UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington,
D.C. 20549



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Form 10-QSB(Mark One)

|                                                    |                                                                                     
|--------------------------------------------------- | ------------------------------------------------------------------------------------
|þ                                                   | QUARTERLY REPORT UNDER SECTION 13
  OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|                                                    |                                                                                     
|For the quarterly period ended September
  30, 2006
|                                                    |                                                                                     
|o                                                   | TRANSITION REPORT UNDER SECTION 13
  OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|                                                    |                                                                                     
|                                                    | For the transition period from ________ to __________                               

Commission File No. 000-30841



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UNITED ENERGY CORP.

(Exact name of small business issuer as
specified in its charter)

|                                                                 |  |                                     
|---------------------------------------------------------------- |  | ------------------------------------
|Nevada                                                           |  | 22-3342379                          
|(State or other jurisdiction of
  incorporation or organization) |  | (I.R.S. Employer Identification No.)

|                                                    
|----------------------------------------------------
|600 Meadowlands Parkway #20, Secaucus,
  N.J.  07094
|(Address of principal executive offices)            
|                                                    
|(800) 327-3456                                      
|(Issuers telephone number, including area
  code)  

Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.þ Yeso
No

Indicate
by check mark whether the registrant is a shell company (as defined in rule
12b-2 of the Exchange Act.  YesoNoþ

As
of the close of business on November 13, 2006, 31,030,115 shares of common
stock, par value $.01 per share, were outstanding.

Transitional
Small Business Disclosure Format (check one) YesoNoþ

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INDEX

|                              |                                                                                                                                       |  |      
|----------------------------- | ------------------------------------------------------------------------------------------------------------------------------------- |  | -----
|PART I. FINANCIAL INFORMATION |                                                                                                                                       | 
|                              |                                                                                                                                       | 
|Item 1.                       | Financial Statements                                                                                                                  |  |      
|                              |                                                                                                                                       |  |      
|                              | Consolidated balance sheets September 30, 2006 (Unaudited) and March
  31, 2006                                                       |  | 3-4  
|                              |                                                                                                                                       |  |      
|                              | Consolidated statements of operations for the three months and six
  months ended September 30, 2006 (Unaudited) and 2005 (Unaudited) |  | 5    
|                              |                                                                                                                                       |  |      
|                              | Consolidated statement of stockholders equity for the six months
  ended September 30, 2006 (Unaudited)                              |  | 6    
|                              |                                                                                                                                       |  |      
|                              | Consolidated statements of cash flows for the six months ended
  September 30, 2006 (Unaudited) and 2005 (Unaudited)                  |  | 7-8  
|                              |                                                                                                                                       |  |      
|                              | Notes to consolidated financial statements                                                                                            |  | 9-15 
|                              |                                                                                                                                       |  |      
|Item 2.                       | Managements Discussion and Analysis or Plan of Operation                                                                             |  | 16-20
|                              |                                                                                                                                       |  |      
|Item 3                        | Controls and Procedures                                                                                                               |  | 21   
|                              |                                                                                                                                       |  |      
|PART II. OTHER INFORMATION    |                                                                                                                                       | 
|                              |                                                                                                                                       | 
|Item 6.                       | Exhibits                                                                                                                              |  | 22   
|                              |                                                                                                                                       |  |      
|Signatures                    |                                                                                                                                       |  | 23   

2

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Item 1. Financial
Statements

UNITED ENERGY CORP.  AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2006 AND MARCH 31, 2006

|                                                                                                                 |  |                      |           |                  |   |           | 
|---------------------------------------------------------------------------------------------------------------- |  | -------------------- | --------- | ---------------- | - | --------- | 
|                                                                                                                 |  | September 30,
  2006 |           | March 31,
  2006 |  
|                                                                                                                 |  |                      |           |                  |  
|                                                                                                                 |  | (Unaudited)          |           |                  |  
|                                                                                                                 |  |                      |           |                  |  
|                                                                                                                 |  |                      |           |                  |  
|ASSETS                                                                                                           |  |                      |           |                  |   |           | 
|                                                                                                                 |  |                      |           |                  |   |           | 
|CURRENT ASSETS:                                                                                                  |  |                      |           |                  |   |           | 
|Cash and cash equivalents                                                                                        |  | $                    | 3,814,794 |                  | $ | 5,194,748 | 
|Accounts receivable, net of allowance for
  doubtful accounts of $9,512 and $5,018, respectively                 |  |                      | 234,670   |                  |   | 91,557    | 
|Inventory, net of allowance of $16,290 and
  $16,290, respectively                                               |  |                      | 136,392   |                  |   | 106,957   | 
|Note receivable, net of allowance for
  doubtful accounts of $10,525 and $10,525, respectively                   |  |                      | 9,476     |                  |   | 19,476    | 
|Prepaid expenses and other current assets                                                                        |  |                      | 49,368    |                  |   | 84,657    | 
|                                                                                                                 |  |                      |           |                  |   |           | 
|Total current assets                                                                                             |  |                      | 4,244,700 |                  |   | 5,497,395 | 
|                                                                                                                 |  |                      |           |                  |   |           | 
|PROPERTY AND EQUIPMENT, net of accumulated
  depreciation and amortization of $404,204 and $373,080 respectively |  |                      | 117,895   |                  |   | 146,994   | 
|                                                                                                                 |  |                      |           |                  |   |           | 
|OTHER ASSETS:                                                                                                    |  |                      |           |                  |   |           | 
|Goodwill, net                                                                                                    |  |                      | 15,499    |                  |   | 15,499    | 
|Patents, net of accumulated amortization of
  $134,705 and $119,794, respectively                                |  |                      | 312,661   |                  |   | 327,572   | 
|Loans receivable                                                                                                 |  |                      | 2,750     |                  |   | 364       | 
|Deposits                                                                                                         |  |                      | 1,385     |                  |   | 1,385     | 
|                                                                                                                 |  |                      |           |                  |   |           | 
|Total assets                                                                                                     |  | $                    | 4,694,890 |                  | $ | 5,989,209 | 
|                                                                                                                 |  |                      |           |                  |   |           | 

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

3

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UNITED ENERGY CORP.  AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2006 AND MARCH 31, 2006

|                                                                                                                                                                     |  |                      |             |                  |   |             |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------- | ----------- | ---------------- | - | ----------- | -
|                                                                                                                                                                     |  | September 30,
  2006 |             | March 31,
  2006 |  
|                                                                                                                                                                     |  |                      |             |                  |  
|                                                                                                                                                                     |  | (Unaudited)          |             |                  |  
|                                                                                                                                                                     |  |                      |             |                  |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                 |  |                      |             |                  |   |             |  
|                                                                                                                                                                     |  |                      |             |                  |   |             |  
|CURRENT LIABILITIES:                                                                                                                                                 |  |                      |             |                  |   |             |  
|Accounts payable                                                                                                                                                     |  | $                    | 174,241     |                  | $ | 279,303     |  
|Accrued expenses                                                                                                                                                     |  |                      | 75,441      |                  |   | 134,286     |  
|Due to related parties                                                                                                                                               |  |                      | 244,141     |                  |   | 444,141     |  
|                                                                                                                                                                     |  |                      |             |                  |   |             |  
|Total current liabilities                                                                                                                                            |  |                      | 493,823     |                  |   | 857,730     |  
|                                                                                                                                                                     |  |                      |             |                  |   |             |  
|                                                                                                                                                                     |  |                      |             |                  |   |             |  
|STOCKHOLDERS EQUITY:                                                                                                                                                |  |                      |             |                  |   |             |  
|Series A Convertible Preferred Stock:
  $8,000 stated value, 420 shares authorized; 3 shares issued and outstanding as of
  September 30 2006 and March 31, 2006     |  |                      | 24,000      |                  |   | 24,000      |  
|Common stock: $0.01 par value 100,000,000
  shares authorized; 31,030,115 and 31,017,615 shares issued and outstanding as
  of September 30, 2006 and March 31, 2006 |  |                      | 310,301     |                  |   | 310,176     |  
|Additional paid-in capital                                                                                                                                           |  |                      | 28,221,841  |                  |   | 28,031,915  |  
|Accumulated deficit                                                                                                                                                  |  |                      | (24,355,075 | )                |   | (23,234,612 | )
|                                                                                                                                                                     |  |                      |             |                  |   |             |  
|Total stockholders equity                                                                                                                                           |  |                      | 4,201,067   |                  |   | 5,131,479   |  
|                                                                                                                                                                     |  |                      |             |                  |   |             |  
|Total liabilities and stockholders
equity                                                                                                                           |  | $                    | 4,694,890   |                  | $ | 5,989,209   |  
|                                                                                                                                                                     |  |                      |             |                  |   |             |  

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

4

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UNITED ENERGY CORP. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS

|                                                                    |  |                                            |            |                                          |   |             |   |             |            |   |   |            |  
|------------------------------------------------------------------- |  | ------------------------------------------ | ---------- | ---------------------------------------- | - | ----------- | - | ----------- | ---------- | - | - | ---------- | -
|                                                                    |  | For the Three Months
  Ended September 30, |            | For the Six Months
  Ended September 30, |  
|                                                                    |  | 2006                                       |            | 2005                                     |   | 2006        |   | 2005        |           
|                                                                    |  |                                            |            |                                          |   |             |   |             |           
|                                                                    |  | (Unaudited)                                |            | (Unaudited)                              |   | (Unaudited) |   | (Unaudited) |           
|                                                                    |  |                                            |            |                                          |   |             |   |             |            |   |   |            |  
|REVENUES, net                                                       |  | $                                          | 299,285    |                                          | $ | 88,465      |   | $           | 524,352    |   | $ | 165,075    |  
|                                                                    |  |                                            |            |                                          |   |             |   |             |            |   |   |            |  
|COST OF GOODS SOLD                                                  |  |                                            | 107,181    |                                          |   | 75,082      |   |             | 209,257    |   |   | 136,799    |  
|                                                                    |  |                                            |            |                                          |   |             |   |             |            |   |   |            |  
|                                                                    |  |                                            |            |                                          |   |             |   |             |            |   |   |            |  
|Gross profit                                                        |  |                                            | 192,104    |                                          |   | 13,383      |   |             | 315,095    |   |   | 28,276     |  
|                                                                    |  |                                            |            |                                          |   |             |   |             |            |   |   |            |  
|                                                                    |  |                                            |            |                                          |   |             |   |             |            |   |   |            |  
|OPERATING EXPENSES:                                                 |  |                                            |            |                                          |   |             |   |             |            |   |   |            |  
|Selling, general and administrative                                 |  |                                            | 773,913    |                                          |   | 1,071,941   |   |             | 1,489,613  |   |   | 1,793,363  |  
|Depreciation and amortization                                       |  |                                            | 18,770     |                                          |   | 17,415      |   |             | 37,408     |   |   | 34,660     |  
|                                                                    |  |                                            |            |                                          |   |             |   |             |            |   |   |            |  
|Total operating expenses                                            |  |                                            | 792,683    |                                          |   | 1,089,356   |   |             | 1,527,021  |   |   | 1,828,023  |  
|                                                                    |  |                                            |            |                                          |   |             |   |             |            |   |   |            |  
|                                                                    |  |                                            |            |                                          |   |             |   |             |            |   |   |            |  
|Loss from operations                                                |  |                                            | (600,579   | )                                        |   | (1,075,973  | ) |             | (1,211,926 | ) |   | (1,799,747 | )
|                                                                    |  |                                            |            |                                          |   |             |   |             |            |   |   |            |  
|                                                                    |  |                                            |            |                                          |   |             |   |             |            |   |   |            |  
|OTHER INCOME (EXPENSE), net:                                        |  |                                            |            |                                          |   |             |   |             |            |   |   |            |  
|Interest income                                                     |  |                                            | 48,950     |                                          |   | 13          |   |             | 93,498     |   |   | 23         |  
|Interest expense                                                    |  |                                            | (374       | )                                        |   | (485,594    | ) |             | (1,229     | ) |   | (576,168   | )
|                                                                    |  |                                            |            |                                          |   |             |   |             |            |   |   |            |  
|Total other income (expense), net                                   |  |                                            | 48,576     |                                          |   | (485,581    | ) |             | 92,269     |   |   | (576,145   | )
|                                                                    |  |                                            |            |                                          |   |             |   |             |            |   |   |            |  
|                                                                    |  |                                            |            |                                          |   |             |   |             |            |   |   |            |  
|Net loss                                                            |  |                                            | (552,003   | )                                        |   | (1,561,554  | ) |             | (1,119,657 | ) |   | (2,375,892 | )
|                                                                    |  |                                            |            |                                          |   |             |   |             |            |   |   |            |  
|Preferred dividends                                                 |  |                                            | (360       | )                                        |   |            |   |             | (806       | ) |   |           |  
|                                                                    |  |                                            |            |                                          |   |             |   |             |            |   |   |            |  
|                                                                    |  |                                            |            |                                          |   |             |   |             |            |   |   |            |  
|Net loss applicable to common
shareholders                          |  | $                                          | (552,363   | )                                        | $ | (1,561,554  | ) | $           | (1,120,463 | ) | $ | (2,375,892 | )
|                                                                    |  |                                            |            |                                          |   |             |   |             |            |   |   |            |  
|                                                                    |  |                                            |            |                                          |   |             |   |             |            |   |   |            |  
|BASIC AND DILUTED LOSS PER SHARE:                                   |  |                                            |            |                                          |   |             |   |             |            |   |   |            |  
|Total basic and diluted loss per share                              |  | $                                          | (0.02      | )                                        | $ | (0.06       | ) | $           | (0.04      | ) | $ | (0.10      | )
|                                                                    |  |                                            |            |                                          |   |             |   |             |            |   |   |            |  
|                                                                    |  |                                            |            |                                          |   |             |   |             |            |   |   |            |  
|WEIGHTED AVERAGE NUMBER OF SHARES,
  OUTSTANDING, basic and diluted |  |                                            | 31,030,115 |                                          |   | 25,047,652  |   |             | 31,028,544 |   |   | 24,292,710 |  
|                                                                    |  |                                            |            |                                          |   |             |   |             |            |   |   |            |  

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

5

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UNITED ENERGY CORP. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2006 (UNAUDITED)

|                                               |  |              |            |                   |  |                                |  |                       |        |  |   |            |  |   |             |   |   |            |  
|---------------------------------------------- |  | ------------ | ---------- | ----------------- |  | ------------------------------ |  | --------------------- | ------ |  | - | ---------- |  | - | ----------- | - | - | ---------- | -
|                                               |  | Common Stock |            | Preferred
  Stock |  | Additional
  Paid-In
  Capital |  | Accumulated
  Deficit |        |  |  
|                                               |  |              |            |                   |  |                                |  |                      
|                                               |  | Shares       |            | Amount            |  |                                |  |                       | Total  | 
|                                               |  |              |            |                   |  |                                |  |                       |        |  |   |            | 
|                                               |  |              |            |                   |  |                                |  |                       |        |  |   |            | 
|BALANCE, April 1, 2006                         |  |              | 31,017,615 |                   |  | 310,176                        |  | $                     | 24,000 |  | $ | 28,031,915 |  | $ | (23,234,612 | ) | $ | 5,131,479  |  
|Exercise of stock options                      |  |              | 12,500     |                   |  | 125                            |  |                       |       |  |   | 13,750     |  |   |            |   |   | 13,875     |  
|Compensation expense associated with options   |  |              |           |                   |  |                               |  |                       |       |  |   | 176,176    |  |   |            |   |   | 176,176    |  
|Dividends paid and accrued on preferred shares |  |              |           |                   |  |                               |  |                       |       |  |   |           |  |   | (806        | ) |   | (806       | )
|Net loss                                       |  |              |           |                   |  |                               |  |                       |       |  |   |           |  |   | (1,119,657  | ) |   | (1,119,657 | )
|                                               |  |              |            |                   |  |                                |  |                       |        |  |   |            |  |   |             |   |   |            |  
|BALANCE, September 30, 2006                    |  |              | 31,030,115 |                   |  | 310,301                        |  | $                     | 24,000 |  | $ | 28,221,841 |  | $ | (24,355,075 | ) | $ | 4,201,067  |  
|                                               |  |              |            |                   |  |                                |  |                       |        |  |   |            |  |   |             |   |   |            |  

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

6

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UNITED ENERGY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2006 AND 2005

|                                                                             |  |             |            |      |   |            |  
|---------------------------------------------------------------------------- |  | ----------- | ---------- | ---- | - | ---------- | -
|                                                                             |  | 2006        |            | 2005 |  
|                                                                             |  |             |            |      |  
|                                                                             |  | (Unaudited) |           
|CASH FLOWS FROM OPERATING ACTIVITIES:                                        |  |             |            |      |   |            |  
|Net loss                                                                     |  | $           | (1,120,463 | )    | $ | (2,375,892 | )
|                                                                             |  |             |            |      |   |            |  
|                                                                             |  |             |            |      |   |            |  
|Adjustments to reconcile net loss to net
  cash used in operating activities |  |             |            |      |   |            |  
|Depreciation and amortization                                                |  |             | 46,035     |      |   | 597,340    |  
|Warrants granted in consideration for
  services                             |  |             |           |      |   | 129,720    |  
|Stock granted in consideration for interest
  expense                        |  |             |           |      |   | 492        |  
|Compensation expense associated with
  options                               |  |             | 176,176    |      |   | 387,000    |  
|                                                                             |  |             |            |      |   |            |  
|CHANGES IN OPERATING ASSETS AND LIABILITIES                                  |  |             |            |      |   |            |  
|(Increase) decrease in accounts receivable, net                              |  |             | (143,113   | )    |   | 715,464    |  
|Increase in inventory, net                                                   |  |             | (29,435    | )    |   | (60,176    | )
|Decrease in note receivable, net                                             |  |             | 10,000     |      |   | 15,000     |  
|Decrease in prepaid expenses and other
  current assets                      |  |             | 35,289     |      |   | 67,068     |  
|(Decrease) increase in accounts payable and
  accrued expenses               |  |             | (163,907   | )    |   | 71,506     |  
|Increase in employee loans                                                   |  |             | (2,386     | )    |   | (163       | )
|                                                                             |  |             |            |      |   |            |  
|                                                                             |  |             |            |      |   |            |  
|Net cash used in operating activities                                        |  |             | (1,191,804 | )    |   | (452,641   | )
|                                                                             |  |             |            |      |   |            |  
|                                                                             |  |             |            |      |   |            |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                        |  |             |            |      |   |            |  
|Payments for acquisition of property and
  equipment                         |  |             | (2,025     | )    |   | (9,116     | )
|Payments for patents                                                         |  |             |           |      |   | (23,676    | )
|                                                                             |  |             |            |      |   |            |  
|                                                                             |  |             |            |      |   |            |  
|Cash used in investing activities                                            |  |             | (2,025     | )    |   | (32,792    | )
|                                                                             |  |             |            |      |   |            |  
|                                                                             |  |             |            |      |   |            |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                        |  |             |            |      |   |            |  
|Proceeds from related party                                                  |  |             |           |      |   | 200,000    |  
|Payments of related party payable                                            |  |             | (200,000   | )    |   | (133,600   | )
|Proceeds from the exercise of stock
options                                  |  |             | 13,875     |      |   | 172,500    |  
|Proceeds from the issuance of common
stock                                   |  |             |           |      |   | 80,000     |  
|Proceeds from stock subscription
receivable                                  |  |             |           |      |   | 13,333     |  
|                                                                             |  |             |            |      |   |            |  
|                                                                             |  |             |            |      |   |            |  
|Net cash (used in) provided by financing
  activities                        |  |             | (186,125   | )    |   | 332,233    |  
|                                                                             |  |             |            |      |   |            |  
|                                                                             |  |             |            |      |   |            |  
|Net decrease in cash and cash equivalents                                    |  |             | (1,379,954 | )    |   | (153,200   | )
|                                                                             |  |             |            |      |   |            |  
|CASH AND CASH EQUIVALENTS, beginning of
  period                             |  |             | 5,194,748  |      |   | 365,610    |  
|                                                                             |  |             |            |      |   |            |  
|                                                                             |  |             |            |      |   |            |  
|CASH AND CASH EQUIVALENTS, end of period                                     |  | $           | 3,814,794  |      | $ | 212,410    |  
|                                                                             |  |             |            |      |   |            |  

7

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UNITED ENERGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2006 AND 2005

|                                                                           |  |             |       |      |   |           | 
|-------------------------------------------------------------------------- |  | ----------- | ----- | ---- | - | --------- | 
|                                                                           |  | 2006        |       | 2005 |  
|                                                                           |  |             |       |      |  
|                                                                           |  | (Unaudited) |      
|                                                                           |  |             |      
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW
  INFORMATION:                       |  |             |       |      |   |           | 
|                                                                           |  |             |       |      |   |           | 
|Cash paid during the period                                                |  |             |       |      |   |           | 
|Interest                                                                   |  | $           | 1,229 |      | $ | 1,070     | 
|Income taxes                                                               |  | $           | 1,000 |      | $ | 1,434     | 
|                                                                           |  |             |       |      |   |           | 
|SUPPLEMENTAL DISCLOSURES OF NON-CASH
  INVESTING AND FINANCING ACTIVITIES: |  |             |       |      |   |           | 
|Conversion of note payable into common
  stock                             |  | $           |      |      | $ | 1,600,000 | 

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

8

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UNITED ENERGY CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
SEPTEMBER 30, 2006 (Unaudited)

1. BASIS OF PRESENTATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The
accompanying unaudited consolidated financial statements of United Energy Corp.
(the Company) have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-QSB of Regulation S-B. Accordingly, they do not include
all of the information and notes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, the
unaudited interim financial statements furnished herein include all adjustments
necessary for a fair presentation of the Companys financial position at
September 30, 2006 (unaudited) and the results of its operations for the three
months and six months ended September 30, 2006 and 2005 (unaudited) and cash
flows for the six months ended September 30, 2006 and 2005 (unaudited). All
such adjustments are of a normal and recurring nature. Interim financial
statements are prepared on a basis consistent with the Companys annual
financial statements. Results of operations for the three months and six months
ended September 30, 2006 are not necessarily indicative of the operating
results that may be expected for the year ending March 31, 2007.

The
consolidated balance sheet as of March 31, 2006 has been derived from the
audited financial statements at that date but does not include all of the
information and notes required by accounting principles generally accepted in
the United States for complete financial statements.

For
further information, refer to the consolidated financial statements and notes
thereto included in the Companys Annual Report on Form 10-KSB for the fiscal
year ended March 31, 2006.

The
Company currently anticipates that its available cash on 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.

Our
continued existence is dependent upon several factors, including increased
sales volumes, collection of existing receivables and the ability to achieve
profitability from the sale of our product lines. In order to increase our cash
flow, we are continuing our efforts to stimulate sales and cut back expenses
not directly supporting our sales and marketing efforts.

Stock-Based Compensation

Effective
January 1, 2006, the Company adopted the fair value recognition provision of
Statement of Financial Standards (SFAS) No. 123 (revised 2004), Shared-based Payments, (SFAS 123(R))
using the modified prospective transition method and therefore has not restated
results for prior periods. Under this transition method, stock based
compensation expense for the second quarter of fiscal year 2007 includes
compensation expense for all stock-based compensation awards granted prior to,
but not yet vested as of January 1, 2006, based on the grant date fair value
estimated in accordance with the original provision of SFAS No. 123, Accounting for Stock-Based Compensation
(SFAS 123). Stock-based compensation expense for all stock-based compensation
awards granted after January 1, 2006 is based on the grant-date fair value
estimated in accordance with the provisions of SFAS 123(R).

9

---



UNITED ENERGY CORP. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

At
September 30, 2006, the Company has stock based compensation plans. As
permitted by SFAS No.123, Accounting for Stock Based Compensation, the Company
accounted 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 through December 31, 2005. On January
1, 2006, the Company adopted SFAS No. 123(R), which requires public entities to
record noncash compensation expense related to payment for employee services by
an equity award, such as stock options. Compensation 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. As
a result of adopting SFAS 123(R), net loss for the six months ended September
30, 2006 was higher by $100,287 than if the Company had not adopted SFAS
123(R). There was minimal impact on both the basic and diluted loss per share
for the six months ended September 30, 2006. The Company accounted 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 until the adoption of SFAS 123(R)
which does not cover non-employees. 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 $67,264 and $129,720 for the six
months ended September 30, 2006 and 2005, respectively.

2. USE OF ESTIMATES

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

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

10

---



UNITED ENERGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

3. SEGMENT INFORMATION

Under
the provision of SFAS No. 131, the Companys activities fall within two
operating segments: Graphic Arts and Specialty Chemicals. The following tables
set forth the Companys industry segment information for the three months and
six months ended September 30, 2006 and 2005.

The
Companys total revenues and net income (loss) by segment for the three month
period ended September 30, 2006 and identifiable assets as of September 30,
2006 are as follows:

|                                      |  |              |        |                        |   |           |   |       |           |   |   |           |  
|------------------------------------- |  | ------------ | ------ | ---------------------- | - | --------- | - | ----- | --------- | - | - | --------- | -
|                                      |  | Graphic Arts |        | Specialty 
  Chemicals |   | Corporate |   | Total |          
|                                      |  |              |        |                        |   |           |   |       |          
|Revenues                              |  | $            | 271    |                        | $ | 299,014   |   | $     |          |   | $ | 299,285   |  
|                                      |  |              |        |                        |   |           |   |       |           |   |   |           |  
|Gross profit                          |  | $            | 9      |                        | $ | 192,095   |   | $     |          |   | $ | 192,104   |  
|Selling,
  general and administrative |  |              |       |                        |   | 408,234   |   |       | 365,679   |   |   | 773,913   |  
|Depreciation
  and amortization       |  |              |       |                        |   | 17,117    |   |       | 1,653     |   |   | 18,770    |  
|Interest
  income                     |  |              |       |                        |   |          |   |       | 48,950    |   |   | 48,950    |  
|Interest
  expense                    |  |              |       |                        |   |          |   |       | 374       |   |   | 374       |  
|                                      |  |              |        |                        |   |           |   |       |           |   |   |           |  
|Net income (loss)                     |  | $            | 9      |                        | $ | (233,256  | ) | $     | (318,756  | ) | $ | (552,003  | )
|                                      |  |              |        |                        |   |           |   |       |           |   |   |           |  
|Cash and
  cash equivalents           |  | $            |       |                        | $ |          |   | $     | 3,814,794 |   | $ | 3,814,794 |  
|Accounts
  receivable, net            |  |              |       |                        |   | 234,670   |   |       |          |   |   | 234,670   |  
|Inventory,
  net                      |  |              | 7,545  |                        |   | 128,847   |   |       |          |   |   | 136,392   |  
|Note receivable,
  net                |  |              | 9,476  |                        |   |          |   |       |          |   |   | 9,476     |  
|Prepaid
  expenses                    |  |              |       |                        |   | 16,356    |   |       | 33,012    |   |   | 49,368    |  
|Property and
  equipment, net         |  |              |       |                        |   | 83,749    |   |       | 34,146    |   |   | 117,895   |  
|Goodwill,
  net                       |  |              |       |                        |   | 15,499    |   |       |          |   |   | 15,499    |  
|Patents, net                          |  |              |       |                        |   | 312,661   |   |       |          |   |   | 312,661   |  
|Loan
  receivable, net                |  |              |       |                        |   |          |   |       | 2,750     |   |   | 2,750     |  
|Deposits                              |  |              |       |                        |   |          |   |       | 1,385     |   |   | 1,385     |  
|                                      |  |              |        |                        |   |           |   |       |           |   |   |           |  
|Total assets                          |  | $            | 17,021 |                        | $ | 791,782   |   | $     | 3,886,087 |   | $ | 4,694,890 |  
|                                      |  |              |        |                        |   |           |   |       |           |   |   |           |  
|Capital Expenditures                  |  | $            |       |                        | $ | 2,025     |   | $     |          |   | $ | 2,025     |  
|                                      |  |              |        |                        |   |           |   |       |           |   |   |           |  

The
Companys total revenues and net loss by segment for the six month period ended
September 30, 2006, are as follows:

|                                      |  |              |         |                        |   |           |   |       |          |   |   |            |  
|------------------------------------- |  | ------------ | ------- | ---------------------- | - | --------- | - | ----- | -------- | - | - | ---------- | -
|                                      |  | Graphic Arts |         | Specialty 
  Chemicals |   | Corporate |   | Total |         
|                                      |  |              |         |                        |   |           |   |       |         
|Revenues                              |  | $            | 511     |                        | $ | 523,841   |   | $     |         |   | $ | 524,352    |  
|                                      |  |              |         |                        |   |           |   |       |          |   |   |            |  
|Gross profit                          |  | $            | 33      |                        | $ | 315,062   |   | $     |         |   | $ | 315,095    |  
|Selling,
  general and administrative |  |              | 15,968  |                        |   | 736,509   |   |       | 737,136  |   |   | 1,489,613  |  
|Depreciation
  and amortization       |  |              |        |                        |   | 34,106    |   |       | 3,302    |   |   | 37,408     |  
|Interest
  income                     |  |              |        |                        |   |          |   |       | 93,498   |   |   | 93,498     |  
|Interest
  expense                    |  |              |        |                        |   |          |   |       | 1,229    |   |   | 1,229      |  
|                                      |  |              |         |                        |   |           |   |       |          |   |   |            |  
|Net loss                              |  | $            | (15,935 | )                      | $ | (455,553  | ) | $     | (648,169 | ) | $ | (1,119,657 | )
|                                      |  |              |         |                        |   |           |   |       |          |   |   |            |  

11

---



UNITED ENERGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

The
Companys total revenues and net loss by segment for the three month period
ended September 30, 2005 and identifiable assets as of September 30, 2005 are
as follows:

|                                      |  |              |         |                        |   |           |   |       |          |   |   |            |  
|------------------------------------- |  | ------------ | ------- | ---------------------- | - | --------- | - | ----- | -------- | - | - | ---------- | -
|                                      |  | Graphic Arts |         | Specialty 
  Chemicals |   | Corporate |   | Total |         
|                                      |  |              |         |                        |   |           |   |       |         
|Revenues                              |  | $            | 211     |                        | $ | 88,254    |   | $     |         |   | $ | 88,465     |  
|                                      |  |              |         |                        |   |           |   |       |          |   |   |            |  
|Gross profit                          |  | $            | (59     | )                      | $ | 13,442    |   | $     |         |   | $ | 13,383     |  
|Selling,
  general and administrative |  |              | 44,194  |                        |   | 725,539   |   |       | 302,208  |   |   | 1,071,941  |  
|Depreciation
  and amortization       |  |              |        |                        |   | 15,083    |   |       | 2,332    |   |   | 17,415     |  
|Interest
  income                     |  |              |        |                        |   |          |   |       | 13       |   |   | 13         |  
|Interest
  expense                    |  |              |        |                        |   |          |   |       | 485,594  |   |   | 485,594    |  
|                                      |  |              |         |                        |   |           |   |       |          |   |   |            |  
|Net loss                              |  | $            | (44,253 | )                      | $ | (727,180  | ) | $     | (790,121 | ) | $ | (1,561,554 | )
|                                      |  |              |         |                        |   |           |   |       |          |   |   |            |  
|Cash and
  cash equivalents           |  | $            |        |                        | $ |          |   | $     | 212,410  |   | $ | 212,410    |  
|Accounts
  receivable, net            |  |              | 35,002  |                        |   | 32,538    |   |       |         |   |   | 67,540     |  
|Inventory,
  net                      |  |              | 68,898  |                        |   | 127,238   |   |       |         |   |   | 196,136    |  
|Note
  receivable, net                |  |              | 13,650  |                        |   |          |   |       |         |   |   | 13,650     |  
|Prepaid
  expenses                    |  |              |        |                        |   |          |   |       | 53,507   |   |   | 53,507     |  
|Property and
  equipment, net         |  |              |        |                        |   | 118,056   |   |       | 23,745   |   |   | 141,801    |  
|Goodwill,
  net                       |  |              |        |                        |   | 15,499    |   |       |         |   |   | 15,499     |  
|Patents, net                          |  |              |        |                        |   | 305,831   |   |       |         |   |   | 305,831    |  
|Loan
  receivable, net                |  |              |        |                        |   |          |   |       | 300      |   |   | 300        |  
|Deposits                              |  |              |        |                        |   |          |   |       | 1,385    |   |   | 1,385      |  
|                                      |  |              |         |                        |   |           |   |       |          |   |   |            |  
|Total assets                          |  | $            | 117,550 |                        | $ | 599,162   |   | $     | 291,347  |   | $ | 1,008,059  |  
|                                      |  |              |         |                        |   |           |   |       |          |   |   |            |  
|Capital Expenditures                  |  | $            |        |                        | $ | 9,116     |   | $     |         |   | $ | 9,116      |  
|                                      |  |              |         |                        |   |           |   |       |          |   |   |            |  

The
Companys total revenues and net loss by segment for the six month period ended
September 30, 2005, are as follows:

|                                      |  |              |         |                        |   |            |   |       |            |   |   |            |  
|------------------------------------- |  | ------------ | ------- | ---------------------- | - | ---------- | - | ----- | ---------- | - | - | ---------- | -
|                                      |  | Graphic Arts |         | Specialty 
  Chemicals |   | Corporate  |   | Total |           
|                                      |  |              |         |                        |   |            |   |       |           
|Revenues                              |  | $            | 482     |                        | $ | 164,593    |   | $     |           |   | $ | 165,075    |  
|                                      |  |              |         |                        |   |            |   |       |            |   |   |            |  
|Gross profit                          |  | $            | 212     |                        | $ | 28,064     |   | $     |           |   | $ | 28,276     |  
|Selling,
  general and administrative |  |              | 78,526  |                        |   | 1,191,983  |   |       | 522,854    |   |   | 1,793,363  |  
|Depreciation
  and amortization       |  |              |        |                        |   | 30,000     |   |       | 4,660      |   |   | 34,660     |  
|Interest
  income                     |  |              |        |                        |   |           |   |       | 23         |   |   | 23         |  
|Interest
  expense                    |  |              |        |                        |   |           |   |       | 576,168    |   |   | 576,168    |  
|                                      |  |              |         |                        |   |            |   |       |            |   |   |            |  
|Net loss                              |  | $            | (78,314 | )                      | $ | (1,193,919 | ) | $     | (1,103,659 | ) | $ | (2,375,892 | )
|                                      |  |              |         |                        |   |            |   |       |            |   |   |            |  

GEOGRAPHICAL INFORMATION

|                |  |         |         |      |   |         | 
|--------------- |  | ------- | ------- | ---- | - | ------- | 
|                |  | REVENUE |        
|                |  | 2006    |         | 2005 |  
|                |  |         |         |      |  
|                |  |         |         |      |  
|U.S.            |  | $       | 450,447 |      | $ | 165,075 | 
|Non U.S.        |  |         | 73,905  |      |   |        | 
|                |  |         |         |      |   |         | 
|Total
  revenue |  | $       | 524,352 |      | $ | 165,075 | 
|                |  |         |         |      |   |         | 

12

---



UNITED ENERGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

4. INVENTORY

Inventory consists of
the following:

|                  |  |                  |         |                  |   |         | 
|----------------- |  | ---------------- | ------- | ---------------- | - | ------- | 
|                  |  | Sept. 30,
  2006 |         | March 31,
  2006 |  
|                  |  |                  |         |                  |  
|                 
|Blended chemicals |  | $                | 90,527  |                  | $ | 68,255  | 
|Raw materials     |  |                  | 45,865  |                  |   | 38,702  | 
|                  |  |                  |         |                  |   |         | 
|Total inventory   |  | $                | 136,392 |                  | $ | 106,957 | 
|                  |  |                  |         |                  |   |         | 

5. RELATED-PARTY TRANSACTIONS

The
Company has an amount due to Robert Seaman, a shareholder and former director
of the Company.  The amount due to the
related party as of September 30, 2006 and 2005 is $244,141.  This amount is unsecured, non-interest
bearing and due upon demand.

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 $115,200 per year under
the lease, excluding real estate taxes.
The Company believes that the lease is at fair market value with leases
for similar facilities.

During
January and February 2005, the Companys Chairman of the Board, Ron Wilen, loaned
the Company $133,600. The loan was unsecured, non interest bearing and due upon
demand. This loan was repaid in April 2005.

During
August 2005, the Chairman of the Board, Ron Wilen, and the Chief Executive
Officer, Brian King, each loaned the Company $100,000. The loans were both
unsecured, non-interest bearing and due upon demand. These loans were repaid in
April 2006.

6.EMPLOYEE BENEFITS PLAN

Stock Option Plans

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

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

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

There
were 215,000 shares of common stock available for future grant as of September
30, 2006 under the 2001 equity incentive plan.

13

---



UNITED ENERGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

Fair Value of Stock Options

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

|                         |  |       |   |      |       |   | 
|------------------------ |  | ----- | - | ---- | ----- | - | 
|                         |  | 2006  |   | 2005 |      
|                         |  |       |   |      |      
|Expected life (in years) |  | 10    |   |      | 10    |   | 
|Risk-free interest rate  |  | 4.54  | % |      | 4.54  | % | 
|Volatility               |  | 102.5 |   |      | 135.0 |   | 
|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 $1.17 for the six months
ended September 30, 2006.

Summary Stock Option Activity

The
following table summarizes stock option information with respect to all stock
options for the quarter ended September 30, 2006:

|                                             |  |                    |           |                              |  |                                                 |      |                         |  |  |      |  |  
|-------------------------------------------- |  | ------------------ | --------- | ---------------------------- |  | ----------------------------------------------- | ---- | ----------------------- |  |  | ---- |  | -
|                                             |  | Number of
  Shares |           | WeightedAverageExercisePrice |  | WeightedAverageRemainingContractualLife (Years) |      | AggregateIntrinsicValue | 
|                                             |  |                    |           |                              |  |                                                 |      |                         | 
|Options outstanding April
  1, 2006          |  |                    | 3,185,000 |                              |  | $                                               | 1.11 |                         |  |  | 8.48 |  |  
|                                             |  |                    |           |                              |  |                                                 |      |                         |  |  |      |  |  
|Granted                                      |  |                    | 300,000   |                              |  | $                                               | 1.84 |                         |  |  |      |  |  
|Exercised                                    |  |                    | (12,500   | )                            |  |                                                 |      |                         |  |  |      |  |  
|                                             |  |                    |           |                              |  |                                                 |      |                         |  |  |      |  |  
|Options outstanding
  September 30, 2006     |  |                    | 3,472,500 |                              |  | $                                               | 1.17 |                         |  |  | 7.61 |  |  
|                                             |  |                    |           |                              |  |                                                 |      |                         |  |  |      |  |  
|Vested and expected to
  vestend of quarter |  |                    | 3,472,500 |                              |  | $                                               | 1.17 |                         |  |  | 7.61 |  | $
|                                             |  |                    |           |                              |  |                                                 |      |                         |  |  |      |  |  
|Exercisableend of quarter                   |  |                    | 3,064,077 |                              |  | $                                               | 1.19 |                         |  |  | 7.47 |  | $
|                                             |  |                    |           |                              |  |                                                 |      |                         |  |  |      |  |  

Options
outstanding at September 30, 2006 have an exercise price ranging from $0.70 to
$2.05.

14

---



UNITED ENERGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

The aggregate intrinsic
value in the table above represents the total intrinsic value (the difference
between United Energys closing stock price on September 30, 2006 and the
exercise price, multiplied by the number of inthemoney options) that would
have been received by the option holders had vested option holders exercised their
options on September 30, 2006. This amount changes based upon changes in the
fair market value of United Energys stock. As of September 30, 2006, $184,941
of the total unrecognized compensation costs related to stock options is
expected to be recognized over a period of one year and nine months.

The
following table illustrates the effect on net loss and earnings per share for
the three months and six months ended September 30, 2005 as if the Company had
applied the fair value recognition provisions of SFAS No. 123 to stock-based
employee compensation:

|                                                                                                          |  |                                                          |            |                                                        |  
|--------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------- | ---------- | ------------------------------------------------------ | -
|                                                                                                          |  | For the
  Three 
  months Ended 
  September 30, 
  2005 |            | For the
  Six 
  months Ended 
  September 30, 
  2005 |  
|                                                                                                          |  |                                                          |            |                                                        |  
|                                                                                                          |  |                                                          |            |                                                        |  
|Net loss as reported                                                                                      |  | $                                                        | (1,561,554 | )                                                      | $
|                                                                                                          |  |                                                          |            |                                                        |  
|Add:                                                                                                      |  |                                                          |            |                                                        |  
|Stock based employee
  compensation expense Included in reported net income                               |  |                                                          | 387,000    |                                                        |  
|Deduct:                                                                                                   |  |                                                          |            |                                                        |  
|Total stock based employee
  compensation expense determined under fair value based method for all awards |  |                                                          | (133,981   | )                                                      |  
|                                                                                                          |  |                                                          |            |                                                        |  
|                                                                                                          |  |                                                          |            |                                                        |  
|Pro forma loss                                                                                            |  | $                                                        | (1,308,535 | )                                                      | $
|                                                                                                          |  |                                                          |            |                                                        |  
|Basic and diluted loss per
  common share                                                                 |  |                                                          |            |                                                        |  
|                                                                                                          |  |                                                          |            |                                                        |  
|As reported                                                                                               |  | $                                                        | (0.06      | )                                                      | $
|                                                                                                          |  |                                                          |            |                                                        |  
|Pro forma                                                                                                 |  | $                                                        | (0.05      | )                                                      | $

7. COMMITMENTS AND CONTINGENCIES

Sales
Commission Claim

In
July 2002, an action was commenced against us in the Court of Common Pleas of
South Carolina, Pickens County, brought by Quantum International Technology,
LLC and Richard J. Barrett. Plaintiffs allege that they were retained as a
sales representative of ours and in that capacity made sales of our products to
the United States government and to commercial entities. Plaintiffs further
allege that we failed to pay to plaintiffs agreed commissions at the rate of
20% of gross sales of our products made by plaintiffs. The complaint seeks an
accounting, compensatory damages in the amount of all unpaid commissions plus
interest thereon, and punitive damages in an amount triple the compensatory
damages, plus legal fees and costs. Plaintiffs maintain that they are entitled
to receive an aggregate of approximately $350,000 in compensatory and punitive
damages, interest and costs. In June 2003, the action was transferred from the
court in Pickens County to a Master in Equity sitting in Greenville, South
Carolina and was removed from the trial docket. The action, if tried, will be
tried without a jury. No trial date has been scheduled. We believe, based on
the advice of counsel, we have meritorious defenses to the claims asserted in
the action and intend to vigorously defend the case. The outcome of this matter
cannot be determined at this time.

15

---



Item 2 Managements
Discussion and Analysis or Plan of Operation

CAUTIONARY STATEMENT RELATING TO
FORWARD-LOOKING STATEMENTS

The
matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosure contained in this Form 10-QSB and the other filings with the
Securities and Exchange Commission made by us from time to time. The discussion
of our liquidity, capital resources and results of operations, including
forward-looking statements pertaining to such matters, does not take into
account the effects of any changes to our operations. Accordingly, actual
results could differ materially from those projected in the forward-looking
statements as a result of a number of factors, including those identified
herein and those discussed under the heading Risk Factors in the Companys
10-KSB for the fiscal year ended March 31, 2006. This item should be read in
conjunction with the financial statements and other items contained elsewhere
in the report. Unless the context otherwise requires, we, our, us, the
Company and similar phrases refer to United Energy Corp.

Recent Developments

On
March 18, 2005, we entered into a securities purchase agreement with two
private investors with the respect to the sale of shares of our common stock
and warrants. The agreement provides for two types of units, designated as
Series A and Series B. The Series A Units each consist of 100,000 shares of our
common stock and a Series A Warrant to purchase 50,000 shares of our common
stock at $1.00 per share, subject to adjustment. The Series A Warrants expire
five (5) years from the date they are issued. The purchase price for each
Series A Unit is $80,000. The securities purchase agreement provides for the
sale of up to twenty (20) Series A Units. The Series B Units each consist of
ten (10) shares of a new class of preferred stock that will be converted into
80,000 shares of our common stock in the aggregate, subject to adjustment, and
Series B Warrant to purchase 40,000 shares of our stock at $1.50 per share. The
Series B Warrants expire five (5) years from the date they are issued. The
purchase price for each Series B Unit is $80,000. The securities purchase
agreement provides for the sale of up to forty-two (42) Series B Units.

On
January 26, 2006, the Company entered into the first amendment to the
securities purchase agreement dated March 18, 2005 (the First Amendment). The
First Amendment changed, among other provision, the expiration date of the
securities purchase agreement to the earlier of March 18, 2008 or thirty (30)
days after notice of termination from the holder of a majority of the shares
issued under the agreement and that for so long as the Purchasers (as defined
in the First Amendment) hold 1,500,000 shares of common stock equivalents (shares
of common stock and other securities convertible to or exercisable for common
stock), the Majority Holder, defined in the First Amendment as prior to the
issuance of any Series B Units, the Purchaser who is the holder of the majority
of shares of common stock issued as part of the Series A Units, and following
the issuance of the first Series B Unit, the Purchaser who is the holder of the
majority of shares of the preferred stock, shall have the right to designate a
majority of the members of our Board of Directors in the event of any of the
following, referred to as triggering events:

| |                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) if we fail to have
  gross revenue of at least $5,000,000 for the six months ended September 30,
  2006;                                                                 
| |                                                                                                                                                                              
| | (ii) if we breach any of
  our representations, warranties, agreements, covenants, terms or obligations
  under the securities purchase agreement or ancillary agreements; or
| |                                                                                                                                                                              
| | (iii) if the investors
  purchase an aggregate of twenty one or more Series B Units                                                                                          

We
failed to have gross revenues of at least $5,000,000 for the six months ended
September 30, 2006 and therefore, the Majority Holder has the right to
designate a majority of the members of our Board of Directors. To date, the
Majority Holder has not elected to designate a majority of the members of our
Board of Directors and there is no assurance that the Majority Holder will not
elect to designate a majority of the members of our Board of Directors. If the
Majority Holder decides to designate a majority of the members of our Board of
Directors, such directors will have the authority to exercise control over
matters relating to us, including without limitation, (i) discretion over our
day to day affairs and our management and (ii) decisions relating or affecting
our capital structure, including the issuance of additional capital stock, debt
and the declaration of dividends.

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Overview

We
develop and distribute environmentally friendly specialty chemical products
with applications in several industries and markets. Our current line of
products includes:

|  |                                                                                                                 
|- | ----------------------------------------------------------------------------------------------------------------
| | KH-30 paraffin dispersant
  for the oil industry and related products;                                          
|  |                                                                                                                 
| | Uniproof specialty-coated
  proofing paper for the printing industry; and                                       
|  |                                                                                                                 
| | following additional
  testing, Slick Barrier underwater protective coatings for use in marine
  applications.

Through
our wholly owned subsidiary, Green Globe Industries, Inc., we provide the U.S.
military with a variety of solvents, paint strippers and cleaners under our
trade name Qualchem. Green Globe is a qualified supplier for the U.S.
military and has sales contracts currently in place with no minimum purchase
requirements that are renewable at the option of the U.S. military.

We
have developed and patented a system referred to as our S2 system, to work
with our environmentally friendly paraffin dispersants products. 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 oil wells, pipelines or storage tanks. The S2 system apparatus is
portable, compact and easy to use. We are further developing the process to
enhance and support sales of KH-30 and its related products for the oil
industry and for other potential applications.

A
key component of our business strategy is to pursue collaborative joint working
and marketing arrangements with established international oil and oil service
companies. We intend to enter into these relationships to more rapidly and
economically introduce our KH-30 product line to the worldwide marketplace for
refinery, tank and pipeline cleaning services. We have recently entered into a
non-exclusive distribution agreement with Champion Technologies Inc. and a
non-exclusive Master Purchase Agreement with Petrobras America Inc. for the
sale and distribution of our K-Line of patented specialty chemical solutions.
In June 2006 and September 2006, Petrobras America Inc. placed Specialty
Chemical orders of $123,772 and $167,092, respectively. The agreements do not
provide for any minimum amounts to be purchased. We are also currently
negotiating potential working arrangements with several other companies
however, there can be no assurance that any of these arrangements will be
entered into or, if entered into, (as well as the agreements with Champion
Technologies and Petrobras America Inc.) will be successful.

We
provide Specialty Chemicals and graphic arts products to our customers and
generated revenues of $524,352 for the six months ended September 30, 2006 and
$165,075 for the six months ended September 30, 2005.

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RESULTS OF OPERATIONS

Three Months Ended September 30, 2006
Compared to the Three Months Ended September 30, 2005

Revenues.
Revenues for the three months ended September 30, 2006 were $299,285, a
$210,820, or 238% increase from revenues of $88,465 in the comparable three
months of 2005. The increase in revenues was due to higher sales of Specialty
Chemicals, primarily to two customers, Petrobras America Inc and Castor Petroleum
LTD. Specialty Chemicals revenues, which includes sales of our KH-30 products
and Green Globe/Qualchem military sales, increased by $210,760 to $299,014, or
239% from the comparable three months of 2005 compared to $88,254 in the
comparable three months in 2005. This increase was due primarily to higher
sales of our KH-30 family of oil field dispersant products. There were no sales
of our Uniproof proofing paper during the three months ended September 30, 2006
and 2005.

Cost
of Goods Sold. Cost of goods sold increased $32,099,
or 43% to $107,181 or 36% of revenues, for the three months ended September 30,
2006 from $75,082, or 85% of revenues for the three months ended September 30,
2005. The increase in cost of goods sold (which accounted for lower percentage
of revenues) was due to the higher sales levels in the period compared to the
comparable period in 2005.

Gross
Profit. Gross profit for the three months ended
September 30, 2006, increased by $178,721, or 1,335% to $192,104 or 64% of
revenues compared with $13,383 or 15% of sales in the prior period. The
increase in gross profit and gross profit percentage reflects the higher levels
of sales of Specialty Chemicals.

Operating Costs and Expenses

Selling,
General and Administrative Expenses. Selling, general
and administrative expenses decreased $298,028 to $773,913 or 259% of sales for
the three months ended September 30, 2006 compared with $1,071,941 for the
three months ended September 30, 2005. The decrease in selling, general and
administrative expenses was primarily related to lower salaries due to the
exercise of options in the prior comparable period and a decrease in travel and
entertainment expenses, partially offset by an increase in bad debts and a
slight increase in professional fees.

Depreciation
and Amortization. Depreciation and amortization
remained relatively constant for the three months ended September 30, 2006 as
compared to September 30, 2005.

Interest
Income. The Company had interest income of $48,950 for
the three months ended September 30, 2006 compared with $13 in the
corresponding period in 2005. The increase was due to the increased cash level
in connection with the private placement completed in March 2006.

Interest
Expense. The Company had interest expense of $374 for
the three months ended September 30, 2006 compared with interest expense of
$485,594 in the corresponding period in 2005. The decrease was due to the lower
principal amount of indebtedness outstanding as a result of the convertible
term note being satisfied in August 2005.

Net
Loss. The three months ended September 30, 2006
resulted in a net loss of $552,003 or $0.02 per share as compared to a net loss
of $1,561,554 or $0.06 per share for the three months ended September 30, 2005.
The average number
of shares of common stock used in calculating net loss per share increased
5,982,463 shares to 31,030,115 as a result of 2,000,000 shares issued for the
conversion of the note payable, 312,500 shares issued in connection with the
exercise of stock options and 5,400,000 shares issued in connection with the
private placement completed in March 2006.

Six Months Ended September 30, 2006 Compared
to the Six Months Ended September 30, 2005

Revenues.
Revenues for the six-month period ended September 30, 2006 were $524,352, a
$359,277 or 217% increase from revenues of $165,075 in the comparable six-month
period ended September 30, 2005. The increase in revenues was due to higher
sales of Specialty Chemicals, primarily to two customers, Petrobras America
Inc. and Castor Petroleum LTD. Specialty Chemicals revenues, which includes
sales of our KH-30 products and Green Globe/Qualchem products, increased by
$359,248 to $523,841, or 218% compared to $164,593 in the comparable six month
period ended September 30, 2005. This increase was primarily related to higher
sales of our

18

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KH-30 family
of oil field dispersant products. There were no sales of our Uniproof proofing
paper during the six months ended September 30, 2006 and 2005.

Cost
of Goods Sold. Cost of goods sold increased $72,458,
or 53% to $209,257 or 40% of revenues, for the six-month period ended September
30, 2006 from $136,799 or 83% of revenues, for the six-month period ended
September 30, 2005. The increase in cost of goods sold (which accounted for a
lower percentage of revenues) was due to the higher sales level in the period
compared to the comparable period in 2005.

Gross
Profit. Gross profit for the six months ended
September 30, 2006, increased by $286,819, or 1,014% to $315,095 or 60% of
revenues compared with $28,276 or 17% of revenues in the prior period. The
increase in gross profit and gross profit percentage reflects the higher levels
of sales of Specialty Chemicals.

Operating Costs and Expenses

Selling,
General and Administrative Expenses. Selling, general
and administrative expenses decreased $303,750 to $1,489,613 or 284% of
revenues for the six months ended September 30, 2006 compared with $1,793,363
for the six months ended September 30, 2005. The decrease in selling, general
and administrative expenses was primarily related to lower salaries due to the
exercise of options in the prior comparable period, a decrease in professional
fees, lower marketing expenses, and lower travel and entertainment expenses,
partially offset by an increase in bad debts.

Depreciation
and Amortization. Depreciation and amortization
remained relatively constant for the six months ended September 30, 2006 as
compared to September 30, 2005.

Interest
Income. The Company had interest income of [$93,498]
for the six months ended September 30, 2006 compared with $23 in the
corresponding period in 2005. The increase was due to the increased cash level
in connection with the private placement completed in March 2006.

Interest
Expense. The Company had interest expense of $1,229
for the six months ended September 30, 2006 compared with interest expense of
$576,168 in the corresponding period in 2005. The decrease was due to the lower
principal amount of indebtedness outstanding as a result of the convertible
term note being satisfied in August 2005.

Net
Loss. The six months ended September 30, 2006 resulted
in a net loss of $1,119,657 or $0.04 per share as compared to a net loss of
$2,375,892 or $0.10 per share for the six months ended September 30, 2005. The
average number of shares of common stock used in calculating earnings per share
increased 6,735,834 shares to 31,028,544 as a result of 2,000,000 shares issued
for the conversion of the note payable, 312,500 shares issued in connection
with the exercise of stock options and 5,400,000 shares issued in connection
with the private placement completed in March 2006.

19

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Liquidity and Capital Resources

As
of September 30, 2006, the Company had $3,814,794 in cash and cash equivalents,
as compared to $5,194,748 at March 31, 2006.

The
$1,379,954 decrease in cash and cash equivalents at September 30, 2006 compared
to March 31, 2006 was due to net cash used in operating activities of
$1,191,804, net cash used in investing activities of $2,025 and net cash used
in financing activities of $186,125 during the six months ended September 30,
2006. Cash used in investing activities consisted of fixed asset purchases of
$2,025. Cash used in financing activities during the six months ended September
30, 2006 consisted of the payment of a related party payable of $200,000,
partially offset by the receipt from the exercise of stock options of $13,875.

As
of September 30, 2006 the Company had no backlog. Backlog represents products
that the Companys customers have committed to purchase. The Companys backlog
is subject to fluctuations and is not necessarily indicative of future sales.

We
currently anticipate that our available cash in hand and cash resources from
expected revenues will be sufficient to meet our anticipated working capital
and capital expenditure requirements for at least the next twelve months.

Concentration of
Risk

We
currently sell our Uniproof proofing paper to one customer, the Alameda Company
of Anaheim, California. There were no sales to this customer during the six
months ended September 30, 2006 and 2005. Revenue from sales of our proofing
paper is expected to continue to decline due to the paper technology switching
to a digital technology. A decision by Alameda to discontinue its relationship
with us could result in a significant loss of revenue to us.

We
sold our Specialty Chemicals to four customers, which comprised 80.8% of our
sales of Specialty Chemicals for the six months ended September 30, 2006. For
the six months ended September 30, 2005, we sold our Specialty Chemicals to two
customers, which comprised 40.1% of our sales of Specialty Chemicals.

Off-Balance Sheet
Arrangements

We
do not currently have any off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that are
material to our stockholders.

Quantitative and
Qualitative Disclosures about Market Risk

There
were no material changes from the information presented in the Companys Annual
Report on Form 10-KSB for the fiscal year ended March 31, 2006, with
respect to the Companys quantitative and qualitative disclosures about market
risks.

20

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|                                 | 
|-------------------------------- | 
|Item 3. Controls and Procedures.

As
of September 30, 2006 (the end of the period covered by this report), our
management carried out an evaluation, with the participation of our Chief
Executive Officer and Interim Chief Financial Officer, of the effectiveness of
our disclosure controls and procedures. The evaluation process, including the
inherent limitations on the effectiveness of such controls and procedures, is
more fully discussed below. Based upon that evaluation, the Chief Executive Officer
and Interim Chief Financial Officer concluded that as of the end of the period
covered by this report, our disclosure controls were not effective due to the
material weakness in our internal controls over the financial reporting
process, as described below. In designing and evaluating our disclosure
controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the
Securities Exchange Act of 1934, as amended), management recognized that any
controls and procedures, no matter how well designed and operated, can provide
only reasonable assurances of achieving the desired control objectives, as ours
are designed to do, and management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and procedures.

In
connection with the audit by our independent registered public accounting firm
of our financial statements, as of March 31, 2006 and for the year then ended,
our independent registered public accounting firm notified our management and
the Board of Directors that they had identified a deficiency that they
considered a material weakness in our internal controls over the financial
reporting process relating to the communication between the Chairman of the
Board of Directors, the CEO and the interim CFO. Adjustments were identified
during the audit process relating to the recording of options that the Company
issued during 2006 and 2005. These adjustments were made to the consolidated
financial statements for the year ended March 31, 2006 and 2005.

The
reportable conditions have been discussed in detail among management and our
independent registered public accounting firm, and we are committed to
resolving the issue. We have taken the appropriate steps in correcting the
matter by enhancing the communications process among the members of management
to ensure more timely notification of current issues, including through the
institution of more regularly scheduled meetings among management.

There
are no changes in our internal controls over financial reporting that occurred
during the period covered by this report that have materially affected, or are
reasonably likely to materially affect our internal control over financial
reporting.

21

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PART II

OTHER INFORMATION

|                 |     |           |                                                                                                                                                      
|---------------- | --- | --------- | -----------------------------------------------------------------------------------------------------------------------------------------------------
|Item 6. Exhibits
|                 |    
|                 | (a) | Exhibits.
|                 |     |          
|                 |     | 31.1      | Chief
  Executive Officers Certificate, pursuant to Section 302 of the
  Sarbanes-Oxley Act of 2002.                                                
|                 |     |           |                                                                                                                                                      
|                 |     | 31.2      | Chief
  Financial Officers Certificate, pursuant to Section 302 of the
  Sarbanes-Oxley Act of 2002                                                 
|                 |     |           |                                                                                                                                                      
|                 |     | 32.1      | Chief
  Executive Officers Certificate, pursuant to 18 U.S.C., Section 1350, as
  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|                 |     |           |                                                                                                                                                      
|                 |     | 32.2      | Chief
  Financial Officers Certificate, pursuant to 18 U.S.C., Section 1350, as adopted
  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

22

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SIGNATURES

Pursuant
to the requirements of the Securities Exchange Act of 1934, the small business
issuer has duly caused this Report to be signed on its behalf by the undersigned
thereunto duly authorized.

|                               |     |                                                  
|------------------------------ | --- | -------------------------------------------------
|Dated:     November
  13, 2006 |     | UNITED ENERGY CORP.                              
|                               |     |                                                  
|                               | By: | /s/ Brian King                                   
|                               |     |                                                  
|                               |     | Brian King,                                      
|                               |     | Chief Executive Officer                          
|                               |     | (as principal executive
  officer)               
|                               |     |                                                  
|                               | By: | /s/ James McKeever                               
|                               |     |                                                  
|                               |     | James McKeever,                                  
|                               |     | Interim Chief Financial
  Officer                
|                               |     | (as principal financial
  and accounting officer)

23

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