Universal Bioenergy (UBRG) 10-Q 2011 Q3 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

S QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES ACT OF 1934

For the quarterly period ended September 30, 2011

OR

£ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES ACT OF 1934

For the transition period from ___________to ____________

Commission File Number 333-123465

UNIVERSAL BIOENERGY, INC.

(Exact name of Registrant as specified in its charter)

Nevada	20-1770378
State of Incorporation	IRS Employer Identification No.

19800 Mac Arthur Blvd., Suite 300

Irvine, CA 92612

(Address of principal executive offices)

(949) 559-5017

(Issuer’s telephone number)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes£ NoS

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non–accelerated filer. See definition of “accelerated filer large accelerated filer” and “smaller reporting company” in Rule 12b–2 of the Exchange Act. (Check one):

Large accelerated filer£  Accelerated filer£  Non–Accelerated filer£   Smaller reporting companyS

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b–2 of the Exchange Act).  Yes  £    No  S

Transitional Small Business Disclosure Format (check one): Yes£ NoS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at  November 14, 2011
Common stock, $0.001 par value	197,347,550

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UNIVERSAL BIOENERGY INC.

INDEX TO FORM 10-Q FILING

FOR THE THREE MONTHSAND NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION	PAGE
Item 1.	Condensed Consolidated Financial Statements
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statement of Income	4
	Condensed Consolidated Statement of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management Discussion & Analysis of Financial Condition and Results of Operatons	19
Item 3.	Quantative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	32
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	33
Item 1A	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults Upon Senior Securities	33
Item 4.	Removed and Reserved	33
Item 5.	Other information	33
Item 6.	Exhibits	33
	Signatures	35

CERTIFICATIONS

Exhibit 3.1 – Management Certification……………………………………………………...58-61

Exhibit 3.2 – Sarbanes-Oxley Act……………………………………………………………. 62-63

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PART I— CONSOLIDATED FINANCIAL INFORMATION

UNIVERSAL BIOENERGY, INC.
CONSOLIDATED BALANCE SHEETS
	(Unaudited)			(Audited)
ASSETS: (Substantially pledged)
		September 30, 2011			December 31, 2010
CURRENT ASSETS:
Cash	$	—		$	—
Accounts receivables from natural gas sales		2,436,359			12,854,494
Other loans		3,000			3,000
Total current assets		2,439,359			12,857,494
PROPERTY AND EQUIPMENT - net		133,198			136,567
OTHER ASSETS:
Advances to affiliates		10,050			10,050
Investments		189,500			—
Intangible assets		250,000			250,000
Deposit		6,516			6,620
Total other assets		456,066			266,670
TOTAL ASSETS	$	3,028,622		$	13,260,731
LIABILITIES AND STOCKHOLDERS' DEFICIT:
CURRENT LIABILITIES:
Accounts payable to natural gas suppliers	$	2,604,640		$	12,840,604
Other accounts payable and accrued expenses		438,586			182,410
Accrued interest		27,488			28,985
Line of credit DFS		11,528			12,304
Advances from affiliates		46,450			32,500
Total current liabilities		3,128,692			13,096,803
Long term convertible notes payable		440,359			213,355
TOTAL LIABILITIES		3,569,050			13,310,158
STOCKHOLDERS' DEFICIT:
Preferred stock Series A, $.001 par value, 1,000,000 shares
authorized, zero issued and outstanding shares
September 30, 2011 and December 31, 2010, respectively		—			—
Preferred stock Series B, $.001 par value, 1,000,000 shares
authorized, 232,080 issued and outstanding shares
September 30, 2011 and December 31, 2010, respectively		232			232
Common stock, $.001 par value, 1,000,000,000 shares authorized;
140,968,383 and 77,247,517 issued and outstanding as of
September 30, 2011 and December 31, 2010, respectively		140,968			77,248
Additional paid-in capital		18,126,924			16,651,544
Noncontrolling interest		(131,090	)		(53,029	)
Accumulated deficit		(18,677,462	)		(16,725,422	)
Total stockholders' deficit		(540,428	)		(49,427	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	3,028,622		$	13,260,731
The accompanying notes are an integral part of these consolidated financial statements

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UNIVERSAL BIOENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
REVENUES	$	13,855,882		$	6,388,639		$	49,904,114		$	20,355,534
COST OF SALES		13,836,654			6,381,535			49,838,802			20,332,897
GROSS PROFIT		19,228			7,104			65,312			22,637
OPERATING EXPENSES:
General and administrative		418,552			530,093			849,998			933,327
Sales and marketing		4,496			5,591			16,656			22,317
Depreciation and amortization expense		153,707			873			206,785			873
Total operating expenses		576,755			536,557			1,073,439			956,517
LOSS FROM OPERATIONS		(557,527	)		(529,453	)		(1,008,127	)		(933,880	)
OTHER INCOME (EXPENSE):
Other income		—			(1,143	)		(1,219	)		(2,007	)
Interest expense		435			13,055			(366,036	)		23,411
Total other expense		435			11,912			(367,255	)		21,404
LOSS FROM CONTINUING OPERATIONS		(557,091	)		(541,365	)		(1,375,382	)		(955,284	)
Net (LOSS)		(557,091	)		(541,365	)		(1,375,382	)		(955,284	)
Net loss attributable to noncontrolling interest		(27,506	)		18,637			(131,090	)		40,978
NET INCOME (LOSS) ATTRIBUTABLE TO UNIVERSAL	$	(529,585	)	$	(522,728	)	$	(1,244,291	)	$	(914,306	)
NET LOSS PER SHARE:
Basic and diluted loss per share		$              *		$	(0.01	)	$	(0.03	)	$	(0.02	)
Weighted average of shares outstanding		55,170,047			49,386,259			54,917,647			46,059,172
* = Less than (.01)
The accompanying notes are an integral part of these consolidated financial statements

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UNIVERSAL BIOENERGY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
	For the Nine Months Ended
	September 30,
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss	$	(1,244,291	)	$	(914,306	)
Adjustments to reconcile net loss to net cash
(used in) operating activities:
Depreciation expense		3,369			873
Common stock issued for services		326,750			332,007
Amortization of Beneficial conversion features		203,416			—
Common stock issued for debts		327,449			—
Changes in assets and liabilities:
Accounts recievable		10,418,135			(2,412,623	)
Prepaid expenses and other assets		104			(3,520	)
Accrued expenses and other liabilities		253,902			—
Accounts payable		(10,235,964	)		2,767,114
Net cash used for operating activities		52,871			(230,455	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Advances to affiliates		—			(13,967	)
Purchase of equipment		—			(13,094	)
Investment in participation agreement - see note 5		(189,500	)		—
Net cash provided by investing activities		(189,500	)		(27,061	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Non-contolling interest in consolidated subsidiary		(78,061	)		(40,978	)
Advances from affiliates		13,950			707
Principal payments on notes payable		(7,835	)		—
Notes payable converted		(327,450	)
Proceeds from notes payable		536,025			312,119
Net cash provided by financing activities		136,629			271,848
INCREASE (DECREASE) IN CASH		0.00			14,332
CASH, BEGINNING OF PERIOD		—			2,819
CASH, END OF PERIOD	$	0		$	17,151
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid	$	—		$	—
Taxes paid	$	—		$	—
Issuance of common stock for the conversion of debt	$	327,450		$	573,981
Common stock issued for intangible assets in acquisition	$	—		$	—
Convertible notes issued for accrued liabilities	$	279,324		$	—
Beneficial conversion feature of convertible notes payable	$	177,152		$	1,149,975
The accompanying notes are an integral part of these consolidated financial statements

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UNIVERSAL BIOENERGY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE QUARTERS ENDED SEPTEMBER 30, JUNE 30, AND MARCH 31, 2011
	Common Stock		Preferred A	Preferred B
	Shares		Amount	Shares		Paid-in Amount	Noncontrolling Shares		Accumulated Amount		Additional Capital		Interest		Deficit		Total
BALANCE AT DECEMBER 31, 2010	77,247,517		77,248	—		—	232,080		232		16,651,544		(53,029	)	(16,725,422	)	(49,427	)
Common stock issued for debt conversion	23,770,000		23,770								95,080						118,850
Common stock issued for services @$.04294	4,500,000		4,500								188,750						193,250
Beneficial conversion feature of convertible notes payable											78,450						78,450
Noncontrolling interest													(17,053	)			(17,053	)
Net loss	—		—	—		—	—		—		—				(577,034	)	(577,034	)
BALANCE AT MARCH 31, 2011	105,517,517	$	105,518	—	$	—	232,080	$	232	$	17,013,824	$	(70,082	)	(17,302,456	)	(252,964	)
Common stock issued for debt conversion	8,635,555		8,636								137,964						146,600
Beneficial conversion feature of convertible notes payable											68,950						68,950
Noncontrolling interest													(33,502	)			(33,502	)
Net loss															(137,672	)	(137,672	)
BALANCE AT JUNE 30, 2011	114,153,072	$	114,153	—	$	—	232,080	$	232	$	17,220,738	$	(103,584	)	(17,440,128	)	(208,589	)
Common stock issued for services	3,000,000		3,000								130,500						133,500
Common stock issued for debt conversion	12,400,000		12,400								49,600						62,000
Common stock issued for stock dividend	11,415,311		11,415								696,334				(707,749	)	0.00
Beneficial conversion feature of convertible notes payable											29,752						29,752
																	—
Noncontrolling interest													(27,506	)			(27,506	)
Net income															(529,585	)	(529,585	)
BALANCE AT SEPTEMBER 30, 2011	140,968,383	$	140,968	—	$	—	232,080	$	232	$	18,126,924	$	(131,090	)	(18,677,462	)	(540,428	)

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

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UNIVERSAL BIOENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - DESCRIPTION OF BUSINESS

Overview of The Company

Universal Bioenergy Inc., (the “Company”) is an independent diversified energy company, headquartered in Irvine, California. Our common stock is presently listed on the OTC Pink Sheet Markets trading systems under the trading symbol “UBRG”. Universal Bioenergy Inc. was incorporated on August 13, 2004 in the State of Nevada, under the name of Palomine Mining Inc. On October 24, 2007, the Company changed its name from Palomine Mining Inc., to Universal Bioenergy Inc. to better reflect its new business plan and strategic direction.

The Company’s primary business focus is the production, marketing and sales of natural gas, petroleum, coal, propane and alternative energy. Through it’s 49% owned subsidiary, NDR Energy Group LLC, the Company presently sells natural gas to 27 of the largest public utilities, electric power producers and local gas distribution companies that serve millions of commercial, industrial and residential customers throughout the United States. The Company is also engaged in the acquisition of oil and gas fields, lease acquisitions, and development of newly discovered or recently discovered oil and gas fields, re-entering existing wells, transmission and marketing of the products to our customer base. The Company intends to continue its growth through an ongoing series of acquisitions, the most recent of which was the 49% stake of NDR Energy Group LLC.

NDR Energy Group LLC

In April 2010, the Company expanded into the natural gas energy market by the acquisition of a 49% stake in NDR Energy Group LLC, in Charlotte, North Carolina (“NDR Energy”). NDR Energy markets natural gas, and was established in the State of Maryland on September 28, 2005. Through NDR Energy, the Company has contracts signed with 27 major utility companies in the United States, with strong Standard & Poor’s credit ratings. NDR Energy Group’s customers include Southern California Gas Company, Pacific Gas & Electric, CenterPoint Energy Resources, Baltimore Gas & Electric, Memphis Light Gas & Water, Duke (Ohio & Kentucky), Michigan Consolidated and National Grid. Our gas suppliers include EDF Trading, Chevron Texaco, Conoco Phillips, Chesapeake Energy Marketing, and Anadarko.

Company History

Universal Bioenergy, Inc. (UBRG) f/k/a Palomine Mining, Inc. was incorporated on August 13, 2004 under the laws of the State of Nevada.

Universal Bioenergy North America, Inc. (“UBNA”), our wholly owned subsidiary, was incorporated in the State of Nevada on January 23, 2007.

In October 2007, UBNA entered into a Purchase Agreement with UBRG in which UBNA became a subsidiary of UBRG. The purchase was consummated on December 6, 2007.

On October 24, 2007, the Company changed its name from Palomine Mining Inc., to Universal Bioenergy, Inc. to better reflect its business plan.

On March 7, 2008, the Board of Directors approved a change in the Company’s fiscal year end from January 31 to December 31. 

On April 12, 2010, Universal Bioenergy and NDR Energy Group, LLC, a Maryland limited liability company entered into a Member Interest Purchase Agreement in which Universal Bioenergy purchased a 49% Member Interest (See Note 10: Acquisition). NDR Energy Group markets energy and fuel such as natural gas, and propane.

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NOTE 2 - BASIS OF PRESENTATION

Interim Financial Statements

The accompanying interim unaudited condensed 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 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In our opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the threeand nine months period ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. While management of the Company believes that the disclosures presented herein and adequate and not misleading, these interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the footnotes thereto for the fiscal year ended December 31, 2010 as filed with the Securities and Exchange Commission.

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America. Significant accounting policies are as follows:

Principle of Consolidation

The consolidated financial statements include the accounts of Universal Bioenergy, Inc., Universal Bioenergy North America, Inc., and NDR Energy Group, LLC. Intercompany accounts and transactions have been eliminated in the consolidated financial statements.

On April 12, 2010, the Company acquired a direct 49% financial interest in NDR Energy Group, LLC (“NDR”). Additionally, an entity owned by officers of the Company acquired an additional 2% financial interest in NDR for a total direct and indirect financial interest and control of 51% of NDR. The operating agreement of NDR, provides for voting in proportion to ownership. The Company indirectly has 51% voting control of NDR and has accordingly consolidated its financial position, results of operations, and cash flows into these financial statements.

Use of Estimates and Assumptions

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and (iii) the reported amount of net sales and expenses recognized during the periods presented. Adjustments made with respect to the use of estimates often relate to improved information not previously available. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of financial statements; accordingly, actual results could differ from these estimates.

Revenue and Cost Recognition

Revenue includes product sales. The Company recognizes the majority of its consolidated revenue and cash flow from the sale of natural gas and related energy products at the time title to the product transfers, the amount is fixed and determinable, evidence of an agreement exists and the customer bears the risk of loss, net of provision for rebates and sales allowances in accordance with ASC Topic 605 “Revenue Recognition in Financial Statements”.

Management has considered the various factors discussed in ASC 605-45-14-4-c and ASC 605-45-45 and believe that our natural gas purchase and sale transactions are appropriately reported gross rather than net. Generally the Company is the primary obligor in the arrangement, and the Company has latitude in establishing price, we have discretion in supplier selection, and we have credit risk in the event our customer defaults on the transaction. Additionally, the Company’s supplier is not the primary obligor in the arrangement and the amount the Company earns is not fixed. Those transactions where the Company operates as an agent or broker for either the supplier or the customer at a fixed fee are reported net.

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UNIVERSAL BIOENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. At September 30, 2011 and 2010 the Company had no cash equivalents.

Property and Equipment

Property and equipment is recorded at cost and depreciated over the estimated useful lives of the assets using principally the straight-line method. When items are retired or otherwise disposed of, income is charged or credited for the difference between net book value and proceeds realized. Ordinary maintenance and repairs are charged to expense as incurred, and replacements and betterments are capitalized.

The range of estimated useful lives used to calculated depreciation for principal items of property and equipment are as follows:

Asset Category	Depreciation/Amortization Period
Building	40 Years
Plant Equipment	15 Years
Furniture and Fixture	3 Years
Office equipment	3 Years
Leasehold improvements	5 Years

Goodwill and Other Intangible Assets

The Company adopted Statement of Financial Accounting Standard (“FASB”) Accounting Standards Codification (“ASC”) Topic 350Goodwill and Other Intangible Assets, effective July 1, 2002. In accordance with (“ASC Topic 350”) "Goodwill and Other Intangible Assets," goodwill, represents the excess of the purchase price and related costs over the value assigned to net tangible and identifiable intangible assets of businesses acquired and accounted for under the purchase method, acquired in business combinations is assigned to reporting units that are expected to benefit from the synergies of the combination as of the acquisition date. Under this standard, goodwill and intangibles with indefinite useful lives are no longer amortized. The Company assesses goodwill and indefinite-lived intangible assets for impairment annually during the fourth quarter, or more frequently if events and circumstances indicate impairment may have occurred in accordance with ASC Topic 350. If the carrying value of a reporting unit's goodwill exceeds its implied fair value, the Company records an impairment loss equal to the difference. ASC Topic 350 also requires that the fair value of indefinite-lived purchased intangible assets be estimated and compared to the carrying value. The Company recognizes an impairment loss when the estimated fair value of the indefinite-lived purchased intangible assets is less than the carrying value.

Impairment of Long-Lived Assets

In accordance with ASC Topic 365,long-lived assets, such as property, plant, and equipment, and purchased intangibles, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Goodwill and other intangible assets are tested for impairment. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. There were no events or changes in circumstances that necessitated an impairment of long-lived assets.

Income Taxes

Deferred income taxes are provided based on the provisions of ASC Topic 740, "Accounting for Income Taxes", to reflect the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

The Company adopted the provisions of ASC Topic 740; "Accounting For Uncertainty In Income Taxes-An Interpretation Of ASC Topic 740 ("ASC Topic 740"). ASC Topic 740 contains a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not, that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate settlement. The Company considers many factors when evaluating and estimating the Company's tax positions and tax benefits, which may require periodic adjustments. At September 30, 2011, the Company did not record any liabilities for uncertain tax positions.

Share-Based Compensation

The Company applies Topic 718 “Share-Based Payments” (“Topic 718”) to share-based compensation, which requires the measurement of the cost of services received in exchange for an award of an equity instrument based on the grant-date fair value of the award.  Compensation cost is recognized when the event occurs.  The Black-Scholes option-pricing model is used to estimate the fair value of options granted.

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UNIVERSAL BIOENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

Concentration of Credit Risk

The Company maintains its operating cash balances in banks located in Irvine, California. The Federal Depository Insurance Corporation (FDIC) insures accounts at each institution up to $250,000.

Earnings Per Share

Basic income (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per share reflects the potential dilution that could occur if stock options, warrants, and other commitments to issue common stock were exercised or equity awards vest resulting in the issuance of common stock that could share in the earnings of the Company. Diluted loss per share is the same as basic loss per share, because the effects of the additional securities, a result of the net loss would be anti-dilutive.  

The Company's financial instruments consist primarily of cash, accounts payable.

Fair Value of Financial Instruments

The Company's financial instruments consist primarily of cash, accounts payable and accrued expenses, and debt. The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities and approximate market interest rates of these instruments.  The estimated fair value is not necessarily indicative of the amounts the Company would realize in a current market exchange or from future earnings or cash flows.

The Company adopted ASC Topic 820, Fair Value Measurements (“ASC Topic 820”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.  The standard provides a consistent definition of fair value which focuses on an exit price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  The standard also prioritizes, within the measurement of fair value, the use of market-based information over entity specific information and establishes a three-level hierarchy for fair value measurements based on the nature of inputs used in the valuation of an asset or liability as of the measurement date.

The three-level hierarchy for fair value measurements is defined as follows:

• Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets;

• Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable or the asset or liability other than quoted prices, either directly or indirectly including inputs in markets that are not considered to be active;

• Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value.  

Reclassification

Certain prior period amounts have been reclassified to conform to current year presentations.

Recent Accounting Pronouncements

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

In January 2010, the FASB issued an amendment to ASC 505, Equity, where entities that declare dividends to shareholders that may be paid in cash or shares at the election of the shareholders are considered to be a share issuance that is reflected prospectively in EPS, and is not accounted for as a stock dividend. This standard is effective for interim and annual periods ending on or after December 15, 2009 and is to be applied on a retrospective basis. The adoption of this standard is not expected to have a significant impact on the Company’s consolidated financial statements.

On February 24, 2010, the FASB issued guidance in the “Subsequent Events” topic of the FASC to provide updates including: (1) requiring the company to evaluate subsequent events through the date in which the financial statements are issued; (2) amending the glossary of the “Subsequent Events” topic to include the definition of “SEC filer” and exclude the definition of “Public entity”; and (3) eliminating the requirement to disclose the date through which subsequent events have been evaluated. This guidance was prospectively effective upon issuance. The adoption of this guidance did not impact the Company’s results of operations of financial condition.

In January 2010, the Financial Accounting Standards Board (“FASB”) issued guidance to amend the disclosure requirements related to recurring and nonrecurring fair value measurements. The guidance requires new disclosures on the transfers of assets and liabilities between Level 1 (quoted prices in active market for identical assets or liabilities) and Level 2 (significant other observable inputs) of the fair value measurement hierarchy, including the reasons and the timing of the transfers. Additionally, the guidance requires a roll forward of activities on purchases, sales, issuance, and settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). The guidance became effective for us with the reporting period beginning January 1, 2010, except for the disclosure on the roll forward activities for Level 3 fair value measurements, which will become effective for us with the reporting period beginning July 1, 2011. Other than requiring additional disclosures, adoption of this new guidance did not have a material impact on our financial statements.

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UNIVERSAL BIOENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 - NET LOSS PER SHARE

The net loss per common share is calculated by dividing the income and loss by the weighted average number of shares outstanding during the periods.

The following table represents the computation of basic and diluted income and losses per share:
		For the Nine Months Ended September 30, 2011		For the Nine Months Ended September 30, 2010
Net Loss available for common shareholders	$	(1,244,291)	$	(914,306)
Weighted average common shares outstanding		(54,917,647)		(46,059,172)
Basic and fully diluted net loss per share	$	(.03)	$	(.02)
Net loss per share is based upon the weighted average shares of common stock outstanding

The effect of common shares issuable under convertible notes is Anti-Dilutive and not included in diluted net loss per share.

NOTE 5 - EQUITY

On November 3, 2007, the Company authorized an aggregate of 1,000,000 preferred series A and B shares, at $.001 par value. Presently, there are no series A issued and outstanding, and 232,350 series B preferred shares issued and outstanding as of September 30, 2011. On July 22, 2010 the Company cancelled the 100,000 preferred A shares of the Company where as no preferred A shares were issued and outstanding of that date. The Series A preferred shares were cancelled by the transfer agent on June 15, 2011 and returned to the Company.

On May 9, 2011, the Company amended itsArticles of Incorporation and increased the authorized shares of common stock to 1,000,000,000 shares at $.001 par value, and 140,968,383 sharesof common stock were issued and outstanding as of September 30, 2011.

Common Stock Issued

Fiscal Year 2011

At September 30, 2011, there were no outstanding stock options or warrants.

On February 10, 2011, the Company issued 1,000,000 shares of common stock to Progas Energy Services in accordance with the Amendment to the Participation and Operating Agreements, valued at $42,000 on the date of issue.

On February 14, 2011, the Company issued 2,500,000 shares of common stock to a consultant in accordance with their consulting agreement valued at $111,250 on the date of issue.

On February 15, 2011, the Company converted three of its Notes payable, dated 4/26/10, 5/24/10 and 7/15/10 for a combined total of $21,750 and issued 4,350,000 common shares for that conversion. No accrued interest was due on the note upon conversion. This conversion of debt reduced their notespayables by $21,750.

On February 15, 2011, the Company converted an additional three of its Notes payable dated 4/26/10, 5/24/10 and 7/15/10 for a combined of $21,750 and issued 4,350,000 common shares for that conversion. No accrued interest was due on the note upon conversion. This conversion of debt reduced their notes payables by $21,750. These notes were for a different investor than the one indicated above.

On February 15, 2011, the Company issued 1,000,000 shares of common stock to a consultant in accordance with their agreement valued at $40,000 on the date of issue.

On March 7, 2011, the Company converted one of its Notes payable dated 6/30/10, for a total of $32,000 and issued 6,400,000 common shares for that conversion. No accrued interest was due on the note upon conversion. This conversion of debt reducedtheir notes payables by $32,000.

On March 14, 2011, the Company converted one of its Notes payable dated 5/20/10, for a total of $28,000 and issued 5,600,000 common shares for that conversion. No accrued interest was due on the note upon conversion. This conversion of debt reduced their notes payables by $28,000.

On March 22, 2011, the Company converted one of its Notes payable dated 7/20/10, for a total of $15,350 and issued 3,070,000 common shares for that conversion. No accrued interest was due on the note upon conversion. This conversion of debt reduced their notes payables by $15,350.

On June 24, 2011, the Company converted four of its Notes payable dated 7/4/09, 2/16/10, 3/20/10 and 5/25/10 for a combined total of $146,600 and issued 8,635,555 shares of common stock. This conversion of debt reduced their notes payables by $146,600.

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UNIVERSAL BIOENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – EQUITY (CONT’D)

On July 12, 2011,the Company issued 11,415,311 shares of common stock, as a stock dividend to all registered shareholders of record in accordance with the Company’s resolution and declaration. Previously, on June 6, 2011, our Board of Directors passed a resolution and declared a stock dividend to distribute to all registered shareholders of record on or before July 1, 2011, on a 10 for 1 basis the stock indicated above.

On July 29, 2011 the Company converted one of its Notes payable dated 9/27/10, for a total of $50,000 and issued 10,000,000 common shares for that conversion. No accrued interest was due on the note upon conversion. This conversion of debt reduced their notes payables by $50,000.

On September 14, 2011, the Company issued 3,000,000 shares of common stock for services, of which 1,000,000 shares were issued to an employee of the Company, and 1,000,000 shares each, was issued to two employees of NDR Energy Group LLC for services, valued at $133,500 on the date of issue.

On September 22, 2011 the Company converted one of its Notes payable dated 11/23/10, for a total of $12,000 and issued 2,400,000 common shares for that conversion. No accrued interest was due on the Note upon conversion. This conversion of debt reduced the Company’s Notes payables by $12,000.

On October 12, 2011 the Company converted one of its Notes payable dated 12/31/10, for a total of $30,000 and issued 1,500,000 common shares for that conversion. No accrued interest was paid on the Note upon conversion. This conversion of debt reduced the Company’s Notes payables by $30,000.

On October 19, 2011 the Company completed a partial conversion of one of its Notes payable dated 12/31/10, and issued 23,545,000 common shares for that conversion. On October 20, 2011 the Company completed the final conversion of this Note and issued 18,487,600 shares for that conversion. The principal amount of the Note was $164,833, with $45,329 in accrued interest due on the Note upon conversion. The total amount due to the Holder at the time of conversion, (with principal and interest) was $210,162. This conversion of debt reduced the Company’s Notes payables by $210,162.

On October 25, 2011 the Company completed a partial conversion of one of its Notes payable dated 08/26/10, with a principal amount of $36,919. A total of $27,249 worth of the Note was converted, and 5,449,800 common shares were issued for that part of the conversion, which leaves a remaining balance of $9,670 of the principal of the Note. No accrued interest was paid on the Note upon conversion. This conversion of debt reduced the Company’s Notes payables by $27,249.

On October 27, 2011 the Company converted one of its Notes payable dated 12/31/10, with a principal amount of $16,045, and one dated 12/31/10 for $89,014 and issued 7,396,767 common shares for that conversion. The combined principal amount of the Notes was $105,059, with $10,238 in combined accrued interest due on the Notes upon conversion. The total amount due to the Holder at the time of conversion, (with principal and interest) was $115,297. This conversion of debt reduced the Company’s Notes payables by $115,297.

Fiscal Year 2010

On September 13, 2010 the Company converted two of its Notes payable dated 11/22/09, to a total of 2,000,000 shares of common stock. This conversion of debt reduced their notes payables of $45,000 and $6,157 in accrued interest with a totalreduction by $51,157.

On September 15, 2010 the Company issued 5,233,450 common shares to related parties in accordance with the terms of their employment agreements. The stock was trading at $.06 and the Company expensed $314,007 for the issuance of shares of stock.

On October 5, 2010 the Company converted one of its Notes payable, for a total of 24,559,067 to common stock. This conversion of debt reduced our notes payables of $184,000, and the Company expensed $494,752.

Issuance of preferred shares

More detailed information about the issuance of preferred shares is discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010. The information is fully discussed in Part II, Item 8. – Note 4 – Equity, “Preferred Stock”, pages F-10 through F-15, and Note 10 – Commitments And Contingencies, pages F-24 through F-26. There have been no material changes from the information previously disclosed in that Form 10-K.

NOTE 6 - PROPERTY AND EQUIPMENT

The Companyhas property and equipment as of September 30, 2011 and December 31, 2010 as follows:

	September 30, 2011			December 31,2010
Equipment	$	13,094		$	13,094
Land		50,000			50,000
Building		75,000			75,000
Accumulated depreciation		(4,896	)		(1,527	)
Total	$	133,198		$	136,567

There was $1,123 and $873 depreciation expense for the three months ended September 30, 2011 and 2010 respectively. The Company has not recorded any depreciation expense related to its processing facility as it has not been placed in service as of September 30, 2011. The Company in its Form 10-K Annual Report for the period ending December 31, 2009, in Part II — “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations”, on page 22, and additionally under “Item 8 - Financial Statements, Note 3 – Summary of Significant Accounting

Policies” on page F-10, under “Impairment of Long-Lived Assets”, stated, “There were events or changes in circumstances that necessitated an impairment of long lived assets. During 2008, the Company impaired its long lived assets based on the value of the Land, Equipment, and building facility by $1,655,972. Due to the reduction in valuations in Mississippi of land and building and diminished economic viability of biodiesel production the total valuations of that acquisition has reduced significantly in overall value of the assets to $290,000.” The property and equipment was subsequently impaired to a net value of $136,567 as reported in our Form 10-K Annual Report for the period ending December 31, 2010, in Part II – Item 8 – Financial Statements on the Consolidated Balance Sheet on page F-2. The Company impaired the assets to its net realizable value and adjusted accumulated depreciation to zero during that impairment.

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NOTE 7 – CONVERTIBLE NOTESPAYABLE

		September 30, 2011			December 31, 2010
On July 4, 2009 the Company sold 25,000 units in a private placement for $25,000 at $1.00 per unit.  The Units are similar to a debenture and act as a debt to the company. The term is for three years, and the Units receive a return of a 30% annual stock dividend and no payments are paid for the reduction of this debt.  After the six month holding period the purchaser has the option to convert part or all of the Units into common stock. The Note is secured by the general assets of the Company with total assets of $13,260,731, including the property at 128 Biodiesel Drive, Nettleton, MS, with a net book value of $136,567 at December 31, 2010.  On June 24, 2011 this Note was converted. See Note 5 - Equity for more details			—			25,000
On February 16, 2010 the Company entered into a two (2) year convertible Promissory Note with a non-related creditor for $13,000 at 10% interest. The holder has the right to convert the note to common stock. On June 24, 2011 this Note was converted. See Note 5- Equity for more details			—			13,000
On March 30, 2010 the Company entered into a two (2) year convertible Promissory Note with a non-related creditor for $8,600 at 10% interest.  The holder has the right to convert the note to common stock. On June 24, 2011 this Note was converted. See Note 5- Equity for more details			—			8,600
On April 26, 2010 the Company entered into a two (2) year convertible Promissory Note with a non-related creditor for $6,750 at 10% interest.  The holder has the right to convert the note to common stock. On February 15, 2011 this Note was converted. See Note-5 Equity for more details			—			6,750
On April 26, 2010 the Company entered into a two (2) year convertible Promissory Note with a non-related creditor for $6,750 at 10% interest.  The holder has the right to convert the note to common stock. On February 15, 2011 this Note was converted. See Note-5 Equity for more details			—			6,750
On May 24, 2010 the Company entered into a two (2) year convertible Promissory Note with a non-related creditor for $10,500 at 10% interest.  The holder has the right to convert the note to common stock. On February 15, 2011 this Note was converted. See Note-5 Equity for more details			—			10,500
On May 24, 2010 the Company entered into a two (2) year convertible Promissory Note with a non-related creditor for $10,500 at 10% interest.  The holder has the right to convert the note to common stock. On February 15, 2011 this Note was converted. See Note-5 Equity for more details			—			10,500
On May 25, 2010 the Company entered into a two (2) year convertible Promissory Note with a non-related creditor for $100,000 at 10% interest.  The holder has the right to convert the note to common stock. On June 24, 2011 this Note was converted. See Note-5 Equity for more details			—			100,000
On June 30, 2010 the Company entered into a two (2) year convertible Promissory Note with a non-related creditor for $32,000 at 10% interest.  The holder has the right to convert the note to common stock. On March 7, 2011 this Note was converted. See Note-5 Equity for more details			—			32,000
On July 15, 2010 the Company entered into a two (2) year convertible Promissory Note with a non-related creditor for $4,500 at 10% interest.  The holder has the right to convert the note to common stock. On February 15, 2011 this Note was converted. See Note-5 Equity for more details			—			4,500
On July 15, 2010 the Company entered into a two (2) year convertible Promissory Note with a non-related creditor for $4,500 at 10% interest.  The holder has the right to convert the note to common stock. On February 15, 2011 this Note was converted. See Note-5 Equity for more details			—			4,500
On August 26, 2010 the Company entered into a two (2) year convertible Promissory Note with a non-related creditor for $36,919 at 10% interest.  The holder has the right to convert the note to common stock. *See note below			36,919			36,919
On August 30, 2010 the Company entered into a two (2) year convertible Promissory Note with a non-related creditor for $25,300 at 10% interest.  The holder has the right to convert the note to common stock. *See note below			25,300			25,300
On August 30, 2010 the Company entered into a two (2) year convertible Promissory Note with a non-related creditor for $25,200 at 10% interest.  The holder has the right to convert the note to common stock. *See note below			25,200			25,200
On November 23, 2010 the Company entered into a two (2) year convertible Promissory Note with a non-related creditor for $12,000 at 10% interest.  The holder has the right to convert the note to common stock. On September 22, 2011 this Note was converted. See Note-5 Equity for details			—			12,000
On September 27, 2010 the Company entered into a two (2) year convertible Promissory Note with a non-related creditor for $50,000 at 10% interest.  The holder has the right to convert the note to common stock. On July 29, 2011 this Note was converted. See Note-5 Equity for more details			—			50,000
On May 20, 2010 the Company entered into a two (2) year convertible Promissory Note with a non-related creditor for $28,000 at 10% interest.  The holder has the right to convert the note to common stock. On March 14, 2011 this Note was converted. See Note-5 Equity for more details			—			28,000
On July 20, 2010 the Company entered into a two (2) year convertible Promissory Note with a non-related creditor for $15,350 at 10% interest.  The holder has the right to convert the note to common stock. On March 22, 2011 this Note was converted. See Note-5 Equity for more details			—			15,350
On December 3, 2010 the Company entered into a two (2) year convertible Promissory Note with a non-related creditor for $4800 at 10% interest.  The holder has the right to convert the note to common stock. *See note below			4,800			4,800
On December 31, 2010 the Company entered into a two (2) year convertible Promissory Note with Richard D Craven, its former CEO for $16,045 at 10% interest for the accrued compensation and expenses owed to him for the fiscal year 2008 in accordance with his Employment Agreement.  The holder has the right to convert the note to common stock. *See note below			16,045			16,045
On December 31, 2010 the Company entered into a two (2) year convertible Promissory Note with Richard D Craven, its former CEO for $163,694 at 10% interest for the accrued compensation and expenses owed to him for the fiscal year 2009 in accordance with his Employment Agreement.  The holder has the right to convert the note to common stock. *See note below			163,694			163,694
On December 31, 2010 the Company entered into a two (2) year convertible Promissory Note with its Vice President, Solomon Ali for $164,833 at 10% interest for the accrued compensation owed to him for the fiscal year 2009 in accordance with his Employment Agreement.  The holder has the right to convert the note to common stock. *See note below			164,833			164,833
On December 31, 2010 the Company entered into a two (2) year convertible Promissory Note with an Employee for $30,000 at 10% interest for the accrued compensation owed to him for the fiscal year 2010 in accordance with his Employment Agreement.  The holder has the right to convert the note to common stock. *See note below	��		30,000			30,000
On December 31, 2010 the Company entered into a two (2) year convertible Promissory Note with its President and CEO, Vince M. Guest for  $136,000 at 10% interest for the accrued compensation owed to him for the fiscal year 2010 in accordance with his Employment Agreement.  The holder has the right to convert the note to common stock. *See note below			136,000			136,000
On December 31, 2010 the Company entered into a two (2) year convertible Promissory Note with its Vice President Solomon Ali, for $165,000 at 10% interest for the accrued compensation owed to him for the fiscal year 2010 in accordance with his Employment Agreement.  The holder has the right to convert the note to common stock. *See note below			165,000			165,000
On December 31, 2010 the Company entered into a two (2) year convertible Promissory Note with Richard D Craven, its former CEO for $89,014 at 10% interest for the accrued compensation and expenses owed to him for the fiscal year 2010 in accordance with his Employment Agreement.  The holder has the right to convert the note to common stock. *See note below			89,014			89,014
On January 18. 2011 the Company entered into a two (2) year convertible Promissory Note with a non-related creditor for $10,000 at 10% interest.  The holder has the right to convert the note to common stock. *See note below			10,000			—
On January 19. 2011 the Company entered into a two (2) year convertible Promissory Note with a non-related creditor for $10,000 at 10% interest.  The holder has the right to convert the note to common stock. *See note below			10,000			—
On February 23. 2011 the Company entered into a two (2) year convertible Promissory Note with a non-related creditor for $45,400 at 10% interest. The holder has the right to convert the note to common stock. *See note below			45,400			—
On February 25. 2011 the Company entered into a two (2) year convertible Promissory Note with a non-related creditor for $9,400 at 10% interest.  The holder has the right to convert the note to common stock. As of September 30, 2011, $7,835 has been repaid. *See note below			1,565			—
On March 10. 2011 the Company entered into a two (2) year convertible Promissory Note with a non-related creditor for $25,000 at 10% interest.  The holder has the right to convert the note to common stock at $.005. *See note below			25,000			—
On March 14. 2011 the Company entered into a two (2) year convertible Promissory Note with a non-related creditor for $25,000 at 10% interest.  The holder has the right to convert the note to common stock. *See note below			25,000			—
On March 28, 2011 the Company entered into a two (2) year convertible Promissory Note with a non-related creditor for $72,000 at 10% interest.  The holder has the right to convert the note to common stock. *See note below			72,500			—
On May 20, 2011 the Company entered into a three (3) year convertible Promissory Note with a non-related creditor for $20,600 at 10% interest.  The holder has the right to convert the note to common stock. *See note below			20,600			—
On May 23, 2011 the Company entered into a three (3) year convertible Promissory Note with a non-related creditor for $89,000 at 10% interest.  The holder has the right to convert the note to common stock. *See note below			89,000			—
On May 30, 2011 the Company entered into a three (3) year convertible Promissory Note with a non-related creditor for $110,424 at 10% interest.  The holder has the right to convert the note to common stock. *See note below			110,424			—
On June 25, 2011 the Company entered into a three (3) year convertible Promissory Note with a non-related creditor for $49,200 at 10% interest.  The holder has the right to convert the note to common stock. *See note below			49,200			—
On July 29, 2011, the Company entered into a three (3) year convertible Promissory Note with a non-related creditor for $40,000 at 10% interest. The holder has the right to convert the note to common stock. *See note below			40,000			—
On August 29, 2011, the Company entered into a three (3) year convertible Promissory Note with a non-related creditor for $29,500 at 10% interest. The holder has the right to convert the note to common stock. *See note below			29,500			—
Total long-term note payable			1,384,994			1,184,255
Less current portion			—			—
Less Discount from Beneficial Conversion Feature			(944,635	)		(970,900	)
Long-term portion of note payable		$	440,359		$	213,355

Principal maturities of notes payable as of September 30, 2011 for the next five years and thereafter is as follows:

2011	$	-0-
2012	$	856,805
2013	$	189,465
2014	$	338,724
2015	$	-0-
Total	$	1,384,994

For the above convertible notes, pursuant to ASC Topic 470, the Company reviewed and determined that in most cases a beneficial conversion feature existed since the conversion price was less than market price at the date the notes were issued. The beneficial conversion feature is amortized over the life of the note using the interest method.

*For more information on the Convertible Notes see Part II - Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations under “Debt” - Convertible Debt, pages 45 through 49, and Item 8 - Note 7, “Convertible Notes Payable” pages F-16 through F-20, and Part I – Item 1A, “Risk Factors”, pages 18 through 25 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

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NOTE 8 - INCOME TAXES

The Company adopted ASC Topic 740 which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statement or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Temporary differences between taxable income reported for financial reporting purposes and income tax purposes are insignificant.

For income tax reporting purposes, the Company’s aggregate unused net operating losses approximate $18,677,462 and $16,725,422 as of September 30, 2011 and December 31, 2010, respectively, which expire in various years through 2031, subject to limitations of Section 382 of the Internal Revenue Code, as amended. The Company has provided a valuation reserve against the full amount of the net operating loss benefit of $18,677,462 and $16,725,422 as of September 30, 2011 and December 31, 2010, respectively, an increase of $1,244,291 because in the opinion of management based upon the earning history of the Company, it is more likely than not that the benefits will not be realized.

Under the Tax Reform Act of 1986, the benefits from net operating losses carried forward may be impaired or limited on certain circumstances. Events which may cause limitations in the amount of net

perating losses that the Company may utilize in any one year include, but are not limited to, a cumulative ownership change of more than 50% over a three-year period. The impact of any limitations that may be imposed for future issuances of equity securities, including issuances with respect to acquisitions have not been

determined.

NOTE 9 – RELATED PARTY TRANSACTION

On April 12, 2010, the option to acquire the final 2% member interest in NDR was assigned to a prior officer of the Company, Richard D. Craven, and current officers Vince M. Guest and Solomon Ali, along with a grant of 4,000,000 shares of stock as a bonus for managing and closing the NDR Energy acquisition.  The 2% stake was acquired for 4,000,000 shares of stock, by exercising the option.  The 4,000,000 in stock was paid as a premium on the purchase price for the additional 2% of NDR’s member interests. All of the stock was issued to NDR. The 2% member interest in NDR Energy is owned by Varlos Energy Holdings LLC, of which Vince M. Guest, Solomon Ali, and Richard D. Craven are members of the company.

Vince M. Guest. Under Vince Guest's employment agreement, he has agreed to serve as the President and Chief Executive Officer. His term of service under this agreement commenced on July 1, 2010 and continues for a term of two (2) years with renewal options. The agreement provides for a base salary of $174,000 for the first year of the term and an annual increase of at least 8% thereafter. The agreement also provides Vince Guest with a monthly or quarterly bonus of five percent (5%) of net profits.  Theagreement also provides for participation in the Company’ s programs to acquire options or equity incentives in common stock subject to the discretion of the Board of Directors, expense reimbursements, participation in retirement and benefit plans, paid time off and indemnification and liability coverage. The Company can terminate Vince Guest's employment with cause, or without cause upon certain written notice and Vince Guest can terminate the agreement for "good reason" as defined in the agreement. There are specific severance provisions, as well as confidentiality and non-solicitation requirements resulting from any termination.

Solomon Ali. Under Solomon Ali's employment agreement, he has agreed to serve as the Senior Vice President. His term of service under this agreement commenced on July 1, 2010 and continues for a term of two (2) years with renewal options. The agreement provides for a base salary of $174,000 for the first year of the term and an annual increase of at least 8% thereafter. The agreement also provides Solomon Ali with a monthly or quarterly bonus of five percent (5%) of net profits.  The agreement also provides for participation in the Company’ s programs to acquire options or equity incentives in common stock, subject to the discretion of the Board of Directors, expense reimbursements, participation in retirement and benefit plans, paid time off and indemnification and liability coverage. The Company can terminate Solomon Ali's employment with cause, or without cause upon certain written notice and Solomon Ali can terminate the agreement for "good reason" as defined in the agreement. There are specific severance provisions, as well as confidentiality and non-solicitation requirements resulting from any termination.

Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers;

In September 2010, the President and CEO, Vince M. Guest converted accrued compensation due him under his 2009 and 2010 contracts to two convertible notes payable totaling approximately $184,000, convertible to common stock at a price of $.0075 per share.Additionally, since the market price substantially exceeded the conversion price for the other note, approximating $117,000, a beneficial conversion feature in the full amount of the note was recognized to be amortized over the life of the note. October 2010 the Company converted the note payable to Mr. Guest to approximately 15,597,000 shares of restricted common stock, issued to unaffiliated third parties. The unamortized beneficial conversion feature of approximately $117,000 was expensed at that time.

On December 31, 2010 the Company entered into a two (2) year convertible Promissory Note with its President and CEO, Vince M. Guest for $136,000 at 10% interest for the balance of the accrued compensation owed to him for the fiscal year 2010 in accordance with his Employment Agreement. The holder has the right to convert the note to common stock at $.015.

On December 31, 2010 the Company entered into a two (2) year convertible Promissory Note with its Vice President, Solomon Ali for $164,833 at 10% interest for the accrued compensation owed to him for the fiscal year 2009 in accordance with his Employment Agreement. The holder has the right to convert the note to common stock at $.005.

On December 31, 2010 the Company entered into a two (2) year convertible Promissory Note with its Vice President Solomon Ali, for $165,000 at 10% interest for the accrued compensation owed to him for the fiscal year 2010 in accordance with his Employment Agreement. The holder has the right to convert the note to common stock at $.015.

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NOTE 10 – ACQUISTION

Entry into a Material Definitive Agreement

Universal Bioenergy Inc., a Nevada corporation and NDR Energy Group, LLC, a Maryland limited liability company (“NDR” or “NDR Energy Group”), entered into a Member Interest Purchase Agreement, (the “Purchase Agreement”) dated as of April 12, 2010.  Pursuant to the Purchase

Agreement and subject to the conditions set forth therein, the Company purchased forty nine 49% of the Member Interests of NDR for common stock of the Company

The completion of the acquisition was approved by the Board of Directors of the Company.

Each of the Company and NDR Energy Group has made customary representations and warranties in the Purchase Agreement. NDR Energy Group has also agreed to various covenants in the Purchase Agreement, including, among other things, (i) to conduct its business in the ordinary course consistent

with past practice in all material respects during the period between the execution of the Purchase Agreement and the closing of the transaction and (ii) not to solicit alternate transactions.

Universal’s  management believes that the association with NDR Energy Group  will give the Company the needed sales outlets through NDR Energy Group’s distribution channels, the  marketing / brokering of natural gas, biofuels, and energy efficiency conversions as part of its new business focus.

Additional Summary of the Purchase Agreement

According to the agreement, the Company at the “Closing” exercised its right to purchase additional equity of the Member Interests of NDR Energy.  NDR Energy will appoint 2 seats on its Board of Managers as selected by the Company.  The Company agrees to provide NDR Energy Group with Management Support Services. The Company intended to provide, arrange, establish or otherwise make available to NDR a loan or line of creditto provide $1,000,000 in working capital. The Company intended to arrange, on a best efforts basis, a “Financing Facility / Credit Line up to an estimated amount of $300

million dollars drawn on a major U.S. bank or similar financial institution, to purchase its natural gas contract receivables, and help fund its growth and expansion. NDR Energy Group agrees to comply in accordance with the related financial covenants. Unfortunately, due to the conservative and restrictive lending policies during the recession, we were not able to secure the final funding for the “Financing Facility/ Credit Line”.

The original 49% interest in NDR Energy was purchased for 1,000,000 shares of Universal Bioenergy common stock, and a $1,000,000 loan to NDR.

The option to acquire the final 2% member interest in NDR was assigned to a prior officer of the Company, Richard D. Craven, and current officers Vince M. Guest and Solomon Ali, along with a grant of 4,000,000 shares of stock as a bonus for managing and closing the NDR Energy acquisition.  The 2% stake was acquired for 4,000,000 shares of stock, by exercising the option.  The 4,000,000 in stock was paid as a premium onthe purchase price for the additional 2% of NDR’s member interests. All of the stock was issued to NDR. The 2% member interest in NDR Energy is owned by Varlos Energy Holdings LLC, of which Vince M. Guest, Solomon Ali, and Richard D. Craven are members of the company.

The following table summarizes the consideration paid by Universal and the amounts of the assets acquired at the acquisition date:

Purchase Price Allocation	April 12, 2010
Consideration:
Equity instruments (5,000,000 common shares of Consolidation Services, Inc.)	$	250,000
Recognized amounts of identifiable assets acquired:
Client List		250,000
Total assets	$	250,000
Fair value of total assets	$	250,000

The following (unaudited) pro-forma consolidated results of operations have been prepared as if the acquisition had occurred at January 1, 2010 and 2011.

	Nine Months Ended
	2011			2010
REVENUES		49,904,114			20,355,534
Net Loss		(1,375,382	)		(955,284	)
Net income per share basic and diluted	$	(0.02	)	$	(0.02	)
Weighted average of shares outstanding		54,917,647			46,059,172

NOTE 11 - CONTINGENCIES

There are no contingencies to report at this time

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UNIVERSAL BIOENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 – SUBSEQUENT EVENTS

On October 17, 2011, the Company entered into a Member Interest Exchange Agreement for the acquisition of a 40% stake in Whitesburg Friday Branch Mine LLC, of Kentucky, from JLP and Partners LLC. The Whitesburg Friday Mine, operates, mines and produces thermal coal in eastern Kentucky for sale to electric utilities for use in steam plant electric power production. The Closing of the transaction is expected to occur in the fourth calendar quarter of 2011.

On October 25, 2011, NDR Energy Group signed a natural gas supply agreement with Laclede Gas Company.Laclede Gas is a public utility engaged in the retail distribution and sale of natural gas. Laclede Gas Company is the largest natural gas distribution utility in Missouri, serving approximately 630,000 residential, commercial and industrial customers in the city of St. Louis and ten other counties in Eastern Missouri.Laclede Gas Company is a wholly owned subsidiary of the Laclede Group, Inc., a public utility holding company which reported over $1.73 billion in revenue 2010, in its SEC filings.

NOTE 13 - GOING CONCERN ISSUES

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has accumulated deficit totaling $18,677,462 from its inception to September 30, 2011. Furthermore, the Company has consistently had to raise debt and equity capital to fund cash used in operations.

These factors raise doubt about the ability of the Company to continue as a going concern, if the Company does not continue to raise sufficient amounts of capital. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. The Company's ability to meet its obligations and continue as a going concern is dependent upon its ability to obtain additional financing, achievement of profitable operations and/or the discovery, exploration, development and sale of gas reserves.

Our ability to implement our growth plans will depend primarily on our ability to obtain additional private or public equity or debt financing. We are currently seeking additional capital to achieve our goals and objectives. Such financing may not be available at all, or we may be unable to locate and secure additional capital on terms and conditions that are acceptable to us. Our failure to obtain additional capital may have a material adverse effect on our business.

We believe, although we cannot guarantee, and remain confident, that we will be able to raise capital in sufficient amounts to execute the business strategies, plans and decisions that have been made by the Company, and to meet the potential challenges.

NOTE 14 – COMMITMENTS AND CONTINGENCIES

There are no Commitments and Contingencies to report for this period.

For more information on any Commitments And Contingencies, see Part II – Item 8 – Note 10, “Commitments And Contingencies” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010. Our situation has not changed materially from the description in the Annual Report on Form 10-K.

NOTE 15 - CONCENTRATIONS

At September 30, 2011, 94% of the Company's accounts receivable was due from a single customer, during the three months ended September 30, 2011, and 61% of total revenue was generated from a single customer, for the three months ended September 30, 2011.

* * * * * *

In this Quarterly Report on Form 10-Q, “Company,” “our company,” “us,” and “our” refer to Universal Bioenergy, Inc. and its subsidiaries, unless the context requires otherwise.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis contains various “forward looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, regarding future events or the future financial performance of the Company that involve risks and uncertainties. Certain statements included in this Form 10Q, including, without limitation, statements related to anticipated cash flow sources and uses, and words including but not limited to “anticipates”, “believes”, “plans”, “expects”, “future” and similar statements or expressions, identify forward looking statements. Any forward-looking statements herein are subject to certain risks and uncertainties in the Company’s business, including but not limited to, reliance on key customers and competition in its markets, market demand, technological developments, maintenance of relationships with key suppliers, difficulties of hiring or retaining key personnel and any changes in current accounting rules, all of which may be beyond the control of the Company. The Company adopted at management’s discretion, the most conservative recognition of revenue based on the most astringent guidelines of the SEC in terms of recognition of software licenses and recurring revenue. Management will elect additional changes to revenue recognition to comply with the most conservative SEC recognition on a forward going accrual basis as the model is replicated with other similar markets (i.e. SBDC). The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth therein.

Forward-looking statements involve risks, uncertainties and other factors, which may cause our actual results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements. Factors and risks that could affect our results and achievements and cause them to materially differ from those contained in the forward-looking statements include those identified in the section titled “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, as well as other factors that we are currently unable to identify or quantify, but that may exist in the future.

We based the forward-looking statements on our current expectations, estimates and projections about ourselves and the industries in which we operate in general. We caution you these statements are not guarantees of future performance as they involve assumptions that, while made in good faith, may prove to be incorrect, and involve risks and uncertainties we cannot predict. In addition, we based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. Accordingly, our actual outcomes and results may differ materially from what we have expressed or forecast in the forward-looking statements. Any differences could result from a variety of factors, including the following:

1. Fluctuations in crude oil, natural gas and natural gas liquids prices, refining and marketing margins.
2. Potential failures or delays in achieving expected reserve or production levels from existing and future oil and gas development projects due to operating hazards, drilling risks and the inherent uncertainties in predicting oil and gas reserves and oil and gas reservoir performance.
3. Failure of new products and services to achieve market acceptance.
4. Unexpected technological or commercial difficulties in manufacturing, refining or transporting our products.
5. Lack of, or disruptions in, adequate and reliable transportation for our crude oil, natural gas, natural gas liquids,liquefied natural gas (LNG) and refined products.
6. Inability to timely obtain or maintain permits, including those necessary for construction projects; or to comply with government regulations; or make capital expenditures required to maintain compliance.
7. Failure to complete definitive agreements and feasibility studies for, and to timely complete construction of, announced and future exploration and production, LNG, and transportation projects.
8. Potential disruption or interruption of our operations due to accidents, extraordinary weather events, civil unrest, political events or terrorism.
9. International monetary conditions and exchange controls.
10. Substantial investment or reduced demand for products as a result of existing or future environmental rules and regulations.
11. Liability resulting from litigation.
12. General domestic and international economic and political developments, including armed hostilities; expropriation of assets; changes in governmental policies relating to crude oil, natural gas, natural gas liquids or refined product pricing, regulation or taxation; other political, economic or diplomatic developments; and international monetary fluctuations.
13. Changes in tax and other laws, regulations (including alternative energy mandates), or royalty rules applicable to our business.
14. Limited access to capital or significantly higher cost of capital related to uncertainty in the domestic or international financial markets.
15. Inability to obtain economical financing for projects, construction or modification of facilities and general corporate purposes.

In addition, the foregoing factors may affect generally our business, results of operations and financial position. Forward-looking statements speak only as of the date the statement was made. We do not undertake and specifically decline any obligation to update any forward-looking statements.

Overview of Our Company

Universal Bioenergy Inc. is an independent diversified energy company, headquartered in Irvine, California. Our common stock is presently listed on the OTC Pink Sheet Markets trading systems under the trading symbol “UBRG”. Universal Bioenergy Inc. was incorporated on August 13, 2004 in the State of Nevada, under the name of Palomine Mining Inc. On October 24, 2007, the Company changed its name from Palomine Mining Inc., to Universal Bioenergy Inc. to better reflect its new business plan and strategic direction.

Our primary business focus is the production, marketing and sales of natural gas, petroleum, coal propane and alternative energy. Through our subsidiary NDR Energy Group LLC, we presently sell natural gas to 27 of the largest public utilities, electric power producers and local gas distribution companies that serve millions of commercial, industrial and residential customers throughout the United States. We are also engaged in the acquisition of oil and gas fields, lease acquisitions, and development of newly discovered or recently discovered oil and gas fields, re-entering existing wells, transmission and marketing of the products to our customer base. We are continuing our growth through an ongoing series of acquisitions, the most recent of which was NDR Energy Group LLC.

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 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONT’D

Recent Developments

NDR Energy Group LLC.

In April 2010, we expanded into the natural gas energy market by the acquisition of a 49% stake in NDR Energy Group LLC, in Charlotte, North Carolina (“NDR Energy”). NDR Energy markets natural gas, and was established in the State of Maryland on September 28, 2005. Through NDR Energy, we have contracts signed with 27 major utility companies in the United States with strong Standard & Poor’s credit ratings. NDR Energy’scustomers currently include Southern California Gas Company, Pacific Gas & Electric, CenterPoint Energy Resources, Baltimore Gas & Electric, Memphis Light Gas & Water, Duke (Ohio & Kentucky), Michigan Consolidated and National Grid. NDR Energy’s gas suppliers include EDF Trading, Chevron Texaco, Conoco Phillips, Chesapeake Energy Marketing, and Anadarko.

Business Strategy

Our primary objective is be one of the top independent energy companies in the United States, and to deliver maximum value to our shareholders, and generate increasing revenues and solid earnings for the long-term growth of our company . By building on our successes in 2010, we plan, although we cannot provide assurances as to timing and attainment, to achieve these future objectives by pursuing the following strategies;

Mergers and Acquisitions.

We plan to continue our growth by means of mergers and acquisitions of other companies in the natural gas, petroleum and alternative energy industries. This may also include liquefied natural gas (LNG), compressed natural gas (CNG), and solar thin film technologies, wind, biofuels, syngas and acquisitions of patented energy technologies.

Vertical Integration.

We have adapted our business strategy to become a more vertically integrated company to give us greater management control over our supply chain, from the producer, through marketing, distribution, and directly to our customer.

Oil and Gas Field Development.

We intend to pursue the acquisition of more oil and gas properties and assets. This includes existing oil and gas fields, development of newly discovered or recently discovered oil and gas fields, re-entering existing capped wells and lease acquisitions. We especially have a high level of interest in the development of existing fields whereby we can re-enter previously drilled capped wells to extract the oil and gas using new drilling/extraction methods and techniques. Fields with previously drilled capped wells would be of highest priority for us, since they had been “proven wells” before, and would therefore have lower development costs and lower associated financial risks. 

Own Our Oil and Gas Supply.

We plan to own and/or control our own natural gas supply by obtaining the gas at the wellhead from supplies with large reserves and inventories, to market and distribute directly to our growing customer base.

Increase Operating Income.

We intend to increase our operating income and earnings by obtaining our gas at the wellhead at the producers’ price, and aggregating the purchase of our gas supply through a large number of independent producers with long-term purchase agreements to supply to our customers.

Corporate Finance

Our Utility Customers

All of the Company’s customers are typically multi-million and multi-billion dollar municipally owned or Fortune 500 investor owned publicly traded utilities with strong Standard & Poor’s credit ratings. The Company generally enters into a purchase or sales agreement with the customer and/or supplier, using the North American Energy Standards Board (“NAESB”), “Base Contract for Sale and Purchase of Natural Gas”, which is the standard agreement used in use the natural gas industry. The contract terms are usually 1 to 5 years to supply gas to its customers, however in some cases shorter terms of 1 to 6 months will be considered for some customers. The Company will invoice the customers between the 10th and 15th of each month, for the previous months gas sales, and the customer, in accordance with our “Purchase Agreement”, sends the Company full payment via wired funds by the 25th of the month, or 10 to15 days after receipt of the invoice. The customers have paid all of the invoices for the delivery of gas for the last 5 to 7 years without fail. This further reduces the risk to the Company and our shareholders.

Accounts Receivables.

We are currently seeking to obtain additional accounts receivable financing and commercial letters of credit to significantly improve our revenues and profits for the purchase and sale of natural gas. We currently invoice our customers between the 10th and 15th of the month, for the previous months gas sales. The customer in accordance with our “Purchase Agreement”, sends us full payment via wired funds by the 25th of the month, or 10 to15 days after receipt of our invoice.

Presently NDR Energy turns over its accounts receivables for the sale of natural gas about 7 to 12 times per year or every 30 to 40 days. We are currently in the process of re-negotiating our NDR Energy agreements with our electric utility customers to change the invoicing and payment terms from 30 to 40 days, to invoicing them on a weekly basis. While there can be no guarantees, management believes that, if implemented, this will increase the accounts receivables turnover times to 52 times per year, and will shorten the collection time that we receive payment on our customer’s invoices. If achieved, this s change coupled with the use of an accounts receivables factoring line would give NDR Energy the ability to purchase gas from our suppliers at larger discounts, and could potentially increase the overall profit margin to as much as $0.07 to $0.20 per mcf (MMBtu) in the sale of gas to our existing customers. 

Our management believes that the growth and position of NDR Energy will be further enhanced once our company is able to sell off its account receivables. NDR will then have the ability to purchase and sell gas more often, for example, on a daily and weekly basis instead of just on a monthly basis or longer. We believe that this would also allow us to generate more accounts receivables and purchase even larger quantities of gas. In our management’s’ opinion, the profit margins for the sales of gas on the daily “Spot Market” and the weekly sales of gas is significantly higher, by as much $1.00 to $5.00 or more in the winter months than the margins on the NYMEX futures market. Therefore, it is critical that NDR Energy have access to accounts receivables (AR) funding line and Letters of Credit so it may take advantage of opportunities and discounts to sell gas on the daily and weekly time frames. It will also enable NDR Energy to develop new gas supplier relationships and agreements with better terms, conditions and less restrictive repayment policies. There can be no assurances that these objectives can be attained.

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 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONT’D

Recent Developments and Significant Accomplishments

Texas Gulf Oil & Gas Inc.

On December 8, 2010, as part of our plans for growth and expansion, we established a new division known as Texas Gulf Oil & Gas Inc. Its purpose is to develop oil and gas projects, and allow us to be a producer and direct supplier of natural gas, and to manage the transmission and marketing of the product to our major utility customers nationwide. We will obtain the gas directly from the “wellhead”. We believe that the major benefits to our Company are, greater revenues, higher profit margins, lower product costs, increased assets, and increased competitiveness.

Progas Energy Services Inc. - Oil and Gas Field Development

On December 10, 2010, we signed an agreement with Progas Energy Services Inc., of Texas (“Progas”). The agreement is a joint venture between "Texas Gulf Oil & Gas Inc.", Universal's new subsidiary, and ProGas, to jointly develop the Northwest Premont Oil & Gas Field, located in Texas’s Gulf Coast natural trend, in Jim Wells County Texas. The plans include potentially developing up to 115 oil and gas wells from this field. Progas has developed over 2000 oil and gas wells, and they have over 200 years of combined experience in the oil and gas industry. According to Progas Energy, the estimated reserves of the field are over 20 million barrels of oil, and over 20 million mcf of gas.

NDR Energy Group Signs Agreement with New Horizons Energy Group LLC

On January 7, 2011, NDR Energy, signed an Agreement with New Horizons Energy Group LLC, a natural gas and energy services consulting company based in Mt. Dora, Florida. They will provide consulting services, including United States natural gas market information, gas scheduling, gas nominations, daily gas monitoring, capacity release, daily and monthly pipeline balancing, risk management and hedging policy, procurement and management of gas storage assets, and managing operating accounts for designated pipelines. They will also assist with the procurement of natural gas and negotiations of gas purchase contracts.

Universal Bioenergy Applies for Listing on the Frankfurt Stock Exchange

On February 8, 2011, we announcedthat we applied to have our stock listed on the Frankfurt Stock Exchange in Frankfurt, Germany.The Frankfurt Stock Exchange is one of largest trading exchanges for securities in the world, and is the home of the DAX "blue chip" stock market index. The Frankfurt Stock Exchange is home to public companies from over 80 different countries with almost 40% from North America. No assurances can be provided that we will obtain a listing or the listing will have a beneficial consequence to our company.

Universal Bioenergy and Progas Energy “Strikes Oil & Gas”

On March 3, 2011, we announced that Progas had struck oil and gas on several wells that it had drilled in Texas. Progas is our joint venture partner in developing an oil and gas field in Jim Wells County, Texas. According to Progas, the field possibly houses 20,000,000 Bbls of oil. No guarantees can be provided that the oil and gas fieldcan be fully developed or profitable.

Universal Bioenergy Retains Small Cap Consulting GmbH as Advisors

On March 7, 2011, we announced that we have engaged the services of Small Cap Consulting GmbH, based in Travemunde, Germany as our business consultant and advisor in Europe. Small Cap Consulting will coordinate the process to help us obtain final approval for listing on the Open Market of the Frankfurt Stock Exchange, in Germany. Small Cap Consulting will also provide advisory services in the areas of investor relations, financial communications, media relations, and mergers and acquisitions for the European financial market place.

Universal Bioenergy In Talks For Acquisition of Oil & Gas Properties to Develop In Louisiana

On March 7, 2011, we announced that our key executives and our acquisition team are in talks with representatives to acquire oil and gas properties to develop in Louisiana. While no assurances can be provided as to closing any acquisitions, our acquisition team completed a trip to Louisiana for direct talks and negotiations with representatives of land owners to acquire oil and gas lease rights for a field with several thousand acres of land.

Standard & Poor's Initiates Factual Stock Report Coverage on Universal Bioenergy

On April 7, 2011, Standard & Poor’s announced that it commenced Factual Stock Report coverage our company. S&P’s Factual Stock Reportcoverage is accessible on an ongoing basis to the investment community by scores of buy-side institutions, and sell-side firms that utilize S&P research and information platforms daily. S&P’s Report is distributed to an estimated 85,000 brokers and financial consultants, scores of global institutional fund managers, and over 24 millionself-directedonline individual investors. The weekly Report covers the latest pricing, trading volume, recent developments, a financial review, key operating information, Industry and peer comparisons, institutional holdings analysis, Street Consensus and opinions, performance charts, business summary, fundamental data, and news.

Universal Signs Agreement With International Monetary 

On April 13, 2011, we announced we signed an agreement to retain the services of International Monetary (“IM”), based in Newport Beach, California, as our investment banking consulting firm. “IM” will also provide strategic advisory services, proprietary investor relations services (IR), financial solutions, debt/equity sources, and advise our management on other strategic decisions.

Universal’s 2010 President’s Annual Letter To Our Shareholders

On April 29, 2011,management issued its 2010 Annual Letter to Shareholders that covered updates on our operations, finances and future outlook for the shareholders and the investment community. A complete copy of the Letter can be read in the attachment to the Current Report on Form 8K filed with the SEC on April 29, 2011.

Universal’s NDR Energy Group Awarded $2.8 Million Gas Supply Agreement with Nicor Gas

On May 5, 2011, we announced that NDR Energy was awarded a contract to supply natural gas to Nicor Gas, one of the nation's largest gas distribution companies. Accordingly to Nicor, Nicor has distributed natural gas for over 50 years, and serves more than 2 million customers in a service territory that encompasses most of the northern third of Illinois, excluding the city of Chicago. In 2010, the customer’s parent company reported revenues of over $2.7 billion.The value of gas to be supplied under the agreement is expected, but not guaranteed, to be approximately $2.8 million. Since most of these contracts are for delivery of gas from between 1 to 12 months in the future, due to price fluctuations in gas supplies, transportation and other factors, the final net profit cannot be determined until after the delivery, invoicing and payment of the gas from the customer. The resultant profit will be reflected in the Company’s financials for the corresponding period after the delivery, invoicing and payment ofthe gas. The natural gas is scheduled to be delivered to Nicor Gas at a rate of 6750 mcf per day from December 1, 2010, through February 28, 2012.

Universal’s NDR Energy Awarded $3.6 Million Gas Supply Contract with Southern California Gas

On May 16, 2011, we announced that NDR Energy was awarded a contract to supply natural gas to Southern California Gas Company, a subsidiary of Sempra Energy. According to Southern California Gas Company, Southern California Gas Company is the nation’s largest natural gas distribution utility, with 20.7 million customers. The contract signed on May 12, 2011, is to supply 775 million cubic feet of natural gas with an estimated value ofapproximately $3.6 million, to the customer for a period of thirty days. Since most of these contracts are for delivery of gas from between 1 to 12 months in the future, due to price fluctuations in gas supplies, transportation and other factors, the final net profit cannot be determined until after the delivery, invoicing and payment of the gas from the customer. The resultant profit will be reflected in the Company’s financials for the corresponding period after the delivery, invoicing and payment of the gas.

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Univeralsl Bioenergy Increases Authorized Shares of Common Stock to 1 Billion Shares

On May 19, 2011, we announced we amended our Articles of Incorporation and increased our authorized shares of common stock from 200,000,000 to 1,000,000,000 shares. This is a long-term strategic move intended to expand our company and benefit our shareholders.

The shares will remain within the corporate treasury until we need to use them. Furthermore, the Board of Directors does not intend to use them for a reverse stock split. This action will enable us grow and expand very quickly through some potentially large mergers and acquisitions that we have been working on for some time, therefore we need to have the shares available to us now, and the flexibility to meet those goals.

Management plans to use those additional authorized shares for acquisitions and needs to be able to respond very quickly to these business opportunities as they become available in the marketplace. Some of these near term projects include the further development of the North Premont field in Texas with Progas , the acquisition of some other very large oil and gas fields, and acquiring interests in gathering and transport pipelines. Some of the acquisition targets are in the $10 to $25 million range and management believes, but cannot guarantee, that these acquisitions could result in significant profits and asset value. The additional authorized shares may also be used for building strategic relationships with other major companies, expanding our product lines and the acquisition of alternative energy patents and technologies.

NDREnergy Awarded $1.9 Million Gas Supply Contract with Keyspan Gas East Corporation

On May 31, 2011, we announced that NDR Energy was awarded a gas supply contract with Keyspan Gas East Corporation. The contract was awarded by a subsidiary of an entity reporting to be a $21.2 billion international electric and gas utility company, and is one of the largest natural gas distribution utilities in the United States that provides gas to around 3.5 million customers in its service area. Since most of these contracts are for delivery of gas from between 1 to 12 months in the future, due to price fluctuations in gas supplies, transportation and other factors, the final net profit cannot be determined until after the delivery, invoicing and payment of the gas from the customer. The resultant profit will be reflected in the Company’s financials for the corresponding period after the delivery, invoicing and payment of the gas.

Approval of Stock Dividend

On June 6, 2011, our Board of Directors passed a resolution and declared a stock dividend to distributeto all registered shareholders of record on or before July 1, 2011, on a 10 for 1 basis. On July 12, 2011, our transfer agent, issued 11,415,311 shares of common stock to all registered shareholders of record in accordance with the resolution and declaration.

The Company received the final notification and confirmation from FINRA on June 8, 2011 announcing the final approval to distribute the common stock dividend to our shareholders. The final notification was posted on FINRA’s, OTC Bulletin Board website at www.otcbb.com, under the tab “Daily List”, and the “Headlines By Date”, 2011 Daily List Index for dividends for June 8, 2011.

Of the 11,415,311dividend shares, a total of 8,666,676 shares were issued as free trading shares, pursuant to an exemption from registration requirements of Rule 144, under the Securities Act of 1933 (the “Securities Act”), to all shareholders holding free trading shares as of the record date.

On July 12, 2011, the 8,666,676 dividend shares were deposited with the Depository Trust Company (“DTC”), and registered in the name of the DTC’s nominee, CEDE & Company, who subsequently distributed the shares to the DTC’s participants, banks and broker dealers for final distribution and deposit of the shares into the accounts of the beneficial shareholders. The balance of the 11,415,311 shares, or a total of 2,748,635 dividend shares were issued with a restrictive legend in a hard certificate form and sent via certified mail to all shareholders with restricted shares as of the record date.

Our management contends that the payment of a dividend in stock instead of cash allows our company to maintain our cash and still reward our shareholders with a dividend. We feel this will reward our loyal shareholders for their ongoing support, and to give them a greater stake in our company.

Universal Expands Into Propane Gas Market

NDR Energy Group Awarded Contract with Washington Gas Light Company

On July 27, 2011 we announced that we are expanding into the propane gas market. Our subsidiary NDR Energy was awarded a contract in June 2011 to supply propane gas to Washington Gas Light Company. Headquartered in Washington, DC, according to Washington Gas Light Company (Washington Gas Company) delivers natural gas to more than one million residential, commercial and industrial customers throughout Washington, DC, and the surrounding region. Washington Gas is a regulated subsidiary of WGL Holdings, Inc., a public utility holding company. Under the terms of the agreement NDR Energy is to supply an initial quantity of 990,000 gallons of propane gas to the customer with an estimated value of $1.5 million As part of our new business model, we are positioning the Company to be a huge player in the propane gas market. We believe this will be another major profit center for the Company. Since most of these contracts are for delivery of gas from between 1 to 12 months in the future, due to price fluctuations in gas supplies, transportation and other factors, the final net profit cannot be determined until after the delivery, invoicing and payment of the gas from the customer. The resultant profit will be reflected in the Company’s financials for the corresponding period after the delivery, invoicing and payment of the gas.

NDREnergy Awarded Gas Supply Contract with Pacific Gas & Electric

On August 8, 2011, we announced that NDR Energy was awarded a gas supply contract with Pacific Gas & Electric’s, Electric Fuel Division Corporation. According to Pacific Gas & Electric, PG&E is one of the largest combination natural gas and electric utilities in the United States. PG&E provides natural gas and electric service to approximately 15 million people throughout a 70,000-square-mile service area in northern and central California.Its parent company is traded on the NYSE and reported  revenues of $13.84 billion in its 2010 annual report. The value of the gas to be supplied under the agreement is approximately $1.9 million in a single month. Since most of these contracts are for delivery of gas from between 1 to 12 months in the future, due to price fluctuations in gas supplies, transportation and other factors, the final net profit cannot be determined until after the delivery, invoicing and payment of the gas from the customer. The resultant profit will be reflected in the Company’s financials for the corresponding period after the delivery, invoicing and payment of the gas.

Letter of Intent Signed with Whitesburg Friday Branch Mine LLC

On August 11, 2011, we signed a Letter of Intent with Whitesburg Friday Branch Mine LLC, a Kentucky Limited Liability Company to acquire a major interest in its thermal coal production and mining operations in eastern Kentucky. No assurances can be provided that a definitive agreement shall be reached.

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 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONT’D

NDREnergy Awarded Gas Supply Contract with Ameren Illinois

On August 17, 2011 the Company announced that NDR Energy was awarded a contract to supply natural gas to Ameren Illinois, the third largest natural gas distribution utility in Illinois. The parent company, Ameren Corporation isone of the largest investor owned utilities in the nation, andprovides natural gas and electric service to approximately 2.4 million electric customers and nearly one million natural gas customers.Its parent company, traded on the NYSE, reported  revenues of $7.6 billion in 2010.

Report Update on the Northwest Premont Oil & Gas Field Development

On August 30, 2011, we announced an updated report on the Guerra #2 well. According to Progas, in previous reports regarding the Guerra #2 well, this well was drilled to 4000 feet and tested oil and gas in 12 potentially productive sands at depths from 2200 to 3950 feet, encountering a total of 118 net feet of natural gas pay.

After running 45 days of tests to draw down the pressure of each of the productive zones in the well, and selling test gas to the Tennessee Gas pipeline, the open flow calculations were performed by independent engineer, AP Yang PE of Houston. The resulting open flow calculations were as follows;

a. The lower lobe flow of the Laughlin oil sand deposit tested at 15,541 mcf per day, (mcf/d), or 15,541,000cubic feet of gas per day

b. The upper lobe flow tested at 5,063 mcf/d or 5,063,000 cubic feet per day

This results in a combined total of 20,604 mcf/d or 20,604,000 cubic feet per day, which is an exceptional rate for a well producing from a depth of 3324 to 3340 feet in depth, a total of 16 net feet of natural gas pay. This is a new zone that was not expected to produce natural gas, and therefore new field discovery documents will be filed with the Railroad Commission of Texas (RRC), which has primary regulatory jurisdiction over the oil and natural gas industry it Texas, to announce its discovery. In addition to the Laughlin sand, there are at least another 9 zones which cored and tested natural gas in over 70 feet of gas sands, and 2 oil sands which tested and flowed oil when perforated, that are behind pipe below the gas zones for production at a later date. It is to be noted, that the calculated open test flow rates are not the flow rates at which the wells will normally operate to produce natural gas. The calculated rates are based on test flows of natural gas to the atmosphere through various choke sizes, (oil and gas service valves) from which is then extrapolated to an absolute open flow potential of the well. A well will normally produce natural gas at a rate of 5% to 15% of the open flow rate.

According to Progas, the reserves estimates for the Guerra #2 well have not been completed at this time, however the preliminary estimates are 100,000 to 150,000 barrels (bbls) oil, and 1,5000,000 mcf to 2,500,000 mcf (1.5 billion cubic feet, “bcf “ to 2.5 bcf) of natural gas.

The above estimates of oil and gas are the tests from only one single zone in the Guerra #2 well. There are at least another 9 zones which cored and tested natural gas in over 70 feet of gas sand, and 2 oil sands which tested and flowed oil when perforated, that are behind pipe below the gas zones for production at a later date. The oil and gas and the future revenues from these zones are not included in the estimates indicated above. The investors/partners, Including Universal Bioenergy, that have a working interest in the wells, would receive 60% of the estimated total value of the oil and gas produced and sold from the Guerra #2 well, as indicated above.

NDR Energy Group Signs Contract with Duke Energy Commercial Asset Management Group, Inc

On September 26, 2011,we announced that NDR Energy Group, its subsidiary, signed an agreement to supply natural gas to Duke Energy Commercial Asset Management Group Inc., the commercial power division of Duke Energy, one of the largest electric power companies in the United States. Duke Energy, is a Fortune 500 company, traded on the New York Stock Exchange, and reported revenues of $14.27 billion in 2010 in their SEC filings.Duke Energy supplies and delivers energy to approximately 4 million U.S. customers. They have approximately 35,000 megawatts of electric generating capacity in the Carolinas and the Midwest, and natural gas distribution services in Ohio and Kentucky. Their commercial and international businesses own and operate diverse power generation assets in North America and Latin America, including a portfolio of renewable energy assets.

Universal Bioenergy Launch of New Corporate Website

On October 11, 2011, the Company launched a totally new corporate website to better serve the needs of its shareholders, investors and the public interests. The new website reflects Universal’s commitment to be one of the largest independent energy companies, and provides the investment community with the most current information on the Company’s products, mergers, acquisitions, growth and expansion. It also highlights the Company’s subsidiaries such as NDR Energy Group and Texas Gulf Oil & Gas.

The corporate website was designed specifically with our shareholders in mind, and was designed to allow the user the ability to explore a wide variety of valuable information about the Company. Among the highlights of the website are, a History of the Company, Business Strategy, Marketing Plans, Product Distribution, the Energy Industry and Future Plans and Outlook of the Company. It also features current information on the Company’s Stock Performance, a Newsroom, News Releases, a weekly Standard & Poor’s Factual Stock Report on Universal and an extensive Investors Relations section for their shareholders and investors. The website can be located atwww.universalbioenergy .com. The website and its contents are expressly not incorporated into this filing.

Acquisition of Whitesburg Friday Branch Mine LLC Thermal Coal Mining Operations

On October 17, 2011, our company and Whitesburg Friday Branch Mine LLC, a Kentucky Limited Liability Company (“Whitesburg”), entered into a Member Interest Exchange Agreement, (the “Exchange Agreement”). Pursuant to the Exchange Agreement, and subject to the conditions set forth therein, the Company will acquire 40% of the Member Interests and assets of Whitesburg Friday Branch Mine LLC, of Kentucky, a privately held company, from JLP and Partners LLC, a Kentucky Limited Liability Company (“JLP”), for a total consideration of $2.5 million. The Whitesburg Friday Mine, operates, mines and produces thermal coal in eastern Kentucky for sale to electric utilities for use in coal fired generation, steam plant electric power production.

Steam plant electrical power production is highly dependent on thermal coal. Thermal coal is used as a primary source of energy for coal fired steam powered generators in electric utility plants. The Whitesburg mining operations are the surface and high wall mining type, and does not include any underground mining. Whitesburg already owns the leases for the coal mineral rights and has the required mining permits from the State of Kentucky. Since NDR Energy Group already sells natural gas to our electric utility customers to generate electricity, thermal coal would give us another energy related product to sell to our current and expanding customer base to increase our revenues. The Agreement also includes provisions for us to develop the oil and natural gas potential on the mine property if these resources are discovered. According to the Energy Information Administration, coal as a fuel source for electricity generation will increase 25% by 2035 in the United States. As petroleum reserves diminish, gas to liquid process can use coal as a source for many chemical compounds for the chemical, polymer and other industries. Additionally, an advantage of using clean coal technology will be to increase demand for coal as the source to produce synthetic natural gas (syngas). According to Whitesburg Friday branch Mine LL, the mine is projected to produce over $264 million in revenues from the sale of coal in the next 5 years. No assurances can be provided that such revenues will transpire.

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 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONT’D

The Closing of the transaction is expected to occur in the fourth calendar quarter of 2011.

Each of the Company and Whitesburg has made customary representations and warranties in the Exchange Agreement. Whitesburg has also agreed to various covenants in the Exchange Agreement, including, among other things, (i) to conduct its business in the ordinary course consistent with past practice in all material respects during the period between the execution of the Exchange Agreement and the Closing of the transaction, and (ii) not to solicit alternate transactions.

The completion of the transaction is subject to various customary conditions, including (i) final approval of the Closing of the acquisition by our the Board of Directors, (ii) ) the obtaining of all requisite regulatory, administrative, or governmental authorizations and consents, and (iii) other customary closing conditions.

The foregoing description of the Exchange Agreement is only a summary, does not purport to be complete. We will file a copy of the Exchange Agreement as part of a Form 8-K after the Closing of the transaction and within the time frames required under the Securities Exchange Act of 1934.

NDR Energy Group Signs Contract with Laclede Gas Company

On October 25, 2011, NDR Energy Group completed the execution of a natural gas supply agreement with Laclede Gas Company.Laclede Gas is a public utility engaged in the retail distribution and sale of natural gas. According to Laclede Gas Company, it is the largest natural gas distribution utility in Missouri, serving approximately 630,000 residential, commercial and industrial customers in the city of St. Louis and ten other counties in Eastern Missouri. As an adjunct to its gas distribution business,Laclede Gas Company operates an underground natural gas storage field, a propane storage cavern and propane vaporization facilities.Laclede Gas Company is a wholly owned subsidiary of the Laclede Group, Inc., a public utility holding company which reported over $1.73 billion in revenue 2010, in its SEC filings.

Terminated Agreements

Letter of Intent with Pacific Rim Native American Investments Corporation

On May 9, 2011, we executed a Letter of Intent with Pacific Rim Native American Investments Corporation, a Native American company whereby, we would act as Developer and Manager for Pacific Rim for a period of 5 years to develop, explore, drill, manage and market the oil and natural gas potential on lands and territories owned, managed or controlled by Pacific Rim on behalf of many sovereign Indian Nations and Tribes.Management and their consultants completed their preliminary due diligence and decided not to move forward to complete this transaction. In accordance with the provisions of the Letter of Intent, during the due diligence process, we terminated the Letter of Intent on August 12, 2011.

Letter of Intent with Indian Odyssey Corporation

On May 9, 2011, we executed a Letter of Intent withIndian Odyssey Corporation,a Native American company whereby we would act as Developer and Manager forIndian Odysseyfor a period of 5 years to develop, explore, drill, manage and market the oil and natural gas potential on lands and territories owned, managed or controlled byIndian OdysseyRim on behalf of several sovereign Indian Nations and Tribes.Management and their consultants completed their preliminary due diligence and decided not to move forward to complete this transaction. In accordance with the provisions of the Letter of Intent, during the due diligence process, we terminated the Letter of Intent on August 12, 2011.

The Company’s Future Plans and Outlook

New Business Model

Mergers and Acquisitions

Management has determined that it is in our best interests to chart a bold new course for the Company to grow by mergers and acquisitions. Management is planning for expansion, by additional mergers and acquisitions, to generate greater revenues and profits, and by shifting our focus to invest in far more profitable natural and alternative energy technologies. We anticipate, but can provide no assurances, acquiring 5 to 10 additional new companies in the next 2 to 3 years.

Some  companies being targeted are, natural gas producers  to obtain natural gas  directly from the wellhead,  gas gathering pipeline companies, solar energy companies for polymer based thin film solar cells,   and the acquisition of energy technology patents and licenses. We’re also looking at acquiring natural petroleum and gas assets and properties in Texas, Louisiana and other states. Acquiring interests in properties in these areas will work very well with our strategic plans for Texas Gulf Oil & Gas Inc. and Progas Energy Services. We have adapted our business strategy to become a more vertically integrated company, to give us greater management control over our supply chain, from the producer, through marketing, distribution, and directly to the customer. We believe this will bring even greater revenues for our company and more value to our shareholders.

Some  companies being targeted are, natural gas producers  to obtain natural gas  directly from the wellhead,  gas gathering pipeline companies, solar energy companies for polymer based thin film solar cells,   and the acquisition of energy technology patents and licenses. We’re also looking at acquiring natural petroleum and gas assets and properties in Texas, Louisiana and other states. Acquiring interests in properties in these areas will work very well with our strategic plans for Texas Gulf Oil & Gas Inc. and Progas Energy Services. We have adapted our business strategy to become a more vertically integrated company, to give us greater management control over our supply chain, from the producer, through marketing, distribution, and directly to the customer. We believe this will bring even greater revenues for our company and more value to our shareholders.

Market Expansion

Management believes that there are currently 3240 utilities in the United States. Through NDR Energy, we have firm contracts signed with 27 of these major utilities, and are in discussions with another 14 utility companies to obtain contracts from them also. Our plans are to develop an aggressive sales force, to obtain agreements with a total of 100 utilities, and other customers including, Federal and State Departments and Agencies, Cities, Municipalities, and large commercial and industrial corporate clients, in the next 12 to 24 months. This will give us a much greater market share, more customers for our gas supply division, thereby further increasing our revenues and profits. No timeline can be estimated at this point as to when we will implement or accomplish this business plan.

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 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Focus on Earnings

We achieved sales revenue of $49,904,114 for the nine months year ending September 30, 2011, as compared to $20,355,534 for the same period in 2010. Our cost of sales was $49,838,802 for the nine months year ending September 30, 2011, as compared to $20,332,897 for the same period in 2010. While building our business, we focused on generating substantial sales revenues, a broad customer base, and gaining the greatest share of the market in the shortest period of time. That strategy affected how we obtained our supplies, their relative cost, and how we priced our products for sell to our customers. To gain a great market share in a short period of time, initially resulted in higher cost of goods sold, and selling the product, at or slightly below our costs, and that directly impacted our profitability. This caused almost negligible gross profit and negative earnings. This strategy was only a temporary measure, while we were building greater market share, last year.  

A major goal for us in 2011 is to focus on increasing earnings and profitability. As plans for increasing earnings include the following;

• First, we are changing our strategy for obtaining our supplies of natural gas.

• Second, we are negotiating with independent oil and gas producers to obtain our supplies at the wellhead, and aggregating the supply under long-term supply agreements to market to our customers.

• Third, we engaged in a joint venture with Progas Energy Services, to develop the Northwest Premont oil and gas field in Texas. We will obtain our share of the oil and gas from that field, from the wellhead at the producer’s price.

• Forth, the Company is attempting to obtain more bank funding, lines of credit, and Letters of Credit, as opposed to using the suppliers “trade credit”, to purchase the gas.

• Fifth, we will be re-negotiating our existing supplier agreements to purchase the gas in larger quantities, with greater economies of scale, on better terms, at lower purchase costs, and reduce the high financing costs. This should drive our costs down, and potentially produce higher profit margins for the Company. 

Value of Our Customer Contracts

Our customer contracts are a very valuable asset for us. Through NDR Energy, we presently sell natural gas to 27 of the largest public utilities, electric power producers and local gas distribution companies that serve millions of commercial, industrial and residential customers throughout the United States. Since they are regulated by various Federal and/or State agencies, they must guarantee a constant uninterruptible supply of natural gas and electricity to their customers, which include private homes, commercial and industrial users, medical facilities, educational facilities, federal/ state buildings, the military and many more. Therefore the public gas and electric utility companies have very stringent guidelines about the suppliers and vendors they do business with. The pursuit and acquisition of new customers by us, can be time consuming and very costly, especially when you are attempting to transact business with large national and multinational companies with very strict guidelines. They usually require us and NDR Energy to respond to a very rigorous Request for Qualifications (RFQ) or Request for Proposals (RFP) process, which includes extensive background information on company, its officers, operations staff, financial stability, credit worthiness, track record, and our ability to furnish them with a firm, reliable, uninterruptible supply of natural gas. We are responsible for transportation of the gas to their contracted delivery points, any shortages, and the gas must meet certain standards in terms of quality, pressure, and heat content. There can also be substantial legal and monetary damages to us for failure to pay our suppliers for the gas, and for failure to deliver the gas to the utilities, because they could not supply electricity and gas to the general public.

New Profit Centers

We also plan to increase our revenues and profits by engaging in some are all of the services indicated below. These services are currently being provided to us by our natural gas suppliers and the cost for these services are charged to us, and are included in the price of the gas that we purchase from them. We believe but cannot guarantee, that by implementing these new profit centers may generate an additional $0.05 to $0.12 in revenue per mcf, of natural gas that we sell to our customers. These services include;

1.Scheduling - tracking nominations, confirmations product movement and verification

2.Gas Nominations - delivery of a specified volume over a defined period of time

3.Capacity Releases - release of transportation capacity on interstate natural gas pipelines

4.Gas Transmission - Delivery via the interstate pipeline system to the Local Utility and customers

5.Pipeline Balancing - matching customer's daily usage with the customer's confirmed pipeline delivery

6.Risk Management – developing supply pricing strategy, options, demand, daily and futures contracts

7.Gas Storage - match seasonal load variations, and production over periods of fluctuating demand

8. Gas Trading - physical trading and financial trading, and hedging of gas futures

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Future Capital Funding

To ensure our ability to remain as a going concern, and develop a long-term profitable business, management is planning to raise additional funds in debt or equity capital to fund the growth of our company. We anticipate using the proceeds to purchase some of the companies we have targeted for future acquisitions, and some for working capital. Management believes, although we cannot guarantee, that we successful in raising additional capital to fund our plans for growth and expansion.

The raising of additional capital through the sale of equity may result in a dilution of the current shareholders interests. However, management anticipates that the shareholders would likely receive greater potential financial rewards by means of a significant increase in the price of the stock, greater market value of the Company, and more liquidity. Since our management has re-engineered our company by creating more value to it, through its recent acquisitions, and is positioning it to qualify/apply to be listed on another stock exchange, we believe this should make it attractive to more retail and institutional investors. We feel this would be of great benefit to our shareholders.

Universal Energy Services Division

As part of our plans for growth and expansion, we are proposing to establish a new division; we provide energy and facilities services to our existing and growing customer base. The plan would include marketing and implementing facilities business services, building modernization, energy system retrofits capital improvement projects, facilities systems, energy supplies, energy management consulting services, and / cost reduction strategies. Potentialcustomers would encompass Federal and State Departments and Agencies, Cities, Municipalities, and large commercial and industrial corporate clients.

Financial Restructuring Plan

On February 25, 2011, the Board of Directors approved a Resolution and a “Financial Restructuring Plan” to reduce debt and improve the companies “Balance Sheet”. The plan calls for our company to reduce its debt, and converting the balance of the outstanding debt on the Balance Sheet to shares of our Common Stock, to our various Note Holders and creditors. This will result in an additional issuance of shares of our Common Stock that will likely increase the issued and outstanding shares of our Common Stock to an amount exceeding 150 million shares. Many of the existing Notes carry interest rates that are very high, and that are above the current market rates. The benefit to us is to eliminate the outstanding debt and liabilities owed by our company, reduce interest expenses, enhance our financial position, strengthen the Balance Sheet, and increase our liquidity. Management believes that taking these actions will improve our profitability, and allow us to pursue our strategies for our growth and expansion. We believe that this should also be very beneficial to our shareholders.

National Stock Exchange Listing

With our planned growth by mergers, acquisitions, and future revenues, our management is evaluating and positioning our company to potentially qualify, and apply to be listed on a major national stock exchange, which stock exchanges list similarly situated alternative energy technology companies, such as NASDAQ, NYSE Amex Equities, or others. Management believes that, if we can successfully position our company to qualify to meet the listing requirements for one of the stock exchanges, it would greatly increase our market value, and should make it attractive to more retail and institutional investors. We also feel this would be of great benefit to our shareholders. No assurances can be provided that this aspect of our long-term business plan will be achieved.

Corporate Governance and Management

 Amendment to Company’s Articles of Incorporation

On May 9, 2011, we filed a Certificate of Amendment with the Nevada Secretary of State, to amend our Articles of Incorporation. The information regarding the Amendment was fully disclosed in a Form 8K that was filed on for the quarterly periods ending June 30, 2010 and September 30, 2010. A complete copy of the Amendment was attached as Exhibit 99.1 to the filing on Form 8-K, filed on May 19, 2011 The Amendment incorporated the following changes;

1. Increased the number of authorized shares of the Company’s common stock from 200,000,000 to a total of 1,000,000,000 shares.
2. Grant to the Board of Directors the full right and authority to increase or otherwise change the authorized shares of common stock and preferred stock without any shareholder action or approval.
3. Grant to the Board of Directors the full right and authority to change the name of the Corporation at a future date without out any shareholder action or approval.
4. To authorize that each Director shall be elected to serve for a minimum period of one year, and up to three years, or shall serve until his successor is elected and qualifies. Directors need not be stockholders.

This action was approved by a vote of the majority of the shareholders of the Company and by the Board of Directors on April 23, 2010.

Our Beneficial Shareholders

At September 30, 2011, there were 140,968,383 shares of our Common Stock issued and outstanding and there were approximately 43 shareholders of record of our common stock on the records of our transfer agent..The shareholder of record is the name of an individual or entity that an issuer or transfer agent carries in its records as the registered holder (not necessarily the beneficial owner) of the issuer's securities. Dividends and other distributions are paid only to shareholders of record.

The actual “Beneficial Shareholder”, (the true owner of the shares) will generally have their shares held in the “street name” of their nominee, within a brokerage account, a mutual fund or a custodian bank for safety and convenience of trading, with the bank or broker holding title to the shares. The Depository Trust Company (DTC) through its partnership nominee CEDE & Company is the largest shareholder of record of our shares of Common Stock. CEDE & Company as nominee holdsover 81.22 million shares of our common stock for its Broker Dealers and other members on behalf of their beneficial shareholders. Management believes based on its tracking of the transactional record data of OTCMarkets / Pink Sheets of the total volume of stock trades and number of executed trades that the estimated amount of beneficial shareholders of our stock is in the range of 3000 to 4000.

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 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONT’D

Management Incentive Programs

The Company has an incentive program for the Officers, in accordance with their Employment Agreements, whereby they may receive bonuses and equity awards based on the added “economic value” that they bring to our company. This may include increases in revenues, earnings, cash flow, debt reduction, return on net assets, return on stockholders equity, return on assets, return on capital, stockholder returns, return on sales, gross or net profit margin, productivity, expense, margins, operating efficiency, objective measures of customer satisfaction, working capital, financing, earnings per share, market share, inventory turns, acquisitions or strategic transactions, or other means of bringing additional value to the Company. Since management has deferred most or all of their compensation, provisions have been made to issue them long-term Notes for their salary, with the option to convert the Notes into to common stock of our company.

Universal Bioenergy North America

Discontinued Operations

Universal Bioenergy North America, Inc., (UBNA), is a subsidiary of our company. It is a Nevada corporation that was formed on January 23, 2007 that was acquired by our company in December 2007, for the purpose of operating a biodiesel plant in the city of Nettleton, County of Monroe, Mississippi to produce biodiesel fuel and a marketable byproduct of glycerin. The biodiesel plant was acquired by Universal Bioenergy North America out of a bankruptcy action. As of the date of this report, we have not manufactured any biodiesel fuel We have generated no revenues from the subsidiary, Universal Bioenergy North America, Inc., as the refinery was not in production as of September 30, 2011. Due to the current state and future outlook of the biodiesel market, management decided to dismantle the refinery, and engaged an outside contractor to complete the work.

On March 31, 2011, we completed the dismantling of the facilities structures and plant equipment at the biodiesel refinery in Nettleton, Mississippi. The plant was dismantled due to the following reasons; (1) the current negative economic climate, (2) the collapse of the biodiesel market in 2009 and 2010, (3) the market operating at 10% to 17% capacity, (4) a glut of idle biodiesel plants on the market and bankrupt producers, (5) the negative future market outlook, (6) the estimated cost of over $500,000 to restart the plant, (7) potential legal liabilities, (8) lack of a clear and strong U.S energy policy, (9) lack of consistent federal government support, tax credits and subsidies, (10) inability of biodiesel to effectively compete against petroleum diesel, (11) low profit margins, (12) and the volatility and high cost of feedstocks.

On August 31, 2011, the property located in Nettleton that was formerly used as a biodiesel refinery, was sold by the Monroe County Chancery Clerk, of the State of Mississippi at a county tax forfeiture sale to recover the property taxes due the County. After consulting with our outside professionals, and due to the circumstances indicated above regarding the dismantling of the plant, the negative state of the biodiesel industry and our new direction to pursue the production and marketing of natural gas, petroleum, coal and propane; our management determined that retaining the property would provide no further benefit to our company, and furthermore it was not consistent with our long-term business objectives. Therefore, it was decided not to pay the property taxes, thereby forfeiting the property and allow the Monroe County Chancery Clerk to sell the property at the tax forfeiture sale. According to the Monroe County tax records, the property was purchased at the tax forfeiture sale by another company which had no relationship with our company, or any of our Officers, Directors or Employees.

Current State and Future Outlook For the Natural Gas Industry

U.S. Natural Gas Market. Natural gas is very important part of the energy sector of the U.S. economy. About 99 percent of the natural gas used in the United States comes from North America, and is transported through a 2.3-million mile underground pipeline system. According to the U.S. Energy Information Administration, (EIA), the United States used approximately 22.84 trillion cubic feet (Tcf) of natural gas in 2009. A total of about 25% of all energy used in the United States in 2009 came from natural gas. Additionally, it is one of the cleanest burning fossil fuels, and its use is expected to continue to grow. Natural gas is used in the production of steel, glass, paper, clothing, brick, electricity, and as an essential raw material for many common products. Some products that use natural gas as a raw material are: paints, fertilizer, plastics, antifreeze, dyes, photographic film, medicines, and explosives. Slightly more than half of the homes in the United States use natural gas as their main heating fuel. Natural gas is also used in homes to fuel stoves, water heaters, clothes dryers, and other household appliances.

The U.S. Energy Information Administration, in its “Annual Energy Outlook 2009 Report”, estimates that natural gas demand in the United States could be 24.36 Tcf, (Trillion Cubic Feet), by the year 2030. The EIA, “Natural Gas Year-In Review 2009, Report” stated, “Over the past several years, natural gas use for electric power has increased, with gas making up an increasing percentage share of total generation relative to coal. In 2009, natural gas made up almost 24 percent of net power generation with 931,000 Megawatt-hours (MWH) of electric power generated from natural gas. By comparison, in 1996, natural gas made up only 14 percent of power generation.” Consumption of natural gas for electric power increased from a level of 18.3 billion cubic feet, (Bcf) per day in 2008, to 18.9 Bcf per day in 2009. This increase was caused by fuel-switching due to sharp declines in the price of natural gas, as coal prices actually rose between 2008 and 2009, while consumption of coal at electric power plants declined 11 percent.

Future Outlook. Consumption of natural gas will increase 20% by 2030, according to the U.S. Department of Energy (DOE). The EIA’s “Annual Energy Outlook 2010”, includes estimates for total technically recoverable natural gas resources in the United States as of January 1, 2008 at 2,119 Tcf. This estimate includes proved reserves, inferred reserves, and undiscovered technically recoverable resources.

According to a report released by the Massachusetts Institute of Technology, it stated that, “Natural gas will provide an increasing share of America’s energy needs over the next several decades, doubling its share of the energy market to 40 percent, from 20 percent.”

Texas Gulf Oil & Gas Inc. On December 8, 2010, as part of our plans for growth and expansion, we established a new division known as “Texas Gulf Oil & Gas Inc.”, domiciled in Georgia. That company will acquire and enter joint ventures to develop oil and natural gas field projects, and this will position us to be a “direct supplier” of natural gas to our current and our future utility and corporate customers. We will then be able to purchase the gas from the “wellhead”. This division will also manage the transmission and marketing of the product to our 22 existing major utility customers nationwide. The major benefits to us are, greater revenues, significantly higher profit margins, lower product costs, increased assets, and increased competitiveness. This will also position us to implement our business strategy to become a more vertically integrated company, giving us greater control over the supply chain, directly from the producer, through marketing, distribution, and selling directly to the customer. We are is currently in discussions with several independent oil and production companies, to obtain agreements to purchase natural gas and other fuels directly from the wellhead, to market directly to our customers. The gas would then be marketed and sold to our customers, through our NDR Energy Group.

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 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONT’D

Progas Energy Services.

On December 10, 2010 we signed an agreement with ProGas Energy Services Inc., of Texas (“Progas”). The agreement is a joint venture between "Texas Gulf Oil & Gas Inc," our new subsidiary, and ProGas, to jointly develop a newly discovered or recently discovered oil and gas field located in the Premont Northwest oil and gas field, in Texas's Gulf Coast natural trend, in Jim Wells County Texas. The plans include potentially developing up to 110 oil and gas wells from this field. Three initial wells have already been drilled, are producing oil and gas, and although there can be no assurances, should bring immediate profit to us. . The Premont Northwest field is potentially one of the largest oil fields discovered in Jim Wells County, Texas, the most prolific oil and gas producing county in the state of Texas.

According to Progas, the field was originally discovered in the 50’s and was thought to be a small extension of the Northwest Premont field. However, the field was not developed before the previous operators passed away, and many zones were not known to be potentially productive as have been recently proven with modern drilling and testing techniques. Progas, the operator and developer of the property, prior to our involvement, re-entered existing wells that were abandoned by the previous operator to test potential zones for production. Initial estimated reserves of the field by Progas were under 2,000,000 bbls of oil and just over 4,000,000 mcf of natural gas. However after testing these wells and a considerable geologic study, the projected and estimated reserves were adjusted to over 20,000,000 barrels of oil and 20,000,000 mcf, of gas from 11 potentially productive oil and gas sands. No assurances can be provided that we will benefit from this property or realize a profit from its oil production, if any.

This joint venture is major step for our company, and has three major benefits to us and our shareholders. First it allows us to acquire natural gas reserves from the ground, for a small fraction of the purchase costs that we currently pay to other producers that it markets natural gas for. Second it would provide us with a source of natural gas of our own, which can be marketed to our major utility gas customers throughout the United States While most gas marketers are limited to a 1% to 2% profit on the spread of natural gas prices, (less than 1 cent per mcf), our exploration costs for our share of the field is estimated to be less than 10% of the NYMEX price, allowing us to earn a 90% gross profit. We believe, but cannot guarantee, that this will give us a distinct advantage in the marketplace and a considerably higher profit margin for gas that is sold to our customers. Third, while many gas marketing companies have to buy gas from others, their ability to purchase gas is somewhat subject to availability. We would will be able to supply the natural gas produced (that we own), as well as the natural gas of the other industry partners in the development of the field, such as ProGas, who have offered us the right to market their gas.

Net Loss as adjusted for non-recurring and/or non-cash expenses
		Nine Months Ended		Nine Months Ended
		September 30,		September 30,
		2011		2010
Losses available for common shareholders	$	($1,375,382)	$	($955,284)
Other non-cash expenses		1,123		873
Stock issued for services		326,750		332,007
Losses available for common shareholder, as adjusted	$	($1,047,509)	$	($622,404)

RESULTS OF OPERATIONS

Three and Nine Months Ended September 30, 2011 compared to the Three and Nine Months Ended September 30, 2010

Review and Analysis of Current Results of Operations

Revenues

Our revenues for the third quarter of 2011, grew at an accelerated growth rate from the previous year of 2010. In 2010 we achieved revenues of $41,320,647 for the entire year, and during the nine months of 2011 wegenerated revenues of $49,904,114, or 121% of the total revenues for all of 2010.

With a business plan focused on producing revenues, current management believes that it has created significant value particularly since the acquisition of NDR Energy on April 12, 2010, in contrast to the pre-acquisition period when there were no revenue generated in the prior 2 to 3 years. Our primary revenues from this period are from the sale of natural gas.    Our revenues for the three and nine months ended September 30, 2011 were $13,855,882 and $49,904,114 respectively, as compared to $6,388,639 and $20,355,534 respectively for the same periods in 2010.  This results in an increase in revenues of $7,467,243 or 117% and $29,548,548 or 145% for the three and nine months ended September 30, 2011, as over the same period for 2010.

Our Cost of Sales for the three and nine months ended September 30, 2011 were $13,836,654 and $49,838,802 respectively, as compared to $6,381,535 and $20,332,897, respectively, for the same periods in 2010. This has resulted in a gross profit margin for three and nine months ended September 30, 2011 of $19,228 and $65,312, respectively, as compared to $7,104 and $22,637, respectively, for the same periods in 2010.  The high proportionate cost of sales relative to the gross revenues, reflected in this period, is due to purchasing the gas from some of the suppliers at near retail cost, and additional high financing and factoring costs added to the gas by the suppliers. Management plans are to reduce the purchasing cost of the gas, and the financing cost, by obtaining our own credit facility and lines of credit and obtaining our gas at the wellhead. This will allow us to purchase the gas in larger quantities, with greater economies of scale, on better terms, at lower costs and reduce the high financing costs; thereby, potentially increasing our net profit.

Additionally, while building our business, we focused on generating substantial sales revenues, a broad customer base, and gaining the greatest share of the market in the shortest period of time. That strategy affected how we obtained our supplies, their relative cost, and how we priced our products to sell to our customers. To gain a great market share in a short period of time, initially resulted in higher cost of goods sold, and selling the product, at or slightly below our costs, and that directly impacted our profitability. This caused almost negligible gross profit and negative earnings during this period. This strategy was only a temporary measure last year, while we were building greater market share.  See the sections “New Business Strategy”, “Focus on Earnings” and “New Profit Centers” above.

We incurred losses of $529,585 for the three months ended Sept 30, 2011 and $522,728 for the same period in 2010. For the nine months ended September 30, 2011 our losses were $1,244,291 and $914,306 for the same period on 2010. Our accumulated deficit since our inception through September 30, 2011 amounts to $18,677,462. We issued 3,000,000 common shares for services for the three months ended September 30, 2011 and 5,233,450 common shares for services for the same period in 2010. For the nine months period ended September 30, 2011 we issued 7,500,000 of common shares for services with an aggregate fair value of $326,750 that was included in the $1,073,439 in operating expenses for the nine months ended September 30, 2011 and issued 5,983,450 of common shares for services with an aggregate fair value of $332,007 that was included in the $956,517 in operating expenses for the same period in 2010. Excluding the value of the common shares of $326,750 from the operating expenses of $1,073,439 would reduce the actual net operating expenses to $746,689 for the nine months ended September 30, 2011. We also incurred interest expenses of $366,036 for the nine months ended September 30, 2011. Excluding the value of the common stock that was issued for services, and interest expenses which together totaled $692,786, from the net loss of $1,244,291, would correspondingly reduce our net loss of $1,244,291 to an adjusted net loss of $551,505 for the nine month period ending September 30, 2011. Based on an adjusted net loss of $551,505, this adjusted net loss equals only 1.1% of our total revenues of $49,904,114 for the nine months period ending September 30, 2011.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONT’D

Operating Costs and Expenses.

Our Cost of Sales for the three months ended September 30, 2011 were $13,836,654 as compared to $6,381,535 for the same period in 2010 and for the nine months ended September 30, 2011 were $49,838,802 as compared to $20,332,897 for the same period in 2010.  Our primary operation is the marketing of natural gas to our major customers nationwide. Our total operating expenses for the three months ended September 30, 2011 were $576,755 as compared to $536,557 for the same period in 2010, and for the nine months ended September 30, 2011 were $1,073,439 as compared to $956,517 for the same period in 2010. We pay our employees and consultants largely in common shares as our cash availability is currently limited.

We increased our total operating expenses for the three months ended September 30, 2011 from $536,557 for the period ending 2010, by a total of $40,198, or by 7.5%, to $576,755 for the same period in 2011. We incurred an increase in operating expenses for the nine months ended September 30, 2011, from $956,517 for the same period ending 2010 by a total of only $116,922, or by 12.2%, to $1,073,439 for the same period in 2011. Based on our plans for growth and expansion, and increasing revenues through sales of natural and other products, we believe we will continue the trend to reduce our net losses down to zero, and then move our company toward solid profitability.

Assets

Our “total assets” have increased by $26,040 or 1% to $3,028,622 for the period ending September 30, 2011, compared to $3,002,582 for the same period in 2010. Some of that was long-term physical assets, however most of those assets are supplies of natural gas that we purchased from our suppliers, and held as inventories to sell to our customers. Oil and gas companies generally book their inventories and supplies of oil and gas reserves as assets on their balance sheets, since these are very valuable assets owned by the company.

Liquidity and Capital Resources

Our management looks to a variety of funding sources, to meet our short and long-term liquidity requirements. We currently generate the majority of our consolidated revenues and cash flow from the marketing and sale of natural gas to its 27 electric utility customers through NDR Energy. Our revenues, profits and future growth depend to a great extent on the prevailing prices of natural gas. Our revenue, profitability and future growth of are largely dependent on a number of factors including, the prevailing and future prices for natural gas, which is also dependent or influenced by numerous factors beyond our control, such as regulatory developments, changing economic conditions, and competition from other energy sources.

Working Capital

Our working capital requirements increased significantly, and we incurredsignificant fluctuations in our working capital for this period. This resulted in a working capital deficit of ($689,333) for the period ending September 30, 2011, as compared to a working capital deficit of ($614,095) for the period ending September 30, 2010. The ending deficit was primarily due to the use of common stock to pay for services, the amount of funds borrowed from our creditors, purchase of gas inventories, our capital spending exceeding our cash flows from operations, and from the increase in accounts payable and accrued expenses.

We typically have positive cash flow and working capital each month to meet our capital requirements. The negative working capital for the period ending September 30, 2011 is an occasional event experienced by many companies and has not had a significant negative effect on our operations. This is due to our ability to raise capital, the contracts we have with our utility customers, their strong S&P credit ratings, and their consistent payment of our invoices on schedule. Due to the timing of the transactions, we are able to maximize the efficiency of the billing and payment cycles, thereby minimizing the impact of any occasional periods of negative working capital. Additionally, as we purchase gas at the wellhead, obtain lines of credit and accounts receivable facilities, this should enable us to greatly improve our cash flow and increase our working capital.

Cash Flows

The prices and margins in the energy industry are normally volatile, and are driven to a great extent by market forces over which we have no control. Taking into consideration other extenuating factors, as these prices and margins fluctuate, this would result in a corresponding change in our revenues and operating cash flows. Our cash flows for the nine months ended September 30, 2011 and 2010 were as follows:

Cash Flows from Operating Activities

Our cashused in operating activities for the nine months ended September 30, 2011 was $52,871 as compared to ($230,455) the nine months ended September 30, 2010. The decrease was primarily attributable to the accruing certain management salaries, issuing stock for professional services in lieu of cash payments and the reduction of Notes payable and interest with stock in lieu of cash payments.

Cash Flows from Investing Activities

Cash used in investing activities for the nine months ended September 30, 2011 was $(189,500) as compared to ($27,061)for the nine months ended September 30, 2010. The increase was related to the part of the investment of our subsidiary’s Texas Gulf Oil and Gas’s participation in the initial three oil and gas wells of the Progas Energy Services transaction.

Cash Flows from Financing Activities

Our cash provided by financing activities for the nine months ended September 30, 2011 was $136,629 as compared to $271,848 for the nine months ended September 30, 2010. The proceeds were from a series of convertible Notes payables and repayment of advances from affiliates.

Liabilities / Indebtedness

Current liabilities increased to $3,111,992 for the nine months ended September 30, 2011, compared to $3,043,869 for the same period in 2010. This was primarily due to a $384,472 decrease in accounts payable from the purchase of supplies of natural gas and offset by an increase in accrued expenses of $438,586. Our long term liabilities are $440,359 for the period ending September 30, 2011, compared to $312,119 for the period ending September 30, 2010. This was primarily due to an increase in the amount long term notes payables.

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 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONT’D

Debt

Convertible Debt

In its efforts to expand and grow, the Company has issued debt instruments to borrow funds from various persons and entities to raise capital. These are long-term Notes with various rates and maturities, that grants the Note Holder the right, (but not the obligation), to convert them into common stock of the Company in lieu of receiving payment in cash. The issued Notes are primarily unsecured obligations. The principal amount of the Notes may be prepaid at the option of Maker, in whole or part at any time, together with all accrued interest upon written notice to Holder.

On July 4, 2009, we sold 25,000 units in a private placement for $25,000 at $1.00 per unit.The Units are similar to a debenture and act as a debt to our company. The term is for three years, and the Units receive a return of a 30% annual stock dividend and no payments are paid for the reduction of this debt. On June 24, 2011, this note was converted to 2,000,000 shares of common stock and is no longer due.

On February 16, 2010, we entered into a two (2) year convertible Promissory Note with a non-related creditor for $13,000 at 10% interest. On June 24, 2011, this note was converted to 650,000 shares of common stock and is no longer due.

On March 30, 2010, we entered into a two (2) year convertible Promissory Note with a non-related creditor for $8,600 at 10% interest. On June 24, 2011, this note was converted to 430,000 shares of common stock and is no longer due.

On May 25, 2010 we entered into a two (2) year convertible Promissory Note with a non-related creditor for $100,000 at 10% interest. On June 24, 2011, this note was converted to 5,555,555 shares of common stock and is no longer due.

On August 26, 2010 we entered into a two (2) year convertible Promissory Note with a non-related creditor for $36,919 at 10% interest. On October 25, 2011 the Company completed a partial conversion of $27,249 worth of the Note to 5,449,800 shares of common stock, which leaves a remaining balance of $9,670 of the principal of the Note.

On August 30, 2010 we entered into a two (2) year convertible Promissory Note with a non-related creditor for $25,300 at 10% interest. The holder has the right to convert the note to common stock.

On August 30, 2010 we entered into a two (2) year convertible Promissory Note with a non-related creditor for $25,200 at 10% interest. The holder has the right to convert the note to common stock.

On September 27, 2010 we entered into a two (2) year convertible Promissory Note with a non-related creditor for $50,000 at 10% interest. On July 29, 2011, this note was converted to 10,000,000 shares of common stock and is no longer due.

On November 23, 2010 we entered into a two (2) year convertible Promissory Note with a non-related creditor for $12,000 at 10% interest. The holder has the right to convert the note to common stock.OnSeptember 22, 2011 this Note was converted to 2,400,000 shares of common stock and is no longer due.

On December 3, 2010 we entered into a two (2) year convertible Promissory Note with a non-related creditor for $4,800 at 10% interest. The holder has the right to convert the note to common stock.

On December 31, 2010 we entered into a two (2) year convertible Promissory Note with Richard D Craven, its former CEO for $16,045 at 10% interest for the accrued compensation and expenses owed to him for the fiscal year 2008 in accordance with his Employment Agreement. The holder has the right to convert the note to common stock. On October 27, 2011 this Note was converted to 869,100 shares of common stock and is no longer due.

On December 31, 2010 we entered into a two (2) year convertible Promissory Note with Richard D Craven, its former CEO for $163,694 at 10% interest for the accrued compensation and expenses owed to him for the fiscal year 2009 in accordance with his Employment Agreement. The holder has the right to convert the note to common stock.

On December 31, 2010 we entered into a two (2) year convertible Promissory Note with its Vice President, Solomon Ali for $164,833 at 10% interest for the accrued compensation owed to him for the fiscal year 2009 in accordance with his Employment Agreement. The holder has the right to convert the note to common stock. On October 19, 2011, the Company completed a partial conversion of this Note to 23,545,000 shares of common stock. On October 20, 2011, the Company completed the final conversion of this Note to 18,487,600 shares of common stock and the Note is no longer due.

On December 31, 2010, we entered into a two (2) year convertible Promissory Note with an Employee, for $30,000 at 10% interest for the accrued compensation owed to him for the fiscal year 2010 in accordance with his Employment Agreement. The holder has the right to convert the note to common stock. On October 12, 2011 this Note was converted to 1,500,000 shares of common stock and is no longer due.

On December 31, 2010, we entered into a two (2) year convertible Promissory Note with its President and CEO, Vince M. Guest for $136,000 at 10% interest for the accrued compensation owed to him for the fiscal year 2010 in accordance with his Employment Agreement. The holder has the right to convert the note to common stock.

On December 31, 2010, we entered into a two (2) year convertible Promissory Note with its Vice President Solomon Ali, for $165,000 at 10% interest for the accrued compensation owed to him for the fiscal year 2010 in accordance with his Employment Agreement. The holder has the right to convert the note to common stock.

On December 31, 2010, we entered into a two (2) year convertible Promissory Note with Richard D Craven, its former CEO for $89,014 at 10% interest for the accrued compensation and expenses owed to him for the fiscal year 2010 in accordance with his Employment Agreement. The holder has the right to convert the note to common stock. On October 27, 2011 this Note was converted to 6,527,667 shares of common stock and is no longer due.

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 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -CONT’D

On January 18, 2011, we entered into a two (2) year convertible Promissory Note with a non-related creditor for $10,000 at 10% interest. The holder has the right to convert the note to common stock.

On January 19, 2011, we entered into a two (2) year convertible Promissory Note with a non-related creditor for $10,000 at 10% interest. The holder has the right to convert the note to common stock.

On February 23, 2011, we entered into a two (2) year convertible Promissory Note with a non-related creditor for $45,400 at 10% interest. The holder has the right to convert the note to common stock.

On February 25, 2011, we entered into a six (6) month convertible Promissory Note with a non-related creditor for $9,400 at 10% interest. The holder has the right to convert the note to common stock.

On March 10, 2011 we entered into a two (2) year convertible Promissory Note with a non-related creditor for $25,000 at 10% interest. The holder has the right to convert the note to common stock.

On March 14, 2011, we entered into a two (2) year convertible Promissory Note with a non-related creditor for $25,000 at 10% interest. The holder has the right to convert the note to common stock.

On March 28, 2011, we entered into a two (2) year convertible Promissory Note with a non-related creditor for $72,500 at 10% interest. The holder has the right to convert the note to common stock.

On May 20, 2011, we entered into a three (3) year convertible Promissory Note with a non-related creditor for $20,600 at 10% interest. The holder has the right to convert the note to common stock.

On May 23, 2011, we entered into a three (3) year convertible Promissory Note with a non-related creditor for $89,000 at 10% interest. The holder has the right to convert the note to common stock.

On May 30, 2011, we entered into a three (3) year convertible Promissory Note with a non-related creditor for $110,424 at 10% interest. The holder has the right to convert the note to common stock.

On June 25, 2011, we entered into a three (3) year convertible Promissory Note with a non-related creditor for $49,200 at 10% interest. The holder has the right to convert the note to common stock.

On July 29, 2011, we entered into a three (3) year convertible Promissory Note with a non-related creditor for $40,000 at 10% interest. The holder has the right to convert the note to common stock.

On August 29, 2011, we entered into a three (3) year convertible Promissory Note with a non-related creditor for $29,500 at 10% interest. The holder has the right to convert the note to common stock.

It could take several years to convert all of the Notes to stock if all of the lenders requested it. It is possible that some of the parties may never convert their Notes to stock and may take cash only, when the Company is in the best position to settle the obligation on a cash basis.

For more information on the Convertible Notes see Part II - Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations under “Debt” - Convertible Debt, pages 45 through 49, and Item 8 - Note 7, “Convertible Notes Payable” pages F-16 through F-20, and Part I – Item 1A, “Risk Factors”, pages 18 through 25 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements including arrangements that would affect the liquidity, capital resources, market risk support and credit risk support or other benefits.

WHERE YOU CAN FIND MORE INFORMATION

You are advised to read this Form 10-Q Report in conjunction with other reports and documents that we file from time to time with the SEC. In particular, please read our Quarterly Reports on Form 10-Q, Annual Report on Form 10-K, and Current Reports on Form 8-K, including all amendments that we file from time to time. You may obtain copies of these reports directly from us or from the SEC at the SEC’s Public Reference Room at 100 F. Street, N.E. Washington, D.C. 20549, and you may obtain information about obtaining access to the Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains information for electronic filers at its website http://www.sec.gov.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 

For a description of market risks, see “Part II — Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Market Risk” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010. Our exposure to market risks has not changed materially from the description in the Annual Report on Form 10-K.We do not hold any derivative instruments that engage in any hedging activities. Most of our activity is in the resale of natural gas.

ITEM 4.  CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective such that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and (ii) accumulated and communicated to the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Our Chief Executive Officer and Chief Financial Officer is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. Furthermore, smaller reporting companies face additional limitations. Smaller reporting companies employ fewer individuals and find it difficult to properly segregate duties. Often, one or two individuals control every aspect of the Company's operation and are in a position to override any system of internal control. Additionally, smaller reporting companies tend to utilize general accounting software packages that lack a rigorous set of software controls.

Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the Company's internal control over financial reporting as of September 30, 2011. In making this assessment, our Chief Executive Officer and Chief Financial Officer used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control -- Integrated Framework. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2011, our internal control over financial reporting was effective.

Changes in Internal Control over Financial Reporting

There was no change in our system of internal control over financial reporting (as defined in Rules 13a-15(f) and 15-d-15(f) under the Exchange Act) during the quarter ended September 30, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There have been no material changes to the information included in Item 3, “Legal Proceedings” in our 2010 Annual Report on Form 10-K. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries' officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

ITEM 1A - Risk Factors

In addition to the other information set forth in this report, the factors discussed in "Part I — Item 1A — Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010, could materially affect our business, financial condition, or operating results. The risks described in our Annual Report on Form 10-K and our subsequent SEC reports are not the only risks facing us. There are additional risks and uncertainties not currently known to us or that we currently deem to be immaterial that may also materially adversely affect our business, financial condition, or operating results. There have been no material changes from the risk factors previously disclosed in that Form 10-K Report.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

There were no sales of unregistered senior securities during the period ended September 30, 2011 except as follows;

On September 14, 2011, the Company issued 3,000,000 shares of common stock for services, of which 1,000,000 shares were issued to an employee of the Company, and two employees of NDR Energy Group LLC were each issued 1,000,000 shares for services. The total value of the shares was $133,500 on the date of issue.

On September 22, 2011 the Company converted one of its Notes payable dated 11/23/10, for a total of $12,000 and issued 2,400,000 common shares for that conversion. No accrued interest was due on the Note upon conversion. This conversion of debt reduced the Company’s Notes payables of $12,000.

The offer and sale of such shares of our common stock were effected in reliance on the exemptions for sales of securities not involving a public offering, as set forth in Rule 506 promulgated under the Securities Act of 1933 (the “Securities Act”) and in Section 4(2) of the Securities Act, based on the following: (a) the investors confirmed to us that they were “accredited investors,” as defined in Rule 501 of Regulation D promulgated under the Securities Act and had such background, education and experience in financial and business matters as to be able to evaluate the merits and risks of an investment in the securities; (b) there was no public offering or general solicitation with respect to the offering; (c) the investors were provided with certain disclosure materials and all other information requested with respect to our company; (d) the investors acknowledged that all securities being purchased were “restricted securities” for purposes of the Securities Act, and agreed to transfer such securities only in a transaction registered under the Securities Act or exempt from registration under the Securities Act; and (e) a legend was placed on the certificates representing each such security stating that it was restricted and could only be transferred if subsequent registered under the Securities Act or transferred in a transaction exempt from registration under the Securities Act.

Item 3. Defaults Upon Senior Securities

There were no defaults upon senior securities during the period ended September 30, 2011.

Item 4. Removed and Reserved

 Item 5. Other Information

There is no other information to report with respect to which information is not otherwise called for by this form.

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Item 6. Exhibits

31.1 Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act.

31.2 Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act.

32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act.

32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act.

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SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

UNIVERSAL BIOENERGY, INC.
Dated: November 14, 2011	By/s/ Vince M. Guest
	Vince M. Guest
	Chief Executive Officer (Principal Executive Officer)
	Principle Financial Officer, and President