14,427)
------------ ------------ ------------
Income (loss) from continuing operations 145,445 (702,284) (571,616)
LOSS FROM DISCONTINUED OPERATIONS (Note 5) -- (35,333) (45,699)
------------ ------------ ------------
Net income (loss) $ 145,445 $ (737,617) $ (617,315)
============ ============ ============
BASIC AND DILUTED LOSS PER SHARE:
Income (loss) from continuing operations $ 0.01 $ (0.05) $ (0.04)
Loss from discontinued operations -- (0.00) (0.00)
------------ ------------ ------------
Total basic income (loss) per share $ 0.01 $ (0.05) $ (0.04)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING,
basic and diluted 15,740,853 15,355,635 14,432,860
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE> 44
UNITED ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 2000, 1999 AND 1998
<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, 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
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.
<PAGE> 45
UNITED ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 2000, 1999 AND 1998
<TABLE>
<CAPTION>
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 145,445 $(737,617) $(617,315)
Adjustments to reconcile net income (loss) to net cash used in
operating activities-
Depreciation and amortization 17,465 7,434 2,432
Noncash consulting expense 127,290 140,000 153,300
Changes in operating assets and liabilities-
(Increase) decrease in accounts receivable (336,212) 37,942 (33,405)
(Increase) decrease in inventory (543,790) (19,366) 14,110
Decrease (increase) in other assets, net 3,154 (939) (335)
Increase in other receivables -- -- (1,636)
Increase (decrease) in accounts payable and accrued expenses 120,088 (55,646) 9,503
--------- --------- ---------
Net cash used in operating activities (466,560) (628,192) (473,346)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for acquisition of property and equipment -- (1,506) --
Payments for patent (16,151) (76,744) (24,271)
--------- --------- ---------
Net cash used in investing activities (16,151) (78,250) (24,271)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on line of credit (6,370) (6,949) (2,298)
Proceeds (payments) from loans payable to related party 12,641 6,577 (48,262)
Proceeds from accounts payable to shareholders 350,000 -- --
Proceeds from stock subscription receivable -- 55,000 --
Proceeds from issuance of common stock -- 500,000 817,000
--------- --------- ---------
Net cash provided by financing activities 356,271 554,628 766,440
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents (126,440) (151,814) 268,823
CASH AND CASH EQUIVALENTS, beginning of year 172,448 324,262 55,439
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of year $ 46,008 $ 172,448 $ 324,262
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest $ 12,452 $ 1,368 $ 15,837
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.
<PAGE> 46
UNITED ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000, 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.
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 energy 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 and Scitech was treated as a reverse merger, with Nor and
Scitech as the accounting acquiror. The shareholders of Nor and Scitech
controlled the Company after the acquisition. There were no adjustments to the
carrying value of the assets or liabilities of the Company 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 and acceptance by its customers.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments with a maturity of three
months or less when purchased.
<PAGE> 47
UNITED ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000, 1999 AND 1998
Inventories
Inventories (which includes materials and labor) are valued at the lower of cost
(first-in, first-out method) or market.
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 the shorter of their
estimated useful lives or the term of the lease. Depreciation and amortization
expense for the years ended March 31, 2000 and 1999 was $4,009 and $7,434,
respectively.
Property and equipment consists 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
<PAGE> 48
UNITED ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000, 1999 AND 1998
the period that the tax change occurs. The Company has elected to file its
income tax returns using the accrual basis of accounting.
Stock-Based Compensation
The Company adopted SFAS No. 123, "Accounting for Stock Based Compensation," and
has chosen to continue to account for stock-based compensation awards to
employees using the intrinsic value method prescribed in Accounting Principles
Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees," and
related Interpretations. Accordingly, compensation cost for stock options
awarded to employees and directors is measured as the excess, if any, of the
quoted market price of the Company's stock at the date of grant over the amount
an employee or director must pay to acquire the stock.
As required, the Company follows SFAS No. 123 to account for stock-based
compensation awards to nonemployees. Accordingly, compensation costs for stock
option awards granted to nonemployee is measured at the date of grant based on
the fair value of the award using the Black-Scholes option pricing model.
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, 1999 and 1998, are as follows:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Customer A 0% 23% 33%
Customer B 40 17 0
Customer C 0 2 30
</TABLE>
<PAGE> 49
UNITED ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000, 1999 AND 1998
Vendors
The Company has one vendor, which accounts for over 31%, 89% and 77% of
the Company's supplies purchases for the years ended March 31, 2000, 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.
New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. SFAS No. 133 (as
amended by SFAS No. 137) is effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000. The Company does not enter into derivative
instruments or engage in hedging activities as defined in SFAS No. 133.
Accordingly, management has determined that adoption of this standard will have
no impact on the Company's financial statements.
During March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation," which clarifies the
application of APB Opinion No. 25, regarding (a) the definition of an employee
for purposes of applying APB Opinion No. 25, (b) the criteria for determining
whether a plan qualifies as a noncompensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. Interpretation No. 44 is effective on July 1,
2000. Certain events as defined by Interpretation No. 44 may require earlier
consideration if they occurred after December 14, 1998 or January 12, 2000,
depending on the event, although no financial statement effect would be
recognized until July 1, 2000. The effects of applying Interpretation No. 44 are
recognized prospectively. The Company has reviewed its stock compensation events
and does not believe that Interpretation No. 44 will have a material impact on
its financial position or its results of operations.
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No. 101,
"Revenue Recognition in Financial Statements." SAB No. 101 expresses the views
of the SEC staff in applying generally accepted accounting principles to certain
revenue recognition issues. In June 2000, the SEC issued SAB No. 101B to defer
the effective date of the implementation of SAB No. 101 until the fourth quarter
of fiscal 2000. The Company is currently evaluating the impact of adopting this
SAB, but does not believe that this SAB will have a material impact on its
financial position or its results of operations.
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.
In June 2000, the Company obtained a $1,000,000 line of credit from Fleet Bank
(Note 14). Funds borrowed under the line of credit are subject to repayment on
demand at any time and for any reason.
<PAGE> 50
UNITED ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000, 1999 AND 1998
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
Nor. 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 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 as of 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%. All of the Company's
fixed machinery and equipment and furniture and fixtures assets have been
pledged as collateral for the line of credit.
Subsequent to year end, the Company obtained an additional line of credit (Note
14).
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.
<PAGE> 51
UNITED ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000, 1999 AND 1998
During the year ended March 31, 2000, the Company reached a settlement with a
former consultant of the Company, in reference to a lawsuit filed by the former
consultant. The Company issued 45,000 shares of restricted common stock to this
individual as settlement. These shares were recorded as issued on the date of
the settlement at 70% of the then listed fair market value of the underlying
unrestricted common stock. As such, the Company recognized approximately $50,000
of consulting expense, included in general and administrative expense in the
accompanying consolidated statement of operations for the year ended March 31,
2000.
9. SEGMENT REPORTING
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," establishes standards for the way that public companies report
information about operating segments in annual financial statements and requires
reporting of selected information about operating segments in interim financial
statements issued to the public. It also establishes standards for disclosures
regarding products and services, geographic areas and major customers. SFAS No.
131 defines operating segments as components of a company about which separate
financial information is available that is evaluated regularly by management in
deciding how to allocate resources and in assessing performance.
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 Corporate Total
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $1,970,701 $ 614,855 $ -- $2,585,556
========== ========== ========== ==========
Gross profit $ 958,538 $ 258,291 $ -- $1,216,829
General and administrative expenses 224,723 366,871 459,900 1,051,494
Depreciation and amortization -- 15,704 1,762 17,466
Interest expense (income) 12,452 -- (10,028) 2,424
---------- ---------- ---------- ----------
Income from continuing
operations $ 721,363 $ (124,284) $ (451,634) $ 145,445
========== ========== ========== ==========
Accounts receivable $ 303,104 $ 142,845 $ -- $ 445,949
Inventory 548,797 43,488 -- 592,285
Fixed assets -- -- 9,661 9,661
Goodwill -- 78,566 -- 78,566
Patent -- 140,789 -- 140,789
Other assets -- -- 47,593 47,593
---------- ---------- ---------- ----------
Total assets $ 851,901 $ 405,688 $ 57,254 $1,314,843
========== ========== ========== ==========
</TABLE>
<PAGE> 52
UNITED ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000, 1999 AND 1998
The Company's total revenues and loss from operations and identifiable assets by
segment for the year ended March 31, 1999, are as follows:
<TABLE>
<CAPTION>
Graphic Specialty
Arts Chemicals Corporate Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 890,458 $ 301,125 $ -- $ 1,191,583
=========== =========== =========== ===========
Gross profit $ 59,602 $ 16,202 $ -- $ 75,804
General and administrative expenses 43,547 215,043 515,466 774,056
Depreciation and amortization -- 5,336 2,098 7,434
Interest expense (income) 1,368 -- (4,770) (3,402)
----------- ----------- ----------- -----------
Loss from continuing operations $ 14,687 $ (204,177) $ (512,794) $ (702,284)
=========== =========== =========== ===========
Accounts receivable $ 72,274 $ 37,463 $ -- $ 109,737
Inventory 23,795 24,700 -- 48,495
Fixed assets -- -- 13,670 13,670
Goodwill -- 82,544 -- 82,544
Patent -- 134,116 -- 134,116
Other assets -- -- 177,187 177,187
----------- ----------- ----------- -----------
Total assets $ 96,069 $ 278,823 $ 190,857 $ 565,749
=========== =========== =========== ===========
</TABLE>
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 Corporate Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 1,861,850 $ 80,292 $ -- $ 1,942,142
=========== =========== =========== ===========
Gross profit $ 209,163 $ 3,011 $ -- $ 212,174
General and administrative 186,363 83,973 496,595 766,931
Depreciation and amortization -- -- 2,432 2,432
Interest expense 14,427 -- -- 14,427
----------- ----------- ----------- -----------
Loss (income) from continuing
operations $ 8,373 $ (80,962) $ (499,027) $ (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, 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 may be obligated to pay
the former shareholders of Green Globe an earnout. The earnout, which is
triggered by the Green Globe subsidiary reaching certain net income milestones,
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. Based on five-year projections, the
<PAGE> 53
UNITED ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000, 1999 AND 1998
Company anticipates the Green Globe subsidiary will not reach the net income
milestones specified in the acquisition agreement. As such, the Company has not
recorded any liability related to this earnout.
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, 1999 and 1998, the Company had a net operating loss
carryforward of approximately $2,765,000, $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 $63,000, $773,000 and $525,000, 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 10 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
options granted are exercisable at a price of $1.50 per share (the closing price
at the date of award) 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 (b) the Company has achieved net
income from operations (which did occur for the fiscal year ended March 31,
2000). As such, these options are not considered "granted," and there is no
measurement date under SFAS No. 123.
In addition to the stock options reported above for Mr. Wilen and Mr. Seaman,
under an agreement with 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. As
such, these options are not considered "granted," and there is no measurement
date under SFAS No. 123.
<PAGE> 54
UNITED ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000, 1999 AND 1998
Under SFAS No. 123, if and when these options are deemed granted, the Company
will recognize compensation expense, based on the incremental difference between
its respective exercise prices and the fair value of the underlying common stock
on the grant (or measurement) date, over its respective vesting terms.
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.
14. SUBSEQUENT EVENT
Line of Credit
In June 2000, the Company obtained a $1,000,000 line of credit from Fleet Bank.
Borrowings under the credit line bear interest at prime. Interest is payable
monthly. Amounts outstanding under the line of credit are subject to repayment
on demand at any time and for any reason and are secured by accounts receivable,
inventory, furniture and fixtures, machinery and equipment and a pledge of
750,000 shares of the Company's common stock held in escrow. The line is also
secured by the personal guarantee of a shareholder of the Company.
The line of credit is subject to certain covenants, including financial
covenants to which the Company must adhere on a quarterly or annual basis.
Borrowings under the line of credit must be reduced to zero for a period of 30
consecutive days in any 12-month period.
Exclusive Distributor Agreement
On September 22, 2000, the Company and Alameda Company ("Alameda") entered into
an exclusive distribution agreement (the "Alameda Agreement"), whereby Alameda
will purchase from the Company various products from the graphics arts division
(meeting certain minimum purchase requirements and at guaranteed fixed prices as
defined in the Alameda Agreement) through December 31, 2002, and distribute
these products exclusively throughout the USA, Canada, Puerto Rico, Mexico,
Central America, South America and the Caribbean.
No products were shipped and no revenue was recognized under the Alameda
Agreement prior to October 2000.
