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, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________ to __________
Commission File No. 000-30841
______________________
UNITED ENERGY CORP.
(Exact name of registrant as specified in its charter)
Nevada 22-3342379
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
600 Meadowlands Parkway #20, Secaucus, N.J. 07094
(Address of principal executive offices) (Zip Code)
(800) 327-3456
(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
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding as of February 14, 2002
----- -----------------------------------
Common Stock, $.01 par value 22,180,270 shares
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated balance sheets December 31, 2002 (Unaudited
and March 31, 2002 ........................................................3
Consolidated statements of operations for the three months and nine
months ended December 31, 2002 (Unaudited) and 2001
(Unaudited) (Revised) .....................................................4
Consolidated statement of stockholders' equity for the three months
and nine months ended December 31, 2002 (Unaudited) .......................5
Consolidated statements of cash flows for the nine months ended
December 31, 2002 (Unaudited) and 2001 (Unaudited) ........................6
Notes to consolidated financial statements December 31, 2002 ..............7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ....................................................12
Item 3. Quantitative and Qualitative Disclosures About Market Risk ...............17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ........................................................17
Item 2. Changes in Securities and Use of Proceeds ................................17
Item 3. Defaults upon Senior Securities ..........................................17
Item 4. Submission of Matters to a Vote of Security Holders ......................17
Item 5. Other Information ........................................................18
Item 6. Exhibits and Reports on Form 8-K. ........................................18
Signatures ...........................................................................19
Certification Written Statement of the Chief Executive Officer Pursuant to 18
U.S.C.ss.1350 Sec. 302............................................................... 20
Certification Written Statement of the Chief Financial
Officer Pursuant to 18 U.S.C.ss.1350 Sec. 302........................................ 22
2
UNITED ENERGY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2002
AND MARCH 31, 2002
December 31, March 31,
2002 2002
----------------- -----------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,896,964 $ 198,412
Accounts receivable, net of allowance for doubtful accounts of
$34,157 and $4,795, respectively 899,651 218,104
Inventory, net of allowance of $16,290 and $16,290, respectively 196,842 287,857
Loans receivable 9,382 --
Prepaid expenses 113,175 117,127
----------------- -----------------
Total current assets 4,116,014 821,500
PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization
of $71,225 and $23,507, respectively 286,707 16,883
OTHER ASSETS:
Goodwill, net of accumulated amortization of $17,704 and $17,704,
respectively 68,819 68,819
Patents, net of accumulated amortization of $40,247 and $30,148,
respectively 203,796 128,908
Loan receivable 109,873 --
Other assets 2,903 1,862
----------------- -----------------
Total assets $ 4,788,112 $ 1,037,972
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving line of credit $ -- $ 150,000
Accounts payable 283,001 600,850
Accrued expenses 134,820 10,875
Due to related party 244,141 141,487
----------------- -----------------
Total current liabilities 661,962 903,212
----------------- -----------------
STOCKHOLDERS' EQUITY:
Common stock; 100,000,000 shares authorized of $0.01 par value,
22,180,270 and 16,180,270 shares issued and outstanding as of
December 31, and March 31, 2002, respectively 221,802 161,802
Additional paid-in capital 10,573,752 5,117,952
Accumulated deficit (6,669,404) (5,144,994)
----------------- -----------------
Total stockholders' equity 4,126,150 134,760
----------------- -----------------
Total liabilities and stockholders' equity $ 4,788,112 $ 1,037,972
================= =================
The accompanying notes are an integral part of these consolidated balance sheets.
3
UNITED ENERGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED
DECEMBER 31, 2002 AND 2001
For the Three Months For the Nine Months
Ended December 31, Ended December 31,
(Unaudited) (Unaudited)
2002 2001 2002 2001
---- ---- ---- ----
REVENUES, net $ 792,092 $ 450,055 $ 2,156,701 $ 1,132,342
COST OF GOODS SOLD 431,383 245,068 1,284,503 607,585
----------- ----------- ------------ ----------
Gross profit 360,709 204,987 872,198 524,757
----------- ----------- ------------ ----------
OPERATING EXPENSES:
General and administrative 901,681 314,127 2,388,853 888,355
Executive services contributed by management -- 62,500 -- 187,500
Depreciation and amortization 24,780 5,936 57,817 14,649
----------- ----------- ------------ ----------
Total operating expenses 926,461 382,563 2,446,670 1,090,504
----------- ----------- ------------ ----------
Loss from operations (565,752) (177,576) (1,574,472) (565,747)
OTHER INCOME (EXPENSE), net:
Interest income 15,250 281 51,374 1,300
Interest expense (144) (1,519) (1,312) (4,547)
----------- ----------- ------------ ----------
Total other income (expense), net 15,106 (1,238) 50,062 (3,247)
----------- ----------- ------------ ----------
Net loss $ (550,646) $ (178,814) $ (1,524,410) $ (568,994)
=========== =========== ============= ==========
BASIC AND DILUTED LOSS PER SHARE $ (0.02) $ (0.01) $ (0.07) $ (0.04)
=========== =========== ============= ==========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING,
basic and diluted 22,180,270 16,080,270 21,220,270 16,001,179
=========== =========== ============= ==========
The accompanying notes are an integral part of these consolidated statements.
4
UNITED ENERGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED DECEMBER 31, 2002 (UNAUDITED)
Additional
Common Stock Paid-In Accumulated
Shares Amount Capital Deficit Total
------ ------ ------- ------- -----
BALANCE, March 31, 2002 16,180,270 $161,802 $5,117,952 $(5,144,994) $ 134,760
Common stock issued for
private placement 6,000,000 60,000 5,940,000 -- 6,000,000
Private placement costs -- -- (484,200) -- (484,200)
Net loss -- -- -- (1,524,410) (1,524,410)
----------- --------- ----------- ------------ -----------
BALANCE, December 31, 2002 22,180,270 $221,802 $10,573,752 $(6,669,404) $ 4,126,150
=========== ========= =========== ============ ===========
The accompanying notes are an integral part of this consolidated statement.
5
UNITED ENERGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
DECEMBER 31, 2002 AND 2001
For the Nine Months
Ended December 31,
----------------------------
2002 2001
----------------------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,524,410) $ (568,994)
Adjustments to reconcile net loss to net cash used in operating activities-
Depreciation and amortization 57,817 14,649
Executive services contributed by management -- 187,500
Changes in operating assets and liabilities-
(Increase) decrease in accounts receivable, net (681,547) 549,273
Decrease (increase) in inventory, net 91,015 (51,782)
Decrease (increase) in prepaid expenses 3,952 (7,234)
(Increase) decrease in other assets (1,041) 200
Increase in related party payable 102,654 43,132
Decrease in accounts payable and accrued expenses (193,904) (211,309)
Net cash used in operating activities (2,145,464) (44,565)
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for patents (84,987) (13,408)
Payments for loans receivable (119,255) --
Payments for acquisition of property and equipment (317,542) --
Net cash used in investing activities (521,784) (13,408)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments of) line of credit (150,000) 125,000
Payments of private placement costs (484,200) --
Proceeds from issuance of common stock 6,000,000 --
Net cash provided by financing activities 5,365,800 125,000
Net increase in cash and cash equivalents 2,698,552 67,027
CASH AND CASH EQUIVALENTS, beginning of period 198,412 96,695
CASH AND CASH EQUIVALENTS, end of period $ 2,896,964 $ 163,722
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Non-cash activities during the period
Cash paid during the period
Interest $ 1,926 $ 4,512
Income taxes $ 800 $ 720
The accompanying notes are an integral part of these consolidated statements.
6
UNITED ENERGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 (Unaudited)
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, 2002
(unaudited) and the results of its operations for the three months and nine
months ended December 31, 2002 and 2001 (unaudited) and cash flows for the nine
months ended December 31, 2002 and 2001(unaudited). All such adjustments are of
a normal and recurring nature. Interim financial statements are prepared on a
basis consistent with the Company's annual financial statements. Results of
operations for the three months and nine months ended December 31, 2002 are not
necessarily indicative of the operating results that may be expected for the
year ending March 31, 2003.
The consolidated balance sheet as of March 31, 2002 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.
Certain reclassifications have been made to the results of operations for
the three months and nine months December 31, 2001 to conform to the current
year presentation.
For further information, refer to the consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K, as amended.
2. STOCK OPTION PLAN
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 Plan increasing the total number
of shares available under the 2001 Plan to 4,000,000 was approved by the Board
of Directors on May 29, 2002 and by the Company's stockholders at the annual
meeting on November 6, 2002.
Under the 2001 Plan, as amended, options are granted to non-employee
directors upon their election at the annual meeting of stockholders. The options
are granted 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 2,307,500 options available for future grant at December 31,
2002. During the period ended December 31, 2002, the Company has issued warrants
to acquire 3,750,000 shares of common stock in connection with a private
placement (see note 7). Additionally, during the period ended December 31, 2002
the Company has granted 1,692,500 options to employees and vendors outside the
2001 Plan, with exercise prices ranging from $0.70 to $2.05 and with vesting
periods ranging from up to four years or when the Company reaches specific
financial milestones.
7
3. EXCLUSIVE DISTRIBUTION AGREEMENT
On September 22, 2000, the Company and Alameda Company ("Alameda") entered
into an exclusive distribution agreement (the "Alameda Agreement"), whereby
Alameda will purchase from the Company various products from the graphics arts
division (meeting certain minimum purchase requirements and at guaranteed fixed
prices as defined in the Alameda Agreement) through December 31, 2002, and
distribute these products exclusively throughout the USA, Canada, Puerto Rico,
Mexico, Central America, South America and the Caribbean. Due to a severe
decline of publishing industry advertising pages, Alameda was unable to meet the
2001 quota and the exclusivity portion of the agreement has been terminated.
Alameda will continue to market UNIPROOF(TM) on a non-exclusive basis.
4. CREDIT LINE AGREEMENT
At March 31, 2002 the Company had $150,000 outstanding under a $1.0 million
revolving line of credit from Fleet Bank N.A. Borrowings under the line accrued
interest at a variable rate equal to 2% above the bank's prime rate. Amounts
outstanding under the line of credit were subject to repayment on demand at any
time and for any reason and were secured by accounts receivable, inventory,
furniture and fixtures, machinery and equipment and a pledge of 750,000 shares
of the Company's common stock, which had been placed in escrow. The line was
also secured by the personal guarantee of a shareholder of the Company. In May
2002, the Company repaid the remaining balance of the line of credit and the
line of credit was terminated. The 750,000 shares of collateral have been
returned to the Company.
5. SEGMENT INFORMATION
Under the provision of SFAS No. 131 the Company's activities fall within
two operating segments: Graphic Arts and Specialty Chemicals. The following
tables set forth the Company's industry segment information for the three months
and nine months ended December 31, 2002 and 2001:
The Company's total revenues, net income (loss) and identifiable assets by
segment as of December 31, 2002 and for the three month period ended December
31, 2002, are as follows:
Specialty
Graphic Arts Chemicals Corporate Total
------------ --------- --------- -----
Revenues $ 709,237 $ 82,855 $ -- $ 792,092
========== ========== ========== ===========
Gross profit $ 316,048 $ 44,661 $ -- $ 360,709
General and administrative 42,196 430,973 428,512 901,681
Depreciation and amortization -- 21,385 3,395 24,780
Interest income, net 144 -- (15,250) (15,106)
---------- --------- ---------- ----------
Net income (loss) $ 273,708 $ (407,697) $ (416,657) $ (550,646)
========== ========== ========== ===========
Cash $ -- -- $2,896,964 $2,896,964
Accounts receivable, net 833,113 66,538 -- 899,651
Inventory 41,333 155,509 -- 196,842
Loans receivable -- 108,447 10,808 119,255
Prepaid Expenses -- 80,884 32,291 113,175
Fixed assets, net -- 236,223 50,484 286,707
Goodwill, net -- 68,819 -- 68,819
Patent, net -- 203,796 -- 203,796
Other assets -- -- 2,903 2,903
---------- --------- --------- ----------
Total assets $ 874,446 $ 920,216 $2,993,450 $4,788,112
========== ========== ========== ==========
8
UNITED ENERGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Company's total revenues and net income (loss) by segment for the nine
month period ended December 31, 2002, are as follows:
Specialty
Graphic Arts Chemicals Corporate Total
------------ --------- --------- -----
Revenues $1,699,159 $ 457,542 $ -- $ 2,156,701
========== ========== ========== ==========
Gross profit $ 647,469 $ 224,729 $ -- $ 872,198
General and administrative 138,279 1,238,563 1,012,011 2,388,853
Depreciation and amortization -- 49,619 8,198 57,817
Interest expense (income), net 1,312 -- (51,374) (50,062)
---------- --------- --------- ----------
Net income (loss) $ 507,878 $(1,063,453) $ (968,835) $ (1,524,410)
========== ========== ========== ==========
The Company's total revenues and net loss by segment for the three month
period ended December 31, 2001, are as follows:
Specialty
Graphic Arts Chemicals Corporate Total
------------ --------- --------- -----
Revenues $ 396,311 $ 53,744 $ -- $ 450,055
========== ========== ========== ==========
Gross profit $ 182,543 $ 22,444 $ -- $ 204,987
General and administrative 59,329 58,366 196,432 314,127
Executive services 62,500 62,500
Depreciation and amortization -- 2,882 3054 5,936
Interest expense (income), net 1,519 -- (281) 1,238
---------- --------- --------- ----------
Net loss $ 121,695 $ (38,804) $ (261,705) $ (178,814)
========== ========== ========== ==========
9
UNITED ENERGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(REVISED)--(Continued)
The Company's total revenues and net income (loss) by segment for the nine
month period ended December 31, 2001, are as follows:
Specialty
Graphic Arts Chemicals Corporate Total
------------ --------- --------- -----
Revenues $ 915,833 $ 216,509 $ -- $1,132,342
========== ========== ========== ===========
Gross profit $ 397,499 $ 127,258 $ -- $ 524,757
General and administrative 153,078 222,977 512,300 888,355
Executive services contributed by management -- -- 187,500 187,500
Depreciation and amortization -- 11,433 3,216 14,649
Interest expense (income), net 4,547 -- (1,300) 3,247
---------- --------- --------- ----------
Net income (loss) $ 239,874 $ (107,152) $ (701,716) $(568,994)
========== ========== ========== ===========
6. NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the FASB issued SFAS No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires all
business combinations initiated after June 30, 2001 to be accounted for using
the purchase method. 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). The amortization
provisions of SFAS No. 142 apply to goodwill and intangible assets acquired
after June 30, 2001. With respect to goodwill and intangible assets acquired
prior to July 1, 2001, the Company is required to adopt SFAS No. 142 effective
April 1, 2002. Effective April 1, 2002, the Company adopted the provisions of
SFAS No. 142, which had no material effect on its results of operations and
financial position.
In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets", which is effective for fiscal years beginning after December 15, 2001.
SFAS 144 supersedes certain provisions of Accounting Principles Board (APB)
Opinion No. 30, reporting the Results of Operations-Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions and supersedes SFAS 121. Effective April 1,
2002 the Company has adopted of SFAS 144, which had no material effect on our
consolidated financial position or results of operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or
Disposal Activities". SFAS No. 146 requires that the liability for costs
associated with an exit or disposal activity be recognized at their fair values
when the liabilities are incurred. Under previous guidance, liabilities for
certain exit costs were recognized at the date that management committed to an
exit plan, which is generally before the actual liabilities are incurred. As
SFAS No. 146 is effective only for exit or disposal activities initiated after
December 31, 2002, the Company does not currently expect the adoption of this
statement to have a material impact on its financial statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure". This statement amends the disclosure
and certain transition provisions of Statement 123, "Accounting for Stock-Based
Compensation". Its disclosure provisions, which apply to all entities with
employee stock-based compensation, are effective for fiscal years ending after
December 15, 2002. SFAS 148:
- requires all entities with stock-based employee compensation
arrangements to provide additional disclosures in their summary of
significant accounting policies note for entities that use the
intrinsic value method of APB No. 25, "Accounting for Stock Issued to
Employees," to account for employee stock compensation for any period
presented, their accounting policies note should include a tabular
presentation of pro forma net income and earnings per share using the
fair value method.
10
- permits entities changing to the fair value method of accounting for
employee stock compensation to choose from one of three transition
methods - the prospective method, the modified prospective method, or
the retroactive restatement method. The prospective transition method,
however, will not be available for entities that initially apply the
fair value method in fiscal years beginning after December 15, 2003.
- requires interim-period pro forma disclosures if stock-based
compensation is accounting for under the intrinsic value method in any
period presented. The Company does not currently expect the adoption
of this statement to have a material impact on its financial
statements.
7. PRIVATE PLACEMENT AND OTHER FINANCING
On May 14, 2002, the Company issued, in a private placement, an aggregate
of 6,000,000 shares of its common stock at an aggregate price of $6,000,000. In
connection with the common stock issuance, the Company issued warrants to
purchase 3,000,000 shares of the Company's common stock at an exercise price of
$2 per share exercisable for a five-year period. The Company incurred $484,200
in issuance expenses in connection with the financing of which $132,197 was
payable to a related party. In addition, the Company issued 750,000 additional
warrants to purchase 750,000 shares of the Company's common stock at an exercise
price of $0.60 per share with a five-year term to a placement agent. Such
warrants are not exercisable during the first two years from the grant date for
relinquishing rights of immediate exercise of warrants to acquire 500,000 shares
of common stock issuable in connection with the private placement.
The Company intends to use the proceeds of the offering for office
equipment, leasehold improvements, working capital and to finance the marketing
of its products.
8. NEW MANAGEMENT TEAM
In conjunction with the completion of the new private financing
transaction, the Company began the process of identifying and making employment
offers to a new management team to focus on the sales and marketing of
KH-30 (TM) and other products. Four of the new members of the management
team accepted employment beginning in May 2002. Each of these executives has
employment agreements with terms from one to three years. These agreements
provide, among other things, for annual base salaries and bonuses totaling
$728,000, $635,000, $324,000 and $28,000 in fiscal 2003, 2004, 2005 and 2006.
In the 4th quarter of fiscal year 2002, Senior Executives started to be
compensated by salary and options and therefore the accrual of contributed
services were discontinued.
On December 31, 2002 Andrew Lundquist voluntarily terminated his employment
agreement and resigned as the President of the Energy Division of the Company.
Mr. Lundquist remains on the Board of Directors.
9. RELATED PARTY TRANSACTIONS
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 $92,640 per year under the
lease. The lease recently expired, and the Company is occupying the space on a
month to month basis until renegotiation of the lease, on similar terms, is
completed.
10. COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company, in its normal course of business, is subject to certain
litigation. In the opinion of the Company's management, settlements of
litigation will not have a material adverse effect on the Company's results of
operations, financial position or cash flows.
11
On October 29, 2002, an accident occurred at an oil well site near Odessa,
Texas, where the Company's equipment and products were being used in the
treatment of an oil well. There are two lawsuits pending against the Company in
Texas state court in Crane County, arising from this incident. Simmons v. United
Energy Corp. Larry Simmons, who lost an arm and sustained serious other injuries
in the accident and his wife have commenced a suit against the Company. Another
individual, Stephen Hurst, whose injuries were not as serious, together with his
wife, has also commenced a suit against the Company captioned, Hurst v. United
Energy Corp. The Company anticipates that additional suits may be brought by
other individuals who suffered less serious injuries in the accident. The
Company at this time cannot quantify or estimate the impact of this litigation
on the Company's operations as of December 31, 2003.
The U.S. Occupational Health & Safety Administration ("OSHA") has commenced
an investigation into the accident. As it relates to the Company, OSHA is
investigating whether the Company's machine, process or equipment contributed to
the incident and whether the Company's procedures and record keeping were in
accordance with the requirements of OSHA.
11. SUBSEQUENT EVENTS
None.
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 friendly specialty chemical products.
The Company considers its leading product in terms of future earnings potential
to be its KH-30(TM) multifunctional dispersant used as an oil and gas
well, pipeline, and storage tank cleaner.
KH-30(TM) is an environmentally friendly, non-petroleum based
product that is biodegradable. When applied in accordance with United Energy's
recommended procedures KH-30(TM) has resulted in substantial production
increases of between two and five times in paraffin and asphaltene-affected oil
and gas wells. In addition, KH-30(TM) has proven effective as a
"downstream application" which result in cleaner flow lines and holding tanks.
KH-30(TM) 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, however, the Company has
recently received significant sample orders from operations in several countries
throughout the world and many states throughout the USA.
On October 9, 2002, the Company announced the filing of a comprehensive
patent for its new S2 System. The S2 System employs new technology to maintain
the flow of oil and gas throughout all phases of the production, transportation,
refinery and storage process in the oil and gas industry. The S2 System is a
light-weight, compact, mobile device, which can economically generate high
volumes of steam at controllable pressures and temperatures using non-petroleum
based fuel. In conjunction with the injection of KH-30 (TM), the S2 System will
be used to melt paraffin and asphaltene deposits, and to inhibit the formation
of new blockages, maintaining peak performance of equipment for an extended time
period.
One of United Energy's graphic arts 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(TM). Most recently UNIPROOF(TM) has been
made in a thinner configuration so it can now be used by book publishers as well
as other printers.
The Company's business plan is to use UNIPROOF(TM) proofing paper
sales to provide the cash flow to support world wide marketing efforts for its
KH-30(TM) and, to a lesser extent, the other specialty chemical products
developed by the Company. The company has an arrangement with the Alameda
Company of Anaheim, California
12
to distribute UNIPROOF(TM) proofing paper on a non-exclusive basis. The Company
seeks additional vendors to which we will sell the UNIPROOF(TM) product.
FR-15 is an environmentally friendly fire-retardant agent developed by
United Energy Corp. FR-15 begins as a concentrate which can be mixed with
varying amounts of water, depending on the anticipated use. The FR-15 mixture
resists re-ignition once a fire has been extinguished. The FR-15 product has
been fully developed and tested by several municipal fire departments. FR-15 is
awaiting testing by Underwriters Laboratories. We anticipate that sales of FR-15
will commence in the next few months.
Slick Barrier is an underwater protective coating formerly named "Bye Bye
Barnacles." Slick Barrier is an environmentally friendly and biodegradable
product with characteristics that the Company believes to be particularly
appealing in both fresh and saltwater environments to resist barnacles and algae
growth on boat hulls. During fiscal year 2002 the Company reformulated the
product with improved coating and durability characteristics and to comply with
EPA regulations. The product is currently undergoing testing. A patent
application on this product is in process. We are applying for trademark
protection both nationally and internationally for our "Slick Barrier" product.
We are continuing our testing of the products and we have begun discussions
with leading foreign distributors of marine products.
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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 2002 AND 2001
Revenues. Revenues for the quarter ended December 31, 2002 were $792,092, a
$342,037, or 76% increase from revenues of $450,055 in the comparable quarter of
2001. The increase in revenues was primarily due to increased sales of
UNIPROOF(TM) proofing paper. UNIPROOF(TM) sales tend to be
seasonal with larger request for the product in the 3rd and 1st quarters of our
fiscal year. Specialty Chemicals, which includes sales of our KH-30(TM)
products and Green Globe/Qualchem military sales, increased to $82,855 or 54%
compared to $53,744 in the comparable quarter in the previous year. The increase
was substantially due to increased sales of KH-30(TM) while sales of
Green Globe/Qualchem military sales declined due to a continued lower level of
government orders.
Cost of Goods Sold. Cost of goods sold increased 76% to $431,383 or 54% of
sales, for the three months ended December 31, 2002 from $245,068 or 54% of
sales, for the three months ended December 31, 2001. The increase in cost of
goods sold was primarily due to the higher sales levels and margins on
UNIPROOF(TM) paper sales compared to the prior year.
Gross Profit. Gross profit for the three months ended December 31, 2002 was
46% or $360,709 a $155,722 or 76% increase from 46% or $204,987 in the
corresponding period of fiscal 2001. The increase in gross margin reflects the
higher level on UNIPROOF(TM) paper and KH-30(TM) sales and the
lower level of Green Globe/Qualchem military sales.
Operating Costs and Expenses
General and Administrative Expenses. General and administrative expenses
increased $587,554 or 187% to $901,681, or 114% of revenues for the three months
ended December 31, 2002 from $314,127, or 70% of revenues for the three months
ended December 31, 2001. The increase in general and administrative expenses is
primarily related to the salaries and benefits of the new staff added beginning
in May 2002, non-recurring marketing expenses related to developing promotional
brochures, logos and product branding, design and implementation costs of a new
company web site, certain legal and accounting services and KH-30(TM)
customer trials on wells and storage tanks, and increased level of travel
related to meetings with potential customers.
Executive Services Contributed by Management. During the quarter ended
December 31, 2001 Senior Executives of the Company contributed $62,500 of
services, which were recorded as an expense. In the 4th Quarter
13
of fiscal year 2002, Senior Executives started to be compensated by salary and
options and therefore the accrual of contributed services was discontinued.
Depreciation and Amortization. Depreciation and Amortization increased to
$24,780 from $5,936 reflecting additions to fixed assets for laboratory
analytical equipment, manufacture of additional S(2) System equipment, and
capitalized legal costs related to patent filings for our S(2) System and
KH-30(TM) products.
Interest Expense, Net of Interest Income. The Company had net interest
income of $15,106 for the three months ended December 31, 2002 compared with net
interest expense of $1,238 in the corresponding period in 2001. The increase was
due primarily to the investment earnings on the remaining funds raised from the
private placement on May 14, 2002.
Net Loss. The three months ended December 31, 2002 resulted in a net loss
of $(550,646) or $(0.02) per share as compared to a net loss of $(178,814) or
$(0.01) per share for the three months ended December 31, 2001. The increase in
the loss in the quarter ended December 31, 2002 is the result of higher level of
general and administrative expenses offset by higher sales level. The average
number of shares used in calculating earnings per share increased to 22,180,270
shares from 16,080,270 primarily as a result of 6,000,000 shares issued in the
private placement on May 14, 2002.
RESULTS OF OPERATIONS
NINE MONTHS ENDED DECEMBER 31, 2002 AND 2001
Revenues. Revenues for the nine month period ended December 31, 2002 were
$2,156,701, a $1,024,359, or 90% increase from revenues of $1,132,342 in the
comparable nine month period ended December 31, 2001. The increase in revenues
was primarily due to a $709,237 or 86% increase in sales of UNIPROOF(TM)
proofing paper to $1,699,159 compared with $915,833 for the nine month period
ended December 31, 2001. For the nine month period ended December 31, 2002
Specialty Chemical sales, which includes sales of our KH-30(TM) products
and Green Globe/Qualchem military sales increased 111% to $457,542 from $216,509
in the prior nine month period ended December 31, 2001 reflecting a higher level
of orders of both product families.
Cost of Goods Sold. Cost of goods sold increased 111% to $1,284,503 or 60%
of sales, for the nine month period ended December 31, 2002 from $607,585 or 54%
of sales, for the nine month period ended December 31, 2001. The increase in
cost of goods sold was primarily due to the higher volume and margins on
UNIPROOF(TM) paper sales, the change in the mix of products sold, and
the costs of providing KH-30(TM) samples to prospective customers,
compared to the prior year.
Gross Profit. Gross profit for the nine month period ended December 31,
2002 was 40% or $872,198, a $347,441 or 66% increase from a 46% margin or
$524,757 in the corresponding period of fiscal 2001. The increase in gross
margin and decrease in the gross margin percent reflects the higher level on
UNIPROOF(TM) paper sales, the higher volume but average lower margin
level of Green Globe/Qualchem military and KH-30(TM) sales and the cost
of providing promotional samples of KH-30(TM) to prospective customers.
Operating Costs and Expenses
General and Administrative Expenses. General and administrative expenses
increased 169% to $2,388,853, or 111% of revenues for the nine month period
ended December 31, 2002 from $888,355, or 78% of revenues for the nine month
period ended December 31, 2001. The increase in general and administrative
expenses is primarily related to the salaries and benefits of the new staff
added beginning in May 2002, non-recurring marketing expenses related to
developing promotional brochures, logos and product branding, design and
implementation costs of a new company web site, certain legal and accounting
services, and increased level of travel related to meeting with potential
customers, S2 System and KH-30(TM) customer trials on wells and storage
tanks.
Executive Services Contributed by Management. During the nine month period
ended December 31, 2001 Senior Executives of the Company contributed $187,500 of
services which were recorded as an expense. In the 4th
14
Quarter of fiscal year 2002, Senior Executives started to be compensated by
salary and options and therefore the accrual of contributed services was
discontinued.
Depreciation and Amortization. Depreciation and Amortization increased to
$57,817 from $14,649 reflecting additions to fixed assets for laboratory
analytical equipment, manufacture of additional S2 System equipment, and
capitalized legal costs related to patent filings for our S2 System and
KH-30(TM) products.
Interest Expense, Net of Interest Income. The Company had net interest
income of $50,062 for the nine month period ended December 31, 2002 compared
with net interest expense of $3,247 in the corresponding period in 2001. The
increase was due primarily to the investment earnings on the remaining funds
raised from the private placement on May 14, 2002 and the repayment and
termination of the line of credit in May 2002.
Net Loss. The nine month period ended December 31, 2002 resulted in a net
loss of $(1,524,410) or $(0.07) per share as compared to a net loss of
$(568,994) or $(0.04) per share for the comparable period ended December 31,
2001. The increase in the loss in the quarter ended December 31, 2002 is the
result of higher level of general and administrative expenses offset by higher
sales levels. The average number of shares used in calculating earnings per
share increased to 20,220,270 shares from 16,001,179 primarily as a result of
6,000,000 shares issued in the private placement on May 14, 2002.
Liquidity and Capital Resources.
As of December 31, 2002 the Company had $2,896,964 in cash and cash
equivalents, accounts receivable of $899,651, inventory of $196,842, loans
receivable of $9,382 and prepaid expenses of $113,175 for a total of $4,116,014
of current assets. As of March 31, 2002, the Company had $198,412 in cash,
accounts receivable of $218,104, inventories of $287,857 and prepaid expenses of
$117,127 for a total of $821,500 of current assets. The increase in current
assets was primarily from the net proceeds from the private placement completed
in May 2002.
Accounts receivable increased to $899,651 at December 31, 2002 from
$218,104 at March 31, 2002 reflecting increased sales and extended payment terms
to new customers as incentives. The allowance for doubtful accounts was
increased to $34,157 at December 31, 2002 from $4,795 at March 31, 2002
reflecting the risk of collection on certain accounts.
Inventories at December 31, 2002 were $196,842 compared with $287,857 at
March 31, 2002, a decrease of $91,015. The slightly lower inventory levels are
indicative of faster production cycles reflecting lower levels of finished
UNIPROOF(TM) paper awaiting delivery to customers and production of
finished KH-30(TM) to meet customer orders. In most cases
UNIPROOF(TM) and Green Globe/Qualchem products are shipped as soon as
produced.
Property and Equipment increased to $286,707 from $16,883, reflecting
$317,542 in acquisitions for laboratory analytical equipment, manufacture of
several S2 System units for customer demonstration and production trials,
computer and network equipment for internal infrastructure and leasehold
improvements to house new staff.
Patents increased to $203,796 at December 31, 2002 from $128,908 at March
31, 2002 reflecting expenditures of $84,987 consisting of legal expenses in
support of patent applications for our KH-30(TM) and S2 System products.
Current Liabilities decreased by $241,250 to $661,962 at December 31, 2002
from $903,212 at March 31, 2002. During this period the Company used part of the
proceeds of the private placement to pay down its credit line and overdue
balances in accounts payable. Additionally, the Company accrued certain legal
and other expenses primarily associated with the private placement and owed to
related parties in the amount of $244,141 as of December 31, 2002 as compared
with $141,487 at March 31, 2002.
Net Cash Used in Operating Activities. Net cash used in operating
activities increased to $2,145,464 in the nine months ended December 31, 2002
compared $44,565 for the nine month period ended December 31, 2001. The increase
in net cash used in operations resulted primarily from an increase in the
operating loss to $1,524,410 for the nine month ended December 31, 2002 compared
with $568,994 for the comparable period in 2001 and a use
15
of cash resulting from an increase in accounts receivables due to additional
sales and extended payment terms of $681,547 during the nine month period ended
December 31 2002 compared with a source of cash of $549,273 in the comparable
period in the prior year.
Cash Flows from Investing Activities. The Company expended $317,542 for
non-recurring capital expenditures primarily for laboratory analytical
equipment, manufacture of several S2 System units for customer demonstration and
production trials, computer and network equipment for internal infrastructure
and leasehold improvements to house new staff. Additionally, the Company
incurred $84,987 for the cost of patent applications and $119,255 of loans
extended to employees during the nine months ended December 31, 2002. The
Company has no material commitments for future capital expenditures.
Cash Provided by Financing Activities. Net cash provided by financing
activities increased to $5,365,800 during the nine month period ended December
31, 2002 reflecting the net proceeds from the Private Placement offset by the
repayment of the $150,000 balance of the line of credit in May, 2002 compared
with $125,000 proceeds from a draw down against the line of credit during the
comparable period ended December 31, 2001.
At March 31, 2002, the Company had $150,000 outstanding under a $1.0
million revolving line of credit from Fleet Bank, N.A. Borrowings under the line
accrued interest at a rate equal to 2% above the bank's prime rate. Amounts
outstanding under the line of credit were subject to repayment on demand at any
time and for any reason and were secured by accounts receivable, inventory,
furniture and fixtures, machinery and equipment, and a pledge of 750,000 shares
of the Company's common stock which had been placed in escrow. The line was also
secured by the personal guarantee of a shareholder of the Company. In May 2002,
the Company repaid the remaining balance of the line of credit and the line of
credit was terminated. The 750,000 shares of collateral have been returned to
the Company.
Although the Company had significant cash outflows during the quarter, much
of these expenditures are non-recurring and were required to increase its sales
and marketing efforts. United Energy believes that its existing cash will be
sufficient to enable it to meet its future working capital needs for at least
the next eighteen months, at its current operating levels. The Company is
focusing its efforts on improving the existing products, completing testing on
products, protecting the intellectual property of the Company through perfecting
certain patents and trademarks, and extensively marketing the existing products.
During May and June 2002, the Company has hired and contracted several new
executives and employees with extensive experience in marketing and sales with
the objective of boosting sales of the Company's KH-30(TM), UNIPROOF(TM) and
Qualchem products.
Concentration of Risk
The Company sells its UNIPROOF(TM) proofing paper to two customers. One of
those customers constitutes 91% of Graphic Arts sales and 82% of total customer
sales for the three month period ended December 31, 2002. For the nine month
period ended Deember 31, 2002, this customer constituted 78% of Graphic Arts
sales and 61% of total company sales. Although our relationship with this
customer continues to be excellent, loss of this customer would have adverse
financial consequences to the Company.
Contingencies
On October 29, 2002, an accident occurred at an oil well site near Odessa,
Texas, where the Company's equipment and products were being used in the
treatment of an oil well. There are two lawsuits pending against the Company in
Texas state court in Crane County, arising from this incident. Simmons v. United
Energy Corp. Larry Simmons, who lost an arm and sustained serious other injuries
in the accident and his wife have commenced a suit against the Company. Another
individual, Stephen Hurst, whose injuries were not as serious, together with his
wife, has also commenced a suit against the Company captioned, Hurst v. United
Energy Corp. The Company anticipates that additional suits may be brought by
other individuals who suffered less serious injuries in the accident. The
Company at this time cannot quantify or estimate the impact of this litigation
on the Company's operations as of December 31, 2003.
The U.S. Occupational Health & Safety Administration ("OSHA") has commenced
an investigation into the accident. As it relates to the Company, OSHA is
investigating whether the Company's machine, process or
16
equipment contributed to the incident and whether the Company's procedures and
record keeping were in accordance with the requirements of OSHA.
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.
Item 4. Controls and Procedures
The Company's CEO and CFO evaluated the effectiveness of the Company's
"disclosure controls and procedures" (as defined in the Securities Exchange Act
of 1934 Rules 13a-14(c) and 15d- 14(c)) as of a date (the "Evaluation Date")
within 90 days before the filing date of this quarterly report, and have
concluded that as of the Evaluation Date, the disclosure controls and procedures
were adequate and designed to ensure that material information relating to the
Company and its consolidated subsidiaries would be made known to them.
There were no significant changes in the Company's internal controls or, to
management's knowledge, in other factors that could significantly affect the
disclosure controls and procedures subsequent to the Evaluation Date.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
On October 29, 2002, an accident occurred at an oil well site near Odessa,
Texas, where the Company's equipment and products were being used in the
treatment of an oil well. There are two lawsuits pending against the Company in
Texas state court in Crane County, arising from this incident. Simmons v. United
Energy Corp. Larry Simmons, who lost an arm and sustained serious other injuries
in the accident and his wife have commenced a suit against the Company. Another
individual, Stephen Hurst, whose injuries were not as serious, together with his
wife, has also commenced a suit against the Company captioned, Hurst v. United
Energy Corp. The Company anticipates that additional suits may be brought by
other individuals who suffered less serious injuries in the accident. The
Company at this time cannot quantify or estimate the impact of this litigation
on the Company's operations as of December 31, 2003.
The U.S. Occupational Health & Safety Administration has commenced an
investigation into the accident. As it relates to the Company, OSHA is
investigating whether the Company's machine, process or equipment contributed to
the incident and whether the Company's procedures and record keeping were in
accordance with the requirements of OSHA.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
On November 6, 2002, the Company held its annual meeting of stockholders to vote
on the election of directors and on an amendment to the Company's 2001 Equity
Incentive Plan. Of the 22,180,270 shares of the Company's common stock, par
value $.01 per share, entitled to vote at the meeting, holders of 17,766,893
shares were present in person or were represented by proxy at the meeting.
17
The directors elected at the meeting and the results of the voting were as
follows:
General nominees: For Withheld
Robert Deak 17,742,593 24,300
Andrew Lundquist 17,720,593 46,300
Andrea Pampanini 17,733,593 33,300
Martin Rappaport 17,719,393 47,500
Ronald Wilen 17,720,325 46,568
Rodney Woods 17,720,325 46,568
The shares voted to approve the Board of Directors' proposal to increase the
number of authorized shares of the Company's 2001 Equity Incentive Plan from
2,000,000 to 4,000,000 were as follows:
For 10,429,757
Against 134,683
Abstain 6,032
Broker non-votes 8,877,780
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
99.1 Written Statement of the Chief Executive Officer Pursuant
to 18 U.S.C. Section 1350 Sec. 906
99.2 Written Statement of the Chief Financial Officer Pursuant
to 18 U.S.C. Section 1350 Sec. 906
(b) Reports on Form 8-K. None.
18
United Energy Corp.
FORM 10-Q
December 31, 2002
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 CORP.
Dated: February 13, 2002
By: /s/ Sanford M. Kimmel
---------------------------------
Sanford M. Kimmel,
Chief Financial Officer
19
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of United Energy Corp.
for the period ending December 31, 2002 as filed with the Securities and
Exchange Commission on the date hereof, I, Ronald Wilen, Chairman and Chief
Executive Officer of registrant, certify, pursuant to 18 U.S.C. ss. 1350, as
adopted pursuant to ss. 302 of the Sarbanes-Oxley Act of 2002, that:
(1) I have reviewed this quarterly report on Form 10-Q of United Energy
Corp.;
(2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report; and
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of
registrant as of, and for, the periods presented in this quarterly report; and
(4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
(5) The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal controls;
and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
20
(6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: February 13, 2002 By: /s/ Ronald Wilen
----------------------------------
Ronald Wilen
Chairman and Chief Executive Officer
This certification accompanies this Quarterly Report on Form 10-Q pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 and shall not, except to the
extent required by such Act, be deemed filed by registrant for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.
21
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of United Energy
Corp., for the period ending December 31, 2002 as filed with the Securities and
Exchange Commission on the date hereof, I, Sanford M. Kimmel, Chief Financial
Officer of registrant, certify, pursuant to 18 U.S.C. ss. 1350, as adopted
pursuant to ss. 302 of the Sarbanes-Oxley Act of 2002, that:
(1) I have reviewed this quarterly report on Form 10-Q of United Energy
Corp.;
(2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report; and
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of
registrant as of, and for, the periods presented in this quarterly report; and
(4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
(5) The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal controls;
and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
22
(6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: February 13, 2002 By: /s/ Sanford M. Kimmel
---------------------------------
Sanford M. Kimmel
Chief Financial Officer
This certification accompanies this Quarterly Report on Form 10-Q pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002 and shall not, except to the
extent required by such Act, be deemed filed by registrant for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.
23