UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington,
D.C. 20549



---

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 June 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                   | (I.R.S. Employer Identification
        No.)
|incorporation or organization)                            |                                             
|                                                          |                                             
|600 Meadowlands
        Parkway #20, Secaucus, N.J. 07094
|(Address of principal
        executive offices)         
|                                                          |                                             
|(800) 327-3456                                           
|(Issuers
        telephone number, including area code) 

Indicate
by check mark 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  Yes  o  No

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 August 11, 2006, 31,030,115 shares of common stock,
par value $.01 per share, were outstanding.

Transitional
Small Business Disclosure Format (check one) Yes  o  No  þ

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INDEX

|PART I. FINANCIAL INFORMATION      |                                                                                                                                
|---------------------------------- | -------------------------------------------------------------------------------------------------------------------------------
|                                   |                                                                                                                                
|Item 1.                            | Financial Statements                                                                                                           
|                                   |                                                                                                                                
|                                   | Consolidated balance sheets
        June 30, 2006 (Unaudited) and March 31, 2006                                               
|                                   |                                                                                                                                
|                                   | Consolidated statements
        of operations for the three months ended June 30, 2006 (Unaudited) and
        2005 (Unaudited)
|                                   |                                                                                                                                
|                                   | Consolidated statement
        of stockholders equity for the three months ended June 30, 2006
        (Unaudited)            
|                                   |                                                                                                                                
|                                   | Consolidated statements
        of cash flows for the three months ended June 30, 2006 (Unaudited) and
        2005 (Unaudited)
|                                   |                                                                                                                                
|                                   | Notes to consolidated financial
        statements                                                                             
|                                   |                                                                                                                                
|Item 2.                            | Managements Discussion
        and Analysis or Plan of Operation                                                              
|                                   |                                                                                                                                
|Item 3                             | Controls and Procedures                                                                                                        
|                                   |                                                                                                                                
|PART II.
        OTHER INFORMATION |                                                                                                                                
|                                   |                                                                                                                                
|Item 2.                            | Unregistered Sales of Equity
        Securities and Use of Proceeds                                                            
|                                   |                                                                                                                                
|Item 6.                            | Exhibits                                                                                                                       
|                                   |                                                                                                                                
|Signatures                         |                                                                                                                                
|                                   |                                                                                                                                

2

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Item 1. Financial Statements

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

|                                                                                                                 |  |                 |           |                 |   |           | 
|---------------------------------------------------------------------------------------------------------------- |  | --------------- | --------- | --------------- | - | --------- | 
|                                                                                                                 |  | June 30,
  2006 |           | March
  31,2006 |  
|                                                                                                                 |  |                 |           |                 |  
|                                                                                                                 |  | (Unaudited)     |           |                 |   |          
|                                                                                                                 |  |                 |           |                 |   |          
|ASSETS                                                                                                           |  |                 |           |                 |   |           | 
|                                                                                                                 |  |                 |           |                 |   |           | 
|CURRENT ASSETS:                                                                                                  |  |                 |           |                 |   |           | 
|Cash and cash equivalents                                                                                        |  | $               | 4,259,560 |                 | $ | 5,194,748 | 
|Accounts receivable, net of allowance for
  doubtful accounts of $12,824 and $5,018, respectively                |  |                 | 254,758   |                 |   | 91,557    | 
|Inventory, net of allowance of $16,290 and
  $16,290, respectively                                               |  |                 | 156,258   |                 |   | 106,957   | 
|Note receivable, net of reserve of $10,525
  and $10,525, respectively                                           |  |                 | 14,476    |                 |   | 19,476    | 
|Prepaid expenses and other current assets                                                                        |  |                 | 67,626    |                 |   | 84,657    | 
|                                                                                                                 |  |                 |           |                 |   |           | 
|Total current assets                                                                                             |  |                 | 4,752,678 |                 |   | 5,497,395 | 
|                                                                                                                 |  |                 |           |                 |   |           | 
|PROPERTY AND EQUIPMENT, net of accumulated
  depreciation and amortization of $388,571 and $373,080 respectively |  |                 | 131,503   |                 |   | 146,994   | 
|                                                                                                                 |  |                 |           |                 |   |           | 
|OTHER ASSETS:                                                                                                    |  |                 |           |                 |   |           | 
|Goodwill, net                                                                                                    |  |                 | 15,499    |                 |   | 15,499    | 
|Patents, net of accumulated amortization of
  $127,254 and $119,794, respectively                                |  |                 | 320,112   |                 |   | 327,572   | 
|Loans receivable                                                                                                 |  |                 | 2,549     |                 |   | 364       | 
|Deposits                                                                                                         |  |                 | 1,385     |                 |   | 1,385     | 
|                                                                                                                 |  |                 |           |                 |   |           | 
|Total assets                                                                                                     |  | $               | 5,223,726 |                 | $ | 5,989,209 | 
|                                                                                                                 |  |                 |           |                 |   |           | 

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

3

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

|                                                                                                                                                                |  |                 |             |                  |   |             |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | ----------- | ---------------- | - | ----------- | -
|                                                                                                                                                                |  | June 30,
  2006 |             | March 31,
  2006 |  
|                                                                                                                                                                |  |                 |             |                  |  
|                                                                                                                                                                |  | (Unaudited)     |             |                  |   |            
|                                                                                                                                                                |  |                 |             |                  |   |             |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                            |  |                 |             |                  |   |             |  
|                                                                                                                                                                |  |                 |             |                  |   |             |  
|CURRENT LIABILITIES:                                                                                                                                            |  |                 |             |                  |   |             |  
|Accounts payable                                                                                                                                                |  | $               | 188,273     |                  | $ | 279,303     |  
|Accrued expenses                                                                                                                                                |  |                 | 139,969     |                  |   | 134,286     |  
|Due to related parties                                                                                                                                          |  |                 | 244,141     |                  |   | 444,141     |  
|                                                                                                                                                                |  |                 |             |                  |   |             |  
|Total current liabilities                                                                                                                                       |  |                 | 572,383     |                  |   | 857,730     |  
|                                                                                                                                                                |  |                 |             |                  |   |             |  
|                                                                                                                                                                |  |                 |             |                  |   |             |  
|STOCKHOLDERS EQUITY:                                                                                                                                           |  |                 |             |                  |   |             |  
|Series A Convertible Preferred Stock:
  $8,000 stated value, 420 shares authorized; 3 shares issued and outstanding as
  of June 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 June 30, 2006 and March 31, 2006 |  |                 | 310,301     |                  |   | 310,176     |  
|Additional paid-in capital                                                                                                                                      |  |                 | 28,119,754  |                  |   | 28,031,915  |  
|Accumulated deficit                                                                                                                                             |  |                 | (23,802,712 | )                |   | (23,234,612 | )
|                                                                                                                                                                |  |                 |             |                  |   |             |  
|Total stockholders equity                                                                                                                                      |  |                 | 4,651,343   |                  |   | 5,131,479   |  
|                                                                                                                                                                |  |                 |             |                  |   |             |  
|Total liabilities and stockholders
equity                                                                                                                      |  | $               | 5,223,726   |                  | $ | 5,989,209   |  
|                                                                                                                                                                |  |                 |             |                  |   |             |  

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

4

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UNITED ENERGY
CORP. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2006 AND 2005

|                                                                    |  |                                       |            |      |   |            |  
|------------------------------------------------------------------- |  | ------------------------------------- | ---------- | ---- | - | ---------- | -
|                                                                    |  | For the Three Months
  Ended June 30, |           
|                                                                    |  | 2006                                  |            | 2005 |  
|                                                                    |  |                                       |            |      |  
|                                                                    |  | (Unaudited)                           |           
|                                                                    |  |                                       |           
|REVENUES,
  net                                                     |  | $                                     | 225,067    |      | $ | 76,610     |  
|                                                                    |  |                                       |            |      |   |            |  
|COST OF
  GOODS SOLD                                                |  |                                       | 102,076    |      |   | 61,717     |  
|                                                                    |  |                                       |            |      |   |            |  
|                                                                    |  |                                       |            |      |   |            |  
|Gross profit                                                        |  |                                       | 122,991    |      |   | 14,893     |  
|                                                                    |  |                                       |            |      |   |            |  
|                                                                    |  |                                       |            |      |   |            |  
|OPERATING
  EXPENSES:                                               |  |                                       |            |      |   |            |  
|Selling,
  general and administrative                               |  |                                       | 715,700    |      |   | 721,422    |  
|Depreciation
  and amortization                                     |  |                                       | 18,638     |      |   | 17,245     |  
|                                                                    |  |                                       |            |      |   |            |  
|Total
  operating expenses                                          |  |                                       | 734,338    |      |   | 738,667    |  
|                                                                    |  |                                       |            |      |   |            |  
|                                                                    |  |                                       |            |      |   |            |  
|Loss from
  operations                                              |  |                                       | (611,347   | )    |   | (723,774   | )
|                                                                    |  |                                       |            |      |   |            |  
|                                                                    |  |                                       |            |      |   |            |  
|OTHER INCOME
  (EXPENSE), net:                                      |  |                                       |            |      |   |            |  
|Interest
  income                                                   |  |                                       | 44,548     |      |   | 10         |  
|Interest
  expense                                                  |  |                                       | (855       | )    |   | (90,574    | )
|                                                                    |  |                                       |            |      |   |            |  
|Total other
  expense, net                                          |  |                                       | 43,693     |      |   | (90,564    | )
|                                                                    |  |                                       |            |      |   |            |  
|                                                                    |  |                                       |            |      |   |            |  
|Net loss                                                            |  |                                       | (567,654   | )    |   | (814,338   | )
|                                                                    |  |                                       |            |      |   |            |  
|Preferred
  dividends                                               |  |                                       | (446       | )    |   |           |  
|                                                                    |  |                                       |            |      |   |            |  
|                                                                    |  |                                       |            |      |   |            |  
|Net loss
  applicable to common shareholders                        |  | $                                     | (568,100   | )    | $ | (814,338   | )
|                                                                    |  |                                       |            |      |   |            |  
|                                                                    |  |                                       |            |      |   |            |  
|BASIC AND
  DILUTED LOSS PER SHARE:                                 |  |                                       |            |      |   |            |  
|Total basic
  and diluted loss per share                            |  | $                                     | (0.02      | )    | $ | (0.03      | )
|                                                                    |  |                                       |            |      |   |            |  
|                                                                    |  |                                       |            |      |   |            |  
|WEIGHTED
  AVERAGE NUMBER OF SHARES, OUTSTANDING, basic and diluted |  |                                       | 31,026,956 |      |   | 23,529,472 |  
|                                                                    |  |                                       |            |      |   |            |  

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

5

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UNITED ENERGY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY 
FOR THE THREE MONTHS ENDED JUNE 30, 2006 (UNAUDITED)

|                                               |  |                |            |           |  |                      |             |         |        |         |   |            |  |   |             |   |   |           |  
|---------------------------------------------- |  | -------------- | ---------- | --------- |  | -------------------- | ----------- | ------- | ------ | ------- | - | ---------- |  | - | ----------- | - | - | --------- | -
|                                               |  | Common
  Stock |            |           |  | Additional
  Paid-In |             |         |        |         |   |           
|                                               |  |                |            | Preferred |  |                      | Accumulated |         |        |         |  
|                                               |  | Shares         |            | Amount    |  | Stock                |             | Capital |        | Deficit |   | 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 |  |                |           |           |  |                     |             |         |       |         |   | 74,089     |  |   |            |   |   | 74,089    |  
|Dividends accrued on preferred shares          |  |                |           |           |  |                     |             |         |       |         |   |           |  |   | (446        | ) |   | (446      | )
|Net loss                                       |  |                |           |           |  |                     |             |         |       |         |   |           |  |   | (567,654    | ) |   | (567,654  | )
|                                               |  |                |            |           |  |                      |             |         |        |         |   |            |  |   |             |   |   |           |  
|BALANCE, June 30, 2006                         |  |                | 31,030,115 |           |  | 310,301              |             | $       | 24,000 |         | $ | 28,119,754 |  | $ | (23,802,712 | ) | $ | 4,651,343 |  
|                                               |  |                |            |           |  |                      |             |         |        |         |   |            |  |   |             |   |   |           |  

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

6

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UNITED ENERGY CORP. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 2006 AND 2005

|                                                                             |  |             |           |      |   |          |  
|---------------------------------------------------------------------------- |  | ----------- | --------- | ---- | - | -------- | -
|                                                                             |  | 2006        |           | 2005 |  
|                                                                             |  |             |           |      |  
|                                                                             |  | (Unaudited) |          
|                                                                             |  |             |           |      |   |          |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                        |  |             |           |      |   |          |  
|Net loss                                                                     |  | $           | (568,100  | )    | $ | (814,338 | )
|                                                                             |  |             |           |      |   |          |  
|Adjustments to reconcile net loss to net
  cash used in operating activities |  |             |           |      |   |          |  
|Depreciation and amortization                                                |  |             | 22,951    |      |   | 92,460   |  
|Warrants granted in consideration for
  services                             |  |             |          |      |   | 129,720  |  
|Compensation expense associated with
  options                               |  |             | 74,089    |      |   |         |  
|                                                                             |  |             |           |      |   |          |  
|Changes in operating assets and liabilities                                  |  |             |           |      |   |          |  
|(Increase) decrease in accounts receivable,
  net                            |  |             | (163,201  | )    |   | 637,071  |  
|Increase in inventory, net                                                   |  |             | (49,301   | )    |   | (3,410   | )
|Decrease in note receivable, net                                             |  |             | 5,000     |      |   | 10,000   |  
|Decrease in prepaid expenses and other
  current assets                      |  |             | 17,030    |      |   | 56,532   |  
|Decrease in accounts payable and accrued
  expenses                          |  |             | (85,346   | )    |   | (117,044 | )
|                                                                             |  |             |           |      |   |          |  
|                                                                             |  |             |           |      |   |          |  
|Net cash used in operating activities                                        |  |             | (746,878  | )    |   | (9,009   | )
|                                                                             |  |             |           |      |   |          |  
|                                                                             |  |             |           |      |   |          |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                        |  |             |           |      |   |          |  
|Employee loans                                                               |  |             | (2,185    | )    |   | 137      |  
|Payments for acquisition of property and
  equipment                         |  |             |          |      |   | (9,116   | )
|Payments for patents                                                         |  |             |          |      |   | (12,147  | )
|                                                                             |  |             |           |      |   |          |  
|                                                                             |  |             |           |      |   |          |  
|Net cash used in investing activities                                        |  |             | (2,185    | )    |   | (21,126  | )
|                                                                             |  |             |           |      |   |          |  
|                                                                             |  |             |           |      |   |          |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                        |  |             |           |      |   |          |  
|Payments of related party payable                                            |  |             | (200,000  | )    |   | (133,600 | )
|Proceeds from the exercise of stock
options                                  |  |             | 13,875    |      |   |         |  
|Proceeds from stock subscription
receivable                                  |  |             |          |      |   | 13,333   |  
|                                                                             |  |             |           |      |   |          |  
|                                                                             |  |             |           |      |   |          |  
|Net cash used in financing activities                                        |  |             | (186,125  | )    |   | (120,267 | )
|                                                                             |  |             |           |      |   |          |  
|                                                                             |  |             |           |      |   |          |  
|Net decrease in cash and cash equivalents                                    |  |             | (935,188  | )    |   | (150,402 | )
|                                                                             |  |             |           |      |   |          |  
|CASH AND CASH EQUIVALENTS, beginning of
  period                             |  |             | 5,194,748 |      |   | 365,610  |  
|                                                                             |  |             |           |      |   |          |  
|                                                                             |  |             |           |      |   |          |  
|CASH AND CASH EQUIVALENTS, end of period                                     |  | $           | 4,259,560 |      | $ | 215,208  |  
|                                                                             |  |             |           |      |   |          |  

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

7

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

|                                                                           |  |             |       |      |   |         | 
|-------------------------------------------------------------------------- |  | ----------- | ----- | ---- | - | ------- | 
|                                                                           |  | 2006        |       | 2005 |  
|                                                                           |  |             |       |      |  
|                                                                           |  | (Unaudited) |      
|                                                                           |  |             |       |      |   |         | 
|SUPPLEMENTAL
  DISCLOSURES OF CASH FLOW INFORMATION:                       |  |             |       |      |   |         | 
|                                                                          
|Cash paid during the period                                                |  |             |       |      |   |         | 
|Interest                                                                   |  | $           | 855   |      | $ | 705     | 
|Income taxes                                                               |  | $           | 1,000 |      | $ | 1,006   | 
|                                                                           |  |             |       |      |   |         | 
|SUPPLEMENTAL DISCLOSURES OF NON-CASH
  INVESTING AND FINANCING ACTIVITIES: |  |             |       |      |   |         | 
|Conversion of note payable into common
  stock                             |  | $           |      |      | $ | 745,800 | 

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

8

---



UNITED ENERGY
CORP.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 June
30, 2006 (unaudited) and the results of its operations for the three months
ended June 30, 2006 and 2005 (unaudited) and cash flows for the three months
ended June 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 ended June 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.

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

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 first 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
  June 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 three months ended June 30, 2006 was higher by
  $43,797 than if the Company had not adopted SFAS 123(R). The impact on both
  basic and diluted loss per share for the three months ended June 30, 2006 was
  $0.00 per share. 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). 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 $21,667 and $129,720
  for the three months ended June 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
three months ended June 30, 2006 and 2005.

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

|                                           |  |              |         |                     |   |           |   |       |           |   |   |           |  
|------------------------------------------ |  | ------------ | ------- | ------------------- | - | --------- | - | ----- | --------- | - | - | --------- | -
|                                           |  | Graphic Arts |         | Specialty Chemicals |   | Corporate |   | Total |          
|                                           |  |              |         |                     |   |           |   |       |          
|                                           |  |              |         |                     |   |           |   |       |           |   |   |           |  
|Revenues                                   |  | $            | 240     |                     | $ | 224,827   |   | $     |          |   | $ | 225,067   |  
|                                           |  |              |         |                     |   |           |   |       |           |   |   |           |  
|Gross profit                               |  | $            | 24      |                     | $ | 122,967   |   | $     |          |   | $ | 122,991   |  
|General and administrative                 |  |              | 15,968  |                     |   | 328,275   |   |       | 371,457   |   |   | 715,700   |  
|Depreciation, amortization
  and depletion |  |              |        |                     |   | 16,989    |   |       | 1,649     |   |   | 18,638    |  
|Interest income                            |  |              |        |                     |   |          |   |       | 44,548    |   |   | 44,548    |  
|Interest expense                           |  |              |        |                     |   |          |   |       | 855       |   |   | 855       |  
|                                           |  |              |         |                     |   |           |   |       |           |   |   |           |  
|Net loss                                   |  | $            | (15,944 | )                   | $ | (222,297  | ) | $     | (329,413  | ) | $ | (567,654  | )
|                                           |  |              |         |                     |   |           |   |       |           |   |   |           |  
|Cash and cash equivalents                  |  | $            |        |                     | $ |          |   | $     | 4,259,560 |   | $ | 4,259,560 |  
|Accounts receivable, net                   |  |              |        |                     |   | 254,758   |   |       |          |   |   | 254,758   |  
|Inventory, net                             |  |              | 7,620   |                     |   | 148,638   |   |       |          |   |   | 156,258   |  
|Note receivable, net                       |  |              | 14,476  |                     |   |          |   |       |          |   |   | 14,476    |  
|Prepaid expenses                           |  |              |        |                     |   |          |   |       | 67,626    |   |   | 67,626    |  
|Property and equipment, net                |  |              |        |                     |   | 95,704    |   |       | 35,799    |   |   | 131,503   |  
|Goodwill, net                              |  |              |        |                     |   | 15,499    |   |       |          |   |   | 15,499    |  
|Patents, net                               |  |              |        |                     |   | 320,112   |   |       |          |   |   | 320,112   |  
|Loans receivable                           |  |              |        |                     |   |          |   |       | 2,549     |   |   | 2,549     |  
|Deposits                                   |  |              |        |                     |   |          |   |       | 1,385     |   |   | 1,385     |  
|                                           |  |              |         |                     |   |           |   |       |           |   |   |           |  
|Total assets                               |  | $            | 22,096  |                     | $ | 834,711   |   | $     | 4,366,919 |   | $ | 5,223,726 |  
|                                           |  |              |         |                     |   |           |   |       |           |   |   |           |  
|Capital Expenditures                       |  | $            |        |                     | $ |          |   | $     |          |   | $ |          |  
|                                           |  |              |         |                     |   |           |   |       |           |   |   |           |  

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 June 30, 2005 and identifiable assets as of June 30, 2005 are as follows:

|                                           |  |                |         |                       |   |           |   |       |          |   |   |           |  
|------------------------------------------ |  | -------------- | ------- | --------------------- | - | --------- | - | ----- | -------- | - | - | --------- | -
|                                           |  | Graphic
  Arts |         | Specialty
  Chemicals |   | Corporate |   | Total |         
|                                           |  |                |         |                       |   |           |   |       |         
|Revenues                                   |  | $              | 271     |                       | $ | 76,339    |   | $     |         |   | $ | 76,610    |  
|                                           |  |                |         |                       |   |           |   |       |          |   |   |           |  
|Gross profit                               |  | $              | 271     |                       | $ | 14,622    |   | $     |         |   | $ | 14,893    |  
|General and administrative                 |  |                | 34,332  |                       |   | 466,444   |   |       | 220,646  |   |   | 721,422   |  
|Depreciation, amortization
  and depletion |  |                |        |                       |   | 14,917    |   |       | 2,328    |   |   | 17,245    |  
|Interest income                            |  |                |        |                       |   |          |   |       | 10       |   |   | 10        |  
|Interest expense                           |  |                |        |                       |   |          |   |       | 90,574   |   |   | 90,574    |  
|                                           |  |                |         |                       |   |           |   |       |          |   |   |           |  
|Net loss                                   |  | $              | (34,061 | )                     | $ | (466,739  | ) | $     | (313,538 | ) | $ | (814,338  | )
|                                           |  |                |         |                       |   |           |   |       |          |   |   |           |  
|Cash and cash equivalents                  |  | $              |        |                       | $ |          |   | $     | 215,208  |   | $ | 215,208   |  
|Accounts receivable, net                   |  |                | 74,295  |                       |   | 71,639    |   |       |         |   |   | 145,934   |  
|Inventory, net                             |  |                | 20,025  |                       |   | 119,345   |   |       |         |   |   | 139,370   |  
|Note receivable, net                       |  |                | 18,650  |                       |   |          |   |       |         |   |   | 18,650    |  
|Prepaid expenses                           |  |                |        |                       |   |          |   |       | 64,043   |   |   | 64,043    |  
|Property and equipment, net                |  |                |        |                       |   | 132,176   |   |       | 26,077   |   |   | 158,253   |  
|Goodwill, net                              |  |                |        |                       |   | 15,499    |   |       |         |   |   | 15,499    |  
|Patents, net                               |  |                |        |                       |   | 301,110   |   |       |         |   |   | 301,110   |  
|Deferred note costs                        |  |                |        |                       |   |          |   |       | 180,514  |   |   | 180,514   |  
|Deposits                                   |  |                |        |                       |   |          |   |       | 1,385    |   |   | 1,385     |  
|                                           |  |                |         |                       |   |           |   |       |          |   |   |           |  
|Total assets                               |  | $              | 112,970 |                       | $ | 639,769   |   | $     | 487,227  |   | $ | 1,239,966 |  
|                                           |  |                |         |                       |   |           |   |       |          |   |   |           |  
|Capital Expenditures                       |  | $              |        |                       | $ | 9,116     |   | $     |         |   | $ | 9,116     |  
|                                           |  |                |         |                       |   |           |   |       |          |   |   |           |  

|                         |  |         |         |      |   |        | 
|------------------------ |  | ------- | ------- | ---- | - | ------ | 
|                         |  | REVENUE |        
|GEOGRAPHICAL INFORMATION |  | 2006    |         | 2005 |  
|                         |  |         |         |      |  
|                        
|U.S.                     |  | $       | 225,067 |      | $ | 76,610 | 
|Non U.S.                 |  |         |        |      |   |       | 
|                         |  |         |         |      |   |        | 
|Total revenue            |  | $       | 225,067 |      | $ | 76,610 | 
|                         |  |         |         |      |   |        | 

12

---



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

4. INVENTORY

Inventory
consists of the following:

| |                     |  |                  |         |                  |   |         | 
| | ------------------- |  | ---------------- | ------- | ---------------- | - | ------- | 
| |                     |  | June 30, 
  2006 |         | March 31,
  2006 |  
| |                     |  |                  |         |                  |  
|
| | Blended
  chemicals |  | $                | 116,765 |                  | $ | 68,255  | 
| | Raw
  materials     |  |                  | 39,493  |                  |   | 38,702  | 
| |                     |  |                  |         |                  |   |         | 
| | Total
  inventory   |  | $                | 156,258 |                  | $ | 106,957 | 
| |                     |  |                  |         |                  |   |         | 

5. RELATED-PARTY TRANSACTIONS

The
Company has an amount due to Robert Seaman, a major shareholder and former
director of the Company. Amount due to the related party as of June 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 265,000 shares of common stock available for future grant as of June 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               |  |      | 125.8 |      |  | 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 three
months ended June 30, 2006.

Summary Stock Option Activity

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

|                                             |  |                 |           |                              |   |                                                 |  |                         |      |  |   |           | 
|-------------------------------------------- |  | --------------- | --------- | ---------------------------- | - | ----------------------------------------------- |  | ----------------------- | ---- |  | - | --------- | 
|                                             |  | Number ofShares |           | WeightedAverageExercisePrice |   | WeightedAverageRemainingContractualLife (Years) |  | AggregateIntrinsicValue |     
|                                             |  |                 |           |                              |   |                                                 |  |                         |     
|Options outstanding April
  1, 2006          |  |                 | 3,185,000 |                              | $ | 1.11                                            |  |                         | 8.48 |  |   |           | 
|                                             |  |                 |           |                              |   |                                                 |  |                         |      |  |   |           | 
|Granted                                      |  |                 | 250,000   |                              | $ | 2.05                                            |  |                         |      |  |   |           | 
|                                            
|Exercised                                    |  |                 | (12,500   | )                            |   |                                                 |  |                         |      |  |   |           | 
|                                             |  |                 |           |                              |   |                                                 |  |                         |      |  |   |           | 
|Options outstanding June
  30, 2006          |  |                 | 3,422,500 |                              | $ | 1.17                                            |  |                         | 8.36 |  |   |           | 
|                                             |  |                 |           |                              |   |                                                 |  |                         |      |  |   |           | 
|Vested and expected to
  vestend of quarter |  |                 | 3,185,000 |                              | $ | 1.17                                            |  |                         | 8.36 |  | $ | 1,046,500 | 
|                                             |  |                 |           |                              |   |                                                 |  |                         |      |  |   |           | 
|Exercisableend of quarter                   |  |                 | 2,879,340 |                              | $ | 1.19                                            |  |                         | 7.93 |  | $ | 837,903   | 
|                                             |  |                 |           |                              |   |                                                 |  |                         |      |  |   |           | 

Options
outstanding at June 30, 2006 have an exercise price ranging between $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 June 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 June 30, 2006. This amount changes based upon
changes in the fair market value of United Energys stock. As of June 30, 2006,
$241,431 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 ended June 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 June 30, 2005 |         
|                                                                                                          |  |                                          |         
|                                                                                                         
|Net loss as reported                                                                                      |  | $                                        | (814,338 | )
|                                                                                                          |  |                                          |          |  
|Deduct:                                                                                                   |  |                                          |          |  
|Total stock based employee compensation
  expense determined under fair value based method for all awards |  |                                          | (163,756 | )
|                                                                                                          |  |                                          |          |  
|                                                                                                         
|Pro forma loss                                                                                            |  | $                                        | (978,094 | )
|                                                                                                          |  |                                          |          |  
|Basic and diluted loss per common share                                                                   |  |                                          |          |  
|                                                                                                          |  |                                          |          |  
|As reported                                                                                               |  | $                                        | (0.03    | )
|                                                                                                          |  |                                          |          |  
|Pro forma                                                                                                 |  | $                                        | (0.04    | )

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.

Overview

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

|  |                                                                                                                 
|- | ----------------------------------------------------------------------------------------------------------------
|o | KH-30 paraffin dispersant
  for the oil industry and related products;                                          
|  |                                                                                                                 
|o | Uniproof specialty-coated
  proofing paper for the printing industry; and                                       
|  |                                                                                                                 
|o | 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 which 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.
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 $225,067 for the quarterly period ended June 30, 2006 and $76,610
  for the quarterly period ended June 30, 2005.

16

---



RESULTS OF OPERATIONS

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

Revenues.
  Revenues for the three months ended June 30, 2006 were $225,067, a $148,457,
  or 194% increase from revenues of $76,610 in the comparable three months of
  2005. The increase in revenues was due to higher sales of Specialty Chemicals,
  primarily to one customer. Specialty Chemicals sales, which include sales of
  our KH-30 products and Green Globe/Qualchem military sales, increased by $148,488
  to $224,827, or 195% compared to $76,339 in the comparable three months in the
  previous year. This increase was due primarily to higher sales of our KH-30
  family of oil dispersant products. There were no sales of our Uniproof proofing
  paper during the three months ended June 30, 2006 and 2005.

Cost of Goods Sold. Cost of goods sold
increased $40,359, or 65% to $102,076 or 45% of sales, for the three months
ended June 30, 2006 from $61,717, or 81% of sales for the three months ended
June 30, 2005. The increase in cost of goods sold and the lower percentage of
sales was due to the higher sales levels.

Gross Profit. Gross profit for the three
months ended June 30, 2006, increased by $108,098, or 726% to $122,991 or 55%
of sales compared with $14,893 or 19% 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

General and Administrative Expenses.
General and administrative expenses decreased $5,722 to $715,700 or 318% of
sales for the three months ended June 30, 2006 compared with $721,422 or 942%
of sales for the three months ended June 30, 2005. The decrease in general and
administrative expenses is primarily related to a decrease in professional fees
and lower marketing expenses partially offset by higher salaries and office
expense due to the option costs charged for employees, the exercise of options,
an increase in bad debts and higher travel and entertainment expenses.

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

Interest
  Income. The Company had interest income of $44,548 for the three months
  ended June 30, 2006 compared with $10 in the corresponding period in 2005. The
  increase was due to the increased cash level in connection with the private
  placement in March 2006.

Interest
  Expense. The Company had interest expense of $855 for the three months ended
  June 30, 2006 compared with interest expense of $90,574 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 June 30, 2006 resulted in a net loss of $567,654
  or $0.02 per share as compared to a net loss of $814,338 or $0.03 per share
  for the three months ended June 30, 2005. The average number of shares of common
  stock used in calculating earnings per share increased 7,497,484 shares to 31,026,956
  as a result of 2,000,000 shares issued for the conversion of the note payable
  and 5,400,000 shares issued in connection with the private placement.

17

---



Liquidity and Capital Resources

As
of June 30, 2006, the Company had $4,259,560 in cash and cash equivalents, as
compared to $5,194,748 at March 31, 2006.

The
$935,188 decrease in cash and cash equivalents was due to net cash used in
operating activities of $746,878, net cash used in investing activities of
$2,185 and net cash used in financing activities of $186,125. Cash used in
investing activities consisted of employee loans of $2,185. Cash used in
financing activities 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 June 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 three
months ended June 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.

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.

18

---



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

As
of June 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.

During
  our first quarter, in connection with reportable conditions above, we have subsequently
  enhanced our internal controls over financial reporting as described above,
  which materially affected, and is reasonably likely to materially affect, our
  internal control over financial reporting.

19

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PART II

OTHER INFORMATION

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

| |                                                                                                                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | During
  the quarter ended June 30, 2006, a former employee of the Company exercised
  stock options to purchase 12,500 shares at an exercise price of $1.11 per
  share. The common stock was issued pursuant to an exemption provided by Section
  4(2) of Securities Act of 1933, as amended, and Regulation D promulgated
  thereunder.

|        |         
|------- | --------
|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.

20

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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:     August 14, 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)

21

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