Edgar Filing: UNITED ENERGY CORP /NV/

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year ended March 31, 2003

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to ___________

Commission File No. 000-30841

UNITED ENERGY CORP.
-------------------
(Exact name of Registrant as specified in its charter)

Nevada 22-3342379
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

600 Meadowlands Parkway #20
Secaucus, N.J. 07094
--------------------
(Address of Principal Executive Offices and Zip Code)

Registrant's Telephone Number, Including Area Code: (800) 327-3456

Securities Registered Pursuant to Section 12(B) of the Act: None

Securities Registered Pursuant to Section 12(G) of the Act:
Common Stock, Par Value $.01 Per Share
--------------------------------------

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|

The aggregate market value of the registrant's common stock held by
nonaffiliates on June 26, 2003 (based on the average of the bid and asked prices
of the Common Stock on the OTC Bulletin Board on such date) was $30,343,200.

As of June 26, 2003 there were 22,180,270 shares of the registrant's common
stock outstanding.

Documents incorporated by reference: Portions of the Company's definitive proxy
statement expected to be filed pursuant to Regulation 14A of the Securities
Exchange Act of 1934 have been incorporated by reference into Part III of this
report.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements contained in this Annual Report on Form 10-K discuss our
plans and strategies for our business or state other forward-looking statements,
as this term is defined in the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause the actual results, performance or
achievements of the Company, or industry results to be materially different from
any future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
general economic and business conditions; the Company's ability to create
markets for its products; the Company's ability to generate meaningful revenues;
the Company's continuing operating losses; the Company's reliance on third
parties to market, sell and/or distribute the Company's products; the need for
future capital; availability, terms and deployment of capital; the Company's
reliance on a small number of customers for its revenues; the loss of any
significant customers; changes in business strategy or development plans; any
adverse impact as a result of environmental laws; changes in, or the failure to
comply with, government regulations; competition; the integration of the
Company's new management team; and the Company's ability to protect its patents
and proprietary rights; quality of management; business abilities and judgment
of personnel; availability of qualified personnel.

ITEM 1 - BUSINESS

General
------------

United Energy Corp. (the "Company" or "United Energy") develops and distributes
a diverse group of environmentally friendly specialty chemical products having
various applications in several industries and markets. The Company's current
list of products includes:

o KH-30(R)paraffin dispersant for the oil industry and related products
KH-30S(R)and KX-91(R);

o UNIPROOF(R)specialty coated proofing paper for the printing industry;

o FR-15 fire retardants for the potential use in a multitude of
industries; and

o "Slick Barrier" underwater protective coatings for use in marine
applications.

The Company, through its wholly owned subsidiary Green Globe Industries, Inc.
("Green Globe") provides the United States Military with a variety of
environmentally friendly, non-hazardous, biodegradable solvents and cleaners
under our trade name "Qualchem." Green Globe is a qualified supplier for the
United States Military and has sales contracts currently in place.

The Company has developed and patented a system referred to as the "S2 System,"
to work with our environmentally-friendly family of paraffin dispersants. This
patented technology produces high volumes of steam and heat at variable
pressures and temperatures to completely dissolve most deposits of paraffin and
asphaltene within certain oil wells, pipelines or storage tanks. The S2 System
apparatus is portable, compact, and easy to use. The Company is further
developing the process for use to enhance and support sales of KH-30(R) and its
related product family for the oil industry and for other potential
applications.

United Energy provides specialty chemical and graphic arts products to its
customers with revenues for the fiscal year ended March 31, 2003 of $2,232,626.
As of March 31, 2003, the Company employed nine persons and uses the services of
five other individuals under consulting or product/production cooperation
arrangements.

Our principal executive offices are located at 600 Meadowlands Parkway #20,
Secaucus, New Jersey 07094 and the telephone number at that location is (800)
327-3456. The Company maintains a sales office at 303 W. Wall, Suite 2300,
Midland, Texas 79701. The phone number at that location is (432) 683-6502. Our
website address is www.unitedenergycorp.net. Information contained on our
website is not incorporated by reference into this document and should not be
considered a part of this document.

Background
----------

The Company was originally incorporated in Nevada in 1971 as Aztec Silver Mining
Co. The Company engaged in the manufacturing and distribution of printing
equipment from 1995 through 1998. During that period, the Company began to
develop specialty chemical products for use in the printing industry. In March
1998, the Company discontinued its printing equipment operations and changed our
business focus to the development of specialty chemical products.

Current Business Operations and Principal Products
---------------------------------------------------

KH-30(R), KH-30S and KX-91

KH-30(R) is a mixture of modified oils, dispersants and oil-based surfactants
designed to control paraffin and asphaltene deposits in oil wells. When applied
in accordance with United Energy's recommended procedures, KH-30(R) has resulted
in substantial production increases of between two and five times in
paraffin-affected oil and gas wells by allowing for a faster penetration of
paraffin and asphaltene deposits. KH-30(R) disperses and suspends paraffin and
asphaltene in a free-flowing state and prevents solids from sticking to each
other or to oil well equipment. KH-30(R) is patented in the United States,
Australia, Russia, Nigeria, Venezuela, Vietnam and "OAPI" (the Africa
Intellectual Property Organization, which includes the countries of:
Burkina-Faso, Benin, Central African Republic, Congo, Cote d'Ivoire, Cameroon,
Gabon, Guinea, Guinea-Bissau, Mali, Mauritania, Niger, Senegal, Chad and Togo).
The Company has 12 additional country patent applications pending in most of the
major oil-producing countries around the world (including the European Union and
Canada).

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 in oil
wells, the introduction of KH-30(R) into the oil and gas producing industry has
been 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 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 slower than the Company
initially anticipated. We believe that this situation has begun to change as a
result of our marketing efforts with several oil service and well owners
beginning to use our products after successful trials.

To increase sales of our KH-30(R) product we are currently expanding our
marketing efforts by producing a marketing brochure and supplemental sales
material. The Company has also developed two products KH-30S(R) and KX-91, as
extensions of the original KH-30(R). The Company expects to continue develop
additional applications for the KH-30(R) product.

KX-91 is a patent-pending chemical blend specifically developed for the rapid
removal of paraffin and asphaltene deposits from oil wells. It has been
effective for the removal of heavy deposits due to its wetting ability,
dispersability and solvency. KX-91 works to rapidly dissolve deposits at low
concentrations with limited contact time and can perform in extreme (-40oF to
230oF) temperature ranges. It also has low emulsifying tendencies with brine
water. In laboratory tests, KX-91 has been effective at low concentrations to
enhance the flow of very heavy crude oil (low API gravity).

KH-30S is a proprietary chemical composition, specifically developed as a drag
reducer to reduce flow impairment caused by paraffin and asphaltene depositions
and high viscosity crude oil. KH-30-S lowers the viscosity of very heavy crude
oil (low API gravity) with flow enhancement in pipelines and oil wells at low
concentrations. It provides an inhibitive thin barrier film on various metal
surfaces, and exhibits good compatibility with most commonly used materials of
construction.

UNIPROOF(R)

United Energy has developed 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 patent of E.I. duPont de Neumours and Co. ("duPont"). 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. Sales of
UNIPROOF(R) proofing paper totaled $2,921,345 for the fiscal year ended March
31, 2001, $1,033,574 in the fiscal year ended March 31, 2002 and $1,692,735 in
the fiscal year ended March 31, 2003.

FR-15

United Energy's chemists have also developed an environmentally friendly
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. FR-15
mixture also resists re-ignition once a fire has been extinguished. This product
can also be used to reduce odors, such as those from decomposing garbage, and
for soil remediation following petroleum-based contamination. Our FR-15 product
has been developed and successfully tested by several municipal fire
departments. Underwriters Laboratories ("UL") did not have an approved test for
FR-15 as a dispersant. A reformulation of FR-15 was developed to pass the UL
fire extinguisher test. The reformulated product is being resubmitted for
testing and certification by UL. The Company anticipates that testing will be
completed by the December 2003. We expect that sales of FR-15 will commence when
the product receives UL certification.

"Slick Barrier"

Slick Barrier is an underwater protective coating which prevents the adherence
of barnacles to boat hulls. The product is another in the Company's line of
environmental products in that it is environmentally friendly and biodegradable,
which the Company believes to be particularly appealing in fresh water marine
applications. The product is being tested on pleasure boats throughout the
United States and Europe. We expect to begin sales of the product by the fall of
2003. A patent application on this product is in process. We are applying for
trademark protection both nationally and internationally for our "Slick Barrier"
product.

GreenGlobe Industries, Inc.

In November 1998, United Energy acquired all of the outstanding shares of Green
Globe in exchange for 30,000 shares of United Energy common stock. Green Globe
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 friendly 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.

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 owns no manufacturing facilities.
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 friendly" products
in that they are low in toxicity and rank high in biodegradability. Further, 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 components 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. The Company believes
that the services of this facility can be duplicated by others. In our opinion,
the need for a contract with the coater is obviated by the coater's clear
economic benefit from continuing to provide services to us. The Company is more
concerned about a precipitous event, such as damage to the coater's facility,
which could result in an interruption of UNIPROOF(R) production. The Company
believes that alternate coating sources do exist and that the coater could be
replaced, albeit with at least some interruption in production flow.

During the fiscal year ended March 31, 2003 there were five major customers for
the Company's products: The Alameda Company (59.3% of revenues); another
UNIPROOF(R) paper distributor (15.0% of revenues); General Services
Administration and Defense Supply Center (combined), (12.3%) for aircraft
cleaning products and paint removers, two oil field service companies, (4.2%)
and (1.8%) respectively for the Company's KH-30(R) and KX-91(R) oil well
cleaning products. The Company believes that those of its customers who are not
end-users can be replaced if they were to cease to act as distributors. All of
our products up to this point are sold in US dollars and, therefore, we have had
no foreign currency fluctuation risk.

The Company's current operations do not require a substantial investment in
inventory other than minimum commitments to our distributors. However, we
anticipate that any growth in our business will require us to maintain higher
levels of inventory.

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.

Marketing and Distribution
--------------------------

The Company has engaged the services of independent contractors to market
primarily our KX-30 and KX-91 oil dispersant products. These contractors work
under various non-exclusive commission and distribution agreements and have
substantial contacts among oil well owners and major oil companies in the United
States, Mexico, South America, Africa, Europe, and the Middle East. These
contractors earn a commission based upon the sales value of the products that
they sell. These independent contractors use the Company's marketing materials,
brochures, and web site to interest clients and to describe the attributes of
United Energy's products.

Although the Company has not achieved the volume of sales it had anticipated for
the oil dispersant products, there have been significant barriers entry in this
market. Most of these potential customers require substantial testing of our
product to prove its efficacy at cleaning wells, tanks and flow lines. In many
cases additional laboratory testing is required to prove that our chemical
products are compatible with refinery systems and will

not interfere with certain chemical processes and safety requirements of the
potential clients. This process of testing has taken a great deal longer that
was originally anticipated. The Company believes it has made significant inroads
and expects a higher volume of sales in the second quarter of fiscal year 2004.

Employees
---------

As of June 26, 2003, the Company employed nine persons and had available the
services of five others under consulting or product/production cooperation
arrangements. The latter arrangement is meant to include 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.

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
------------------------

KH-30(R), KX-91(R), and KH-30S(R) products for the oil industry and UNIPROOF(R)
proofing paper are developed and ready for market. Slick Barrier and FR-15 are
in various stages of reformulation or testing (see product description). All of
these products are the result of research and development expenditures paid to
vendors, excluding allocation of internal costs, estimated to be $69,400,
$58,300 and $181,370 for the three fiscal years ended March 31, 2001, 2002 and
2003. The Company has had available the services of one research chemist and one
analytical chemist, as well as one petroleum engineer, 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.

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 attempt to compete by offering what we hope to be lower prices and better
service. However, our KH-30(R), KX-91(R), and KH-30S(R) products for the oil
industry are more expensive, and with these products we attempt to compete by
emphasizing product effectiveness and environmental safety.

In the case of our UNIPROOF(R) proofing paper, our principal competition is
duPont, 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 duPont
in terms of what we hope to be better prices and service. We believe the market
will continue to welcome an alternative to duPont and we plan to continue our
current marketing practices.

Proprietary Technologies
------------------------

With respect to our formulations which are proprietary, we have patented our
KH-30(R) oil well cleaner patented in the United States, Australia, Russia,
Nigeria, Venezuela, Vietnam and OAPI. We also haves 12 additional country patent
applications pending in most of the major oil-producing countries around the
world (including the European Union and Canada). We believe our patent is strong
and will help our competitive position. However, we are aware that others may
try to imitate our product or invalidate our patents. We have in the past
vigorously enforced our trade secrets such as the one relating to our
UNIPROOF(R) proofing paper, and intend to continue to do so in the future.
However, we recognize that intellectual property rights provide less than
complete protection. To the best of our knowledge no one else is currently
producing a product similar to KH-30(R).

In addition to applying for patent protection on our KH-30(R) product, we have
also registered "KH-30" as a trademark. Trademark protection has also been
obtained for the "UNIPROOF" name for our proofing paper. We anticipate applying
for both patent and trademark protection for our other products in those
jurisdictions where we deem such protection to be beneficial.

Item 2 - Properties
-------------------

The Company rents 9,600 sq. feet of office space at 600 Meadowlands Parkway,
Secaucus, New Jersey 07094. Under the terms of the lease, which ends on June 30,
2007, the monthly rent is $8,635 through July 1, 2004 then the monthly rent
increases to $9,035 for the remainder of the lease. See Item 13 - Certain
Relationships and Related Transactions. Additionally, the Company leased for one
year office space of approximately 300 square feet in Midland Texas for a
regional sales office at a rate of $300 per month. The Company uses independent
non-affiliated contract chemical blending and manufacturing facilities in
various locations around the United States for the manufacture of its products.
The Company contracts the production of its products to independent
manufacturers and blenders and its products are therefore produced at the
manufacturing facilities of such entities. The Company owns no manufacturing
facilities itself.

Item 3 - Legal Proceedings
--------------------------

Texas Oil Field Accident
------------------------

On October 29, 2002, an accident occurred at an oil well site near Odessa,
Texas, where the Company's equipment and products were being used in the
treatment of an oil well. There are two lawsuits pending against the Company in
Texas state court in Crane County, arising from this incident. Simmons, et ano.
v. United Energy Corp., et al. Larry Simmons, who lost an arm and sustained
serious other injuries in the accident and his wife have commenced a suit
against the Company and other defendants including the owner of the oil well and
an oil well servicing company. Hurst, et ano. v. United Energy Corp., et al.
Stephen Hurst, whose injuries were not as serious as those of Mr. Simmons, and
his wife, have also commenced a suit against the Company. Both actions are in
the discovery stage. The Company anticipates that additional actions may be
commenced by other individuals who suffered less serious injuries in the
accident. The Company cannot at this time quantify or estimate the impact of
this litigation on the Company's operations as of March 31, 2003.

In addition to the above described litigation, the U.S. Occupational Safety and
Health Administration ("OSHA") commenced an investigation into the accident. On
April 8, 2003, OSHA issued its Citation and Notification of Penalty which found
that the Company had committed violations of certain applicable rules, including
having failed to provide at or in proximity to the site a person or persons
adequately trained to render first aid with adequate first aid supplies
available and having failed to develop, implement or maintain at the site a
written hazard communication program describing how safety criteria will be met.
OSHA proposed a fine of $3,000 for these violations, which the Company has paid.

Litigation Concerning A Former Employee
---------------------------------------

On or about May 16, 2003, the Company commenced an action against Jon Hebert, a
former employee of the Company in the United States District Court for the
District of New Jersey, seeking preliminary and permanent injunctive and other
relief for violations by Mr. Hebert of employment and non-disclosures agreements
between him and the Company, resulting in alleged disclosures by Hebert of the
Company's confidential and proprietary information and wrongful solicitation of
the Company's customers. The Company alleges that sales of products manufactured
or distributed by Hebert's new employer may, in addition, infringe the Company's
patents. After a hearing on the Company's motion for a preliminary injunction,
the Court denied the motion, but ordered expedited proceedings in the matter.

On or about May 27, 2003, Mr. Hebert's current employer, Fluid Sciences, L.L.C.,
commenced two actions against the Company and one of its wholly owned
subsidiaries, Nor Industries, Inc. One of the actions was commenced in the 15th
Judicial District Court, Lafayette Parish, Louisiana. This action seeks a
declaratory judgment that the agreements between the Company and Mr. Hebert are
not enforceable against Fluid Sciences, L.L.C as a matter of Louisiana's public
policy and laws. In addition the action seeks judgment that the Company's
efforts to enforce its agreements with Mr. Hebert are in restrain of trade and
constitute unfair competition entitling Fluid Sciences, L.L.C. to injunctive
relief and damages.

On or about May 27, 2003, a second action was commenced in the United States
District Court for the Western District of Louisiana, entitled Fluid Sciences,
L.L.C. v. United Energy Corp. and Nor Industries, Inc. The complaint in this
action alleges that Fluid Sciences is entitled to a declaratory judgment that
its products do not infringe the patents of the Company.

The Company and its subsidiary intend vigorously to defend the two actions
brought by Fluid Sciences, L.L.C.

Sales Commission Claim
----------------------

On or about July 26, 2002, an action was commenced against the Company in the
Court of Common Pleas of South Carolina, Pickens County, brought by Quantum
International Technology, LLC and Richard J. Barrett. Plaintiffs allege that
they were retained as the sales representative to the Company and in that
capacity made sales of the Company's products to the United States government
and to commercial entities. Plaintiffs further allege that the Company failed to
pay to plaintiffs agreed commissions at the rate of 20% of gross sales of the
Company's products made by plaintiffs. The complaint seeks an accounting ,
compensatory damages in the amount of all unpaid commissions plus interest
thereon, punitive damages in an amount treble the compensatory damages, plus
legal fees and costs. Plaintiffs maintain that they are entitled to receive an
aggregate of approximately $350,000 in compensatory and punitive damages,
interest and costs. The action is presently listed on the trial docket for July
1, 2003. It is likely that the trial of the action will not take place as
scheduled. The Company believes it has meritorious defenses to the claims
asserted in the action and intends vigorously to defend the case.

SMK Industries, Inc. v. Nor Graphics, Inc.
------------------------------------------

In its Form 10-K for the fiscal year ended March 31, 2002, the Company reported
with respect to an action commenced against it in 1997 by SMK Industries seeking
damages for breach of contract of approximately $120,000. The Company and
plaintiff have reached an agreement to settle and discontinue the lawsuit. In
the settlement, the Company will pay an aggregate of $75,000 in three
installments.

Item 4 - Submission of Matters to a Vote of Security Holders
------------------------------------------------------------

No matter was submitted to a vote of security holders during the fourth quarter
of the fiscal year ended March 31, 2003.

PART II

Item 5 - Market for Registrant's Common Equity and Related Stockholder Matters
------------------------------------------------------------------------------

As of June 26, 2003, there were 460 record holders of the Company's common stock
and there were 22,180,270 shares outstanding. 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 OTC Bulletin Board by quarter during each of the Company's last three fiscal
years and on the OTC "Pink Sheets" after May 3, 2000. As of April 26, 2002, the
Company's stock began being quoted once again on the OTC Bulletin Board. Such
quotes reflect inter-dealer prices, without retail markup, markdown or
commissions and may not represent actual transactions. The information below was
obtained from those organizations, for the respective periods.

HIGH LOW
SALES SALES
FISCAL YEAR QUARTER PRICE PRICE

2002 First Quarter 1.23 0.75
Second Quarter 1.85 0.66
Third Quarter 1.20 0.65
Fourth Quarter 1.70 0.83
2003 First Quarter 3.85 1.15
Second Quarter 2.40 1.20
Third Quarter 3.15 1.30
Fourth Quarter 2.10 1.29
2004 First Quarter* 1.43 0.90

* Through June 26, 2003

On June 26, 2003 the Company's stock price closed at $1.01 per share. The
aggregate market value of the stock held by non-affiliates on June 26, 2003 was
$22,402,072. For information concerning principal shareholders, please see
"Security Ownership of Certain Beneficial Owners and Management."

RECENT SALES OF UNREGISTERED SECURITIES

On May 14, 2002, the Company issued, in a private placement, an aggregate of
6,000,000 unregistered shares of its common stock at an aggregate price of
$6,000,000. In connection with the common stock issuance, the Company issued
warrants to purchase 3,000,000 of the Company's common stock at an exercise
price of $2 per share exercisable for a five year period. The Company incurred
$484,000 in issuance expenses in connection with the financing. In addition,
the Company issued 750,000 additional warrants to purchase 750,000 of the
Company's common stock at an exercise price of $0.60 per share with a five year
term but not exercisable during the first two years from the grant date for
relinquishing rights of immediate exercise of 500,000 warrants issued in
connection with the private placement.

On March 4, 2002, 100,000 shares of unregistered common stock were issued to the
firm of Seaman & Wehle as partial consideration for legal services rendered
during the fiscal year ended March 31, 2002. The closing price on that date was
$1.11, for an aggregate value of $111,000. This transaction was exempted from
the registration requirements of the Securities Act of 1933 by virtue of Section
4(2) of such Act. The above issuance was the only

sale of unregistered securities during the two-year period prior to March 31,
2003. Consequently, there are no such shares outstanding which may be sold under
the provisions of Rule 144. However, management is, as of June 15, 2002, able to
utilize Rule 144 to effect immediate sales of up to 665,406 shares, although
management currently has no intention of making any such sales.

Item 6 - Selected Financial Data
--------------------------------

The following selected consolidated financial information for the fiscal years
ended March 31, 1999, 2000, 2001, 2002 and 2003 is derived from our audited
financial statements and the notes thereto. The statement of operations
information for the three-year period ended March 31, 2001 and the balance sheet
information as of the end of each of the three fiscal years ended March 31, 2001
is derived from the consolidated financial statements of United Energy Corp.,
which have been audited by Arthur Andersen LLP, independent public accountants.
The statement of operations information for the years ended March 31, 2002, and
2003 and the balance sheet information as of March 31, 2002 and 2003, is derived
from the consolidated financial statements of United Energy Corp., which have
been audited by Grant Thornton LLP, independent public accountants. 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 in this Form 10-K.

FISCAL YEAR ENDED MARCH 31,

CONSOLIDATED
STATEMENT OF OPERATIONS DATA 2003 2002 2001 2000 1999
---------------------------- ---- ---- ---- ---- ----

Operating Revenues............................... 2,232,626 1,387,851 3,482,915 2,585,556 1,191,583
Cost of goods sold............................... 1,332,791 756,391 2,325,652 1,368,727 1,115,779
Gross profit..................................... 899,835 631,460 1,157,263 1,216,829 75,804
Selling, G&A..................................... 3,627,983 1,763,446 1,052,790 1,099,705 877,806
Executive Services Contributed by Management -- 187,500 250,000 250,000 250,000
Interest income (expense), net................... 57,629 (4,408) (10,236) (2,424) 3,402

Net Income (Loss) before discontinued operations (2,829,000) (1,364,576) (404,316) (152,765) (1,056,034)
Income (Loss) from discontinued operations....... 0 0 0 0 (35,333)
Income tax....................................... 0 0 0 0 0

Net Income (Loss)................................ (2,829,000) (1,364,576) (404,316) (152,765) (1,091,367)
Retained deficit beginning....................... (5,144,994) (3,780,418) (3,376,102) (3,223,337) (2,131,970)
Retained deficit end............................. (7,973,994) (5,144,994) (3,780,418) (3,376,102) (3,223,337)
Loss per share................................... (0.13) (0.09) (0.03) (0.01) (0.07)
Cash dividends paid.............................. 0 0 0 0 0

AS OF MARCH 31,

CONSOLIDATED
BALANCE SHEET DATA 2003 2002 2001 2000 1999
------------------ ---- ---- ---- ---- ----

Total working capital (deficiency)............... 2,346,175 (81,712) 172,118 318,651 41,448
Total assets..................................... 3,682,947 1,037,972 1,411,699 1,314,843 565,749
Total liabilities................................ 736,387 903,212 1,016,763 765,591 289,232
Total long term debt............................. 0 0 0 0 0
Total stockholder's equity....................... 2,946,560 134,760 394,936 549,252 276,517
Total shares outstanding......................... 22,180,270 16,180,270 15,830,270 15,830,270 15,731,270

The following is a summary of the quarterly operations for the years ended March
31, 2003 and 2002.

UNAUDITED QUARTERLY FINANCIAL DATA
CONSOLIDATED STATEMENTS
OF OPERATIONS
FISCAL YEAR ENDED MARCH 31, 2003
--------------------------------

1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER FISCAL YEAR
----------- ----------- ----------- ----------- -----------

Operating revenues.................... $ 738,997 $ 625,612 $ 792,092 $ 75,925 $ 2,232,626
Cost of goods sold.................... 532,622 320,498 431,383 48,288 1,332,791
Gross profit.......................... 206,375 305,114 360,709 27,637 899,835
General and administrative............ 428,196 1,058,976 901,681 1,239,130 3,627,983
Depreciation and amortization......... 9,792 23,245 24,780 25,664 83,481
Interest expense (income)............. (15,900) (19,056) (15,106) (7,567) (57,629)
Legal settlement...................... -- -- -- (75,000) (75,000)
Income(Loss)from continuing operations (215,713) (758,051) (550,646) (1,304,590) (2,829,000)
Income tax............................ -- -- -- -- --
Net income (loss)..................... (215,713) (758,051) (550,646) (1,304,590) (2,829,000)
Retained earnings (deficit), beginning $ (5,144,994) $ (5,360,707) $ (6,118,758) $ (6,669,404) $ (5,144,994)
Retained Earnings (deficit), ending... $ (5,360,707) $ (6,118,758) $ (6,669,404) $ (7,973,994) $ (7,973,994)
Per share information:
Earnings (loss) per share
- basic and diluted $ (0.01) $ (0.03) $ (0.02) $ (0.06) $ (0.13)

Weighted average shares outstanding... 19,279,171 22,180,270 22,180,270 22,180,270 $ 21,456,982

Cash dividends paid................... $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00

UNAUDITED QUARTERLY FINANCIAL DATA
CONSOLIDATED STATEMENTS
OF OPERATIONS
FISCAL YEAR ENDED MARCH 31, 2002
--------------------------------

1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER FISCAL YEAR
----------- ----------- ----------- ----------- -----------

Operating revenues.................... $ 589,692 $ 92,595 $ 450,055 $ 255,509 $ 1,387,851
Cost of goods sold.................... 329,277 21,640 235,602 169,872 756,391
Gross profit.......................... 260,415 70,955 214,453 85,637 631,460
General and administrative............ 195,303 390,525 323,593 854,025 1,763,446
Executive Services.................... 62,500 62,500 62,500 -- 187,500
Depreciation and amortization......... 4,134 4,579 5,936 5,382 20,031
Interest expense (income)............. 787 1,222 1,238 1,161 4,408
Legal settlement...................... -- -- -- (20,651) (20,651)
Income(Loss)from continuing operations (2,309) (387,871) (178,814) (795,582) (1,364,576)
Income tax............................ -- -- -- -- --
Net income (loss)..................... (2,309) (387,871) (178,814) (795,582) (1,364,576)
Retained earnings (deficit), beginning $ (3,780,418) $ (3,782,727) $ (4,170,598) $ (4,349,412) $ (3,780,418)
Retained Earnings (deficit), ending... $ (3,782,727) $ (4,170,598) $ (4,349,412) $ (5,144,994) $ (5,144,994)
Per share information:
Earnings (loss) per share
- basic and diluted $ (0.00) $ (0.03) $ (0.01) $ (0.05) $ (0.09)
Weighted average shares outstanding... 15,841,259 16,080,270 16,080,270 16,086,937 16,022,325
Cash dividends paid................... $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00

Item 7 - 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
report on Form 10-K. 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 report on Form 10-K may contain forward-looking
statements that involve risks and uncertainties. Our actual results could differ
materially from those anticipated in the forward-looking statements.

Overview
--------

During fiscal 1998, we changed our business to focus on environmentally
friendly, specialty chemicals and closed our printing equipment division. 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 period from
1995 through March 31, 2003 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 $7,973,994.

The Company's business plan from fiscal 2001 through fiscal 2003 was to use
UNIPROOF(R) proofing paper sales to provide the cash flow to support world wide
marketing efforts for its KH-30(R) and related oil well cleaner products and, to
a lesser extent, the other specialty chemical products developed by the Company
which are described above.

In order to provide working capital to build UNIPROOF(R) sales, in June 2000 the
Company entered into a $1,000,000 Line of Credit Agreement with Fleet Bank, N.A.
The Company owed $150,000 under the credit line as of March 31, 2002, which was
subsequently repaid. Upon repayment of the loan in May, 2002, the line of credit
was cancelled.

Our largest customers accounted for 59%, 74%, and 49% of revenues in each of the
fiscal years ended March 31, 2003, 2002 and 2001. A new customer constituted
approximately 15% of revenues for the first time in the fiscal year ended March
31, 2003. Our third largest customers accounted for 10%, 12% and 32%,
respectively, in each of such years. No other customer accounted for more than
10% of our revenues during the same periods.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of consolidated financial statements in accordance with
accounting principals generally accepted in the United States of America
requires United Energy to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities.

On an on-going basis, United Energy evaluates its estimates, including those
related to product returns, bad debts, inventories, intangible assets, and
contingencies and litigation. United Energy bases its estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.

REVENUE RECOGNITION

The Company's primary source of revenue is from the sales of its products. The
Company recognizes revenue upon shipment and transfer of title.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

The Company monitors its accounts and note receivable balances on a monthly
basis to ensure they are collectible. On a quarterly basis, the Company uses its
historical experience to determine its accounts receivable reserve. The
Company's allowance for doubtful accounts is an estimate based on specifically
identified accounts as well as general reserves. The Company evaluates specific
accounts where it has information that the customer may have an inability to
meet its financial obligations. In these cases, management uses its judgment,
based upon the best available facts and circumstances, and records a specific
reserve for that customer against amounts due to reduce the receivable to the
amount that is expected to be collected. These specific reserves are reevaluated
and adjusted as additional information is received that impacts the amount
reserved. The company also establishes a general reserve

for all customers based upon a range of percentages applied to aging categories.
These percentages are based on historical collection and write-off experience.
If circumstances change, the Company's estimate of the recoverability of amounts
due the company could be reduced or increased by a material amount. Such a
change in estimated recoverability would be accounted for in the period in which
the facts that give rise to the change become known.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards ("SFAS") No. 143, "Accounting for
Asset Retirement Obligations." SFAS No. 143 addresses accounting and reporting
for obligations associated with the retirement for tangible long-lived assets
and the associated asset retirement costs. This statement is effective for the
fiscal years beginning after June 15, 2002. The Company is currently assessing
the impact of the new standard, although it does not expect it to affect its
financial position and results of operations.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of commitment to an exit or disposal plan. SFAS No. 146 will be
applied to exit or disposal after December 31, 2002 and is not expected to have
a material effect in the Company's financial position or results of operations.

In December 2002, the FASB issued Statement No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure, an amendment of FASB Statement No. 123"
(SFAS No. 123), to provide alternative transition methods for a voluntary change
to the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the disclosure requirements of
SFAS No. 123 to require prominent in annual financial statements about the
method of accounting for stock-based employee compensation and the pro-forma
effect on reported results of applying fair value based method for entities that
use the intrinsic value method of accounting. The pro forma effect disclosures
are also required to be prominently disclosed in interim financial statements.
The statement is effective for financial statements for fiscal years ending
after December 15, 2002 and is effective for financial reports containing
condensed financial statements for interim periods beginning after December 15,
2002, with earlier application permitted. United Energy does not plan to change
to the fair value based method for accounting for stock-based compensation and
has included the disclosure requirements of SFAS No. 148 in the accompanying
financial statements.

In November 2002, FASB Interpretation 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others" ("FIN 45"), was issued. FIN 45 requires a guarantor entity, at the
inception of a guarantee covered by the measurement provisions of the
interpretation, to record a liability for the fair value of the obligation
undertaken to issue the guarantee. United Energy previously did not record a
liability when guaranteeing obligations unless it became probable that United
Energy would have to perform under the guarantee. FIN 45 applies prospectively
to guarantees United Energy issues or modifies subsequent to December 31, 2002,
but has certain disclosure requirements effective for interim annual periods
ending after December 31, 2002. United Energy has not yet determined the effects
of FIN 45 on its financial statements. Disclosures required by FIN 45 are
included in the accompanying financial statements. The Company is currently
assessing the impact of the new interpretation, although it does not expect it
to affect its financial position and results of operations.

RESULTS OF OPERATIONS
---------------------

COMPARISON OF FISCAL YEAR ENDED MARCH 31, 2003 TO FISCAL YEAR ENDED MARCH 31,
2002

Sales - Sales increased to $2,232,626 for the year ended March 31, 2003
from $1,387,851 for the year ended March 31, 2002. The $844,775, or 60%,
increase in sales was due principally to a 60% increase in sales of our
UNIPROOF(R) proofing paper due to a general increase in orders and the addition
of a new customer for the UNIPROOF(R) product. Sales for the Company's specialty
chemical products including its KH-30 and KX-91

and its Green Globe / Qualchem product line increased by 62% as the Company's
orders increased as a result of our marketing activity and the U.S. Government
replenished stocks of our military products as a result of the higher level of
U.S. Military sales activity during the year. Our largest three customers
accounted for 84% of revenues for the year ended March 31, 2003 compared with
86% for the comparable period year ended March 31, 2002.

Cost of Sales - Cost of sales increased to $1,332,791 or 60% of sales, for
the year ended March 31, 2003 from $756,391 or 55% of sales, for the year ended
March 31, 2002. The higher cost of sales reflected the increased levels of sales
and the higher percentage of cost of sales in fiscal 2003 was primarily due the
increased cost of production for the UNIPROOF(R) paper which was only partially
offset by higher margins on specialty chemical products.

Selling, General and Administrative Expenses. General and administrative
expenses increased to $3,711,464 or 166% of sales, for the year ended March 31,
2003 from $1,970,977 or 142% of sales, for the year ended March 31, 2002. The
increase in general and administrative expenses is primarily related to the
salaries, the cost of compensation from options, and benefits of the new staff
added beginning in May 2002, non-recurring marketing expenses related to
developing promotional brochures, logos and product branding, design and
implementation costs of a new Company web site, certain legal and accounting
services and KH-30(R) customer trials on wells and storage tanks, and increased
level of travel related to meetings with potential customers.

Executive Services Contributed by Management. The year ended 2001 included
an expense of $250,000 related to imputed but unpaid salaries for services
contributed by senior management. In 2002, such amount was $187,500 representing
the first three quarters of the year. In the 4th quarter of fiscal year 2002
each of the two officers received options for the value of their services and
one of the officers began to draw a salary. In the year ended 2003 the amount of
imputed salaries was $0, as the executives was paid a regular salary.

Depreciation and Amortization. Depreciation and Amortization increased to
$83,481 for the year ended March 31, 2003 from $20,031 for the year ended March
31, 2002 reflecting additions to fixed assets for laboratory analytical
equipment, manufacture of additional S2 System equipment units, and capitalized
legal costs related to patent filings for our S2 System and KH-30(R) and related
products.

Interest Expense, Net of Interest Income. The Company had net interest
income of $57,629 for the year ended March 31, 2003 compared with net interest
expense of $4,408 in the corresponding period in 2002. The increase was due
primarily to the investment earnings on the remaining funds raised from the
private placement on May 14, 2002.

Legal Settlement. The year ended March 31, 2001 included the settlement of
litigation for $231,981, which is now fully settled. During the year ended March
31, 2002, the Company settled another litigation matter in the amount of $
20,651. For the year ended March 31, 2003 the company reached an agreement to
settle and discontinue a lawsuit. In the settlement, the Company agreed to pay
an aggregate of $75,000 in three installments.

Net Loss. For the year ended March 31, 2003, the Company incurred a net
loss of $2,829,000, or $0.13 per share as compared to a loss of $1,364,576 for
the year ended March 31, 2002 or $0.09 per share. The increased loss is
primarily a result of higher expenses for the year. The average number of shares
used in calculating earnings per share increased 5,434,657 to 21,456,982 shares
primarily as a result of 6,000,000 shares issued in connection with the Private
Placement transaction completed on May 14, 2002.

COMPARISON OF FISCAL YEAR ENDED MARCH 31, 2002 TO FISCAL YEAR ENDED MARCH 31,
2001

Sales - Sales decreased to $1,387,851 for the year ended March 31, 2002
from $3,482,915 for the year ended March 31, 2001. The $2,095,064, or 60%,
decrease in sales was due principally to a 67% decrease in sales of our
UNIPROOF(R) proofing paper due to a general decline in the printing business and
a 12% increase in sales in its Green Globe / Qualchem product line. Our largest
two customers accounted for 86% of revenues for the year ended March 31, 2002
compared with 81% for the year ended March 31, 2001.

Cost of Sales - Cost of sales decreased to $756,391 or 55% of sales, for
the year ended March 31, 2002 from $2,325,652 or 67% of sales, for the year
ended March 31, 2001. The lower percentage in fiscal 2002 was primarily due to
the decreased cost in the production of UNIPROOF(R).

Selling, General and Administrative Expenses. General and administrative
expenses increased to $1,970,977 or 142% of sales, for the year ended March 31,
2002 from $1,319,362 or 38% of sales, for the year ended March 31, 2001. The
percentage increase was due primarily to lower gross sales and higher expenses
primarily related to the value of options granted to consultants ($455,900) for
services rendered to the Company. In June 2002, Mr. Seaman, a current Director
and former general counsel to the Company, submitted multiple invoices in
amounts totaling $141,487 for legal fees and funds advanced on behalf of the
Company for periods dating back to 1997. Such amounts have been accrued in
amounts due related parties and charged to Selling, General and Administrative
expense, except for approximately $50,000 which has been included in prepaid
offering expenses in the financial statements. However, the amounts are in
dispute.

Executive Services Contributed by Management. The year ended 2001 included
an expense of $250,000 related to imputed but unpaid salaries for services
contributed by senior management. In 2002, such amount was $187,500 representing
the first three quarters of the year. In the 4th quarter of fiscal year 2002
each of the two officer received options for the value of their services and one
of the officers began to draw a salary.

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, 2002, the Company incurred a net
loss of $1,364,576, or $0.09 per share as compared to a loss of $404,316 for the
year ended March 31, 2001 or $0.03 per share. The increased loss is primarily a
result of lower sales and higher expenses for the year. The average number of
shares used in calculating earnings per share increased 192,055 to 16,022,325
shares primarily as a result of shares issued to an outside investor in the 2nd
quarter of the fiscal year and additional shares issued in the 4th quarter of
the fiscal year for services provided by an officer.

LIQUIDITY AND CAPITAL RESOURCES

Since the acquisition of United Energy in 1995, operations have been
financed primarily through loans and equity contributions from principals
(namely Mr. Ronald Wilen and Mr. Robert Seaman), and from third parties
supplemented by funds generated by our business. As of March 31, 2003, the
Company had $2,120,942 in cash and cash equivalents.

Net Cash Used in Operating Activities. During the fiscal year ended March
31, 2003 net cash used in operating activities was $2,998,776 compared with
$34,874 for the fiscal year ended March 31, 2002, a total decrease in cash flow
of $2,963,902. This was primarily a result of the higher expense levels during
the year.

Net Cash Used in Investing Activities. During the fiscal year ended March
31, 2003 net cash used in investing activities increased to $444,494 compared
with $13,409 for the year ended March 31, 2002. The increase level of
expenditures was due to a loan granted to an employee as part of an inducement
to join the Company, cash used to purchase fixed assets to support operations
and capitalized legal fees required to file three patent applications for the
Company's KH-30, KX-91 and S-2 System.

Net Cash Provided by Financing Activities. Net cash generated from
financing activities increased to $5,365,800 resulting from the net proceeds
from the Private Placement completed May 14, 2002. This compares to cash
provided from financing activities of $150,000 for the year ended March 31, 2002
resulting from the draw down against the line of credit.

At March 31, 2003, accounts receivable increased to $496,715, a $278,611,
or 128% increase from the balance at March 31, 2002 of $218,104. The increase is
primarily related to the increased sales volume of our UNIPROOF(R) proofing
paper during fiscal 2003 and the extension of longer payment terms to major
customers. This was partially offset by the Company converted the balance in
account receivable for a customer into a one year note receivable bearing an
interest rate of 4.5 %.

Inventories at March 31, 2003 were $211,344, a decrease of $76,513 from the
balance of $287,857at March 31, 2002. The decrease in inventory was due to the
sale of most of our UNIPROOF(R) paper inventory before the end of the year which
was slightly offset by an increase in KH-30 inventory in anticipation of future
sales. For the year ended March 31, 2002, the Company established an inventory
valuation reserve of $16,290 for certain slow moving finished goods.

Accounts payable and accrued expenses decreased $119,479 to $492,246 at
fiscal year end 2003 from $611,725 in 2002, due primarily to use of the proceeds
from the private placement to pay down amounts in accounts payable.
Additionally, the Company accrued certain legal and other expenses owed to
related parties in the amount of $244,141 as of March 31, 2003 compared with
$141,487 in the prior year.

On May 14, 2002, the Company issued, in a private placement, an aggregate
of 6,000,000 shares of its common stock at an aggregate price of $6,000,000. In
connection with the common stock issuance, the Company issued warrants to
purchase 3,000,000 of the Company's common stock at an exercise price of $2 per
share exercisable for a five-year period. The Company incurred $484,000 in
issuance expenses in connection with the financing. In addition, the Company
issued 750,000 additional warrants to purchase 750,000 shares of Company's
common stock at an exercise price of $0.60 per share with a five-year term.
These warrants are exercisable during the first two years and were issued in
consideration for relinquishing the right of immediate exercise on 500,000
warrants previously issued in connection with the private placement.

Our capital requirements have grown because of our recent losses. We expect
our capital requirements to continue to increase if we are able to expand and
become a competitive force in the proofing paper and specialty chemical
industries. Our market share in these markets are not currently quantifiable,
although we believe them to be very small. Through fiscal year 2003 we have
incurred continuing significant negative cash flows from operations. Continued
operations have relied primarily on financing activities. 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. Any projections of
future cash needs and cash flows are subject to substantial uncertainty. We
believe that our current cash and cash equivalents will be sufficient to meet
our working capital and capital expenditures requirements for at least the next
twelve months.

As part of the private financing transaction, the Company began the process
of identifying and making employment offers to a new management team in order to
focus on the sales and marketing of KH-30 and other products.

Each of these executives has employment agreements with terms ranging from one
to three years. Below is a table which presents our contractual obligations
commitments at March 31, 2003:

Less than
Contractual Obligations Total 1 Year 1-3 Years 4-5 Years
--------------------------------------------------------------------------------------------------

Employment Agreements $559,000 $262,000 $297,000 -
Operating Leases 411,157 103,346 286,211 21,600
--------- -------- -------- -------
Total contractual
cash obligations $970,157 $365,346 $583,211 $21,600
======== ======== ======== =======

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. Also, during the past three fiscal
years, the Company has derived additional revenues by acting as a graphic arts
products distributor.

The following table shows the proportion of total revenues by segment in
each of the last three fiscal years.

SPECIALTY
FISCAL YEAR GRAPHIC ARTS CHEMICALS
----------- ------------ ---------

2001.......................................................... 3,190,824 292,091
2002.......................................................... 1,061,317 326,534
2003.......................................................... 1,700,738 531,888

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.

Item 7a - Quantitative and Qualitative Disclosures about Market Risk
--------------------------------------------------------------------

The Company does not engage in material transactions involving financial
instruments.

Item 8 - Consolidated Financial Statements and Supplementary Data
-----------------------------------------------------------------

The Consolidated Financial Statements required by this Item 8 are set forth
as indicated in the index following Item 14(a)(1).

Item 9 - Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
------------------------------------------------------------------------

There have been no disagreements between the Company and our accountants on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure. In May 2002, United Energy changed accounting firms
from Arthur Andersen, LLP to Grant Thornton, LLP.

PART III

The information required by this Part III (items 10, 11, 12, and 13) is hereby
incorporated by reference from the Company's definitive proxy statement which is
expected to be filed pursuant to Regulation 14A of the Securities Exchange Act
of 1934 not later than 120 days after the end of the fiscal year covered by this
report.

PART IV

Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
---------------------------------------------------------------------------

The financial statement schedules and exhibits filed as a part of this annual
report on Form 10-K are as follows:

(a) Financial Statement Schedules: Schedule II - Schedule of Valuation and
Qualifying Accounts.

(b) Reports on Form 8-K: No reports were filed on Form 8-K in the last
quarter of fiscal year 2002.

(3) (I) Articles of Incorporation*
(IA) Amendment adopted August 22, 2001***
(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) Distribution Agreement and Option Agreement with International
Research and Development dated August 25, 1999*
(b) 2001 Equity Incentive Plan, as amended on May 29, 2002*****

(11) Statement re Computation of Per Share Earnings*

(12) Statement re Computation of Ratios (not applicable)

(16) Letter re Change in Certifying Accountant****

(18) Letter re Accounting Principles (not applicable)

(21) List of Subsidiaries*

*filed with original Form 10 on June 20, 2000.
**filed with Amendment No. 1 to Form 10 on December 20, 2000
***filed with Form 10-Q for period ended September 30, 2001 and
incorporated herein by reference.
****filed with Form 8-K regarding change of Auditors, June 3, 2002
*****filed with Schedule 14A for the year ending March 31, 2002

INDEX TO EXHIBITS

Exhibit
Number Item
------ ----

(3) (I) Articles of Incorporation*
(IA) Amendment adopted August 22, 2001***
(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) Distribution Agreement and Option Agreement with International
Research and Development dated August 25, 1999*
(b) 2001 Equity Incentive Plan, as amended on May 29, 2002*****

(11) Statement re Computation of Per Share Earnings*

(12) Statement re Computation of Ratios (not applicable)

(16) Letter re Change in Certifying Accountant****

(18) Letter re Accounting Principles (not applicable)

(21) List of Subsidiaries*

SIGNATURES

Pursuant to the requirements of Sections 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

UNITED ENERGY CORP.
(REGISTRANT)

By \s\ Ronald Wilen June 30, 2003
-------------------------------------------- -------------
Ronald Wilen, President (Principal Executive Officer) Date

By \s\ Sanford Kimmel June 30, 2003
----------------------------------- -------------
Sanford M. Kimmel, Chief Financial Officer Date
(Principal Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

\s\ Ronald Wilen June 30, 2003
----------------------------------- -------------
Ronald Wilen, Director Date

\s\ Andrea Pampanini June 30, 2003
----------------------------------- -------------
Andrea Pampanini, Director Date

\s\ Martin Rappaport June 30, 2003
----------------------------------- -------------
Martin Rappaport, Director Date

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-K of United Energy Corp.
for the year ending March 31, 2003 as filed with the Securities and Exchange
Commission on the date hereof, I, Ronald Wilen, Chairman and Chief Executive
Officer of registrant, certify, pursuant to 18 U.S.C. ss. 1350, as adopted
pursuant to ss. 302 of the Sarbanes-Oxley Act of 2002, that:

(1) I have reviewed this annual report on Form 10-K of United Energy Corp.;

(2) Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report; and

(3) Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
registrant as of, and for, the periods presented in this annual report; and

(4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

(c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

(5) The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):

(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

(6) The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Dated: June 30, 2003 By: /s/ Ronald Wilen
------------------------------
Ronald Wilen
Chairman and Chief Executive Officer

This certification accompanies this Annual Report on Form 10-K pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 and shall not, except to the
extent required by such Act, be deemed filed by registrant for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of United Energy Corp.,
for the year ending March 31, 2003 as filed with the Securities and Exchange
Commission on the date hereof, I, Sanford M. Kimmel, Chief Financial Officer of
registrant, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss.
302 of the Sarbanes-Oxley Act of 2002, that:

(1) I have reviewed this annual report on Form 10-K of United Energy Corp.;

(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

(c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

Dated: June 30, 2003 By: /s/ Sanford M. Kimmel
----------------------
Sanford M. Kimmel
Chief Financial Officer

UNITED ENERGY CORP. AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

PAGE

REPORTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.......................................... F-2-F-3

CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of March 31, 2003 and 2002............................... F-4
Consolidated Statements of Operations for the Years Ended March 31, 2003, 2002
and 2001............................................................................ F-5
Consolidated Statements of Stockholders' Equity for the Years Ended March 31, 2003,
2002 and 2001....................................................................... F-6
Consolidated Statements of Cash Flows for the Years Ended March 31, 2003, 2002
and 2001............................................................................ F-7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS...................................................F-8-F-21

SCHEDULE II - Schedule of Valuation and Qualifying Accounts.................................. S-1

F-1

REPORT OF INDEPENDENT CERTIFIED 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, 2003 and
2002 and the related consolidated statements of income, cash flows and
stockholders' equity for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of United
Energy Corporation and subsidiaries as of March 31, 2003 and 2002 and the
consolidated results of their operations and their consolidated cash flows for
the years then ended, in conformity with accounting principles generally
accepted in the United States of America.

We have also audited the schedule II for the years ended March 31, 2003 and
2002. In our opinion, this schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information therein.

/s/ GRANT THORNTON LLP
New York, New York

May 27, 2003 (except with respect to the matters discussed in Note 6, as to
which the date is June 18, 2003)

F-2

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of United Energy Corp.:

We have audited the accompanying consolidated balance sheets of United Energy
Corp. (a Nevada corporation) and subsidiaries as of March 31, 2001 and 2000, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years then ended. 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.

Subsequent to the issuance of its March 31, 2001 financial statements, the
Company recorded compensation for the executives' services that were contributed
by management in the amount of $250,000 for each fiscal year commencing in 1996.
In addition, certain other adjustments were reflected, as discussed in Note 14.
None of these adjustments impacted working capital or total stockholders'
equity. The financial statements presented have been revised to reflect the
above.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule of valuation and qualifying
accounts - Schedule II of this Form 10-K/A for the three years ended March 31,
2001 is presented for the purpose of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.

\s\ ARTHUR ANDERSEN LLP
New York, New York

June 12, 2001 (except with respect to the matters discussed in Note 14, as to
which the date is July 20, 2001, respectively).

This Report of Independent Certified Public Accountants is a copy of a
previously issued Arthur Anderson LLP ("Anderson") report and has not been
reissued by Anderson. The inclusion of this previously issued Anderson report is
pursuant to the "Temporary Final Rule and Final Rule: Requirements for Arthur
Anderson LLP Auditing Clients," issued by the U.S. Securities Exchange and
Exchange Commission in March 2002. Note that this previously issued Anderson
report includes references to certain fiscal years, which are not required to be
presented in the accompanying consolidated financial as of and for the fiscal
years ended March 31, 2003.

F-3

UNITED ENERGY CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
MARCH 31, 2003 AND 2002

2003 2002
---- ----
ASSETS

CURRENT ASSETS:

Cash and cash equivalents.................................................. $ 2,120,942 $ 198,412
Accounts receivable, net of allowance for doubtful accounts of
$48,113 and $4,795, respectively....................................... 496,715 218,104
Inventory, net of allowance of $16,290 and $16,290, respectively......... 211,344 287,857
Note receivable, net of reserve of $30,000................................. 149,034 --
Prepaid expenses and other current assets.................................. 104,527 117,127
------------- -------------
Total current assets ............................................. 3,082,562 821,500
PROPERTY AND EQUIPMENT, net of accumulated depreciation and
amortization of $92,883 and $23,507, respectively.......................... 268,597 16,883
OTHER ASSETS:
Goodwill, net of accumulated amortization of $17,704 and $17,704, respectively 68,819 68,819
Patent, net of accumulated amortization of $44,253 and $30,148 respectively 229,508 128,908
Loan receivable............................................................ 2,076 --
Deposits .................................................................. 31,385 1,862
------------- ----------
Total assets...................................................... $ 3,682,947 $ 1,037,972
============= =============

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Revolving line of credit................................................... $ -- $ 150,000
Accounts payable........................................................... 158,048 600,850
Accrued expenses........................................................... 334,198 10,875
Due to related parties..................................................... 244,141 141,487
------------- -------------
Total current liabilities......................................... 736,387 903,212
------------- -------------

COMMITMENTS AND CONTINGENCIES (Note 6)

STOCKHOLDERS' EQUITY:
Common stock: $0.01 par value 100,000,000 shares authorized; 22,180,270
and 16,180,270 shares issued and ......outstanding as of March 31, 2003
and 2002, respectively................................................. 221,802 161,802
Additional paid-in capital ................................................ 10,698,752 5,117,952
Accumulated deficit........................................................ (7,973,994) (5,144,994)
-------------- --------------
Total stockholders' equity........................................ 2,946,560 134,760
------------- -------------
Total liabilities and stockholders' equity ....................... $ 3,682,947 $ 1,037,972
============= =============

The accompanying notes are an integral part of these consolidated balance
sheets.

F-4

UNITED ENERGY CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 2003, 2002 AND 2001

2003 2002 2001
---- ---- ----

REVENUES, net................................................. $ 2,232,626 $ 1,387,851 $ 3,482,915
COST OF GOODS SOLD............................................ 1,332,791 756,391 2,325,652
------------- ------------- -------------
Gross profit............................................... 899,835 631,460 1,157,263
------------- ------------- -------------

OPERATING EXPENSES:
Selling, general and administrative........................ 3,627,983 1,763,446 1,052,790
Executive services contributed by management............... -- 187,500 250,000
Depreciation and amortization............................. 83,481 20,031 16,572
------------- ------------- -------------
Total operating expenses........................... 3,711,464 1,970,977 1,319,362
------------- ------------- -------------
Loss from operations............................... (2,811,629) (1,339,517) (162,099)
-------------- -------------- ---------------

OTHER INCOME (EXPENSE):
Interest income............................................ 59,377 1,792 1,581
Interest expense........................................... (1,748) (6,200) (11,817)
Legal settlement........................................... (75,000) (20,651) (231,981)
---------------- ------------- --------------
Total other income (expense)....................... (17,371) (25,059) (242,217)
--------------- ------------- -------------
Net loss........................................... $ (2,829,000) $ (1,364,576) $ (404,316)
============== ============== ==============

BASIC AND DILUTED LOSS PER SHARE:

Total basic and diluted loss per share............. $ (0.13) $ (0.09) $ (0.03)
============== ============== ==============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING, basic and diluted............................. 21,456,982 16,022,325 15,830,270
============= ============= =============

The accompanying notes are an integral part of these consolidated statements.

F-5

UNITED ENERGY CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 2003, 2002, AND 2001

ADDITIONAL STOCK
COMMON STOCK PAIN-IN SUBSCRIPTION ACCUMULATED
SHARES AMOUNT CAPITAL RECEIVABLE DEFICIT TOTAL
------ ------ ------- ---------- ------- -----

BALANCE, March 31, 2000............ 15,830,270 158,302 3,792,052 (25,000) (3,376,102) 549,252
Executive services contributed by
management..................... -- -- 250,000 -- -- 250,000
Net loss........................... -- -- -- -- (404,316) (404,316)
---------- ------- ---------- -------- ----------- ----------
BALANCE, March 31, 2001............ 15,830,270 158,302 4,042,052 (25,000) (3,780,418) 394,936
Common stock issued for conversion
of due to shareholder.......... 250,000 2,500 347,500 -- -- 350,000
Write-off of subscription
receivable..................... (25,000) 25,000 -- --
Common stock issued for services
received....................... 100,000 1,000 110,000 -- -- 111,000
Options granted in consideration
for consulting services........ 455,900 455,900
Executive services contributed by
management..................... -- -- 187,500 -- -- 187,500
Net loss........................... -- -- -- -- (1,364,576) (1,364,576)
---------- ------- ---------- -------- ----------- ----------
BALANCE, March 31, 2002 16,180,270 161,802 5,117,952 -- (5,144,994) 134,760
Common stock issued for
Private placement 6,000,000 60,000 5,940,000 -- -- 6,000,000
Options granted in consideration
for services -- -- 125,000 -- -- 125,000
Private placement costs -- -- (484,200) -- -- (484,200)
Net loss........................... -- -- -- -- (2,829,000) (2,829,000)
---------- ------- ---------- -------- ----------- ----------
BALANCE, March 31, 2003 22,180,270 221,802 10,698,752 -- (7,973,994) 2,946,560
=== ==== ========== ======= ========== ========== =========

The accompanying notes are an integral part of these consolidated statements.

F-6

UNITED ENERGY CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 2003, 2002 AND 2001

2003 2002 2001
---- ---- ----

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss................................................... $ (2,829,000) $ (1,364,576) $ (404,316)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities-
Depreciation and amortization.......................... 83,481 20,031 16,572
Non-cash consulting expense............................ -- 111,000 --
Options granted in consideration for services.......... 125,000 455,900 --
Executive services contributed by management........... -- 187,500 250,000
Changes in operating assets and liabilities-
(Increase) decrease in accounts receivable, net........ (427,645) 752,329 (524,484)
Decrease (increase) in inventory....................... 76,513 (166,104) 470,532
Decrease (increase) in prepaid expenses................ 19,423 (5,649) --
Increase in deposits................................... (29,723) (277) --
Increase in related party payable...................... 102,654 -- --
(Decrease) increase in accounts payable and accrued
expenses........................................... (119,479) (25,028) 251,578
-------------- -------------- -------------
Net cash (used in) provided by operating activities (2,998,776) (34,874) 59,882
-------------- -------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for loans receivable.............................. (8,699) -- --
Payments for acquisition of property and equipment......... (321,090) (13,409) --
Payments for patent........................................ (114,705) -- (8,789)
-------------- -------------- -------------
Net cash used in investing activities.............. (444,494) (13,409) (8,789)
-------------- -------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on line of credit................................. (150,000) -- (165,697)
Proceeds from line of credit............................... -- 150,000 160,000
Payments of private placement costs ....................... (484,200) -- 5,291
Proceeds from issuance of common stock..................... 6,000,000 -- --
-------------- ------------ -------------
Net cash provided by (used in) financing activities 5,365,800 150,000 (406)
-------------- ------------- --------------
Net increase in cash and cash equivalents.......... 1,922,530 101,717 50,687
CASH AND CASH EQUIVALENTS, beginning of year.................. 198,412 96,695 46,008
-------------- ------------- -------------
CASH AND CASH EQUIVALENTS, end of year........................ $ 2,120,942 $ 198,412 $ 96,695
============= ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for-
Interest............................................... $ 2,361 $ 6,266 $ 11,198
Income taxes........................................... 800 720 5,066

Conversion of account receivable into Note receivable...... $ 179,034 $ -- $ --
Conversion of accounts due to a shareholder into
common stock........................................... $ -- $ 350,000 $ --

The accompanying notes are an integral part of these consolidated statements.

F-7

UNITED ENERGY CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003 2002 AND 2001

1. DESCRIPTION OF BUSINESS

United Energy Corp. ("United Energy" or the "Company") considers its
primary business focus to be the development, manufacture and sale of
environmentally friendly specialty chemical products, in particular its KH-30(R)
and KX-91(R) oil well cleaners and KH-30S drag reducer products.

Green Globe is operated as a separate subsidiary of United Energy and sells
its products under the tradename Qualchem(TM). Green Globe gives United Energy
access to the chemistry and product lines of Green Globe which include
environmentally friendly paint strippers and cleaners, many of which have been
qualified for use by the U.S. Military. Green Globe developed a dual package of
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 also developed an environmentally friendly
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. FR-15
mixture also resists re-ignition once a fire has been extinguished. This product
can also be used to reduce odors, such as those from decomposing garbage, and
for soil remediation following petroleum-based contamination. Our FR-15 product
has been developed and successfully tested by several municipal fire
departments. Underwriters Laboratories ("UL") did not have an approved test for
FR-15 as a dispersant. A reformulation of FR-15 was developed to pass the UL
fire extinguisher test. The reformulated product is being resubmitted for
testing and certification by Underwriters Laboratories ("UL"). We expect that
sales of FR-15 will commence when the product receives UL certification.

United Energy also produces a specialty chemical product called
UNIPROOF(R), which is a photosensitive coating that is applied to paper to
produce what is known in the printing industry as proofing paper or "blue line"
paper.

Slick Barrier is an underwater protective coating which prevents the
adherence of barnacles to boat hulls. The product is another in the Company's
line of environmental products in that it is environmentally friendly and
biodegradable, which the Company believes to be particularly appealing in fresh
water marine applications. The product is being tested on pleasure boats
throughout the United States and Europe. We expect to begin sales of the product
by the fall of 2003. A patent application on this product is in process.

The Company incurred significant losses and negative cash flow from
operating activities and as of March 31, 2003 and it had an accumulated deficit
of $7,973,994. As of March 31, 2003 the Company has cash and cash equivalents of
$2,120,942. Although the Company expects working capital requirements to
continue to be significant, it has begun to implement and it believes it will
continue to undertake cost reduction initiatives in Fiscal 2004. Accordingly,
the Company currently anticipates that its available cash in hand and cash
resources from expected revenues will be sufficient to meet its anticipated
working capital and capital expenditure requirements for at least the next
twelve months.

F-8

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of United Energy
Corp. and its wholly-owned subsidiaries Green Globe and currently inactive
subsidiary, Nor-Graphic Industries. All intercompany transactions and accounts
have been eliminated in consolidation.

USE OF ESTIMATES

The preparation of consolidated financial statements in accordance with
accounting principals generally accepted in the United States of America
requires United Energy to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities.

On an on-going basis, United Energy evaluates its estimates, including
those related to bad debts, inventories, intangible assets, and contingencies
and litigation. United Energy bases its estimates on historical experience and
on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.

REVENUE RECOGNITION

The Company's primary source of revenue is from the sales of its products.
The Company recognizes revenue upon shipment and transfer of title.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of cash and highly liquid investments
with original maturities of three months or less.

INVENTORIES

Inventories consist predominately of finished goods. Inventories are valued
at the lower of cost (first-in, first-out method) or market.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

The Company monitors its accounts and note receivable balances on a monthly
basis to ensure they are collectible. On a quarterly basis, the Company uses its
historical experience to determine its accounts receivable reserve. The
Company's allowance for doubtful accounts is an estimate based on specifically
identified accounts as well as general reserves. The Company evaluates specific
accounts where it has information that the customer may have an inability to
meet its financial obligations. In these cases, management uses its judgment,
based upon the best available facts and circumstances, and records a specific
reserve for that customer against amounts due to reduce the receivable to the
amount that is expected to be collected . These specific reserves are
reevaluated and adjusted as additional information is received that impacts the
amount reserved. The company also establishes a general reserve based upon a
range of percentages applied to aging categories. These percentages are based on

F-9

historical collection and write-off experience. If circumstances change, the
Company's estimate of the recoverability of amounts due the company could be
reduced or increased by a material amount. Such a change in estimated
recoverability would be accounted for in the period in which the facts that give
rise to the change become known.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation has been calculated
using an accelerated tax depreciation method over the estimated useful lives of
the assets ranging from 3 to 15 years. Leasehold improvements are amortized over
the lives of the respective leases (15 years), which are shorter than the useful
life. The cost of maintenance and repairs is expensed as incurred. Depreciation
and amortization expense for the years ended March 31, 2003, 2002 and 2001 was
$69,376, $3,660 and $2,527, respectively.

Property and equipment consists of the following at March 31, 2003 and
2002:

2003 2002
---- ----

Furniture and fixtures................................................. $ 67,094 $ 27,670
Machinery and equipment................................................ 233,585 7,097
Vehicles............................................................... 35,548 --
Leasehold improvements................................................. 25,253 5,623
------------- -----
.................................................................. 361,480 40,390
Less- Accumulated depreciation and amortization........................ (92,883) (23,507)
------------- -------------
Property and equipment, net............................................ $ 268,597 $ 16,883
============= =============

GOODWILL

The Company capitalized goodwill related to the acquisition of Green Globe
in September of 1998. Goodwill represents cost in excess of fair value on the
net assets acquired. Goodwill was amortized over a 15 year period using a
straight line amortization method until the adoption of SFAS No. 142 "Goodwill
and Other Intangible Assets," on April 1, 2002. Under SFAS No. 142, goodwill and
intangible assets with indefinite lives are no longer amortized but are reviewed
annually (or more frequently if impairment indicators arise) for impairment.
Separable intangible assets that are not deemed to have indefinite lives will
continue to be amortized over their useful lives (but with no maximum life).
Effective April 1, 2002, the Company adopted the provisions of SFAS No. 142,
which had no material effect on its results of operations and financial position

PATENTS

The Company capitalizes legal costs incurred to obtain patents.
Amortization begins 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's long-lived assets include property and equipment, and
patents.

As of April 1, 2002, the Company adopted SFAS No.144, "Accounting for the
Impairment or Disposal of Long-lived Assets", which supersedes SFAS No.121,
"Accounting for the Impairment of Long-lived Assets to be Disposed Of." Under
SFAS No.144, intangible assets other than goodwill are reviewed on a periodic
basis for impairment whenever events or changes in circumstances indicate that
the carrying amounts of the assets may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to future undiscounted net cash flows expected to be generated by the
asset. If such assets are

F-10

considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of the
assets. The company's management believes that no such event or change has
occurred. The adoption of SFAS No. 144 had no effect on the Company.

F-11

INCOME TAXES

The Company accounts for income taxes using the asset and liability method.
Under this method, deferred tax assets and liabilities are determined based on
the temporary differences between the financial statement and the income tax
bases of assets and liabilities and for net operating loss carry forwards
existing at the balance sheet date using enacted tax rates in effect for the
years in which the taxes are expected to be paid or recovered. A valuation
allowance is established when it is considered more likely than not that such
assets will not be realizable. The effect on deferred tax assets or liabilities
of a change in tax rates is recognized in the period in which the tax change
occurs.

STOCK-BASED COMPENSATION

At March 31, 2003 the Company has stock based compensation plans, which are
described more fully in Note 9. As permitted by SFAS No.123, Accounting for
Stock Based Compensation, the Company accounts for stock-based compensation
arrangements with employees in accordance with provisions of Account Principles
Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees.
Compensations expense for stock options issued to employees is based on the
difference on the date of grant, between the fair value of the Company's stock
and the exercise price of the option. Stock based employee compensations cost
for the years ended March 31, 2003, 2002 and 2001 was $125,000, $ 0.00 and $0.00
respectively. The Company accounts for equity instruments issued to
non-employees in accordance with the provisions of SFAS No.123 and Emerging
Issues Task Force (EITF) Issue No.96-18, "Accounting for Equity Instruments That
Are Issued to Other Than Employees for Acquiring, or in Conjunction With
Selling, Goods or Services." All transactions in which goods or services are the
consideration received for the issuance of equity instruments are accounted for
based on the fair value of the consideration received or the fair value of the
equity instrument issued, whichever is more reliably measurable. Stock based
compensation for non-employees was $0, $455,900 and $0 for the years ended March
31, 2003, 2002 and 2001.

The following table illustrated the effect on net loss and loss per share
if the Company had applied the fair value recognition provisions of SFAS No. 123
to all stock based compensation:

Years ended March 31,
----------------------------------------------------------
2003 2002 2001
--------------------- ------------------ -----------------
Net Loss

As reported (2,829,000) (1,364,576) (404,316)

Add:

Stock based compensation expenses
included in reported net loss 125,000 455,900

Deduct:

Total stock based employee
compensation expense determined under
fair value based method for all awards (1,194,605) (869,187) ---

Pro forma (3,898,605) (1,777,863) (404,316)

Basic and diluted loss per common share

As reported (0.13) (0.09) (0.03)

Pro forma (0.18) (0.11) (0.03)

F-12

PER SHARE DATA

SFAS No. 128 establishes standards for computing and presenting earnings
per share ("EPS"). The standard requires the presentation of basic EPS and
diluted EPS. Basic EPS is calculated by dividing income/loss 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/loss
available to common shareholders by the weighted average number of common shares
outstanding adjusted to reflect potentially dilutive securities. Diluted loss
per share for the years ended March 31, 2003, 2002 and 2001 does not include
6,195,020, 1,860,000, and 0 stock options and warrants since the inclusion of
the outstanding stock options and warrants would be antidilutive.

CONCENTRATIONS OF RISK

Cash and Cash Equivalents

The Company places its cash and cash equivalents with high-quality
financial institutions and limits the amount of credit exposure to any one
institution.

Accounts and Notes Receivable

The Company has one customer which accounted for 87% and 75% of the total
accounts receivable at March 31, 2003 and 2002, respectively. Credit losses, if
any, have been provided for in the consolidated 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.

At March 31, 2003, the company converted an accounts receivable balance of
$179,034 to a one year note receivable. The note accrues interest at the rate of
4.5% and is paid down in 12 monthly payments and provides for a security
interest in the inventory held by this customer.

Significant Customers

The Company's revenues from major customers, as a percentage of revenues,
for the years ended March 31, 2003, 2002 and 2001, are as follows:

2003 2002 2001
---- ---- ----

Customer A ................................................... 0% 0% 32%
Customer B ................................................... 4% 12% 0%
Customer C ................................................... 59% 74% 49%
Customer D ................................................... 15% 0% 0%
Customer E ................................................... 10% 0% 0%

Vendors

The Company has one vendor, which accounts for over 36%, 38% and 37% of the
Company's supplies purchases for the years ended March 31, 2003, 2002 and 2001,
respectively. The Company believes it can obtain the products from other vendors
on terms suitable to the Company.

F-13

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of cash and cash equivalents, accounts receivable,
note and loan receivable, inventory, revolving line of credit, and accounts
payable and accrued expenses approximate their fair values due to the short-term
maturity of these instruments.

RECLASSIFICATIONS

Certain reclassifications have been made to the prior year consolidated
financial statements to conform to the current year presentation.

RECENTLY ISSUED ACCOUNTING STANDARDS

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of commitment to an exit or disposal plan. SFAS
No. 146 applies to exit or disposal activities after December 31, 2002 and did
not have a material effect in the Company's financial position or results of
operations.

In December 2002, the FASB issued Statement No.148, "Accounting for
Stock-Based Compensation-Transition and Disclosure, an amendment of FASB
Statement No. 123" (SFAS No. 123), to provide alternative transition methods for
a voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 to require prominent in annual financial statements
about the method of accounting for stock-based employee compensation and the
pro-forma effect on reported results of applying fair value based method for
entities that use the intrinsic value method of accounting. The pro forma effect
disclosures are also required to be prominently disclosed in interim financial
statements. The statement is effective for financial statements for fiscal years
ending after December 15, 2002 and is effective for financial reports containing
condensed financial statements for interim periods beginning after December 15,
2002, with earlier application permitted. United Energy does not plan to change
to the fair value based method for accounting for stock-based compensation and
has included the disclosure requirements of SFAS No.148 in the accompanying
financial statements.

In November 2002, FASB Interpretation 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" ("FIN 45"), was issued. FIN 45 requires a guarantor
entity, at the inception of a guarantee covered by the measurement provisions of
the interpretation, to record a liability for the fair value of the obligation
undertaken to issue the guarantee. United Energy previously did not record a
liability when guaranteeing obligations unless it became probable that United
Energy would have to perform under the guarantee. FIN 45 applies prospectively
to guarantees United Energy issues or modifies subsequent to December 31, 2002,
but has certain disclosure requirements effective for interim annual periods
ending after December 31, 2002. The Company is currently assessing the impact of
the new interpretation, although it does not expect it to affect its financial
position and results of operations.

F-14

3. INVENTORY

Inventory consists of the following as of March 31, 2003 and 2002:

2003 2002
---- ----

Paper.................................................................. $ 19,957 $ 182,046
Blended chemical....................................................... 111,544 89,862
Raw materials.......................................................... 79,843 15,949
------------- -------------
Total inventory........................................................ $ 211,344 $ 287,857
============= =============

4. REVOLVING LINE OF CREDIT

The revolving line of credit allows the Company to borrow up to $1,000,000
from Fleet Bank. Borrowings under the credit line bear interest at prime.
Interest is payable monthly. Borrowings under the line of credit must be reduced
to zero for a period of 30 consecutive days in any 12-month period. 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 which have been placed in escrow. The line is also
secured by the personal guarantee of a shareholder of the Company. At March 31,
2002 the outstanding amount was $150,000.

The Company has repaid the line of credit in full in May 2002 with the
proceeds received from the private placement. The pledge of 750,000 shares of
the Company's common stock was returned to the Company and the shares were
cancelled.

5. RELATED PARTY TRANSACTIONS

The Company had an amount due to Robert Seaman, a major shareholder and
former director of the Company. Amounts due to related parties as of March 31,
2003 and 2002 is $244,141 and $141,487, respectively. These amounts are
unsecured, non-interest bearing and due upon demand.

At March 31, 2001, the Company was indebted to Relevant Investments Ltd.
for $350,000. In June 2001, 250,000 shares were issued to Relevant Investments
Ltd. in full satisfaction of the amount due. The amount has been shown as due to
shareholder on the balance sheet as of March 31, 2001.

Martin Rappaport, a major shareholder and director of the Company, owns the
property from which United Energy leases the 9,600 square foot facility it
occupies in Secaucus, New Jersey. The Company pays approximately $100,000 per
year under the lease, excluding real estate taxes.

6. 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.

F-15

Texas Oil Field Accident
------------------------

In addition to the above described litigation, OSHA commenced an
investigation into the accident. On April 8, 2003, OSHA issued its Citation and
Notification of Penalty which found that the Company had committed violations of
certain applicable rules, including having failed to provide at or in proximity
to the site a person or persons adequately trained to render first aid with
adequate first aid supplies available and having failed to develop, implement or
maintain at the site a written hazard communication program describing how
safety criteria will be met. OSHA proposed a fine of $3,000 for these
violations, which the Company has paid.

Litigation Concerning A Former Employee
---------------------------------------

On or about May 16, 2003, the Company commenced an action against Jon
Hebert, a former employee of the Company in the United States District Court for
the District of New Jersey, seeking preliminary and permanent injunctive and
other relief for violations by Mr. Hebert of employment and non-disclosures
agreements between him and the Company, resulting in alleged disclosures by
Hebert of the Company's confidential and proprietary information and wrongful
solicitation of the Company's customers. The Company alleges that sales of
products manufactured or distributed by Hebert's new employer may, in addition,
infringe the Company's patents. After a hearing on the Company's motion for a
preliminary injunction, the Court denied the motion, but ordered expedited
proceedings in the matter.

On or about May 27, 2003, Mr. Hebert's current employer, Fluid Sciences,
L.L.C., commenced two actions against the Company and one of its wholly owned
subsidiaries, Nor Industries, Inc. One of the actions was commenced in the 15th
Judicial District Court, Lafayette Parish, Louisiana. This action seeks a
declaratory judgment that the agreements between the Company and Mr. Hebert are
not enforceable against Fluid Sciences, L.L.C as a matter of Louisiana's public
policy and laws. In addition the action seeks judgment that the Company's
efforts to enforce its agreements with Mr. Hebert are in restrain of trade and
constitute unfair competition entitling Fluid Sciences, L.L.C. to injunctive
relief and damages.

On or about May 27, 2003, a second action was commenced in the United
States District Court for the Western District of Louisiana, entitled Fluid
Sciences, L.L.C. v. United Energy Corp. and Nor Industries, Inc. The complaint
in this action alleges that Fluid Sciences is entitled to a declaratory judgment
that its products do not infringe the patents of the Company.

The Company and its subsidiary intend vigorously to defend the two actions
brought by Fluid Sciences, L.L.C.

Sales Commission Claim
----------------------

F-16

Company's products made by plaintiffs. The complaint seeks an accounting ,
compensatory damages in the amount of all unpaid commissions plus interest
thereon, punitive damages in an amount treble the compensatory damages, plus
legal fees and costs. Plaintiffs maintain that they are entitled to receive an
aggregate of approximately $350,000 in compensatory and punitive damages,
interest and costs. The action is presently listed on the trial docket for July
1, 2003. It is likely that the trial of the action will not take place as
scheduled. The Company believes it has meritorious defenses to the claims
asserted in the action and intends vigorously to defend the case.

SMK Industries, Inc. v. Nor Graphics, Inc.
------------------------------------------

In its 10K for the fiscal year ended March 31, 2002, the Company reported with
respect to an action commenced against it in 1997 by SMK Industries seeking
damages for breach of contract of approximately $120,000. On June 18, 2003, the
Company and plaintiff have reached an agreement to settle and discontinue the
lawsuit. In the settlement, the Company will pay an aggregate of $75,000 in
three installments, which was accrued for in the accompanying financial
statements.

NEW MANAGEMENT

As part of the private financing transaction, the Company began the process of
identifying and making employment offers to a new management team to focus on
the sales and marketing of KH-30 and other products. Three of four of the new
management team have accepted employment starting in May 2002. Each of these
executives has employment agreements with terms from one to three years. These
agreements provide, among other things, for annual base salaries and bonuses
totaling $262,000, $262,000 and $35,000 in fiscal, 2004, 2005 and 2006.

LEASE COMMITMENTS

The Company leases office facilities, equipment and autos under operating leases
expiring on various dates through 2007. Certain leases contain renewal options.
The following is a schedule by years, of future minimum lease payments under
operating leases having remaining terms in excess of one year as of March 31,
2003.

Operating
Year Leases
---- ----------
2004 $103,346
2005 100,987
2006 97,114
2007 88,110
Thereafter 21,600
----------
Total minimum lease payments $411,157
==========

The expenses for all operating leases were $120,214, $107,304, and $105,466 for
the years ended March 31, 2003, 2002 and 2001, respectively.

7. STOCKHOLDER'S EQUITY

On May 14, 2002, the Company issued, in a private placement, an aggregate
of 6,000,000 shares of its common stock at an aggregate price of $6,000,000. In
connection with the common stock issuance, the Company issued warrants to
purchase 3,000,000 of the Company's common stock at an exercise price of $2 per
share exercisable for a five year period. The Company incurred $484,000 in
issuance expenses in connection with the financing. In addition, the Company
issued 750,000 additional warrants to purchase 750,000 of the Company's common
stock at an exercise price of $0.60 per share with a five year term but not
exercisable during the first two years from the grant date for relinquishing
rights of immediate exercise of 500,000 warrants issued in connection with the
private placement.

F-17

During year ended March 31, 2002, the Company issued an aggregate of
100,000 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.

Until December 31, 2001, the CEO and CFO provided services to the Company
for which they had not received any compensation. The financial statements
through that date reflect a charge and associated credit to shareholders' equity
reflecting the fair value of such contributed services. Both these individuals
received option and/or cash compensation commencing in the fourth quarter and
accordingly the Company ceased reflecting the value of contributed services as
of January 1, 2002

8. INCOME TAXES

Deferred income taxes are provided for the temporary difference between the
financial reporting basis and tax basis of the Company's assets and liabilities
including those assets and liabilities recorded in connection with acquisitions.
Deferred tax assets and liabilities result principally from recording certain
expenses or income in the financial statements in a different period from
recognition for income tax purposes. As of March 31, 2003, the Company had a net
operating loss carryforward for tax purposes of approximately $6,000,000, which
is available to reduce its future taxable income and expires at various dates
through 2023. A full valuation allowance has been established against the
deferred tax assets, which are mainly related to the net loss carryforward, 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.

Utilization of the net operating loss carryforwards may be subject to a
substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code and similar state provisions. The annual limitation
may result in the expiration of net operating loss carryforwards before
utilization.

9. EMPLOYEE BENEFITS PLAN

Stock Option Plans

In August, 2001, the Company's stockholders approved, the 2001 Equity
Incentive Plan (the "2001 Plan"), which provides for the grant of stock options
to purchase up to 2,000,000 shares of common stock to any employee, non-employee
director, or consultant at the Board's discretion. Under the 2001 Plan, these
options may be exercised for a period up to ten years from the date of grant.
Options issued to employees are exercisable upon vesting, which can range
between the date of the grant to up to 5 years.

An amendment and restatement of the 2001 Equity Incentive Plan increasing
the number of shares for a total of 4,000,000 was approved by the Board of
Directors on May 29, 2002 and was approved by the shareholders at the annual
meeting.

Under the 2001 Plan, options are granted to non-employee directors upon
election at the annual meeting of stockholders at a purchase price equal to the
fair market value on the date of grant. In addition, the non-employee director
stock options shall be exercisable in full twelve months after the date of grant
unless determined otherwise by the compensation committee.

F-18

There were 2,664,980 options available for future grant at March 31, 2003
under the equity incentive plan. The company issues options from time to time
outside the plan described above. As of March 31, 2003 there were 1,110,000 non-
plan options granted.

Fair Value of Stock Options

For disclosure purposes under SFAS No. 123, the fair value of each option
grant is estimated on the date of grant using the Black-Scholes option valuation
model with the following weighted-average assumptions:

2003 2002
---- ----
Expected life (in years)....................... 10 7
Risk-free interest rate........................ 4.73% 5.39%
Volatility..................................... 105.45 100.60
Dividend yield................................. 0% 0%

Utilizing these assumptions, the weighted average fair value of options granted
with an exercise price equal to their fair market value at the date of the grant
is $ 1.78 and $0.94 for the years ended March 31, 2003 and 2002, respectively.

Summary Stock Option Activity

The following table summarizes stock option information with respect to all
stock options for the year ended March 31, 2003 and 2002:

WEIGHTED
WEIGHTED AVERAGE
NUMBER AVERAGE REMAINING
OF EXERCISE CONTRACTUAL
SHARES PRICE LIFE (YEARS)
------ ----- ------------

Options outstanding, April 1, 2001....................... - -
Granted......................................... 1,110,000 $1.10
--------- -----
Options outstanding March 31, 2002....................... 1,110,000 $1.10
Granted......................................... 2,142,500 $1.70
Cancelled....................................... (807,480) $1.90
---------- -----
Options outstanding March 31, 2003....................... 2,445,020 $1.38 9.10
========= ===== ====

As of March 31, 2003 there were 1,701,270 options exercisable with weighted
average exercise price of $1.20 per share. Options outstanding at March 31, 2003
have an exercise price ranging between $0.70 to $2.05.

10. 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.

F-19

The Company's total revenues, income from operations and identifiable assets by
segment for the year ended March 31, 2003, are as follows:

GRAPHIC SPECIALTY
ARTS CHEMICALS CORPORATE TOTAL
---- --------- --------- -----

Revenues ....................................... $ 1,700,738 $ 531,888 $ -- $ 2,232,626
============== ============= ===========

Gross profit..................................... $ 604,503 $ 295,332 $ -- $ 899,835
Sales, general and administrative expenses....... 203,921 1,902,206 1,521,856 3,627,983
Depreciation and amortization.................... -- 72,490 10,991 83,481
Interest expense (income)........................ 1,748 -- (59,377) (57,629)
Legal settlement................................. -- -- 75,000 75,000
-------------- ------------- ------------ -----------
Income (loss) from continuing operations......... $ 398,834 $ ( 1,679,364) $ 1,548,470) $(2,829,000)
============== ============= =========== ===========

Cash and cash equivalents........................ $ -- $ -- $ 2,120,942 $ 2,120,942
Accounts receivable.............................. 449,046 47,669 -- 496,715
Inventory........................................ 62,669 148,675 -- 211,344
Note receivable.................................. 149,034 -- -- 149,034
Loan receivable.................................. -- 2,076 2,076
Prepaid expenses................................. -- -- 104,527 104,527
Fixed assets..................................... -- 221,116 47,481 268,597
Goodwill ........................................ -- 68,819 -- 68,819

Patent ........................................ -- 229,508 -- 229,508
Deposits ........................................ -- 30,000 1,385 31,385
-------------- ------------- -----------
Total assets..................................... $ 660,749 $ 745,787 2,276,411 $ 3,682,947
============== ============= =========== ===========

The Company's total revenues, income from operations and identifiable assets by
segment for the year ended March 31, 2002, are as follows:

GRAPHIC SPECIALTY
ARTS CHEMICALS CORPORATE TOTAL

Revenues ....................................... $ 1,061,317 $ 26,534 $ -- $ 1,387,851
============== ============= ============ ===========

Gross profit..................................... $ 496,385 $ 135,075 $ -- $ 631,460
Sales, general and administrative expenses....... 241,097 274,802 1,247,547 1,763,446
Depreciation and amortization.................... -- 19,053 978 20,031
Interest expense (income)........................ 6,200 -- (1,792) 4,408
Legal settlement................................. -- 20,651 -- 20,651
Executive services contributed by management..... -- -- 187,500 187,500
-------------- ------------- ----------- -----------
Income (loss) from continuing operations......... $ 249,088 $( 179,431) $ 1,434,233) $(1,364,576)
============== ============= =========== ===========

Cash and cash equivalents........................ $ -- $ -- $ 198,412 $ 198,412
Accounts receivable.............................. 162,961 55,143 -- 218,104
Inventory........................................ 182,046 105,811 -- 287,857
Prepaid offering costs........................... -- -- 117,127 117,127
Fixed assets..................................... -- -- 16,883 16,883
Goodwill ........................................ -- 68,819 -- 68,819
Patent ........................................ -- 128,908 -- 128,908
Other assets..................................... -- -- 1,862 1,862
------------- ------------- ----------- -----------
Total assets..................................... $ 345,007 $ 358,681 334,284 $ 1,037,972
============== ============= =========== ===========

The Company's total revenues and loss from operations by segment for the year
ended March 31, 2001, are as follows:

F-20

GRAPHIC SPECIALTY
ARTS CHEMICALS CORPORATE TOTAL
---- --------- --------- -----

Revenues......................................... $ 3,190,824 $ 292,091 $ -- $ 3,482,915
============== ============= =========== ===========

Gross profit .................................... $ 1,027,922 $ 129,341 $ -- $ 1,157,263
Sales, general and administrative expenses ...... 216,076 210,211 626,503 1,052,790
Depreciation and amortization .................. -- 15,095 1,477 16,572
Interest expense (income) ....................... 11,817 -- (1,581) 10,236
Legal settlement................................. -- -- 231,981 231,981
Executive services contributed by management..... -- -- 250,000 250,000
-------------- ------------- ------------

Income (loss) from continuing operations......... $ 800,029 $ ( 95,965) $(1,108,380) $ (404,316)
============== ============= =========== ============

11. SUBSEQUENT EVENT FOOTNOTE

On April 4, 2003 the Company purchased oil leases for six oil wells located in
Laramie County, Wyoming for an aggregate purchase price of $ 95,216. The Company
intends to operate the oil wells and use the oil wells to test the Company's
products.

F-21

SCHEDULE II

UNITED ENERGY CORP.
SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS

BALANCE AT CHARGED BALANCE AT
BEGINNING TO COSTS AND BALANCE AT
OF YEAR EXPENSES DEDUCTIONS END OF YEAR
------- -------- ---------- -----------

For the fiscal year ended March 31, 2003:

Allowance for doubtful accounts......... $ 4,795 $ 48,113 $ 4,795 $ 48,113
------------- ------------- ---------------- -------------
Reserve for Note Receivable............. $ -- $ 30,000 $ -- $ 30,000
------------- ------------- ------------- -------------

For the fiscal year ended March 31, 2002:

Allowance for doubtful accounts......... $ 71,656 $ 4,795 $ 71,656 $ 4,795
------------- ------------- ------------- -------------

For the fiscal year ended March 31, 2001:

Allowance for doubtful accounts......... $ 18,260 $ 53,396 $ -- $ 71,656
------------- ------------- ------------- -------------

For the fiscal year ended March 31, 2003:

Reserve for inventory obsolescence...... $ 16,290 $ -- $ -- $ 16,290
------------ ------------- ------------- -------------

For the fiscal year ended March 31, 2002:

Reserve for inventory obsolescence...... $ -- 16,290 $ -- $ 16,290
------------- ------------- ------------- -------------

S-1