|                                  |         |                                    |
|---------------------------------------|--------------|-----------------------------------------|
| Nevada                                |         | 20-4952339                              |
| (State or other jurisdiction of  |         | (IRS Employer Identification No.)  |
| incorporation or organization)   |    |                               |

|  Yes  [X] |   No  [_] |
|---------------------|--------------------------|

|   |  Large accelerated filer [_]      |  Accelerated Filer [_]         |
|--------|---------------------------------------------|-------------------------------------|
|   |                                        |                                |
|   |  Non-accelerated filer   [_] |  Smaller reporting company [X] |

| Yes  [_]  |   No  [X] |
|---------------------|--------------------------|

----

| Item 1.                           | Financial Statements (Unaudited)                                                            |
|-----------------------------------|---------------------------------------------------------------------------------------------|
|                              |                                                                                        |   |   | Page |
|                              |                                                                                        |   |   |
|                              | Balance Sheets – September 30, 2012 and December 31, 2011                             |   | 1 |
|                              |                                                                                        |   |   |   |
|                              | Statements of Operations -                                                                  |   |   |
|                              |                                                                                        | Three and Nine months ended September 30, 2012 and 2011 and |   |   |
|                              |                                                                                        | From December 11, 2007 (Inception) to September 30, 2012 |   | 2 |
|                              |                                                                                        |   |   |   |
|                              | Statements of Shareholders’ Deficit                                                   |   | 3 |
|                              |                                                                                        |   |   |   |
|                              | Statements of Cash Flows –                                                            |   |   |
|                              |                                                                                        | Nine months ended September 30, 2012 and 2011 and |   |   |
|                              |                                                                                        | From December 11, 2007 (Inception) to September 30, 2012 |   | 4 |
|                              |                                                                                        |   |   |   |
|                              | Notes to the Condensed Financial Statements                                                 |   | 5 |
|                              |                                                                                        |   |   |   |
| Item 2.                           | Management’s Discussion and Analysis of Financial Condition and Results of Operations |   | 9 |
|                              |                                                                                        |   |   |   |
| Item 3.                           | Quantitative and Qualitative Disclosures About Market Risk                                  |   |   |
|                              | – Not Applicable                                                                      |   | 10 |
|                              |                                                                                        |   |   |   |
| Item 4.                           | Controls and Procedures                                                                     |   | 11 |
|                              |                                                                                        |   |   |   |
| PART II – OTHER INFORMATION |                                                                                        |   |
|                              |                                                                                        |   |   |   |
| Item 1.                           | Legal Proceedings                                                                           |   | 11 |
|                              |                                                                                        |   |   |   |
| Item 1A.                          | Risk Factors                                                                                |   | 11 |
|                              |                                                                                        |   |   |   |
| Item 2.                           | Unregistered Sales of Equity Securities and Use of Proceeds                                 |   | 11 |
|                              |                                                                                        |   |   |   |
| Item 3.                           | Defaults Upon Senior Securities                                                        |   | 12 |
|                              |                                                                                        |   |   |   |
| Item 4.                           | Mine Safety Disclosures                                                                     |   | 12 |
|                              |                                                                                        |   |   |   |
| Item 5.                           | Other Information                                                                           |   | 12 |
|                              |                                                                                        |   |   |   |
| Item 6.                           | Exhibits                                                                                    |   | 12 |
|                              |                                                                                        |   |   |   |
| SIGNATURES                        |                                                                                        | 12 |

----

| BLUGRASS ENERGY INC.                                                  |   |
|-----------------------------------------------------------------------|--------|
| (A Development Stage Company)                                         |   |
| BALANCE SHEETS                                                        |   |
|                                                                  |   |   |   |   |   |
|                                                                  |   | September 30, |   |   |   |   |
|                                                                  |   | 2012 |   |   | December 31, |   |
|                                                                  |   | (Unaudited) |   |   | 2011 |   |
| ASSETS                                                                |   |   |   |   |   |   |
| Current assets:                                                       |   |   |   |   |   |   |
| Cash                                                                  |   | $ | 253 |   |   | $ | 1,581 |   |
| Other receivable                                                      |   |   | 8,698 |   |   |   | 4,631 |   |
| Total current assets                                                  |   |   | 8,951 |   |   |   | 6,212 |   |
|                                                                  |   |   |   |   |   |   |   |   |
| Total assets                                                          |   | $ | 8,951 |   |   | $ | 6,212 |   |
|                                                                  |   |   |   |   |   |   |   |   |
|                                                                  |   |   |   |   |   |   |   |   |
| LIABILITIES AND SHAREHOLDERS' DEFICIT                                 |   |
| Current liabilities:                                                  |   |   |   |   |   |   |   |   |
| Accounts payable and accrued liabilities                              |   | $ | 396,245 |   |   | $ | 342,373 |   |
| Accounts payable - related party                                      |   |   | 127,867 |   |   |   | 288,516 |   |
| Notes payable                                                         |   |   | 20,000 |   |   |   | 20,000 |   |
| Line of credit                                                        |   |   | 97,500 |   |   |   | 22,500 |   |
| Convertible notes payable, net                                        |   |   | 304,250 |   |   |   | 305,518 |   |
| Derivative liability                                                  |   |   | 115,542 |   |   |   | 123,075 |   |
| Accrued interest                                                      |   |   | 156,730 |   |   |   | 100,841 |   |
| Accrued interest - related party                                      |   |   | - |   |   |   | 192,596 |   |
| Total current liabilities                                             |   |   | 1,218,134 |   |   |   | 1,395,419 |   |
|                                                                  |   |   |   |   |   |   |   |   |
| Long-term note payable                                                |   |   | - |   |   |   | 3,500,000 |   |
| Total liabilities                                                     |   |   | 1,218,134 |   |   |   | 4,895,419 |   |
|                                                                  |   |   |   |   |   |   |   |   |
| Commitments and Contingencies                                         |   |   |   |   |   |   |   |   |
| Shareholders' deficit:                                                |   |   |   |   |   |   |   |   |
| Common stock par value $.005, 1,000,000,000 shares authorized,        |   |
|  275,064,898 and 79,562,497 issued and outstanding, respectively |   |   | 1,375,358 |   |   |   | 397,846 |   |
| Additional paid-in-capital                                            |   |   | 1,722,927 |   |   |   | (1,500,060 | ) |
| Deficit accumulated during the development stage                      |   |   | (4,307,468 | ) |   |   | (3,786,993 | ) |
| Total shareholders' deficit                                           |   |   | (1,209,183 | ) |   |   | (4,889,207 | ) |
| Total liabilities and shareholders' deficit                           |   | $ | 8,951 |   |   | $ | 6,212 |   |

----

| BLUGRASS ENERGY INC.                    |   |
|-----------------------------------------|--------|
| (A Development Stage Company)           |   |
| STATEMENTS OF OPERATIONS                |   |
| (Unaudited)                             |   |
|                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                    |   |   |   |   |   |   |   |   |   |   |   |   |   | December 11, 2007 |   |
|                                    |   | Three Months Ended |   |   | Three Months Ended |   |   | Nine Months Ended |   |   | Nine Months Ended |   |   | (Inception) to |   |
|                                    |   | September 30, 2012 |   |   | September 30, 2011 |   |   | September 30, 2012 |   |   | September 30, 2011 |   |   | September 30, 2012 |   |
|                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating expenses:                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Professional fees                       |   | $ | 25,400 |   |   | $ | 39,943 |   |   | $ | 119,449 |   |   | $ | 291,721 |   |   | $ | 467,890 |   |
| Impairment of oil and gas properties    |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 1,984,383 |   |
| General and administrative expenses     |   |   | 35,796 |   |   |   | 192,192 |   |   |   | 159,051 |   |   |   | 673,531 |   |   |   | 770,262 |   |
| Total operating expenses                |   |   | 61,196 |   |   |   | 232,135 |   |   |   | 278,500 |   |   |   | 965,252 |   |   |   | 3,222,535 |   |
|                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other expense:                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loss on investment in Quad Energy       |   |   | - |   |   |   | (10,000 | ) |   |   | - |   |   |   | (485,000 | ) |   |   | (500,000 | ) |
| Interest expense                        |   |   | (44,011 | ) |   |   | (54,286 | ) |   |   | (219,537 | ) |   |   | (93,456 | ) |   |   | (369,899 | ) |
| Interest expense - related party        |   |   | - |   |   |   | (56,719 | ) |   |   | (22,438 | ) |   |   | (135,877 | ) |   |   | (215,034 | ) |
| Total other expense                     |   |   | (44,011 | ) |   |   | (121,005 | ) |   |   | (241,975 | ) |   |   | (714,333 | ) |   |   | (1,084,933 | ) |
| Net Loss                                |   | $ | (105,207 | ) |   | $ | (353,140 | ) |   | $ | (520,475 | ) |   | $ | (1,679,585 | ) |   | $ | (4,307,468 | ) |
|                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Per share information:                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic and diluted loss per common share |   | $ | (0.000 | ) |   | $ | (0.005 | ) |   | $ | (0.003 | ) |   | $ | (0.03 | ) |   |   |   |   |
|                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average shares outstanding     |   |   | 259,810,569 |   |   |   | 70,866,638 |   |   |   | 185,677,072 |   |   |   | 56,639,796 |   |   |   |   |   |

----

| BLUGRASS ENERGY INC.                                    |   |
|---------------------------------------------------------|--------|
| (A Development Stage Company)                           |   |
| STATEMENTS OF SHAREHOLDERS' DEFICIT                     |   |
| December 11, 2007 (Inception) throughSeptember 30, 2012 |   |
|                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                    |   |   |   |   |   |   |   |   |   |   | Deficit Accumulated |   |   | Total |   |
|                                                    |   | Common Stock |   |   | Additional |   |   | During |   |   | Stockholders' |   |
|                                                    |   | Shares |   |   | Amount |   |   | Paid-in-Capital |   |   | Development Stage |   |   | Equity (Deficit) |   |
|                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance at December 11, 2007 (Inception)                |   |   | - |   |   | $ | - |   |   | $ | 1,984,383 |   |   | $ | - |   |   | $ | 1,984,383 |   |
| Balance at December 31, 2010                            |   |   | - |   |   |   | - |   |   |   | 1,984,383 |   |   |   | - |   |   |   | 1,984,383 |   |
| Reverse Merger - February 23, 2011                      |   |   | 69,818,386 |   |   |   | 349,092 |   |   |   | (3,876,668 | ) |   |   | - |   |   |   | (3,527,576 | ) |
| Conversion of debentures                                |   |   | 8,660,111 |   |   |   | 43,334 |   |   |   | 37,459 |   |   |   | - |   |   |   | 80,793 |   |
| Common stock issued for services                        |   |   | 244,000 |   |   |   | 1,220 |   |   |   | 35,380 |   |   |   | - |   |   |   | 36,600 |   |
| Common stock and warrants issued                        |   |   | 840,000 |   |   |   | 4,200 |   |   |   | 46,200 |   |   |   | - |   |   |   | 50,400 |   |
| Stock compensation expense                              |   |   | - |   |   |   | - |   |   |   | 273,186 |   |   |   | - |   |   |   | 273,186 |   |
| Net loss                                                |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (3,786,993 | ) |   |   | (3,786,993 | ) |
| Balances at Decemebr 31, 2011                           |   |   | 79,562,497 |   |   |   | 397,846 |   |   |   | (1,500,060 | ) |   |   | (3,786,993 | ) |   |   | (4,889,207 | ) |
| Conversion of debentures                                |   |   | 93,491,818 |   |   |   | 467,459 |   |   |   | 3,555,672 |   |   |   | - |   |   |   | 4,023,131 |   |
| Stock compensation expense                              |   |   | - |   |   |   | - |   |   |   | 30,389 |   |   |   | - |   |   |   | 30,389 |   |
| Net loss                                                |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (239,554 | ) |   |   | (239,554 | ) |
| Balances at March 31, 2012                              |   |   | 173,054,315 |   |   | $ | 865,305 |   |   | $ | 2,086,001 |   |   | $ | (4,026,547 | ) |   | $ | (1,075,241 | ) |
| Conversion of debentures                                |   |   | 32,566,138 |   |   |   | 162,831 |   |   |   | (123,010 | ) |   |   | - |   |   |   | 39,821 |   |
| Stock compensation expense                              |   |   | - |   |   |   | - |   |   |   | 35,715 |   |   |   | - |   |   |   | 35,715 |   |
| Net loss                                                |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (175,714 | ) |   |   | (175,714 | ) |
| Balances at June 30, 2012                               |   |   | 205,620,453 |   |   | $ | 1,028,136 |   |   | $ | 1,998,706 |   |   | $ | (4,202,261 | ) |   | $ | (1,175,419 | ) |
| Conversion of debentures                                |   |   | 69,444,445 |   |   |   | 347,222 |   |   |   | (311,494 | ) |   |   | - |   |   |   | 35,728 |   |
| Stock compensation expense                              |   |   | - |   |   |   | - |   |   |   | 35,715 |   |   |   | - |   |   |   | 35,715 |   |
| Net loss                                                |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (105,207 | ) |   |   | (105,207 | ) |
| Balances at September 30, 2012                          |   |   | 275,064,898 |   |   | $ | 1,375,358 |   |   | $ | 1,722,927 |   |   | $ | (4,307,468 | ) |   | $ | (1,209,183 | ) |

----

| BLUGRASS ENERGY INC.                                                        |   |
|-----------------------------------------------------------------------------|--------|
| (A Development Stage Company)                                               |   |
| STATEMENTS OF CASHFLOWS                                                     |   |
| (Unaudited)                                                                 |   |
|                                                                        |   |   |   |   |   |   |   |   |   |
|                                                                        |   |   |   |   |   |   |   | December 11, 2007 |   |
|                                                                        |   | Nine Months Ended |   |   | Nine Months Ended |   |   | (Inception) to |   |
|                                                                        |   | September 30, 2012 |   |   | September 30, 2011 |   |   | September 30, 2012 |   |
|                                                                        |   |   |   |   |   |   |   |   |   |
| Cash flows used in operating activities:                                    |   |   |   |   |   |   |   |   |   |
|      Net Loss                                      |   | $ | (520,475 | ) |   | $ | (1,679,585 | ) |   | $ | (4,307,468 | ) |
|      Adjustments to reconcile net loss to net cash |   |   |   |   |   |   |   |   |   |   |   |   |
|      used in operating activities:                 |   |   |   |   |   |   |   |   |   |   |   |   |
| Debt discount amortization                                                  |   |   | 150,914 |   |   |   | 86,097 |   |   |   | 284,258 |   |
| Loss on investment in Quad Energy                                           |   |   | - |   |   |   | 485,000 |   |   |   | 500,000 |   |
| Impairment of oil and gas properties                                        |   |   | - |   |   |   | - |   |   |   | 1,984,383 |   |
| Stock issued for services                                                   |   |   | - |   |   |   | 36,600 |   |   |   | 36,600 |   |
| Stock compensation                                                          |   |   | 101,819 |   |   |   | 190,165 |   |   |   | 375,005 |   |
| Changes in assets and liabilities:                                          |   |   |   |   |   |   |   |   |   |   |   |   |
| Other receivable                                                            |   |   | (4,067 | ) |   |   | (39,811 | ) |   |   | (8,698 | ) |
| Accounts payable                                                            |   |   | 44,674 |   |   |   | 263,873 |   |   |   | 40,513 |   |
| Accounts payable - related party                                            |   |   | (1,451 | ) |   |   | 252,324 |   |   |   | 287,065 |   |
| Accrued interest                                                            |   |   | 122,258 |   |   |   | 4,061 |   |   |   | 223,099 |   |
| Accrued interest - related party                                            |   |   | - |   |   |   | 135,876 |   |   |   | 192,596 |   |
| Net cash used in operating activities                                       |   |   | (106,328 | ) |   |   | (265,400 | ) |   |   | (392,647 | ) |
|                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash flows from financing activities:                                       |   |   |   |   |   |   |   |   |   |   |   |   |
| Proceeds from issuance of short term notes                                  |   |   | - |   |   |   | 20,000 |   |   |   | 20,000 |   |
| Proceeds from line of credit                                                |   |   | 75,000 |   |   |   | - |   |   |   | 97,500 |   |
| Proceeds from convertible promissory notes                                  |   |   | 30,000 |   |   |   | 195,000 |   |   |   | 225,000 |   |
| Proceeds from issuance of common stock and warrants                         |   |   | - |   |   |   | 50,400 |   |   |   | 50,400 |   |
| Net cash provided by financing activities                                   |   |   | 105,000 |   |   |   | 265,400 |   |   |   | 392,900 |   |
|                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |
| Net decrease in cash and cash equivalents                                   |   |   | (1,328 | ) |   |   | - |   |   |   | 253 |   |
| Cash and cash equivalents at the beginning of the period                    |   |   | 1,581 |   |   |   | - |   |   |   | - |   |
| Cash and cash equivalents at the end of the period                          |   | $ | 253 |   |   | $ | - |   |   | $ | 253 |   |
|                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |
| Supplemental disclosure of cash flow information:                           |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash paid for interest expense                                              |   | $ | - |   |   | $ | - |   |   | $ | - |   |
| Cash paid for income taxes                                                  |   | $ | - |   |   | $ | - |   |   | $ | - |   |
|                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-cash activities:                                                        |   |   |   |   |   |   |   |   |   |   |   |   |
| Debt and interest converted to equity                                       |   | $ | 4,098,680 |   |   | $ | 33,800 |   |   | $ | 4,179,472 |   |

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|                     |   |                                                                          |   |                                                                                                                |   | Ending                                                                                    |   | Stated   |   | Default  |   |    |   | Effective |
|--------------------------|--------|-------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------|--------|----------|--------|----------|--------|---------|--------|-----------|
|                     |   | Principal                                                                     |   | Debt                                                                                                                |   | Balance                                                                                   |   | Interest |   | Interest |   | Current |   | Interest  |
| Date of Issuance         |   | @ 9/30/12                                                                     |   | Discount                                                                                                            |   | @ 9/30/12                                                                                 |   | Rate     |   | Rate     |   | Rate    |   | Rate      |
| 11/17/2008               |   |          50,000                  |   |                    - |   |            50,000                  |   | 6.0%     |   | 18.0%    |   | 18.0%   | (1)    |      | 72.55% |
| 1/29/2009                |   |          50,000                  |   |                    - |   |            50,000                  |   | 6.0%     |   | 18.0%    |   | 18.0%   | (1)    |      | 88.00% |
| 1/12/2011                |   |             9,250 |   |                    - |   |               9,250 |   | 8.0%     |   | 22.0%    |   | 8.0%    | (1)    |      | 88.67% |
| 2/23/2011                |   |           63,750            |   |                    - |   |             63,750            |   | 8.0%     |   | 22.0%    |   | 8.0%    | (1)    |      | 88.67% |
| 4/17/2011                |   |           52,500            |   |                    - |   |             52,500            |   | 8.0%     |   | 22.0%    |   | 8.0%    | (1)    |      | 103.82% |
| 5/15/2011                |   |           63,750            |   |                    - |   |             63,750            |   | 8.0%     |   | 22.0%    |   | 8.0%    | (1)    |      | 103.82% |
| 3/28/2012                |   |           15,000            |   |              4,091                                 |   |             10,909            |   | 8.0%     |   |     |   | 8.0%    |   |      | 89.82% |
| 8/17/2012                |   |           15,000            |   |           10,909                                                  |   |               4,091 |   | 8.0%     |   |     |   | 8.0%    |   |      | 89.82% |
| Total                    |   |         319,250                       |   |            15,000                                            |   |          304,250                             |   |     |   |     |   |    |   |      |   |
| (1) Currently in default |   |                                                                          |   |                                                                                                                |   |                                                                                      |   |     |   |     |   |    |   |      |   |

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Exhibit 31.1

Exhibit 32.1

|   | By:    | /s/ Abram Janz                                 |
|--------|--------|------------------------------------------------|
|   |   | Abram Janz,Chief Executive Officer   |
|   |   |                                           |
|   |   |                                           |
|   | By:    | /s/ Abram Janz                                 |
|   |   | Abram Janz,Chief Accounting Officer            |

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