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 June 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 Incorporatoin |  | IRS Employer Indentification 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:   Yes   S    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£No S



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 company S



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  £ No S





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   August 30, 2011
|Common
        stock, $0.001 par value |  | 135,568,383                         











(1)


Table of Contents








UNIVERSAL
BIOENERGY INC.



INDEX
TO FORM 10-Q FILING

FOR
THE THREE MONTHS ENDED JUNE 30, 2011 AND 2010



TABLE OF CONTENTS









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









(2)


Table of Contents






PART
I — FINANCIAL INFORMATION





ITEM
1. FINANCIAL STATEMENTS



|UNIVERSAL BIOENERGY, INC.  
|---------------------------
|                           
|CONSOLIDATED BALANCE SHEETS







|                                                                                       |  | (Unaudited)   |             | (Audited)        
|-------------------------------------------------------------------------------------- |  | ------------- | ----------- | -----------------
|ASSETS: (Substantially pledged)                                                        |  |              
|                                                                                       |  | June 30, 2011 |             | December 31, 2010
|                                                                                       |  |               |             |                  
|CURRENT ASSETS:                                                                        |  |               |             |                  
|Cash                                                                                   |  | $             | 10,624      |                  
|Accounts receivables from natural gas sales                                            |  |               | 5,772,637   |                  
|Other loans                                                                            |  |               | 3,000       |                  
|Total current assets                                                                   |  |               | 5,786,261   |                  
|                                                                                       |  |               |             |                  
|PROPERTY AND EQUIPMENT - net                                                           |  |               | 134,321     |                  
|                                                                                       |  |               |             |                  
|OTHER ASSETS:                                                                          |  |               |             |                  
|Loans receivable                                                                       |  |               | 10,050      |                  
|Investments                                                                            |  |               | 189,500     |                  
|Intangible assets                                                                      |  |               | 250,000     |                  
|Deposit                                                                                |  |               | 6,516       |                  
|Total other assets                                                                     |  |               | 456,066     |                  
|                                                                                       |  |               |             |                  
|TOTAL ASSETS                                                                           |  | $             | 6,376,648   |                  
|                                                                                       |  |               |             |                  
|LIABILITIES AND STOCKHOLDERS' DEFICIT:                                                 |  |               |             |                  
|                                                                                       |  |               |             |                  
|CURRENT LIABILITIES:                                                                   |  |               |             |                  
|Accounts payable to natural gas suppliers                                              |  | $             | 5,905,134   |                  
|Other accounts payable and accrued expenses                                            |  |               | 345,186     |                  
|Accrued interest                                                                       |  |               | 28,030      |                  
|Line of credit DFS                                                                     |  |               | 12,304      |                  
|Advances from affiliates                                                               |  |               | 29,750      |                  
|Total current liabilities                                                              |  |               | 6,320,403   |                  
|                                                                                       |  |               |             |                  
|Long term convertible notes payable                                                    |  |               | 317,862     |                  
|                                                                                       |  |               |             |                  
|TOTAL LIABILITIES                                                                      |  |               | 6,638,265   |                  
|                                                                                       |  |               |             |                  
|STOCKHOLDERS' DEFICIT:                                                                 |  |               |             |                  
|Preferred stock Series A, $.001 par value, 1,000,000 shares                            |  |               |             |                  
|authorized, zero issued and outstanding shares                                         |  |               |             |                  
|June 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                                      |  |               |             |                  
|June 30, 2011 and December 31, 2010, respectively                                      |  |               | 232         |                  
|Common stock, $.001 par value, 1,000,000,000 shares authorized;                        |  |               |             |                  
|114,153,072 and 77,247,517 issued and outstanding as of                                |  |               |             |                  
|June 30, 2011 and December 31, 2010, respectively                                      |  |               | 114,153     |                  
|Additional paid-in capital                                                             |  |               | 17,220,738  |                  
|Noncontrolling interest                                                                |  |               | (103,584    | )                
|Accumulated deficit                                                                    |  |               | (17,493,157 | )                
|Total stockholders' deficit                                                            |  |               | (261,618    | )                
|                                                                                       |  |               |             |                  
|TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                                            |  | $             | 6,376,648   |                  
|                                                                                       |  |               |             |                  
|The accompanying notes are an integral part of these consolidated financial statements







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(table of contents)






|UNIVERSAL BIOENERGY, INC.                        
|-------------------------------------------------
|                                                 
|CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)







|
|
|
|
|



|                                                                                       |  | For the Three Months Ended |                  | For the Six Months Ended
|-------------------------------------------------------------------------------------- |  | -------------------------- | ---------------- | ------------------------
|                                                                                       |  | June 30,                   |                  | June 30,                
|                                                                                       |  | 2011                       |                  | 2010                    
|                                                                                       |  |                            |                  |                         
|REVENUES                                                                               |  | $                          | 13,800,878       |                         
|                                                                                       |  |                            |                  |                         
|COST OF SALES                                                                          |  |                            | 13,782,566       |                         
|                                                                                       |  |                            |                  |                         
|GROSS PROFIT                                                                           |  |                            | 18,313           |                         
|                                                                                       |  |                            |                  |                         
|OPERATING EXPENSES:                                                                    |  |                            |                  |                         
|General and administrative                                                             |  |                            | 102,256          |                         
|Sales and marketing                                                                    |  |                            | 5,385            |                         
|Depreciation and amortization expense                                                  |  |                            | 51,955           |                         
|Total operating expenses                                                               |  |                            | 159,596          |                         
|                                                                                       |  |                            |                  |                         
|LOSS FROM OPERATIONS                                                                   |  |                            | (141,284         | )                       
|                                                                                       |  |                            |                  |                         
|OTHER INCOME (EXPENSE):                                                                |  |                            |                  |                         
|Other income                                                                           |  |                            | (1,807           | )                       
|Interest expense                                                                       |  |                            | (81,112          | )                       
|Total other expense                                                                    |  |                            | (82,919          | )                       
|                                                                                       |  |                            |                  |                         
|LOSS FROM CONTINUING OPERATIONS                                                        |  |                            | (224,203         | )                       
|                                                                                       |  |                            |                  |                         
|                                                                                       |  |                            |                  |                         
|NEL LOSS                                                                               |  |                            | (224,203         | )                       
|                                                                                       |  |                            |                  |                         
|Net loss attributable to noncontrolling interest                                       |  |                            | (86,531          | )                       
|                                                                                       |  |                            |                  |                         
|NET LOSS ATTRIBUTABLE TO UNIVERSAL                                                     |  | $                          | (137,672         | )                       
|                                                                                       |  |                            |                  |                         
|NET LOSS PER SHARE:                                                                    |  |                            |                  |                         
|Basic and diluted loss per share                                                       |  |                            | $              * |                         
|                                                                                       |  |                            |                  |                         
|Weighted average of shares outstanding                                                 |  |                            | 55,170,047       |                         
|                                                                                       |  |                            |                  |                         
|* = Less than (.01)                                                                    |  |                            |                  |                         
|                                                                                       |  |                            |                  |                         
|The accompanying notes are an integral part of these consolidated financial statements | 

















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(table of contents)






|UNIVERSAL BIOENERGY, INC.                       
|------------------------------------------------
|                                                
|CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)







|                                                                                       |  | For the Six Months Ended
|-------------------------------------------------------------------------------------- |  | ------------------------
|                                                                                       |  | June 30,                
|                                                                                       |  | 2011                    
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                  |  |                         
|Net Loss                                                                               |  | $                       
|Adjustments to reconcile net loss to net cash                                          |  |                         
|(used in) operating activities:                                                        |  |                         
|Depreciation expense                                                                   |  |                         
|Non controlling interest                                                               |  |                         
|Common stock issued for services                                                       |  |                         
|Amortization of Beneficial conversion features                                         |  |                         
|Common stock issued for interest expense                                               |  |                         
|Changes in assets and liabilities:                                                     |  |                         
|Accounts recievable                                                                    |  |                         
|Prepaid expenses and other current assets                                              |  |                         
|Accrued expenses                                                                       |  |                         
|Accounts payable                                                                       |  |                         
|Net cash used for operating activities                                                 |  |                         
|                                                                                       |  |                         
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                  |  |                         
|Purchase of equipment                                                                  |  |                         
|Investment in participation agreement - see note 5                                     |  |                         
|Net cash provided by investing activities                                              |  |                         
|                                                                                       |  |                         
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                  |  |                         
|Advances from affiliate                                                                |  |                         
|Repayment of advances from affiliate                                                   |  |                         
|Non-contolling interest in consolidated subsidiary                                     |  |                         
|Proceeds from notes payable                                                            |  |                         
|Net cash provided by financing activities                                              |  |                         
|                                                                                       |  |                         
|INCREASE (DECREASE) IN CASH                                                            |  |                         
|                                                                                       |  |                         
|CASH, BEGINNING OF PERIOD                                                              |  |                         
|                                                                                       |  |                         
|CASH, END OF PERIOD                                                                    |  | $                       
|                                                                                       |  |                         
|SUPPLEMENTAL CASH FLOW INFORMATION:                                                    |  |                         
|Interest paid                                                                          |  | $                       
|Taxes paid                                                                             |  | $                       
|Issuance of common stock for the conversion of debt                                    |  | $                       
|Common stock issued for intangible assets in acquisition                               |  | $                       
|Convertible notes issued for accrued liabilities                                       |  | $                       
|Beneficial conversion feature of convertible notes payable                             |  | $                       
|                                                                                       |  |                         
|The accompanying notes are an integral part of these consolidated financial statements









(5)


(table of contents)






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, oil and alternative energy. Through
it’s 49% owned subsidiary, NDR Energy Group LLC, the Company presently sells natural gas to 22 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 22 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.





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(table of contents)








UNIVERSAL
BIOENERGY, INC.

NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



NOTE
1 - DESCRIPTION OF BUSINESS (CONT’D)



Company
History (cont’d)



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.



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 three months period ended June 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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(table of contents)






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
June 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
        Plant
        Equipment
        Furniture
        and Fixture |  | 40
        Years
        15
        Years
        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 350 Goodwill 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 June 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.



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.





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(table of contents)






UNIVERSAL
BIOENERGY, INC.

NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



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



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.



(9)


(table of contents)










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 Six Months Ended June 30, 2011 |             | For the Six Months Ended June 30, 2010
|--------------------------------------------------------------------------------------------------- |  | -------------------------------------- | ----------- | --------------------------------------
|                                                                                                    |  |                                        |             |                                       
|Income and Losses available for common shareholders                                                 |  | $                                      | (818,290    | )                                     
|                                                                                                    |  |                                        |             |                                       
|Weighted average common shares outstanding                                                          |  |                                        | (55,170,047 | )                                     
|Basic and fully diluted loss per share                                                              |  | $                                      | *           |                                       
|Net income and loss per share is based upon the weighted average shares of common stock outstanding
|                                                                                                   

*= Less than (.01)

| |  |  |  |  |  |  |  | 
| |  |  |  |  |  |  |  | 



The
effect of common shares issuable under convertible notes is Anti-Dilutive and not included in Diluted 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 and there
are 100,000 series A issued and 232,350 series B issued and outstanding, respectively, as of June 30, 2011. On April 26,
2010, Richard D. Craven surrendered the 100,000 shares of Preferred Series A shares to the Company, after his resignation from
his position with the Company and the preferred stock is now recorded as treasury stock. 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.



On
May 9, 2011, the Company amended its Articles of Incorporation and increased the authorized shares of common stock from 200,000,000
to 1,000,000,000 shares at $.001 par value,and 114,153,072were issued and outstanding as of
June 30, 2011.





Common
Stock Issued



2011



At
June 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 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, 5/25/10 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 notes payables of $21,750.



On
February 15, 2011, the Company converted three of its Notes payable dated 4/26/10, 5/25/10 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 of $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 reduced their notes
payables of $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 of $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 of $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 of
$146,600.





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 shares of common stock. No accrued interest was due on the note upon conversion. This conversion of debt reduced their notes
payables of $50,000.







(10)


(table of contents)






UNIVERSAL
BIOENERGY, INC.

NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
5 – EQUITY (CONT’D)



2010



On
April 12, 2010 the Company issued 5,000,000 common shares for the acquisition of NDR.



On
June18, 2010 the Board of Directors approved increasing the authorized common shares to 1,000,000,000 and completed the process
of filing the necessary paperwork with the State of Nevada on May 9, 2011.



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 total reduction of $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
Company has fixed assets as of June 30, 2011 and December 31, 2010 as follows:



|                         |  | June 30, 2011 |         | December 31, 2010
|------------------------ |  | ------------- | ------- | -----------------
|Equipment                |  | $             | 13,094  |                  
|Land                     |  |               | 50,000  |                  
|Building                 |  |               | 75,000  |                  
|Accumulated depreciation |  |               | (3,773  | )                
|Total                    |  | $             | 134,321 |                  





There
was $3,773 and $0 depreciation expense for the three months ended June 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 June 30, 2011. The Company
impaired the assets to its value and adjusted accumulated depreciation to zero during that impairment.





NOTE
7 – CONVERTIBLE NOTES PAYABLE





|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |  | June 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 including the property at 128
    Biodiesel Drive, Nettleton, MS. As allowed under the terms of the note, the noteholder elected to convert their note to shares of our common
stock.  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. As allowed under the terms of
    the note, the noteholder elected to convert their note to shares of our common stock.  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.  As allowed under the terms of the note, the noteholder elected to convert their note to shares of our common
stock.  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.  As allowed under the terms of the note, the noteholder elected to convert their note to shares of our common
stock.  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. As allowed under the terms of the note, the noteholder elected to convert their note to shares of our common
stock.  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. As allowed under the terms of the note, the noteholder elected to convert their note to shares of our common
stock.  See Note 5 Equity – for more details                   |  |  | — |  |  |  | 10,500 | 













(11)


(table of contents)






UNIVERSAL
BIOENERGY, INC.

NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



NOTE
7 – CONVERTIBLE NOTES PAYABLE (CONT’D)



|                                                                                                                                                                                                                                                                                                          |  |  |   | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | - | 
|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.  As allowed under the terms of the note, the noteholder elected to convert their note to shares of our common
stock.  See Note 5 Equity – for more details.  |  |  | — | 
|                                                                                                                                                                                                                                                                                                          |  |  |   | 
|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.  As allowed under the terms of the note, the noteholder elected to convert their note to shares of our common
stock.  See Note 5 Equity – for more details. |  |  | — | 





|                                                                                                                                                                                                                                                                                                        |  |  |   |  |  |  |        | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | - |  |  |  | ------ | 
|                                                                                                                                                                                                                                                                                                        |  |  |   |  |  |  |        | 
|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. As allowed under the terms of the note, the noteholder elected to convert their note to shares of our
    common stock. See Note 5- 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.  As allowed under the terms
of the note, the noteholder elected to convert their note to shares of our common stock.  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.  As allowed under the terms of the note, the noteholder elected to convert their note to shares of our common
stock.  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.  As allowed under the terms of the note, the noteholder elected to convert their note to shares of our common
stock.  See Note 5 Equity – for more details.   |  |  | 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 noteholder has the right to convert this note to shares at a discount to market.  For further information,
please refer to our December 31, 2010 10-K.   |  |  | 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                                                                                                 |  |  | 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 noteholder has the right to convert this note to shares at a discount to market.  For further information,
please refer to our December 31, 2010 10-K. |  |  | 12,000 |  |  |  | 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 noteholder has the right to convert this note to shares at a discount to market.  For further information,
please refer to our December 31, 2010 10-K. |  |  | 50,000 |  |  |  | 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                                                                                                    |  |  | —      |  |  |  | 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 noteholder has the right to convert this note to shares at a discount to market.  For further information,
please refer to our December 31, 2010 10-K.     |  |  | —      |  |  |  | 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 noteholder has the right to convert this note to shares at a discount to market.  For further information,
please refer to our December 31, 2010 10-K.                                                                                                                                          |  |  | 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 noteholder has the right to convert this note to shares at a discount to market.  For further information,
please refer to our December 31, 2010 10-K    |  |  | 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 noteholder has the right to convert this note to shares at a discount to market.  For further information,
please refer to our December 31, 2010 10-K. |  |  | 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.                                                                                                            |  |  | 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                                                                                                                                  |  |  | 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                                                                                                      |  |  | 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 noteholder has the right to convert this note to shares at a discount to market.  For further information,
please refer to our December 31, 2010 10-K                |  |  | 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 noteholder has the right to convert this note to shares at a discount to market.  For further information,
please refer to our December 31, 2010 10-K   |  |  | 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 noteholder has the right to convert this note to shares at a discount to market.  For further information,
please refer to our December 31, 2010 10-K.                                                                                                                                        |  |  | 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 noteholder has the right to convert this note to shares at a discount to market.  For further information,
please refer to our December 31, 2010 10-K.                                                                                                                                        |  |  | 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 noteholder has the right to convert this note to shares at a discount to market.  For further information,
please refer to our December 31, 2010 10-K.                                                                                                                                       |  |  | 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 noteholder has the right to convert this note to shares at a discount to market.  For further information,
please refer to our December 31, 2010 10-K. |  |   | 9,400      |  
|                                                                                                                                                                                                                                                                                                             |  |   |            |  
|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 noteholder has the right to convert this note to shares at a discount to market.  For further information,
please refer to our December 31, 2010 10-K.   |  |   | 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 noteholder has the right to convert this note to shares at a discount to market.  For further information,
please refer to our December 31, 2010 10-K.   |  |   | 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 noteholder has the right to convert this note to shares at a discount to market.  For further information,
please refer to our December 31, 2010 10-K.   |  |   | 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 noteholder has the right to convert this note to shares at a discount to market.  For further information,
please refer to our December 31, 2010 10-K.   |  |   | 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 noteholder has the right to convert this note to shares at a discount to market.  For further information,
please refer to our December 31, 2010 10-K.   |  |   | 89,000     |  
|                                                                                                                                                                                                                                                                                                             |  |   |            |  
|On May 30, 2011 the Company entered into a three (3) year convertible Promissory Note with a non-related creditor for $104,424 at 10% interest.  The noteholder has the right to convert this note to shares at a discount to market.  For further information,
please refer to our December 31, 2010 10-K.  |  |   | 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 noteholder has the right to convert this note to shares at a discount to market.  For further information,
please refer to our December 31, 2010 10-K.  |  |   | 49,200     |  
|                                                                                                                                                                                                                                                                                                             |  |   |            |  
|Total long-term note payable                                                                                                                                                                                                                                                                                 |  |   | 1,385,329  |  
|Less current portion                                                                                                                                                                                                                                                                                         |  |   | —          |  
|Less Discount from Beneficial Conversion Feature                                                                                                                                                                                                                                                             |  |   | (1,067,467 | )
|Long-term portion of note payable                                                                                                                                                                                                                                                                            |  | $ | 317,862    |  



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.





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



2011	$
-0-

2012	$
918,805

2013	$
197,300

2014	$
269,224

2015	$
-0-

Total	$1,385,329

========





(12)


(table of contents)






UNIVERSAL
BIOENERGY, INC.

NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



NOTE
7 – CONVERTIBLE NOTES PAYABLE (CONT’D)



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.



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 $17,493,157 which expire
in various years through 2028, 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, 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 operating 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.



On
April 14, 2010, Dr. Richard D. Craven submitted his resignation as a member of our Board of Directors and as Chief Executive Officer
and Principal Financial Officer to pursue other business matters. Dr. Richard D. Craven did not have any disagreement with
the Company, on any matter related to the Company’s accounting principles or practices, financial statement disclosure,
or auditing scope or procedure. Simultaneously, Vince M. Guest was appointed as Chief Executive Officer and Principal Financial
Officer.



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.  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 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;



On
April 14, 2010, Dr. Richard D. Craven submitted his resignation as a member of our Board of Directors and as Chief Executive Officer
and Principal Financial Officer to pursue other business matters. Dr. Richard D. Craven did not have any disagreement with
the Company, on any matter related to the Company’s accounting principles or practices, financial statement disclosure,
or auditing scope or procedure.



Simultaneously,
Vince M. Guest was appointed as Chief Executive Officer and Principal Financial Officer.



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 beneficialconversion 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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(table of contents)






UNIVERSAL
BIOENERGY, INC.

NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
10 – ACQUISTION



Entry
into a Material Definitive Agreement



Universal
Bioenergy Corporation, 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 credit to 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.) |  | $             
|Recognized amounts of identifiable assets acquired:                          |  |               
|Client List                                                                  |  |               
|Total assets                                                                 |  | $             
|Fair value of total assets                                                   |  | $             





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





|                                       |  | Six Months Ended
|-------------------------------------- |  | ----------------
|                                       |  | 2011            
|                                       |  |                 
|REVENUES                               |  |                 
|                                       |  |                 
|Net Loss                               |  |                 
|                                       |  |                 
|Net income per share basic and diluted |  | $               
|                                       |  |                 
|Weighted average of shares outstanding |  |                 



* = Less than (.01)



NOTE
11 - CONTINGENCIES



There
are no contingencies to report at this time



NOTE
12 – SUBSEQUENT EVENTS



On
July 12, 2011, the Company’s transfer agent, issued 11,415,311 shares of common stock to all registered shareholders of
record, in accordance with a declaration by the Board of Directors on June 6, 2011, to distribute a stock dividend to
all shareholders of record on or before July 1, 2011, on a 10 for 1 basis..



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 of $50,000.



Changes
In Registrant’s Certifying Accountant

On
August 18, 2011, the Company notified S.E. Clark & Company P.C. that it was dismissed as the Registrant’s independent
registered public accounting firm. On August 18, 2011, the Company engaged Bongiovanni & Associates, CPA’s as its independent
registered public accounting firm for the Company’s fiscal year ended December 31, 2011. The decision to dismiss S.E. Clark
& Company P.C and engage Bongiovanni & Associates, CPA’s as the Company’s independent registered public accounting
firm was approved by the Company’s Board of Directors on August18, 2011. Formal notification detailing this action was filed
in a Form 8-K with the SEC on August 24, 2011.





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(table of contents)








UNIVERSAL
BIOENERGY, INC.

NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



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
$17,493,157 from its inception to June 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



Discovery
Of Facts From Prior Management



In
2010 management became aware that cash and other assets invested in the Company prior to December 31, 2009 may have been received
as a result of illegal activities by persons affiliated with certain current and former shareholders, Lacroix International Holdings
Ltd. (Lacroix) and Mortensen Financial Ltd. (Mortensen). See SEC vs. Abellan, et al, (Case 3:08-CV-05502). Management also became
aware that the Securities and Exchange Commission (SEC) has subsequently obtained an order of disgorgement pertaining to the assets
held by Lacroix and Mortensen which currently include shares of preferred and common stock of the Company.



The
risk of disgorgement



The
approximate $1 million in cash invested in the Company by Mortensen has been depleted. Additionally, the approximate $1.6 million
value of the dormant biodiesel plant invested by Lacroix, with its unknown but implicit environmental liability, has been impaired
to a net value of $290,000.





At
the advice of counsel, management believes, lacking definitive proof, it is not likely that the SEC would move to disgorge ownership
of the biodiesel plant from the Company.



According
to the court filings in SEC vs. Abellan et al, the SEC was not able to obtain the Andorran banking records of Lacroix and Mortensen,
and accordingly cannot currently definitively link the funds invested in the Company to the illegal activities of Abellan. At
the advice of counsel, management believes, while it is possible, it is unlikely, that even if the SEC is able to obtain those
records, and is able to definitively link those funds to the assets invested in the Company that the SEC would move to disgorge
ownership of the biodiesel plant from the Company. In an attempt to obtain clarification of this, and to provide full and fair
disclosure, management requested clarification from SEC staff, which declined to provide clarification or comment.



The
risk of rescission



Management
also became aware that the stated September 17, 2008 restructuring of debt to preferred shares was transacted subsequent to a
September 11, 2008 injunction obtained by the SEC freezing the assets of Lacroix and Mortensen. The restructuring accordingly
may constitute an illegal act. Current

and
former management both assert that they did not receive notice of the freeze and were not aware of the freeze at the time of the
conversion.



Current
management also became aware that former management was contacted by SEC enforcement pertaining to the above related to an informal
investigation of another company. It should be noted that the Company and its then management were not the focus of the informal
investigation. Documents provided by former management to the SEC establish that the discussions between former management, Lacroix
and Mortensen began at least a month in advance of the freeze order.



As
creditor note holders, Lacroix and Mortensen had preference over equity holders in the event of liquidation. Additionally, even
though the Lacroix note was “secured” by the biodiesel plant, no real or personal property liens were ever filed to
perfect the liens. At the time of the conversion the Company lacked liquidity to pay the principal and interest due on these notes.
The conversion to preferred shares abated the further accrual of interest on the notes.



As
preferred shareholders, Lacroix and Mortensen still have preference over common shareholders in the event of liquidation, after
satisfaction of the creditors. While the conversion of these shares to common would eliminate this preference, it could also result
in improving the liquidity of these shares, once the restrictive legends are removed, and enable distribution of the shares as
discussed below.



At the advice
of counsel, management believes it is possible, but unlikely that the SEC would move to rescind the note to preferred conversion
transaction which would improve their standing in the event of

liquidation,
but would dilute the potential of liquidity through the market. In an attempt to obtain clarification of this, and to provide
full and fair disclosure, management requested clarification from SEC staff, who declined to provide clarification or comment.





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(table of contents)






UNIVERSAL
BIOENERGY, INC.

NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



NOTE
14 – COMMITMENTS AND CONTINGENCIES (CONT’D)



The
risk of dilution



As
stated elsewhere, the preferred shares are convertible to common shares at a rate to be mutually agreed upon by the Company, Lacroix,
and Mortensen. However, documents provided by former management to the SEC establish that management of Lacroix and Mortensen
had tentatively agreed to convert the preferred shares received from the note conversions into common shares at the rate of ten
shares of common to one share of preferred. Additionally, common shares were converted to preferred shares by Mortensen at a 10:1
ratio. Conversion at the 10:1 rate would result in the issuance of 2,320,800 shares of common stock or 2.9% dilution as of December
31, 2010. Conversion at an implied market rate ($.07 per share) would result in the issuance of approximately 3,314,000 shares
of common stock or 2.9% dilution as of June 30, 2011.



On
April 10, 2010, current management advised the stock transfer agent to freeze the preferred and common shares of Lacroix and Mortensen
held in name or in street name, preventing their further conversion to cash, in accordance with the United States District Court,
Western District of Washington at Tacoma, in the court’s “Preliminary Injunction Order”, dated September 11,
2008 in Case No. 3:08-



cv-05502
BHS, and its “Order Granting Plaintiff’s Motion For Summary Judgment” dated December 7, 2009. The Board of Directors
of the Company, in accordance with these court orders, has also frozen the option to convert the preferred shares to common stock.
Counsel has advised management that such conversion of preferred shares to common could constitute a further violation of the
asset freeze. In an attempt to obtain clarification of this, and to provide full and fair disclosure, management requested clarification
from SEC staff, who declined to provide clarification or comment.



In
consideration of the above, management asserts that they will not convert the preferred shares to common without the explicit
consent of the SEC. Additionally, management is contemplating, under the authority of the SEC disgorgement order, seeking permission
of the SEC to convert the preferred shares to common in the least dilutive fashion discussed above (10:1) and distribute those
shares and other common shares owned by Lacroix and Mortensen to the shareholders harmed by Abellan.



The
docket currently shows the status of the Abellan case as “terminated”, leaving Company counsel to believe that further
action by the SEC against the Company is possible but unlikely.



NOTE
15 - CONCENTRATIONS



At
June 30, 2011, 54% of the Company's accounts receivable was due from a single customer, during the three months ended June 30,
2011, and 45% of total revenue was generated from a single customer, for the three months ended June 30, 2010.





*
* * * * *

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, 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.



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(table of contents)






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, oil and alternative energy. Through our subsidiary
NDR Energy Group LLC, we presently sell natural gas to 22 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.



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 22 major utility companies in the United States, with strong Standard
& Poor’s credit ratings. NDR Energy’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. 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.



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Corporate
Finance



Our
Utility Customers

All
of the Company’s customers are typically multi-million and mult-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 with out 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.





Recent
Developments and Significant Accomplishments



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.





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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.



Universal
Bioenergy Applies for Listing on the Frankfurt Stock Exchange

On
February 8, 2011, we announced that we  had 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, with an estimated value of $1.74 billion based on the, August 29, 2011 NYMEX, West Texas Intermediate
(WTI) price of, $87.42, and over 20,000,000 mcf of natural gas, with an estimated value of $76.00 million, based on the, August
29, 2011 NYMEX price of $3.81. No guarantees can be provided that the oil and gas field can be developed, profitable, or that
the price of oil will be similar to the August 29, 2011 price discussed.



Positive
Report Update on the Oil and Gas Wells

On
August 30, 2011, the Company 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 15,541,000

cubic
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 which should provide the investors an exceptional return on their investment. Based on the August 29,
2011 NYMEX, West Texas Intermediate (WTI) price of, $87.42 per barrel, the 100,000 to 150,000 bbls of oil would have an estimated
value of $8.74 to $13.11 million. Based on the August 29, 2011 NYMEX price of, $3.81 per mcf, the 1,500,000 to 2,500,000 mcf of
natural gas would have an estimated value of $5.71 to $9.52 million.



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.



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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.



Approval
of Stock Dividend

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.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.



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.



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

On
April 7, 2011, Standard & Poor’s announced that it has commenced Factual Stock Report coverage our company. S&P’s
Factual Stock Report coverage will be 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 will be distributed
to an estimated 85,000 brokers and financial consultants, scores of global institutional fund managers, and over 24 million self-directed
online 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 and it is expected that we will deliver the gas to
Nicor later this year. 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.



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 of approximately $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.

Universal 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.





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NDR
Energy 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.



Universal
in Talks to Acquire Ownership Interest in Gas Pipelines

On
May 12, 2011, we announced that our acquisition team is in talks to acquire an ownership interest in a natural gas gathering company
that owns several gas pipelines that are used to transport natural gas from the wells in the Premont Northwest oil and gas field
to the main Tennessee Gas Pipeline Tap. No assurances can be provided that any definitive agreement will be executed.



Thermal
Coal Mining Operations

Since
June of 2011, management has been in advanced discussions with a company to acquire an interest in a thermal coal production and
mining operation in eastern Kentucky. Steam plant power production is reliant on thermal coal. The mining operations are the surface
and high wall mining type of operations. Since NDR Energy Group, already sells natural gas to our customers to generate electricity,
this would give us another energy related product to sell to our current and expanding customer base. 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).



NDR
Energy 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.



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Universal
Expands Into Propane Market

NDR
Energy Group Awarded Contract withWashington 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.



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.



NDR
Energy 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 is one of the largest investor owned
utilities in the nation, and provides 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.

Changes
In Registrant’s Certifying Accountant

On
August 18, 2011, the Company notified S.E. Clark & Company P.C. that it was dismissed as the Registrant’s independent
registered public accounting firm. On August 18, 2011, the Company engaged Bongiovanni & Associates, CPA’s as its independent
registered public accounting firm for the Company’s fiscal year ended December 31, 2011.



With
the recent double-digit revenue growth of our Company and our future acquisitions, we felt it was necessary to engage the services
of an auditor such as Bongiovanni & Associates with their strong background, experience and credentials. This is not a new
move for us, since we have been entertaining engaging new accounting professionals for many months now. Management has been working
for several months to fully prepare all of the financial information for this potential change. All of the information was recently
submitted to Bongiovanni who have put a full team of their accounting associates on the project to expedite the release of the
Form 10-Q reports for the first and second quarter. We believe Bongiovanni & Associates’ will help us to quickly complete
our filings on a timely basis, which will also assist us in the process of being listed on the Frankfurt Stock Exchange. Bongiovanni
& Associates offers our shareholders a strong combination of high quality services, from working with companies throughout
the U.S. and China. We feel this should build greater confidence in the Company and increase the value to our shareholders.



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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 for Indian Odyssey 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 Indian Odyssey Rim 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.



Market Expansion

Management
believes that there are currently 3240 utilities in the United States. Through NDR Energy, we have firm contracts signed with
22 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.





Focus
on Earnings

We
achieved sales revenue of $36,966,895 for the six months year ending June 30, 2011, as compared
to $13,966,895 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.



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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 22 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.



NewProfit
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





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.



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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. Theplan 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. Potential customers 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
June 30, 2011, there were 114,153,072 shares of our Common Stock issued and outstanding and there were approximately 41 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 holds over 81.21 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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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 an operating 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 Nettleton,
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 March 31,
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.



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.





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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.



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. Based
on the estimated reserves of the field of 20 million barrels of oil, the oil would have an estimated value of $1.74 billion, based
on the August 29, 2011, NYMEX price of $87.42 per barrel. 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. For example, as of August 29, 2011 based on the NYMEX price that
day of $3.81 per mcf and allowing we earn a 90% gross profit, we would realize $3.43 per mcf on the spread of gas that we own
in the field, and that we sell into the market place. 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.



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|Net Loss as adjusted for non-recurring and/or non-cash expenses
|---------------------------------------------------------------
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|Losses available for common shareholders                       
|                                                               
|Other non-cash expenses                                        
|Stock issued for services                                      
|                                                               
|Losses available for common shareholder, as adjusted           
|                                                               





RESULTS
OF OPERATIONS



Three
and Six Months Ended June 30, 2011 compared to the Three and Six Months Ended June 30, 2010



Review
and Analysis of Current Results of Operations



Revenues



Our
revenues for the second 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 first six months of 2011, we generated revenues of $36,048,232,
or 87% of the total revenues for all of 2011



With
a business plan focused on producing revenues, current management believes that it has created significant value
particularlysince 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 six months ended June 30, 2011 were $13,800,878 and
$36,048,232 respectively,as compared to $ 13,966,895 and
$13,966,895 respectively for the same periods in 2010. (as revenue was realized only in the second fiscal
quarter).





Our
Cost of Sales for the three and six months ended June 30, 2011 were $13,782,566 and $36,002,148 respectively, as compared to
$ 13,951,362 and $13,951,362, respectively, for the same periods in 2010 (as revenue and cost of sales were realized only in
the second fiscal quarter). This has resulted in a gross profit margin for three and six months ended June 30,
2011 of $18,313 and $46,085, respectively,as compared to
$15,533 and $15,533, respectively, for the same periods in 2010 (as revenue and cost of sales were realized only in the second fiscal quarter). 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 lossesof $137,762 for the three months ended June 30, 2011 and $ 439,402 for the same period in 2010. For
the six months ended June 30, 2011 our losses were $714,706 and $613,207 for the same period on 2010. Our accumulated deficit
since our inception through June 30, 2011 amounts to $17,493,157. We issued no common shares for services for the three
months ended June 30, 2011 and no common shares for services for the same period in 2010. For the six months period ended
June 30, 2011 we issued 4,500,000 of common shares for services with an aggregate fair value of $193,250 thatwas included inthe $496,684 in operating expenses for the six months ended June 30, 2011 and 300,000 of common shares
for services with an aggregate fair value of $18,000 that was included in the $639,195 in operating expenses for the same
period in 2010 Excluding the value of the common shares of $193,250 from the operating expenses of $496,684 would reduce the
actual net operating expenses to $303,434 for the six months ended June 30, 2011. We also incurred interest expenses of
$81,112 for the three months ended June 30, 2011. Excluding the value of the common stock that was issued for services, and
interest expenses which together totaled $274,362, would correspondingly reduce our net loss of $137,672 to an adjusted net
profit of $136,690 for the three month period ending June 30, 2011 For the six months ended June 30, 2011, we also incurred
interest expenses of $366,471. Excluding the value of the common stock that was issued for services, and interest expenses
which together totaled $559,721, would correspondingly reduce our net loss of $714,706 to an adjusted net loss of $154,985.
Based on an adjusted net loss of $154,895 this loss equals only 0.4% of our total revenues of $36,002,148 for the six months
period ending June 30, 2011.



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Operating
Costs and Expenses.

Our
Cost of Sales for the three months ended June 30, 2011 were $13,782,566 as compared to $13,951,362 for the same period in 2010
and for the six months ended June 30, 2011 were $36,002,148 as compared to $13,951,362 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 June 30, 2011 were $159,596 as compared to $470,568 for the same period in 2010 and for the six months ended June
30, 2011 were $496,684 as compared to $ 639,195 for the same period in 2010. We pay our employees and consultants largely in common
shares as our cash availability is currently limited.



We
decreased our total operating expenses for the three months ended June 30, 2011 from$ 470,568 for the period ending
2010, by a total of $310,972, or by 66%, to $159,596 for the same period in 2011 and for the six months ended June 30, 2011 from
$ 639,195 for the period ending 2010 by a total of $142,511, or by 22%, to $496,684 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 $3,487,777, or 1,207.31% to $6,376,648 for the period ending June 30, 2011, compared
to $ 2,888,871 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 22 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 incurred significant fluctuations in our working capital for this
period. This resulted in a working capital deficit of ($534,142) for the period ending June 30, 2011,
as compared to a working capital deficit of ($1,327,747) for the period ending June 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 June 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 six months ended June 30, 2011 and
2010 were as follows:





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Cash
Flows from Operating Activities



Our
cash used in operating activities for the six months ended June 31, 2011 was ($160,066) as compared to ($170,942) for the six
months ended June 30, 2010. The increase was primarily attributable to the costs associated with NDR’s natural gas operations
and hiring new staff.





Cash
Flows from Investing Activities



Cash
used in investing activities for the six months ended June 30, 2011 was $189,500as compared to ($409) for the six months ended June 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 six months ended June 30, 2011 was($360,190)
as compared to $173,903 for the six months ended June 31, 2010. The proceeds were from a series of
convertible notes payables and repayment of advances from affiliates.



Liabilities
/ Indebtedness

Current
liabilities increased to$6,320,403for the six monthsended June 30, 2011, compared
to $3,657,204 for the same period in 2010. This was primarily due to a $3,591,133increase in accounts
payable from the purchase of supplies of natural gas, accrued expenses. Our long term liabilities are$317,862for the period ending June 30, 2011, compared to $70,000 for the period ending June 30, 2010. This was primarily due to an increase
in the amount long term notes payables.



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.



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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.
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 $25,300 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.



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
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
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
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
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.



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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.



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 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 10Q, 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 June 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 June 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 June 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.



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



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



On
June 15, 2011, the Company converted three of its Notes payable, dated 07/04/09, 02/16/10, 03/30/10 and 05/25/10 for a combined
total of $146,600 and issued 8,635,555 common shares for that conversion. No accrued interest was due on the note upon conversion.
This conversion of debt reduced their notes payables of $146,600.



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 June 30, 2011.



Item
4. Removed and Reserved



Item 5. Other Information

Changes
In Registrant’s Certifying Accountant

On
August 18, 2011, the Company notified S.E. Clark & Company P.C., (“Clark”), that it was dismissed as the Registrant’s
independent registered public accounting firm. The decision to dismiss “Clark” as the Company’s independent
registered public accounting firm was approved by the Company’s Board of Directors on August 18, 2011. On August 18, 2011,
the Company engaged Bongiovanni & Associates, CPA’s (“Bongiovanni”) as its independent registered public
accounting firm for the Company’s fiscal year ended December 31, 2011. The decision to engage Bongiovanni as the Company’s
independent registered public accounting firm was approved by the Company’s Board of Directors.





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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.



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|UNIVERSAL BIOENERGY, INC. |    
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|Dated: September 2, 2011  | By:
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