UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
  _____________________
  FORM
10-Q
  þ
              QUARTERLY REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
  For the quarterly period ended December
31, 2008
  or
  o
              TRANSITION REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
  For
the transition period from ________ to __________
  Commission
File No. 000-30841
 ______________________
  UNITED
ENERGY CORP.
 (Exact
name of registrant as specified in its charter)
  Nevada
                (State
      or other jurisdiction of
                incorporation
      or organization)
              22-3342379
                (I.R.S.
      Employer Identification No.)600
      Meadowlands Parkway #20, Secaucus, N.J.  07094
                (Address
      of principal executive offices)(800)
      327-3456
                (Registrant's
      telephone number, including area
code)
  Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding
12 months (or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.  þYes  o No
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
  Large accelerated filer ̈
                  Accelerated
      filer  ̈Non-accelerated
      filer  ̈(Do
      not check if a smaller reporting company)
                  Smaller
      reporting company þ
  Indicate
by check mark whether the registrant is a shell company (as defined in rule
12b-2 of the Exchange Act.  Yes o No þ
  As of the
close of business on February 17, 2009, 31,030,115 shares of common stock, par
value $.01 per share, were outstanding.
   
 INDEX
  PART
      I.  FINANCIAL INFORMATIONItem
      1.
                        Financial
      StatementsConsolidated
      balance sheets December 31, 2008 (Unaudited) andMarch
      31, 2008
                        
                        3-4Consolidated
      statements of operations for the three months and nine months ended
      December 31, 2008 (Unaudited) and 2007 (Unaudited)
                        
                        5Consolidated
      statement of stockholders' equity for the nine months ended December 31,
      2008 (Unaudited)
                        
                        6Consolidated
      statements of cash flows for the nine months ended December 31, 2008
      (Unaudited) and 2007 (Unaudited)
                        
                        7-8Notes
      to consolidated financial statements
                        
                        9-18Item
      2.
                        Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                        
                        19-22Item
      3.
                        Quantitative
      and Qualitative Disclosures About Market Risk
                        
                        22Item
      4T.
                        Controls
      and Procedures
                        
                        23PART
      II.  OTHER INFORMATIONItem
      1.
                        Legal
      Proceedings
                        
                        24Item
      1A.
                        Risk
      Factors
                        
                        24Item
      2.
                        Unregistered
      Sales of Equity Securities and Use of Proceeds
                        
                        24Item
      3.
                        Defaults
      Upon Senior Securities
                        
                        24Item
      4.
                        Submission
      of Matters to a Vote of Security Holders
                        
                        24Item
      5.
                        Other
      Information
                        
                        24Item
      6.
                        Exhibits
                        
                        25Signatures
                        
                        
                        26
  2
  Item
1. Financial
Statements
 
 UNITED
ENERGY CORP.  AND SUBSIDIARIES
 CONSOLIDATED
BALANCE SHEETS
  December 31,
                  
                  
                  March 31,2008
                  
                  
                  2008(Unaudited)ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
                  
                  $
                  161,156
                  
                  
                  $
                  858,575Accounts
      receivable, net of allowance for doubtful accounts of $8,643 and $25,329,
      respectively
                  
                  
                  147,226
                  
                  
                  
                  247,747Inventory
                  
                  
                  150,342
                  
                  
                  
                  141,667Prepaid
      expenses and other current assets
                  
                  
                  58,268
                  
                  
                  
                  162,255Loan
      receivable, net of reserve of $25,000
                  
                  
                  25,000
                  
                  
                  
                  25,000Total
      current assets
                  
                  
                  541,992
                  
                  
                  
                  1,435,244PROPERTY
      AND EQUIPMENT, net of accumulated depreciation and amortization of
      $454,964 and  $435,377 respectively
                  
                  
                  115,221
                  
                  
                  
                  51,356OTHER
      ASSETS:Goodwill,
      net
                  
                  
                  15,499
                  
                  
                  
                  15,499Patents,
      net of accumulated amortization of $222,332 and $193,330,
      respectively
                  
                  
                  367,329
                  
                  
                  
                  386,687Loans
      receivable
                  
                  
                  1,443
                  
                  
                  
                  5,023Deposits
                  
                  
                  1,385
                  
                  
                  
                  1,385Total
      assets
                  
                  $
                  1,042,869
                  
                  
                  $
                  1,895,194
 
 The
accompanying notes are an integral part of these consolidated financial
statements
  3
  UNITED
ENERGY CORP.  AND SUBSIDIARIES
 CONSOLIDATED
BALANCE SHEETS
  December 31,
                              
                              
                              March 31,2008
                              
                              
                              2008(Unaudited)LIABILITIES
      AND STOCKHOLDERS' EQUITYCURRENT
      LIABILITIES:Accounts
      payable
                              
                              $
                              204,016
                              
                              
                              $
                              167,913Accrued
      expenses
                              
                              
                              52,916
                              
                              
                              
                              113,698Due
      to related parties
                              
                              
                              244,141
                              
                              
                              
                              244,141Total
      current liabilities
                              
                              
                              501,073
                              
                              
                              
                              525,752STOCKHOLDERS'
      EQUITY:Preferred
      Stock: 100,000 shares authorized;Series
      A Convertible Preferred Stock: $8,000stated
      value, 3 shares issued and outstandingas
      of December 31, 2008 and March 31, 2008
                              
                              
                              24,000
                              
                              
                              
                              24,000Common
      stock: $0.01 par value 100,000,000 sharesauthorized;
      31,030,115 shares issued andoutstanding
      as of  December 31, 2008and
      March 31, 2008
                              
                              
                              310,301
                              
                              
                              
                              310,301Additional
      paid-in capital
                              
                              
                              21,792,550
                              
                              
                              
                              21,775,204Accumulated
      deficit
                              
                              
                              (21,585,055
                              )
                              
                              
                              (20,740,063
                              )Total
      stockholders' equity
                              
                              
                              541,796
                              
                              
                              
                              1,369,442Total
      liabilities and stockholders' equity
                              
                              $
                              1,042,869
                              
                              
                              $
                              1,895,194
 
 The
accompanying notes are an integral part of these consolidated financial
statements
  4
  UNITED
ENERGY CORP. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF OPERATIONS
  For the Three Months
                        
                        
                        For the Nine MonthsEnded December 31,
                        
                        
                        Ended December 31,2008
                        
                        
                        2007
                        
                        
                        2008
                        
                        
                        2007(Unaudited)
                        
                        
                        (Unaudited)
                        
                        
                        (Unaudited)
                        
                        
                        (Unaudited)REVENUES,
      net
                        
                        $
                        343,530
                        
                        
                        $
                        103,691
                        
                        
                        $
                        941,524
                        
                        
                        $
                        493,708COST
      OF GOODS SOLD
                        
                        
                        126,948
                        
                        
                        
                        67,311
                        
                        
                        
                        401,582
                        
                        
                        
                        256,409Gross
      profit
                        
                        
                        216,582
                        
                        
                        
                        36,380
                        
                        
                        
                        539,942
                        
                        
                        
                        237,299OPERATING
      EXPENSES:Selling,
      general and administrative
                        
                        
                        430,113
                        
                        
                        
                        629,837
                        
                        
                        
                        1,346,078
                        
                        
                        
                        1,908,864Depreciation
      and amortization
                        
                        
                        12,470
                        
                        
                        
                        12,372
                        
                        
                        
                        37,372
                        
                        
                        
                        49,894Total
      operating expenses
                        
                        
                        442,583
                        
                        
                        
                        642,209
                        
                        
                        
                        1,383,450
                        
                        
                        
                        1,958,758Loss
      from operations
                        
                        
                        (226,001
                        )
                        
                        
                        (605,829
                        )
                        
                        
                        (843,508
                        )
                        
                        
                        (1,721,459
                        )OTHER
      INCOME (EXPENSE), net:Interest
      income
                        
                        
                        19
                        
                        
                        
                        11,455
                        
                        
                        
                        942
                        
                        
                        
                        63,096Interest
      expense
                        
                        
                        (472
                        )
                        
                        
                        (527
                        )
                        
                        
                        (1,346
                        )
                        
                        
                        (1,848
                        )Total
      other income (expense), net
                        
                        
                        (453
                        )
                        
                        
                        10,928
                        
                        
                        
                        (404
                        )
                        
                        
                        61,248Net
      loss
                        
                        
                        (226,454
                        )
                        
                        
                        (594,901
                        )
                        
                        
                        (843,912
                        )
                        
                        
                        (1,660,211
                        )Preferred
      dividends
                        
                        
                        (360
                        )
                        
                        
                        (360
                        )
                        
                        
                        (1,080
                        )
                        
                        
                        (1,080
                        )Net
      loss applicable to common shareholders
                        
                        $
                        (226,814
                        )
                        
                        $
                        (595,261
                        )
                        
                        $
                        (844,992
                        )
                        
                        $
                        (1,661,291
                        )BASIC
      AND DILUTED LOSS PER SHARE:Total
      basic and diluted loss per share
                        
                        $
                        (0.01
                        )
                        
                        $
                        (0.02
                        )
                        
                        $
                        (0.03
                        )
                        
                        $
                        (0.05
                        )WEIGHTED
      AVERAGE NUMBER OF SHARES, OUTSTANDING, basic and diluted
                        
                        
                        31,030,115
                        
                        
                        
                        31,030,115
                        
                        
                        
                        31,030,115
                        
                        
                        
                        31,030,115DIVIDENDS
      DECLARED PER SHARE OF PREFERRED STOCK
                        
                        $
                        120.00
                        
                        
                        $
                        120.00
                        
                        
                        $
                        360.00
                        
                        
                        $
                        360.00
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  5
  UNITED
ENERGY CORP. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
 FOR
THE NINE MONTHS ENDED DECEMBER 31, 2008 (UNAUDITED)
 
 AdditionalCommon Stock
                          
                          
                          Preferred
                          
                          
                          Paid-In
                          
                          
                          AccumulatedShares
                          
                          
                          Amount
                          
                          
                          Stock
                          
                          
                          Capital
                          
                          
                          Deficit
                          
                          
                          TotalBALANCE,
      April 1, 2008
                          
                          
                          31,030,115
                          
                          
                          $
                          310,301
                          
                          
                          $
                          24,000
                          
                          
                          $
                          21,775,204
                          
                          
                          $
                          (20,740,063
                          )
                          
                          $
                          1,369,442Compensation
      expense associated with options
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          -
                          
                          
                          
                          17,346
                          
                          
                          
                          —
                          
                          
                          
                          17,346Dividends
      accrued on preferred shares
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          (1,080
                          )
                          
                          
                          (1,080
                          )Net
      loss
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          (843,912
                          )
                          
                          
                          (843,912
                          )BALANCE,
      December 31, 2008
                          
                          
                          31,030,115
                          
                          
                          $
                          310,301
                          
                          
                          $
                          24,000
                          
                          
                          $
                          21,792,550
                          
                          
                          $
                          (21,585,055
                          )
                          
                          $
                          541,796
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  6
  UNITED
ENERGY CORP. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 FOR
THE NINE MONTHS ENDED DECEMBER 31, 2008 AND 2007
 
 2008
                            
                            
                            2007(Unaudited)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss from continuing operations
                            
                            $
                            (843,912
                            )
                            
                            $
                            (1,660,211
                            )Adjustments
      to reconcile net loss to net cash used in operating
    activitiesDepreciation
      and amortization
                            
                            
                            48,589
                            
                            
                            
                            59,685Compensation
      expense associated with options
                            
                            
                            17,346
                            
                            
                            
                            174,324Asset
      transferred in legal settlement
                            
                            
                            -
                            
                            
                            
                            5,003Changes
      in operating assets and liabilitiesDecrease
      in accounts receivable, net
                            
                            
                            100,521
                            
                            
                            
                            212Increase
      in inventory, net
                            
                            
                            (8,675
                            )
                            
                            
                            (95,891
                            )Decrease
      (increase) in prepaid expenses and other current assets
                            
                            
                            103,988
                            
                            
                            
                            (7,226
                            )(Decrease)
      increase in accounts payable and accrued expenses
                            
                            
                            (24,679
                            )
                            
                            
                            26,263Net
      cash used in continuing operations
                            
                            
                            (606,822
                            )
                            
                            
                            (1,497,841
                            )CASH
      FLOWS FROM DISCONTINUED OPERATIONS:Decrease
      in accounts receivable, net
                            
                            
                            -
                            
                            
                            
                            31Decrease
      in note receivable, net
                            
                            
                            -
                            
                            
                            
                            4,476Net
      cash provided by discontinuing operations
                            
                            
                            -
                            
                            
                            
                            4,507Net
      cash used in operating activities
                            
                            
                            (606,822
                            )
                            
                            
                            (1,493,334
                            )CASH
      FLOWS FROM INVESTING ACTIVITIES:Employee
      loans
                            
                            
                            3,580
                            
                            
                            
                            (4,014
                            )Loans
      receivable
                            
                            
                            -
                            
                            
                            
                            (50,000
                            )Payments
      for acquisition of property and equipment
                            
                            
                            (83,453
                            )
                            
                            
                            (5,896
                            )Payments
      for patents
                            
                            
                            (9,644
                            )
                            
                            
                            (55,366
                            )Cash
      used in investing activities
                            
                            
                            (89,517
                            )
                            
                            
                            (115,276
                            )CASH
      FLOWS FROM FINANCING ACTIVITIES:Preferred
      stock dividend
                            
                            
                            (1,080
                            )
                            
                            
                            (1,080
                            )Net
      cash used in financing activities
                            
                            
                            (1,080
                            )
                            
                            
                            (1,080
                            )Net
      decrease  in cash and cash equivalents
                            
                            
                            (697,419
                            )
                            
                            
                            (1,609,690
                            )CASH
      AND CASH EQUIVALENTS, beginning of period
                            
                            
                            858,575
                            
                            
                            
                            2,863,906CASH
      AND CASH EQUIVALENTS, end of period
                            
                            $
                            161,156
                            
                            
                            $
                            1,254,216
  7
  UNITED
ENERGY CORP. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 FOR
THE NINE MONTHS ENDED DECEMBER 31, 2008 AND 2007
  2008
                  
                  
                  2007(Unaudited)SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATION:Cash
      paid during the periodInterest
                  
                  $
                  1,345
                  
                  
                  $
                  1,848Income
      taxes
                  
                  $
                  2,220
                  
                  
                  $
                  3,320
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  8
  UNITED
ENERGY CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008 (Unaudited)
  1.
              BASIS
      OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
    POLICIES
  Basis
of presentation
  The
accompanying unaudited consolidated financial statements of United Energy Corp.
(“we”, “United Energy” or the “Company”) have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, the unaudited
interim financial statements furnished herein include all adjustments necessary
for a fair presentation of the Company's financial position at December 31, 2008
(unaudited) and the results of its operations for the three months and nine
months ended December 31, 2008 and 2007 (unaudited) and cash flows for the three
months and nine months ended December 31, 2008 and 2007 (unaudited). All such
adjustments are of a normal and recurring nature. Interim financial statements
are prepared on a basis consistent with the Company's annual financial
statements. Results of operations for the three months and nine months ended
December 31, 2008 are not necessarily indicative of the operating results that
may be expected for the year ending March 31, 2009.
  The
consolidated balance sheet as of March 31, 2008 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, 2008.
  Going
Concern– During the
pasttwo fiscal years
ended March 31, 2008 and 2007, we have recorded aggregate losses from continuing
operations of $4,313,181 and have incurred total negative cash flows from
operations of $4,027,022 for the same two-year period.  During the
nine months ended December 31, 2008 the Company experienced a net loss from
operations of $843,508 and a negative cash flow from operations of
$606,822.  These matters raise substantial doubt about the Company’s
ability to continue as a going concern. Our consolidated financial statements do
not include any adjustment that might result from the outcome of this
uncertainty.
  Our
continued existence is dependent upon several factors, including raising
additional capital through equity or debt financing, 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.
 
 There can
be no assurance that we will be successful in stimulating sales or reducing
expenses to levels sufficient to generate cash flow sufficient to fund our
anticipated liquidity requirements. There also can be no assurance that
available financing will be available, or if available, that such financing will
be on terms acceptable to us.
 
 2
              NET
      LOSS PER SHARE
  Basic net
loss per share is computed based upon the weighted average number of common
shares outstanding during the periods and is computed by dividing net loss by
the adjusted weighted average number of shares during the periods.
  9
  UNITED
ENERGY CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
  3
              RECENTLY
      ISSUED ACCOUNTING STANDARDS
  In
December 2008, the Financial Accounting Standards Board (“FASB”) issued FASB
Staff Position on Financial Accounting Standard (“FSP FAS”) No. 132(R)-1,
“Employers’ Disclosures about Postretirement Benefit Plan
Assets.”  This FSP amends FASB Statement No. 132(R) (“SFAS No.
132(R)”), “Employers’ Disclosures about Pensions and Other Postretirement
Benefits,” to provide guidance on an employer’s disclosures about plan assets of
a defined benefit pension or other postretirement plan.  FSP FAS No.
132(R)-1 also includes a technical amendment to SFAS No. 132(R) that requires a
nonpublic entity to disclose net periodic benefit cost for each annual period
for which a statement of income is presented.  The required
disclosures about plan assets are effective for fiscal years ending after
December 15, 2009.  The technical amendment was effective upon
issuance of FSP FAS No. 132(R)-1.  The Company is currently assessing
the impact of FSP FAS No. 132(R)-1 on its consolidated financial position and
results of operations.
 
 In
December 2008, the FASB issued FSP FIN No. 48-3, “Effective Date of FASB
Interpretation No. 48 for Certain Nonpublic Enterprises.”  FSP FIN No.
48-3 defers the effective date of FIN No. 48, “Accounting for Uncertainty in
Income Taxes,” for certain nonpublic enterprises as defined in SFAS No. 109,
“Accounting for Income Taxes.”  However, nonpublic consolidated
entities of public enterprises that apply U.S. generally accepted accounting
principles (GAAP) are not eligible for the deferral.FSP FIN No. 48-3 was
effective upon issuance.  The impact of adoption was not material to
the Company’s consolidated financial condition or results of
operations.
 
 In
December 2008, the FASB issued FSP FAS No. 140-4 and FIN No. 46(R) -8,
“Disclosures by Public Entities (Enterprises) about Transfers of Financial
Assets and Interests in Variable Interest Entities.”  This FSP amends
SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities,” to require public entities to provide
additional disclosures about transfers of financials assets.  FSP FAS
No. 140-4 also amends FIN No. 46(R)-8, “Consolidation of Variable Interest
Entities,” to require public enterprises, including sponsors that have a
variable interest entity, to provide additional disclosures about their
involvement with a variable interest entity.  FSP FAS No. 140-4 also
requires certain additional disclosures, in regards to variable interest
entities, to provide greater transparency to financial statement
users.  FSP FAS No. 140-4 is effective for the first reporting period
(interim or annual) ending after December 15, 2008, with early application
encouraged.  The Company is currently assessing the impact of FSP FAS
No. 140-4 on its consolidated financial position and results of
operations.
 
 In
November 2008, the FASB issued FSP Emerging Issues Task Force (“EITF”) Issue No.
08-8, “Accounting for an Instrument (or an Embedded Feature) with a Settlement
Amount That is Based on the Stock of an Entity’s Consolidated
Subsidiary.”  EITF No. 08-8 clarifies whether a financial instrument
for which the payoff to the counterparty is based, in whole or in part, on the
stock of an entity’s consolidated subsidiary is indexed to the reporting
entity’s own stock.  EITF No. 08-8 also clarifies whether or not stock
should be precluded from qualifying for the scope exception of SFAS No. 133,
“Accounting for Derivative Instruments and Hedging Activities,” or from being
within the scope of EITF No. 00-19, “Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company’s Own
Stock.”  EITF No. 08-8 is effective for fiscal years beginning on or
after December 15, 2008, and interim periods within those fiscal
years.  The Company is currently assessing the impact of EITF No. 08-8
on its consolidated financial position and results of operations.
 
 In
November 2008, the FASB issued EITF Issue No. 08-7, “Accounting for Defensive
Intangible Assets.”  EITF No. 08-7 clarifies how to account for
defensive intangible assets subsequent to initial measurement.  EITF
No. 08-7 applies to all defensive intangible assets except for intangible assets
that are used in research and development activities.  EITF No. 08-7
is effective for intangible assets acquired on or after the beginning of the
first annual reporting period beginning on or after December 15,
2008.  The Company is currently assessing the impact of EITF No. 08-7
on its consolidated financial position and results of
operations.
  10
 
 UNITED
E UNITED ENERGY CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
 
 In November 2008, the FASB issued EITF
Issue No. 08-6 (“EITF No. 08-6”), “Equity Method Investment Accounting
Considerations.”  EITF No. 08-6 clarifies accounting for certain
transactions and impairment considerations involving the equity
method.  Transactions and impairment dealt with are initial
measurement, decrease in investment value, and change in level of ownership or
degree of influence.  EITF No. 08-6 is effective on a prospective
basis for fiscal years beginning on or after December 15, 2008.  The
Company is currently assessing the impact of EITF No. 08-6 on its consolidated
financial position and results of operations.
 
 In October 2008, the FASB issued FSP
FAS No. 157-3, “Determining the Fair Value of a Financial Asset When the Market
for That Asset is Not Active.”  This FSP clarifies the application of
SFAS No. 157, “Fair Value Measurements,” in a market that is not
active.  The FSP also provides examples for determining the fair value
of a financial asset when the market for that financial asset is not
active.  FSP FAS No. 157-3 was effective upon issuance, including
prior periods for which financial statements have not been
issued.  The impact of adoption was not material to the Company’s
consolidated financial condition or results of operations.
 
 In
September 2008, the FASB issued EITF Issue No. 08-5 (“EITF No. 08-5”), “Issuer’s
Accounting for Liabilities Measured at Fair Value with a Third-Party Credit
Enhancement.”  This FSP determines an issuer’s unit of accounting for
a liability issued with an inseparable third-party credit enhancement when it is
measured or disclosed at fair value on a recurring basis.  FSP EITF
No. 08-5 is effective on a prospective basis in the first reporting period
beginning on or after December 15, 2008.  The Company is currently
assessing the impact of FSP EITF No. 08-5 on its consolidated financial position
and results of operations.
 
 In
September 2008, the FASB issued FSP FAS No. 133-1, “Disclosures about Credit
Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and
FASB Interpretation No. 45; and Clarification of the Effective Date of FASB
Statement No. 161.”  This FSP amends FASB Statement No. 133,
“Accounting for Derivative Instruments and Hedging Activities,” to require
disclosures by sellers of credit derivatives, including credit derivatives
embedded in a hybrid instrument.  The FSP also amends FASB
Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others,” to require
and additional disclosure about the current status of the payment/performance
risk of a guarantee.  Finally, this FSP clarifies the Board’s intent
about the effective date of FASB Statement No. 161, “Disclosures about
Derivative Instruments and Hedging Activities.”  FSP FAS No. 133-1 is
effective for fiscal years ending after November 15, 2008.  The
Company is currently assessing the impact of FSP FAS No. 133-1 on its
consolidated financial position and results of operations.
 
 In August
2008, the FASB issued FSP FAS No. 117-1, “Endowments of Not-for-Profit
Organizations: Net Asset Classification of Funds Subject to an Enacted Version
of the Uniform Prudent Management of Institutional Funds Act (“UPMIFA”), and
Enhanced Disclosures for all Endowment Funds.”  The intent of this FSP
is to provide guidance on the net asset classification of donor-restricted
endowment funds.  The FSP also improves disclosures about an
organization’s endowment funds, both donor-restricted and board-designated,
whether or not the organization is subject to the UPMIFA.  FSP FAS No.
117-1 is effective for fiscal years ending after December 31,
2008.  Earlier application is permitted provided that annual financial
statements for that fiscal year have not been previously issued.  The
Company is currently assessing the impact for FSP FAS No. 117-1 on its
consolidated financial position and results of operations.
 
 In June 2008, the
Financial Accounting Standards Board (“FASB”) issued FSP Emerging Issues Task
Force (“EITF”) Issue No. 03-6-1, “Determining Whether Instruments Granted
in Share-Based Payment Transactions Are Participating Securities.” The FSP
addresses whether instruments granted in share-based payment transactions are
participating securities prior to vesting and, therefore, need to be included in
the earnings allocation in computing earnings per share under the two-class
method. The FSP affects entities that accrue dividends on share-based payment
awards during the awards’ service period when the dividends do not need to be
returned if the employees forfeit the award. This FSP is effective for fiscal
years beginning after December 15, 2008. The Company is currently assessing
the impact of FSP EITF 03-6-1 on its consolidated financial position and results
of operations.
  11
 
 UNITED
ENERGY CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
 
 In June
2008, the FASB ratified EITF Issue No. 07-5, "Determining Whether an Instrument
(or an Embedded Feature) Is Indexed to an Entity's Own Stock" (EITF
07-5).  EITF 07-5 provides that an entity should use a two step
approach to evaluate whether an equity-linked financial instrument (or embedded
feature) is indexed to its own stock, including evaluating the instrument's
contingent exercise and settlement provisions.  It also clarifies on
the impact of foreign currency denominated strike prices and market-based
employee stock option valuation instruments on the evaluation.  EITF
07-5 is effective for fiscal years beginning after December 15,
2008.  The Company is currently assessing the impact of EITF 07-5 on
its consolidated financial position and results of operations.
 
 In May
2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts – an interpretation of FASB Statement No.
60”.  This statement requires that an insurance enterprise recognize a
claim liability prior to an event of default (insured event) when there is
evidence that credit deterioration has occurred in an insured financial
obligation.  SFAS No. 163 also clarifies how SFAS No. 60 applies to
financial guarantee insurance contracts, including the recognition and
measurement to be used to account for premium revenue and claim liabilities to
increase comparability in financial reporting of financial guarantee insurance
contracts by insurance enterprises.  SFAS No. 163 is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and all interim periods within those fiscal years, except for some disclosures
about the insurance enterprise’s risk-management activities of the insurance
enterprise be effective for the first period (including interim periods)
beginning after issuance of SFAS No. 163.  Except for those
disclosures, earlier application is not permitted.
 
 In
May 2008, the FASB issued FSP Accounting Principles Board (“APB”) Opinion
No. 14-1, “Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash Settlement).” The FSP
clarifies the accounting for convertible debt instruments that may be settled in
cash (including partial cash settlement) upon conversion.  The FSP
requires issuers to account separately for the liability and equity components
of certain convertible debt instruments in a manner that reflects the issuer's
nonconvertible debt (unsecured debt) borrowing rate when interest cost is
recognized.  The FSP requires bifurcation of a component of the debt,
classification of that component in equity and the accretion of the resulting
discount on the debt to be recognized as part of interest expense in our
consolidated statement of operations.  The FSP requires retrospective
application to the terms of instruments, as they existed for all periods
presented.  The FSP is effective for us as of January 1, 2009 and
early adoption is not permitted.  The Company is currently evaluating
the potential impact of FSP APB 14-1 upon its consolidated financial
statements.
  In May
2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles" (FAS No.162).  SFAS No. 162 identifies the
sources of accounting principles and the framework for selecting the principles
used in the preparation of financial statements.  SFAS No. 162 is
effective 60 days following the SEC's approval of the Public Company Accounting
Oversight Board amendments to AU Section 411, "The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting Principles".  The
implementation of this standard will not have a material impact on the Company's
consolidated financial position and results of operations.
  In April
2008, FASB issued FASB Staff Position on Financial Accounting Standard (“FSP
FAS”) No. 142-3, “Determination of the Useful Life of Intangible Assets”, which
amends the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of intangible assets under
SFAS No. 142 “Goodwill and Other Intangible Assets”.  The intent of this
FSP is to improve the consistency between the useful life of a recognized
intangible asset under SFAS No. 142 and the period of the expected cash flows
used to measure the fair value of the asset under SFAS No. 141 (revised 2007)
“Business Combinations” and other U.S. generally accepted accounting
principles.    The Company is currently evaluating the potential
impact of FSP FAS No. 142-3 on its consolidated financial
statements.
  12
  UNITED
ENERGY CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
  In March
2008, the FASB issued SFAS No. 161, “Disclosure about Derivative
Instruments and Hedging Activities, an amendment of SFAS No.
133”, (SFAS 161). This statement requires that objectives for using derivative
instruments be disclosed in terms of underlying risk and accounting designation.
The Company is required to adopt SFAS No. 161 on January 1, 2009. The Company is
currently evaluating the potential impact of SFAS No. 161 on the Company’s
consolidated financial statements.
  In
February 2008, the FASB issued FSP FAS No. 157-2, “Effective Date of FASB
Statement No. 157”. This FSP delays the effective date of SFAS No. 157 for
all nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value on a recurring basis (at least annually)
to fiscal years beginning after November 15, 2008, and interim periods
within those fiscal years. The impact of adoption was not material to the
Company’s consolidated financial condition or results of
operations.
  In
December 2007, the FASB issued SFAS No. 141(R) “Business
Combinations.”  This Statement replaces the original SFAS No.
141.  This Statement retains the fundamental requirements in SFAS
No. 141 that the acquisition method of accounting (which SFAS No. 141
called the purchase
method) be used for all business combinations and for an acquirer to be
identified for each business combination. The objective of SFAS No. 141(R) is to
improve the relevance, and comparability of the information that a reporting
entity provides in its financial reports about a business combination and its
effects. To accomplish that, SFAS No. 141(R) establishes principles and
requirements for how the acquirer:
  a.
              Recognizes
      and measures in its financial statements the identifiable assets acquired,
      the liabilities assumed, and any noncontrolling interest in the
      acquiree.
  b.
              Recognizes
      and measures the goodwill acquired in the business combination or a gain
      from a bargain purchase.
  c.
              Determines
      what information to disclose to enable users of the financial statements
      to evaluate the nature and financial effects of the business
      combination.
  This
Statement applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008 and may not be applied before
that date.The Company
is unable at this time to determine the effect that its adoption of SFAS No.
141(R) will have on its consolidated results of operations and financial
condition.
  In
December 2007, the FASB issued SFAS No. 160 “Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51.”  This
Statement amends the original Accounting Review Board (ARB) No. 51 “Consolidated
Financial Statements” to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an
ownership interest in the consolidated entity that should be reported as equity
in the consolidated financial statements. This Statement is effective for fiscal
years and interim periods within those fiscal years, beginning on or after
December 15, 2008 and may not be applied before that date.  The
Company is unable at this time to determine the effect that its adoption of SFAS
No. 160 will have on its consolidated results of operations and financial
condition.
  In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities – Including an amendment of SFAS No.
115,” which becomes effective for the Company on February 1, 2008, permits
companies to choose to measure many financial instruments and certain other
items at fair value and report unrealized gains and losses in earnings. Such
accounting is optional and is generally to be applied instrument by instrument.
The election of this fair-value option did not have a material effect on its
consolidated financial condition, results of operations, cash flows or
disclosures.
  13
  UNITED
ENERGY CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
  In
September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements.”  SFAS No. 157 provides guidance for using fair value to
measure assets and liabilities.  SFAS No. 157 addresses the requests
from investors for expanded disclosure about the extent to which companies’
measure assets and liabilities at fair value, the information used to measure
fair value and the effect of fair value measurements on earnings. SFAS No. 157
applies whenever other standards require (or permit) assets or liabilities to be
measured at fair value, and does not expand the use of fair value in any new
circumstances. SFAS No. 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007 and was adopted by the Company in
the first quarter of fiscal year 2008. There was no material impact on the
Company’s consolidated results of operations and financial condition due to the
adoption of SFAS No. 157.
  In May
2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections,”
which replaces APB Opinion No. 20, "Accounting Changes," and SFAS No. 3,
"Reporting Accounting Changes in Interim Financial Statements - An Amendment of
APB Opinion No. 28”. SFAS No. 154 provides guidance on the accounting for and
reporting of accounting changes and error corrections, and it establishes
retrospective application, or the latest practicable date, as the required
method for reporting a change in accounting principle and the reporting of a
correction of an error. SFAS No. 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005.
The Company adopted SFAS No. 154 in the first quarter of fiscal year 2007 and
did not have a material impact on its consolidated results of operations and
financial condition.
  4.
              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.
  14
  UNITED
ENERGY CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
  5.
                PROPERTY
      AND EQUIPMENT
  Property and equipment are stated at
cost.  Depreciation has been calculated over the estimated useful
lives of the assets ranging from 3 to 15 years.  Leasehold
improvements are amortized over the lives of the respective leases, which are
shorter than the useful life.  The cost of maintenance and repairs is
expensed as incurred.  Depreciation and amortization expense for the
period ended December 31, 2008 and the year ended March 31, 2008 were $19,587
and $38,108, respectively.
  Property
and equipment consists of the following::
  December 31,
                    
                    
                    March 31,2008
                    
                    
                    2008Furniture
      and fixtures
                    
                    $
                    83,354
                    
                    
                    $
                    81,642Machinery
      and equipment
                    
                    
                    418,627
                    
                    
                    
                    336,887Vehicles
                    
                    
                    42,001
                    
                    
                    
                    42,001Leasehold
      improvements
                    
                    
                    26,203
                    
                    
                    
                    26,203570,185
                    
                    
                    
                    486,733Less:
      Accumulated depreciation and amortization
                    
                    
                    (454,964
                    )
                    
                    
                    (435,377
                    )Property
      and equipment, net
                    
                    $
                    115,221
                    
                    
                    $
                    51,356
 
 6.
              INVENTORY
 
 Inventory consists of the
following:
 
 December
      31,
                    
                    
                    March
      31,2008
                    
                    
                    2008Blended
      chemicals
                    
                    $
                    92,988
                    
                    
                    $
                    85,615Raw
      materials
                    
                    
                    57,354
                    
                    
                    
                    56,052Total
      inventory
                    
                    $
                    150,342
                    
                    
                    $
                    141,667
 
 7.
              RELATED-PARTY
      TRANSACTIONS
  The
Company has an amount due to Robert Seaman, a shareholder and former director of
the Company.  Amount due to the related party as of December 31, 2008
and 2007 is $244,141.  This amount is unsecured, non-interest bearing
and due upon demand.
  Martin
Rappaport, a major shareholder and director of the Company, owned the property
through September 2007 from which United Energy leases the 9,600 square foot
facility it occupies in Secaucus, New Jersey. The Company pays approximately
$126,000 per year under the lease, excluding real estate taxes.  The
Company believes that the lease is at fair market value with leases for similar
facilities.
  During
April 2007, the Company entered into an employment agreement with the Chairman
of the Board, Ron Wilen.
  15
  UNITED
ENERGY CORP.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
  In
September 2008, the company entered into a Consulting Agreement with SIAR
Capital, LLC (“SIAR”) pursuant to which the company retained SIAR to provide
management consulting services for a period of five (5) years. The Consulting
Agreement has since been assigned by SIAR to Hilltop Holding Company, L.P.
(“Hilltop”). The Chairman of the Company’s Board of Directors, Jack Silver, is
the principal of both SIAR and Hilltop.  In addition, Adam Hershey and
Peter Garson-Rappaport, who currently serve on the Board of Directors of the
Company, are employed by SIAR.  As compensation for the consulting
services, the Company is required to pay an amount equal to two percent of the
annual increase in the market capitalization of the Company during each twelve
month period of the consulting term, as determined by the average closing price
for the thirty trading days preceding the end of each such twelve month period
as compared to the higher of (i) the average closing price for the thirty
trading days preceding the end of the prior twelve month period (the “Base
Year”) and (ii) the highest average closing price for the thirty trading days
preceding the end of any prior Base Year, except that the market capitalization
at the commencement of the consulting term shall be based on a price of $.50 per
share.
  8.
              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.
  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:
  2008
                      
                      
                      2007Expected
      life (in years)
                      
                      
                      10
                      
                      
                      
                      10Risk-free
      interest rate
                      
                      
                      4.54
                      %
                      
                      
                      4.54
                      %Volatility
                      
                      
                      143.7
                      
                      
                      
                      80.7Dividend
      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
$1.15 for the nine months ended December 31, 2008.
  16




UNITED
ENERGY CORP.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(Continued)




Summary
Stock Option Activity




The following table summarizes stock
option information with respect to all stock options for the quarter ended
December 31, 2008:




Number of
                  Shares
              
              
              Weighted
                  Average
                  Exercise
                  Price
              
              
              Weighted
                  Average
                  Remaining
                  Contractual
                  Life (Years)
              
              
              Aggregate
                  Intrinsic
                  ValueOptions
      outstanding April 1, 2008
              
              
              3,787,500
              
              
              $
              1.15
              
              
              
              6.36Granted
              
              
              —Expired
              
              
              (500,000
              )
              
              $
              1.25Options
      outstanding December 31, 2008
              
              
              3,287,500
              
              
              $
              1.33
              
              
              
              6.46Vested
      and expected to vest–end of quarter
              
              
              3,287,500
              
              
              $
              1.33
              
              
              
              6.46
              
              
              $
              —Exercisable–end
      of quarter
              
              
              3,120,014
              
              
              $
              1.34
              
              
              
              6.35
              
              
              $
              —




Pursuant to the terms of an
employment agreement with Ronald Wilen, Chief Executive Officer, President,
Secretary and Director of the Company dated April 17, 2007, for each of the next
five (5) years of the term of the agreement (commencing with April 17, 2008),
Mr. Wilen will receive an option to purchase fifty thousand (50,000) shares of
common stock of the Company. The exercise price with respect to any option
granted pursuant to the employment agreement shall be the fair market value of
the common stock underlying such option on the date such option was
granted.




Options
outstanding at December 31, 2008 have an exercise price ranging between $0.70 to
$2.05.




The aggregate intrinsic
value in the table above represents the total intrinsic value (the difference
between United Energy’s closing stock price on December 31, 2008 and the
exercise price, multiplied by the number of in–the–money options) that would
have been received by the option holders had vested option holders exercised
their options on December 31, 2008. This amount changes based upon changes in
the fair market value of United Energy’s stock. As of December 31, 2008, $62,075
of the total unrecognized compensation costs related to stock options is
expected to be recognized over a period of three years and six
months.




17




UNITED
ENERGY CORP.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(Continued)




9.
            COMMITMENTS
      AND CONTINGENCIES




Litigation




Sales Commission
Claim




In July 2002, an action was commenced
against us in the Court of Common Pleas of South Carolina, Pickens County,
brought by Quantum International Technology, LLC and Richard J.
Barrett.  Plaintiffs allege that they were retained as a sales
representative of ours and in that capacity made sales of our products to the
United States government and to commercial entities.  Plaintiffs
further allege that we failed to pay to plaintiffs agreed commissions at the
rate of 20% of gross sales of our products made by plaintiffs.  The
complaint seeks an accounting, compensatory damages in the amount of all unpaid
commissions plus interest thereon, and punitive damages in an amount triple the
compensatory damages, plus legal fees and costs.  Plaintiffs maintain
that they are entitled to receive an aggregate of approximately $350,000 in
compensatory and punitive damages, interest and costs.  In 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.




In March 2007, the Company commenced an
action against Applied Force and Samuel Miller III in the Superior Court of New
Jersey, Law Division - Bergen County for the recovery of two of the Company’s
vehicles and certain additional claims.  The defendants, Applied Force
and Samuel Miller III, have filed a counterclaim for recovery of alleged storage
fees in the amount of $126,784 and certain alleged service fees in the amount of
$1,275. A settlement agreement and mutual release was entered into during August
2007 and the action was dismissed on September 18, 2007. As part of the
settlement the Company transferred title of a truck to the
defendant.




18




Item
      2
            Management's Discussion and
      Analysis of Financial Condition and Results of
      Operations




CAUTIONARY
STATEMENT RELATING TO FORWARD-LOOKING STATEMENTS





The matters discussed in this Form
10-Q 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-Q 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, 2008. This item should be
read in conjunction with the financial statements and other items contained
elsewhere in the report. Unless the context otherwise requires, “we”, “our”,
“us”, the “Company” and similar phrases refer to United Energy
Corp.




Overview




We
develop and distribute environmentally friendly specialty chemical products with
applications in several industries and markets.  Our current line of
products includes our K-Line of Chemical Products for the oil industry and
related products.




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




A key
component of our business strategy is to pursue collaborative joint working and
marketing arrangements with established international oil and oil service
companies.  We intend to enter into these relationships to more
rapidly and economically introduce our K-Line of Chemical Products to the
worldwide marketplace for refinery, tank and pipeline cleaning
services.  We entered into an amended and restated non-exclusive
distribution agreement with Champion Technologies Inc. for the sale and
distribution of our K-Line of Chemical Products.  The agreement is for
a term of three (3) years and grants Champion Technologies Inc. certain rights
to blend, dilute and utilize our products to manufacture and sell different
products. We also entered into a non-exclusive Master Purchase Agreement with
Petrobras America Inc. for the sale and distribution of our K-Line of Chemical
Products.  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 will be successful. There
also can be no assurance that the agreements with Champion Technologies and
Petrobras America will be successful.




We
provide our K-Line of Chemical Products and our Green Globe Products to our
customers and generated revenues of $941,524 for the nine-month period ended
December 31, 2008 and $493,708 for the nine-month period ended December 31,
2007.




19


RESULTS
OF OPERATIONS




Three
Months Ended December 31, 2008 Compared to the Three Months Ended December 31,
2007




Revenues.  Revenues
for the three months ended December 31, 2008 were $343,530,  $239,839
or 231% increase from revenues of $103,691 in the comparable three months of
2007.  Revenues from our K-Line of Chemical Products increased by
$269,376 to $326,469 or 472% compared to $57,093 in the comparable three months
ended December 31, 2007, offset by a decrease of $29,537 to $17,061 or 63%
compared to $46,598 in the comparable three months ended December 31, 2007 in
our Green Globe/Qualchem military sales.




Cost of Goods Sold. Cost of
goods sold increased $59,637, or 89% to $126,948 or 37% of revenues, for the
three months of December 31, 2008 from $67,311 or 65% of revenues, for the three
months of December 31, 2007.  The increase in cost of goods sold was
due to the higher sales level in the period compared to the comparable period in
2007. The decrease in cost of goods sold as a percentage of revenue was due to
the lower sales of our Green Globe/Qualchem military sales. Cost of goods sold
from our K-Line of Chemical Products increased by $87,541 to $115,156 or 317%
compared to $27,615 in the comparable three months ended December 31, 2007,
offset by an decrease of $27,904 to $11,792 or 70% compared to $39,696 in the
comparable three months ended December 31, 2007 in cost of goods sold of our
Green Globe/Qualchem military sales.




Gross
Profit.  Gross profit for the three months ended December 31,
2008, increased by $180,202, or 495% to $216,582 or 63% of sales compared with
$36,380 or 35% of sales in the prior period. The increase in gross profit and
gross profit percentage reflects the higher levels of sales.




Operating
Costs and Expenses




Selling, General and Administrative
Expenses. Selling, general and administrative expenses decreased $199,724
to $430,113 or 125% of sales for the three months ended December 31, 2008
compared with $629,837 or 607% of sales for the three months ended December 31,
2007.  The decrease in general and administrative expenses is
primarily related to a decrease in professional fees, salaries due to the
reduction of employees and a reduction in option costs charged for
employees.




Depreciation and
Amortization.Depreciation and
amortization remained relatively constant for three months ended December 31,
2008 as compared to December 31, 2007.




Interest
Income.  The Company had interest income of $19 for the three
months ended December 31, 2008 compared with $11,455 in the corresponding period
in 2007. The decrease was due to the use of cash received in connection with the
private placement in March 2006.




Interest
Expense.  Interest expense remained relatively constant for the
three months ended December 31, 2008 as compared to December 31,
2007.




Net Loss.  The
three months ended December 31, 2008 resulted in a net loss of $226,454 or $0.01
per share as compared to a net loss of $594,901 or $0.02 per share for the three
months ended December 31, 2007. The average number of shares of common stock
used in calculating earnings per share remained the same at
31,030,115.




20


Nine Months Ended December 31,
2008 Compared to the Nine Months Ended December 30, 2007




Revenues.  Revenues
for the nine-month period ended December 31, 2008 were $941,524, a $447,816 or
91% increase from revenues of $493,708 in the comparable nine-month period ended
December 31, 2007.  Revenues from our K-Line of Chemical Products
increased by $654,382 to $895,316 or 272% compared to $240,934 in the comparable
nine months ended December 31, 2007, offset by a decrease of $206,566 to $46,208
or 82% compared to $252,774 in the comparable nine months ended December 31,
2007 in our Green Globe/Qualchem military sales.




Cost of Goods Sold. Cost of
goods sold increased $145,173, or 57% to $401,582 or 43% of revenues, for the
nine-month period ended December 31, 2008 from $256,409 or 52% of revenues, for
the nine-month period ended December 31, 2007.  The increase in cost
of goods sold was due to the higher sales level in the period compared to the
comparable period in 2007. The decrease in cost of goods sold as a percentage of
revenue was due to the lower sales of our Green Globe/Qualchem military sales.
Cost of goods sold from our K-Line of Chemical Products increased by $252,207 to
$369,624 or 215% compared to $117,417 in the comparable nine months ended
December 31, 2007, offset by an decrease of $107,034 to $31,958 or 77% compared
to $138,992 in the comparable nine months ended December 31, 2007 in cost of
goods sold of our Green Globe/Qualchem military sales.




Gross
Profit.  Gross profit for the nine months ended December 31,
2008, increased by $302,643, or 128% to $539,942 or 57% of revenues compared
with $237,299 or 48% 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 $562,786
to $1,346,078 or 143% of revenues for the nine months ended December 31, 2008
compared with $1,908,864 or 387% of revenues for the nine months ended December
31, 2007. The decrease in selling, general and administrative expenses was
primarily related to a decrease in professional fees, salaries due to the
reduction of employees, employee benefits and a reduction in option costs
charged for employees, partially offset by a slight increase in rent, office and
commission expense.




Depreciation and
Amortization. Depreciation and amortization decreased to $37,372 for the
nine months ended December 31, 2008 from $49,894 for the nine months ended
December 31, 2007 reflecting the Company’s use of an accelerated method of
depreciation, offset by an increase in fixed assets.




Interest
Income.  The Company had interest income of $942 for the nine
months ended December 31, 2008 compared with $63,096 in the corresponding period
in 2007. The decrease was due to the use of cash received in connection with the
private placement in March 2006.




Interest Expense. Interest
expense remained relatively constant for the nine months ended December 31, 2008
as compared to December 31, 2007.




Net Loss.  The nine
months ended December 31, 2008 resulted in a net loss of $843,912 or $0.03 per
share as compared to a net loss of $1,660,211 or $0.05 per share for the nine
months ended December 31, 2007.  The average number of shares of
common stock used in calculating earnings per share remained the same at
31,030,115.




21


Liquidity
and Capital Resources




As of
December 31, 2008, the Company had $161,156 in cash and cash equivalents, as
compared to $858,575 at March 31, 2008.




The
$697,419 decrease in cash and cash equivalents was due to net cash used in
operations of $606,822, net cash used in investing activities of $89,517 and net
cash used in financing activities of $1,080. Cash used in investing activities
consisted of fixed asset purchases of $83,453 and patent purchases of $9,644,
offset by employee loans of $3,580.  Cash used in financing activities
consisted of preferred stock dividends of $1,080.




During the pasttwo fiscal years ended March 31, 2008
and 2007, we have recorded aggregate losses from continuing operations of
$4,313,181 and have incurred total negative cash flows from operations of
$4,027,022 for the same two-year period.  During the nine months ended
December 31, 2008 the Company experienced a net loss from operations of $843,508
and a negative cash flow from operations $606,822.  These matters
raise substantial doubt about the Company’s ability to continue as a going
concern. Our consolidated financial statements do not include any adjustment
that might result from the outcome of this uncertainty.




Our
continued existence is dependent upon several factors, including raising
additional capital through equity or debt financing, 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.





There can
be no assurance that we will be successful in stimulating sales or reducing
expenses to levels sufficient to generate cash flow sufficient to fund our
anticipated liquidity requirements. There also can be no assurance that
available financing will be available, or if available, that such financing will
be on terms acceptable to us.




Concentration
of Risk




Sales to our top two customers,
Petrobras America Inc. and Nalco Company, accounted for approximately 48% of
revenue, or $456,150, for the nine-month period ending December 31, 2008 and
sales to our top two customers, Petrobras America Inc. and the US Military,
accounted for approximately 64% of our revenue, or $309,448, for the nine-month
period ending December 31, 2007.




Sales to our top customer, Petrobras
America Inc., for the nine-month period ending December 31, 2008 were $352,750,
a $272,298 or 339% increase from sales of $80,452 in the comparable nine-month
period ending December 31, 2007.




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.




Item 3.
            Quantitative and Qualitative
      Disclosures About Market
Risks.




Not
applicable




22




Item 4T.
            Controls and
      Procedures.




Evaluation
of the Company's Disclosure Controls and Procedures




We carried out an evaluation, under
the supervision and with the participation of the Company's management,
including our Chief Executive Officer and our Principal Accounting Officer
(Interim Chief Financial Officer), of the effectiveness of 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) as of December 31,
2008.  Based upon that evaluation, the Chief Executive Officer and the
Principal Accounting Officer (Interim Chief Financial Officer) concluded that
our disclosure controls and procedures are effective, in all material respects,
with respect to the recording, processing, summarizing, and reporting, within
the time periods specified in the Securities and Exchange Commission's rules and
forms, of information required to be disclosed by us in the reports that we file
or submit under the Exchange Act. 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.





Changes
      in Control Over Financial Reporting




Management
has not identified any change in our internal control over financial reporting
that occurred during the third quarter of the fiscal year ended March 31, 2009
that has materially affected, or is reasonably likely to materially affect, the
Company’s internal control over financial
reporting.




23




PART
II




OTHER
INFORMATION




Item 1.
            Legal
      Proceedings




None.




Item1 A.
            Risk
      Factors




Not applicable.




Item 2.
            Unregistered Sales of Equity
      Securities and Use of
Proceeds




None




Item 3.
            Defaults Upon Senior
      Securities




None




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




None




Item 5.
            Other
      Information




In February 2009, the Company issued
to each of member of its Board a warrant to purchase 150,000 shares of the
Company’s common stock, which warrants are exercisable for a period of ten (10)
years at an exercise price of $.12 per share, issued to an employee warrants to
purchase 200,000 shares of the Company’s common stock, which warrants are
exercisable for a period of five (5) years at an exercise price of $.12 per
share, issued to a former employee warrants to purchase 100,000 shares of the
Company’s common stock, which warrants are exercisable until August 1, 2011 at
an exercise price of $.30 per share, issued to its legal counsel a convertible
note in the amount of $35,000 for legal fees, which note is convertible at the
rate of $.12 per share and agreed to amend all options previously granted to its
President, Ronald Wilen, to reduce the exercise price of such options to $.12
per share.   The aggregate number of outstanding options
previously granted to Mr. Wilen is 170,000 with a weighted average exercise
price of $1.04.





The Company’s outstanding Series A,
Series B and Series C warrants (the “Existing Warrants”) and Series A
Convertible Preferred Stock (the “Series A Preferred Stock”) contain
anti-dilution provisions which would have been triggered by the issuance of such
warrants, convertible note and amendment to the exercise price of the
options.  Accordingly, the Company entered into anti-dilution waiver
agreements with Joseph Grano (“Grano”) and Sherleigh Associates Inc. Profit
Sharing Plan (“Sherleigh”), the holders of the Existing Warrants and Series A
Preferred Stock.  Sherleigh is a trust of which the Company’s
Chairman, Jack Silver, is the trustee and a beneficiary.





Pursuant to the anti-dilution waiver
agreement with Grano, the exercise price of the warrants held by him were
reduced from $1.00 to $.12 per share and the number of shares of common stock
underlying his Existing Warrants was increased from 333,333 to 2,033,333
shares.  Without such anti-dilution waiver, the number of shares of
common stock underlying Grano’s Existing Warrants would have increased to
2,777,775 shares.   Similarly, pursuant to the waiver agreement
with Sherleigh, the exercise price of the Existing Warrants for 5,682,667 shares
and the conversion price of the three (3) shares of Series A Preferred Stock
held by it were reduced from $1.00 to $.12 per share.  In addition,
Sherleigh agreed not to increase the number of shares of common stock underlying
its Existing Warrants.  Without such anti-dilution waiver, the number
of shares of common stock underlying Sherleigh’s Existing Warrants would have
been increased to 47,355,558 shares.


24





Item 6.
            Exhibits




4.1
              Form
      of Director warrants issued on February 13, 09
 10.1
                Anti-Dilution
      Waiver Agreement, dated February 13, 2009 by and between the Company and
      Joseph Grano
 10.2
                Anti-Dilution
      Waiver Agreement, dated February 13, 2009 by and between the Company and
      Sherleigh Associates Inc. Profit Sharing
Plan
 31.1
                Chief
      Executive Officer’s Certificate, pursuant to Rule 13a-14(a)/ 15d-14(a) of
      the Exchange Act.
 31.2
                Chief
      Financial Officer’s Certificate, pursuant to Rule 13a-14(a)/ 15d-14(a) of
      the Exchange Act
 32.1
                Chief
      Executive Officer’s Certificate, pursuant to Section 1350 of Chapter 63 of
      Title 18 of the United States Code (18 U.S.C.
  1350).
 32.2
                Chief
      Financial Officer’s Certificate, pursuant to Section 1350 of Chapter 63 of
      Title 18 of the United States Code (18 U.S.C.
  1350).
 
 25
  SIGNATURES




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




Dated:
      February 17, 2009
              
              UNITED
      ENERGY CORP.By:
              /s/ Ronald WilenRonald
      Wilen,Chief
      Executive Officer(as
      principal executive officer)By:
              /s/ James McKeeverJames
      McKeever,Interim
      Chief Financial Officer(as
      principal financial and accounting
officer)


26