UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-K




(Mark
one)




x ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934




For
the fiscal year ended March 31, 2010




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




For the
transition period from___________ to ___________




Commission
file number:  000-30841




UNITED
ENERGY CORP.


(Name of
registrant as specified in its charter)




Nevada
                                
                                22-3342379(State
      or other jurisdiction of
                                  incorporation
      or organization)
                                
                                (I.R.S.
      Employer
                                  Identification
      No.)600
      Meadowlands Parkway, #20Secaucus,
      New Jersey
                                
                                07094(Address
      of principal
                                  executive
      offices)
                                
                                (Zip
      Code)


(201)-842-0288


(Registrant’s
telephone number, including area code)




Securities
registered Under Section 12(b) of the Act


Title of each class
                
                Name of each exchange on which
      registeredNone
                
                None





Securities
registered Under Section 12(g) of the Act:




Title of each
class




Common
Stock, par value


$.01 per
share




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes  ̈ No
x




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act. Yes  ̈ No
x




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




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).  Yes  ̈  No
x




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




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  ̈ No
x




The
aggregate market value of approximately 24,267,782 shares held by non-affiliates
of the registrant on September 30, 2009, based on the average bid and asked
price of the common shares on the OTC Bulletin Board of $0.21 per share on
September 30, 2009 was approximately $5,338,912.




As of
July 14, 2010, the registrant had 31,504,449 common shares
outstanding.







UNITED
ENERGY CORP.




2009
FORM 10-K ANNUAL REPORT




TABLE
OF CONTENTS




PagePART
      IITEM
      1.
                            DESCRIPTION
      OF BUSINESS
                            
                            1ITEM
      1A.
                            RISK
      FACTORS
                            
                            4ITEM
      1B.
                            UNRESOLVED
      STAFF COMMENTS
                            
                            9ITEM
      2.
                            PROPERTIES
                            
                            9ITEM
      3.
                            LEGAL
      PROCEEDINGS
                            
                            10ITEM
      4.
                            (Removed
      and Reserved)
                            
                            10PART
      IIITEM
      5.
                            MARKET
      FOR  REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
      AND  ISSUER PURCHASES OF EQUITY SECURITIES
                            
                            11ITEM
      6.
                            SELECTED
      FINANCIAL DATA
                            
                            13ITEM
      7.
                            MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATION
                            
                            13ITEM
      7A.
                            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
                            
                            18ITEM
      8.
                            FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA
                            
                            18ITEM
      9.
                            CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
                            
                            18ITEM
      9A(T).
                            CONTROLS
      AND PROCEDURES
                            
                            19ITEM
      9B.
                            OTHER
      INFORMATION
                            
                            19PART
      IIIITEM
      10.
                            DIRECTORS,
      EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
                            
                            20ITEM
      11.
                            EXECUTIVE
      COMPENSATION
                            
                            22ITEM
      12.
                            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS ANDMANAGEMENT AND
      RELATED STOCKHOLDER MATTERS
                            
                            24ITEM
      13.
                            CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE
                            
                            27ITEM
      14.
                            PRINCIPAL
      ACCOUNTANT FEES AND SERVICES
                            
                            30PART
      IVITEM
      15.
                            EXHIBITS,
      FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
                            
                            31





PART
I




ITEM
1. DESCRIPTION OF BUSINESS




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. (“Green Globe”), 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 provide our K-Line of Chemical Products and our Green
Globe Chemical Products to our customers and generated revenues of $1,771,720
for the fiscal year ended March 31, 2010 and $1,206,321 for the fiscal year
ended March 31, 2009.




Organizational
History




We were
originally incorporated in Nevada in 1971 as Aztec Silver Mining Co. We engaged
in the manufacturing and distribution of printing equipment from 1995 through
1998.  During that period, we began to develop specialty chemical
products for use in the printing industry.  In March 1998, we
discontinued our printing equipment operations and changed our business focus to
the development of specialty chemical products. In March 2007, we discontinued
the sale of our Uniproof proofing paper.




Business
Operations and Principal Products




Our
principal products include our K-Line of Chemical Products for the oil industry
and our Green Globe Chemical Products, which consist of a variety of solvents,
paint strippers and cleaners.




K-Line
of Chemical Products




KH-30 is
a mixture of modified oils, dispersants and oil-based surfactants designed to
control paraffin and asphaltene deposits in oil wells.  When applied
in accordance with our recommended procedures, KH-30 has resulted in substantial
production increases in paraffin-affected oil and gas wells by allowing for a
faster penetration of paraffin and asphaltene deposits. KH-30 disperses and
suspends paraffin and asphaltene in a free-flowing state and prevents solids
from sticking to each other or to oil well equipment.   KH-30 is
patented in the United States and other major oil producing
countries.





KX-100 is
a proprietary formula where contact time is limited for removal of a plug of
paraffin or asphaltene. It is fast acting and an effective dispersant that can
be used in temperatures as low as –25F.  It can be used in nearly any
application.




SR-3
Scale and Rust Remover is a fast acting corrosion inhibited product developed to
remove both calcium carbonate and calcium sulfate salt deposits.  SR-3
is a broad spectrum, water-soluble scale remover designed to rapidly alleviate
hard and soft deposits and to restore full flow capacity.  The product
is also designed to remove rust while adding protection against further rusting
by providing a phosphatized surface on ferrous metals.


1





HPD-1
PLUS is specifically formulated to offer prompt and effective remediation of
tough clogging problems with upper medium to high molecular weight paraffin. It
performs multi-functional characteristics to impart wettability,penetration and
dispersion, and is an exceptional solvency for paraffin rich heavy sludge with
the proper treatment dosage and application.





GSA Gun
& Bore Cleaner is a proprietary formula, which is a safer, and more
effective bore and chamber cleaner. It can be used on everything from small
handguns to 16” guns. Currently, GSA Gun & Bore Cleaner is being marketed
and distributed by TopDuck Products LLC under their trademark “Gunzilla
BC-10”.




Green
Globe Chemical Products




Leak
Detection Compound Type I and II is a gas leak detection compound that is
compatible with oxygen.  It is intended for use in detecting leaks in
both high and low-pressure oxygen systems in aircraft and other related oxygen
systems




Corrosion
Inhibitor is an additive intended for use with anti-freeze in water at a
concentration of 3% to retard corrosion.




Corrosion
Removing Compound Type I, II and III are corrosion removing and metal
conditioning compounds, which when diluted with water, will remove rust from
ferrous metal surfaces.




Ethylene
Glycol/Water Coolant is a mixture of Ethylene Glycol and distilled water to
provide a coolant mixture for use in radar domes used by the
military.




NPX
Powder Coating is an effective reusable paint stripper.  NPX is a
powerful blend of chemicals which we believe will out perform all other aluminum
safe strippers in the powder coat industry and provide a safe method of
stripping metals, including magnesium, zinc, high strength steel and
titanium.  NPX does not contain any methylene chloride, phenol,
chromates or caustics.




Green
Globe products are sold under the trade name QualchemTM. 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.





Manufacturing
and Sales




All of
the raw materials necessary for the manufacture of our products are generally
available from multiple sources. Although we have negotiated favorable
arrangements with some of our current suppliers, (which include Pride Solvents
and Chemical Co. of NJ Inc., Hy-Test Packaging Corp, and Air Products and
Chemicals), we would have to negotiate new arrangements if one or more of our
current suppliers were no longer able to supply these raw materials to
us.  We do not own any special manufacturing
facilities.  Our chemical products are generally manufactured by
contract blenders at a number of different locations.  This method of
manufacturing has reduced the need for us to invest in facilities and to hire
the employees to staff them.  Chemical blenders are relatively easy to
replace and are bound by confidentiality agreements, where appropriate, which
obligate them not to disclose or use our proprietary information.




We are
not responsible for any environmental expenditure with respect to the
manufacturing of our products.  First, the chemical products that we
use are generally “environmentally friendly” products in that they are low in
toxicity and rank high in biodegradability.  Further, any
environmental issues involved in manufacturing are the responsibility of the
blending facilities, provided they receive adequate and accurate information
from us as to the components of the chemicals involved, however, there can be no
assurance that we will not be liable as we are subject to various foreign,
federal, state and local law and regulations relating to the protection of the
environment.




In the
fiscal year ending March 31, 2010, Petrobras America Inc., Solarium Oil
Solutions, Facility Solutions LTD. and Ainex Corporation purchased our KX-100
oil cleaning products, which accounted for approximately 68.1% of our total
customer sales.  In the fiscal year ending March 31, 2009, Petrobras
America Inc., Nalco Company and United Energy Petroleum Services LTD. purchased
our KX-100 oil cleaning products, which accounted for approximately 50.2% of our
total customer sales.


2


Except
for these current customers, no other single entity has accounted for more than
10% of our sales during any of the fiscal years ended March 31, 2010 and
2009.




All of
our products are sold in U.S. dollars and, therefore, we have had no foreign
currency fluctuation risk.




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




As of
March 31, 2010, the Company’s backlog included $351,494 of chemical sales.
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.




Marketing
and Distribution




We have
engaged the services of independent contractors to market our K-Line of Chemical
Products.  These contractors work under various non-exclusive
commission and distribution agreements and have substantial contacts among oil
well owners and major oil companies in the United States, Mexico, South America,
Africa, Europe and the Middle East.  These contractors earn a
commission based upon the sales value of the products that they
sell.  These independent contractors use our marketing materials,
brochures and website to interest clients and to describe the attributes of our
products.




Although
we have not achieved the volume of sales we had anticipated for the oil
dispersant products, there have been significant barriers to entry in this
market.  Most of these potential customers require substantial testing
of our product to prove its efficacy at cleaning wells, tanks and flow
lines.  In many cases, additional laboratory testing is required to
prove that our chemical products are compatible with refinery systems and will
not interfere with certain chemical processes and safety requirements of the
potential clients.  This process of testing has taken a great deal
longer than was originally anticipated.  We believe that we have made
significant inroads and currently expect a higher volume of sales in the next
fiscal year ending March 31, 2011, although there can be no assurance that sales
will increase in fiscal 2011.




Research
and Development




Our
K-Line of Chemical Products for the oil industry are developed and ready for
market.  All of these products are the result of research and
development.  Expenditures were paid for research and development
costs in the amounts of $222,476 and $329,186 for the fiscal years ended March
31, 2010 and 2009, respectively.  We have had available the services
of one research chemist and one analytical chemist, as well as one petroleum
engineer, to lead in the development of our products.  A significant
amount of market adaptation has taken place in the field involving the
development of application procedures for products.  We do not
anticipate having to make significant research and development expenditures on
existing products in the future.  However, we do expect to continue to
develop new products to complement our existing product lines.




Competition




We
compete directly or indirectly with other producers of specialty chemical
products with similar uses, most of which are more established companies and
have greater resources than we have.  Generally, we attempt to compete
by offering what we hope to be lower prices and better
service.  However, our KH-30, KX-100, KX-91 and KH-30S products for
the oil industry are often more expensive, and with these products we attempt to
compete by emphasizing product effectiveness and environmental
safety.




3


Proprietary
Technologies




With
respect to our formulations, which are proprietary, we have patented our KH-30
oil well cleaner in the United States and other major oil producing
countries.





In
addition to applying for patent protection on our KH-30 product, we have also
registered “KH-30” as a trademark.




Employees




As of
March 31, 2010 we employed eight people on a full-time basis and had available
the services of two other individuals under consulting or product/production
cooperation arrangements.  The latter arrangement is meant to include
a situation where a chemist, engineer or significant marketing person is engaged
by an organization under contract with us to manufacture or market one or more
of our products. None of our employees are represented by a union.  We
consider our relations with our employees to be good.




Available
Information




We file
annual, quarterly and current reports, information statements and other
information with the Securities and Exchange Commission (the “SEC”). The public
may read and copy any materials we file with the SEC at the SEC’s Public
Reference Room at Station Place, 100 F Street, N.E., Washington, D.C.
20549. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also
maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC. The address of that site is http://www.sec.gov.




ITEM
1A. RISK FACTORS




An
investment in our common stock involves a high degree of risk. You should
carefully consider the following material risks, before you decide to buy our
common stock. If any of the following risks actually occur, our business,
results of operations and financial condition would likely suffer. In these
circumstances, the market price of our common stock could decline and you may
lose all or part of your investment.




WE
HAD A CURRENT ACCUMULATED DEFICIT OF $23,546,072 AS OF MARCH 31, 2010 AND IF WE
CONTINUE TO INCUR OPERATING LOSSES, WE MAY BE UNABLE TO SUPPORT OUR BUSINESS
PLAN, WHICH WILL HAVE A DETRIMENTAL EFFECT ON OUR STOCK.




We
have incurred losses in each of our last three fiscal years. As of March 31,
2010, we had an accumulated deficit of $23,546,072.  If we continue to
incur operating losses and fail to become a profitable company, we may be unable
to support our business plan, namely to market our K-Line of Chemical Products
for the oil and gas industry, and the Green Globe Chemical Products. We incurred
net losses from continuing operations of $1,464,892 and $1,338,237 in the fiscal
years ended March 31, 2010 and 2009, respectively. Our future profitability
depends in large part on our ability to market and support our Specialty
Chemical Products which we derive the majority of our revenues. We cannot assure
you that we will achieve or sustain significant sales or profitability in the
future.




WE
ARE DEPENDENT ON OUR ABILITY TO RAISE CAPITAL FROM EXTERNAL FUNDING
SOURCES.  IF WE ARE UNABLE TO CONTINUE TO OBTAIN NECESSARY CAPITAL
FROM OUTSIDE SOURCES, WE WILL BE FORCED TO REDUCE OR CURTAIL
OPERATIONS.




We have limited financial
resources.  As a result we need to obtain additional capital from
outside sources to continue operations and commercialize our business
plan.  We cannot assure that adequate additional funding will be
available.  If we are unable to continue to obtain needed capital from
outside sources, we will be forced to reduce or curtain our
operations.




Our ability to execute our business
plan depends upon our ability to obtain financing through




·
            bank
      or other debt financing,


·
            equity
      financing,


4


·
            strategic
      relationships and/or


·
            other
    means.





OUR
INDEPENDENT AUDITORS HAVE EXPRESSED THAT THERE IS SUBSTANTIAL DOUBT ABOUT OUR
ABILITY TO CONTINUE AS A GOING CONCERN.





Our
independent auditors issued an explanatory paragraph expressing substantial
doubt about our ability to continue as a going concern on our financial
statements for fiscal 2010, based on the significant operating losses and a lack
of external financing. Neither our March 31, 2010 nor March 31, 2009 financial
statements include any adjustments that resulted from the outcome of this
uncertainty.  Our inability to continue as a going concern would
require a restatement of assets and liabilities on a liquidation basis, which
would differ materially and adversely from the going concern basis on which our
consolidated financial statements have been prepared.




THERE
ARE SIGNIFICANT OBSTACLES TO ENTERING THE OIL AND GAS PRODUCING INDUSTRY THAT
HAVE CONTRIBUTED TO THE SLOW PACE AT WHICH OUR K-LINE OF CHEMICAL PRODUCTS ARE
BEING INTRODUCED TO THE MARKET.




Our
business plan is focused largely on marketing efforts for our K-Line of Chemical
Products for the oil and gas industry. Although we believe that the application
of our K-Line of Chemical Products for the oil and gas industry on a continuous
basis will result in higher production and lower operating costs, the
introduction of our K-Line of Chemical Products into the oil and gas producing
industry has been extremely difficult. Many entrenched players such as the “hot
oilers” and the major oil service companies that benefit from high markups on
their proprietary products have no incentive to promote the use of our chemical
products. Moreover, oil production engineers are extremely reluctant to risk
damage to a well from a product that does not have the endorsement of a major
enterprise. Consequently, the pace of introduction of our K-Line of Chemical
Products has been much slower than we initially anticipated. If we and our
K-Line of Chemical Products marketing partners are unable to successfully
achieve market acceptance our products, our future results of operations and
financial condition will be adversely affected.




THE
SUCCESS OF OUR K-LINE OF CHEMICAL PRODUCTS WILL BE HIGHLY DEPENDENT UPON THE
LEVEL OF ACTIVITY AND EXPENDITURES IN THE OIL AND NATURAL GAS INDUSTRIES AND A
DECREASE IN THE LEVELS THEREOF WOULD, IN ALL LIKELIHOOD, ADVERSELY IMPACT SALES
OF OUR K-LINE OF CHEMICAL PRODUCTS.




We
anticipate that demand for our oil and gas-cleaning product will depend on the
levels of activity and expenditures in the industry, which are directly affected
by trends in oil and natural gas prices. We anticipate that demand for our
K-Line of Chemical Product sales will be particularly sensitive to the level of
development, production and exploration activity of, and corresponding capital
spending by, oil and natural gas companies. Prices for oil and gas are subject
to large fluctuations in response to relatively minor changes in the supply of
and demand for oil and gas, market uncertainty, political stability and a
variety of other factors that are beyond our control. Any prolonged reduction in
oil and natural gas prices will depress the level of exploration, and
development and production activity. Lower levels of activity are expected to
result in a corresponding decline in the demand for our oil and gas well
products, which could have an adverse impact on our prospects, results of
operations and financial condition. Factors affecting the prices of oil and
natural gas include:




•
            worldwide political, military and
      economic conditions, including the ability of OPEC (the Organization of
      Petroleum Exporting Countries) to set and maintain production levels and
      prices for oil and gas;




•
            overall levels of global economic
      growth and activity;




•
            global weather
      conditions;




5




•
            the level of production by
      non-OPEC countries;




•
            the policies of governments
      regarding the exploration for and production and development of their oil
      and natural gas reserves;
and




•
            actual and perceived changes in
      the supply of and demand for oil and natural
  gas.




WE
MAY NOT BE ABLE TO GENERATE SUBSTANTIAL REVENUES FROM OUR GREEN GLOBE CHEMICAL
PRODUCTS.




Our
sales to date have been substantially dependent on sales of our K-Line of
Chemical Products. Sales of Green Globe Chemical Products accounted for
approximately 11% of revenues for the fiscal year ended March 31,
2010.  The U.S. military represented approximately 86% of such
revenues from the sales of our Green Globe Chemical Products for the fiscal year
ended March 31, 2010.  If we fail to develop significant revenue from
Green Globe Chemical Products or the U.S. military ceases or decreases its use
of our Green Globe Chemical Products, our business plan and financial condition
will be adversely affected.




IF
OUR STRATEGIC PARTNERS DO NOT EFFECTIVELY MARKET OUR PRODUCTS, WE WILL NOT
GENERATE SIGNIFICANT SALES OR PROFITS AND WE DO NOT CURRENTLY HAVE THE INTERNAL
RESOURCES TO MARKET OUR PRODUCTS DIRECTLY.




We
utilize third parties to assist in marketing, selling and distributing our
products. We believe that the establishment of a network of third party
strategic partners, particularly abroad, with extensive and specific knowledge
of the various applications in the oil and gas industry is important for our
success. We cannot assure you that our current or future strategic partners will
purchase our products at sufficient levels or provide us with adequate support.
If one or more of our partners under performs or if any of our strategic
relationships are terminated or otherwise disrupted, our operating performance,
results of operations and financial condition will be adversely
affected.




WE
DEPEND ON A SMALL NUMBER OF CUSTOMERS FOR A SUBSTANTIAL PORTION OF OUR REVENUES,
BUT WE HAVE NO LONG TERM CONTRACTS OR BINDING PURCHASE COMMITMENTS FROM THESE
CUSTOMERS.




We
currently have a limited number of recurring customers for our products, none of
whom have entered into long-term contracts or binding purchase commitments with
us. Our four largest customers accounted for 68% of our revenues for fiscal year
ended March 31, 2010 and our three largest customers accounted for 50% of our
revenues for the fiscal year ended March 31, 2009.




WE
RELY ON THIRD PARTIES FOR THE RAW MATERIALS NECESSARY TO MAKE OUR PRODUCTS,
LEAVING US POTENTIALLY VULNERABLE TO SUBSTANTIAL COST INCREASES AND
DELAYS.




All
of the raw materials necessary for the manufacture of our products are generally
available from multiple sources. We have negotiated favorable arrangements with
our current suppliers. If one or more of our current suppliers were no longer
able to supply the raw materials that we need, we would be required to negotiate
arrangements with alternate suppliers, which would likely include some cost or
delay and could be substantial. In addition, no assurance can be given that any
alternative arrangements that we secure would be on terms as favorable as our
current arrangements.




WE
DEPEND ON INDEPENDENT MANUFACTURERS OF OUR PRODUCTS; ANY PROLONGED INTERRUPTION
IN THEIR BUSINESS COULD CAUSE US TO LOSE OUR CUSTOMERS.




We
do not own any manufacturing facilities. Our chemical products are generally
manufactured by contract blenders at a number of different facilities. Chemical
blenders are relatively easy to replace. While we believe these facilities have
the capacity to meet our current production needs and also meet applicable
environmental regulations, we cannot be certain that these facilities will
continue to meet our needs or continue to comply with environmental laws. In
addition, these facilities are subject to certain risks of damage, including
fire, which would disrupt production of our products. To the extent we are
forced to find alternate facilities, it would likely involve delays in
manufacturing and potentially significant costs.




6




The
chemical blenders that manufacture our products are bound by confidentiality
agreements that obligate them not to disclose or use our proprietary
information. A breach of one or more of these agreements could have a
detrimental effect on our business and prospects.




ENVIRONMENTAL
PROBLEMS AND LIABILITIES COULD ARISE AND BE COSTLY FOR US TO CLEAN
UP.




We
are subject to various foreign, federal, state and local laws and regulations
relating to the protection of the environment, including the Industrial Site
Recovery Act, a New Jersey statute requiring clearance by the state prior to the
sale of any industrial facility. These laws provide for retroactive strict
liability for damages to natural resources or threats to public health and
safety, rendering a party liable without regard to its negligence or fault.
Sanctions for noncompliance may include revocation of permits, corrective action
orders, and administrative or civil penalties or even criminal prosecution. We
have not, to date, incurred any serious liabilities under environmental
regulations and believe that we are in substantial compliance therewith.
Nevertheless, we cannot be certain that we will not encounter environmental
problems or incur environmental liabilities in the future that could adversely
affect our business.




BECAUSE
WE ARE SMALLER AND HAVE FEWER FINANCIAL AND MARKETING RESOURCES THAN MANY OF OUR
COMPETITORS, WE MAY NOT BE ABLE TO SUCCESSFULLY COMPETE IN THE EXTREMELY
COMPETITIVE CHEMICAL INDUSTRIES.




We
compete directly or indirectly with other producers of specialty chemical
products, most of which are or have aligned themselves with more established
companies, have greater brand recognition and greater financial and marketing
resources. Generally, we attempt to compete by offering what we hope to be lower
prices and better service. However, the prices for our K-Line of Chemical
Products and Green Globe Chemical Products are higher than competing products;
therefore, we attempt to compete by emphasizing product effectiveness and
environmental safety.




WE
MAY NOT BE ABLE TO RETAIN OUR EXECUTIVE OFFICERS WHO WE NEED TO SUCCEED, AND
ADDITIONAL QUALIFIED PERSONNEL ARE EXTREMELY DIFFICULT TO ATTRACT.




Our
performance depends, to a significant extent, upon the efforts and abilities of
our executive officers.  We do not maintain any key man insurance on
their lives for our benefit. The loss of the services of our executive officers
could have a serious and adverse effect on our business, financial condition and
results of operations. Our success will also depend upon our ability to recruit
and retain additional qualified senior management personnel. Competition is
intense for highly skilled personnel in our industry, and accordingly, no
assurance can be given that we will be able to hire or retain sufficient
personnel.




OUR
MANAGEMENT OWNS A SUBSTANTIAL AMOUNT OF OUR STOCK AND IS CAPABLE OF INFLUENCING
OUR BUSINESS AND AFFAIRS.




Our
directors and executive officers beneficially own approximately 46.9% of our
outstanding common stock. As such, they will be able to significantly influence
the election of the members of our board of directors and the outcome of
corporate actions that require shareholder approval, such as mergers and
acquisitions. In addition, Pursuant to the terms of the Company’s Series A
Convertible Preferred Stock (the “Preferred Stock”) and an agreement with
Sherleigh Associates Profit Sharing Plan (“Sherleigh”), as holder of all of the
outstanding shares of Preferred Stock, Sherleigh has the right to and has
designated a majority of the members of our board of directors.  Jack
Silver, one of our directors, as the trustee of Sherleigh, has voting control
over the shares of Preferred Stock held by Sherleigh.  The level of
ownership by our directors and executive officers, together with particular
provisions of our articles of incorporation, bylaws and Nevada law, may have a
significant effect in delaying, deferring or preventing any change in control
and may adversely affect the voting and other rights of our other
shareholders.




7




IF
WE CANNOT PROTECT OUR PROPRIETARY RIGHTS AND TRADE SECRETS OR IF WE WERE FOUND
TO BE INFRINGING ON THE PROPRIETARY RIGHTS OF OTHERS, OUR BUSINESS WOULD BE
SUBSTANTIALLY HARMED.




Our
success depends in large part on our ability to protect the proprietary nature
of our products, preserve our trade secrets and operate without infringing the
proprietary rights of third parties. If other companies obtain and copy our
technology or claim that we are making unauthorized use of their proprietary
technology, we may become involved in lengthy and costly disputes. If we are
found to be infringing on the proprietary rights of others, we could be required
to seek licenses to use the necessary technology. We cannot assure you that we
could obtain these licenses on acceptable terms, if at all. In addition, the
laws of some foreign countries may not provide adequate protection for our
proprietary technology.




To
protect our intellectual property, we seek patents and enter into
confidentiality agreements with our employees, manufacturers and marketing and
distribution partners. We cannot assure you that our patent applications will
result in the successful issuance of patents or that any issued patents will
provide significant protection for our technology and products. In addition, we
cannot assure you that other companies will not independently develop competing
technologies that are not covered by our patents. There is also no assurance
that confidentiality agreements will provide adequate protection of our trade
secrets, know-how or other proprietary information. Any unauthorized disclosure
and use of our proprietary technology, whether in breach of an agreement or not,
could have an adverse effect on our business, prospects, results of operations
and financial condition.




THE
PUBLIC MARKET FOR OUR COMMON STOCK HAS BEEN CHARACTERIZED BY A LOW VOLUME OF
TRADING AND OUR STOCKHOLDERS MAY NOT BE ABLE TO RESELL THEIR SHARES AT OR ABOVE
THE PRICE AT WHICH THEY PURCHASED THEIR SHARES, IF AT ALL.




Historically,
the volume of trading in our common stock has been low. A more active public
market for our common stock may not develop or, even if it does in fact develop,
may not be sustainable. The market price of our common stock may fluctuate
significantly in response to factors, some of which are beyond our control.
These factors include:




•
            product liability claims and
      other litigation;




•
            the announcement of new products
      or product enhancements by us or our
  competitors;




•
            developments concerning
      intellectual property rights and regulatory
    approvals;




•
            quarterly variations in our
      competitors’ results of
operations;




•
            developments in our industry;
      and




•
            general market conditions and
      other factors, including factors unrelated to our own operating
      performance.




Recently,
the stock market in general has experienced extreme price and volume
fluctuations. In particular, market prices of securities of specialty chemical
products companies have experienced fluctuations that are often unrelated to or
disproportionate from the operating results of these companies. Continued market
fluctuations could result in extreme volatility in the price of shares of our
common stock, which could cause a decline in the value of our shares. Price
volatility may be worse if the trading volume of our common stock is
low.




8




WE
HAVE OUTSTANDING WARRANTS AND OPTIONS, AND WE ARE ABLE TO ISSUE “BLANK CHECK”
PREFERRED STOCK, THAT COULD BE ISSUED RESULTING IN THE DILUTION OF COMMON STOCK
OWNERSHIP.




As of June 30, 2010, we had outstanding
Preferred Stock, warrants and options that, when exercised and converted, could
result in the issuance of up to 24,103,363 additional shares of common
stock.  In addition, our Articles of Incorporation allow the board of
directors to issue up to 100,000 shares of preferred stock and to fix the
rights, privileges and preferences of those shares without any further vote or
action by the shareholders. We currently have 3 shares of Preferred Stock
outstanding. To the extent that outstanding warrants, options and preferred
stock or similar instruments or convertible preferred stock issued in the future
are exercised or converted, these shares will represent a dilution to the
existing shareholders.  The preferred stock could hold dividend
priority and a liquidation preference over shares of our common
stock.   Thus, the rights of the holders of common stock are and will
be subject to, and may be adversely affected by, the rights of the holders of
any preferred stock. Any such issuance could be used to discourage an
unsolicited acquisition proposal by a third party.




OUR
COMMON STOCK IS CONSIDERED A “PENNY STOCK” AND MAY BE DIFFICULT TO SELL WHEN
DESIRED.




The
SEC has adopted regulations that define a “penny stock”, generally, to be an
equity security that has a market price of less than $5.00 per share or an
exercise price of less than $5.00 per share, subject to specific exemptions. The
market price of our common stock has been less than $5.00 per share. This
designation requires any broker or dealer selling our securities to disclose
certain information concerning the transaction, obtain a written agreement from
the purchaser and determine that the purchaser is reasonably suitable to
purchase the securities. These rules may restrict the ability of brokers or
dealers to sell our common stock and may affect the ability of stockholders to
sell their shares. In addition, since our common stock is currently quoted on
the OTC Bulletin Board, stockholders may find it difficult to obtain accurate
quotations of our common stock, may experience a lack of buyers to purchase our
shares or a lack of market makers to support the stock price.




A
SIGNIFICANT NUMBER OF OUR SHARES ARE ELIGIBLE FOR SALE AND THEIR SALE OR
POTENTIAL SALE WILL PROBABLY DEPRESS THE MARKET PRICE OF OUR STOCK.




Sales
of a significant number of shares of our common stock in the public market could
harm the market price of our common stock.  Some or all of the shares
of our common stock may be offered from time to time in the open market without
registration pursuant to Rule 144, and these sales could have a depressive
effect on the market for our common stock.




WE
DO NOT ANTICIPATE PAYING DIVIDENDS ON OUR COMMON STOCK IN THE FORESEEABLE
FUTURE; THEREFORE, YOU SHOULD NOT BUY THIS STOCK IF YOU WISH TO RECEIVE CASH
DIVIDENDS.




We
currently intend to retain our future earnings in order to support operations
and finance expansion; therefore, we do not anticipate paying any cash dividends
on our common stock in the foreseeable future.




ITEM
1B. UNRESOLVED STAFF COMMENTS




None.




ITEM
2.  PROPERTIES




We lease
4,800 square feet of office space at 600 Meadowlands Parkway, #21, Secaucus, New
Jersey 07094.  Under the terms of the lease, which runs through June
2013, the monthly rent is $6,400. In addition, we leased office and warehouse
space on a month-to-month basis in Odessa, TX, at a rate of $535 per month
through September 2008.




We use
independent non-affiliated contract chemical blending and manufacturing
facilities in various locations around the United States for the manufacture of
our products.  We contract the production of our products to
independent manufacturers and blenders and our products are therefore produced
at the manufacturing facilities of those entities.  We do not own any
manufacturing facilities.


9


ITEM
3.   LEGAL PROCEEDINGS




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, punitive damages in an amount treble the
compensatory damages, plus legal fees and costs. Plaintiffs maintain that they
are entitled to receive an aggregate of approximately $350,000 in compensatory
and punitive damages, interest and costs.  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 yet been scheduled.  We believe 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.




No other
legal proceedings are currently pending or threatened against us.




ITEM 4.  (Removed and
Reserved)


10


PART
II




ITEM
      5.
            MARKET
      FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES




As of
July 14, 2010 there were approximately 453 record holders of our common stock
and there were 31,504,449 shares of our common stock outstanding.  We
have not previously declared or paid any dividends on our common stock and do
not anticipate declaring any dividends in the foreseeable future.




The
following table shows the high and low bid prices of our common stock as quoted
on the OTC Bulletin Board by quarter during each of our last two fiscal years
ended March 31, 2010 and 2009 and for each quarter after March 31,
2010.  These quotes reflect inter-dealer prices, without retail
markup, markdown or commissions and may not represent actual transactions. The
information below was obtained from those organizations, for the respective
periods.




Fiscal
      Year
                                      ended March 31
                                    
                                    Quarter
                                    
                                    High
                                    
                                    
                                    Low2009
                                    
                                    First
      Quarter (April-June 2008)
                                    
                                    $
                                    .42
                                    
                                    
                                    $
                                    .25Second
      Quarter (July-September 2008)
                                    
                                    
                                    .38
                                    
                                    
                                    
                                    .15Third
      Quarter (October-December 2008)
                                    
                                    
                                    .25
                                    
                                    
                                    
                                    .05Fourth
      Quarter (January-March 2009)
                                    
                                    
                                    .21
                                    
                                    
                                    
                                    .062010
                                    
                                    First
      Quarter (April-June 2009)
                                    
                                    $
                                    .20
                                    
                                    
                                    $
                                    .09Second
      Quarter (July-September 2009)
                                    
                                    
                                    .48
                                    
                                    
                                    
                                    .11Third
      Quarter (October-December 2009)
                                    
                                    
                                    .41
                                    
                                    
                                    
                                    .21Fourth
      Quarter (January-March 2010)
                                    
                                    
                                    .29
                                    
                                    
                                    
                                    .082011
                                    
                                    First
      Quarter (April-June 2010)
                                    
                                    $
                                    .22
                                    
                                    
                                    $
                                    .06Second
      Quarter (through July 12)
                                    
                                    
                                    .15
                                    
                                    
                                    
                                    .08




The high and low bid prices for shares
of our common stock on July 12, 2010 were $.09 and $.08 per share, respectively,
based upon bids that represent prices quoted by broker-dealers on the OTC
Bulletin Board.These quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commissions, and may not represent
actual transactions.




Dividend
Policy




While
there are no restrictions on the payment of dividends, we have not declared or
paid any cash or other dividends on shares of our common stock in the last two
years, and we presently have no intention of paying any cash dividends in the
foreseeable future.  Our current policy is to retain earnings, if any,
to finance the expansion of our business.  The future payment of
dividends will depend on the results of operations, financial condition, capital
expenditure plans and other factors that we deem relevant and will be at the
sole discretion of our board of directors.




We intend
to pay regular semi-annual dividends on our preferred stock outstanding in an
amount not to exceed $1,440 per year. Any decision to declare and pay dividends
in the future will be made at the discretion of our board of directors and will
depend on, among other things, our results of operations, cash requirements,
financial condition, contractual restrictions and other factors our board of
directors may deem relevant.





On June
30, 2008, December 31, 2008, June 30, 2009 and December 31, 2009 we declared
dividends on our preferred stock at a rate of $480.00 per share. The dividends
were paid for a total amount of $2,160 on July 3, 2008, January 13, 2009 and
September 2, 2009, respectively. Dividends declared on December 31, 2009 for
$720 have been accrued.


11




Related
Party Loans




In March
2009, Ronald Wilen, a director, the President and the Chief Executive Officer,
Martin Rappaport, a director, and Sherleigh Associates Profit Sharing Plan
(“Sherleigh”), a trust of which Jack Silver, a director, is the trustee,
provided the Company with short term loans in the amount of $50,000 each, and
each received warrants to purchase up to 200,000 shares of common stock at an
exercise price of $.125 per share which warrants are exercisable for a period of
five (5) years.




Subsequently,
in May 2009, the loan by Sherleigh was repaid, and Messrs Wilen and Rappaport
loaned the Company an additional $50,000 each, and Hilltop Holding Company, L.P.
(“Hilltop”), a limited partnership of which Mr. Silver is the managing partner,
loaned the Company $101,017.  In addition, the Company amended Messrs
Wilen’s and Rappaport’s March 2009 notes into secured convertible notes (the
“Amended March Loan Notes”) and issued to Messrs Wilen and Rappaport and Hilltop
secured convertible notes (the “May Loan Notes”) for their May 2009 loans to the
Company.  The amended notes extended the maturity date of the Amended
March Loan Notes to July 13, 2009.  In consideration for agreeing to
extend the maturity date and for making the May 2009 loans, Messrs Wilen,
Rappaport and Hilltop each received warrants to purchase up to 400,000 shares of
common stock at an exercise price of $.12 per share, which warrants are
exercisable for a period of five (5) years.




Thereafter,
in July 2009, Messrs Wilen and Rappaport and Hilltop agreed to extend the
maturity date of the Amended March Loan Notes and the May Loan Notes from July
13, 2009 to August 13, 2009 and as consideration for such extension received
warrants to purchase an aggregate of 611,825 shares of common stock at an
exercise price of $.12 per share, which warrants are exercisable for a period of
five (5) years.




Thereafter,
in July/August 2009, Messrs Wilen and Rappaport and Hilltop each loaned the
Company an additional $50,000.  In October 2009, the Company issued to
Messrs Wilen and Rappaport and Hilltop secured convertible notes (the “August
Loan Notes”) for their July/August 2009 loans to the Company.  In
connection with the July/August 2009 loans, Messrs Wilen and Rappaport and
Hilltop agreed to extend the maturity date of the Amended March Loan Notes and
the May Loan Notes to January 29, 2010.  In consideration for agreeing
to extend the maturity date and for making the July/August 2009 loans, Messrs
Wilen, Rappaport and Hilltop each received warrants to purchase up to 400,000
shares of common stock at an exercise price of $.09 per share, which warrants
are exercisable for a period of five (5) years.  In addition, the
conversion price of the Amended March Loan Notes and the May Loan Notes was
lowered from $.12 per share to $.09 per share.




Thereafter,
pursuant to an agreement dated January 29, 2010, Messrs Wilen and Rappaport and
Hilltop agreed to extend the maturity date of the Amended March Loan Notes, the
May Loan Notes and the August Loan Notes to January 31, 2011.  In
consideration for agreeing to extend the maturity date, Messrs Wilen, Rappaport
and Hilltop received warrants to purchase an aggregate of 5,414,705 shares of
common stock at an exercise price of $.222 per share, which warrants are
exercisable for a period of five (5) years.   As a result of the
foregoing, each of the Amended March Loan Notes, the May Loan Notes and the
August Loan Notes are convertible into common stock of the Company at a
conversion price of $.09 per share, bear interest at 12% per annum, are due
January 31, 2011 and are secured by substantially all the assets of the
Company.




The
issuance of the August Loan Notes and the warrants in October 2009 and the
reduction of the conversion price of the Amended March Loan Notes and the May
Loan Notes triggered the anti-dilution provisions of the Company’s outstanding
Series A Warrants, Series B Warrants, Series C Warrants and Series A Convertible
Preferred Stock.  As a result, in October 2009, the Company entered
into an Anti-Dilution Waiver Agreement with the holders of Series A Warrants,
Series B Warrants, Series C Warrants and Series A Convertible Preferred Stock,
including Sherleigh, whereby the exercise price of the Series A Warrants, the
Series B Warrants and the Series C Warrants were reduced from $0.12 to $0.09 per
share; however, such holders agreed to waive any increase in the number of
shares underlying the Series A Warrants, Series B Warrants and Series C Warrants
as a result of such reduction in the exercise price.  In addition,
Sherleigh, as the sole holder of the Series A Convertible Preferred Stock,
agreed to waive the anti-dilution provisions of the Series A Convertible
Preferred Stock.


12




Equity Compensation Plan
Information




Pursuant to the terms of an employment
agreement dated April 17, 2007, with Ronald Wilen, Chief Executive Officer,
President and Secretary, for each of the next five (5) years of the term of the
agreement (commencing with April 17, 2008), Mr. Wilen is to 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 is to be the fair market value of the common stock underlying such
option on the date such option was granted.  The initial grant of
50,000 stock options is to be granted out of the 2001 Equity Incentive Plan at
the one-year anniversary. In addition, the stock option to purchase 200,000
shares has been reserved for Mr. Wilen out of the 2001 Equity Incentive
Plan.





On
January 28, 2009, the Company issued a convertible term note in the amount of
$35,000, which accrued interest at 7% per year. Principal and interest is
payable on the maturity date of June 30, 2009. The holder of this term note has
the option to convert all or a portion of the note (including principal and
interest) into shares of common stock at any time at a conversion price of $0.12
per share. The conversion price is subject to adjustment for stock splits, stock
dividends and similar events. On June 2, 2009, the term note was converted. In
consideration for the conversion, the Company issued to the holder of the note,
warrants to acquire 140,000 shares of Common Stock at an exercise price of
$0.12, which warrants are exercisable for a period of five years.





On November 6, 2009, the Company issued
a convertible term note in the amount of $30,000, which accrues interest at 7%
per year. Principal and interest is payable on demand. The holder of this term
note has the option to convert all or a portion of the note (including principal
and interest) into shares of common stock at any time at a conversion price of
$0.21 per share. The conversion price is subject to adjustment for stock splits,
stock dividends and similar events.




In February 2009, the Company awarded
each of the six (6) directors of the Company warrants to purchase up to 150,000
shares of common stock at an exercise price of $.12 per share.  The
warrants are exercisable for a period of ten (10) years.  Also in
February 2009, the Company issued to an employee warrants to purchase up to
200,000 shares of common stock at an exercise price of $.12 per share, which
warrants are exercisable for a period of five (5) years and to a former employee
in connection with his termination of employment, warrants to purchase up to
100,000 shares of common stock at an exercise price of $.30 per share, which
warrants are exercisable for a period of three (3) years from the date of
termination.




In June
2009, the Company awarded four (4) of the six (6) directors of the Company
warrants to purchase up to 150,000 shares of common stock at an exercise price
of $.12 per share, and awarded one (1) of the directors warrants to purchase up
to 300,00 shares of common stock at an exercise price of $.12 per
share.  The warrants are exercisable for a period of ten (10)
years.




ITEM
      6.
              SELECTED
      FINANCIAL DATA




Because
we are a smaller reporting company, we are not required to provide the
information called for by this item.




ITEM
      7.
              MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATION




You
should read the following description of our financial condition and results of
operations in conjunction with the consolidated financial statements and
accompanying notes included in this Annual Report beginning on page F-1.




Overview




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




13




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
provide our K-Line of Chemical Products and our Green Globe Chemical Products to
our customers and generated revenues of $1,771,720 for the fiscal year ended
March 31, 2010 and $1,206,321 for the fiscal year ended March 31,
2009.




Critical
Accounting Policies and Estimates




The
preparation of consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America requires us 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
ongoing basis, we evaluate our estimates, including those related to product
returns, bad debts, inventories, valuation of options and warrants, intangible
assets, long-lived assets and contingencies and litigation. We base our
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources.  Actual results may
differ from these estimates under different assumptions or
conditions.




Revenue
Recognition




Our
primary source of revenue is from sales of our products.  We recognize
revenue upon shipment and transfer of title.




Allowance
for Doubtful Accounts




We
monitor our accounts and note receivable balances on a monthly basis to ensure
they are collectible.  On a quarterly basis, we use our historical
experience to determine our accounts receivable reserve.  Our
allowance for doubtful accounts is an estimate based on specifically identified
accounts, as well as general reserves.  We evaluate specific accounts
where we have information that the customer may have an inability to meet its
financial obligations.  In these cases, management uses its judgment,
based upon the best available facts and circumstances, and records a specific
reserve for that customer against amounts due to reduce the receivable to the
amount that is expected to be collected.  These specific reserves are
re-evaluated and adjusted as additional information is received that impacts the
amount reserved.  We also establish a general reserve for all
customers based upon a range of percentages applied to aging categories. These
percentages are based on historical collection and write-off
experience.  If circumstances change, our estimate of the
recoverability of amounts due to us could be reduced or increased by a
significant amount.  A change in estimated recoverability would be
accounted for in the period in which the facts that give rise to the change
become known.




Results
of Operations




Comparison
of Fiscal Year Ended March 31, 2010 to Fiscal Year Ended March 31,
2009




Revenues. Revenuesfor the year ended
March 31, 2010 were $1,771,720, a $565,399 or 47% increase from revenues of
$1,206,321 for the year ended March 31, 2009. The increase was primarily related
to a 36% increase in the level of our K-Line of Chemical Products reflecting a
higher level of orders, and by an 817% increase in the level of our Green
Globe/Qualchem military sales during the year. Our four largest customers
accounted for 68% of our revenues for fiscal year ended March 31, 2010 and our
three largest customers accounted for 50% of our revenues for the fiscal year
ended March 31, 2009.




14


Cost of Goods
Sold.Cost of goods sold increased to $668,326 or 38% of
sales, for the year ended March 31, 2010 from $567,758, or 47% of sales, for the
year ended March 31, 2009. The increase in cost of goods sold was due to the
increased level of sales compared to the prior year.





Gross Profit.Gross profit
increased to $1,103,394 or 62% of sales, for the year ended March 31, 2010 from
$638,563, or 53% of sales, for the year ended March 31, 2009.  The
increase in gross profit and gross profit percentage reflects the higher level
of sales of Specialty Chemicals and our Green Globe/Qualchem military
sales.





Selling, General and Administrative
Expenses.Selling, general and administrative expenses
increased to $2,249,047, or 127% of sales, for the year ended March 31, 2010
from $1,586,355, or 132% of sales, for the year ended March 31,
2009.  The increase in general and administrative expenses is
primarily related to an increase in the allowance for bad debts and in financing
costs associated with the issuance of warrants, offset by a decrease in
professional fees, salaries, employee benefits and travel and
entertainment.




Research and Development.
Research and development expenses decrease to $222,476, or 13% of sales for the
year ended March 31, 2010 from $329,186, or 27% of sales for the year ended
March 31, 2009. The decrease in research and development expenses was primarily
related to a decrease in salaries and lab supplies.




Depreciation and
Amortization.  Depreciation and amortization decreased to
$48,499 for the year ended March 31, 2010 from $59,795 for the year ended March
31, 2009, reflecting the Company’s use of an accelerated method of depreciation,
offset by an increase in fixed assets.




Interest
Income.  Interest income decreased to $27 for the year ended
March 31, 2010 from $950 for the year ended March 31, 2009. The decrease was due
to the use of cash received in connection with the private placement completed
in March 2006.




Interest
Expense.   Interest expense increased to $48,291 for the
year ended March 31, 2010 from $2,414 for the year ended March 31,
2009.  The increase was due to the indebtedness outstanding on the
loans by directors and their affiliates.




Net Loss.  For the
year ended March 31, 2010, we incurred a net loss of $1,464,892 or $0.05 per
share, as compared to a net loss of $1,338,237 for the year ended March 31,
2009, or $0.04 per share. The average number of shares of common stock used in
calculating earnings per share increased 305,037 shares to 31,335,152 from
31,030,115 shares as a result of 298,472 shares issued in the connection of the
conversion of the convertible note and 175,862 shares issued in the connection
with the exercise of warrants.





Preferred Dividends,Preferred dividends of $1,440 were paid at a rate of $480.00 per share
for the fiscal years ended March 31, 2010 and 2009.





Liquidity
and Capital Resources





Since
1995, operations have been financed primarily through loans and equity
contributions from directors, executive officers and third parties supplemented,
by funds generated by our business. As of March 31, 2010, we had $311,506 in
cash and cash equivalents.





Net Cash Used in Continuing
Operations.  During the fiscal year ended March 31, 2010, net
cash used in continuing operations was $6,308 compared with $858,846 for the
fiscal year ended March 31, 2009.





Net Cash Used in Investing
Activities. During the fiscal year ended March 31, 2010, net cash used in
investing activities decreased to $40,899 compared with $91,917 for the year
ended March 31, 2009.  The decrease was primarily a result of a
decrease in payments for patents and fixed assets, offset by
an increase in payments on loans.


15


Net Cash Provided by Financing
Activities. During the fiscal year ended March 31, 2010, net cash
provided by financing activities consisted of related party loans of $303,781,
offset by $1,440 of preferred stock dividends. This compares to net cash
provided in financing activities consisting of related party loans of $150,000,
offset by $1,440 of preferred stock dividends during the fiscal year ended March
31, 2009.





The
accompanying consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America
which contemplate continuation of the Company as a going concern. However, the
Company has year-end losses from operations in 2010. For the year ended March
31, 2010 the Company incurred net loss approximating $1,464,892. Further, the
Company has inadequate working capital to maintain or develop its operations,
and is dependent upon funds from private investors and the support of certain
stockholders.





These
factors raise substantial doubt about the ability of the Company to continue as
a going concern. The consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties. In this
regard, the Company may need to raise additional funds through loans, additional
sales of its equity securities, increased sales volumes and the ability to
achieve profitability from the sales of our product lines. There is no assurance
that the Company will be successful in raising additional capital.





Concentration
of Credit Risk





Sales to
four of our customers, Petrobras America Inc., Solarium Oil Solutions, Facility
Solutions LTD. and Ainex Corporation accounted for approximately 68.1% of our
sales for the fiscal year ended March 31, 2010 and sales to three of our
customers, Petrobras America Inc., Nalco Company and United Energy Petroleum
Services LTD. accounted for approximately 50.2% of our sales for the fiscal year
ended March 31, 2009.




Contractual
Obligations





Below is
a table, which presents our contractual obligation commitments at March 31,
2010:





Less
      than
                  
                  
                  
                  
                  
                  
                  
                  
                  AfterContractual Obligation
                  
                  Total
                  
                  
                  1 Year
                  
                  
                  1-3 Years
                  
                  
                  3-5 Years
                  
                  
                  5 YearsShort-term
      debt Obligations(1)
                  
                  $
                  483,781
                  
                  
                  $
                  483,781
                  
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  —Operating
      leases
                  
                  
                  263,693
                  
                  
                  
                  80,823
                  
                  
                  
                  182,870
                  
                  
                  
                  —
                  
                  
                  
                  —Total
      contractual cash obligations
                  
                  $
                  747,474
                  
                  
                  $
                  564,604
                  
                  
                  $
                  182,870
                  
                  
                  $
                  —
                  
                  
                  $
                  —





(1) Short-term debt
obligations include amounts due to the Hilltop, the President and Chief
Executive Officer, Ron Wilen and one of our directors, Martin Rappaport. The
amount due as of March 31, 2010 is $453,781. The loans bear interest at 12% per
annum, are due January 31, 2011 and are secured by substantially all the assets
of the Company. At March 31, 2008, the Company had a note due to related party
totaling $244,141. During fiscal year 2009, this amount was written
off.




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.




Inflation




We do not
believe that inflation in the cost of our raw materials has had in the past or
will have in the future any significant negative impact on our operations.
However, no assurance can be given that we will be able to offset such
inflationary cost increases in the future.


16


Recent
Accounting Pronouncements





Recent
accounting pronouncements that the Company has adopted or that will be required
to adopt in the future are summarized below.





In April
2010, the FASB issued Accounting Standard Update No. 2010-12. “Income Taxes”
(Topic 740). ASU No.2010-12 amends FASB Accounting Standard Codification
subtopic 740-10 Income Taxes to include paragraph 740-10-S99-4. On March 30,
2010 The President signed the Health Care & Education Affordable Care Act
reconciliation bill that amends its previous Act signed on March 23, 2010. FASB
Codification topic 740, Income Taxes, requires the measurement of current and
deferred tax liabilities and assets to be based on provisions of enacted tax
law. The effects of future changes in tax laws are not anticipated.” Therefore,
the different enactment dates of the Act and reconciliation measure may affect
registrants with a period-end that falls between March 23, 2010 (enactment date
of the Act), and March 30, 2010 (enactment date of the reconciliation measure).
However, the announcement states that the SEC would not object if such
registrants were to account for the enactment of both the Act and the
reconciliation measure in a period ending on or after March 23, 2010, but notes
that the SEC staff “does not believe that it would be appropriate for
registrants to analogize to this view in any other fact patterns.” The adoption
of this standard is not expected to have a material impact on the Company’s
financial position and results of operations.




In April
2010, the FASB issued Accounting Standard Update No. 2010-13 “Stock
Compensation” (Topic 718). ASU No.2010-13 provides amendments to Topic 718 to
clarify that an employee share-based payment award with an exercise price
denominated in the currency of a market in which a substantial portion of the
entity's equity securities trades should not be considered to contain a
condition that is not a market, performance, or service condition. Therefore, an
entity would not classify such an award as a liability if it otherwise qualifies
as equity. The amendments in this Update are effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15,
2010. The amendments in this Update should be applied by recording a
cumulative-effect adjustment to the opening balance of retained earnings. The
cumulative-effect adjustment should be calculated for all awards outstanding as
of the beginning of the fiscal year in which the amendments are initially
applied, as if the amendments had been applied consistently since the inception
of the award. The cumulative-effect adjustment should be presented separately.
Earlier application is permitted. The adoption of this standard is not expected
to have a material impact on the Company’s financial position and results of
operations.





In April
2010, the FASB issued Accounting Standard Update No. 2010-17. “Revenue
Recognition-Milestone Method” (Topic 605) ASU No.2010-17 provides guidance on
defining a milestone and determining when it may be appropriate to apply the
milestone method of revenue recognition for research or development
transactions. An entity often recognizes these milestone payments as revenue in
their entirety upon achieving a specific result from the research or development
efforts. A vendor can recognize consideration that is contingent upon
achievement of a milestone in its entirety as revenue in the period in which the
milestone is achieved only if the milestone meets all criteria to be considered
substantive. Determining whether a milestone is substantive is a matter of
judgment made at the inception of the arrangement. The ASU is effective for
fiscal years and interim periods within those fiscal years beginning on or after
June 15, 2010. Early application is permitted. Entities can apply this guidance
prospectively to milestones achieved after adoption. However, retrospective
application to all prior periods is also permitted.  The adoption of
this standard is not expected to have a material impact on the Company’s
financial position and results of operations.





In April
2010, the FASB issued Accounting Standard Update No. 2010-18. “Receivables”
(Topic 310). ASU No.2010-18 provides guidance on accounting for acquired loans
that have evidence of credit deterioration upon acquisition. Paragraph
310-30-15-6 allows acquired assets with common risk characteristics to be
accounted for in the aggregated as a pool. Upon establishment of the pool, the
pool becomes the unit of accounting. When loans are accounted for as a pool, the
purchase discount is not allocated to individual loans; thus all of the loans in
the pool accrete at a single pool rate (based on cash flow projections for the
pool). Under subtopic 310-30, the impairment analysis also is performed on the
pool as a whole as opposed to each individual loan. Paragraphs 310-40-15-4
through 15-12 establish the criteria for evaluating whether a loan modification
should be classified as a troubled debt restructuring. Specifically paragraph
310-40-15-5 states that “a restructuring of a debt constitutes a troubled debt
restructuring for purposes of this subtopic if the creditor for economic or
legal reasons related to the debtor’s financial difficulties grants a concession
to the debtor that it would not otherwise consider.” The ASU is effective for
modification of loans accounted for within pools under subtopic 310-30 occurring
in the first interim or annual period ending on or after July 15, 2010. The
amendments are to be applied prospectively. Early application is permitted. The
adoption of this standard is not expected to have a material impact on the
Company’s financial position and results of operations.


17





In May
2010, the FASB issued Accounting Standard Update No. 2010-19 “Foreign Currency”.
(“ASU No. 2010-19”). ASU 2010-19, codifies the SEC staff announcement made at
the March 18, 2010, EITF meeting. The ASU “provides the SEC staff’s views on
certain foreign currency issues related to investments in Venezuela.” These
issues relate to Venezuela’s highly inflationary status. The ASU became
effective on March 18, 2010.  We are currently assessing the impact of
the adoption of  this standard on our financial position, and results
of operations.




Quantitative
and Qualitative Disclosures About Market Risk




The market risk inherent in our market
risk sensitive instruments and positions are the potential losses arising from
adverse changes in foreign currency exchange rates.





Foreign
Currency Exchange Rates





Although
our business is international in scope, to date our product sales have been all
U.S. dollar-denominated.  As we expand, we may be affected by exchange
rate fluctuations in foreign currencies relative to the U.S.
dollar.  We do not currently use derivative financial instruments to
hedge our exposure to changes in foreign currency exchange rates.




SPECIAL
NOTE ON FORWARD-LOOKING STATEMENTS




Certain
statements in this Annual Report on Form 10-K (the “Form 10-K”), including
statements under “Item 1. Business,” “Item 3. Legal Proceedings” and “Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operation”, constitute “forward-looking statements” within the meaning of
Section 27A of the Securities Act of 1933, as amended (the “Securities Act”),
and Section 21E of the Securities Exchange Act of 1934, as amended, and the
Private Securities Litigation Reform Act of 1995 (collectively, the “Reform
Act”). Certain, but not necessarily all, of such forward-looking statements can
be identified by the use of forward-looking terminology such as “believes,”
“expects,” “may,” “will,” “should,” or “anticipates” or the negative thereof or
other variations thereon or comparable terminology, or by discussions of
strategy that involve risks and uncertainties. All statements other than
statements of historical fact included in this Form 10-K regarding our financial
position, business strategy and plans or objectives for future operations are
forward-looking statements.




Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements to
be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements and other factors
referenced in this Form 10-K. We do not undertake and specifically decline any
obligation to publicly release the results of any revisions which may be made to
any forward-looking statement to reflect events or circumstances after the date
of such statements or to reflect the occurrence of anticipated or unanticipated
events.




ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK




Because we are a smaller reporting
company, we are not required to provide the information called for by this
item.




ITEM
8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA




The
response to this item is submitted as a separate section of this Report
beginning on page F-1.




ITEM
9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE




None


18


ITEM
9A(T).  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 March 31,
2010.  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.





Management’s
Annual Report on Internal Control Over Financial Reporting





Our management is responsible for
establishing and maintaining adequate internal control over financial reporting,
as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of
1934, as amended.  Internal control over financial reporting is
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation and fair presentation of financial statements for
external purposes, in accordance with generally accepted accounting
principles.  The effectiveness of any system of internal control over
financial reporting is subject to inherent limitations and therefore, may not
prevent or detect misstatements.  Also, projections of any evaluation
of effectiveness of future periods are subject to the risk that the controls may
become inadequate due to change in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.





Our management conducted an evaluation
of the effectiveness of internal control over financial reporting using the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission.  Based on this evaluation, our management concluded that
as of March 31, 2010, our internal control over financial reporting was not
effective.   Specifically, the Company’s management and its
auditors determined that a material weakness existed in our internal control
over financial reporting.  The material weakness relates to the lack
of segregation of duties in financial reporting, as our financial reporting and
all accounting functions are performed by our Interim Chief Financial
Officer.  Due to our lack of funds, the Company has an insufficient
number of personnel having adequate knowledge, experience and training, and the
Company does not anticipate having the ability to retain such qualified
personnel until it is able to obtain adequate funding.





This annual report does not include an
attestation report of the Company’s registered public accounting firm regarding
internal control over financial reporting.  Management’s report was
not subject to attestation by the Company’s registered public accounting firm
pursuant to temporary rules of the Securities and Exchange Commission that
permit the Company to provide only management’s report in this annual
report.





Changes
in Control Over Financial Reporting





Management
has not identified any change in our internal control over financial reporting
that occurred during the fourth quarter of the fiscal year ended March 31, 2010
that has materially affected, or is reasonably likely to materially affect, the
Company’s internal control over financial
reporting.





ITEM
9B. OTHER INFORMATION





None


19


PART
III




ITEM
10.  DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE
GOVERNANCE




The
following table shows the positions held by our board of directors and executive
officers and their ages as of June 30, 2010.




Name
            
            Age
            
            PositionRonald
      Wilen
            
            71
            
            Director,
      Chief Executive Officer, President and SecretaryJack
      Silver
            
            67
            
            Director
      and Chairman of the BoardJames
      McKeever, CPA
            
            44
            
            Interim
      Chief Financial OfficerAdam
      Hershey
            
            37
            
            DirectorPeter
      Garson-Rappaport
            
            27
            
            DirectorMartin
      Rappaport
            
            73
            
            DirectorJohn
      A. Lack
            
            65
            
            Director




The
principal occupations for the past five years (and, in some instances, for prior
years) of each of our executive officers and directors are as
follows:




Ronald Wilen.  Mr.
Wilen has served as a member of our board since October 1995, our Chief
Executive Officer since November 2007, and Secretary since May 2006.
Mr. Wilen also served as our Chief Executive Officer from October 1995 to
September 2004, our President from October 1995 to August 2001, our Executive
Vice President of Research and Development from October 1995 to November 2007
and as our Chairman of the Board from August 2001 to January 2008.




Jack Silver.Mr. Silver has
served as a member of the Board as its Chairman since January 2008. Mr. Silver
is the principal investor and manager of SIAR Capital, LLC, an independent
investment fund that invests primarily in undervalued, emerging growth
companies, and is the trustee of Sherleigh and the managing partner of
Hilltop.




James McKeever, CPA.Mr. McKeever
has been our Interim Chief Financial Officer since January 2004.  He
also continues to be a partner in the accounting firm of Abrams & McKeever
CPA’s, which he joined in January 2000.  Mr. McKeever has more than 20
years’ experience in public accounting and financial reporting, and is a member
of the New Jersey Society of Certified Public Accountants.




Adam Hershey.  Mr.
Hershey has served as a member of the Board since January 2008. Mr. Hershey has
been a partner at SIAR Capital, LLC since September 2007. In addition, Mr.
Hershey is the sole managing member of Hershey Strategic Capital, LP and
independent investment fund that invests primarily in undervalued, emerging
growth companies since its inception in July 2009.  From March 2005
until joining SIAR, Mr. Hershey was a Vice President and Portfolio Manager of
Neuberger Berman, LLC, a subsidiary of Lehman Brothers, managing capital for
institutions and high net worth individuals. From 2003 to March 2005, Mr.
Hershey was a Partner and Portfolio Manager at Sloate, Weisman, Murray &
Company, a registered investment advisor that was acquired by Neuberger Berman,
LLC in March 2005.




Peter Garson-Rappaport. Mr.
Rappaport has served as a member of the Board since March 2008.  He is
an associate at Ledgemont Capital, a merchant bank.   From
December 2006 to May 2009, Mr. Rappaport was an analyst at SIAR Capital,
LLC.  He previously was a co-owner and manager of Wash U Wash, a third
party provider of laundry and dry-cleaning services.




Martin Rappaport. Mr.
Rappaport has served as a member of our board since June 2001. Mr. Rappaport is
self-employed.  For more than 30 years, he has developed and managed
commercial and residential real estate.  Mr. Rappaport is an
active supporter and contributor to Blythedale Children’s Hospital in Valhalla,
New York.


20


John A. Lack.Mr. Lack has
served as a member of our board since June 2008. Since 1998, Mr. Lack has been
the managing general partner of Digitar, a media investment and consulting
company. In his 35-year career in the media and entertainment industries, Mr.
Lack is best known for creating MTV. Most recently Mr. Lack was a founding
partner & CEO of Firebrand, the first multi-platform network dedicated to
commercial culture. Mr. Lack is also the Chairman of the Guardian’s Council at
the Pollock-Krasner House and Study Center in East Hampton, NY and Chairman of
the ASGOG Foundation.




Directors
are elected annually and serve until the next annual meeting of the Company’s
stockholders, and until their successors have been elected and have
qualified.  Officers are appointed to their positions, and continue in
such positions, at the discretion of the directors.




Committees
of the Board




The Board
of Directors is the acting Audit Committee. Our Board of Directors has
determined that there is no person on our Board of Directors who qualifies as an
audit committee financial expert as that term is defined by applicable
Securities and Exchange Commission rules. The Board of Directors believes that
obtaining the services of an audit committee financial expert is not
economically rational at this time in light of the costs associated with
identifying and retaining an individual who would qualify as an audit committee
financial expert.




Indebtedness
of Executive Officers and Directors




No
executive officer, director or any member of these individuals’ immediate
families or any corporation or organization with whom any of these individuals
is an affiliate is or has been indebted to us since the beginning of our last
fiscal year.




Family
Relationships




There are
no family relationships among our executive officers and directors.




Legal
Proceedings




During
the past ten years, none of our executive officers, directors, promoters or
control persons has been involved in a legal proceeding material to an
evaluation of the ability or integrity of such person, except in July 2001, in
connection with an allegation of failure to timely file a Schedule 13D made by
the Securities and Exchange Commission, Jack Silver entered into a consent order
whereby he agreed not to violate Section 10(b) or Section 13(d) of the
Securities and Exchange Act of 1934.




Compliance
with Section 16(a) of the Securities Exchange Act of 1934




Section 16(a) of the Securities Act of
1934, as amended, requires our directors and executive officers, and persons who
own more than 10% our outstanding common stock, to file with the SEC, initial
reports of ownership and reports of changes in ownership of our equity
securities.  These persons are required by SEC regulations to furnish
us with copies of all the reports they file.




To our knowledge, based solely on a
review of the copies of the reports furnished to us and written or oral
representations that no other reports were required for those persons during the
fiscal year ended March 31, 2010, we believe that all of our officers, directors
and greater than 10% beneficial owners complied with the reporting requirements
of Section 16(a) of the Securities Exchange Act of 1934, as amended, other than
as follows:




·
            John
      Lack, a director, failed to timely file a Form 4 with respect to warrants
      granted to him in June 2009;




·
            Martin
      Rappaport, a director, failed to timely file Form 4s with respect to
      warrants granted to him in June 2009, convertible notes and warrants
      acquired by him in June 2009, warrants acquired by him in August 2009, and
      warrants acquired by him in February
2010;




21


·
            Ronald
      Wilen, a director and our chief executive officer, president and
      secretary, failed to timely file Form 4s with respect to warrants acquired
      by him in August 2009, and warrants acquired by him in February 2010;
      and




·
            Jack
      Silver, a director, failed to timely file Form 4s with respect to warrants
      acquired by Hilltop in August 2009, and warrants acquired by Hiltop in
      February 2010.




Code
of Ethics




We have
adopted a Code of Business Conduct and Ethics (the “Code”) that applies to all
of our employees (including executive officers) and directors. The Code is
available on our website at www.unitedenergycorp.net
under the heading “Investor Relations”.  We intend to satisfy the
disclosure requirement regarding any waiver of a provision of the Code
applicable to any executive officer or director, by posting such information on
such website.





ITEM
11.  EXECUTIVE COMPENSATION




The
following Summary Compensation Table sets forth, for the years indicated, all
cash compensation paid, distributed or accrued for services, including salary
and bonus amounts, rendered in all capacities by our Chief Executive Officer and
all other executive officers who received or are entitled to receive
remuneration in excess of $100,000 during the stated periods.


Summary
Compensation Table


Name
      and
                              Principal
      Position
                            
                            Fiscal
                              Year
                            
                            Salary
                            
                            
                            Option Awards
                            
                            
                            All
      other
                              Compensation
                            
                            
                            Total($)
                            
                            
                            ($)
                            
                            
                            ($)(1)
                            
                            
                            ($)Ronald
      Wilen
                            
                            2010
                            
                            
                            196,154
                            
                            
                            
                            28,125
                            (2)
                            
                            
                            8,716
                            (3)
                            
                            
                            232,995Chief
      Executive Officer and President
                            
                            2009
                            
                            
                            205,385
                            
                            
                            
                            26,535
                            (2)
                            
                            
                            9,335
                            (3)
                            
                            
                            241,255




(1)
            We
      pay for medical insurance for all employees.  Included in the
      table is the amount of the premiums paid by us dependent on the coverage
      provided.




(2)
            Includes
      150,000 warrants valued at $28,125, which warrants are exercisable at any
      time prior to June 22, 2019 at an exercise price of $.12 per share, and
      150,000 warrants valued at $26,535, which warrants are exercisable at any
      time prior to February 13, 2019 at an exercise price of $.12 per
      share.  All such warrants were awarded to Mr. Wilen for his
      services as a director.




(3)
            During
      the fiscal years ended March 31, 2010 and 2009, we paid for the lease on
      one automobile used by Mr. Wilen under monthly lease
      payments.  We also paid for medical insurance for Mr. Wilen at a
      rate of $349.78 per month.




Employment
Agreement





Effective
as of April 16, 2007, we entered into an employment agreement with Ronald Wilen
that provides for his continued employment through April 16, 2012, which
agreement was amended and restated as of December 31, 2008 for the purposes of
making it more compliant with the provisions of Section 409A of the Internal
Revenue Code.  Under the terms of the employment agreement, Mr. Wilen
receives annual base compensation in the amount of $200,000 per year, subject to
a 2.5% increase each year.  Mr. Wilen is also entitled to receive
benefits (including health, disability and life insurance benefits) provided to
other employees of the Company.  In addition, Mr. Wilen is entitled to
receive options to purchase 50,000 shares of our common stock for each year of
employment.





If Mr. Wilen is terminated without
cause, as defined in the his employment agreement, or by Mr. Wilen for good
reason, as defined in the employment agreement, he will receive (i) his then
current base salary for the lesser of twelve (12) months or the remainder of the
employment term under his employment agreement and (ii) health and disability
insurance for a period of eighteen (18) months.


22





The agreement also contains covenants
governing confidentiality, non-competition and non-solicitation.  The
non-competition continues for a period of two (2) years following termination of
Mr. Wilen’s employment.





Director
Compensation





Each
director receives warrants to purchase 150,000 shares of our common stock in
lieu of an annual retainer and meeting fees, except for the fiscal year ended
March 31, 2010, Jack Silver elected to forgo the grant of warrants to him, and
as a result, the warrants that would have been otherwise granted to him were
granted to Adam Hershey.  Other than the warrants to purchase 150,000
shares of our common stock there are no special fees, contracts entered into, or
payments made in consideration of any director’s service as a
director.




The following table shows compensation
paid to all directors who are not also employees during fiscal year ended March
31, 2010.





Name
                  
                  Option
                    Awards
      ($)
                  
                  
                  Total
      ($)Jack
      Silver (1)
                  
                  
                  -
                  
                  
                  
                  -Adam
      Hershey (2)
                  
                  
                  56,250
                  
                  
                  
                  56,250John
      A. Lack (3)
                  
                  
                  28,125
                  
                  
                  
                  28,125Peter
      Garson-Rappaport (4)
                  
                  
                  28,125
                  
                  
                  
                  28,125Martin
      Rappaport (5)
                  
                  
                  28,125
                  
                  
                  
                  28,125





(1)
            As
      of March 31, 2010, the aggregate number of options and/or warrants
      outstanding held by Mr. Silver, for which he was granted for his services
      as a director, was 150,000
warrants.




(2)
            As
      of March 31, 2010, the aggregate number of options and/or warrants
      outstanding held by Mr. Hershey, for which he was granted for his services
      as a director, was 450,000
warrants.




(3)
            As
      of March 31, 2010, there were no options and/or warrants outstanding held
      by Mr. Lack, for which he was granted for his services as a
      director.




(4)
            As
      of March 31, 2010, the aggregate number of options and/or warrants
      outstanding held by Mr. Garson-Rappaport, for which he was granted for his
      services as a director, was 300,000
warrants.




(5)
            As
      of March 31, 2010, the aggregate number of options and/or warrants
      outstanding held by Mr. Rappaport, for which he was granted for his
      services as a director, was 300,000 warrants and 80,000
      options.




23




Outstanding
Equity Awards at Fiscal Year End





Option
      AwardsName
                                  
                                  Number
      of
                                    Securities
                                    Underlying
                                    Unexercised
                                    Options
      (#)
                                    Exercisable
                                  
                                  
                                  Option
                                    Exercise
                                    Price ($)
                                  
                                  Option
                                    Expiration DateRonald
      Wilen,
                                  
                                  
                                  10,000
                                  
                                  
                                  
                                  .12
                                  
                                  1/1/2011Chief
      Executive Officer,
                                  
                                  
                                  10,000
                                  
                                  
                                  
                                  .12
                                  
                                  3/30/2017and
      President
                                  
                                  
                                  50,000
                                  
                                  
                                  
                                  .12
                                  
                                  4/10/1710,000
                                  
                                  
                                  
                                  .12
                                  
                                  3/31/201850,000
                                  
                                  
                                  
                                  .12
                                  
                                  4/10/18150,000
                                  
                                  
                                  
                                  .12
                                  
                                  2/13/2019150,000
                                  
                                  
                                  
                                  .12
                                  
                                  6/22/2019Brian
      King,
                                  
                                  
                                  500,000
                                  
                                  
                                  
                                  1.00
                                  
                                  9/15/2014Former
      President and
                                  
                                  
                                  500,000
                                  
                                  
                                  
                                  1.06
                                  
                                  4/1/2015Chief
      Executive Officer
                                  
                                  
                                  250,000
                                  
                                  
                                  
                                  2.05
                                  
                                  4/1/2016





Stock
Option Plan




In August
2001, our stockholders approved the 2001 Equity Incentive 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 our board’s
discretion.  Under the 2001 Equity Incentive Plan, options may be
exercised for a period up to ten years from the date of
grant.  Options issued to employees are exercisable upon vesting,
which can range between the date of the grant to up to five years.




An
amendment and restatement of the 2001 Equity Incentive Plan increasing the
number of shares issuable under the plan to a total of 4,000,000 was approved by
the Board of Directors on May 29, 2002 and was approved by our 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, 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 stock options to purchase 400,000 shares of our common stock available for
future grant as of March 31, 2010 under the 2001 Equity Incentive
Plan.




ITEM
      12.
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS




Beneficial
Ownership Information




The following table sets forth
information regarding the number of shares of our common stock beneficially
owned on July 14, 2010, by each of our directors, each of our executive officers
named in the Summary Compensation Table above, all of our executive officers and
directors as a group, and by any person or “group,” as that term is used in
Section 13(d)(3) of the Securities Exchange Act of 1934, known to us to own
beneficially more than 5% of the outstanding shares of our common
stock.  Except as otherwise set forth below, the address of each of
the persons listed below is c/o United Energy Corp., 600 Meadowlands Parkway,
#20, Secaucus, New Jersey 07094.


24





Amount
      andNature
      ofName
      and Address
                                  
                                  Beneficial
                                  
                                  
                                  Percent
      ofof
      Beneficial Owner
                                  
                                  Ownership(1)
                                  
                                  
                                  Class
      (1)Ronald
      Wilen
                                  
                                  
                                  7,006,269
                                  (2)
                                  
                                  
                                  19.3
                                  %James
      McKeever, CPA
                                  
                                  
                                  3,000
                                  
                                  
                                  
                                  *Jack
      Silver
                                  
                                  
                                  6,798,304
                                  (3)
                                  
                                  
                                  18.9
                                  %SIAR
      Capital LLC660
      Madison AvenueNew
      York, NY 10021Martin
      Rappaport
                                  
                                  
                                  6,923,329
                                  (4)
                                  
                                  
                                  19.1
                                  %Adam
      Hershey
                                  
                                  
                                  450,000
                                  (5)
                                  
                                  
                                  1.4
                                  %Peter
      Garson-Rappaport
                                  
                                  
                                  300,000
                                  (6)
                                  
                                  
                                  *John
      A. Lack
                                  
                                  
                                  175,862
                                  
                                  
                                  
                                  *All
      current executive officers and directors  as a group (7
      persons)
                                  
                                  
                                  21,656,764
                                  
                                  
                                  
                                  46.9
                                  %5%
      or Greater Stockholders:Joseph
      J. Grano, Jr.
                                  
                                  
                                  3,087,916
                                  (7)
                                  
                                  
                                  9.4
                                  %c/o
      Centurion Holdings LLC1185
      Avenue of the Americas, Suite 2250New
      York, NY 10036





* Less
than 1% of outstanding shares.




(1)
            As
      of July 14, 2010, the Company had 31,504,449 shares of common stock and
      three shares of Preferred Stock outstanding. Unless otherwise indicated in
      these footnotes, each stockholder has sole voting and investment power
      with respect to the shares beneficially owned.  All share
      amounts reflect beneficial ownership determined pursuant to Rule 13d-3
      under the Exchange Act.  All information with respect to
      beneficial ownership has been furnished by the respective director,
      executive officer or stockholder, as the case may
  be.




(2)
            Includes
      (i) 2,236,000 shares of common stock, (ii) stock options to purchase
      130,000 shares at an exercise price of $.12 per share, (iii) warrants to
      purchase 754,054 shares at an exercise price of $.12 per share, (iv)
      convertible notes which are convertible into 1,677,964 shares at a
      conversion price of $.09 per share, (v) warrant to purchase 400,000 shares
      at an exercise price of $.09 per share, and (vi) warrants to purchase
      1,808,251 shares at an exercise price of $.222 per share, but excludes (i)
      warrants to purchase 150,000 shares at an exercise price of $.12 per share
      and (ii) warrants to purchase 200,000 shares at an exercise price of $.125
      per share, which warrants provide that they cannot be exercised to the
      extent following such exercise the holder or its affiliates would
      beneficially own more than 9.99% of the total number of outstanding shares
      of common stock.




25


(3)
            Includes
      (i) 2,313,333 shares of common stock held by Sherleigh, a trust of which
      Mr. Silver is the trustee, (ii) warrants to purchase 604,054 shares at an
      exercise price of $.12 per share held by Hilltop, a limited partnership of
      which Mr. Silver is the general partner , (iii) convertible note which is
      convertible into 1,677,963 shares at a conversion price of $.09 per share
      held by Hilltop, (iv) warrant to purchase 400,000 shares at an exercise
      price of $.09 per share held by Hilltop, and (v) warrants to purchase
      1,802,954 shares at an exercise price of $.222 per share held by Hilltop,
      but excludes (i) warrants to purchase 5,482,667 shares at an exercise
      price of $.09 per share held by Mr. Silver; (ii) 200,000 shares issuable
      upon conversion of 3 shares of preferred stock held by Sherleigh; (iii)
      warrants to purchase 200,000 shares at an exercise price of $.125 per
      share held by Sherleigh and (iv) warrants to purchase 150,000 shares at an
      exercise price of $.12 per share held by Mr. Silver, which warrants and
      preferred stock provide that they cannot be exercised or converted to the
      extent following such exercise or conversion the holder or its affiliates
      would beneficially own more than 9.99% of the total number of outstanding
      shares of common stock. The three shares of preferred stock constitute
      100% of the class of such voting equity
  securities.




(4)
            Includes
      (i) 2,210,000 shares of common stock, (ii) stock options to purchase
      10,000 shares at an exercise price of $0.70 per share,  (iii)
      stock options to purchase 10,000 shares at an exercise price of $1.30 per
      share, (iv) stock options to purchase 10,000 shares at an exercise price
      of $1.18 per share, (v) stock options to purchase 40,000 shares at an
      exercise price of $1.00 per share, (vi) stock options to purchase 10,000
      shares at an exercise price of $1.60 per share, which are currently
      exercisable, (vii) warrants to purchase 753,717 shares at an exercise
      price of $.12 per share, (viii) convertible notes which are convertible
      into 1,676,112 shares at a conversion price of $.09 per share, (ix)
      warrant to purchase 400,000 shares at an exercise price of $.09 per share,
      and (x) warrants to purchase 1,803,500 shares at an exercise price of
      $.222 per share, but excludes (i) warrants to purchase 150,000 shares at
      an exercise price of $.12 per share and (ii) warrants to purchase 200,000
      shares at an exercise price of $.125 per share, which warrants provide
      that they cannot be exercised to the extent following such exercise the
      holder or its affiliates would beneficially own more than 9.99% of the
      total number of outstanding shares of common
  stock.




(5)
            Includes
      warrants to purchase 450,000 shares at an exercise price of $.12 per
      share.




(6)
            Includes
      warrants to purchase 300,000 shares at an exercise price of $.12 per
      share.




(7)
            Includes
      1,791,665 shares of common stock and warrants to purchase 1,296,251 shares
      of common stock.




Equity
Compensation Plan Information




The
following table provides information regarding the status of our existing equity
compensation plans at March 31, 2010.




Plan Category
                      
                      Number
      of securities
                        to
      be issued upon
                        exercise
      of
                        outstanding
      options,
                        warrants and rights
                      
                      
                      Weighted-average
                        exercise
      price of
                        outstanding
      option,
                        warrants and rights
                      
                      
                      Number
      of securities
                        remaining
      available
                        for
      future issuance
                        under
      equity
                        compensation
      plans
                        (excluding
      securities
                        reflected
      in
                        column (a))(a)
                      
                      
                      (b)
                      
                      
                      (c)Equity
      compensation plans approved by security holders
                      
                      
                      3,237,500
                      
                      
                      $
                      1.06
                      
                      
                      
                      400,000Equity
      compensation plans not approved by security holders
                      
                      
                      1,000,000
                      
                      
                      $
                      1.67
                      
                      
                      
                      —Total
                      
                      
                      4,187,500
                      
                      
                      
                      
                      
                      
                      
                      —




Change
of Control




Pursuant to a Securities Purchase
Agreement, dated March 18, 2005, among the Company and the Purchasers identified
therein, including Sherleigh, as amended by the First Amendment to Securities
Purchase Agreement, dated as of January 26, 2006, and by the Second Amendment to
Securities Purchase Agreement, dated as of March 9, 2006 (as amended, the
“Purchase Agreement”), during the period of March 2005 through March 2006,
Sherleigh purchased from the Company (a) 1,333,333 shares of common stock, (b)
warrants to acquire 5,682,667 shares of common stock, and (c) three shares of
the Company’s Preferred Stock for an aggregate purchase price of
$1,090,331.


26


The Purchase Agreement and the
Preferred Stock provide that, upon the occurrence of a “Triggering Event” and
during the “Period of Triggering Event”, the holders of the majority of the
outstanding shares of Preferred Stock have the right to designate up to a
majority of the members of our board of directors.  “Triggering Event”
is defined as (i) failure of the Company to have gross revenues of at least $5
million for the six month period ending September 30, 2006 or (ii) material
breach by the Company of any of its representations, warranties, agreements or
covenants contained in the Purchase Agreement and certain other agreements and
instruments entered into in connection therewith.  The Company failed
to have gross revenues of at least $5 million during the six months ended
September 30, 2006, and thus, a Triggering Event has
occurred.  “Period of the Triggering Event” is defined as date
commencing upon the occurrence of a Triggering Event and ending on the date the
purchasers under the Purchase Agreement no longer hold in the aggregate at least
1,500,000 shares of common stock issued pursuant to the Purchase Agreement and
issuable upon the exercise of any warrants issued pursuant to the Purchase
Agreement or upon conversion of the Preferred Stock.  Accordingly,
pursuant to the terms of the Purchase Agreement and the Preferred Stock,
Sherleigh, as the holder of all outstanding shares of Preferred Stock, has the
right to designate a majority of the members of our board of
directors.




As of June 30, 2009, three of our six
directors have been designated by Sherleigh.  Such designees of
Sherleigh are Jack Silver, Adam Hershey and Peter Garson-Rappaport.




ITEM
13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE




In March
2009, Ronald Wilen, a director, the President and the Chief Executive Officer,
Martin Rappaport, a director, and Sherleigh Associates Profit Sharing Plan
(“Sherleigh”), a trust of which Jack Silver, a director, is the trustee,
provided the Company with short term loans in the amount of $50,000 each, and
each received warrants to purchase up to 200,000 shares of common stock at an
exercise price of $.125 per share which warrants are exercisable for a period of
five (5) years.




Subsequently,
in May 2009, the loan by Sherleigh was repaid, and Messrs Wilen and Rappaport
loaned the Company an additional $50,000 each, and Hilltop Holding Company, L.P.
(“Hilltop”), a limited partnership of which Mr. Silver is the managing partner,
loaned the Company $101,017.  In addition, the Company amended Messrs
Wilen’s and Rappaport’s March 2009 notes into secured convertible notes (the
“Amended March Loan Notes”) and issued to Messrs Wilen and Rappaport and Hilltop
secured convertible notes (the “May Loan Notes”) for their May 2009 loans to the
Company.  The amended notes extended the maturity date of the Amended
March Loan Notes to July 13, 2009.  In consideration for agreeing to
extend the maturity date and for making the May 2009 loans, Messrs Wilen,
Rappaport and Hilltop each received warrants to purchase up to 400,000 shares of
common stock at an exercise price of $.12 per share, which warrants are
exercisable for a period of five (5) years.




Thereafter,
in July 2009, Messrs Wilen and Rappaport and Hilltop agreed to extend the
maturity date of the Amended March Loan Notes and the May Loan Notes from July
13, 2009 to August 13, 2009 and as consideration for such extension received
warrants to purchase an aggregate of 611,825 shares of common stock at an
exercise price of $.12 per share, which warrants are exercisable for a period of
five (5) years.




Thereafter,
in July/August 2009, Messrs Wilen and Rappaport and Hilltop each loaned the
Company an additional $50,000.  In October 2009, the Company issued to
Messrs Wilen and Rappaport and Hilltop secured convertible notes (the “August
Loan Notes”) for their July/August 2009 loans to the Company.  In
connection with the July/August 2009 loans, Messrs Wilen and Rappaport and
Hilltop agreed to extend the maturity date of the Amended March Loan Notes and
the May Loan Notes to January 29, 2010.  In consideration for agreeing
to extend the maturity date and for making the July/August 2009 loans, Messrs
Wilen, Rappaport and Hilltop each received warrants to purchase up to 400,000
shares of common stock at an exercise price of $.09 per share, which warrants
are exercisable for a period of five (5) years.  In addition, the
conversion price of the Amended March Loan Notes and the May Loan Notes was
lowered from $.12 per share to $.09 per share.


27




Thereafter,
pursuant to an agreement dated January 29, 2010, Messrs Wilen and Rappaport and
Hilltop agreed to extend the maturity date of the Amended March Loan Notes, the
May Loan Notes and the August Loan Notes to January 31, 2011.  In
consideration for agreeing to extend the maturity date, Messrs Wilen, Rappaport
and Hilltop received warrants to purchase an aggregate of 5,414,705 shares of
common stock at an exercise price of $.222 per share, which warrants are
exercisable for a period of five (5) years.   As a result of the
foregoing, each of the Amended March Loan Notes, the May Loan Notes and the
August Loan Notes are convertible into common stock of the Company at a
conversion price of $.09 per share, bear interest at 12% per annum, are due
January 31, 2011 and are secured by substantially all the assets of the
Company.




The
issuance of the August Loan Notes and the warrants in October 2009 and the
reduction of the conversion price of the Amended March Loan Notes and the May
Loan Notes triggered the anti-dilution provisions of the Company’s outstanding
Series A Warrants, Series B Warrants, Series C Warrants and Series A Convertible
Preferred Stock.  As a result, in October 2009, the Company entered into an
Anti-Dilution Waiver Agreement with the holders of Series A Warrants, Series B
Warrants, Series C Warrants and Series A Convertible Preferred Stock, including
Sherleigh, whereby the exercise price of the Series A Warrants, the Series B
Warrants and the Series C Warrants were reduced from $0.12 to $0.09 per share;
however, such holders agreed to waive any increase in the number of shares
underlying the Series A Warrants, Series B Warrants and Series C Warrants as a
result of such reduction in the exercise price.  In addition, Sherleigh, as
the sole holder of the Series A Convertible Preferred Stock, agreed to waive the
anti-dilution provisions of the Series A Convertible Preferred
Stock.




Securities
Purchase Agreement




Pursuant
to the Purchase Agreement, in March 2005, Sherleigh purchased from the Company
533,333 shares of common stock and Series A Warrants to acquire 266,667 shares
of common stock for a purchase price of $426,664.  Thereafter, during the
period of August 2005 through January 2006, Sherleigh purchased, pursuant to the
Purchase Agreement, 800,000 additional shares of common stock and additional
Series A Warrants to acquire 400,000 shares of common stock for an aggregate
purchase price of $639,667.  Then in March 2006, pursuant to the Purchase
Agreement, Sherleigh purchased 3 shares of Preferred Stock, Series B Warrants to
acquire 12,000 shares of common stock and Series C Warrants to acquire 5,004,000
shares of common stock for a purchase price of $24,000.




In
addition, pursuant to the Purchase Agreement, and the Preferred Stock, upon the
occurrence of a “Triggering Event” and during the “Period of Triggering Event”,
the holders of the majority of the outstanding Preferred Stock have the right to
designate up to a majority of the members of the Company’s board of
directors.  “Triggering Event” is defined as (i) failure of the Company to
have gross revenues of at least $5 million for the six month period ending
September 30, 2006 or (ii) material breach by the Company of any of its
representations, warranties, agreements or covenants contained in the Purchase
Agreement and certain other agreements and instruments entered into in
connection therewith. The Company failed to have gross revenues of at least $5
million for the six months ended September 30, 2006, and thus a Triggering Event
has occurred. “Period of the Triggering Event” is defined as date commencing
upon the occurrence of a Triggering Event and ending on the date the purchasers
under the Purchase Agreement no longer hold in the aggregate at least 1,500,000
shares of common stock issued pursuant to the Purchase Agreement or issuable
upon the exercise of any warrants issued pursuant to the Purchase Agreement or
upon conversion of the Preferred Stock.




Series
A, Series B and Series C Warrants




Each of
the Series A, Series B and Series C Warrants provide that they may be exercised
at any time prior to the five year anniversary date of the issuance of such
warrants.  In June 2008, the Company agreed to extend the exercise period
of such warrants to June 30, 2013.  The warrants also provide for cashless
exercise at the option of the holder and anti-dilution protection in the event
the Company is deemed to have issued shares of common stock for a price less
than the exercise price.  In connection with the issuance of warrants to
employees and directors, the issuance of a convertible note and the reduction of
exercise price of certain options in February 2009, the Company and Sherleigh
entered into an anti-dilution waiver whereby the exercise price of the Series A,
Series B and Series C Warrants held by Sherleigh were reduced from $1.00 to $.12
per share.  In addition, Sherleigh agreed not to increase the number of
shares underlying such warrants.  In connection with the issuance of the
August Loan Notes and the warrants in October 2009, the Company and Sherleigh
entered into an anti-dilution waiver whereby the exercise price of the Series A,
Series B and Series C Warrants held by Sherleigh were reduced from $.12 to $.09
per share, and, Sherleigh agreed not to increase the number of shares underlying
such warrants.


28




Series
A Convertible Preferred Stock




Each
share of Preferred Stock earns dividends at the rate of 6% per annum of the
Stated Value of $8,000.  Such dividends are payable from legally available
funds on June 30th and December 30th of each year, or at the option of the
holder, in shares of common stock of the Company at the applicable conversion
rate.




Each
share of Preferred Stock is convertible into 66,667 shares of common stock at
the option of the holder.  Such conversion rate is subject to anti-dilution
protections in the event the Issuer is deemed to have issued shares of common
stock at a price less than the conversion price.




The
holders of the Preferred Stock have no voting rights except as required by law
and except the right to designate and elect a majority of the Company’s board of
directors upon the occurrence of a Triggering Event, as described
above.




In the
event of a liquidation, dissolution or winding up of the Company’s business, the
holders of the Preferred Stock have a liquidation preference equal to $8,000 per
share of Preferred Stock plus all accrued but unpaid dividends
thereon.




Registration
Rights Agreements




In
connection with the Purchase Agreement the Company entered into a Registration
Rights Agreement, wherein it agreed to file a registration statement registering
the common stock issued pursuant to the Purchase Agreement and the common stock
underlying the Series A Warrants, the Series B Warrants and the Preferred
Stock.




In connection with the Second Amendment
to the Purchase Agreement, the Company entered into a Registration Rights
Agreement, wherein it agreed to file a registration statement registering the
common stock underlying the Series C Warrants.




Consulting
Agreement




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.  Mr. Silver is the principal of SIAR.  In addition,
Adam Hershey, a director, is employed by SIAR and Peter Garson-Rappaport, a
director, is a former employ of SIAR.




As
compensation of the consulting services, the Company agreed to pay an amount
equal to two percent of the annual increase in the market capitalization of the
Company during each twelve (12) 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.  The compensation payable is limited
to a maximum aggregate increase in market capitalization during the term of $200
million.




Director
Independence




The board of directors have determined
that Messrs Silver, Hershey, Garson-Rappaport, Rappaport and Lack are
independent directors as defined in NASDAQ Listing Rule
5605(a)(2).


29




ITEM
14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES




Audit
Fees




The aggregate fees billed or expected
to billed by Jewett Schwartz Wolfe & Associates for professional services
rendered for the audit of our annual financial statements for the fiscal year
ended March 31, 2010 and for the reviews of the interim financial statements
included in our Quarterly Reports on Form 10-Q for the fiscal year was
approximately $34,500 and $35,500 for the fiscal year s ended March 31, 2010 and
2009, respectively.




Audit-Related
Fees




Fees of $22,500 and $22,500 were billed
by Jewett Schwartz Wolfe & Associates, for audit-related services for the
fiscal year ended March 31, 2010 and March 31, 2009.




Tax
Fees




No fees were billed by Jewett Schwartz
Wolfe & Associates and Imowitz for tax services rendered for the fiscal
years ended March 31, 2010 and 2009.




All
Other Fees




Jewett Schwartz Wolfe & Associates
did not render any other services, other than the services described above under
“Audit Fees,” “Audit-Related Fees” and “Tax Fees” for the fiscal year ended
March 31, 2010 or for the fiscal year ended March 31, 2009.




Audit
Committee




Our board of directors has established
a policy requiring it’s pre-approval of all audit services and permissible
non-audit services provided by the independent auditors, along with the
associated fees for those services.  The policy requires the specific
pre-approval of all permitted services.  When considering the pre-approval
of non-audit services, our board considers whether the provision of such
non-audit service is consistent with the auditor’s independence and the
Securities and Exchange Commission rules regarding auditor independence. 
Additionally, our board considers whether the independent auditors are best
positioned and qualified to provide the most effective and efficient service,
based on factors such as the independent auditors’ familiarity with our
business, personnel, systems or risk profile and whether provision of the
service by the independent auditors would enhance our ability to manage or
control risk or improve audit quality or would otherwise be beneficial to
us.


30


PART
IV




ITEM
15.  EXHIBITS




Exhibit
                  Number
                
                Description of Document3.1
                
                Articles
      of Incorporation of United Energy Corp. (1)3.2
                
                Amendment
      to the Articles of Incorporation. (2)3.3
                
                Articles
      of Incorporation: Articles Fourth, Fifth and Seventh.
  (1)3.6
                
                By-Laws
      of United Energy Corp. (1)3.7
                
                By-Laws:
      Article I: Sections: Six, Seven, Eight, Nine, Ten; Article II: Section
      Nine: Article IV: Section Two. (1)3.8
                
                New
      Article V of the Bylaws. (13)3.9
                
                Amendment
      to Articles of Incorporation of United Energy Corp.
(10)3.10
                
                Certificate
      of Designations, Preferences and Rights of Series A Convertible Preferred
      Stock. (13)4.1
                
                Form
      of Stock Certificate of United Energy Corp. (1)4.2
                
                Common
      Stock Purchase Warrant, dated March 24, 2004. (3)4.3
                
                Form
      of March 2005 Series A Purchase Warrant. (7)4.4
                
                Form
      of March 2005 Series B Purchase Warrant. (7)4.5
                
                Warrant
      Certificate, dated April 27, 2005. (8)4.6
                
                2002
      Common Stock Purchase Warrant. (9)4.7
                
                Common
      Stock Purchase Warrant, dated February 28, 2005. (6)4.8
                
                Form
      of Series C Warrant. (13)4.9
                
                Form
      of Warrant between United Energy Corp. and Connie Kristan.
      (15)4.10
                
                Form
      of Warrant between United Energy Corp. and Joseph Grano.
    (15)4.11
                
                Form
      of Director warrants issued February 13, 2009 (19)4.12
                
                Form
      of the Secured Convertible Promissory Note. (20)4.13
                
                Form
      of the Purchase Warrants. (20)10.1
                
                2001
      Equity Incentive Plan, as amended on May 29, 2002. (4)10.2
                
                Securities
      Purchase Agreement dated March 18, 2005, between United Energy Corp. and
      the Purchasers identified therein. (7)10.3
                
                Registration
      Rights Agreement dated March 18, 2005, between United Energy Corp. and the
      Purchasers identified therein.
(7)


31





10.4
              
              Consulting
      Services Agreement dated April 27, 2005, between United Energy Corp. and
      Ben Barnes. (8)10.5
              
              2002
      Common Stock and Warrant Purchase Agreement. (9)10.6
              
              United
      Energy Corp. 2001 Equity Incentive Plan, Amended and Restated Effective
      May 29, 2002. (10)10.7
              
              Form
      of Incentive Stock Option Agreement. (11)10.8
              
              Form
      of Stock Option Agreement. (11)10.9
              
              First
      Amendment to Securities Purchase Agreement, dated January 26, 2006, by and
      among United Energy Corp., Sherleigh Associates, Inc. Profit Sharing Plan
      and Joseph J. Grano, Jr. (12)10.10
              
              Second
      Amendment to Securities Purchase Agreement, dated as of March 9, 2006, by
      and among United Energy Corp., Sherleigh Associates, Inc. Profit Sharing
      Plan and Joseph J. Grano, Jr. (13)10.11
              
              Registration
      Rights Agreement, dated as of March 9, 2006, by and between United Energy
      Corp. and Sherleigh Associates, Inc. Profit Sharing Plan.
    (13)10.12
              
              Form
      of Securities Purchase Agreement dated as of March 24, 2006.
      (14)10.13
              
              Form
      of Registration Rights Agreement dated as of March 24, 2006.
      (14)10.14
              
              Form
      of First Amendment to Securities Purchase Agreement and Registration
      Rights Agreement dated as of March 24, 2006. (14)10.15
              
              Employment
      Agreement with Ronald Wilen dated April 17, 2007. (16)10.16
              
              Master
      Purchase Agreement, dated February 23, 2006, between Petrobras America
      Inc. and the Company. (18)10.17
              
              Anti-Dilution
      Waiver Agreement, dated February 13, 2009 by and between the Company and
      Joseph Grano. (19)10.18
              
              Anti-Dilution
      Waiver Agreement, dated February 13, 2009 by and between the Company and
      Sherleigh Associates Inc. Profit Sharing Plan. (19)10.19
              
              Consulting
      Agreement, dated as of June 27, 2008, by and between the Company and SIAR
      Capital, LLC. (17)10.20
              
              Agreement,
      dated October 31, 2009, among the Company, Ronald Wilen, Hilltop Holding
      Company, L.P. and Martin Rappaport. (20)10.21
              
              Anti-Dilution
      Waiver Agreement, , dated October 31, 2009, among the Company, Sherleigh
      Associates Inc. Profit Sharing Plan, Joseph Grano and Connie Kristen.
      (20)10.22
              
              Agreement,
      dated January 29, 2010, by and between the Company and Messrs Wilen and
      Rappaport and Hilltop. (21)21.1
              
              Subsidiaries
      of Small Business Issuer (15)31.1
              
              Chief
      Executive Officer’s Certificate, pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002. *31.2
              
              Interim
      Chief Financial Officer’s Certificate, pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002. *32.1
              
              Chief
      Executive Officer’s and Interim 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.
*


32




*
              Filed
      herewith(1)
              Incorporated
      by reference from the exhibits filed with the Form 10 on June 20,
      2000.(2)
              Incorporated
      by reference from the exhibits filed with the Form 10-Q for the period
      ended September 30, 2001.(3)
              Incorporated
      by reference from the exhibits filed with the Form 8-K filed on March 30,
      2004.(4)
              Incorporated
      by reference from the exhibits filed with the Schedule 14A for the year
      ended March 31, 2003.(5)
              Incorporated
      by reference from the exhibits filed with the Registration Statement on
      Form SB-2 (No. 333 115484).(6)
              Incorporated
      by reference from the exhibits filed with the Form 8-K filed on April 12,
      2005.(7)
              Incorporated
      by reference from the exhibits filed with the Form 8-K filed on March 23,
      2005.(8)
              Incorporated
      by reference from the exhibits filed with the Form 8-K filed on June 3,
      2005.(9)
              Incorporated
      by reference from the exhibits filed with the Form S-3 filed on September
      13, 2005.(10)
              Incorporated
      by reference from the exhibits filed with the Definitive Schedule 14A
      filed on July 18, 2005(11)
              Incorporated
      by reference from the exhibits filed with the Form S-8 filed on September
      29, 2005.(12)
              Incorporated
      by reference from the exhibits filed with the Form 8-K filed on January
      27, 2006.(13)
              Incorporated
      by reference from the exhibits filed with the Form 8-K filed on March 9,
      2006.(14)
              Incorporated
      by reference from the exhibits filed with the Form SB-2 filed on April 24,
      2006.(15)
              Incorporated
      by reference from the exhibits filed with the Form 10-KSB filed on May 29,
      2006.(16)
              Incorporated
      by reference from the exhibits filed with the Form 10-QSB filed on August
      14, 2007.(17)
              Incorporated
      by reference from the exhibits filed with the Form 8-K filed on September
      26, 2008.(18)
              Incorporated
      by reference from the exhibits filed with the Form 10-KSB filed on July
      14, 2008.(19)
              Incorporated
      by reference from the exhibits filed with Form 10-Q filed on February 17,
      2009.(20)
              Incorporated
      by reference from the exhibits filed with the Form 8-K filed on November
      3, 2009.(21)
              Incorporated
      by reference from the exhibits filed with Form 10-Q filed on February 16,
      2010.


33




SIGNATURES




Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized.




UNITED
      ENERGY CORP.Date: 
      July 14, 2010
                  By:
                  /s/ Ronald WilenRonald
      WilenChief
      Executive OfficerBy:
                  /s/ James McKeeverJames
      McKeeverInterim
      Chief Financial
Officer





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





/s/ Ronald Wilen
                
                Chief
      Executive Officer, President and
                
                July
      14, 2010Ronald
      Wilen
                
                Secretary
      (principal executive officer)/s/ James McKeever
                
                Interim
      Chief Financial Officer
                
                July
      14, 2010James
      McKeever
                
                (principal
      financial and accountingofficer)/s/ Adam Hershey
                
                Director
                
                July
      14, 2010Adam
      Hershey/s/ Peter Garson-Rappaport
                
                Director
                
                July
      14, 2010Peter
      Garson-Rappaport/s/ John Lack
                
                Director
                
                July
      14, 2010John
      Lack/s/ Martin Rappaport
                
                Director
                
                July
      14, 2010Martin
      Rappaport/s/ Jack Silver
                
                Director,
      Chairman of the Board of
                
                July
      14, 2010Jack
      Silver
                
                Directors





UNITED
ENERGY CORP. AND SUBSIDIARIES




FORM
10-K




ITEM
8




INDEX
OF FINANCIAL STATEMENTS AND SCHEDULES




The
following financial statements of United Energy Corp. and its subsidiaries
required to be included in Item 7 are listed below:




PageReport
      of independent registered public accounting firm
                F-2Report
      of prior year independent registered public accounting
firm
                F-3Consolidated
      balance sheets as of March 31, 2010 and March 31, 2009
                F-4-5For
      the periods ended March 31, 2010 and 2009:Consolidated
      statements of operations
                F-6Consolidated
      statements of stockholders' equity
                F-7Consolidated
      statements of cash flows
                F-8-9Notes
      to consolidated financial statements
                F-10-21


F-1


REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




To the
Board of Directors and Stockholders of


UNITED
ENERGY CORP. AND SUBSIDIARIES





We have
audited the accompanying consolidated balance sheet of United Energy, Corp. and
Subsidiaries as of March 31, 2010 and 2009 and the related consolidated
statements of operations, changes in shareholders' equity and cash flows for the
years ended March 31, 2009 and 2010. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.





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





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of United Energy, Corp. and
Subsidiaries, as of March 31, 2010 and 2009, and the consolidated results
of its operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America.





These
consolidated financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 2 to the consolidated
financial statements, the Company has operating and liquidity concerns, has
incurred net losses approximating $23,550,000 as of March 31, 2010. These
factors raise substantial doubt about the ability of the Company to continue as
a going concern. The consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties. In this
regard, Management is proposing to raise any necessary additional funds through
loans, additional sales of its common stock and increased sales volumes and the
ability to achieve profitability from the sales of our products lines. There is
no assurance that the Company will be successful in raising additional
capital.





/s/
      Jewett, Schwartz, Wolfe & AssociatesJewett,
      Schwartz, Wolfe &
Associates





Hollywood,
Florida


July 13,
2010


F-2





UNITED
ENERGY CORP.  AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS


MARCH
31, 2010 AND 2009





March 31,
                
                
                March 31,2010
                
                
                2009ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
                
                $
                311,506
                
                
                $
                56,372Accounts
      receivable, net of allowance for doubtful accounts of $77,711 and $7,032,
      respectively
                
                
                190,915
                
                
                
                140,531Inventory
                
                
                80,870
                
                
                
                155,427Prepaid
      expenses and other current assets
                
                
                62,827
                
                
                
                79,237Loan
      receivable, net of reserve of $25,000
                
                
                25,000
                
                
                
                25,000Total
      current assets
                
                
                671,118
                
                
                
                456,567PROPERTY
      AND EQUIPMENT, net of accumulated depreciation
                
                
                79,050
                
                
                
                108,094OTHER
      ASSETS:Goodwill,
      net of accumulated amortization of $17,704
                
                
                15,499
                
                
                
                15,499Patents,
      net of accumulated amortization of $280,306 and $242,000,
      respectively
                
                
                317,318
                
                
                
                347,661Loans
      receivable
                
                
                35,793
                
                
                
                3,843Deposits
                
                
                1,385
                
                
                
                1,385Total
      assets
                
                $
                1,120,163
                
                
                $
                933,049





The
accompanying notes are an integral part of these consolidated
statements


F-3





UNITED
ENERGY CORP.  AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS


MARCH
31, 2010 AND 2009





March 31,
                            
                            
                            March 31,2010
                            
                            
                            2009LIABILITIES
      AND STOCKHOLDERS' EQUITYCURRENT
      LIABILITIES:Accounts
      payable
                            
                            $
                            234,948
                            
                            
                            $
                            189,609Accrued
      expenses
                            
                            
                            362,925
                            
                            
                            
                            107,622Convertible
      term note payable
                            
                            
                            30,000
                            
                            
                            
                            35,000Due
      to related parties
                            
                            
                            453,781
                            
                            
                            
                            150,000Total
      current liabilities
                            
                            
                            1,081,654
                            
                            
                            
                            482,231COMMITMENTS
      AND CONTINGENCIESSTOCKHOLDERS'
      EQUITY:Series
      A Convertible Preferred Stock:$8,000
      stated value; 100,000 sharesauthorized;
      3 shares issued and outstandingas
      of March 31, 2010 and 2009, respectively
                            
                            
                            24,000
                            
                            
                            
                            24,000Common
      Stock: $0.01 par value; 100,000,000shares
      authorized; 31,504,449 and 31,030,115shares
      issued and outstanding as ofMarch
      31, 2010 and 2009, respectively
                            
                            
                            315,045
                            
                            
                            
                            310,301Additional
      paid-in capital
                            
                            
                            23,245,536
                            
                            
                            
                            22,196,257Accumulated
      deficit
                            
                            
                            (23,546,072
                            )
                            
                            
                            (22,079,740
                            )Total
      stockholders' equity
                            
                            
                            38,509
                            
                            
                            
                            450,818Total
      liabilities and stockholders' equity
                            
                            $
                            1,120,163
                            
                            
                            $
                            933,049





The
accompanying notes are an integral part of these consolidated
statements


F-4





UNITED
ENERGY CORP. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OPERATIONS


FOR
THE YEARS ENDED MARCH 31, 2010 AND 2009





2010
                  
                  
                  2009REVENUES,
      net
                  
                  $
                  1,771,720
                  
                  
                  $
                  1,206,321COST
      OF GOODS SOLD
                  
                  
                  668,326
                  
                  
                  
                  567,758Gross
      profit
                  
                  
                  1,103,394
                  
                  
                  
                  638,563OPERATING
      EXPENSES:Selling,
      general and administrative
                  
                  
                  2,249,047
                  
                  
                  
                  1,586,355Research
      and deveolpment
                  
                  
                  222,476
                  
                  
                  
                  329,186Depreciation
      and amortization
                  
                  
                  48,499
                  
                  
                  
                  59,795Total
      operating expenses
                  
                  
                  2,520,022
                  
                  
                  
                  1,975,336Loss
      from operations
                  
                  
                  (1,416,628
                  )
                  
                  
                  (1,336,773
                  )OTHER
      INCOME (EXPENSE), net:Interest
      income
                  
                  
                  27
                  
                  
                  
                  950Interest
      expense
                  
                  
                  (48,291
                  )
                  
                  
                  (2,414
                  )Total
      other income, net
                  
                  
                  (48,264
                  )
                  
                  
                  (1,464
                  )Net
      loss
                  
                  
                  (1,464,892
                  )
                  
                  
                  (1,338,237
                  )PREFERRED
      DIVIDENDS
                  
                  
                  (1,440
                  )
                  
                  
                  (1,440
                  )Net
      loss applicable to common shareholders
                  
                  $
                  (1,466,332
                  )
                  
                  $
                  (1,339,677
                  )BASIC
      AND DILUTED LOSS PER SHARE,
                  
                  $
                  (0.05
                  )
                  
                  $
                  (0.04
                  )BASIC
      AND DILUTED WEIGHTED AVERAGENUMBER
      OF SHARES OUTSTANDING:
                  
                  
                  31,335,152
                  
                  
                  
                  31,030,115





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


F-5





UNITED
ENERGY CORP. AND SUBSIDIARIES


CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY


FOR
THE YEARS ENDED MARCH 31, 2010 AND 2009





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
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          17,702
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          17,702Compensation
      expense associated with warrants
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          159,210
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          159,210Related
      party payable write off
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          244,141
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          244,141Dividends
      paid on preferred shares
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (1,440
                                          )
                                          
                                          
                                          (1,440
                                          )Net
      loss
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (1,338,237
                                          )
                                          
                                          
                                          (1,338,237
                                          )BALANCE,
      March 31, 2009
                                          
                                          
                                          31,030,115
                                          
                                          
                                          
                                          310,301
                                          
                                          
                                          
                                          24,000
                                          
                                          
                                          
                                          22,196,257
                                          
                                          
                                          
                                          (22,079,740
                                          )
                                          
                                          
                                          450,818Compensation
      expense associated with options
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          1,425
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          1,425Compensation
      expense associated with warrants
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          1,017,598
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          1,017,598Conversion
      of convertible note into common stock
                                          
                                          
                                          298,472
                                          
                                          
                                          
                                          2,985
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          32,015
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          35,000Exercise
      of warrants into common stock
                                          
                                          
                                          175,862
                                          
                                          
                                          
                                          1,759
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (1,759
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Dividends
      paid on preferred shares
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (1,440
                                          )
                                          
                                          
                                          (1,440
                                          )Net
      loss
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (1,464,892
                                          )
                                          
                                          
                                          (1,464,892
                                          )BALANCE,
      March 31, 2010
                                          
                                          
                                          31,504,449
                                          
                                          
                                          $
                                          315,045
                                          
                                          
                                          $
                                          24,000
                                          
                                          
                                          $
                                          23,245,536
                                          
                                          
                                          $
                                          (23,546,072
                                          )
                                          
                                          $
                                          38,509





The
accompanying notes are an integral part of this consolidated
statements


F-6





UNITED
ENERGY CORP. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


FOR
THE YEARS ENDED MARCH 31, 2010 AND 2009





2010
                          
                          
                          2009CASH
      FLOWS FROM OPERATING ACTIVITIES:CASH
      FLOWS FROM CONTINUING OPERATIONS:Net
      loss
                          
                          $
                          (1,464,892
                          )
                          
                          $
                          (1,338,237
                          )Adjustments
      to reconcile net loss to net cash used in operating
    activitiesDepreciation
      and amortization
                          
                          
                          68,336
                          
                          
                          
                          75,384Allowance
      for doubtful accounts
                          
                          
                          70,180
                          
                          
                          
                          (18,297
                          )Compensation
      expense associated with options
                          
                          
                          1,425
                          
                          
                          
                          17,702Compensation
      expense associated with warrants
                          
                          
                          1,017,598
                          
                          
                          
                          159,210Changes
      in operating assets and liabilitiesAccounts
      receivable
                          
                          
                          (120,564
                          )
                          
                          
                          125,513Inventory
                          
                          
                          74,557
                          
                          
                          
                          (13,760
                          )Prepaid
      expenses and other current assets
                          
                          
                          16,410
                          
                          
                          
                          83,018Accounts
      payable and accrued expenses
                          
                          
                          330,642
                          
                          
                          
                          50,621Net
      cash used in operating activities
                          
                          
                          (6,308
                          )
                          
                          
                          (858,846
                          )CASH
      FLOWS FROM INVESTING ACTIVITIES:Proceeds
      on loans receivable
                          
                          
                          2,050
                          
                          
                          
                          2,400Payment
      on loans receivable
                          
                          
                          (34,000
                          )
                          
                          
                          (1,220
                          )Payments
      for acquisition of property and equipment
                          
                          
                          (986
                          )
                          
                          
                          (83,453
                          )Payments
      for patent
                          
                          
                          (7,963
                          )
                          
                          
                          (8,644
                          )Cash
      used in investing activities
                          
                          
                          (40,899
                          )
                          
                          
                          (90,917
                          )CASH
      FLOWS FROM FINANCING ACTIVITIES:Payments
      of related party payable
                          
                          
                          303,781
                          
                          
                          
                          150,000Preferred
      stock dividend
                          
                          
                          (1,440
                          )
                          
                          
                          (1,440
                          )Net
      cash provided by financing activities
                          
                          
                          302,341
                          
                          
                          
                          148,560Net
      increase (decrease) in cash and cash equivalents
                          
                          
                          255,134
                          
                          
                          
                          (802,203
                          )CASH
      AND CASH EQUIVALENTS, beginning of period
                          
                          
                          56,372
                          
                          
                          
                          858,575CASH
      AND CASH EQUIVALENTS, end of period
                          
                          $
                          311,506
                          
                          
                          $
                          56,372





The
accompanying notes are an integral part of these consolidated
statements


F-7





UNITED
ENERGY CORP. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


FOR
THE YEARS ENDED MARCH 31, 2010 AND 2009





2010
                        
                        
                        2009SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATION:Cash
      paid during the periodInterest
                        
                        $
                        1,555
                        
                        
                        $
                        1,691Income
      taxes
                        
                        $
                        2,600
                        
                        
                        $
                        2,860SUPPLEMENTAL
      DISCLOSURES OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:Note
      payable issued in conversion of accounts payable
                        
                        $
                        30,000
                        
                        
                        $
                        35,000Related
      party payable write off
                        
                        $
                        -
                        
                        
                        $
                        244,141Exercise
      of warrant's into common stock
                        
                        $
                        1,759
                        
                        
                        $
                        -





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


F-8


UNITED
ENERGY CORP. AND SUBSIDIARIES





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


MARCH
31, 2010 AND 2009








1.
            DESCRIPTION
      OF BUSINESS





United
Energy Corp. (“United Energy” or the “Company”) considers its primary business
focus to be the development, manufacture and sale of environmentally friendly
specialty chemical products with applications in several industries and
markets.  Our current line of products includes K-Line of Chemical Products
for the oil industry and related products.




Through
our wholly owned subsidiary, Green Globe Industries, Inc. (“Green Globe”), 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.




2.
            GOING
      CONCERN





The
accompanying consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America
which contemplate continuation of the Company as a going concern. However, the
Company has year end losses from operations in 2010.  For the year ended
March 31, 2010 the Company incurred net loss approximating $1,464,892. Further,
the Company has inadequate working capital to maintain or develop its
operations, and is dependent upon funds from private investors and the support
of certain stockholders.





These
factors raise substantial doubt about the ability of the Company to continue as
a going concern. The consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties. In this
regard, the Company may need to raise additional funds through loans, additional
sales of its equity securities, increased sales volumes and the ability to
achieve profitability from the sales of our product lines.  There is no
assurance that the Company will be successful in raising additional
capital.





3.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES





Principles
of Consolidation





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





Use
of Estimates





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





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


F-9





Revenue
Recognition





Revenue includes product sales. The
Company recognizes revenue from product sales in accordance with Topic 605
“Revenue Recognition in Financial Statements”, formerly Staff Accounting
Bulletin (SAB) No. 104, “Revenue Recognition in Financial Statement” which is at
the time customers are invoiced at shipping point, provided title and risk of
loss has passed to the customer, evidence of an arrangement exists, fees are
contractually fixed or determinable, collection is reasonably assured through
historical collection results and regular credit evaluations, and there are no
uncertainties regarding customer acceptance





Cash
and Cash Equivalents





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





Inventories





The Company inventory is carried at the
lower of cost or net realizable value using the first-in, first-out (“FIFO”)
method.  The Company evaluates the need to record adjustments for inventory
on a regular basis.  Our policy is to evaluate all inventories including
raw materials, and finished goods.  These inventories consisted of chemical
products.  At March 31, 2010 and 2009, the value of the company’s inventory
was $80,870 and $155,427, respectively.





Allowance
for Doubtful Accounts





The Company monitors its accounts,
loans and note receivable balances on a monthly basis to ensure they are
collectible.  On a quarterly basis, the Company uses its historical
experience to determine its accounts receivable reserve.  The Company’s
allowance for doubtful accounts is an estimate based on specifically identified
accounts as well as general reserves.  The Company evaluates specific
accounts where it has information that the customer may have an inability to
meet its financial obligations.  In these cases, management uses its
judgment, based upon the best available facts and circumstances, and records a
specific reserve for that customer against amounts due to reduce the receivable
to the amount that is expected to be collected.  These specific reserves
are reevaluated and adjusted as additional information is received that impacts
the amount reserved.  The Company also establishes a general reserve based
upon a range of percentages applied to aging categories.  These percentages
are based on historical collection and write-off experience. If circumstances
change, the Company’s estimate of the recoverability of amounts due the Company
could be reduced or increased by a material amount.  Such a change in
estimated recoverability would be accounted for in the period in which the facts
that give rise to the change become known.





Property
and Equipment





Property and equipment are stated at
cost.  Depreciation has been calculated using the straight-line method over
the estimated useful lives of the assets ranging from 3 to 15 years. 
Leasehold improvements are amortized over the lives of the respective leases,
which are shorter than the useful life.  The cost of maintenance and
repairs is expensed as incurred.  Depreciation expense for the years ended
March 31, 2010 and 2009 was $30,030 and $26,714, respectively.





Property
and equipment consists of the following at March 31, 2010 and 2009:


2010
                  
                  
                  2009Furniture
      and fixtures
                  
                  $
                  83,355
                  
                  
                  $
                  83,355Machinery
      and equipment
                  
                  
                  419,612
                  
                  
                  
                  418,626Vehicles
                  
                  
                  42,001
                  
                  
                  
                  42,001Leasehold
      improvements
                  
                  
                  26,203
                  
                  
                  
                  26,203571,171
                  
                  
                  
                  570,185Less-
      Accumulated depreciation
                  
                  
                  (492,121
                  )
                  
                  
                  (462,091
                  )Property
      and equipment, net
                  
                  $
                  79,050
                  
                  
                  $
                  108,094


F-10


Goodwill





The Company capitalized goodwill
related to the acquisition of Green Globe in September of 1998. Goodwill
represents cost in excess of fair value on the net assets acquired. 
Goodwill was amortized over a 15 year period using a straight line amortization
method until the adoption of (FASB) Accounting Standard Codification (“ASC”)
Topic 350 “Goodwill and other Intangible Assets” formerly Statement of Financial
Accounting Standards (“SFAS”) No. 142 “Goodwill and Other Intangible Assets,” on
April 1, 2002.  Under SFAS No. 142, goodwill and intangible assets with
indefinite lives are no longer amortized but are reviewed annually (or more
frequently if impairment indicators arise) for impairment.  Separable
intangible assets that are not deemed to have indefinite lives will continue to
be amortized over their useful lives (but with no maximum life).





As required Topic 350 “Goodwill and
other Intangible Assets” formerly SFAS No. 142, the Company completed its
transitional impairment testing of intangible assets. Under Topic 350 “Goodwill
and other Intangible Assets” formerly SFAS No. 142, a goodwill impairment exists
if the net book value of a reporting unit exceeds its estimated fair value. The
impairment testing is performed in two steps:  (i) the Company determines
impairment by comparing fair value of a reporting unit with its carrying value,
and (ii) if there is an impairment the Company measures the amount of impairment
loss by comparing the implied fair value of goodwill with the carrying amount of
that goodwill.





As of March 31, 2010 the Company
completed its annual impairment testing of goodwill. The Company estimated the
fair value of its goodwill by using discounted cash flow analysis. As a result
of the impairment tests, the Company did not record a goodwill impairment charge
related to Green Globe, during the year ended March 31, 2010.





Research
& Development





Our products are the result of
research and development expenditures. The Company’s policy is to expense any
research and development costs as they are incurred.  The Company incurred
research and development costs of $222,476 and $329,186 for the fiscal years
ended March 31, 2010 and 2009, respectively.





Patents





The Company capitalizes legal costs
incurred to obtain patents. Amortization begins when the patent is approved
using the straight-line basis over the estimated useful life of 15
years.





Accounting
for Long-Lived Assets





The
Company’s long-lived assets include property and equipment and patents. In
accordance with ASC Topic 360, “Long Lived Assets” formerly, SFAS No. 144,
long-lived assets other than goodwill are reviewed on a periodic basis for
impairment whenever events or changes in circumstances indicate that the
carrying amounts of the assets may not be recoverable.  Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to future undiscounted net cash flows expected to be generated by the
asset.  If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets.





Income
Taxes





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





Stock-Based
Compensation





In
accordance with ASC Topic 718 “Compensation” formerly, SFAS No. 123 (revised
2004), “Share-based payments”, the Company records compensation expense for all
stock-based payment awards made to employees based on estimated fair
value.





Recent
Accounting Pronouncements





Recent
accounting pronouncements that the Company has adopted or that will be required
to adopt in the future are summarized below.


F-11





In April
2010, the FASB issued Accounting Standard Update No. 2010-12. “Income Taxes”
(Topic 740). ASU No.2010-12 amends FASB Accounting Standard Codification
subtopic 740-10 Income Taxes to include paragraph 740-10-S99-4. On March 30,
2010 The President signed the Health Care & Education Affordable Care Act
reconciliation bill that amends its previous Act signed on March 23, 2010. FASB
Codification topic 740, Income Taxes, requires the measurement of current and
deferred tax liabilities and assets to be based on provisions of enacted tax
law. The effects of future changes in tax laws are not anticipated.” Therefore,
the different enactment dates of the Act and reconciliation measure may affect
registrants with a period-end that falls between March 23, 2010 (enactment date
of the Act), and March 30, 2010 (enactment date of the reconciliation measure).
However, the announcement states that the SEC would not object if such
registrants were to account for the enactment of both the Act and the
reconciliation measure in a period ending on or after March 23, 2010, but notes
that the SEC staff “does not believe that it would be appropriate for
registrants to analogize to this view in any other fact patterns.” The adoption
of this standard is not expected to have a material impact on the Company’s
financial position and results of operations.





In April
2010, the FASB issued Accounting Standard Update No. 2010-13 “Stock
Compensation” (Topic 718). ASU No.2010-13 provides amendments to Topic 718 to
clarify that an employee share-based payment award with an exercise price
denominated in the currency of a market in which a substantial portion of the
entity's equity securities trades should not be considered to contain a
condition that is not a market, performance, or service condition. Therefore, an
entity would not classify such an award as a liability if it otherwise qualifies
as equity. The amendments in this Update are effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15,
2010. The amendments in this Update should be applied by recording a
cumulative-effect adjustment to the opening balance of retained earnings. The
cumulative-effect adjustment should be calculated for all awards outstanding as
of the beginning of the fiscal year in which the amendments are initially
applied, as if the amendments had been applied consistently since the inception
of the award. The cumulative-effect adjustment should be presented separately.
Earlier application is permitted. The adoption of this standard is not expected
to have a material impact on the Company’s financial position and results of
operations.





In April
2010, the FASB issued Accounting Standard Update No. 2010-17. “Revenue
Recognition-Milestone Method” (Topic 605) ASU No.2010-17 provides guidance on
defining a milestone and determining when it may be appropriate to apply the
milestone method of revenue recognition for research or development
transactions. An entity often recognizes these milestone payments as revenue in
their entirety upon achieving a specific result from the research or development
efforts. A vendor can recognize consideration that is contingent upon
achievement of a milestone in its entirety as revenue in the period in which the
milestone is achieved only if the milestone meets all criteria to be considered
substantive. Determining whether a milestone is substantive is a matter of
judgment made at the inception of the arrangement. The ASU is effective for
fiscal years and interim periods within those fiscal years beginning on or after
June 15, 2010. Early application is permitted. Entities can apply this guidance
prospectively to milestones achieved after adoption. However, retrospective
application to all prior periods is also permitted.  The adoption of this
standard is not expected to have a material impact on the Company’s financial
position and results of operations.





In April
2010, the FASB issued Accounting Standard Update No. 2010-18. “Receivables”
(Topic 310). ASU No.2010-18 provides guidance on accounting for acquired loans
that have evidence of credit deterioration upon acquisition. Paragraph
310-30-15-6 allows acquired assets with common risk characteristics to be
accounted for in the aggregated as a pool. Upon establishment of the pool, the
pool becomes the unit of accounting. When loans are accounted for as a pool, the
purchase discount is not allocated to individual loans; thus all of the loans in
the pool accrete at a single pool rate (based on cash flow projections for the
pool). Under subtopic 310-30, the impairment analysis also is performed on the
pool as a whole as opposed to each individual loan. Paragraphs 310-40-15-4
through 15-12 establish the criteria for evaluating whether a loan modification
should be classified as a troubled debt restructuring. Specifically paragraph
310-40-15-5 states that “a restructuring of a debt constitutes a troubled debt
restructuring for purposes of this subtopic if the creditor for economic or
legal reasons related to the debtor’s financial difficulties grants a concession
to the debtor that it would not otherwise consider.” The ASU is effective for
modification of loans accounted for within pools under subtopic 310-30 occurring
in the first interim or annual period ending on or after July 15, 2010. The
amendments are to be applied prospectively. Early application is permitted. The
adoption of this standard is not expected to have a material impact on the
Company’s financial position and results of operations.





In May
2010, the FASB issued Accounting Standard Update No. 2010-19 “Foreign Currency”.
(“ASU No. 2010-19”). ASU 2010-19, codifies the SEC staff announcement made at
the March 18, 2010, EITF meeting. The ASU “provides the SEC staff’s views on
certain foreign currency issues related to investments in Venezuela.” These
issues relate to Venezuela’s highly inflationary status. The ASU became
effective on March 18, 2010.  We are currently assessing the impact of the
adoption of  this standard on our financial position, and results of
operations..


F-12




Earnings
Per Share





ASC Topic 260 “Earnings Per Shares”
formerly,  SFAS No. 128 establishes standards for computing and presenting
earnings per share ("EPS"). The standard requires the presentation of basic EPS
and diluted EPS. Basic EPS is calculated by dividing income/loss available to
common shareholders by the weighted average number of shares of common stock
outstanding during the period. Diluted EPS is calculated by dividing income/loss
available to common shareholders by the weighted average number of common shares
outstanding adjusted to reflect potentially dilutive securities.  Diluted
loss per share for the years ended March 31, 2010 and 2009 does not include
24,203,363 and 15,036,833 stock options, warrants and convertible preferred
stock, respectively, since the inclusion would have been
antidilutive.





Concentrations
of Risk





Cash
and Cash Equivalents





The Company maintains cash balances at
financial institutions insured up to $250,000 by the Federal Deposit Insurance
Corporation. Balances exceeded these insured amounts during the
year.





Accounts
Receivable





The Company had two customers that
accounted for 83% of the total accounts receivable at March 31, 2010 and three
customers that accounted for 84% of the total accounts receivable at March 31,
2009. One company accounted for 22% and 42%, the second accounted for 0% and
32%, the third accounted for 61% and 0% and the last accounted for 0% and 10% at
March 31, 2010 and 2009 respectively. Credit losses, if any, have been provided
for in the consolidated financial statements and are based on management's
expectations.





Significant
Customers





The Company's revenues from major
customers, as a percentage of revenues, for the years ended March 31, 2010 and
2009, are as follows:





2010
                  
                  
                  2009Customer
      A
                  
                  
                  21
                  %
                  
                  
                  0
                  %Customer
      B
                  
                  
                  21
                  %
                  
                  
                  29
                  %Customer
      C
                  
                  
                  15
                  %
                  
                  
                  0
                  %Customer
      D
                  
                  
                  0
                  %
                  
                  
                  11
                  %Customer
      E
                  
                  
                  0
                  %
                  
                  
                  10
                  %Customer
      F
                  
                  
                  11
                  %
                  
                  
                  0
                  %





Vendors





The Company purchased supplies from
major vendors for the years ended March 31, 2010 and 2009 as
follows:





2010
                  
                  
                  2009Vendor
      A
                  
                  
                  16
                  %
                  
                  
                  46
                  %Vendor
      B
                  
                  
                  13
                  %
                  
                  
                  37
                  %Vendor
      C
                  
                  
                  38
                  %
                  
                  
                  0
                  %





Fair
Value of Financial Instruments





The carrying amounts reported in the
balance sheet for cash, accounts receivable and payable approximate fair value
based on the short-term maturity of these instruments.


F-13





Fair
value of certain of the Company’s financial instruments including cash and cash
equivalents, inventory, account payable, accrued expenses, notes payables, and
other accrued liabilities approximate cost because of their short maturities.
The Company measures and reports fair value in accordance with ASC 820, “Fair
Value Measurements and Disclosure” defines fair value, establishes a framework
for measuring fair value in accordance with generally accepted accounting
principles and expands disclosures about fair value investments.




Fair
value, as defined in ASC 820, is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The fair value of an asset should reflect
its highest and best use by market participants, principal (or most
advantageous) markets, and an in-use or an in-exchange valuation premise. The
fair value of a liability should reflect the risk of nonperformance, which
includes, among other things, the Company’s credit risk.




Valuation
techniques are generally classified into three categories: the market approach;
the income approach; and the cost approach. The selection and application of one
or more of the techniques may require significant judgment and are primarily
dependent upon the characteristics of the asset or liability, and the quality
and availability of inputs. Valuation techniques used to measure fair value
under ASC 820 must maximize the use of observable inputs and minimize the use of
unobservable inputs. ASC 820 also provides fair value hierarchy for inputs and
resulting measurement as follows:




Level
1




Quoted
prices (unadjusted) in active markets that are accessible at the measurement
date for identical assets or liabilities;




Level
2




Quoted
prices for similar assets or liabilities in active markets; quoted prices for
identical or similar assets or liabilities in markets that are not active;
inputs other than quoted prices that are observable for the asset or liability;
and inputs that are derived principally from or corroborated by observable
market data for substantially the full term of the assets or liabilities;
and




Level
3




Unobservable
inputs for the asset or liability that are supported by little or no market
activity and that are significant to the fair values.




Fair
value measurements are required to be disclosed by the Level within the fair
value hierarchy in which the fair value measurements in their entirety fall.
Fair value measurements using significant unobservable inputs (in Level 3
measurements) are subject to expanded disclosure requirements including a
reconciliation of the beginning and ending balances, separately presenting
changes during the period attributable to the following: (i) total gains or
losses for the period (realized and unrealized), segregating those gains or
losses included in earnings, and a description of where those gains or losses
included in earning are reported in the statement of income.




4.
            INVENTORY





Inventory consists of the following as
of March 31, 2010 and 2009:


2010
                  
                  
                  2009Blended
      chemicals
                  
                  $
                  29,734
                  
                  
                  $
                  92,944Raw
      materials
                  
                  
                  51,136
                  
                  
                  
                  62,483Total
      inventory
                  
                  $
                  80,870
                  
                  
                  $
                  155,427





5.
            RELATED
      PARTY TRANSACTIONS





In March
2009, Ronald Wilen, a director, the President and the Chief Executive Officer,
Martin Rappaport, a director, and Sherleigh Associates Profit Sharing Plan
(“Sherleigh”), a trust of which Jack Silver, a director, is the trustee,
provided the Company with short term loans in the amount of $50,000 each, and
each received warrants to purchase up to 200,000 shares of common stock at an
exercise price of $.125 per share which warrants are exercisable for a period of
five (5) years.


F-14




Subsequently,
in May 2009, the loan by Sherleigh was repaid, and Messrs Wilen and Rappaport
loaned the Company an additional $50,000 each, and Hilltop Holding Company, L.P.
(“Hilltop”), a limited partnership of which Mr. Silver is the managing partner,
loaned the Company $101,017.  In addition, the Company amended Messrs
Wilen’s and Rappaport’s March 2009 notes into secured convertible notes (the
“Amended March Loan Notes”) and issued to Messrs Wilen and Rappaport and Hilltop
secured convertible notes (the “May Loan Notes”) for their May 2009 loans to the
Company.  The amended notes extended the maturity date of the Amended March
Loan Notes to July 13, 2009.  In consideration for agreeing to extend the
maturity date and for making the May 2009 loans, Messrs Wilen, Rappaport and
Hilltop each received warrants to purchase up to 400,000 shares of common stock
at an exercise price of $.12 per share, which warrants are exercisable for a
period of five (5) years.




Thereafter,
in July 2009, Messrs Wilen and Rappaport and Hilltop agreed to extend the
maturity date of the Amended March Loan Notes and the May Loan Notes from July
13, 2009 to August 13, 2009 and as consideration for such extension received
warrants to purchase an aggregate of 611,825 shares of common stock at an
exercise price of $.12 per share, which warrants are exercisable for a period of
five (5) years.




Thereafter,
in July/August 2009, Messrs Wilen and Rappaport and Hilltop each loaned the
Company an additional $50,000.  In October 2009, the Company issued to
Messrs Wilen and Rappaport and Hilltop secured convertible notes (the “August
Loan Notes”) for their July/August 2009 loans to the Company.  In
connection with the July/August 2009 loans, Messrs Wilen and Rappaport and
Hilltop agreed to extend the maturity date of the Amended March Loan Notes and
the May Loan Notes to January 29, 2010.  In consideration for agreeing to
extend the maturity date and for making the July/August 2009 loans, Messrs
Wilen, Rappaport and Hilltop each received warrants to purchase up to 400,000
shares of common stock at an exercise price of $.09 per share, which warrants
are exercisable for a period of five (5) years.  In addition, the
conversion price of the Amended March Loan Notes and the May Loan Notes was
lowered from $.12 per share to $.09 per share.




Thereafter,
pursuant to an agreement dated January 29, 2010, Messrs Wilen and Rappaport and
Hilltop agreed to extend the maturity date of the Amended March Loan Notes, the
May Loan Notes and the August Loan Notes to January 31, 2011.  In
consideration for agreeing to extend the maturity date, Messrs Wilen, Rappaport
and Hilltop received warrants to purchase an aggregate of 5,414,705 shares of
common stock at an exercise price of $.222 per share, which warrants are
exercisable for a period of five (5) years.   As a result of the
foregoing, each of the Amended March Loan Notes, the May Loan Notes and the
August Loan Notes are convertible into common stock of the Company at a
conversion price of $.09 per share, bear interest at 12% per annum, are due
January 31, 2011 and are secured by substantially all the assets of the
Company.




The
issuance of the August Loan Notes and the warrants in October 2009 and the
reduction of the conversion price of the Amended March Loan Notes and the May
Loan Notes triggered the anti-dilution provisions of the Company’s outstanding
Series A Warrants, Series B Warrants, Series C Warrants and Series A Convertible
Preferred Stock.  As a result, in October 2009, the Company entered into an
Anti-Dilution Waiver Agreement with the holders of Series A Warrants, Series B
Warrants, Series C Warrants and Series A Convertible Preferred Stock, including
Sherleigh, whereby the exercise price of the Series A Warrants, the Series B
Warrants and the Series C Warrants were reduced from $0.12 to $0.09 per share;
however, such holders agreed to waive any increase in the number of shares
underlying the Series A Warrants, Series B Warrants and Series C Warrants as a
result of such reduction in the exercise price.  In addition, Sherleigh, as
the sole holder of the Series A Convertible Preferred Stock, agreed to waive the
anti-dilution provisions of the Series A Convertible Preferred
Stock.




6.
            CONVERTIBLE
      DEBT




On
January 28, 2009, the Company issued a convertible term note in the amount of
$35,000, which accrued interest at 7% per year. Principal and interest is
payable on the maturity date of June 30, 2009. The holder of this term note has
the option to convert all or a portion of the note (including principal and
interest) into shares of common stock at any time at a conversion price of $0.12
per share. The conversion price is subject to adjustment for stock splits, stock
dividends and similar events. The holder of this term note agreed to convert the
note and on June 2, 2009, the term note was converted. In consideration for the
conversion, the Company issued to the holder of the note, warrants to acquire
140,000 shares of Common Stock at an exercise price of $0.12, which warrants are
exercisable for a period of five years.




On
November 6, 2009, the Company issued a convertible term note in the amount of
$30,000, which accrues interest at 7% per year. Principal and interest is
payable on demand. The holder of this term note has the option to convert all or
a portion of the note (including principal and interest) into shares of common
stock at any time at a conversion price of $0.21 per share. The conversion price
is subject to adjustment for stock splits, stock dividends and similar
events.


F-15




7.
            COMMITMENTS
      AND CONTINGENCIES





Litigation





In July
2002, an action was commenced against the Company in the Court of Common Pleas
of South Carolina, Pickens County, brought by Quantum International Technology,
LLC and Richard J. Barrett.  The plaintiffs allege that they were retained
as the sales representatives of the Company and in that capacity made sales of
the Company’s products to the United States government and to commercial
entities.  The plaintiffs further allege that the Company failed to pay to
the plaintiffs agreed commissions at the rate of 20% of gross sales of the
Company’s products made by the plaintiffs.  The complaint seeks an
accounting, compensatory damages in the amount of all unpaid commissions plus
interest thereon, punitive damages in an amount treble the compensatory damages,
plus legal fees and costs. The 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 yet been scheduled.  The Company
believes to have meritorious defenses to the claims asserted in the action and
intends to vigorously defend the case.  The outcome of this matter cannot
be determined at this time.




Lease
Commitments





The
Company leases office facilities, equipment and autos under operating leases
expiring on various dates through 2012. Certain leases contain renewal
options.  The following is a schedule of future minimum lease payments
under operating leases having remaining terms in excess of one year as of March
31, 2010.





Year2011
                      
                      $
                      80,8232012
                      
                      
                      82,9102013
                      
                      
                      79,1762014
                      
                      
                      20,784Total
      minimum lease payments
                      
                      $
                      263,693





Operating
lease expense was $136,368 and $135,899 for the years ended March 31, 2010 and
2009, respectively.





8.
            STOCKHOLDERS’
      EQUITY





Preferred
Stock





The Company is authorized to issue up
to 100,000 shares of preferred stock in one or more series, with such voting
powers, designations, preferences, limitations, restrictions and relative rights
as may be established by resolution of the Board of Directors.





The Company has issued three shares of
Series A Convertible Preferred Stock (the “Preferred Stock”), with a par value
of $0.01 per share and a stated value of $8,000 per share. The Preferred Stock
is non redeemable and is convertible at the election of the holder into shares
of Common Stock, based on the stated value per share, at an initial conversion
price of $1.00 per share. The Preferred Stock pays a dividend at a rate of 6%
per annum. Upon any liquidation of the Company, the holder of the Preferred
Stock will be entitled to be paid, prior to the Common Stock or any other
security that by their terms are junior to the Preferred Stock. The Preferred
Stock has no voting rights, however upon the occurrence of a Triggering Event
(as defined in the agreement), the holder of the Preferred Stock has the right,
at their option, to designate and elect a majority of the Company’s Board of
Directors. The Triggering Event occurred during the fiscal year ended March 31,
2007 and the holder of the Preferred Stock exercised the option during the
fiscal year ended March 31, 2008.





On February 13, 2009, the company
modified the conversion price per share from $1.00 to $0.12, upon approval of
the Board of Directors subject to the terms of the anti-dilution adjustment
pursuant to the Series A Convertible Preferred Stock.





During January 2010, 300,000 warrants
were exercised in a cashless transaction and converted into 172,862 shares of
common stock.


F-16





Warrants





The
Company has issued warrants in conjunction with various private placements of
its stock, convertible notes and as compensation to directors and employees. All
warrants are currently exercisable.





The
following table summarizes warrant information for the years ended March 31,
2010 and 2009.





Number of
                
                
                Weighted AverageWarrants
                
                
                Exercise PriceOutstanding
      April 1, 2008
                
                
                7,991,000
                
                
                $
                1.410Issued
                
                
                3,833,333
                
                
                $
                0.126Expired
                
                
                (275,000
                )
                
                $
                1.320Outstanding
      March 31, 2009
                
                
                11,549,333
                
                
                $
                0.800Issued
                
                
                9,466,530
                
                
                $
                0.173Expired
                
                
                (100,000
                )
                
                $
                0.150Exercised
                
                
                (300,000
                )
                
                $
                0.120Outstanding
      March 31, 2010
                
                
                20,615,863
                
                
                $
                0.261





As of
March 31, 2010, outstanding common stock warrants are as follows:





Number of
                  
                  ExerciseWarrants
                  
                  Price
                  
                  Expiration Date100,000
                  
                  $
                  1.250
                  
                  March
      24, 2011100,000
                  
                  $
                  1.500
                  
                  March
      24, 2011100,000
                  
                  $
                  1.750
                  
                  March
      24, 2011100,000
                  
                  $
                  0.300
                  
                  August
      24, 2011100,000
                  
                  $
                  1.250
                  
                  February
      28, 2012100,000
                  
                  $
                  1.500
                  
                  February
      28, 2012100,000
                  
                  $
                  1.750
                  
                  February
      28, 20126,016,000
                  
                  $
                  0.120
                  
                  June
      30, 20132,033,333
                  
                  $
                  0.120
                  
                  June
      30, 2013140,000
                  
                  $
                  0.120
                  
                  January
      1, 2014200,000
                  
                  $
                  0.120
                  
                  February
      13, 2014600,000
                  
                  $
                  1.125
                  
                  March
      13, 20141,200,000
                  
                  $
                  0.090
                  
                  May
      13, 2014611,825
                  
                  $
                  0.090
                  
                  July
      15, 20141,200,000
                  
                  $
                  0.090
                  
                  October
      13, 20145,414,705
                  
                  $
                  0.222
                  
                  January
      29, 2015500,000
                  
                  $
                  1.340
                  
                  April
      27, 2015500,000
                  
                  $
                  2.000
                  
                  April
      27, 2015750,000
                  
                  $
                  0.120
                  
                  February
      13, 2019750,000
                  
                  $
                  0.120
                  
                  June
      22, 201920,615,863
                  
                  $
                  0.261


F-17





9.
            INCOME
      TAXES





The
provision (benefit) for income taxes from continued operations for the years
ended March 31, 2010 and 2009 consist of the following:




March 31,2010
                    
                    
                    2009Current:Federal
                    
                    $
                    -
                    
                    
                    $
                    -State
                    
                    
                    -
                    
                    
                    
                    --
                    
                    
                    
                    -Deferred:Federal
                    
                    $
                    124,872
                    
                    
                    $
                    407,939State
                    
                    
                    32,687
                    
                    
                    
                    106,784157,559
                    
                    
                    
                    514,723Valuation
      allowance
                    
                    
                    (157,559
                    )
                    
                    
                    (514,723
                    )Provision
      benefit for income taxes, net
                    
                    $
                    -
                    
                    
                    $
                    -





The
difference between income tax expense computed by applying the federal statutory
corporate tax rate and actual income tax expense is as follows:




March 31,2010
                    
                    
                    2009Statutory
      federal income tax rate
                    
                    
                    34.0
                    %
                    
                    
                    34.0
                    %State
      income taxes and other
                    
                    
                    8.9
                    %
                    
                    
                    8.9
                    %Valuation
      allowance
                    
                    
                    (42.9
                    )%
                    
                    
                    (42.9
                    )%Effective
      tax rate
                    
                    
                    -
                    
                    
                    
                    -




Deferred
income taxes result from temporary differences in the recognition of income and
expenses for the financial reporting purposes and for tax purposes. The tax
effect of these temporary differences representing deferred tax asset and
liabilities result principally from the following:





March 31,2010
                    
                    
                    2009Net
      operating loss carryforward
                    
                    
                    157,559
                    
                    
                    
                    514.723Valuation
      allowance
                    
                    
                    (157,559
                    )
                    
                    
                    (514,723
                    )Deferred
      income tax asset
                    
                    $
                    -
                    
                    
                    $
                    -


F-18




The
Company has a net operating loss carryforward of approximately $18,310,000
available to offset future taxable income through 2028.





10.
            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 stock options to purchase
400,000 shares of our common stock available for future grant as of March 31,
2010 under the 2001 Equity Incentive Plan.





Fair
Value of Stock Options





For disclosure purposes under ASC 718
“Compensation” formerly, SFAS No. 123 and SFAS No. 123(R), the fair value of
each option grant was estimated on the date of grant using the Black-Scholes
option valuation model with the following weighted-average
assumptions:





2010
                  
                  
                  2009Expected
      life (in years)
                  
                  
                  10
                  
                  
                  
                  10Risk-free
      interest rate
                  
                  
                  4.54
                  %
                  
                  
                  4.54
                  %Volatility
                  
                  
                  179.8
                  
                  
                  
                  142.4Dividend
      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
$1.05 and $1.33 for the years ended March 31, 2010 and 2009,
respectively.


F-19





Summary
Stock Option Activity





The following table summarizes stock
option information with respect to all stock options for the years ended March
31, 2010 and 2009:





Number of
                  Shares
              
              
              Weighted
                  Average
                  Exercise
                  Price
              
              
              Weighted
                  Average
                  Remaining
                  Contractual
                  Life (Years)
              
              
              Aggregate
                  Intrinsic
                  ValueOptions
      outstanding March 31, 2008
              
              
              3,787,500
              
              
              $
              1.15
              
              
              
              6.36Granted
              
              
              —Cancelled
              
              
              (500,000
              )
              
              $
              1.25Options
      outstanding March 31, 2009
              
              
              3,287,500
              
              
              $
              1.24
              
              
              
              6.16Granted
              
              
              —Options
      outstanding March 31, 2010
              
              
              3,287,500
              
              
              $
              1.05
              
              
              
              4.67Vested
      and expected to vest – end of year
              
              
              3,287,500
              
              
              $
              1.05
              
              
              
              4.67
              
              
              $
              —Exercisable
      – end of year
              
              
              3,187,500
              
              
              $
              1.08
              
              
              
              4.60
              
              
              $
              —





Pursuant to the terms of an
employment agreement dated April 17, 2007, with Ronald Wilen, Chief Executive
Officer, President and Secretary, 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 is to be the fair
market value of the common stock underlying such option on the date such option
was granted.  The initial grant of 50,000 stock options is to be granted
out of the 2001 Equity Incentive Plan at the one-year anniversary. In addition,
the stock option to purchase 200,000 shares have been reserved for Mr. Wilen out
of the 2001 Equity Incentive Plan.





Options outstanding at
March 31, 2010 have an exercise price ranging between $0.12 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 March 31, 2010 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 March
31, 2010. This amount changes based upon changes in the fair market value of
United Energy’s stock. As of March 31, 2010, $2,845 of the total unrecognized
compensation costs related to stock options is expected to be recognized over
the next three years.


F-20





11.
            SEGMENT
      REPORTING





ASC 280
“Segment Reporting” formerly,





Geographic
Information:


2010
                  
                  
                  2009U.S.
                  
                  $
                  1,391,560
                  
                  
                  $
                  1,084,409Nigeria
                  
                  
                  264,000
                  
                  
                  
                  —Panama
                  
                  
                  116,160
                  
                  
                  
                  —Trinidad
                  
                  
                  —
                  
                  
                  
                  121,912Totals
                  
                  $
                  1,771,720
                  
                  
                  $
                  1,206,321




12.
SUBSEQUENT EVENT





The Company did not have any material
subsequent events to disclose from the balance sheet date to the filing date.
The Company evaluated subsequent events through July 13, 2010.


F-21