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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-KSB

(Mark one)

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

For the fiscal year ended March 31, 2007

oTRANSITION 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 small business issuer in its charter)

| |                                                                    |  |                                          | 
| | ------------------------------------------------------------------ |  | ---------------------------------------- | 
| | Nevada                                                             |  | 22-3342379                               | 
| |                                                                    |  |                                          | 
| | (State
  or other jurisdiction of
  incorporation or organization) |  | (I.R.S.
  Employer
  Identification No.) | 
| |                                                                    |  |                                          | 
| | 600 Meadowlands Parkway, #20
  Secaucus, New Jersey                |  | 07094                                    | 
| |                                                                    |  |                                          | 
| | (Address
  of principal
  executive offices)                       |  | (Zip
  Code)                             | 
| |                                                                    |  |                                          | 
| | (201)-842-0288(Issuer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 registered
| |                                                         |  |                                            
| | None                                                    |  | None                                       
| |                                                         |  |                                             | 
| | Securities
  registered Under Section 12(g) of the Act: | 
| |                                                         |  |                                             | 
| | Title
  of each class                                   |  | Name
  of each exchange on which registered
| |                                                         |  |                                            
| |                                                         |  |                                             | 
| | Common
  Stock, par value
  $.01 per share              |  | Over-the-Counter
  (OTC) Bulletin Board    



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Check
whether the issuer is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act. Yes o  No x

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

Check
if there is no disclosure of delinquent filers in response to item 405 of
Regulation S-B contained in this form, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB.  o

Indicate
by check mark whether the registrant is a shell company (as defined in rule
12b-2 of the Exchange Act.  Yes o  No x

---

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The
issuers total consolidated revenues for the fiscal year ended March 31, 2007
were $811,893.

The
aggregate market value of the common equity held by non-affiliates of the
registrant was $12,136,590 as of June 19, 2007.

The
number of shares outstanding of the registrants common equity as of June 19,
2007 was 31,030,115 shares.

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UNITED ENERGY CORP.

2007 FORM 10-KSB ANNUAL REPORT

TABLE OF CONTENTS

|         |                                                                                                                    |  |     
|-------- | ------------------------------------------------------------------------------------------------------------------ |  | ----
|         |                                                                                                                    |  | Page
|         |                                                                                                                    |  |     
|         |                                                                                                                    |  |     
|         | PART I                                                                                                             |  |     
|         |                                                                                                                    |  |     
|ITEM 1.  | DESCRIPTION OF BUSINESS                                                                                            |  | 1   
|ITEM 2.  | DESCRIPTION OF PROPERTY                                                                                            |  | 5   
|ITEM 3.  | LEGAL PROCEEDINGS                                                                                                  |  | 5   
|ITEM 4.  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS                                                                |  | 5   
|         |                                                                                                                    |  |     
|         | PART II                                                                                                            |  |     
|         |                                                                                                                    |  |     
|ITEM 5.  | MARKET FOR
  COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER
  PURCHASES OF EQUITY SECURITIES |  | 6   
|ITEM 6.  | MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF
  OPERATION                                                        |  | 7   
|         |                                                                                                                    |  |     
|ITEM 7.  | FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA                                                                        |  | 17  
|ITEM 8.  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
  ACCOUNTING AND FINANCIAL DISCLOSURE                             |  | 17  
|ITEM 8A. | CONTROLS AND PROCEDURES                                                                                            |  | 17  
|ITEM 8B. | OTHER INFORMATION                                                                                                  |  | 17  
|         |                                                                                                                    |  |     
|         | PART III                                                                                                           |  |     
|         |                                                                                                                    |  |     
|ITEM 9.  | DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
  PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT  |  | 18  
|ITEM 10. | EXECUTIVE COMPENSATION                                                                                             |  | 20  
|ITEM 11. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
  MANAGEMENT AND RELATED STOCKHOLDER MATTERS                   |  | 22  
|ITEM 12. | CERTAIN RELATIONSHIPS AND RELATED
  TRANSACTIONS                                                                   |  | 24  
|ITEM 13. | EXHIBITS                                                                                                           |  | 24  
|ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                             |  | 26  

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

We
have developed a system referred to as our S2 system, to work with our
environmentally friendly paraffin dispersants products.  This technology produces high volumes of
steam and heat at variable pressures and temperatures to completely dissolve
most deposits of paraffin and asphaltene within oil wells, pipelines or storage
tanks.  The S2 system apparatus is
portable, compact and easy to use.  We
are further developing the process to enhance and support sales of KH-30 and
its related products for the oil industry and for other potential applications.
Our patent on the S2 system expired in January 2007; however, we have filed a
patent application with respect to certain improvements, modifications and
enhancements to the S2 system.

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 have entered into
a non-exclusive distribution agreement with Champion Technologies Inc. and a
non-exclusive Master Purchase Agreement with Petrobras America Inc. for the
sale and distribution of our K-Line of patented specialty chemical solutions.
The agreements do not provide for any minimum amounts to be purchased. We are
also currently negotiating potential working arrangements with several other
companies, however, there can be no assurance that any of these arrangements
entered into or, if entered into, (as well as the agreements with Champion
Technologies and Petrobras America Inc.) will be successful.

We
provide specialty chemical products to our customers and generated revenues of
$811,893 for the fiscal year ended March 31, 2007 and $385,374 for the fiscal
year ended March 31, 2006.

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.

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, Russia, Venezuela, Argentina,

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Canada, China,
the European Union, Hong Kong, Malaysia and Mexico. We have ten additional
country patent applications pending in most of the major oil-producing countries
around the world.

KX-100
is a patent pending 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.)

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

GSA
Gun & Bore Cleaner is a patent pending 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.  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.

Qualkleen
1000 Wipes is a state-of-the-art active Matrix Liquid Crystal Display
(AMLCD) and instrument glass cleaner.
Qualkleen 1000 was developed for the Military to replace hazardous
products such as IPA, Acetone, and Methanol in the cleaning of the high
efficiency anti-reflective coating on the AMLCD glass being used in the new
high tech multi-function displays for aircraft instrumentation.

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

Green
Globe products are sold under the 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.

Aqueous Coating

We
have developed a patent pending aqueous coating with excellent oil, grease and
water repellency for hot/cold food packaging such as cups, plates, cartons,
wrappers and corrugated boxes which is biodegradable, decomposable, and
recyclable.

2

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Additional Technologies

We
have developed certain modifications, improvements and enhancements to the S2
system including an apparatus for introducing a vapor-containing stream into
underground geological formations, pumps, conduits or tanks which represents an
advance over previous techniques. The technique allows vapor-containing steam
to bypass the well and be released to the atmosphere. We have filed a patent
application with respect to the modifications, improvements and enhancements to
the S2 system.

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, Air Products and
Chemicals and Arista Industries Inc), we would have to repeat the process if
one or more of our current suppliers were no longer to be 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, 2007, Petrobras America Inc. purchased our
KX-100 oil cleaning products, which accounted for approximately 45.7% of our
total customer sales. In the fiscal year ended March 31, 2006, Howard Energy
and Champion Technologies purchased our KH-30 and KX-100 oil cleaning products,
which accounted for approximately 23.5% of our total customer sales.

Except
for these current and former customers, no other single entity has accounted
for more than 10% of our sales during any of the fiscal years ended March 31,
2007 and 2006.

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, 2007, the Companys backlog included $82,502 of specialty
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

3

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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, 2008, although there can be no
assurance that sales will increase in fiscal 2008.

Research and Development

Our
K-Line of Chemical Products for the oil industry and Uniproof proofing paper
are developed and ready for market.  All
of these products are the result of research and development expenditures paid
in the amounts of $232,517 and $193,032 for the fiscal years ended March 31,
2007 and 2006 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.

Proprietary Technologies

With
respect to our formulations, which are proprietary, we have patented our KH-30
oil well cleaner in the United States, Russia, Venezuela, Argentina,
Canada, China, the European Union, Hong Kong, Malaysia and Mexico. We have ten
additional country patent applications pending in most of the major
oil-producing countries around the world. We also have patents pending with
respect to our Aqueous Coating, GSA Gun & Bore Cleaner, and KX-100 products
as well as with respect to certain improvements, modifications and enhancements
to our S2 system.

We believe our KH-30 patent and our patent applications with respect to Aqueous
Coating, GSA Gun & Bore Cleaner, KX-100 and certain improvements,
modifications and enhancements to our S2 System are strong and will help our
competitive position.  However, we are
aware that others may try to imitate our product or invalidate our patents. We
have in the past vigorously enforced our trade secrets such as the one relating
to our Uniproof proofing paper, and intend to continue to do so in the future.
However, we recognize that intellectual property rights provide less than
complete protection.  We believe that no
other company is currently producing a product similar to KH-30 or our other
products that we have applied for patent protection.

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

Employees

As
of March 31, 2007 we employed thirteen people on a full-time basis and had
available the services of four 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

4

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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.

Subsequent Events.

On
May 17, 2007, we entered
into an amended and restated non-exclusive distribution agreement with Champion
Technologies Inc. for the sale and distribution of our K-Line of patented
specialty chemical solutions. The agreement is for a term of three (3) years
and grants Champion Technologies Inc. certain rights to blend, dilute and
utilize our products to manufacture and sell different products.  The agreement amends the former agreement
with Champion Technologies Inc. dated March 6, 2006.

ITEM 2. DESCRIPTION OF PROPERTY

We
lease 9,600 square feet of office space at 600 Meadowlands Parkway, #20,
Secaucus, New Jersey 07094.  Under the
terms of the lease, which runs through June 2007, the monthly rent is $9,600.
In addition, we leased office space of approximately 1,350 square feet in
Midland, Texas as a regional sales office at a rate of $759 per month.  This lease ran through September 2005 and
has not been renewed.

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.

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.

In
March 2007, we commenced an action against Applied Force and Samuel Miller III
in the Superior Court of New Jersey, Law Division - Bergen County for the
recovery of two of our vehicles and certain additional claims.  The defendants,
    Applied Force and Samuel Miller III, have filed a counterclaim for recovery
    of alleged storage fees in the amount of $126,784 and certain alleged service
    fees in the amount of $1,275. The action is currently in the discovery process.
    No trial date has yet been scheduled. We believe that we have meritorious
    claims and defenses to the counterclaims. We intend to vigorously pursue
    our claims and defend the counterclaims. The outcome of this matter cannot
    be determined at this time.

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

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a
vote of security holders during the fourth quarter of our fiscal year ended
March 31, 2007.

5

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PART II

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

As
of June 19, 2007, there were approximately 463 record holders of our common
stock and there were 31,030,115 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, 2007 and 2006 and for each quarter after March 31, 2007. 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 |      | Low |  
|                              |  |                                         |  |      |      |     |  
|                              |  |                                         |  |      |      |     |   |      | 
|2006                          |  | First Quarter (April-June
  2005)       |  | $    | 1.81 |     | $ | 1.06 | 
|                              |  | Second Quarter
  (July-September 2005)  |  |      | 2.85 |     |   | 1.33 | 
|                              |  | Third Quarter
  (October-December 2005) |  |      | 2.70 |     |   | 1.47 | 
|                              |  | Fourth Quarter
  (January-March 2006)   |  |      | 2.20 |     |   | 1.41 | 
|                              |  |                                         |  |      |      |     |   |      | 
|2007                          |  | First Quarter (April-June
  2006)       |  | $    | 2.08 |     | $ | 1.27 | 
|                              |  | Second Quarter
  (July-September 2006)  |  |      | 1.40 |     |   | .64  | 
|                              |  | Third Quarter
  (October-December 2006) |  |      | 1.02 |     |   | .53  | 
|                              |  | Fourth Quarter
  (January-March 2007)   |  |      | .77  |     |   | .39  | 
|                              |  |                                         |  |      |      |     |   |      | 
|2008                          |  | First Quarter (through June
  19)       |  | $    | .77  |     | $ | .42  | 

The
high and low bid prices for shares of our common stock on June 19, 2007 were
$.55 and $.54 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.

6

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Equity Compensation Plan Information

The
following table provides information regarding the status of our existing
equity compensation plans at March 31, 2007.

|                                            |  |                                                                                                     |  |                                                                                  |  |                                                                                                                                                                    |  |  |  | 
|------------------------------------------- |  | --------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  |  |  | 
|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 the
  second
  column) | 
|                                            |  |                                                                                                     |  |                                                                                  |  |                                                                                                                                                                    | 
|                                            |  | (a)                                                                                                 |  | (b)                                                                              |  | (c)                                                                                                                                                                | 
|Equity compensation plans
  approved by     |  |                                                                                                     |  |                                                                                  |  |                                                                                                                                                                    |  | 
|security holders                            |  | 3,502,500                                                                                           |  | $ 1.17                                                                           |  | 185,000                                                                                                                                                            |  | 
|                                            |  |                                                                                                     |  |                                                                                  |  |                                                                                                                                                                    |  | 
|Equity compensation plans
  not approved by |  |                                                                                                     |  |                                                                                  |  |                                                                                                                                                                    |  | 
|security holders                            |  | 4,375,000                                                                                           |  | $ 1.88                                                                           |  |                                                                                                                                                                   |  | 
|                                            |  |                                                                                                     |  |                                                                                  |  |                                                                                                                                                                    |  | 
|Total                                       |  | 7,877,500                                                                                           |  |                                                                                  |  | 185,000                                                                                                                                                            |  | 

|        |                                                            
|------- | -----------------------------------------------------------
|ITEM 6. | MANAGEMENTS
  DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

You
should read the following description of our financial condition and results of
operations in conjunction with the 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:

|  |                                                                        
|- | -----------------------------------------------------------------------
|o | K-Line of Chemical
  products for the oil industry and related products

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

We
have developed a system referred to as our S2 system, to work with our
environmentally friendly paraffin dispersants products. This technology
produces high volumes of steam and heat at variable pressures and temperatures
to completely dissolve most deposits of paraffin and asphaltene within oil
wells, pipelines or storage tanks. The S2 system apparatus is portable, compact
and easy to use. We are further developing the process to enhance and support
sales of KH-30 and its related products for the oil industry and for other
potential applications. Our patent on the S2 system expired in January 2007;
however, we have filed a patent application with respect to certain
improvements, modifications and enhancements to the S2 System.

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 have entered
into a non-exclusive distribution agreement with Champion Technologies Inc. and
a non-exclusive Master Purchase Agreement with Petrobras America Inc. for the
sale and distribution of our K-Line of Chemical Products. The agreements do not
provide for any minimum amounts

7

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to be purchased. We are also
currently negotiating potential working arrangements with several other
companies however, there can be no assurance that any of these arrangements
entered into or, if entered into, (as well as the agreements with Champion
Technologies and Petrobras America Inc.) will be successful.

We
provide our K-Line of Chemical Products to our customers and generated revenues
of $811,893 for the fiscal year ended March 31, 2007 and $385,374 for the fiscal
year ended March 31, 2006.

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.

Discontinued Operations

During
the fiscal year ended March 31, 2007, the Company discontinued the sale of its
Uniproof proofing paper. Certain amounts in the accompanying March 31, 2006
consolidated financial statements have been reclassified to conform to the
current classification of the graphic arts segment.

Results of Discontinued Operations

The
financial position and results of these operations are presented as assets and
liabilities of discontinued operations in the consolidated balance sheets and
discontinued operations in the consolidated statement of operations, for all
periods presented in accordance with Statement of Financial Accounting
Standards No. 144 (SFAS No. 144), Accounting
for the impairment or disposal of Long-Lived Assets.

Sales.Sales decreased to
$1,310 for the year ended March 31, 2007 from $106,861 for the year ended March
31, 2006. The $105,551 or 99% decrease in sales was due to no orders received
from our primary customer, because the use of proofing paper is being phased
out due to the paper industry switching to a digital technology.

8

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Cost
of Goods Sold.Cost of
goods sold decreased to $1,058 or 81% of sales, for the year ended March 31,
2007 from $61,900, or 58% of sales, for the year ended March 31, 2006. The
decrease in cost of goods sold was due to no orders received from our primary
customer, because the use of proofing paper is being phased out due to the
paper industry switching to a digital technology.

Gross
Profit.Gross profit
decreased to $252 or 19% of sales, for the year ended March 31, 2007 from
$44,961, or 42% of sales, for the year ended March 31, 2006. The decrease was
due to no orders received from our primary customer, because the use of
proofing paper is being phased out due to the paper industry switching to a
digital technology.

Results of Operations

Comparison of Fiscal Year Ended March 31, 2007 to Fiscal Year
Ended March 31, 2006

Sales.Sales increased to
$811,893 for the year ended March 31, 2007 from $385,374 for the year ended
March 31, 2006. The $426,519 or 111%, increase was due to higher levels of
Specialty Chemicals, which include KH-30 and KX-100, and our Green Globe /
Qualchem product line. The increase was primarily related to a 135% increase in
sales of our K-Line of oil field dispersant products reflecting a higher level
of orders and a 32% increase in the level of U.S. Military sales during the
year. Our three largest customers accounted for 64% of revenues for the year ended
March 31, 2007 compared with 42% for the comparable period in 2006.

Cost
of Goods Sold.Cost of
goods sold increased to $363,208 or 45% of sales, for the year ended March 31,
2007 from $239,742, or 62% of sales, for the year ended March 31, 2006. The
increase in cost of goods sold was due to the increased sales of K-Line of
Chemical Products compared to the prior year. The decrease in cost of goods
sold as a percentage of sales is due to an increase in the level of sales of
our K-Line of Chemical Products during the year which have a higher gross
profit percentage.

Gross
Profit.Gross profit
increased to $448,685 or 55% of sales, for the year ended March 31, 2007 from
$145,632, or 38% of sales, for the year ended March 31, 2006. The increase in
gross profit was due to an increase in sales of our K-Line of Chemical
Products.

Selling,
General and Administrative Expenses. Selling, general and administrative expenses decreased
to $2,811,970 or 346% of sales, for the year ended March 31, 2007 from
$3,584,653, or 930% of sales, for the year ended March 31, 2006. The decrease
in selling, general and administrative expenses are primarily related to a
decrease in salaries due to the exercise of options in the prior year offset partially
by an increase in payroll and the recording of stock-based compensation costs,
a decrease in professional fees, lower marketing expenses, and lower travel and
entertainment expenses, partially offset by an increase in bad debts.

Depreciation,
Amortization and Depletion. Depreciation, amortization and depletion increased to $76,434 for the
year ended March 31, 2007 from $70,061 for the year ended March 31, 2006
reflecting a slight increase in fixed assets purchases.

Interest Income. Interest income increased
to $169,653 for
the year ended March 31, 2007 from $15,510 for the year ended March 31, 2006.
The increase was due to the increased cash level in connection with the private
placement completed in March 2006.

Interest
Expense. Interest
expense decreased to $2,725 for the year ended March 31, 2007 compared with
$577,589 for the year ended March 31, 2006. The decrease was due to the
convertible term note being converted into shares of common stock in August
2005.

Net
Loss. For the year
ended March 31, 2007, we incurred a net loss of $2,272,539, or $0.07 per share,
as compared to a net loss of $4,026,200 for the year ended March 31, 2006, or
$0.16 per share. The average number of shares of common stock used in
calculating earnings per share increased 5,698,590 shares to 31,029,327 from
25,330,737 shares as a result of 2,000,000 shares issued for the conversion of
the note payable, 312,500 shares issued in connection with the exercise of
stock options and 5,450,000 shares issued in connection with the private
placement.

9

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Liquidity and Capital Resources

Since
1995, operations have been financed primarily through loans, equity
contributions from directors and executive officers and from third parties
supplemented by funds generated by our business. As of March 31, 2007, we had
$2,863,906 in cash and cash equivalents.

Net
Cash Used in Continuing Operations.During the fiscal year ended March 31, 2007, net cash used in continuing
operations was $2,111,438 compared with $1,727,244 for the fiscal year ended
March 31, 2006.

Net
Cash Used in Investing Activities. During the fiscal year ended March 31, 2007, net cash used in
investing activities decreased to $54,594 compared with $108,407 for the year
ended March 31, 2006. The decrease was primarily a result of a decreased level
of expenditures for the purchase of fixed assets to support operations and
capitalized legal fees required to file patent applications for our KH-30,
KX-91 and S2 system.

Net
Cash (Used in) Provided by Financing Activities. During the fiscal year ended March 31, 2007,
net cash used in financing activities of $187,651 resulting from the payment of
related party loans of $200,000 and preferred stock dividends of $1,526, which
was partially offset by the proceeds from the exercise of stock options of
$13,875. This compares to cash provided financing activities of $6,457,577 for
the year ended March 31, 2006 resulting from $6,060,000 of proceeds from the issuance
of common stock, proceeds from related parties of $200,000, proceeds from the
issuance of preferred stock of $24,000, proceeds from the exercise of stock
options of $345,000, and the receipt of stock subscription receivable of
$13,333, which was partially offset by the payment of a related party payable
of $133,600 and the payment of private placement costs of $51,156.

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

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

Concentration of Credit Risk

Sales
to one of our customers, Petrobras America Inc. accounted for approximately 46%
and 0% of our sales for the fiscal years ending March 31, 2007 and 2006.

Contractual Obligations

Below
is a table which presents our contractual obligation commitments at March 31,
2007:

|                                     |  |       |         |                 |   |           |  |           |         |              |   |        |  |   |   | 
|------------------------------------ |  | ----- | ------- | --------------- | - | --------- |  | --------- | ------- | ------------ | - | ------ |  | - | - | 
|Contractual Obligation               |  | Total |         | Less than1 Year |   | 1-3 Years |  | 3-5 Years |         | After5 Years |  
|                                     |  |       |         |                 |   |           |  |           |         |              |  
|                                     |  |       |         |                 |   |           |  |           |         |              |   |        |  |   |   | 
|Short-term
  debt Obligations(1)     |  | $     | 244,141 |                 | $ | 244,141   |  | $         |        |              | $ |       |  | $ |  | 
|Operating leases                     |  |       | 420,071 |                 |   | 130,427   |  |           | 258,444 |              |   | 31,200 |  |   |  | 
|                                     |  |       |         |                 |   |           |  |           |         |              |   |        |  |   |   | 
|Total
  contractual cash obligations |  | $     | 664,212 |                 | $ | 374,568   |  | $         | 258,444 |              | $ | 31,200 |  | $ |  | 
|                                     |  |       |         |                 |   |           |  |           |         |              |   |        |  |   |   | 

(1)
Short-term debt obligations include an amount due to Robert Seaman, a
shareholder and former director of the Company. The amount due as of March 31,
2006 and 2005 is $244,141. This amount is unsecured, non-interest bearing and
due upon demand. The Chairman of the Board and Secretary, Ron Wilen and the
President and Chief Executive Officer, Brian King, each loaned the Company
$100,000. The loans were both unsecured, non-interest bearing and due upon
demand. Each of these loans was repaid in full in April, 2006.

10

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Reporting by Segments

We
are a specialty chemicals company because of our determination in fiscal 1998
to close our printing equipment division and focus on our K-Line of chemical
and Green Globe products. However, in the past a portion of our revenues has
been related to the printing and the graphic arts industry and we have reported
each as two segments through fiscal year ended March 31, 2006. During the
current fiscal year, the Company classified the graphic arts segment as
discontinued operations.

We
devote almost all of our time and effort into selling, promoting and developing
our K-Line of chemical products and we are continuing to increase our marketing
efforts to develop new products as extensions of our original KH-30 product. We
believe that in the future our sales will increase.

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.

Recently Issued Accounting Standards

In
September 2006, the FASB issued Statement of Financial Accounting Standards No.
157, Fair Measurements (SFAS 157), which clarifies that fair value is the
amount that would be exchanged to sell an asset or transfer a liability in an
orderly transaction between market participants. Further, the standard
establishes a framework for measuring fair value in generally accepted
accounting principles and expands certain disclosures about fair value
investments. SFAS 157 is effective for fiscal years beginning after November
15, 2007. The Company does not expect the adoption of SFAS 157 to have a
material impact on its consolidated financial position, results of operations
or cash flows.

In
September 2006, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 108, Considering the Effects of Prior Year misstatements when
Quantifying Misstatements in Current Year Financial Statements (SAB 108). SAB
108 provides guidance on how prior year misstatements should be taken into
consideration when quantifying misstatements in current year financial
statements for purposes of determining whether the current years financial
statements are materially misstated. SAB 108 is effective for fiscal years
ending November 16, 2006. The Company has determined that the provisions of SAB
108 do not have a material impact on its consolidated financial position,
results of operations and cash flows.

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 interest rate and 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

This
Annual Report contains forward-looking statements. These forward-looking
statements are based largely on our expectations and are subject to a number of
risks and uncertainties, many of which are beyond our control. Actual results
could differ materially from these forward-looking statements as a result of,
among other factors, risks related to the large amount of our outstanding term
loan; history of net losses and accumulated deficits; reliance on third parties
to market, sell and distribute our products; future capital requirements;
competition and technical advances; dependence on

11

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the oil
services market for pipe and well cleaners; ability to protect our patents and
proprietary rights; reliance on a small number of customers for a significant
percentage of our revenues; and other risks. In light of these risks and
uncertainties, there can be no assurance that the forward-looking information
contained in this Annual Report will in fact occur.

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 $18,698,233 AS OF MARCH 31, 2007 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,
2007, we had an accumulated deficit of $18,698,233. 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 Specialty Chemical Products for
the oil and gas industry including our K-Line, and the Green Globe Chemical
Products. We incurred net losses of $2,272,539 and $4,026,200 in the fiscal
years ended March 31, 2007 and 2006, 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. This would have a detrimental effect on the long-term capital
appreciation of our stock.

THERE
ARE SIGNIFICANT OBSTACLES TO ENTERING THE OIL AND GAS PRODUCING INDUSTRY THAT
HAVE CONTRIBUTED TO THE SLOW PACE AT WHICH OUR KH-30 PRODUCTS ARE BEING
INTRODUCED TO THE MARKET.

Our
business plan is focused largely on marketing efforts for Specialty Chemical
Products for the oil and gas industry including our K-Line of chemical
products. Although we believe that the application of our Specialty Chemical
Products for the oil and gas industry on a continuous basis will result in
higher production and lower power lease operating costs, the introduction of
our K-Line of chemical products included within our Specialty 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 Specialty Chemical Products including our K-Line of has
been much slower than we initially anticipated. If we and our Specialty
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.

BECAUSE
WE HAVE DISCONTINUED UNIPROOF, WE MAY NOT BE ABLE TO GENERATE SUBSTANTIAL
REVENUES OR ACHIEVE PROFITABILITY.

Our
sales to date have been substantially dependent on sales of our Uniproof
proofing paper. Sales of Uniproof accounted for approximately 0.0% and 21.5% of
revenues for the fiscal years ended March 31, 2007 and 2006, respectively. The
decline in the level of proofing paper sales is due to the paper industry
switching to a digital technology. We dont expect future sales of this
product, and have discontinued these operations. If we fail to develop
significant revenue from other products in its stead, our business plan and
financial condition will be severely affected.

12

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THE
SUCCESS OF OUR SPECIALTY 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 SPECIALTY CHEMICAL PRODUCTS INCLUDING OUR K-LINE.

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 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;                                                                                                                                                                                      
|  |                                                                                                                                                                                                                 
| | 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 specialty chemical
products including our K-Line of chemical products. Sales of Green Globe
chemical products accounted for approximately 15% of revenues for the fiscal
year ended March 31, 2007. The U.S. military represented approximately 60% of
such revenues from the sales of our Green Globe Chemical Products for the
fiscal year ended March 31, 2007. 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 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 and printing market is
important for us to succeed in these sectors. 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
underperforms 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.

13

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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. A portion of our revenue was earned in connection with sales of
Uniproof proofing papers to the Alameda Company of Anaheim, California. During
the fiscal years ended March 31, 2007 and 2006, sales attributable to Alameda
represented approximately 0.0% and 21.5%, respectively, of our total revenues.
As a direct result of digital technological advances utilized by the paper
industry, chiefly digital technology we dont expect any future revenues from
Alameda. Our three largest customers accounted for 64% and 42% of our revenues
for the fiscal years ended March 31, 2007 and 2006, respectively.

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, although 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.

The
chemical blender and independent coater that manufactures 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 Specialty Chemical
Products including our K-Line and Green Globe Chemical

14

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Products are higher than
competing products; therefore, we attempt to compete by emphasizing product
effectiveness and environmental safety.

We
also believe that our efforts to patent the KH-30, oil well cleaner, included
within our Specialty Chemical Products in the principal oil producing countries
worldwide will improve our competitive position in this market. However, we are
aware that other companies may try to imitate our products or invalidate our
patents. In the past we have vigorously enforced our trade secrets and other
intellectual property, and intend to continue to do so in the future. We
recognize that we may incur significant costs to defend our intellectual
property and that intellectual property rights provide less than complete
protection.

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 have employment agreements with certain of
our executive officers and 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 34.7% 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. This level of ownership, 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.

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.

15

---



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.

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. As additional shares become
available for resale in the public market pursuant to this registration
statement, the supply of our common stock will increase, which could decrease
its price. Some or all of the shares of our common stock may also 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. In general, a person who has held restricted shares for a period of one
year may, upon the filing of a notification on Form 144 with the SEC, sell
common stock in an amount equal to the greater of 1% of the outstanding shares
or the average weekly number of shares sold in the prior one week period. These
sales may be repeated once during each 3 month period. In addition, any person
that is not an affiliate of ours may sell all of his, hers or its restricted
shares after the shares have been held for 2 years or more pursuant to Rule
144(k).

16

---



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 7. | 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 8.  | CHANGES IN AND DISAGREEMENTS WITH
  ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|         |                                                                                       
|None    
|         |                                                                                       
|ITEM 8A. | CONTROLS AND PROCEDURES                                                               

Evaluation of the Companys Disclosure
Controls

Within
90 days prior to the date of this report, 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 pursuant to Rule 13a-14 under the Securities Exchange
Act of 1934, as amended. 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
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, 2007
that has materially affected, or is reasonably likely to materially affect, the
Companys internal control over financial reporting.

8B. OTHER INFORMATION

None

17

---



PART III

ITEM 9. DIRECTORS AND
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION
16(A) OF THE EXCHANGE ACT.

The
following table shows the positions held by our board of directors and
executive officers and their ages as of June 19, 2007.

|                    |  |     |  |                                                
|------------------- |  | --- |  | -----------------------------------------------
|Name                |  | Age |  | Position                                       
|                    |  |     |  |                                                
|                   
|Ronald Wilen        |  | 68  |  | Chairman of the Board,
  Secretary and Director
|                    |  |     |  |                                                
|Brian King          |  | 54  |  | President and Chief
  Executive Officer        
|                    |  |     |  |                                                
|James McKeever, CPA |  | 41  |  | Interim Chief Financial
  Officer              
|                    |  |     |  |                                                
|Louis Bernstein     |  | 57  |  | Director                                       
|                    |  |     |  |                                                
|Andrea Pampanini    |  | 67  |  | Director                                       
|                    |  |     |  |                                                
|Martin Rappaport    |  | 70  |  | 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 and Secretary since May 2006. Mr. Wilen
served as our Chief Executive Officer from October 1995 to September 2004, our
President from October 1995 to August 2001 and has been our Chairman of the
Board since August 2001.

Brian King. Mr. King was appointed as the
companys President and Chief Executive Officer in September 2004. Prior to
joining United Energy he was employed by Concord Camera Corp., a publicly
traded company, from 1996 through 2004. During his tenure with Concord, Mr.
King held several senior level officer positions including Chief Operating
Officer and Senior Executive Vice President. Mr. King holds a BS from the
University of Maryland and an MBA from Long Island University.

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 17 years experience in
public accounting and financial reporting, and is a member of the New Jersey
Society of Certified Public Accountants.

Louis Bernstein. Mr. Bernstein has served
as a member of our board since September 2003. Mr. Bernstein served as an
Assistant General Counsel of Pfizer Inc., one of the worlds largest
pharmaceutical companies, where he was employed as in-house counsel from
December 1975 until his retirement from Pfizer Inc. effective August 8, 2006.
From August 22 through November 9, 2006, Mr. Bernstein was President and
interim CEO of Xethanol Corporation, where he was a member of the board of
directors from June 2005 through November 2006.

Andrea Pampanini. Mr. Pampanini has served
as a member of our board since December 2001. Mr. Pampanini is an
organizational advisor with extensive restructuring, marketing and strategic
planning experience serving, among other industries, the chemical, petroleum,
pharmaceutical, basic metals, electrical equipment, power generation and heavy
industrial goods sectors. In 1989, Mr. Pampanini founded Turnaround Associates
Inc., a consulting firm specializing in the financial and operational
organization of medium to large-sized companies. Since 1998, Mr. Pampanini has
been a member of Leadership Strategies LLC, a group of professionals
specializing in strategic planning and personal leadership coaching. Mr.
Pampanini has devoted a major portion of his career to the Middle East,
including serving as Executive Vice President of Development Resources
Corporation from 1971 to 1977, during which time he supervised the final phases
of the Dez hydroelectric power and irrigation project in Iran.

18

---



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 (including owning the building where our office is located). Mr.
Rappaport is an active supporter and contributor to Blythedale Childrens
Hospital in Valhalla, New York.

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.

Director Compensation

Each
non-employee director and Ron Wilen receives options for 10,000 shares of our
common stock in lieu of an annual retainer and meeting fees. Other than the
10,000 options granted there are no special fees, contracts entered into, or
payments made in consideration of any directors service as a director.

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 five 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.

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, 2007, 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.

19

---



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 Information. 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 10. 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

|                                        |  |               |  |                       |  |                          |  |                               |  |                               |  |                                        |  |                |  |                            | 
|--------------------------------------- |  | ------------- |  | --------------------- |  | ------------------------ |  | ----------------------------- |  | ----------------------------- |  | -------------------------------------- |  | -------------- |  | -------------------------- | 
|                                        |  |               |  | Annual
  Compensation |  | Long-term
  Compensation |  |                               | 
|                                        |  |               |  |                       |  |                          |  |                               | 
|Name and
  Principal Position           |  | Fiscal
  year |  | Salary                |  | Bonus                    |  | Other
  Annual
  Compensation |  | Restricted
  Stock
  Award(s) |  | Securities
  Underlying
  Options/SARs |  | LTIP
  Payouts |  | All
  other
  Compensation | 
|                                        |  |               |  |                       |  |                          |  |                               |  |                               |  |                                        |  |                |  |                            | 
|                                        |  |               |  | ($)                   |  | ($)                      |  | (1)                           |  |                               |  | (#)                                    |  | ($)            |  |                            | 
|                                       
|Ronald Wilen                            |  | 2007          |  | 200,000               |  |                         |  | 8,901(2)                      |  |                              |  | 10,000                                 |  |               |  |                           | 
|Chairman                                |  | 2006          |  | 207,693               |  |                         |  | 17,039(2)                     |  |                              |  | 10,000                                 |  |               |  |                           | 
|                                        |  |               |  |                       |  |                          |  |                               |  |                               |  |                                        |  |                |  |                            | 
|Brian King                              |  | 2007          |  | 200,000               |  |                         |  | 17,067(3)                     |  |                              |  | 250,000                                |  |                |  |                            | 
|President and Chief
  Executive Officer |  | 2006          |  | 178,154               |  |                         |  | 14,424(3)                     |  |                              |  | 500,000                                |  |               |  |                           | 

|    |                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |                                                                                                                                                                                                                                        
|(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) | During the
  fiscal years ended March 31, 2007 and 2006, we paid for the leases on two
  automobiles used by Mr. Wilen under monthly lease payments. We also paid for
  medical insurance for Mr. Wilen at a rate of $320.02 per month.
|    |                                                                                                                                                                                                                                        
|(3) | We also paid
  for Mr. Kings medical insurance at a rate of $1,362.09 per month.                                                                                                                                                      

20

---



Options/SAR Grants in Last Fiscal Year

|                               |  |                                                               |  |                                                                           |    |                                 |  |            |  |  |   |  | 
|------------------------------ |  | ------------------------------------------------------------- |  | ------------------------------------------------------------------------- | -- | ------------------------------- |  | ---------- |  |  | - |  | 
|Name                           |  | Number of Securities
  Underlying Options/
  SARs Granted (#) |  | Percent of Total
  Options/SARs
  Granted
  to Employees
  in Fiscal Year |    | Exercise or
  Base Price ($/Sh) |  | Expiration | 
|                               |  |                                                               |  |                                                                           |    |                                 |  |            | 
|(a)                            |  | (b)                                                           |  | (c)                                                                       |    | (d)                             |  | (e)        | 
|                              
|Ronald Wilen                   |  |                                                               |  |                                                                           |    |                                 |  |            | 
|Chairman                       |  | 10,000                                                        |  |                                                                           | 3  | %                               |  | 1.00       |  |  |  |  | 
|                              
|Brian King President and
  CEO |  | 250,000                                                       |  |                                                                           | 74 | %                               |  | $  2.05    |  |  |  |  | 

Aggregated Option/SAR Exercises in Last
Fiscal Year and Fiscal Year End Option/SAR Values

|                               |  |                                   |  |                      |  |                                                                                                                    |             |                                                                                                         |  |   |  | 
|------------------------------ |  | --------------------------------- |  | -------------------- |  | ------------------------------------------------------------------------------------------------------------------ | ----------- | ------------------------------------------------------------------------------------------------------- |  | - |  | 
|Name                           |  | Shares Acquired
  on Exercise (#) |  | Value
  Realized ($) |  | Number of Securities
  Underlying Unexercised
  Options/SARs at Fiscal
  Year End Exercisable/
  Unexercisable (#) |             | Value of Unexercised In-
  The-Money
  Options/SARs at Fiscal
  Year End Exercisable/ Unexercisable ($) | 
|                               |  |                                   |  |                      |  |                                                                                                                    |             |                                                                                                         | 
|(a)                            |  | (b)                               |  | (c)                  |  | (d)                                                                                                                |             | (e)                                                                                                     | 
|                              
|Ronald Wilen                   |  |                                   |  |                      |  |                                                                                                                    |             |                                                                                                         | 
|Chairman                       |  |                                  |  |                     |  |                                                                                                                    | 560,000/0   |                                                                                                         |  |  |  | 
|                              
|Brian King President and
  CEO |  |                                  |  |                     |  |                                                                                                                    | 1,250,000/0 |                                                                                                         |  |  |  | 

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 185,000 shares of our common stock available for
future grant as of March 31, 2007 under the 2001 Equity Incentive Plan.

21

---



|         |                                                                                                 
|-------- | ------------------------------------------------------------------------------------------------
|ITEM 11. | 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 June 19, 2007, 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.

|                                                                      |  |                                                    |     |                        |  |       | 
|--------------------------------------------------------------------- |  | -------------------------------------------------- | --- | ---------------------- |  | ----- | 
|Name and Address
  of Beneficial Owner                                |  | Amount and
  Nature of
  Beneficial
  Ownership(1) |     | Percent of
  Class (1) | 
|                                                                      |  |                                                    |     |                        | 
|Ronald Wilen                                                          |  | 4,147,000                                          | (2) |                        |  | 13.1% | 
|                                                                      |  |                                                    |     |                        |  |       | 
|Brian King                                                            |  | 1,270,000                                          | (3) |                        |  | 3.9%  | 
|                                                                      |  |                                                    |     |                        |  |       | 
|James McKeever, CPA                                                   |  | 3,000                                              |     |                        |  | *     | 
|                                                                      |  |                                                    |     |                        |  |       | 
|Louis Bernstein                                                       |  | 40,000                                             | (4) |                        |  | *     | 
|                                                                      |  |                                                    |     |                        |  |       | 
|Andrea Pampanini                                                      |  | 92,500                                             | (5) |                        |  | *     | 
|                                                                      |  |                                                    |     |                        |  |       | 
|Martin Rappaport                                                      |  | 3,030,000                                          | (6) |                        |  | 9.5%  | 
|                                                                      |  |                                                    |     |                        |  |       | 
|All current executive
  officers and directors as a group (6 persons) |  | 8,582,500                                          |     |                        |  | 25.4% | 
|                                                                      |  |                                                    |     |                        |  |       | 
|5% or Greater
  Stockholders:                                         |  |                                                    |     |                        |  |       | 
|                                                                      |  |                                                    |     |                        |  |       | 
|Jack Silver                                                           |  | 3,121,088                                          | (7) |                        |  | 10.1% | 
|SIAR Capital LLC                                                      |  |                                                    |     |                        |  |       | 
|660 Madison Avenue                                                    |  |                                                    |     |                        |  |       | 
|New York, NY 10021                                                    |  |                                                    |     |                        |  |       | 
|                                                                      |  |                                                    |     |                        |  |       | 
|Joseph J. Grano, Jr.                                                  |  | 2,508,665                                          | (8) |                        |  | 7.9%  | 
|c/o Centurion Holdings LLC                                            |  |                                                    |     |                        |  |       | 
|1185 Avenue of the
  Americas, Suite 2250                             |  |                                                    |     |                        |  |       | 
|New York, NY 10036                                                    |  |                                                    |     |                        |  |       | 

|                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                       
|* Less than 1% of outstanding
  shares.
|                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(1)                                     | 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)
  stock options to purchase 400,000 shares at an exercise price of $1.11 per
  share, (ii) stock options to purchase 100,000 shares at an exercise price of
  $1.80 per share, (iii) stock options to purchase 50,000 shares at an exercise
  price of $1.00 per share, and (iv) stock options to purchase 10,000 shares at
  an exercise price of $1.60 per share, which are currently exercisable.                 

22

---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | Includes
  stock options to purchase 500,000 shares at an exercise price of $1.00 per
  share, options to purchase 500,000 shares at an exercise price of $1.06 and
  options to purchase 250,000 shares at an exercise price of $2.06 per share,
  which are currently exercisable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(4) | Includes (i)
  stock options to purchase 10,000 shares at an exercise price of $1.55 per
  share, (ii) stock options to purchase 20,000 shares at an exercise price of
  $1.00 per share, and (iii) stock options to purchase 10,000 shares at an
  exercise price of $1.60 per share, which are currently exercisable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(5) | Includes (i)
  stock options to purchase 10,000 shares at an exercise price of $0.70 per
  share, (ii) stock options to purchase 10,000 shares at an exercise price of
  $1.30 per share, (iii) stock options to purchase 10,000 shares at an exercise
  price of $1.18 per share, (iv) stock options to purchase 30,000 shares at an
  exercise price of $1.00 per share and (v) stock options to purchase 10,000
  shares at an exercise price of $1.60 per share, which are currently
  exercisable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(6) | Includes (i)
  stock options to purchase 10,000 shares at an exercise price of $0.70 per
  share, (ii) stock options to purchase 10,000 shares at an exercise price of
  $1.30 per share, (iii) stock options to purchase 10,000 shares at an exercise
  price of $1.18 per share, (iv) stock options to purchase 30,000 shares at an
  exercise price of $1.00 per share, (v) stock options to purchase 10,000
  shares at an exercise price of $1.60 per share and (vi) warrants to purchase
  750,000 shares of common stock at an exercise price of $2.00 per share, which
  are currently exercisable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(7) | Includes (i)
  2,313,333 shares held by Sherleigh Associates Profit Sharing Plan
  (Sherleigh), a trust of which Mr. Silver is the trustee, (ii) 133,300
  shares of common stock held by Romy Silver, Mr. Silvers daughter, (iii)
  133,200 shares of common stock held by Leigh Silver, Mr. Silvers son, (iv)
  24,000 shares of common stock issuable upon conversion of Series A
  Convertible Preferred Stock, which prohibits conversion thereof to the extent
  following the conversion, the holder or its affiliates would beneficially own
  more than 9.9% of the total number of issued and outstanding common stock of
  the Company and (v) 517,255 shares of common stock issuable to Sherleigh upon
  exercise of warrants which warrants prohibit exercise thereof to the extent
  following the exercise the holder or its affiliates would beneficially own
  more than 10.1% of the total number of issued and outstanding common stock of
  the Company. The foregoing does not include 5,165,412 shares of common stock
  issuable to Sherleigh upon exercise of Series C Warrants which warrants
  prohibit exercise thereof to the extent following the exercise the holder or
  its affiliates would beneficially own more than 10.1% of the total number of
  issued and outstanding common stock of the Company.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(8) | Includes
  1,875,332 shares of common stock, warrants to purchase 633,333 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, 2007.

|                                                             |  |                                                                                                           |  |                                                                                    |  |                                                                                                                                                                   |      |  |  |         |  | 
|------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- |  |  | ------- |  | 
|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     |  | 3,502,500                                                                                                 |  |                                                                                    |  | $                                                                                                                                                                 | 1.17 |  |  | 185,000 |  | 
|                                                            
|Equity compensation plans not approved by
  security holders |  | 4,375,000                                                                                                 |  |                                                                                    |  | $                                                                                                                                                                 | 1.88 |  |  |        |  | 
|                                                            
|Total                                                        |  | 7,877,500                                                                                                 |  |                                                                                    |  |                                                                                                                                                                   |      |  |  | 185,000 |  | 

23

---



ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

We
have an amount due to Robert Seaman, a shareholder and former director of the
Company. The amount due as of December 31, 2007 and 2006 is $244,141. This amount
is unsecured, non-interest bearing and due upon demand.

Martin
Rappaport, one of our directors, owns the building in which we lease our
principal executive offices in Secaucus, New Jersey. We pay $115,200 per year
under the lease, excluding real estate taxes. We believe that this transaction
was advantageous to us and was on terms no less favorable to us than could have
been obtained from unaffiliated third parties.

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

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

ITEM 13. EXHIBITS

|               |  |                                                                                                                        
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description of Document                                                                                                
|               |  |                                                                                                                        
|3.1            |  | Articles of
  Incorporation of United Energy Corp. (1)                                                                 
|               |  |                                                                                                                        
|3.2            |  | Amendment to
  the Articles of Incorporation. (2)                                                                      
|               |  |                                                                                                                        
|3.3            |  | By-Laws of
  United Energy Corp. (1)                                                                                   
|               |  |                                                                                                                        
|4.1            |  | Articles of
  Incorporation: Articles Fourth, Fifth and Seventh. (1)                                                   
|               |  |                                                                                                                        
|4.2            |  | By-Laws:
  Article I: Sections: Six, Seven, Eight, Nine, Ten; Article II: Section Nine:
  Article IV: Section Two. (1) 
|               |  |                                                                                                                        
|4.3            |  | New Article
  V of the Bylaws. (14)                                                                                    
|               |  |                                                                                                                        
|4.4            |  | Form of
  Stock Certificate of United Energy Corp.(1)                                                                  
|               |  |                                                                                                                        
|4.5            |  | Secured
  Convertible Term Note dated March 24, 2004.(4)                                                               
|               |  |                                                                                                                        
|5.1            |  | Opinion of
  Katten Muchin Rosenman LLP(15)                                                                            
|               |  |                                                                                                                        
|10.1           |  | Distribution
  Agreement and Option Agreement with International Research and Development,
  dated August 25, 1999. (1)
|               |  |                                                                                                                        
|10.2           |  | 2001 Equity
  Incentive Plan, as amended on May 29, 2002. (5)                                                          
|               |  |                                                                                                                        
|10.3           |  | Securities
  Purchase Agreement, dated March 24, 2004, between United Energy Corp. and
  Laurus Master Fund, Ltd. (4)  
|               |  |                                                                                                                        
|10.4           |  | Secured
  Convertible Term Note dated March 24, 2004. (4)                                                              
|               |  |                                                                                                                        
|10.5           |  | Security
  Agreement, dated March 24, 2004, between United Energy Corp. and Laurus
  Master Fund, Ltd. (4)             
|               |  |                                                                                                                        
|10.6           |  | Registration
  Rights Agreement, dated March 24, 2004, between United Energy Corp. and
  Laurus Master Fund, Ltd. (4)  
|               |  |                                                                                                                        
|10.7           |  | Common Stock
  Purchase Warrant, dated March 24, 2004. (4)                                                             
|               |  |                                                                                                                        
|10.8           |  | Amendment
  and Waiver, dated February 28, 2005, between United Energy Corp. and Laurus
  Master Fund, Ltd. (7)        

24

---



|      |  |                                                                                                                                                                                               
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.9  |  | Securities
  Purchase Agreement, dated March 18, 2005, between United Energy Corp. and the
  Purchasers set forth on the signature page thereto. (8)                                          
|      |  |                                                                                                                                                                                               
|10.10 |  | March 2005
  Series A Purchase Warrant. (8)                                                                                                                                                   
|      |  |                                                                                                                                                                                               
|10.11 |  | March 2005
  Series B Purchase Warrant. (8)                                                                                                                                                   
|      |  |                                                                                                                                                                                               
|10.12 |  | Registration
  Rights Agreement, dated March 18, 2004, between United Energy Corp. and the
  persons identified as Purchasers pursuant to that certain Securities Purchase
  Agreement. (8)   
|      |  |                                                                                                                                                                                               
|10.13 |  | 2005 Series
  B Secured Convertible Note. (8)                                                                                                                                                 
|      |  |                                                                                                                                                                                               
|10.14 |  | Certificate
  of Designations, Preferences and Rights of Series A Convertible Preferred
  Stock. (8)                                                                                          
|      |  |                                                                                                                                                                                               
|10.15 |  | Consulting Services
  Agreement, dated April 27, 2005, between United Energy Corp. and Ben Barnes.
  (9)                                                                                      
|      |  |                                                                                                                                                                                               
|10.16 |  | Warrant
  Certificate, dated April 27, 2005. (9)                                                                                                                                              
|      |  |                                                                                                                                                                                               
|10.17 |  | 2002 Common
  Stock and Warrant Purchase Agreement. (10)                                                                                                                                      
|      |  |                                                                                                                                                                                               
|10.18 |  | 2002 Common
  Stock Purchase Warrant. (10)                                                                                                                                                    
|      |  |                                                                                                                                                                                               
|10.19 |  | Common Stock
  Purchase Warrant, dated February 28, 2005. (7)                                                                                                                                 
|      |  |                                                                                                                                                                                               
|10.20 |  | Amendment to
  Articles of Incorporation of United Energy Corp. (11)                                                                                                                          
|      |  |                                                                                                                                                                                               
|10.21 |  | United
  Energy Corp. 2001 Equity Incentive Plan, Amended and Restated Effective May
  29, 2002. (12)                                                                                         
|      |  |                                                                                                                                                                                               
|10.22 |  | Form of
  Incentive Stock Option Agreement. (12)                                                                                                                                              
|      |  |                                                                                                                                                                                               
|10.23 |  | Form of
  Stock Option Agreement. (12)                                                                                                                                                        
|      |  |                                                                                                                                                                                               
|10.24 |  | 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. (13)
|      |  |                                                                                                                                                                                               
|10.25 |  | Certificate
  of Designations, Preferences and Rights of Series A Convertible Preferred
  Stock pursuant to NRS 78.1955. (14)                                                                 
|      |  |                                                                                                                                                                                               
|10.26 |  | Second
  Amendment to Securities Purchase Agreement, dated as of March 9, 2006. (14)                                                                                                          
|      |  |                                                                                                                                                                                               
|10.27 |  | Registration
  Rights Agreement, dated as of March 9, 2006. (14)                                                                                                                              
|      |  |                                                                                                                                                                                               
|10.28 |  | Form of
  Series C Warrant. (14)                                                                                                                                                              
|      |  |                                                                                                                                                                                               
|10.29 |  | Form of
  Securities Purchase Agreement dated as of March 24, 2006. (15)                                                                                                                      
|      |  |                                                                                                                                                                                               
|10.30 |  | Form of
  Registration Rights Agreement dated as of March 24, 2006. (15)                                                                                                                      
|      |  |                                                                                                                                                                                               
|10.31 |  | Form of
  First Amendment to Securities Purchase Agreement and Registration Rights
  Agreement dated as of March 24, 2006. (15)                                                               
|      |  |                                                                                                                                                                                               
|10.32 |  | Form of
  Warrant between United Energy Corp. and Connie Kristan. (16)                                                                                                                        
|      |  |                                                                                                                                                                                               
|10.33 |  | Form of
  Warrant between United Energy Corp. and Joseph Grano. (16)                                                                                                                          
|      |  |                                                                                                                                                                                               
|14.1  |  | Code of
  Ethics. (16)                                                                                                                                                                        
|      |  |                                                                                                                                                                                               
|16.1  |  | Letter re
  Change in Certifying Accountant. (3)                                                                                                                                              
|      |  |                                                                                                                                                                                               
|21.1  |  | Subsidiaries
  of Small Business Issuer (16)                                                                                                                                                  

25

---



|     |  |                                                                                                                                                                                                
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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. *
|     |  |                                                                                                                                                                                                
|*    |  | 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 June 3, 2002.                                                                                                   
|     |  |                                                                                                                                                                                                
|(4)  |  | Incorporated
  by reference from the exhibits filed with the Form 8-K filed on March 30,
  2004.                                                                                               
|     |  |                                                                                                                                                                                                
|(5)  |  | Incorporated
  by reference from the exhibits filed with the Schedule 14A for the year ended
  March 31, 2003.                                                                                 
|     |  |                                                                                                                                                                                                
|(6)  |  | Incorporated
  by reference from the exhibits filed with the Registration Statement on Form
  SB-2 (No. 333 115484).                                                                           
|     |  |                                                                                                                                                                                                
|(7)  |  | Incorporated
  by reference from the exhibits filed with the Form 8-K filed on April 12,
  2005.                                                                                               
|     |  |                                                                                                                                                                                                
|(8)  |  | Incorporated
  by reference from the exhibits filed with the Form 8-K filed on March 23,
  2005.                                                                                               
|     |  |                                                                                                                                                                                                
|(9)  |  | Incorporated
  by reference from the exhibits filed with the Form 8-K filed on June 3, 2005.                                                                                                   
|     |  |                                                                                                                                                                                                
|(10) |  | Incorporated
  by reference from the exhibits filed with the Form S-3 filed on September 13,
  2005.                                                                                           
|     |  |                                                                                                                                                                                                
|(11) |  | Incorporated
  by reference from the exhibits filed with the Definitive Schedule 14A filed
  on July 18, 2005                                                                                  
|     |  |                                                                                                                                                                                                
|(12) |  | Incorporated
  by reference from the exhibits filed with the Form S-8 filed on September 29,
  2005.                                                                                           
|     |  |                                                                                                                                                                                                
|(13) |  | Incorporated
  by reference from the exhibits filed with the Form 8-K filed on January 27,
  2006.                                                                                             
|     |  |                                                                                                                                                                                                
|(14) |  | Incorporated
  by reference from the exhibits filed with the Form 8-K filed on March 9,
  2006.                                                                                                
|     |  |                                                                                                                                                                                                
|(15) |  | Incorporated
  by reference from the exhibits filed with the Form SB-2 filed on April 24,
  2006.                                                                                              
|     |  |                                                                                                                                                                                                
|(16) |  | Incorporated
  by reference from the exhibits filed with the Form 10-KSB filed on May 29,
  2006.                                                                                              

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND
SERVICES

Audit Fees

The
aggregate fees billed or expected to billed by Imowitz, Koenig & Co., LLP
(Imowitz) for professional services rendered for the audit of our annual
financial statements for the fiscal year ended March 31, 2007 and 2006 and for
the reviews of the interim financial statements included in our Quarterly
Reports on Form 10-QSB for the fiscal years were approximately $70,000 and
$81,885, respectively.

Audit-Related Fees

Fees
of $3,473 were paid to Imowitz for audit-related services for the fiscal year
ended March 31, 2007. No fees were paid to Imowitz for the fiscal year ended
March 31, 2006.

Tax Fees

No
fees were billed by Imowitz for tax services rendered for the fiscal years
ended March 31, 2007 and 2006.

26

---



All Other Fees

Imowitz
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, 2007 or for the fiscal year ended March 31, 2006.

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.

27

---



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: June 28, 2007 | By:                 | /s/ Brian King                 
|                    |                     |                                
|                    |                     | Brian King                     
|                    |                     | Chief Executive Officer        
|                    |                     |                                
|                    | By:                 | /s/ James McKeever             
|                    |                     |                                
|                    |                     | James McKeever                 
|                    |                     | Interim 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/ Brian King       |  | Chief Executive Officer and President          |  | June 28, 2007
|                     |  | (principal
  executive officer)                |  |              
|Brian King           |  |                                                |  |              
|                     |  |                                                |  |              
|/s/ James McKeever   |  | Interim Chief Financial
  Officer              |  | June 28, 2007
|                     |  | (principal financial and
  accounting officer) |  |              
|James McKeever       |  |                                                |  |              
|                     |  |                                                |  |              
|/s/ Louis Bernstein  |  | Director                                       |  | June 28, 2007
|                     |  |                                                |  |              
|Louis Bernstein      |  |                                                |  |              
|                     |  |                                                |  |              
|                     |  | Director                                       |  |              
|                     |  |                                                |  |              
|Andrea Pampanini     |  |                                                |  |              
|                     |  |                                                |  |              
|/s/ Martin Rappaport |  | Director                                       |  | June 28, 2007
|                     |  |                                                |  |              
|Martin Rappaport     |  |                                                |  |              
|                     |  |                                                |  |              
|/s/ Ronald Wilen     |  | Chairman of the Board of
  Directors and       |  | June 28, 2007
|                     |  | Secretary                                      |  |              
|Ronald Wilen         |  |                                                |  |              

---



UNITED ENERGY CORP. AND SUBSIDIARIES

FORM 10-KSB

ITEM 7

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:

|                                                                    |          | 
|------------------------------------------------------------------- | -------- | 
|                                                                    | Page     | 
|                                                                    |          | 
|                                                                   
|Report of independent registered public accounting firm             | F-2      | 
|                                                                    |          | 
|Consolidated balance sheets as of March 31, 2007 and March 31, 2006 | F-3-F-4  | 
|                                                                    |          | 
|For the
  periods ended March 31, 2007 and 2006:                    |          | 
|Consolidated statements of
operations                               | F-5      | 
|Consolidated statements of
stockholders
  equity                   | F-6      | 
|Consolidated statements of cash
flows                               | F-7- F-8 | 
|Notes to consolidated financial statements                          | F-9-F-21 | 

F-1

---



REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

To the Board of Directors of United Energy Corp.:

We have audited the accompanying consolidated balance sheets of United
Energy Corp. (a Nevada corporation) and subsidiaries as of March 31, 2007 and
March 31, 2006 and the related consolidated statements of income, cash flows
and stockholders equity for the years then ended. These consolidated financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audits to obtain reasonable assurance about
whether the consolidated financial statements are free of material
misstatement. The Company is not required to have, nor have we been engaged to
perform, an audit of its internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for purposes of expressing an opinion on the effectiveness of the Companys
internal control over financial reporting. Accordingly, we express no such
opinion. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the consolidated financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our
opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated
financial position of United Energy Corp. and subsidiaries as of March 31, 2007
and March 31, 2006 and the consolidated results of their operations and their consolidated cash flows for the years then
ended, in conformity with accounting principles generally accepted in the
United States of America.

/s/ IMOWITZ, KOENIG & CO., LLP
New York, New York
June 28, 2007

F-2

---



UNITED ENERGY CORP. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS
MARCH 31, 2007 AND 2006

|                                                                                                 |  |                  |           |                  |   |           | 
|------------------------------------------------------------------------------------------------ |  | ---------------- | --------- | ---------------- | - | --------- | 
|                                                                                                 |  | March 31,
  2007 |           | March 31,
  2006 |  
|                                                                                                 |  |                  |           |                  |  
|                                                                                                 |  |                  |           |                  |  
|ASSETS                                                                                           | 
|                                                                                                 |  |                  |           |                  |   |           | 
|CURRENT ASSETS:                                                                                  |  |                  |           |                  |   |           | 
|Cash and cash equivalents                                                                        |  | $                | 2,863,906 |                  | $ | 5,194,748 | 
|Accounts receivable, net of allowance for doubtful accounts of $5,879
  and $5,018, respectively |  |                  | 64,466    |                  |   | 91,557    | 
|Inventory, net of allowance of $0 and $16,290,
respectively                                      |  |                  | 138,798   |                  |   | 99,337    | 
|Prepaid expenses and other current assets                                                        |  |                  | 128,216   |                  |   | 84,657    | 
|Assets of discontinued operations                                                                |  |                  | 4,507     |                  |   | 27,096    | 
|                                                                                                 |  |                  |           |                  |   |           | 
|Total current assets                                                                             |  |                  | 3,199,893 |                  |   | 5,497,395 | 
|                                                                                                 |  |                  |           |                  |   |           | 
|PROPERTY AND EQUIPMENT, net of accumulated depreciation                                          |  |                  | 88,081    |                  |   | 146,994   | 
|                                                                                                 |  |                  |           |                  |   |           | 
|OTHER ASSETS:                                                                                    |  |                  |           |                  |   |           | 
|Goodwill, net                                                                                    |  |                  | 15,499    |                  |   | 15,499    | 
|Patents, net of accumulated amortization of $150,861 and $119,794,
  respectively                |  |                  | 345,889   |                  |   | 327,572   | 
|Loans receivable                                                                                 |  |                  | 1,864     |                  |   | 364       | 
|Deposits                                                                                         |  |                  | 1,385     |                  |   | 1,385     | 
|                                                                                                 |  |                  |           |                  |   |           | 
|Total assets                                                                                     |  | $                | 3,652,611 |                  | $ | 5,989,209 | 
|                                                                                                 |  |                  |           |                  |   |           | 

The accompanying notes are an integral part of these consolidated
statements

F-3

---



UNITED ENERGY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2007 AND 2006

|                                                                                                                                                             |  |                  |             |                  |   |             |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------- | ----------- | ---------------- | - | ----------- | -
|                                                                                                                                                             |  | March 31,
  2007 |             | March 31,
  2006 |  
|                                                                                                                                                             |  |                  |             |                  |  
|                                                                                                                                                             |  |                  |             |                  |   |             |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                         | 
|                                                                                                                                                             |  |                  |             |                  |   |             |  
|CURRENT LIABILITIES:                                                                                                                                         |  |                  |             |                  |   |             |  
|Accounts payable                                                                                                                                             |  | $                | 133,135     |                  | $ | 279,303     |  
|Accrued expenses                                                                                                                                             |  |                  | 99,226      |                  |   | 134,286     |  
|Due to related parties                                                                                                                                       |  |                  | 244,141     |                  |   | 444,141     |  
|                                                                                                                                                             |  |                  |             |                  |   |             |  
|Total current liabilities                                                                                                                                    |  |                  | 476,502     |                  |   | 857,730     |  
|                                                                                                                                                             |  |                  |             |                  |   |             |  
|STOCKHOLDERS EQUITY:                                                                                                                                        |  |                  |             |                  |   |             |  
|Series A Convertible Preferred Stock: $8,000 stated value, 420 shares
  authorized; 3 shares issued and outstanding as of March 31 2007 and March 31,
  2006 |  |                  | 24,000      |                  |   | 24,000      |  
|Common stock: $0.01 par value 100,000,000 authorized;
  31,030,115 and 31,017,615 shares issued and outstanding as of March 31, 2007
  and March 31, 2006    |  |                  | 310,301     |                  |   | 310,176     |  
|Additional paid-in capital                                                                                                                                   |  |                  | 21,540,041  |                  |   | 21,221,471  |  
|Accumulated deficit                                                                                                                                          |  |                  | (18,698,233 | )                |   | (16,424,168 | )
|                                                                                                                                                             |  |                  |             |                  |   |             |  
|Total stockholders equity                                                                                                                                   |  |                  | 3,176,109   |                  |   | 5,131,479   |  
|                                                                                                                                                             |  |                  |             |                  |   |             |  
|Total liabilities and stockholders equity                                                                                                                   |  | $                | 3,652,611   |                  | $ | 5,989,209   |  
|                                                                                                                                                             |  |                  |             |                  |   |             |  

The accompanying notes are an integral part of these consolidated
statements

F-4

---



UNITED ENERGY CORP. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 2007 AND 2006

|                                                                  |  |      |            |      |   |            |  
|----------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | -
|                                                                  |  | 2007 |            | 2006 |  
|                                                                  |  |      |            |      |  
|                                                                  |  |      |            |      |   |            |  
|REVENUES, net                                                     |  | $    | 811,893    |      | $ | 385,374    |  
|                                                                  |  |      |            |      |   |            |  
|COST OF GOODS SOLD                                                |  |      | 363,208    |      |   | 239,742    |  
|                                                                  |  |      |            |      |   |            |  
|                                                                  |  |      |            |      |   |            |  
|Gross profit                                                      |  |      | 448,685    |      |   | 145,632    |  
|                                                                  |  |      |            |      |   |            |  
|                                                                 
|OPERATING EXPENSES:                                               |  |      |            |      |   |            |  
|Selling, general and administrative                               |  |      | 2,811,970  |      |   | 3,584,653  |  
|Depreciation and amortization                                     |  |      | 76,434     |      |   | 70,061     |  
|                                                                  |  |      |            |      |   |            |  
|Total operating expenses                                          |  |      | 2,888,404  |      |   | 3,654,714  |  
|                                                                  |  |      |            |      |   |            |  
|                                                                 
|Loss from operations                                              |  |      | (2,439,719 | )    |   | (3,509,082 | )
|                                                                  |  |      |            |      |   |            |  
|                                                                 
|OTHER INCOME (EXPENSE), net:                                      |  |      |            |      |   |            |  
|Interest income                                                   |  |      | 169,653    |      |   | 15,510     |  
|Interest expense                                                  |  |      | (2,725     | )    |   | (577,589   | )
|                                                                  |  |      |            |      |   |            |  
|Total other expense, net                                          |  |      | 166,928    |      |   | (562,079   | )
|                                                                  |  |      |            |      |   |            |  
|                                                                  |  |      |            |      |   |            |  
|Net loss from continuing operations                               |  |      | (2,272,791 | )    |   | (4,071,161 | )
|                                                                  |  |      |            |      |   |            |  
|DISCONTINUED OPERATIONS:                                          |  |      |            |      |   |            |  
|Income from discontinued operations                               |  |      | 252        |      |   | 44,961     |  
|                                                                  |  |      |            |      |   |            |  
|                                                                  |  |      |            |      |   |            |  
|Net loss                                                          |  |      | (2,272,539 | )    |   | (4,026,200 | )
|                                                                  |  |      |            |      |   |            |  
|Preferred dividends                                               |  |      | (1,526     | )    |   |           |  
|                                                                  |  |      |            |      |   |            |  
|                                                                  |  |      |            |      |   |            |  
|Net loss applicable to common shareholders                        |  | $    | (2,274,065 | )    | $ | (4,026,200 | )
|                                                                  |  |      |            |      |   |            |  
|                                                                 
|BASIC AND DILUTED LOSS PER SHARE:                                 |  |      |            |      |   |            |  
|Loss from continuing operations                                   |  | $    | (0.07      | )    | $ | (0.16      | )
|Income from discontinued operations                               |  |      | 0.00       |      |   | 0.00       |  
|                                                                  |  |      |            |      |   |            |  
|Total basic and diluted loss per share                            |  | $    | (0.07      | )    | $ | (0.16      | )
|                                                                  |  |      |            |      |   |            |  
|                                                                  |  |      |            |      |   |            |  
|WEIGHTED AVERAGE NUMBER OF SHARES, OUTSTANDING, basic and
diluted |  |      | 31,029,327 |      |   | 25,330,737 |  
|                                                                  |  |      |            |      |   |            |  

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

F-5

---



UNITED ENERGY CORP. AND SUBSIDIARIESCONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
FOR THE YEARS ENDED MARCH 31, 2007 AND 2006

|                                                            |  |              |            |                   |   |         |                                |   |        |       |   |                                   |   |   |             |   |   |         |   |   |            |  
|----------------------------------------------------------- |  | ------------ | ---------- | ----------------- | - | ------- | ------------------------------ | - | ------ | ----- | - | --------------------------------- | - | - | ----------- | - | - | ------- | - | - | ---------- | -
|                                                            |  | Common Stock |            |                   |   |         | Additional
  Paid-In
  Capital |   |        |       |   | Stock
  subscription
  receivable |   |   |             |  
|                                                            |  |              |            | Preferred
  Stock |   |         | Accumulated
  Deficit          |   |        |       |   |                                  
|                                                            |  | Shares       |            | Amount            |   |         |                                |   |        | Total |  
|                                                            |  |              |            |                   |   |         |                                |   |        |       |   |                                   |   |   |             |   |   |         |   |   |            |  
|BALANCE, April 1, 2005                                      |  |              | 23,267,000 |                   |   | 232,670 |                                |   |       |       |   | 12,308,845                        |   |   | (12,397,968 | ) |   | (13,333 | ) |   | 130,214    |  
|Common stock issued in convertion of note
  payable         |  |              | 2,000,000  |                   |   | 20,000  |                                |   |        |       |   | 1,580,000                         |   |   |            |   |   |        |   |   | 1,600,000  |  
|Common stock issued in consideration for
  interest         |  |              | 615        |                   |   | 6       |                                |   |        |       |   | 486                               |   |   |            |   |   |        |   |   | 492        |  
|Proceeds from stock subscription receivable                 |  |              |           |                   |   |        |                                |   |        |       |   |                                  |   |   |            |   |   | 13,333  |   |   | 13,333     |  
|Warrants granted in consideration for
  consulting services |  |              |           |                   |   |        |                                |   |        |       |   | 129,720                           |   |   |            |   |   |        |   |   | 129,720    |  
|Compensation expense associated with
  options              |  |              |           |                   |   |        |                                |   |        |       |   | 906,076                           |   |   |            |   |   |        |   |   | 906,076    |  
|Exercise of stock options                                   |  |              | 300,000    |                   |   | 3,000   |                                |   |        |       |   | 342,000                           |   |   |            |   |   |        |   |   | 345,000    |  
|Common stock issued for private placement                   |  |              | 5,450,000  |                   |   | 54,500  |                                |   |        |       |   | 6,005,500                         |   |   |            |   |   |        |   |   | 6,060,000  |  
|Private placement costs                                     |  |              |            |                   |   |         |                                |   |        |       |   | (51,156                           | ) |   |             |   |   |         |   |   | (51,156    | )
|Preferred stock issued                                      |  |              |            |                   |   |         |                                |   | 24,000 |       |   |                                   |   |   |             |   |   |         |   |   | 24,000     |  
|Net loss                                                    |  |              |           |                   |   |        |                                |   |       |       |   |                                  |   |   | (4,026,200  | ) |   |         |   |   | (4,026,200 | )
|                                                            |  |              |            |                   |   |         |                                |   |        |       |   |                                   |   |   |             |   |   |         |   |   |            |  
|BALANCE, March 31, 2006                                     |  |              | 31,017,615 |                   |   | 310,176 |                                |   | 24,000 |       |   | 21,221,471                        |   |   | (16,424,168 | ) |   |        |   |   | 5,131,479  |  
|Exercise of stock options                                   |  |              | 12,500     |                   |   | 125     |                                |   |        |       |   | 13,750                            |   |   |            |   |   |        |   |   | 13,875     |  
|Compensation expense associated with
  options              |  |              |           |                   |   |        |                                |   |        |       |   | 304,820                           |   |   |            |   |   |        |   |   | 304,820    |  
|Dividends paid and accrued on On preferred
  shares         |  |              |            |                   |   |         |                                |   |        |       |   |                                   |   |   | (1,526      | ) |   |         |   |   | (1,526     | )
|Net loss                                                    |  |              |            |                   |   |         |                                |   |        |       |   |                                   |   |   | (2,272,539  | ) |   |         |   |   | (2,272,539 | )
|                                                            |  |              |            |                   |   |         |                                |   |        |       |   |                                   |   |   |             |   |   |         |   |   |            |  
|BALANCE, March 31, 2007                                     |  |              | 31,030,115 |                   | $ | 310,301 |                                | $ | 24,000 |       | $ | 21,540,041                        |   | $ | (18,698,233 | ) | $ |        |   | $ | 3,176,109  |  
|                                                            |  |              |            |                   |   |         |                                |   |        |       |   |                                   |   |   |             |   |   |         |   |   |            |  

The accompanying notes are an integral part
of this consolidated statements

F-6

---



UNITED ENERGY CORP. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 2007 AND 2006

|                                                                             |  |      |            |      |   |            |  
|---------------------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | -
|                                                                             |  | 2007 |            | 2006 |  
|                                                                             |  |      |            |      |   |            |  
|                                                                             |  |      |            |      |   |            |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                        |  |      |            |      |   |            |  
|CASH FLOWS FROM CONTINUING OPERATIONS:                                       |  |      |            |      |   |            |  
|Net loss from continuing operations                                          |  | $    | (2,272,791 | )    | $ | (4,071,161 | )
|Adjustments to reconcile net loss to net cash used in operating
  activities |  |      |            |      |   |            |  
|Depreciation and amortization                                                |  |      | 93,690     |      |   | 645,795    |  
|Warrants granted in consideration for
services                               |  |      |           |      |   | 129,720    |  
|Compensation expense associated with
options                                 |  |      | 304,820    |      |   | 906,076    |  
|Stock granted in consideration for interest
expense                          |  |      |           |      |   | 492        |  
|Changes in operating assets and liabilities                                  |  |      |            |      |   |            |  
|Decrease in accounts receivable, net                                         |  |      | 27,091     |      |   | 550,830    |  
|(Increase) decrease in inventory, net                                        |  |      | (39,461    | )    |   | 16,543     |  
|(Increase) decrease in prepaid expenses and other
current assets             |  |      | (43,559    | )    |   | 35,917     |  
|(Decrease) increase in accounts payable and accrued
expenses                 |  |      | (181,228   | )    |   | 58,544     |  
|                                                                             |  |      |            |      |   |            |  
|Net cash used in continuing operations                                       |  |      | (2,111,438 | )    |   | (1,727,244 | )
|                                                                             |  |      |            |      |   |            |  
|CASH FLOWS FROM DISCONTINUED OPERATIONS:                                     |  |      |            |      |   |            |  
|Net income from discontinuing operations                                     |  |      | 252        |      |   | 44,961     |  
|(Increase) decrease in accounts receivable,
net                              |  |      | (31        | )    |   | 140,617    |  
|Decrease in inventory, net                                                   |  |      | 7,620      |      |   | 12,460     |  
|Decrease in note receivable, net                                             |  |      | 15,000     |      |   | 9,174      |  
|                                                                             |  |      |            |      |   |            |  
|Net cash provided by discontinuing
operations                                |  |      | 22,841     |      |   | 207,212    |  
|                                                                             |  |      |            |      |   |            |  
|Net cash used in operating activities                                        |  |      | (2,088,597 | )    |   | (1,520,032 | )
|                                                                             |  |      |            |      |   |            |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                        |  |      |            |      |   |            |  
|Employee loans                                                               |  |      | (1,500     | )    |   | (227       | )
|Payments for acquisition of property and
equipment                           |  |      | (3,710     | )    |   | (48,903    | )
|Payments for patent                                                          |  |      | (49,384    | )    |   | (59,277    | )
|                                                                             |  |      |            |      |   |            |  
|Net cash used in investing activities                                        |  |      | (54,594    | )    |   | (108,407   | )
|                                                                             |  |      |            |      |   |            |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                        |  |      |            |      |   |            |  
|Proceeds from related party                                                  |  |      |           |      |   | 200,000    |  
|Payments of related party payable                                            |  |      | (200,000   | )    |   | (133,600   | )
|Proceeds from issuance of preferred stock                                    |  |      |           |      |   | 24,000     |  
|Proceeds from the exercise of stock
options                                  |  |      | 13,875     |      |   | 345,000    |  
|Proceeds from issuance of common stock                                       |  |      |           |      |   | 6,060,000  |  
|Payments of private placement costs                                          |  |      |           |      |   | (51,156    | )
|Proceeds from stock subscription
receivable                                  |  |      |           |      |   | 13,333     |  
|Preferred stock dividend                                                     |  |      | (1,526     | )    |   |           |  
|                                                                             |  |      |            |      |   |            |  
|Net cash (used in) provided by financing
activities                          |  |      | (187,651   | )    |   | 6,457,577  |  
|                                                                             |  |      |            |      |   |            |  
|Net (decrease) increase in cash and cash
equivalents                         |  |      | (2,330,842 | )    |   | 4,829,138  |  
|CASH AND CASH EQUIVALENTS, beginning of period                               |  |      | 5,194,748  |      |   | 365,610    |  
|                                                                             |  |      |            |      |   |            |  
|CASH AND CASH EQUIVALENTS, end of period                                     |  | $    | 2,863,906  |      | $ | 5,194,748  |  
|                                                                             |  |      |            |      |   |            |  

F-7

---



UNITED ENERGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 2007 AND 2006

|                                                                           |  |      |       |      |   |           | 
|-------------------------------------------------------------------------- |  | ---- | ----- | ---- | - | --------- | 
|                                                                           |  | 2007 |       | 2006 |  
|                                                                           |  |      |       |      |   |           | 
|                                                                           |  |      |       |      |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                         |  |      |       |      |   |           | 
|                                                                           |  |      |       |      |  
|Cash paid during the period                                                |  |      |       |      |   |           | 
|Interest                                                                   |  | $    | 2,725 |      | $ | 2,451     | 
|Income taxes                                                               |  | $    | 1,235 |      | $ | 1,434     | 
|                                                                           |  |      |       |      |   |           | 
|SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING
  ACTIVITIES: |  |      |       |      |   |           | 
|Conversion of note payable into common
stock                               |  | $    |      |      | $ | 1,600,000 | 

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

F-8

---



UNITED ENERGY CORP. AND SUBSIDIARIES

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2007 AND 2006

|   |                                          
|-- | -----------------------------------------
|1. | DESCRIPTION OF BUSINESS AND BUSINESS PLAN

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 include K-Line of chemical products for
the oil industry and related products

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

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

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

|   |                                           
|-- | ------------------------------------------
|2. | 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 option and warrant values, 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.

Revenue Recognition

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

Cash and Cash Equivalents

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

Inventories

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

F-9

---



Allowance for Doubtful Accounts

The
Company monitors its accounts and note receivable balances on a monthly basis
to ensure they are collectible. On a quarterly basis, the Company uses its
historical experience to determine its accounts receivable reserve. The
Companys allowance for doubtful accounts is an estimate based on specifically
identified accounts as well as general reserves. The Company evaluates specific
accounts where it has information that the customer may have an inability to
meet its financial obligations. In these cases, management uses its judgment,
based upon the best available facts and circumstances, and records a specific
reserve for that customer against amounts due to reduce the receivable to the
amount that is expected to be collected. These specific reserves are
reevaluated and adjusted as additional information is received that impacts the
amount reserved. The Company also establishes a general reserve based upon a
range of percentages applied to aging categories. These percentages are based
on 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 over the
estimated useful lives of the assets ranging from 3 to 15 years. Leasehold
improvements are amortized over the lives of the respective leases, which are
shorter than the useful life. The cost of maintenance and repairs is expensed
as incurred. Depreciation and amortization expense for the years ended March
31, 2007 and 2006 was $62,622 and $67,496, respectively.

Property and
equipment consists of the following at March 31, 2007 and 2006:

|                                                  |  |      |          |      |   |          |  
|------------------------------------------------- |  | ---- | -------- | ---- | - | -------- | -
|                                                  |  | 2007 |          | 2006 |  
|                                                  |  |      |          |      |  
|Furniture
  and fixtures                          |  | $    | 79,046   |      | $ | 78,309   |  
|Machinery
  and equipment                         |  |      | 336,396  |      |   | 333,423  |  
|Vehicles                                          |  |      | 82,139   |      |   | 82,139   |  
|Leasehold
  improvements                          |  |      | 26,203   |      |   | 26,203   |  
|                                                  |  |      |          |      |   |          |  
|                                                  |  |      | 523,784  |      |   | 520,074  |  
|                                                  |  |      |          |      |   |          |  
|Less-
  Accumulated depreciation and amortization |  |      | (435,703 | )    |   | (373,080 | )
|                                                  |  |      |          |      |   |          |  
|Property and
  equipment, net                     |  | $    | 88,081   |      | $ | 146,994  |  
|                                                  |  |      |          |      |   |          |  

Goodwill

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

As
required by SFAS 142, the Company completed its transitional impairment testing
of intangible assets. Under SFAS 142, the 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, 2007 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 the Green Globe segment, during
the years ended March 31, 2007 and 2006.

Goodwill
consists of the following at March 31, 2007 and 2006:

|                                 |  |      |        |      |   |        | 
|-------------------------------- |  | ---- | ------ | ---- | - | ------ | 
|                                 |  | 2007 |        | 2006 |  
|                                 |  |      |        |      |  
|Goodwill                         |  | $    | 86,523 |      | $ | 86,523 | 
|Less:
  Impairment loss          |  |      | 53,320 |      |   | 53,320 | 
|Less:
  Accumulated amortization |  |      | 17,704 |      |   | 17,704 | 
|                                 |  |      |        |      |   |        | 
|                                 |  |      |        |      |   |        | 
|Goodwill,
  net                  |  | $    | 15,499 |      | $ | 15,499 | 
|                                 |  |      |        |      |   |        | 

F-10

---



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 $232,517 and
$193,032 for the fiscal years ended March 31, 2007 and 2006, 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 SFAS 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

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

At
March 31, 2007, the Company has stock based compensation plans, which are
described more fully in Note 10. As permitted by SFAS No.123, Accounting for
Stock Based Compensation, the Company accounted for stock-based compensation
arrangements with employees in accordance with provisions of Account Principles
Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees through
December 31, 2005. On January 1, 2006, the Company adopted SFAS No. 123(R)
which requires public entities to record noncash compensation expense related
to payment for employee services by an equity award, such as stock options.
Compensation expense for stock options issued to employees is based on the
difference on the date of grant, between the fair value of the Companys stock
and the exercise price of the option. As a result of adopting SFAS 123(R), net
loss for the year ended March 31, 2006 was higher by $428,798 than if the
Company had not adopted SFAS 123(R). The impact on both basic and diluted loss
per share for the year ended March 31, 2006 was $0.02 per share. The Company
accounted for equity instruments issued to non-employees in accordance with the
provisions of SFAS No. 123 and Emerging Issues Task Force (EITF) Issue No.
96-18, Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services
until the adoption of SFAS 123(R). All transactions in which goods or services
are the consideration received for the issuance of equity instruments are
accounted for based on the fair value of the consideration received or the fair
value of the equity instrument issued, whichever is more reliably measurable.
Stock based compensation for non-employees was $113,966 and $219,998 for the
years ended March 31, 2007 and 2006, respectively.

F-11

---



The
following table illustrates the effect on net loss and loss per share if the
Company had applied the fair value recognition provisions of SFAS No. 123 up
through the adoption of SFAS No. 123(R) to all stock-based compensation:

|                                                                                                                                                 |  |                                          |            |  
|------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------------------------------- | ---------- | -
|                                                                                                                                                 |  | For the
  Year 
  ended March 31,
  2006 |           
|                                                                                                                                                 |  |                                          |           
|                                                                                                                                                 |  |                                          |           
|Net loss as reported                                                                                                                             |  | $                                        | (4,026,200 | )
|Add:                                                                                                                                             |  |                                          |            |  
|Stock based compensation expenses included
  in reported net loss prior to adoption of SFAS No. 123(R)                                           |  |                                          | 516,720    |  
|Deduct:                                                                                                                                          |  |                                          |            |  
|Total stock based employee compensation
  expense determined under fair value based method for all awards prior to
  adoption of SFAS No. 123(R) |  |                                          | (612,071   | )
|                                                                                                                                                 |  |                                          |            |  
|Pro forma                                                                                                                                        |  | $                                        | (4,121,551 | )
|                                                                                                                                                 |  |                                          |            |  
|Basic and diluted loss per common share                                                                                                          |  |                                          |            |  
|As reported                                                                                                                                      |  | $                                        | (0.16      | )
|                                                                                                                                                 |  |                                          |            |  
|Pro forma                                                                                                                                        |  | $                                        | (0.16      | )
|                                                                                                                                                 |  |                                          |            |  

Recently Issued Accounting Standards

In
September 2006, the FASB issued Statement of Financial Accounting Standards No.
157, Fair Measurements (SFAS 157), which clarifies that fair value is the
amount that would be exchanged to sell an asset or transfer a liability in an
orderly transaction between market participants. Further, the standard
establishes a framework for measuring fair value in generally accepted
accounting principles and expands certain disclosures about fair value
investments. SFAS 157 is effective for fiscal years beginning after November
15, 2007. The Company does not expect the adoption of SFAS 157 to have a
material impact on its consolidated financial position, results of operations
or cash flows.

In
September 2006, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 108, Considering the Effects of Prior Year misstatements when
Quantifying Misstatements in Current Year Financial Statements (SAB 108). SAB
108 provides guidance on how prior year misstatements should be taken into
consideration when quantifying misstatements in current year financial
statements for purposes of determining whether the current years financial
statements are materially misstated. SAB 108 is effective for fiscal years
ending November 16, 2006. The Company has determined that the provisions of SAB
108 do not have a material impact on its consolidated financial position,
results of operations and cash flows.

Per Share Data

SFAS No. 128 establishes standards for computing and presenting earnings per
share (EPS). The standard requires the presentation of basic EPS and diluted
EPS. Basic EPS is calculated by dividing income/loss available to common
shareholders by the weighted average number of shares of common stock
outstanding during the period. Diluted EPS is calculated by dividing
income/loss available to common shareholders by the weighted average number of
common shares outstanding adjusted to reflect potentially dilutive securities.
Diluted loss per share for the years ended March 31, 2007 and 2006 does not
include 14,517,500, and 14,950,000 stock options, warrants and convertible preferred
stock 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
$100,000 by the Federal Deposit Insurance Corporation. Balances exceeded these
insured amounts during the year.

F-12

---



Accounts and Notes Receivable

The
Company had three customers that accounted for 72% and 77% of the total
accounts receivable at March 31, 2007 and 2006 respectively. One company accounted
for 38% and 13%, the second accounted for 17% and 8%, and the last accounted
for 17% and 56% at March 31, 2007 and 2006 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, 2007 and 2006, are as follows:

|           |  |      |   |      |    |   | 
|---------- |  | ---- | - | ---- | -- | - | 
|           |  | 2007 |   | 2006 |   
|           |  |      |   |      |   
|           |  |      |   |      |   
|Customer A |  | 2    | % |      | 14 | % | 
|Customer B |  | 46   | % |      | 0  | % | 
|Customer C |  | 8    | % |      | 10 | % | 

Vendors

The
Company purchased supplies from major venders for the years ended March 31,
2007 and 2006 as follows:

|         |  |      |   |      |    |   | 
|-------- |  | ---- | - | ---- | -- | - | 
|         |  | 2007 |   | 2006 |   
|         |  |      |   |      |   
|         |  |      |   |      |   
|Vendor A |  | 0    | % |      | 13 | % | 
|Vendor B |  | 40   | % |      | 20 | % | 
|Vendor C |  | 26   | % |      | 13 | % | 

Fair Value of Financial Instruments

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

Reclassification

Certain
amounts from the prior year consolidated financial statement have been
reclassified to conform to current year presentation with no effect to net
loss.

|   |          
|-- | ---------
|3. | INVENTORY

Inventory
consists of the following as of March 31, 2007 and 2006:

|                    |  |      |         |      |   |        | 
|------------------- |  | ---- | ------- | ---- | - | ------ | 
|                    |  | 2007 |         | 2006 |  
|                    |  |      |         |      |  
|                   
|Blended
  chemicals |  | $    | 93,814  |      | $ | 68,255 | 
|Raw
  materials     |  |      | 44,984  |      |   | 31,082 | 
|                    |  |      |         |      |   |        | 
|Total
  inventory   |  | $    | 138,798 |      | $ | 99,337 | 
|                    |  |      |         |      |   |        | 

|   |                        
|-- | -----------------------
|4. | DISCONTINUED OPERATIONS

During
the fiscal year ended March 31, 2007, the Company discontinued the sale of its
Uniproof proofing paper as a result the graphic arts segment became
discontinued operations.

F-13

---



The
financial position and results of operations described above are presented as
assets and liabilities of discontinued operations in the consolidated balance
sheets and discontinued operations in the consolidated statement of operations,
respectively for all periods presented in accordance with SFAS No. 144.

A
summary of the results of discontinued operations for the fiscal year ended
March 31, 2007 and 2006 is as follows:

|                     |  |      |       |      |   |         | 
|-------------------- |  | ---- | ----- | ---- | - | ------- | 
|                     |  | 2007 |       | 2006 |  
|                     |  |      |       |      |  
|Revenues             |  | $    | 1,310 |      | $ | 106,861 | 
|Cost of
  goods sold |  |      | 1,058 |      |   | 61,900  | 
|                     |  |      |       |      |   |         | 
|                     |  |      |       |      |   |         | 
|Gross profit         |  | $    | 252   |      | $ | 44,961  | 
|                     |  |      |       |      |   |         | 

A
summary of assets and liabilities of discontinued operations as of March 31,
2007 and 2006 is as follows:

|                                    |  |      |       |      |   |        | 
|----------------------------------- |  | ---- | ----- | ---- | - | ------ | 
|                                    |  | 2007 |       | 2006 |  
|                                    |  |      |       |      |  
|Accounts
  receivable               |  | $    | 31    |      | $ |       | 
|Inventory                           |  |      |      |      |   | 7,620  | 
|Note
  receivable                   |  |      | 4,476 |      |   | 19,476 | 
|                                    |  |      |       |      |   |        | 
|                                    |  |      |       |      |   |        | 
|Assets of
  discontinued operations |  | $    | 4,507 |      | $ | 27,096 | 
|                                    |  |      |       |      |   |        | 

|   |                           
|-- | --------------------------
|5. | RELATED PARTY TRANSACTIONS

The
Company had an amount due to Robert Seaman, a shareholder and former director
of the Company. The amount due as of March 31, 2007 and 2006 is $244,141. This
amount is unsecured, non-interest bearing and due upon demand.

Martin
Rappaport, a major shareholder and director of the Company, owns the property
from which United Energy leases the 9,600 square foot facility it occupies in
Secaucus, New Jersey. The Company pays $115,200 per year under the lease,
excluding real estate taxes.

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

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

|   |                 
|-- | ----------------
|6. | CONVERTIBLE DEBT

On
March 24, 2004, the Company issued a secured convertible term note (the Term
Note) in the amount of $1,750,000, which had a term of three years and accrued
interest at the greater of the prime rate of interest, which was 5.75% per year
at March 31, 2005 (as published in the Wall Street Journal), or 4% per year.
Interest was payable monthly in arrears commencing on May 1, 2004, and on the
first day of each consecutive calendar month after that date. Monthly
amortization payments commenced on October 1, 2004, at the rate of $58,333.

The
holder of the Term Note had the option to convert all or a portion of the note
(including principal, interest and penalties) into shares of common stock at
any time, subject to specified limitations, at a fixed conversion price of
$1.00 per share. The conversion price was subject to adjustment for stock
splits, stock dividends and similar events. On March 18, 2005, in connection
with the financing discussed in Note 8, the fixed conversion price was adjusted
to $0.80. The Companys obligations under the Term Note was secured by a first
priority security interest in the Companys assets. As of March 31, 2005, the
holder of the Term Note converted $150,000 in principal into 150,000 shares of
common stock. In addition, the holder of the Term Note received $12,497 of
interest paid in shares of the Companys common stock. During the fiscal year
ended March 31, 2006, the holder of the Term Note converted $1,600,000 in
principal and $492 of interest into 2,000,615 shares of common stock and the
note is no longer outstanding.

|   |                              
|-- | -----------------------------
|7. | COMMITMENTS AND CONTINGENCIES

Litigation

F-14

---



Sales Commission Claim

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 we 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 that we have
meritorious defenses to the claims asserted in the action and intend to
vigorously defend the case. The outcome of this matter cannot be determined at
this time.

In
March 2007, the Company commenced an action against Applied Force and Samuel
Miller III in the Superior Court of New Jersey, Law Division - Bergen County
for the recovery of two of the Companys vehicles and certain additional
claims. The defendants, Applied Force and Samuel Miller III, have filed a
counterclaim for recovery of alleged storage fees in the amount of $126,784 and
certain alleged service fees in the amount of $1,275. The action is currently
in the discovery process. No trial date has yet been scheduled. The Company
believes that we have meritorious claims and defenses to the counterclaims. The
Company intends to vigorously pursue our claims and defend the counterclaims.
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 2011. 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, 2007

|                               |  |                     |         | 
|------------------------------ |  | ------------------- | ------- | 
|Year                           |  | Operating 
  Leases |        
|                               |  |                     |        
|2008                           |  | $                   | 130,427 | 
|2009                           |  |                     | 132,610 | 
|2010                           |  |                     | 125,834 | 
|2011                           |  |                     | 31,200  | 
|                               |  |                     |         | 
|Total
  minimum lease payments |  | $                   | 420,071 | 
|                               |  |                     |         | 

Operating
lease expense was $128,528 and $136,606 for the years ended March 31, 2007 and
2006, respectively.

|   |                     
|-- | --------------------
|8. | STOCKHOLDERS EQUITY

Series A and Series B Units

On
March 18, 2005, the Company entered into a securities purchase agreement (the
Agreement) with two private investors to issue shares of the Companys common
stock and warrants. The Agreement provides for two types of units, designated
as Series A and Series B.

The
Series A Units consisted of 100,000 shares of the Companys common stock and a
Series A Warrant to purchase 50,000 shares of the Companys common stock at
$1.00 per share, subject to adjustment. The Series A Warrants expire five (5)
years from the date they are issued. The purchase price for each Series A Unit
is $80,000. The Agreement provided for the sale of up to twenty (20) Series A
Units.

The
Series B Units each consisted of ten (10) shares of a new class of preferred
stock that are convertible into 80,000 shares of the Companys common stock in
the aggregate, subject to adjustment, and a Series B Warrant to purchase 40,000
shares of the Companys common stock at $1.50 per share. The Series B Warrants
expire five (5) years from the date they are issued. The purchase price for
each Series B Unit is $80,000. The securities purchased agreement provides for
the sale of up to forty-two (42) Series B Units.

F-15

---



On
March 18, 2005, the Company issued 8 Series A Units or 800,000 shares of the
Companys common stock and Series A Warrants to purchase 400,000 shares of the
Companys common stock for a purchase price of $640,000. In connection with the
issuance of Series A Units, 37,500 shares of common stock were issued to the
investors counsel as reimbursement for their expenses.

On
August 25, 2005, the Company entered into an Amendment and Waiver Agreement
with the investors providing, among other things, that the investors would
waive certain defaults under the securities purchase agreement in exchange for
a reduction in the price of the shares issuable upon exercise of the Series B
Warrants from $1.50 to $1.00 per share.

During
the year ended March 31, 2006, the Company issued the remaining 12 Series A
Units or 1,200,000 shares of its common stock for a purchase price of $960,000
as per the securities agreement dated March 18, 2005.

On
January 26, 2006, the Company entered into the first amendment to the
securities purchase agreement dated March 18, 2005, which extended the term of
the agreement from March 18, 2006 to the earlier of March 18, 2008 or thirty
days notice of termination from the holder of a majority of the shares issued
under the agreement. In addition, the Company agreed to certain restrictions.

On
March 9, 2006, the Company entered into the Second Amendment to the Securities
Purchase Agreement with the investors. Pursuant to the Second Amendment, one of
the investors agreed to purchase three-tenths of one Series B unit, consisting
of 3 shares of preferred stock and warrants to purchase 12,000 shares of the
Companys common stock (the Series B Warrant), for an aggregate purchase
price of $24,000. The preferred stock pays a dividend at a rate of 6% of the
stated value per annum. The dividends are cumulative, the preferred stock has
no voting rights and the preferred stock is convertible into 24,000 shares of
common stock. In addition, the investors have agreed to waive all existing
defaults under the purchase agreement, including the Companys failure to
timely file a Certificate of Designations for the preferred stock and to timely
issue common stock certificates and warrants. The Company and the investors
also agreed to terminate all further obligations of the investors to purchase
and the Companys obligation to sell any remaining Series B units. The
remaining Series B units would have consisted of 417 shares of preferred stock
convertible into an aggregate of 3,336,000 shares of common stock at a
conversion price of $1.00 and of warrants to purchase 1,668,000 shares of
common stock at an exercise price of $1.00 per share. Instead thereof, the
Company agreed to issue to one of the investors warrants to purchase 5,004,000
shares of the Companys common stock at an exercise price of $1.00 (the Series
C Warrant). These warrants have been valued at $6,810,444 and have been
recorded as a charge and a credit to additional paid in capital. The Series C
Warrant, as well as the preferred stock and the Series B Warrant, are subject to
anti-dilution provisions in the event that the Company issues shares of common
stock at a price less than the conversion price of the preferred stock or the
exercise price of the warrants and contain provisions limiting the holders
right to convert or exercise if doing so would cause such holder and its
affiliates to beneficially own more than 9.99% of the outstanding common stock.

For
so long as the investors hold 1,500,000 shares of common stock equivalents
(meaning shares of common stock and other securities convertible to or
exercisable for common stock), the majority holder shall have the right to
designate a majority of the members of the Companys Board of Directors in the
event of any of the following, referred to as triggering events:

| |                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) if the Company fails
  to have gross revenue of at least $5,000,000 for the six months ending
  September 30, 2006; or                                                             
| |                                                                                                                                                                                        
| | (ii) if the Company
  breaches any of its representations, warranties, agreements, covenants, terms
  or obligations under the securities purchase agreement or ancillary
  agreements.

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

F-16

---



Warrants

The
Company has issued warrants in conjunction with various private placements of
its stock and convertible term note in exchange for sevices. All warrants are
currently exercisable.

The
following table sumarizes warrant information for the years ended March 31,
2007 and 2006.

|                             |  |  |  |  |                       |            |                                      |   |      | 
|---------------------------- |  |  |  |  | --------------------- | ---------- | ------------------------------------ | - | ---- | 
|                             |  |  |  |  | Number of 
  Warrants |            | Weighted 
  AverageExercise 
  Price |  
|                             |  |  |  |  |                       |            |                                      |  
|                             |  |  |  |  |                       |            |                                      |   |      | 
|Outstanding
  April 1, 2005  |  |  |  |  |                       | 4,725,000  |                                      | $ | 1.66 | 
|Issued for services rendered |  |  |  |  |                       | 1,000,000  |                                      | $ | 1.67 | 
|Issued to investor-Series A  |  |  |  |  |                       | 1,000,000  |                                      | $ | 1.00 | 
|Issued to investor-Series B  |  |  |  |  |                       | 12,000     |                                      | $ | 1.00 | 
|Issued to investor-Series C  |  |  |  |  |                       | 5,004,000  |                                      | $ | 1.00 | 
|                             |  |  |  |  |                       |            |                                      |   |      | 
|Outstanding
  March 31, 2006 |  |  |  |  |                       | 11,741,000 |                                      | $ | 1.32 | 
|Expired                      |  |  |  |  |                       | (750,000   | )                                    | $ | 0.60 | 
|                             |  |  |  |  |                       |            |                                      |   |      | 
|Outstanding
  March 31, 2007 |  |  |  |  |                       | 10,991,000 |                                      | $ | 1.41 | 
|                             |  |  |  |  |                       |            |                                      |   |      | 

|                                                                          |  |                       |            |                   |   |                 |  |  |                     | 
|------------------------------------------------------------------------- |  | --------------------- | ---------- | ----------------- | - | --------------- |  |  | ------------------- | 
|                                                                          |  |                       |            |                   |   |                 |  |  |                     | 
|As
  of March 31, 2007, outstanding common stock warrants are as follows: | 
|                                                                          |  |                       |            |                   |   |                 |  |  |                     | 
|                                                                          |  | Number of 
  Warrants |            | Exercise 
  Price |   | Expiration Date | 
|                                                                          |  |                       |            |                   |   |                 | 
|                                                                          |  |                       |            |                   |   |                 | 
|                                                                          |  |                       | 3,000,000  |                   | $ | 2.00            |  |  | May
  14, 2007      | 
|                                                                          |  |                       | 100,000    |                   | $ | 1.00            |  |  | January
  8, 2009   | 
|                                                                          |  |                       | 175,000    |                   | $ | 1.50            |  |  | March
  24, 2009    | 
|                                                                          |  |                       | 100,000    |                   | $ | 1.25            |  |  | March
  24, 2011    | 
|                                                                          |  |                       | 100,000    |                   | $ | 1.50            |  |  | March
  24, 2011    | 
|                                                                          |  |                       | 100,000    |                   | $ | 1.75            |  |  | March
  24, 2011    | 
|                                                                          |  |                       | 50,000     |                   | $ | 1.00            |  |  | May
  17, 2009      | 
|                                                                          |  |                       | 50,000     |                   | $ | 2.00            |  |  | May
  17, 2009      | 
|                                                                          |  |                       | 100,000    |                   | $ | 1.25            |  |  | February
  28, 2012 | 
|                                                                          |  |                       | 100,000    |                   | $ | 1.50            |  |  | February
  28, 2012 | 
|                                                                          |  |                       | 100,000    |                   | $ | 1.75            |  |  | February
  28, 2012 | 
|                                                                          |  |                       | 500,000    |                   | $ | 1.34            |  |  | April
  27, 2015    | 
|                                                                          |  |                       | 500,000    |                   | $ | 2.00            |  |  | April
  27, 2015    | 
|                                                                          |  |                       | 6,016,000  |                   | $ | 1.00            |  |  | March
  24, 2011    | 
|                                                                          |  |                       |            |                   |   |                 |  |  |                     | 
|                                                                          |  |                       |            |                   |   |                 |  |  |                     | 
|                                                                          |  |                       | 10,991,000 |                   | $ | 1.41            |  |  |                     | 
|                                                                          |  |                       |            |                   |   |                 |  |  |                     | 

F-17

---



Consulting Agreement

On
April 27, 2005, the Company entered into a consulting agreement for the
provision of certain advisory and business development services. As
consideration for these services, the Company issued warrants to purchase
1,000,000 shares of the Companys common stock. The first 500,000 shares have
an exercise price of $1.34 and the second 500,000 shares have an exercise price
of $2.00 per share. The warrants have been valued at $129,720 and have been
recorded as a selling, general and administrative expense in the Consolidated
Statement of Operations.

March 2006 Private Placement

On
March 24, 2006, the Company entered into Securities Purchase Agreement and a
First Amendment to Securities Purchase Agreement and Registration Rights
Agreement pursuant to which the Company raised $5,100,000 in gross cash
proceeds from the sale to the purchasers of 4,250,000 shares of common stock at
a price of $1.20 per share.

|   |             
|-- | ------------
|9. | INCOME TAXES

Deferred
income taxes are provided for the temporary difference between the financial
reporting basis and tax basis of the Companys assets and liabilities including
those assets and liabilities recorded in connection with acquisitions. Deferred
tax assets and liabilities result principally from recording certain expenses
or income in the financial statements in a different period from recognition
for income tax purposes. As of March 31, 2007, the Company had a net operating
loss carryforward for tax purposes of approximately $15,050,000, which is
available to reduce its future taxable income, and expires at various dates
through 2026. $106,000 is expiring in 2015, $820,000 expiring in 2016, $889,000
expiring in 2017, $736,000 expiring in 2018, $100,000 expiring in 2020,
$782,000 expiring in 2021, $2,692,000 expiring in 2022, $2,404,000 expiring in
2023, $1,709,000 expiring in 2024, $2,840,000 expiring in 2025 and $1,972,000
expiring in 2026. A full valuation allowance has been established against the
deferred tax assets, which are mainly related to the net loss carryforward, due
to the uncertainties surrounding the utilization of the carryforward and
limitations resulting from a change in control. There are no other significant
timing differences.

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

|    |                         
|--- | ------------------------
|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 185,000 shares of common stock for future grant
as of March 31, 2007 under the 2001 equity incentive plan.

F-18

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Fair Value of Stock Options

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

|                         |       |   |      |        |  
|------------------------ | ----- | - | ---- | ------ | -
|                         | 2007  |   | 2006
|                         |       |   |     
|Expected life (in years) | 10    |   |      | 10     |  
|Risk-free interest rate  | 4.54  | % |      | 4.54   | %
|Volatility               | 90.58 |   |      | 127.05 |  
|Dividend yield           | 0     | % |      | 0      | %

Utilizing these assumptions,
the weighted average fair value of options granted with an exercise price equal
to their fair market value at the date of the grant is $1.17 and $1.11 for the
years ended March 31, 2007 and 2006, respectively.

Summary Stock Option Activity

The
following table summarizes stock option information with respect to all stock
options for the years ended March 31, 2007 and 2006:

|                                            |  |                 |   |                              |   |                                                 |  |                               |  |  |      | 
|------------------------------------------- |  | --------------- | - | ---------------------------- | - | ----------------------------------------------- |  | ----------------------------- |  |  | ---- | 
|                                            |  | Number ofShares |   | WeightedAverageExercisePrice |   | WeightedAverageRemainingContractualLife (Years) |  | Aggregate
  Intrinsic
  Value | 
|                                            |  |                 |   |                              |   |                                                 |  |                               | 
|Options outstanding March
  31, 2005        |  | 2,945,000       |   |                              | $ | 1.20                                            |  |                               |  |  | 8.01 | 
|                                            |  |                 |   |                              |   |                                                 |  |                               |  |  |      | 
|Exercised                                   |  | (300,000        | ) |                              |   |                                                 |  |                               |  |  |      | 
|Granted                                     |  | 540,000         |   |                              | $ | 1.10                                            |  |                               |  |  |      | 
|                                            |  |                 |   |                              |   |                                                 |  |                               |  |  |      | 
|Options outstanding March
  31, 2006        |  | 3,185,000       |   |                              | $ | 1.11                                            |  |                               |  |  | 8.48 | 
|                                            |  |                 |   |                              |   |                                                 |  |                               |  |  |      | 
|Exercised                                   |  | (12,500         | ) |                              |   |                                                 |  |                               |  |  |      | 
|Granted                                     |  | 340,000         |   |                              | $ | 1.74                                            |  |                               |  |  |      | 
|Cancelled                                   |  | (10,000         | ) |                              | $ | 1.00                                            |  |                               |  |  |      | 
|                                            |  |                 |   |                              |   |                                                 |  |                               |  |  |      | 
|Options outstanding March 31,
  2007        |  | 3,502,500       |   |                              | $ | 1.17                                            |  |                               |  |  | 7.16 | 
|                                            |  |                 |   |                              |   |                                                 |  |                               |  |  |      | 
|                                            |  |                 |   |                              |   |                                                 |  |                               |  |  |      | 
|Vested and expected to vest
   end of year |  | 3,502,500       |   |                              | $ | 1.17                                            |  |                               |  |  | 7.16 | 
|                                            |  |                 |   |                              |   |                                                 |  |                               |  |  |      | 
|Exercisable  end of year                   |  | 3,239,865       |   |                              | $ | 1.18                                            |  |                               |  |  | 7.05 | 
|                                            |  |                 |   |                              |   |                                                 |  |                               |  |  |      | 

Options outstanding at March 31, 2007 have an exercise price ranging between
$0.70 to $2.05.

The
aggregate intrinsic value in the table above represents the total intrinsic
value (the difference between United Energys closing stock price on March 31,
2007 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, 2007. This amount changes based upon
changes in the fair market value of United Energys stock. As of March 31,
2007, $115,000 of the total unrecognized compensation costs related to stock
options is expected to be recognized over the next year.

|    |                  
|--- | -----------------
|11. | SEGMENT REPORTING

SFAS
No. 131, Disclosures about Segments of an Enterprise and Related Information,
establishes standards for the way that public companies report information
about operating segments in annual financial statements and requires reporting
of selected information about operating segments in interim financial
statements issued to the public. It also establishes standards for disclosures
regarding products and services, geographic areas and major customers. SFAS No.
131 defines operating segments as components of a company about which separate
financial information is available that is evaluated regularly by management in
deciding how to allocate resources and in assessing performance.

F-19

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Geographic
Information

|       |  |      |         |      |   |         | 
|------ |  | ---- | ------- | ---- | - | ------- | 
|       |  | 2007 |         | 2006 |  
|       |  |      |         |      |  
|       |  |      |         |      |  
|U.S.   |  | $    | 682,090 |      | $ | 318,689 | 
|       |  |      |         |      |  
|Other  |  |      | 129,803 |      |   | 66,685  | 
|       |  |      |         |      |   |         | 
|       |  |      |         |      |  
|Totals |  | $    | 811,893 |      | $ | 385,374 | 
|       |  |      |         |      |   |         | 

F-20

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