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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2001
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 000-30841
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UNITED ENERGY CORP.
(Exact name of registrant as specified in its charter)
Nevada 22-3342379
(State or other jurisdiction of (I.R.S. Employer Identification No. )
incorporation or organization)
600 Meadowlands Parkway, Secaucus, N.J. 07094
(Address of principal executive offices) (Zip Code)
(201) 842-0288
(Registrant's telephone number, including area code)
Indicate by check mark whether the Issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the Issuer
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. |X| Yes |_| No
The number of shares outstanding of each of the Issuer's classes of common
stock, as of the latest practicable date.
UNITED ENERGY CORP.
Class Outstanding as of January 31, 2002
Common Stock, $.01 par value 16,080,270 shares
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INDEX
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
(Unaudited)...................................................................3
Consolidated balance sheets
December 31, 2001 (Unaudited) and March 31, 2000 (Revised)....................4
Consolidated statements of operations for the three months and nine months
ended December 31, 2001 (Unaudited) and 2000 (Unaudited) (Revised)............5
Consolidated statements of cash flows for the nine months ended
December 31, 2001 (Unaudited) and 2000 (Unaudited) (Revised)..................6
Notes to consolidated financial statements
December 31, 2001.............................................................7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................................11
Item 3. Quantitative and Qualitative Disclosures About Market Risk...................14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................14
Item 2. Changes in Securities and Use of Proceeds....................................14
Item 3. Defaults upon Senior Securities..............................................14
Item 4. Submission of Matters to a Vote of Security Holders..........................14
Item 6. Exhibits and Reports on Form 8-K.............................................14
Signatures................................................................................15
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
UNITED ENERGY CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of December 31, 2001 (Unaudited) and
March 31, 2001 (Revised).................................................... 4
Consolidated Statements of Operations for the Three and Nine Months
Ended December 31, 2001 (Unaudited) and 2000 (Unaudited) (Revised).......... 5
Consolidated Statements of Cash Flows for the Nine Months Ended
December 31, 2001 (Unaudited) and 2000 (Unaudited) (Revised)................ 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS................................................ 7
3
UNITED ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 (Unaudited)
AND MARCH 31, 2001 (Revised)
December 31, March 31,
2001 2001
(Unaudited) (Revised)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .............................................. $ 163,722 $ 96,695
Accounts receivable, net of allowance for doubtful accounts of $4,651
and $71,656, respectively ........................................... 421,160 970,433
Inventory .............................................................. 173,535 121,753
Prepaid expenses ....................................................... 7,234 --
------------- -------------
Total current assets .............................................. 765,651 1,188,881
PROPERTY AND EQUIPMENT, net of accumulated depreciation and
amortization of $20,128 and $17,320, respectively ...................... 18,172 7,134
OTHER ASSETS:
Goodwill, net of accumulated amortization of $16,261 and $11,935,
respectively ........................................................ 70,262 74,588
Patent, net of accumulated amortization of $27,498 and $19,545,
respectively......................................................... 131,558 139,511
Other assets............................................................ 1,385 1,585
------------- -------------
Total assets ...................................................... $ 987,028 $ 1,411,699
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued expenses................................... $ 425,445 $ 636,754
Accounts payable to shareholders........................................ -- 350,000
Related party loans payable............................................. 73,141 30,009
Short-term bank loan and revolving line of credit ...................... 125,000 --
------------- -------------
Total current liabilities ......................................... 623,586 1,016,763
------------- -------------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock; 100,000,000 shares authorized of $0.01 par value,
15,830,270 shares issued and outstanding as of December 31 and ............
March 31, 2000, respectively ........................................ 160,802 158,302
Additional paid-in capital ............................................. 4,577,052 4,042,052
Stock subscription receivable .......................................... (25,000) (25,000)
Accumulated deficit .................................................... (4,349,412) (3,780,418)
------------- -------------
Total stockholders' equity ........................................ 363,442 394,936
------------- -------------
Total liabilities and stockholders' equity......................... $ 987,028 $ 1,411,699
============= =============
The accompanying notes are an integral part of these
consolidated balance sheets.
4
UNITED ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED
DECEMBER 31, 2001(Unaudited) AND 2000 (Unaudited) (Revised)
For the Three Months For the Nine Months
Ended December 31, Ended December 31,
------------------ ------------------
2001 2000 2001 2000
------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
(Revised) (Revised)
REVENUES, net........................... $ 450,055 $ 1,281,608 $ 1,132,342 $ 2,854,703
COST OF GOODS SOLD...................... 235,602 894,717 586,519 1,965,943
-------------- ------------- ------------- -------------
Gross profit.................... 214,453 386,891 545,823 888,760
-------------- ------------- ------------- -------------
OPERATING EXPENSES:
General and administrative........... 323,593 261,955 909,421 723,352
Executive services contributed by management 62,500 62,500 187,500 187,500
Depreciation and amortization........ 5,936 4,385 14,649 13,155
-------------- ------------- ------------- -------------
Total operating expenses........ 392,029 328,840 1,111,570 924,007
-------------- ------------- ------------- -------------
Income (loss) from operations... (177,576) 58,051 (565,747) (35,247)
--------------- ------------- -------------- --------------
OTHER (EXPENSE) INCOME, net:
Interest income...................... 281 -- 1,300 --
Interest expense..................... (1,519) (3,945) (4,547) (8,875)
-------------- ------------- ------------- -------------
Total other expense, net........ (1,238) (3,945) (3,247) (8,875)
-------------- ------------- ------------- -------------
Net income (loss)............... $ (178,814) $ 54,106 $ (568,994) $ (44,122)
=============== ============= ============== ==============
BASIC AND DILUTED INCOME (LOSS)
PER SHARE............................ $ (0.01) $ 0.00 $ (0.04) $ 0.00
============== ============= ============= =============
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING, basic
and diluted.......................... 16,080,270 15,830,270 16,001,179 15,830,270
============== ============= ============= =============
The accompanying notes are an integral part of these
consolidated statements.
5
UNITED ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
DECEMBER 31, 2001 (Unaudited) AND 2000 (Unaudited) (Revised)
For the Nine Months
Ended December 31,
2001 2000
-------------------------------
(Unaudited) (Unaudited)
(Revised)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss).............................................................. $ (568,994) $ (44,122)
Adjustments to reconcile net income to net cash used in operating activities-
Depreciation and amortization ....................................... 14,649 13,155
Executive services contributed by management......................... 187,500 187,500
Changes in operating assets and liabilities-
Decrease (Increase) in accounts receivable, net ..................... 549,273 (411,652)
(Increase) Decrease in inventory..................................... (51,782) 463,128
Increase in prepaid expenses ........................................ (7,234) (201)
Decrease in other assets ............................................ 200 --
Decrease in accounts payable and accrued expenses ................... (211,309) (134,331)
-------------- -------------
Net cash (used in) provided by operating activities ............... (87,697) 73,477
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for patent .................................................... (13,408) --
-------------- -------------
Net cash used in investing activities ............................. (13,408) --
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds on line of credit ............................................. 125,000 160,000
Payments on bank loan .................................................. -- (5,697)
Proceeds from loans payable to related party ........................... 43,132 1,430
------------- -------------
Net cash provided by financing activities ......................... 168,132 155,733
------------- -------------
Net increase in cash and cash equivalents ......................... 67,027 229,210
CASH AND CASH EQUIVALENTS, beginning of period............................. 96,695 46,008
------------- -------------
CASH AND CASH EQUIVALENTS, end of period................................... $ 163,722 $ 275,218
============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period-
Interest............................................................. $ 4,512 $ 7,585
============= =============
Income taxes......................................................... $ 720 $ 5,066
============= =============
The accompanying notes are an integral part of these
consolidated statements.
6
UNITED ENERGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 2001
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the unaudited interim
financial statements furnished herein include all adjustments necessary for a
fair presentation of the Company's financial position at December 31, 2001 and
March 31, 2001 and the results of its operations for the three months and the
nine months ended December 31, 2001 and 2000 and cash flows for the nine months
ended December 31, 2001 and 2000 All such adjustments are of normal recurring
nature. Interim financial statements are prepared on a basis consistent with the
Company's annual financial statements. Results of operations for the three-month
and for the nine-month periods ended December 31, 2001 are not necessarily
indicative of the operating results that may be expected for the year ending
March 31, 2002.
The consolidated balance sheet as of March 31, 2001 (Revised) has been
derived from the audited financial statements at that date but does not include
all of the information and notes required by accounting principles generally
accepted in the United States for complete financial statements.
For further information, refer to the consolidated financial statements and
notes thereto included in the Annual Report statement on Form 10-K, as
amended.
2. NET LOSS PER SHARE OF COMMON STOCK
The Company computes net loss per share of common stock in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
No. 128"). Under the provisions of SFAS No. 128, basic net loss per share
("Basic EPS") is computed by dividing net loss by the weighted average number of
shares of common stock outstanding. Diluted net loss per share is calculated by
dividing net loss attributable to common shareholders by the weighted average
number of common shares outstanding, adjusted for potentially dilutive
securities.
3. STOCK OPTION PLAN
On August 22, 2001, the Company's shareholders approved the 2001 Equity
Incentive Plan (the "2001 Plan"). Under the 2001 Plan, the Company is authorized
to grant stock options, the exercise of which would allow up to an aggregate of
2,000,000 shares of the Company's common stock to be acquired by the holders of
said awards. The awards can take the form of Incentive Stock Options ("ISOs") or
Nonstatutory Stock Options ("NSOs"). ISOs and NSOs are to be granted in terms
not to exceed ten years. The exercise price of the ISOs will be no less than the
market price of the Company's common stock on the date of grant.
The Company's current arrangement for compensating its non-employee
directors is that each such person is to receive options for 10,000 shares of
the Company's common stock for each year or portion thereof during which he or
she serves as a director. Director options vest immediately and expire ten years
from the date of grant. At its meeting held on December 18, 2001, each of
Messrs: Babcock, Pampanini, Rappaport and Spencer were granted options to
acquire 10,000 shares of the Company's common stock at a price of $.70 per
share, the closing price of the common stock on the date of grant.
7
UNITED ENERGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--(Continued)
4. EXCLUSIVE DISTRIBUTION AGREEMENT
On September 22, 2000 the Company and Alameda Company entered into an
exclusive distribution agreement (the "Agreement"), whereby Alameda will
purchase from the Company various products from the graphic arts division
(meeting certain minimum purchase requirements) at guaranteed fixed prices
through December 31,2002 and distribute these products exclusively throughout
the USA, Canada, Puerto Rico, Mexico, Central America, South America and the
Caribbean.
No products were shipped and no revenue was recognized under the Alameda
Agreement prior to October 2000.
5. CREDIT LINE AGREEMENT
In June 2000, the Company obtained a $1,000,000 line of credit from Fleet
Bank. Borrowings under the credit line bear interest at prime. Interest is
payable monthly. Amounts outstanding under the line of credit are subject to
repayment on demand and are secured by accounts receivable, inventory, furniture
and fixtures, machinery and equipment and a pledge of 750,000 shares of the
Company's common stock held in escrow. The line is also secured by the personal
guarantee of a shareholder of the Company.
The line of credit is subject to certain covenants, including financial
covenants to which the Company must adhere on a quarterly or annual basis.
Borrowings under the line of credit must be reduced to zero for a period of 30
consecutive days in any twelve-month period.
6. SEGMENT INFORMATION
Under the provision of SFAS No. 131 the Company's activities fall within
two operating segments: Graphic Arts and Specialty Chemicals. The following
tables set forth the Company's industry segment information for the three and
nine months ended December 31, 2001 and 2000 (Revised):
The Company's total revenues, net income (loss) and identifiable assets by
segment for the three months ended December 31, 2001 are as follows:
Graphic Specialty
Arts Chemicals Corporate Total
--------------- ---------------- --------------- ---------------
Revenues $ 396,311 $ 53,744 $ -- $ 450,055
=============== =============== =============== ===============
Gross profit $ 192,009 $ 22,444 $ -- $ 214,453
General and administrative 68,795 58,366 196,432 323,593
Contributed Management Services -- -- 62,500 62,500
Depreciation and amortization - -- 2,882 3,054 5,936
Interest expense 1,519 -- (281) 1,238
--------------- --------------- --------------- ---------------
Net income/(loss) $ 121,695 $ (38,804) $ (261,705) $ (178,814)
=============== =============== =============== ===============
Cash $ -- -- $ 163,722 $ 163,722
Accounts receivable, net 402,963 18,197 -- 421,160
Inventory 65,160 108,375 -- 173,535
Prepaid Expenses -- 7,034 200 7,234
Fixed assets, net -- -- 18,172 18,172
Goodwill, net -- 70,262 -- 70,262
Patent, net -- 131,558 -- 131,558
Other assets -- -- 1,385 1,385
--------------- --------------- --------------- ---------------
Total assets $ 468,123 $ 335,426 $ 183,479 $ 987,028
=============== =============== =============== ===============
8
UNITED ENERGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--(Continued)
The Company's total revenues and net income (loss) by segment for the nine
months ended December 31, 2001 (Revised), are as follows:
Graphic Specialty
Arts Chemicals Corporate Total
---------- ----------- ----------- -----------
Revenues $ 915,833 $ 216,509 $ -- $ 1,132,342
=========== =========== =========== ===========
Gross profit $ 418,565 $ 127,258 $ -- $ 545,823
General and administrative 174,144 222,977 512,300 909,421
Contributed management services -- -- 187,500 187,500
Depreciation and amortization -- 11,433 3,216 14,649
Interest expense 4,547 -- (1,300) 3,247
----------- ----------- ----------- -----------
Net income/(loss) $ 239,874 $ (107,152) $ (701,716) $ (568,994)
=========== =========== =========== ===========
The Company's total revenues and net income (loss) by segment for the three
months ended December 31, 2000 (Revised), are as follows:
Graphic Specialty
Arts Chemicals Corporate Total
---------- ----------- ----------- -----------
Revenues $1,224,826 $ 56,782 $ -- $ 1,281,608
========== =========== =========== ===========
Gross profit $ 362,723 24,168 $ -- $ 386,891
General and administrative 49,619 97,368 114,968 261,955
Contributed management services -- -- 62,500 62,500
Depreciation and amortization -- 4,020 365 4,385
Interest expense (income) 3,945 -- -- 3,945
---------- ----------- ----------- -----------
Net income/ (loss) $ 309,159 $ (77,220) $ (177,833) $ 54,106
========== =========== =========== ===========
The Company's total revenues and net income by segment for the nine months ended
December 31, 2000, are as follows:
Graphic Specialty
Arts Chemicals Corporate Total
----------- ----------- ----------- -----------
Revenues $ 2,671,401 $ 183,302 $ -- $ 2,854,703
=========== =========== =========== ===========
Gross profit $ 816,018 $ 72,742 $ -- $ 888,760
General and administrative 178,897 158,931 385,524 723,352
Contributed management services -- -- 187,500 187,500
Depreciation and amortization -- 11,908 1,247 13,155
Interest expense (income) 8,875 -- -- 8,875
----------- ----------- ----------- -----------
Net income/ (loss) $ 628,246 $ (98,097) $ (574,271) $ (44,122)
=========== =========== =========== ===========
9
UNITED ENERGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) --(Continued)
7. REVISION OF CONSOLIDATED FINANCIAL STATEMENTS
Subsequent to the issuance of its March 31, 2001 financial statements, the
Company recorded compensation for the executives' services that were contributed
by management in the amount of $250,000 for each fiscal year (or $62,500 for
each fiscal quarter) commencing in 1996. Previously, no compensation expense was
reflected, as none was paid. Generally Accepted Accounting Principles require
that the fair value of these services be reflected as an expense with the offset
reflected in additional paid-in-capital. Such expense has now been reflected
retroactively to 1996.
Accordingly, the March 31, 2001 Consolidated Balance Sheet has been revised
for the above. The Company also recorded additional non-cash compensation
expense for stock given to outside consultants during fiscal 1999 and 2000
amounting to $103,750 and $48,210, respectively. The Company recorded a $325,000
gain for the fair value of the cancellation of 400,000 shares of the Company's
stock returned to the Company in connection with the settlement of claims
arising from the discontinuance of the equipment division in fiscal year 1998
and recorded $75,000 in expense relating to fiscal year 1996 for the issuance of
50,000 shares in connection with the SciTech acquisition. The amounts have been
included in the accumulated deficit balance on the Consolidated Balance Sheets.
None of the above impacted working capital or total stockholders' equity.
Accordingly, the Consolidated Statement of Operations for the three and
nine months ended December 31, 2000 has been revised to reflect the $62,500 of
executive services contributed by management in each quarter.
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
OVERVIEW
United Energy considers its primary focus to be the development,
manufacture and sale of environmentally safe specialty chemical products. The
Company considers its leading product in terms of future earnings potential to
be its KH-30(R) oil and gas well cleaning product.
KH-30(R) is an environmentally-safe, non-petroleum based product that is
non-toxic and will biodegrade. Moreover, the use of KH-30(R) in the well has
additional beneficial effects "downstream" resulting in cleaner flow lines and
holding tanks. KH-30(R) has also been tested to be refinery compatible in that
it contains no materials that are harmful to the refining process. This product
has yet to achieve any significant market penetration.
One of United Energy's specialty chemical products is a photo-sensitive
coating that is applied to paper to produce what is known in the printing
industry as proofing paper or "blue line" paper. The Company developed this
formulation over several years of testing. The Company's patent attorneys have
informed the Company that the formulation is technically within the public
domain as being within the scope of an expired duPont patent. However, the exact
formulation utilized by the Company has not been able to be duplicated by others
and is protected by the Company as a trade secret. The product is marketed under
the trade name UNIPROOF(R).
The Company introduced its UNIPROOF(R) proofing paper in June of 1999. By
March of 2000, sales of the product had increased to more than $200,000 per
month and amounted to a total of $2,921,345 during the fiscal year ended March
31, 2001. UNIPROOF(R) sales totaled $396,311 for the quarter ended December 31,
2001 and $915,833 for the nine months ended December 31, 2001, a significant
decline from year previous nine months sales of $2,671.401. Sales of UNIPROOF(R)
for the corresponding quarter of the previous fiscal year, which totaled
$1,224,826 included a one-time inventory sale to the Alameda company in the
amount of $798,100.
The Company's business plan is to use UNIPROOF(R) proofing paper sales to
provide the cash flow to support world-wide marketing efforts for its KH-30(R)
oil well cleaner and, to a lesser extent, the other specialty chemical products
developed by the Company which are described in its Form 10-K, as amended, for
the fiscal year ended March 31, 2001.
In order to provide working capital to build UNIPROOF(R) sales, in June
2000 the Company entered into a $1,000,000 Line of Credit Agreement with Fleet
Bank, N.A., the material terms of which are described below under "Liquidity and
Capital Resources."
On September 22, 2000 the Company entered into an agreement with the
Alameda Company of Anaheim California which grants them exclusive distribution
rights in the Western Hemisphere (North, South and Central America and the
Caribbean) for UNIPROOF(R) proofing paper. As part of the arrangement Alameda
bought all existing UNIPROOF(R) inventory for $798,100. The Company turned over
to Alameda all existing customers within the above territory. Sales of
UNIPROOF(R) for the third quarter of the previous fiscal year included the
one-time inventory sale to the Alameda company in the amount of $798,100.
Excluding this amount in the 2000 quarter, UNIPROOF(R) sales totaled $426,726,
compared with $396,311 in the corresponding quarter of the current year.
The contract with Alameda covers the years 2001 and 2002 and is renewable
annually thereafter provided they meet certain minimum product purchase levels.
To maintain exclusivity for 2001 and 2002 they must purchase a total of
13,394,641 sq. ft ($3,348,660) in 2001 and 16,073,568 sq. ft. ($4,018,392) in
2002. Future minimums and prices are to be agreed upon. For more information,
please see our agreement with Alameda which is included as an exhibit to our
report on Form 10-Q for the period ended September 30, 2000 filed on December
20, 2000.
The decline in the level of the U.S. economy during calendar year 2001
severely impacted the level of proofing paper sales in the United States,
particularly during the period from June through September. This decline
resulted in large part from a drop in the number of advertising pages in
publications, one of the main markets in which the Company's proofing paper is
used.
11
As a result of this decline in proofing paper demand generally, The Alameda
Company was unable to meet its agreed upon purchase levels under its contract
with the Company, and may, therefore, cease to be the Company's exclusive
distributor in certain territories. The Company is currently considering its
options with respect to the Alameda Company and may seek to add other
distributors.
Subsequent to the issuance of its March 31, 2001 financial statements, the
Company revised its financial statements to reflect the value of contributed
executive services and for other adjustments. See Note 7 above of Notes to
Consolidated Financial Statements for a more complete description of such
revisions.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 2001 AND 2000
Revenues. Revenues for the third quarter of fiscal 2002 were $450,055, a
$831,553 or 65% decrease from revenues of $1,281,608 in the third quarter of
fiscal 2001. The decrease in revenues was primarily due to a decrease in
UNIPROOF(R) sales. Sales in the year earlier period were unusually high due to
by the one-time sale of $798,100 of UNIPROOF(R) inventory to the Alameda
Company.
Cost of Goods Sold. Cost of goods sold decreased to $235,602, or 52% of
revenues, for the quarter ended December 31, 2001 from $894,717, or 70% of
revenues, for the quarter ended December 31, 2000. The decrease was primarily
due to lower production of UNIPROOF(R) proofing paper. The higher percentage in
the 2000 quarter was due to a discount given to Alameda on the inventory
purchase.
Gross Profit. Gross profit for the December 31 quarter of fiscal year 2002
was $214,453, a $172,438 or 45% decrease from $386,891 in the corresponding
period of fiscal 2001. This decrease was primarily attributable to decreased
UNIPROOF(R) sales. Gross profit as a percentage of sales was 48% in the fiscal
2002 quarter compared with 30% in the fiscal 2001 period, due to the discount on
the one-time inventory sale to the Alameda Company in the fiscal 2001 period.
Operating Costs and Expenses
General and Administrative Expenses. General and administrative expenses
increased to $323,593, or 72% of revenues for the quarter ended December 31,
2001 from $261,955, or 20% of revenues for the quarter ended December 31, 2000.
The percentage increase in the fiscal 2002 period was largely the result of
significantly lower revenues in that period, while the increase in dollar terms
was primarily due to continuing high professional fees associated with the
preparation and filing of materials with the Securities and Exchange Commission
to become a 1934 Act reporting entity.
Executive Services Contributed by Management. Senior Executives of the
Company contributed $62,500 of services in the quarters ended December 31, 2001
and 2000 which was recorded as an expense.
Interest Expense, Net of Interest Income. The Company had net interest
expense of $1,238 for the quarter ended December 31, 2001 compared with interest
expense of $3,945 in the corresponding 2000 period. The decrease was the result
of lower borrowings at lower interest rates under the credit line obtained in
June 2000 which were offset by funds on deposit.
Net Income (Loss). For the quarter ended December 31, 2001, our net loss
was $178,814 as compared to income of $54,106 or 4% of revenues for the quarter
ended December 31, 2000.
NINE MONTHS ENDED DECEMBER 31, 2001 AND 2000
Revenues. Revenues for the first nine months of fiscal 2002 were
$1,132,342, a $1,722,361 or 60% decrease from revenues of $2,854,703 in the
first nine months of fiscal 2001. The decrease in revenues was primarily due to
the decrease in UNIPROOF(R) sales. Fiscal 2001 nine month sales were also
unusually high due to the one-time sale of $798,100 of inventory to the Alameda
Company.
12
Cost of Goods Sold. Cost of goods sold decreased to $586,519 or 52% of
sales, for the nine months ended December 31, 2001 from $1,965,943 or 69% of
sales, for the nine months ended December 31, 2000. The decrease in cost was
primarily due to lower production and sales of UNIPROOF(R) proofing paper. The
higher percentage in the 2000 period was due to the discounted price given to
Alameda on the inventory purchase.
Gross Profit. Gross profit for the first nine months of fiscal year 2002
was $545,823, a $342,937 or 39% decrease from $888,760 in the corresponding
period of fiscal 2001. This decrease was primarily attributable to decreased
UNIPROOF(R) sales, offset by the lower cost of goods sold.
Operating Costs and Expenses
General and Administrative Expenses. General and administrative expenses
increased to $909,421, or 80% of revenues for the nine months ended December 31,
2001 from $723,352, or 25% of revenues for the nine months ended December 31,
2000. The nine month 2000 figure included a $53,396 net addition to the
allowance for doubtful accounts receivable, and the 2001 amount included
approximately $50,000 in expenses related to the holding of an annual meeting of
shareholders which did not occur in the 2000 period. Both the 2000 and 2001
periods included continuing high professional fees related to filings with the
U.S. Securities and Exchange Commission.
Executive Services Contributed by Management. Senior Executives of the
Company contributed $187,500 of services in the nine months ended December 31,
2001 and 2000 which were recorded as an expense.
Interest Expense, Net of Interest Income. The Company had net interest
expense of $3,247 for the nine months ended December 31, 2001 compared with
interest expense of $8,875 in the corresponding 2000 period. The change was due
to lower borrowings under the Company's credit line.
Net Loss. For the nine months ended December 31, 2001, our net loss totaled
$568,994 as compared to a net loss of $44,122 for the nine months ended December
31, 2000. The increased loss is primarily the result of the lower volume of
UNIPROOF(R) sales and higher General and Administrative expenses.
Liquidity and Capital Resources.
Historically, the Company has financed its operations through equity
contributions from principals and from third parties supplemented by funds
generated from its business. As of March 31, 2001, we had $96,695 in cash,
accounts receivable of $970,433 and inventories of $121,753. As of December 31,
2001 we had $163,722 in cash, accounts receivable of $421,160 and inventory of
$173,535. The high receivables and low inventory figures at March 31, 2001
reflect the shipments to the Alameda Company just before fiscal year end.
Cash (Used in) Provided by Operating Activities. Net cash used in operating
activities was $87,697 for the nine month period ended December 31, 2001
compared to net cash provided by operating activities of $73,477 in the year
earlier period, a net decrease of $161,174. The substantial decline in net cash
provided by operating activities was due almost entirely to the significant
decline in UNIPROOF(R) sales in the 2001 period as compared to the same period
in 2000.
Cash Provided by Financing Activities. Net cash provided by financing
activities increased to $168,132 for the nine month period ended December 31,
2001 from $155,733 for the period ended December 31, 2000, a net increase of
$12,399.
Inventories at March 31, 2001 were $121,753, and increased to $173,535 at
December 31, 2001, an increase of $51,782.
Accounts receivable decreased from $970,433 on March 31, 2001 to $421,160
on December 31, 2001. This $549,273 or 57% decrease was primarily the result of
the lower volume of UNIPROOF(R) sales.
13
Capital expenditures were negligible during the nine months ended December
31, 2001 and during the corresponding period of 2000. United Energy has no
material commitments for future capital expenditures. However, our need for
working capital will grow if we achieve higher levels of sales. As a result, in
June 2000, the Company closed on an agreement for a $1.0 million revolving
credit facility with Fleet Bank, N.A. The credit line, which is collateralized
by substantially all of the assets of the Company, accrues interest at a rate
equal to the prime rate. As of December 31, 2001, $125,000 was outstanding under
the credit line, compared to zero on March 31, 2001.
The credit line is further secured by a pledge of 750,000 shares of the
Company's common stock held in treasury and by the guarantee of a shareholder of
the Company.
United Energy believes that its existing cash and credit facility will be
sufficient to enable it to meet its foreseeable future capital needs.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
United Energy does not expect its operating results, cash flows, or credit
available to be affected to any significant degree by a sudden change in market
interest rates. Furthermore, the Company does not engage in any transactions
involving financial instruments or in hedging transactions with respect to its
operations.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
In the opinion of management, there are no material legal proceedings in
process against the Company and none are threatened.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's security holders
during the quarter ended December 31, 2001.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. None.
(b) Reports on Form 8-K. None.
14
UNITED ENERGY CORP.
FORM 10-Q
DECEMBER 31, 2001
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED ENERGY CORPORATION
Dated: February 14, 2002
By: \s\ ROBERT SEAMAN
-----------------------------
Robert L. Seaman,
Executive Vice President and
Principal Financial Officer
15