UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

OF THE SECURITIES ACT OF 1934

For the quarterly period ended December 31, 2013

 

OR

 

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

OF THE SECURITIES ACT OF 1934

 

For the transition period from ___________to ____________

 

Commission File Number: 001-36134

 

UNIVERSAL BIOENERGY, INC.

(Exact name of Registrant as specified in its charter)

 

Nevada 20-1770378

State of Incorporation IRS Employer Identification No.

 

18100 Von Karman Avenue, Suite 850

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  February 19, 2014
Common stock, $0.001 par value		2,833,340,081

 

 

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This report includes “forward-looking statements.” The words “may,” “will,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “aim,” “seek” and similar expressions as they relate to us or our management are intended to identify these forward-looking statements. All statements by us regarding our expected financial position, revenues, cash flows and other operating results, business strategy, legal proceedings and similar matters are forward-looking statements. Our expectations expressed or implied in these forward-looking statements may not turn out to be correct. Our results could be materially different from our expectations because of various risks, including the risks discussed in “Part I - Item 1A - Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended June 30, 2013. Any forward-looking statement speaks only as of the date as of which such statement is made, and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances, including unanticipated events, after the date as of which such statement was made.

 

 

 

 

UNIVERSAL BIOENERGY INC. 

INDEX TO FORM 10-Q FILING

 

FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2013 AND 2012

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION			PAGE
Item 1.		Condensed Consolidated Financial Statements	4
		Condensed Consolidated Balance Sheets	5
		Condensed Consolidated Statements of Income	6
		Condensed Consolidated Statements of Cash Flows	7
		Notes to Condensed Consolidated Financial Statements	8
Item 2.		Management Discussion & Analysis of Financial Condition and Results of Operations	15
Item 3		Quantitative and Qualitative Disclosures About Market Risk	22
Item 4.		Controls and Procedures	22
PART II - OTHER INFORMATION
Item 1.		Legal Proceedings	23
Item 1A		Risk Factors	23
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 3.		Defaults Upon Senior Securities	23
Item 4.		Mine Safety Disclosures	23
Item 5		Other information	23
Item 6.		Exhibits	24

 

 CERTIFICATIONS

 

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

 

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

 

 

 

  

 

PART I — CONSOLIDATED FINANCIAL INFORMATION

 

 

ITEM 1. FINANCIAL STATEMENTS

 

The accompanying reviewed interim consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q. Therefore, they do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, cash flows, and stockholders' equity in conformity with generally accepted accounting principles. Except as disclosed herein, there has been no material change in the information disclosed in the notes to the financial statements included in the Company's annual report on Form 10-K for the fiscal year ended June 30, 2013. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature. Operating results for the three and six months ended December 31, 2013 are not necessarily indicative of the results that can be expected for the fiscal year ending June 30, 2014.

 

 

 

UNIVERSAL BIOENERGY, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS:	(Unaudited)					(Audited)
	December 31, 2013					June 30, 2013
CURRENT ASSETS:
Cash	$	3,385				$	2,130
Accounts receivable		6,035,719					9,173,462
Other loans		—					600
Total current assets		6,039,104					9,176,192
PROPERTY AND EQUIPMENT - net		3,687					6,335
OTHER ASSETS:
Accounts receivable - other		(2,150	)				10,050
Investments		2,929,550					2,919,500
Intangible assets		250,000					250,000
Deposit		6,516					7,452
Total other assets		3,183,916					3,187,002
TOTAL ASSETS	$	9,226,706				$	12,369,529
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
CURRENT LIABILITIES:
Accounts payable	$	6,255,276				$	9,333,980
Other accounts payable and accrued expenses		185,540					363,922
Accrued interest		166,126					124,949
Line of credit		7,272					6,618
Current portion of long term debt		803,502					150,821
Derivative liability		165,304					212,683
Advances from affiliates		3,513					4,250
Total current liabilities		7,586,534					10,197,223
Long term debt
Notes payable		341,653					352,150
Notes payable - related parties		—					624,098
Total long-term debt		341,653					976,248
TOTAL LIABILITIES		7,928,187					11,173,471
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.001 par value, 10,000,000 shares authorized. Preferred stock Series A, 1,000,000 issued and outstanding shares December 31, 2013 and zero as of June 30, 2013, respectively.		—					—
Preferred stock Series B, 232,080 issued and outstanding shares December 31, 2013 and June 30, 2013, respectively		232					232
Common stock, $.001 par value, 3,000,000,000 shares authorized; 2,833,340,081 and 2,660,594,986 issued and outstanding as of December 31, 2013 and June 30, 2013, respectively		2,833,340					2,660,595
Additional paid-in capital		21,287,362					20,884,031
Noncontrolling interest		(283,194	)				(270,979	)
Accumulated deficit		(22,539,221	)				(22,077,821	)
Total stockholders' equity (deficit)		1,298,520					1,196,058
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)	$	9,226,706				$	12,369,529
		—					—
The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

 

 

 

UNIVERSAL BIOENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
		For The 3 Months Ending December 31,								For The 6 Months Ending December 31,
		2013				2012				2013				2012
REVENUES		$	18,705,137			$	13,322,660			$	32,577,739			$	28,885,520
COST OF SALES			18,685,525				13,303,088				32,545,312				28,841,943
GROSS PROFIT			19,613				19,572				32,428				43,577
OPERATING EXPENSES:
General and administrative			204,396				394,760				360,281				740,217
Sales and marketing			—				12,942				—				28,389
Depreciation and amortization expense			654				—				1,308				654
Total operating expenses			205,050				407,702				361,589				769,261
LOSS FROM OPERATIONS			(185,437	)			(388,130	)			(329,161	)			(725,683	)
OTHER INCOME (EXPENSE):
Other income			7,293				12,525				14,648				18,488
Initial (loss) on embedded derivatives issued			0				159,447				(92,168	)			131,858
Change in fair value of derivative liabilities			151,039				1,131,139				303,836				700,481
Interest (expense), including amortization of															—
beneficial conversion feature			(132,743	)			(132,749	)			(370,771	)			(1,066,079	)
Total other expense			25,589				1,170,362				(144,455	)			(215,252	)
(LOSS) FROM CONTINUING OPERATIONS			(159,848	)			782,232				(473,616	)			(940,935	)
(LOSS) FROM DISCONTINUED OPERATIONS
Loss on sale of bio-diesel plant equipment			—				—				—				—
Net (Loss)			(159,848	)			782,232				(473,616	)			(940,935	)
Net (loss) attributable to noncontrolling interest			(4,084	)			(36,073	)			(12,215	)			(66,165	)
NET (LOSS) ATTRIBUTABLE TO UNIVERSAL		$	(155,763	)		$	818,305			$	(461,400	)		$	(874,770	)
NET (LOSS) PER SHARE:
Basic and diluted loss per share			*				*				*				*
Weighted average of shares outstanding			2,701,496,674				615,689,097				2,606,396,706				554,593,028
* Less than $0.01 per share
The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

UNIVERSAL BIOENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
		For Six Months Ended December 31,
		2013				2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss)		$	(473,616	)		$	(940,935	)
Adjustments to reconcile net (loss) to net cash
(used in) and provided by operating activities:
Depreciation expense			1,308				654
Common stock issued for services			—				3,800
Amortization of Beneficial conversion features			266,229				310,700
Loss (Gain) on embedded derivatives			211,668				(832,339)
Changes in assets and liabilities:
Accounts receivable			(545,644	)			689,108
Prepaid expenses and other assets			14,936				1,200
Accrued expenses and other liabilities			(368,427	)			(65,363)
Accounts payable			675,300				(596,658	)
Net cash (used in) operating activities			(218,245	)			(1,429,832	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in participation agreement - see note 10			(40,050	)			—
Net cash provided by (used in) investing activities			(40,050	)			—
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from affiliate			—				—
Principal payments on notes payable and line of credit			(153,500	)			(1,977,134	)
Proceeds from notes payable issued and line of credit			413,787				1,408,067
Net cash provided by financing activities			259,550				(569,067)
INCREASE (DECREASE) IN CASH			1,255				1,101
CASH, BEGINNING OF PERIOD			2,130				-
CASH, END OF PERIOD		$	3,385			$	(3,447)
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid		$	—			$	—
Taxes paid		$	—			$	—
Investment in membership acquistion by issuing notes payable		$	—			$
Issuance of common stock for the conversion of debt		$	155,200			$	2,288,944
Common stock issued for intangible assets in acquisition		$	—			$	—
Convertible notes issued for accrued liabilities		$	388,250			$	4,000
Beneficial conversion feature of convertible notes payable		$	448,662			$	(671,045)
The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

UNIVERSAL BIOENERGY, INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED December 31, 2013 AND 2012

 

 

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 Markets Group trading systems under the trading symbol “UBRG”. Universal Bioenergy Inc. was incorporated on August 13, 2004, in the State of Nevada, under the name of Palomine Mining Inc. On October 24, 2007, the Company changed its name from Palomine Mining Inc. to Universal Bioenergy Inc. to better reflect its new business plan and strategic direction.

 

The Company’s primary business focus is the production, marketing, and sales of natural gas, petroleum, coal, liquefied natural gas (LNG), propane, refined petroleum products, electricity, and alternative energy. Through its 49% owned subsidiary, NDR Energy Group LLC, the Company has contracts to sells natural gas to 31 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, development of newly discovered or recently discovered oil and gas fields, re-entering existing wells, and transmission and marketing of the products to our customer base. The Company intends to continue its growth through an ongoing series of acquisitions.

 

Our principal and administrative offices are located at 18100 Von Karman Avenue, Suite 850, Irvine, California, 92612. Our telephone number is 949-559-5017.

 

Universal Bioenergy files or furnishes various reports with the Securities and Exchange Commission (“SEC”). These reports, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (“1934 Act”), are available free of charge on Universal Bioenergy’s corporate website, www.universalbioenergy.com, as promptly as practicable after they are filed with, or furnished to, the SEC. The information contained on this website is not incorporated by reference into this Quarterly Report on Form 10-Q and should not be considered part of this report. Reports filed with the SEC are also made available on its website at www.sec.gov.

 

Global Energy Group LLC

 

With offices in both the United States and United Kingdom, GEG is positioned to take advantage of strategic relationships with investor partners and commodities traders in North America, Europe, and world emerging markets.

 

Global Energy Group, LLC “GEG”, our primary shareholder, is a holding company whose primary business is the acquisition of strategic business assets, companies, and investment or joint ventures in both private and public companies creating a mandated diversity in GEG’s portfolio. With offices in both the United States and United Kingdom, GEG is positioned to take advantage of strategic relationships with investor partners and commodities traders in North America, Europe, and world emerging markets. On April 10, 2013, Global Energy Group LLC, (“GEG”), converted its portfolio of Convertible Promissory Notes into common shares of UBRG stock; and was issued 1,568,630,000 common shares for that conversion. The 1,568,630,000 shares was the equivalent of 61.78% of UBRG’s 2,538,903,268 outstanding shares of common stock that were issued and outstanding on May 20, 201. As of June 30, 2013, GEG’s holdings were the equivalent of 55.36% of the issued and outstanding shares of UBRG.

 

Company History

 

Universal Bioenergy, Inc. (UBRG) was incorporated on August 13, 2004, under the laws of the State of Nevada.

 

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

 

On July 15, 2013, the Board of Directors approved a change in the Company’s fiscal year end from December 31 to June 30.

 

 

 

 

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 and six months period ended December 31, 2013, are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2014.

 

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 June 30, 2013, 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., 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, through Varlos Energy Holdings LLC, an entity owned by officers of the Company, it acquired an additional control of 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 directly has 51% voting control of NDR through its 49% member interest, and through a Voting Trust which the Company has the 2% voting interest of Varlos Energy Holdings LLC, 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, discretion in supplier selection, and 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.

 

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 December 31, 2013 and June 30, 2013 the Company had no cash equivalents.

 

Property and Equipment

 

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

 

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

 

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

 

 

Goodwill and Other Intangible Assets

 

The Company adopted Statement of Financial Accounting Standard (“FASB”) Accounting Standards Codification (“ASC”) Topic 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, 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 December 31, 2013, 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, and Charlotte, North Carolina. The Federal Depository Insurance Corporation (FDIC) insures accounts at each institution up to $250,000.

 

 

Earnings Per Share

 

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

 

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

 

Recently Issued Accounting Standards

 

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its consolidated financial condition, or the consolidated results of its operations.

 

In July 2012, the FASB issued ASU No. 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment”. The guidance allows companies to perform a “qualitative” assessment to determine whether further impairment testing of indefinite-lived intangible assets is necessary, similar in approach to the goodwill impairment test.

 

ASU 2012-02 allows companies the option to first assess qualitatively whether it is more likely than not that an indefinite-lived intangible asset is impaired before determining whether it is necessary to perform the quantitative impairment test. An entity is not required to calculate the fair value of an indefinite-lived intangible asset and perform the quantitative impairment test unless the entity determines that it is more likely than not that the asset is impaired. Companies can choose to perform the qualitative assessment on none, some, or all, of its indefinite-lived intangible assets; or choose to only perform the quantitative impairment test for any indefinite-lived intangible in any period.

 

In August 2012, the FASB issued ASU 2012-03, “Technical Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (SAB) No. 114. , Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting Standards Update 2010-22 (SEC Update)” in Accounting Standards Update No. 2012-03. This update amends various SEC paragraphs pursuant to the issuance of SAB No. 114. The adoption of ASU 2012-03 is not expected to have a material impact on our financial position or results of operations.

 

In October 2012, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2012-04, “Technical Corrections and Improvements” in Accounting Standards Update No. 2012-04. The amendments in this update cover a wide range of Topics in the Accounting Standards Codification. 

 

These amendments include technical corrections and improvements to the Accounting Standards Codification and conforming amendments related to fair value measurements. The amendments in this update will be effective for fiscal periods beginning after December 15, 2012. The adoption of ASU 2012-04 is not expected to have a material impact on our financial position or results of operations.

 

In April 2013, the FASB issued ASU No. 2013-07, Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting (“ASU 2013-07"). With ASU 2013-07, the FASB amends the guidance in the FASB Accounting Standards Codification [FASB ASC] Topic 205, entitled Presentation of Financial Statements. The amendments serve to clarify when and how reporting entities should apply the liquidation basis of accounting. The guidance is applicable to all reporting entities, whether they are public or private companies or not-for-profit entities. The guidance also provides principles for the recognition of assets and liabilities and disclosures, as well as related financial statement presentation requirements. With the new guidance, reporting entities in liquidation are required to prepare financial statements using a basis of accounting that communicates information to users of the financial statements to enable those users to develop expectations about how much the reporting entities will have available for distribution to investors after disposing of its assets and settling its obligations. The requirements in ASU 2013-07 are effective for annual reporting periods beginning after December 15, 2013, and interim reporting periods within those annual periods. Reporting entities are required to apply the requirements in ASU 2013-07 prospectively from the day that liquidation becomes imminent. Early adoption is permitted.

 

No other accounting standards or interpretations issued recently are expected to a have a material impact on the Company’s consolidated financial position, operations, or cash flows.

 

 

 

 

 

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 December 31, 2013		For the Six Months Ended December 31, 2012
Net Loss for common shareholders	$	(461,400)	$	(874,770)
Weighted average common shares outstanding		2,606,396,706		554,593,028
Basic and fully diluted net loss per share	$	*	$	*
Net loss per share is based upon the weighted average shares of common stock outstanding

 

*Net Loss per share is less than $(0.01)

 

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

 

NOTE 5 - EQUITY

 

On December 26, 2012, the Company amended its Articles of Incorporation, and increased the authorized shares of common stock from 1,000,000,000 to 3,000,000,000 shares at $.001 par value. There are 2,833,340,081 shares of common stock issued and outstanding as of December 31, 2013.

 

On December 26, 2012, the Board of Directors increased the total number of authorized shares of Preferred Stock to 10,000,000 shares with a par value of $0.001 per share. As of December 31, 2013, there were 1,000,000 Series A Preferred Shares issued and outstanding, and a total of 232,080 Series B preferred shares issued and outstanding.

 

RECENT SALES OF UNREGISTERED SECURITIES

 

Common Stock Issued

 

For Second Fiscal Quarter Period Ending December 31, 2013

 

At December 31, 2013, there were no outstanding stock options or warrants.

 

On October 18, 2013, the Company completed a full conversion one of its amended Notes payable dated October 16, 2013 with a principal amount of $50,000. A total of $50,000 worth of the Note was converted, and 77,000,000 common shares were issued for this conversion. Previously, on October 16, 2013, a non-affiliated party purchased a partial interest of $50,000 worth of a Note dated December 30, 2012, in a private non-public transaction from a non-related creditor. An amended Note for $50,000 dated October 16, 2013 at 12% interest was issued to the new Note Holder. This conversion of debt reduced the Company’s Notes Payables by $50,000. A balance of $00.00 of remains on the Amended Note, and $71,150 remains on the original Note.

 

On October 28, 2013, the Company completed a partial conversion one of its amended Notes payable dated July 18, 2013 with a principal amount of $130,000. This was the sixth in a series of conversions for this Note, including one on October 11, 2013, one on October 16, 2013, and one on October 28, 2013. A total of $46,000 worth of the Note was converted, and 76,483,517 common shares were issued for these three partial conversions. Previously, on July 18, 2013, a non-affiliated party purchased four existing Notes in a private non-public transaction from a non-related creditor. An amended Note for $130,000 dated July 18, 2013 at 12% interest was issued to the new Note Holder. The amended Note consolidated the four original Notes, which included $96,200 in principal, $19,049 in accrued interest and a $14,751 premium. This conversion of debt reduced the Company’s Notes Payables by $46,000. A balance of $28,457 of remains on the Amended Note.

 

On October 28, 2013 the Company completed the final and full conversion of one of its Notes payable dated March 18, 2013, for a Note with a principle amount of $42,500, and a total of 126,285,714 common shares were issued. The final conversion of the Note included $42,500 in principal and $1,700 in accrued interest that was due on the Note upon conversion. This leaves a remaining balance of $0.00 on this Note. This conversion of debt reduced the Company’s Notes Payables by a principal amount of $42,500.

 

On December 20, 2013 the Company completed a partial conversion of one of its Notes payable dated June 12, 2013, for a Note with a principle amount of $53,000, and a total of 75,000,000 common shares were issued. The final conversion of the Note included $15,000 in principal and $00.00 in accrued interest that was due on the Note upon conversion. This leaves a remaining balance of $38,000 on this Note. This conversion of debt reduced the Company’s Notes Payables by a principal amount of $15,000.

 

Issuance of Preferred Shares

 

No preferred shares were issued for this reporting period.

 

More detailed information about the issuance of preferred shares was discussed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2013. The information is fully discussed in Part II, Item 8. – Note 4 – Equity, “Preferred Stock”. There have been no material changes from the information previously disclosed in that Form 10-K.

 

 

NOTE 6 - PROPERTY AND EQUIPMENT

 

The Company has property and equipment as of December 31, 2013 and June 30, 2013 as follows:

 

	December 31,  2013				June 30, 2013
Equipment		13,094			$	13,094
Land		—				—
Building		—				—
Accumulated depreciation		(9,407	)			(6,759	)
Total		3,687			$	6,335

 

There was $2,648 and $1,308 depreciation expense for the six months ended December 30, 2013 and 2012 respectively.

 

 

 

 

NOTE 7 – NOTES PAYABLE

 

 

NOTE 7 –  NOTES PAYABLE
	December 31, 2013			June 30, 2013
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 at $015. Conversion price change to $0.0025 by Board. On March 15, 2013, $60,000 worth of the Note was converted by a non-affliate assignee, leaving a balance of $76,000.		76,000			76,000
On December 31, 2010 the Company entered into a two (2) year convertible Promissory Note with its Vice President Solomon Ali, for $165,000 at 10% interest for the accrued compensation owed to him for the fiscal year 2010 in accordance with his Employment Agreement.  The holder has the right to convert the note to common stock at $015. On July  12, 2012,  $100,000 worth of the Note was converted by non-affliates (assignees) to stock, leaving a balance of $65,000.  Converion price changed to $0.015 by Board.		65,000			65,000
On December 31, 2011 the Company entered into a two (2) year convertible Promissory Note with  a non-related creditor  for $14,407.92 at 12% interest for consulting services provided to the Company in accordance with their Consulting Agreement.  The holder has the right to convert the note to common stock on  July 1, 2012 at $0.01.		14,407			14,407
On March 15, 2012 the Company entered into a two (2) year convertible Promissory Note with  a non-related creditor for $70,000 at 12% interest.  The holder has the right to convert the note to common stock  at $0.008. Conversion price changed to $0.002 by Board. Partial conversion of $25,000 on April 24, 2013, leaving a balance of $45,000.		45,000			45,000
On July 2, 2012 the Company entered into a two (2) year Promissory Note with  its  President, Vince M. Guest for $174,000 at 10% interest for a “special performance bonus” awarded him in accordance with his Employment Agreement. The Holder has the right to convert the Note to common stock at $0.005. Conversion price changed to $0.0025 by Board.		174,000			174,000
On July 2, 2012 the Company entered into a two (2) year Promissory Note with  its Manager of Business Development, Donald DeLuna for $35,250 at 10% interest for a “special performance bonus” awarded him in accordance with his Employment Agreement. The Holder has the right to convert the Note to common stock at $0.005. Conversion price changed to $0.0025 by Board.		35,250			35,250
On November 30, 2012 the Company entered into a three (3) year Promissory Note with a non-related creditor for $135,100 at 12% interest. The Holder has the right to convert the Note to common stock at a fixed conversion price of $0.002 per share.		135,100			135,100
On December 30, 2012 the Company entered into a three (3) year Promissory Note with a non-related creditor for $121,150 at 12% interest. The Holder has the right to convert the Note to common stock at a fixed conversion price of $0.002 per share. On October 16, 2013, a non-affiliated party purchased a partial interest of $50,000 worth of this Note in a private  transaction. An amended Note for $50,000 dated October 16, 2013 at 12% interest was issued to the new Note Holder. On October  18, 2013, a total of $50,000 worth of the Note was converted.		71,150			121,150
On December 31, 2012 the Company entered into a two (2) year convertible Promissory Note with  its Vice President, Solomon Ali for $162,500 at 10% interest for the accrued compensation owed to him for the fiscal year 2012 in accordance with his Employment Agreement.  The holder has the right to convert the Note to common stock at $0.0025.		162,500			162,500
On December 31, 2012 the Company entered into a two (2) year convertible Promissory Note with  its Manager of Business Development, Don Deluna, for $50,400 at 10% interest for the accrued compensation owed to him for the fiscal year 2012 in accordance with his Employment Agreement.  The holder has the right to convert the Note to common stock  at $0.0025.		50,400			50,400
On December 31, 2012 the Company entered into a two (2) year convertible Promissory Note with its President and CEO, Vince M. Guest for $130,000 at 10% interest for the accrued compensation owed to him for the fiscal year 2012 in accordance with his Employment Agreement.  The holder has the right to convert the Note to common stock at $0.0025.		130,000			130,000
On December 31, 2012 the Company entered into a two (2) year convertible Promissory Note with  a non-related creditor  for $39,851.60 at 12% interest for consulting services provided to the Company in accordance with their  Consulting Agreement.  The holder has the right to convert the Note to common stock at $0.0025.		39,851			39,851
On February 28, 2013 the Company entered into a three (3) year Promissory Note with a non-related creditor for $18,000 at 12% interest. The Holder has the right to convert the Note to common stock at a fixed conversion price of $0.002 per share.		18,000			18,000
On March 18, 2013 the Company entered into a nine (9) month convertible Promissory Note with a non-related creditor for $42,500 at 8% interest.  The Holder has the right to convert the Note to common stock  at a variable conversion price at 50% discount to the market price at the time of conversion. This Note was converted to stock on October 28, 2013, which reduced the Company's notes payables by $42,500.		—			42,500
On March 30, 2013 the Company entered into a three (3) year Promissory Note with a non-related creditor for $950.00 at 12% interest. The Holder has the right to convert the Note to common stock at a fixed conversion price of $0.002 per share.		950			950
On April 1, 2013, a non-afilliated party purchased $49,000 of the principal of a $123,600 Note dated  March 20, 2012, in a private non-public transaction. The Holder paid $7,000 as a premium for $49,000 of principal. A modified Note for $56,000 was issued to the new Note Holder.  On April 23, 2013, the Company completed a partial conversion one of its amended Notes payable. A total of $49,000 worth of the Note was converted to common shares at a 50% discount to market prices.  That part of the conversion this debt reduced the Company’s Notes Payables by $49,000. A  Balance of $7,000 remains on the modified Note.		7,000			7,000
On April 1, 2013 the Company entered into a nine (9) month convertible Promissory Note with a non-related creditor for $19,500 at 12% interest.  The Holder has the right to convert the Note to common stock  at a variable conversion price at 50% discount to the market price at the time of conversion.		19,500			19,500
On April 30, 2013 the Company entered into a three (3) year convertible Promissory Note with a non-related creditor for $44,500 at 12% interest.  The Holder has the right to convert the Note to common stock at $0.002.		44,500			44,500
On June 12, 2013 the Company entered into a nine (9) month convertible Promissory Note with a non-related creditor for $53,000 at 8% interest.  The Holder has the right to convert the Note to common stock  at a variable conversion price at 50% discount to the market price at the time of conversion. On December 20, 2013, $15,000 of this Note was converted to stock, which reduced the Company's Notes payables to $38,000.		38,000			53,000
*On July  18, 2013 the Company issued an Amended twelve (12) month Convertible Promissory Note with a non-related creditor for $130,000 at 12% interest. The Holder purchased four existing Promissory Notes from another Note Holder in a private non-public transaction. The Amended Note consolidated the four original Notes, which included $96,200 in principal, $19,049 in accrued interest and a $14,751 premium.      The Holder has the right to convert the Promissory Note to common stock at a variable conversion price at 50% discount to the market price at the time of conversion. As of December 31, 2013, a total of $101,543 worth of the Note was converted to stock.		28,457			—
On July 18, 2013 the Company entered into a twelve (12) month convertible Promissory Note with a non-related creditor for $43,500 at 12% interest.  The Holder has the right to convert the Note to common stock  at a variable conversion price at 50% discount to the market price at the time of conversion.		43,500			43,500
On September  30, 2013, the Company entered into a three (3) year Promissory Note with a non-related creditor for $28,700 at 12% interest. The Holder has the right to convert the Note to common stock at a fixed conversion price of $0.00115 per share.		28,700			28,700
On October  30, 2013, the Company entered into a three (3) year Promissory Note with a non-related creditor for $8,797.67 at 12% interest. The Holder has the right to convert the Note to common stock at a fixed conversion price of $0.00115 per share.		8,798			0
On November  30, 2013, the Company entered into a three (3) year Promissory Note with a non-related creditor for $8,539.07 at 12% interest. The Holder has the right to convert the Note to common stock at a fixed conversion price of $0.00115 per share.		8,539			—
On December  31, 2013, the Company entered into a three (3) year Promissory Note with a non-related creditor for $8,200 at 12% interest. The Holder has the right to convert the Note to common stock at a fixed conversion price of $0.00115 per share.		8,200			—
On December 31, 2013 the Company entered into a two (2) year convertible Promissory Note with  its Vice President, Solomon Ali for $160,000 at 10% interest for the accrued compensation owed to him for the fiscal year 2013 in accordance with his Employment Agreement.  The holder has the right to convert the Note to common stock at $0.00015.		160,000			0
On December 31, 2013 the Company entered into a two (2) year convertible Promissory Note with  its Manager of Business Development, Don Deluna, for $67,300 at 10% interest for the accrued compensation owed to him for the fiscal year 2013 in accordance with his Employment Agreement.  The holder has the right to convert the Note to common stock  at $0.00015.		67,300			0
On December 31, 2013 the Company entered into a two (2) year convertible Promissory Note with its President and CEO, Vince M. Guest for $160,950 at 10% interest for the accrued compensation owed to him for the fiscal year 2012 in accordance with his Employment Agreement.  The holder has the right to convert the Note to common stock at $0.00015.		160,950			—
Total long-term note payable		1,641,053		$	1,234,110
Less Current portion		(928,867	)		(150,821	)
Less Debt discount		(56,390	)		(104,685	)
Less Convertible notes, net		(80,067	)		(131,056	)
Less Beneficial Conversion Feature		(234,076	)		(131,056	)
Long-term portion of notes payable		341,653		$	847,548

 

Principal maturities of notes payable as of December 31, 2013, for the next five years and thereafter is as follows:

 

	2014			$	928,866
	2015			$	594,500
	2016			$	117,687
	2017			$	0
	2018			$	0
	Total			$	1,641,053

 

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

 

* For more information on the Convertible Notes see Part II - Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations under “Debt”, and Note 7, “Notes Payable”, and Part I – Item 1A, “Risk Factors”, in our Annual Report on Form 10-K for the fiscal year ended June 30, 2013.

 

Embedded Derivatives

 

Notes that are convertible at a discount to market are considered embedded derivatives. For more information on the Notes affected, refer to Management’s Discussion and analysis, and the above list.

 

Under Financial Accounting Standard Board (“FASB”), U.S. GAAP, Accounting Standards Codification, “Derivatives and Hedging”, ASC Topic 815 (“ASC 815”) requires that all derivative financial instruments be recorded on the balance sheet at fair value. Fair values for exchange traded securities and derivatives are based on quoted market prices. Where market prices are not readily available, fair values are determined using market based pricing models incorporating readily observable market data; requiring judgment and estimates.

 

The Company issued convertible Notes, and has evaluated the terms and conditions of the conversion features contained in the Notes to determine whether they represent embedded or freestanding derivative instruments under the provisions of ASC 815. The Company determined that the conversion features contained in the Notes represent freestanding derivative instruments that meet the requirements for liability classification under ASC 815. As a result, the fair value of the derivative financial instruments in the Notes is reflected in the Company’s balance sheet as a liability. The fair value of the derivative financial instruments of the convertible Notes and warrants was measured at the inception date of the Notes and warrants, and each subsequent balance sheet date. Any changes in the fair value of the derivative financial instruments are recorded as non-operating, non-cash income, or expense at each balance sheet date.

 

The Company valued the conversion features in its convertible Notes using the Black-Scholes model. The Black-Scholes model values the embedded derivatives based on a risk-free rate of return ranging from 0.10% to 0.11%, grant dates of Notes, the term of the Notes, conversion prices are 50% of current stock prices on the measurement date ranging from $0.00015 to $0.0005, and the computed measure of the Company’s stock volatility, ranging from 166.86% to 10.93% 

 

Included in the December 31, 2013, is a derivative liability in the amount of $165,305 to account for this transaction. This liability arose in the second quarter of 2012, and the balance was $165,305 as of June 30, 2013. It will be revalued quarterly henceforth, and adjusted as a gain or loss to the statements of operations depending on its value at that time.

 

Included in our Statements of Operations for the three months ended December 31, 2013 was $20,432 and $0 in non-cash charges pertaining to the derivative liability as it pertains to change in derivative liability and amortization of debt discount, respectively.

 

 

 

NOTE 8 – RELATED PARTY TRANSACTION

 

Related party transactions reported for this period are as follows:

 

There are no Related Party Transactions to report for this period.

 

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

 

There are no changes to report in our Board of Directors, Officers, or compensation arrangements for our Officers, during for the period ending December 31, 2013. The situation regarding these matters has not changed materially from the description in the Annual Report on Form 10-K for the period ended June 30, 2013.

 

NOTE 9 – ACQUISTION

 

There are no acquisitions to report for this period.

 

NOTE 10 - CONTINGENCIES

 

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

 

NOTE 11 – SUBSEQUENT EVENTS

 

The following events occurred subsequent to the period covered by this Form 10-Q Quarterly Report for the period ended December 31, 2013.

 

There are events subsequent to report for this period. 

 

NOTE 12 - 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 losses totaling $22,539,221 from its inception to December 31, 2013. 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, distribution, and marketing of its supplies of natural gas, propane, and coal reserves.

 

The negative working capital at December 31, 2013, is a condition experienced by many high-growth companies similar to ours, 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, our ability to purchase gas at the wellhead, from other independent producers at the producer’s price, and obtain lines of credit and accounts receivable facilities, should enable us to greatly improve our cash flow and increase our working capital.

 

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 from our current investors and creditors to achieve our goals and objectives. However, such financing from these investors and creditors 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.

 

The Company, in association with its investors and creditors, was able to raise sufficient amounts of capital to meet its operating expenses and working capital needs for the period ending December 31, 2013. We were also able to proceed with the acquisition of the ownership interest in a coal mining company; which management believes, but cannot guarantee, will generate additional revenue, positive working capital, and net earnings for the Company in the fiscal year 2014 and beyond.

 

NOTE 13 - CONCENTRATIONS

 

At December 31, 2013, 100% of the Company's accounts receivable was due from three customers during the three months ended December 31, 2013, and 94% of total revenue was generated from four customers, for the three months ended December 31, 2012.

 

NOTE 14 - INVESTMENTS IN PARTNERSHIPS AND LLC'S

 

Universal Bioenergy, Inc., is a limited partner in Progas Energy Services, and is a minority member of Whitesburg Friday Branch Mine, LLC.

 

In 2011, the Company acquired a 7.5 percent interest in Progas Ennergy Services. The fairmarket value of which has been established. Also in 2011, the Company acquired a 40 percent interest in Whitesburg Friday Branch Mine, LLC. The fair market value of which has not been established.

 

Partnership	Percentage of Ownership	Book Equity 6/30/13	Partnership Contributions (Distributions)	Share of Net Income (Loss)	Book Equity 9/30/13
Progas Energy Services	7.5%	$197,631	$0	$8,513	$198,013
Whitesburg Friday Branch Mine, LLC	40%	$2,700,000	$0	$0	$2,700,000
Totals		$2,897,630	$0	$8,513	$2,898,013

 

 

 

 

 

* * * * * *

 

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.

 

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

 

The following discussion and analysis presents management’s perspective of our business, financial condition, and overall performance. This information is intended to provide investors with an understanding of our past performance, current financial condition, and outlook for the future; and should be read in conjunction with the financial statements presented herein and our reports filed with the Securities and Exchange Commission.

 

Included in this annual report are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA") as well as historical information.

 

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, planned capital expenditures, potential increases in prospective production costs, future cash flows and borrowings, pursuit of potential acquisition opportunities, the possibility that the industry may be subject to future regulatory or legislative actions (including additional taxes, changes in environmental regulation, and disclosure requirements under the Dodd-Frank Wall Street Reform and the Jobs Act of 2012 ), our financial position, business strategy and other plans, objectives for future operations, 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.

 

We claim the protection afforded by the safe harbor for forward-looking statements provided by the PSLRA.

 

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 June 30, 2013, as well as other factors that we are currently unable to identify or quantify but that may exist in the future.

 

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

 

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

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

 

Overview of Our Company

 

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

 

Our primary business focus is the production, marketing, and sales of natural gas, propane, coal, oil, and alternative energy. Through our subsidiary NDR Energy Group, located in Charlotte, North Carolina, we presently sell natural gas. Through NDR Energy Group, we have contracts signed with 31 major utility companies in the United States with strong Standard & Poor’s credit 1ratings. NDR Energy Group markets and distributes natural gas and propane to 30 of the largest public utilities, electric power producers, and local gas distribution companies that serve millions of commercial, industrial, and residential customers throughout the country. Our 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, Conoco Phillips, Chesapeake Energy Marketing, and Anadarko.

 

 

Recent Developments and Significant Accomplishments 

 

NDR Energy Group signs Contract to sell Electric Power to San Diego Gas and Electric

On September 27, 2013, the Company announced NDR Energy Group signed an agreement to supply electric power San Diego Gas and Electric (SDG&E), one of the largest electric power utilities on the west coast. SDG&E is a public utility that provides energy service to 3.4 million people. SDG&E’s parent company, Sempra Energy is a Fortune 500 energy services company that provides electricity and natural gas services, and reported revenues of approximately $9.6 billion in its 2012 Annual Report.

 

Global Energy Group LLC

 

Global Energy Group, LLC “GEG”, our primary shareholder, is a holding company whose primary business is the acquisition of strategic business assets, companies and, investment or joint ventures in both private and public companies.

 

On January 11, 2013, Global Energy Group LLC, (“GEG”), purchased a portfolio of 14 of the Company’s Promissory Notes, in a private transaction directly from the individual Note Holders, with a total principal amount of $3,234,775. On April 10, 2013, the Company, at the direction of “GEG”, converted this portfolio of 14 Promissory Notes into common shares of stock; and issued 1,568,630,000 common shares for that conversion. The Promissory Notes were converted into common stock at the market price at the time of conversion. The 1,568,630,000 shares was the equivalent of 61.78% of the Company’s 2,538,903,268 outstanding shares of common stock that were issued and outstanding on May 20, 2013, as reported in the Company’s Form 10-Q Report for the period ended March 31, 2013. Global Energy Group is now deemed an affiliate.

 

The shares issued to Global Energy Group are restricted securities. Restricted securities are securities acquired in unregistered, private sales from the issuer or from an affiliate of the issuer. Investors typically receive restricted securities through private placement offerings pursuant to Regulation D, employee stock benefit plans, as compensation for professional services, or in exchange for providing "seed money" or start-up capital to the company. Rule 144(a)(3) identifies what sales result in restricted securities. Pursuant to Rule 144 of the Securities Act of 1933, control securities are those held by an affiliate of the issuing company. An affiliate is a person, such as an officer, director or large shareholder, (e.g. owning 10% of a company’s outstanding shares), in a relationship of control with the issuer. Control means the power to direct the management and policies of the company in question, whether through the ownership of voting securities, by contract, or otherwise.

 

Therefore, Global Energy Group is subject to the limitations of Rule 144 on sales of any of its stock. The restrictions on the sales of restricted stock per Rule 144 include holding the stock for a minimum of six months after issuance, and it would therefore be limited to selling an amount equal to 1% of the Company’s issued and outstanding shares every 90 days. When and if it did decide to sell any of its stock, the federal securities laws require them to file a Form 144, (Notice of Proposed Sale of Securities), notifying the SEC of their intent to sell any of its stock in accordance with the Rule 144 guidelines and limitations.

 

As of December 31, 2013, to the best of our knowledge, Global Energy Group LLC had no plans or proposals to acquire any additional securities of the issuer, and it has not disposed of any of the securities of the Company, (with the exception of the 300 million shares it sold back to the Company on July 25, 2013, which shares were retired and returned to the Company treasury

 

Financial Restructuring Plan to Reduce Debt and Improve Balance Sheet

 

Management believes it has improved our financials and restructured our Balance Sheet, by reducing our long-term debt and converting $3,234,775 in outstanding debt on the Balance Sheet to shares of common stock and issued the shares to our creditor. We believe the benefit to our company was to eliminate this $3,234,775 of outstanding long-term debt and liabilities owed by us, reduce our interest expenses, enhance our financial position and strengthen the Balance Sheet. Our long-term liabilities are $976,248 for the period ending June 30, 2013, and $341,653 for the period ended December 31, 2013.

 

Business Strategy

 

Our primary objective is be one of the top independent energy companies in the U.S., 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 fiscal 2013 we plan, although we cannot provide assurances as to timing and attainment, to achieve these future objectives by pursuing the following strategies:

Our primary objective is to exploit changes in the energy market, with the intent to propel our Company to a prominent market position, and be one of the top independent energy companies in the United States. Another major objective in our revised business plan is to finding new ways to create more value for our shareholders and investors. Our management intends to deliver greater value to our shareholders and investors by generating increasing revenues, producing solid earnings, and improving returns on invested capital for the long-term growth of our Company. We believe this is the ultimate measure of our success.

 

Mergers and Acquisitions

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

 

Refined Energy Product Sales

The Energy Products division intends to market and distribute refined petroleum based energy products including industrial fuels, diesel fuels, gasoline, kerosene, jet fuel aviation fuels, Jet A and Jet A-1, motor oils and other lubricants. NDR Energy Group will be procuring these energy products to market through its distribution channels. The products will be sold to its existing customer base, and its expanding customer base which will include federal and state agencies, U.S. military, cities, municipalities and large commercial and industrial companies. Refined oil energy products typically have higher profit margins, and should generate additional streams of revenues and profits for the Company.

 

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.

 

 

 

CORPORATE FINANCE

 

The Company’s Capital Structure

In management’s efforts to grow and expand our Company we must obtain the necessary capital to achieve those objectives, decide on the best methods to obtain that capital, and the capital structure of our Company. The primary ways a company will raise capital is either through debt financing (borrowing money), or equity financing (selling a portion of the company via shares of stock), or a combination of both. The type of capital chosen (debt or equity), and methods of raising the capital, depend on a number of factors including; the company’s life cycle stage, e.g., start-up, development, high-growth or maturity, future growth prospects, strength of the national economy, and the credit markets.

 

Potential investors in any company, including ours, will consider those factors and the relative risks to their investment capital. To limit their risks, these investors may limit the size of their investment, or provide it to the company in stages that is contingent upon the company reaching stated goals, e.g., production, marketing, distribution and revenues. The ultimate question for management is: How do you get the investors to commit to making what could be a high risk investment for them, although one that would correspondingly benefit the Company; however, one that the investor could lose if the Company were to fail? Management considered both the equity and the debt financing options based on our life cycle stage, economy, credit markets, and other circumstances at the time, and reached the following conclusions:

 

Based on the reasons above, and since we required immediate capital to rapidly expand, grow, restructure its operations, enter new markets, finance new acquisitions, and execute our marketing plans; raising capital through debt financing was our best alternative. This strategy resulted, we believe, in our gaining a greater share of the energy market, increased revenues, increased assets, market capitalization value, and our shareholders owning a portion of a much larger and more valuable company. As we continue to advance and develop through the different stages of our business life cycle, management will evaluate options, alternatives, and make strategic decisions for the best investment opportunities, financing, and capital structure at that time. 

 

Terminated Agreements

 

There are no terminated agreements to report for this reporting period.

 

THE COMPANY’S FUTURE PLANS AND OUTLOOK

 

Stock Dividends and Distributions

Due to management’s strong confidence in the current and future growth and expansion of the Company, it is considering additional ways to bring more value to our shareholders. We are considering, but can provide no assurances as to implementation, the following proposals for dividends and distributions:

 

1. A special dividend in the form of common stock;
2. Regular dividends issued in stock or cash (subject to the Company’s future earnings and availability of funds);
3. A dividend in the form of Preferred stock, or Preferred stock with the option to convert them to common stock. The issuance of any options or its exercise at a cost would be subject to SEC guidelines and a possible registration of an offering.
4. The issuance of warrants or options to buy additional shares from the Company, (subject to SEC guidelines).

 

In addition to potential price appreciation of the common stock, this could provide the shareholders with additional current income, cash flow, and (although we cannot guarantee it) the potential to earn higher returns from these stock dividends and distributions than they might earn on their other investments.

 

The Company’s management is currently evaluating the above proposals, and others in this regard, and its potential benefits to the shareholders and impacts on the Company. However, no decisions have been made regarding this matter. We believe this will reward our loyal shareholders for their ongoing support, and to give them a greater stake in our Company.  

 

Universal Bioenergy – Considers Options for Merger, Acquisition or Consolidation

Our management is considering the possibility of completing a merger or consolidation with another company to increase its market share, share price, market value, expand horizontally into other national or international geographical markets, expand vertically and create more value for its shareholders. Our Company’s management is currently evaluating the possibility of a merger or consolidation and its potential benefits and impacts on our Company; however, no decisions have been made regarding this matter. Any final proposals regarding this matter would be presented to the Board of Directors and the shareholders for approval as required by Federal and State laws, guidelines, and our corporate By-Laws.

 

The issues and benefits that would have to be considered include:

 

1. The potential value of the synergies and strategic fit of the target or acquiring company.
2. The financial, accounting, tax, and legal effects.
3. The acquisition or sell of stock and/or assets of either company.
4. Consideration of a merger or consolidation with another company to create a new stronger more valuable company.
5. Completion of a horizontal acquisition of a competitor or other company in our industry.
6. Completion of a vertical acquisition with another company either upstream or downstream in our industry that may include exploration companies, producers, distributors, and marketers.
7. Consideration of a triangular, or a reverse triangular, merger with a strong operating company on another exchange such as the NASDAQ, NYSE/AMEX or OTCBB.
8. Potential increase in the price of our common stock.
9. Economies of scale from the two companies combined resources.
10. Potential reductions in operating costs.
11. Potential to increase the earnings and earnings per share of the Company.
12. The potential to create more value for our shareholders.

 

 

Consideration of Reverse Stock Split

As an additional requirement to qualify to be listed on one of the major national stock exchanges, management, in consultation with its accountants, auditors, investment advisors, and securities counsel, is considering the options of the benefits of implementing a reverse split of its common stock. If a reverse stock split were affected, it would result in a reduction in the number of the Company’s outstanding shares, and a corresponding increase in the price of our stock or its earnings per share. Some of the factors under consideration are:

 

1. Improving the liquidity and marketability of the stock to a more popular trading range to make it more attractive to institutional and other major investors.
2. Increase the price to a range to reflect the revenues, growth, and stability of the Company.
3. Increase the price to qualify for the minimum share price requirements to qualify for a major stock exchange such as NASDAQ or NYSE/AMEX.
4. The Company may consider purchasing the shares of some of the minority shareholders.
5. Allow the Company to raise more capital for its growth and expansion.

 

Management believes that the current stock price is currently undervalued, the share price does not fully reflect its true value in proportion to its operating fundamentals, and is not based on the Company’s rapid growth, revenues, acquisitions, and plans for expansion. Many institutional investors and investment funds have guidelines that prevent them from investing in our common stock at the current prices that the stock trades at. With a high stock price, it is possible that many institutional investors, larger private equity firms, hedge funds, pensions, and trusts that were previously prohibited from acquiring our shares could then purchase our shares. The reverse stock split of our shares of common stock may also help to create greater investor interest in the Company by producing a share price the common stock for our Company that is more consistent with other high growth companies of our size in our in the market place. If a reverse stock split was implemented it would reduce the amount of outstanding shares, increase our share price, and help the Company qualify to up-list to a major stock exchange such as NASDAQ, or NYSE/AMEX. Management believes this would be beneficial to our shareholders.

 

Our management is currently evaluating the possibility of a reverse stock split and its potential benefits and impacts on our Company; however, no decisions have been made regarding this matter. Any final proposals regarding this matter would be presented to the Board of Directors and the shareholders for approval as required by Federal and State laws, guidelines, and our corporate By-Laws. 

 

Business Model

 

Mergers and Acquisitions

Management has determined that it is in our best interests to chart a strategic course for the Company to grow faster by more 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, of acquiring 5 to 10 acquisitions of additional new companies with revenues in the $10 million to $80 million range with stable cash flows and EBITDA’s in the $1 million to $8 million range in the next 1 to 3 years. The potential target’s profile will primarily include companies with well-established marketing and distribution channels, a defensible competitive position, and strong growth opportunities. This will also include companies that have a strong asset base with hard or fixed assets, property, plant, equipment, proprietary technologies, patents, and exclusive licenses. We are aggressively seeking potential acquisition targets to meet these objectives.

 

Some  companies being targeted are, oil producers, oil drilling companies, refined oil product producers, natural gas producers, gas marketers,  pipeline companies, pipeline construction companies, gas storage facilities, propane producers, high wall surface coal mines, refined oil product producers, and the acquisition of energy technology patents and licenses. We’re also looking at acquiring producing petroleum and gas wells, assets/properties, and related energy companies. Acquiring interests in properties in these areas will work very well with our strategic plans for the expansion of our subsidiary Texas Gulf Oil & Gas Inc.  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, but can provide no assurances, that this will bring even greater revenues for our Company, solid earnings, and bring more value to our shareholders.

 

Termination of Acquisitions

As part of our business strategy we review acquisition and strategic investment prospects that we believe would complement our current product offerings, augment our market coverage, or enhance our technological capabilities, or otherwise offer growth opportunities. From time to time we review investments in new businesses and we expect to make investments in, and to acquire, businesses, products, or technologies in the future. We expect to continue pursuing selective acquisitions of businesses. Very often during the acquisition and due diligence process management will not be able to consummate the transaction because we cannot close it on terms and conditions acceptable to us, or because of other negative factors as described below.

 

In the event that management and its acquisitions team have identified a strong potential target company, we will issue a Letter of Intent to start the due diligence process to acquire that company. Afterwards, our legal counsel will prepare a definitive agreement with all of the final terms and conditions to complete the acquisition. Proper due diligence for proper technical, financial, and legal review can be very expensive and time consuming. Often during the due diligence process we discover that the representations and warranties made by the target company regarding its business, operations, assets, financials, books, records, properties, contracts, liabilities, pending litigation, permits, licenses, and business status are not accurate or complete; there may be misrepresentations, or there is an adverse material change in the business prior to the closing of the acquisition. In that event, management will elect to terminate that acquisition to avoid any negative impacts on our operations, avoid any adverse legal and financial exposure to the Company, and to protect our shareholders. Due to these factors we, and other companies that pursue other companies as acquisition targets, do not expect that they will close on every potential acquisition target.

 

 

 

Forecast of Projected Revenues and Earnings and Market Value

 

Our primary objective is to exploit changes in the energy market to propel the Company to a dominant market position, and be one of the top independent energy companies in the United States. Another major goal is to finding new ways to create more value for, and maximize the wealth of our shareholders; and bring increased value to our stakeholders and the investment community. The financial projections presented below are estimates based on Management’s analysis of the present targeted market segments of the energy industry we are involved in, future industry trends, our current and growing customer base, our strategic joint ventures, strategic alliances, and other capital development projects we are pursuing. The financial plan is intended for rapid but controlled growth and required our management to make certain assumptions and estimates.

 

Focus on Earnings

We achieved sales revenue of $18,705,137 for the three months ending December 31, 2013, as compared to $13,322,660 for the same period in 2012. Our cost of sales was $18,685,525 for the three months ending December 31, 2013, as compared to $13,303,088 for the same period in 2012.

 

A major goal for the fiscal 2014 year and beyond is to begin to generate earnings for our Company. We intend to increase our operating income and earnings through current and future acquisitions in the energy industry, and high profit centers; which will include gas storage, physical and financial gas trading, transportation, management; and higher sales of natural gas, propane, oil, electric power, refined energy products, and coal.

 

Our management’s plans for increasing earnings include the following:

 

• First, we have expanded our sales of natural gas beyond just base load transactions to include monthly term transactions, spot market sales, and sales gas for electric power generation.

 

• 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 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 our company.

 

• Fourth, our management has decided to expand into the coal energy sector of the energy industry. Thermal/Steam non-coking coal is used as a primary source of energy for coal fired powered plant electric generation. Universal plans to mine, produce, and market “Thermal/Steam” coal to sale to other major coal producers and electric utility customers for power generation.

 

• Fifth, we intend to expand into gas storage, physical and financial gas trading, transportation, and gas management.

 

Management Incentive Programs

We have 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 our Company. Since management has deferred most or all of their compensation, provisions have been made to issue them long-term Promissory Notes for their salary, with the option to convert the Notes into to common stock of our company.

 

Discontinued Operations

There are no Discontinued Operations to report for this period.

 

 

Net Loss as adjusted for non-recurring and/or non-cash expenses
		Six Months Ended		Six Months Ended
		December 31,		December 31,
		2013		2012
Losses available for common shareholders	$	(461,400)	$	(874,770)
Other non-cash expenses		1,308		1,962
Stock issued for services		-0-		118,280
Losses available for common shareholder, as adjusted	$	(460,092)	$	(754,528)

 

 

 

RESULTS OF OPERATIONS

 

Three and Six Months Ended December 31, 2013 compared to the Three and Six Months Ended December 31, 2012

 

 

Review and Analysis of Current Results of Operations

 

Revenues

 

Our revenues for the three months period ended December 31, 2013, increased compared to the three months period ended December 30, 2012.

 

Our primary revenues from this period are from the sale of natural gas and propane.  Our revenues for the three and six months ended December 31, 2013 were $18,705,137 and $32,577,523 respectively, as compared to $13,322,660 and $28,885,520 respectively for the same periods in 2012. This resulted in an increase of $3,692,003 in revenues or 12.78% over the previous year.

 

Our Cost of Sales for the three and six months ended December 31, 2013 were $18,685,525 and $32,545,212 respectively, as compared to $13,303,088 and $28,841,943 for the same periods in 2012. 

 

This has resulted in a gross profit margin for three and six months ended December 31, 2013 of $19,613 and $32,4288, respectively, as compared to $19,572 and $43,577, respectively, for the same periods in 2012.

 

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 high financing 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. We believe 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 significantly increasing our gross profit.

 

We incurred losses of $461,400 for the six months ended December 31, 2013; and $874,770 for the same period in 2012. Our accumulated deficit since our inception through December 31, 2013 amounts to $22,539,221. We did not issue any common shares for services for this period which had an aggregate fair value of approximately $0.00 that was included in the $360,281 in general and administrative expenses for the six month period ended December 31, 2013.

 

We also incurred interest expenses of $295,204 for the six month period ended December 31, 2013. Excluding the value of the common stock that was issued for services and interest expenses, which together totaled $295,204, would correspondingly reduce our net loss of $461,400 to an adjusted net loss of $166,196 for the three month period ending December 31, 2013. Based on an adjusted net loss of $166,196, this loss equals only 0.51% of our total revenues of $32,577,739 for the six month period ended December 31, 2013, as compared to 6.69% for the same period ended 2012.*

 

*The disclosure of this information statement, is a “non-GAAP financial accounting measure”, and is a supplemental measure of our performance, which information is derived from our consolidated financial information, although it is not included in our consolidated financial statements which were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). These financial measures are considered “non-GAAP financial measures” under SEC rules.

 

Regarding Increase in Expenses and Losses. This increase in operating expenses, and the resulting net loss, was primarily due to increases in accrued interest, the current portion of long term debt, and in embedded derivative liability costs as indicated below.

 

The Company issued convertible Promissory Notes, and determined that the conversion features contained in the Notes represent freestanding derivative instruments that meet the requirements for liability classification under Financial Accounting Standard Board (“FASB”), U.S. GAAP, Accounting Standards Codification, Derivatives and Hedging (Topic ASC 815). As a result, the fair value of the derivative financial instruments in the Promissory Notes is reflected in the Company’s balance sheet as a liability. The fair value of the derivative financial instruments of the convertible Notes and warrants was measured at the inception date of the Promissory Notes and warrants, and each subsequent balance sheet date. Any changes in the fair value of the derivative financial instruments are recorded as non-operating, non-cash income, or expense, at each balance sheet date.

 

The Company valued the conversion features in its convertible Promissory Notes using the Black-Scholes model. Included in our Statements of Operations for the three ended December 30, 2013, are $165,304 in non-cash charges pertaining to the derivative liability as it pertains to change in derivative liability and amortization of debt discount, respectively. 

 

Operating Costs and Expenses

 

Our Cost of Sales for the three months ended December 31, 2013 were $18,685,525 as compared to $13,303,088 for the same period in 2012, and our Cost of Sales for the six months ended December 31, 2013 were $32,545,312 as compared to $28,841,943 for the same period in 2012. This was an increase of $3,703,369 or 12.84% in our Cost of Sales.  Our primary operation is the marketing of natural gas, propane and coal to our customers. Our total operating expenses for the three months ended December 31, 2013 were $205,050, as compared to $407,702 for the same period in 2012 and for the six months ended December 31, 2013 were $361,589 as compared to $769,261 for the same period in 2012. We pay our employees and consultants largely in common shares as our cash availability is currently limited.

 

We decreased our total operating expenses from $769,261 for the six month period ending December 31, 2012, by a total of $407,672, or by 53.00%, to $361,589 for the period ending December 31, 2013.

 

Based on our plans for growth and expansion, and increasing revenues through sales of natural and other products, we believe we will soon reduce our net losses down to zero; and then move our company toward solid profitability. Since we are a high growth company, growing by mergers and acquisitions, we generally expect to have corresponding increases in costs reflected in our operating expenses.

 

Assets

 

Our “total assets” have decreased by $3,142,823, or 25.41%, to $9,226,706 for the period ending December 31, 2013, compared to $12,369,529 for the year ended June 30, 2013. This was due to an decrease in the amount of our Accounts Receivables from the sales of natural gas 

 

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 and propane to its 31 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, 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, and we incurred significant fluctuations in our working capital for this period. This resulted in a working capital deficit of ($1,547,430) for the period ending December 31, 2013, as compared to a working capital deficit of ($1,021,031) for the period ending December 31, 2012. This increased our working capital deficit by $526,399 or by 51.56%. The working capital deficit was primarily due to the costs of pursuing acquisitions, funding of NDR Energy’s operating expenses, the amount of funds borrowed from our creditors, purchase of natural gas inventories, our capital spending exceeding our cash flows from operations, and from the increase in 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 December 31, 2013, 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 December 31, 2013 and 2012 were as follows:

 

Cash Flows from Operating Activities

 

Our cash, used in operating activities, for the six months ended December 31, 2013, was $218,245, as compared to cash used in operating activities of $1,429,832 for the six months ended December 31, 2012. The decrease was primarily attributable to amortization of beneficial conversion feature, the accruing certain management salaries, and a reduction of prepaid expenses. 

 

Cash Flows from Investing Activities

 

Cash used in investing activities for the six months ended December 31, 2013 was $40,050 as compared to cash provided by investing activities of $0.00 for the six months ended December 31, 2012. 

 

Cash Flows from Financing Activities

 

Our cash provided by financing activities for the six months ended December 31, 2013 was $259,550, as compared to $569,067 for the six months ended December 31, 2012. The net cash used in financing activities is primarily attributed to our Notes Payables.

 

Liabilities / Indebtedness

 

Current liabilities decreased to $7,586,534 for the six months ended December 31, 2013, compared to $10,197,223 for the same period in 2012. This 25.60% decrease was primarily due to a $3,078,704 decrease in accounts payable from the purchasing costs and supplies of natural gas. Our long term liabilities are $341,653 for the period ending December 31, 2013, compared to $976,248 for the six months ending December 31, 2012. In the past twelve months the Company has significantly reduced its borrowings from its creditors to further reduce its short and long-term debt. 

 

DEBT

 

Debt and Debt Financing

 

Long-Term Debt and Promissory Notes - In its efforts to expand and grow, we borrowed direct cash funds from various investors to raise capital, and we issued them debt instruments in the form of Promissory Notes to evidence that debt. These are long-term Notes with various rates and maturities that grant the Note Holder the right (but not the obligation) to convert them into shares of our common stock in lieu of receiving payment in cash. The issued Promissory Notes are primarily unsecured obligations. The principal amount of the Promissory 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.

 

Many of these Promissory Notes have above market interest rates, and high price conversion discounts rates to market. Management issued the Promissory Notes primarily for the following reasons:

 

a. Universal was considered a development stage company with a limited operating history, and had limited revenues and earnings.

 

b. The investors that accepted a Promissory Note, with deferred payments, with the option to convert the Promissory Note to high risk penny stock, for the cash obligation, felt they were taking an extremely high risk.

 

c. The investors’ concern about the historically high inherent risks in penny stocks.

 

d. The investors’ concern about the lack of liquidity and limited trading volume in the Company’s stock.

 

e. The investors’ concern about the volatility of the stock price at that time.

 

f. A significant price discount to market was required by them to offset declines in the stock price to

cover the risk of partial, or even total, loss.

 

g. The investors had very limited, or no, collateral for their investments or loans to the Company.

 

h. Many of the Notes were issued when the Company’s stock was trading in the 2 cent to 3 cent range.

 

i. The loans were made on the best possible terms we could get from the investors at that time because

of the high risks, the recessionary economy, and tight credit lending market at that time.

 

j. Due to these inherent risk factors and their potential effect on the investors, the Board of Directors initially approved the conversion prices for the Notes in a range of $.005 to $.05 per share, or at a 30% to 50% discount to market.

 

The investors have provided us with critical short and long-term funds that we have used for operations, working capital, and investment capital for our business acquisitions, to expand and grow our company. These investors invested funds in our company when it was still a development stage company with a limited operating history, limited revenues, negative earnings, and limited stock liquidity. They accepted Promissory Notes with the option to convert them to shares of common stock, and were taking what was considered to be a high risk investment at that time. We retain the right to re-negotiate the terms and conditions of the Promissory Notes, including adjusting the conversion prices if the stock price rises or falls considerably and consistently over time, on terms that would be more favorable to us and our shareholders or the Note Holder. It could take several years to convert all of the Promissory Notes to stock if all of the investors requested it. It is possible that some may never convert their Promissory Notes to stock and may take cash only when we are in the best position to settle the obligation on a cash basis. No additional consideration was paid to convert any Promissory Note.

 

Most of the Promissory Notes that the investors elected to convert, were converted at the market price of the stock at the time of conversion. Some of the Notes were converted at a 30% to 50% discount to the market price at the time of conversion to reflect a conversion price due to a modification of the terms of the Promissory Note.

 

Should the investors decide to convert their respective Promissory Notes into common stock then the corresponding debt represented by that Promissory Note would be eliminated from the Company’s balance sheet. The respective investors typically will convert the principal balance on their Promissory Notes in 25% to 33% portions, and usually will not convert their Promissory Notes into more than 4.99% of the Company’s outstanding shares of stock at any time. In the past twelve months the Company has significantly reduced its borrowings from its creditors to further reduce its short and long-term debt.

 

LIST OF PROMISSORY NOTES

 

List of Notes from October 1, 2013 through December 31, 2013

 

On October 30, 2013, the Company entered into a three (3) year Promissory Note with a non-related creditor for $8,797.67 at 12% interest. The Holder has the right to convert the Note to common stock at a fixed conversion price of $0.00115 per share.

 

On November 30, 2013, the Company entered into a three (3) year Promissory Note with a non-related creditor for $8,539.07 at 12% interest. The Holder has the right to convert the Note to common stock at a fixed conversion price of $0.00115 per share.

 

On December 31, 2013, the Company entered into a three (3) year Promissory Note with a non-related creditor for $8,200.00 at 12% interest. The Holder has the right to convert the Note to common stock at a fixed conversion price of $0.00115 per share.

 

On December 31, 2013 the Company entered into a two (2) year convertible Promissory Note with its Vice President, Solomon Ali for $160,000 at 10% interest for the accrued compensation owed to him for the fiscal year 2013 in accordance with his Employment Agreement. The holder has the right to convert the Note to common stock at $0.00015.

 

On December 31, 2013 the Company entered into a two (2) year convertible Promissory Note with its Manager of Business Development, Don Deluna, for $67,300 at 10% interest for the accrued compensation owed to him for the fiscal year 2013 in accordance with his Employment Agreement. The holder has the right to convert the Note to common stock at $0.00015.

 

On December 31, 2013 the Company entered into a two (2) year convertible Promissory Note with its President and CEO, Vince M. Guest for $160,950 at 10% interest for the accrued compensation owed to him for the fiscal year 2013 in accordance with his Employment Agreement. The holder has the right to convert the Note to common stock at $0.00015.

 

If all of these Notes were converted to common stock it could take several years; and the amount of stock that could be issued cannot be determined. This would result in a dilution of the proportional, or percentage of ownership of the shareholders; however, we do not believe the value of the shareholders stock would be adversely affected. In an effort to build a strong operating company the officers and some our employees have not taken their salaries for the last few years, and have become creditors of the Company. The accrued compensation due them by the Company has become a debt or liability on the books. We have issued them Promissory Notes that include an option to convert the notes to shares of common stock to reflect these liabilities. This has reduced some of the need to borrow from outside creditors. They have also taken on the very same risks upon themselves as the outside lenders and creditors. The officers would prefer to be paid in cash as opposed to shares of common stock. If the officers ever elect to convert their Notes into shares of common stock the shares will be subject to Rule 144 restrictions as control securities when selling them into the market.

 

Off-Balance Sheet Arrangements

 

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

 

 

 

WHERE YOU CAN FIND MORE INFORMATION

 

You are advised to read this Form 10-Q Report in conjunction with other reports and documents that we file from time to time with the SEC. In particular, please read our Quarterly Reports on Form 10-Q, Annual Report on Form 10-K, and Form 10-K/A, 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.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are exposed to risks associated with commodity prices and interest rates. Commodity price risk is the potential loss that we may incur as a result of changes in the fair value of a particular instrument or commodity. Interest-rate risk results from our portfolio of debt and equity instruments that we issue to provide financing and liquidity for our business activities.

 

Commodity Price Risk

Our most significant market risk relates to the prices we receive for our oil and natural gas production. Realized pricing is primarily driven by the prevailing worldwide price for crude oil, and spot market prices applicable to the production of oil and gas in the our U.S. and Canada. Pricing for oil and gas production has been volatile and unpredictable for several years.

 

Interest Rate Risk

We are subject to interest rate risk on our long-term fixed and variable interest rate borrowings. Fixed rate debt, where the interest rate is fixed over the life of the instrument, exposes us to (i) changes in market interest rates reflected in the fair value of the debt, and (ii) the risk that we may need to refinance maturing debt with new debt at a higher rate. Variable rate debt, where the interest rate fluctuates, exposes us to short-term changes in market interest rates as our interest obligations on these instruments are periodically re-determined based on prevailing market interest rates.

 

As of December 31, 2013, we were not engaged in any other activities that would cause exposure to the risk of material earnings or cash flow loss due to changes in interest rates or market commodity prices.

 

ITEM 4.  CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures were designed to provide reasonable assurance that the controls and procedures would meet their objectives. As required by SEC Rule 13a-15(b), our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level. 

 

Our principal executive officer and our principal financial officer, are responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Management is required to base its assessment of the effectiveness of our internal control over financial reporting on a suitable, recognized control framework, such as the framework developed by the Committee of Sponsoring Organizations (COSO). The COSO framework, published in Internal Control-Integrated Framework, is known as the COSO Report. Our principal executive officer and our principal financial officer, have has chosen the COSO framework on which to base its assessment. Based on this evaluation, we have concluded that, as of September 30, 2013, internal controls and procedures were not effective to detect the inappropriate application of US GAAP rules as described below.

 

The matters involving internal controls and procedures that the Company’s management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) inadequate segregation of duties consistent with control objectives; (2) lack of a majority of independent directors on the Company’s board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (3) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements; and (4) ineffective controls over period end financial disclosure and reporting processes that resulted in certain filings being delayed or late.

 

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, like ours, face additional limitations. Smaller reporting companies employ fewer individuals and find it difficult to properly segregate duties. Often, only a few 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.

 

It should be noted that any system of controls, however well designed and operated, can provide only reasonable and not absolute assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of certain events. However, as noted, when the size of our Company and its finance department is materially increased, the deficiencies can be addressed. Once increased, we intend to create a new finance and accounting position that will allow for proper segregation of duties consistent with control objectives, and will increase our personnel resources and technical accounting expertise within the accounting function; and we will prepare and implement appropriate written policies and checklists which set forth procedures for accounting and financial reporting with respect to the requirements and application of US generally accepted accounting principles and SEC disclosure requirements. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote or when the size of our Company and our finance department will materially increase to address these issues. 

 

Changes in Internal Control over Financial Reporting

During the fiscal year ended December 31, 2013, no changes were made to our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

 

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 2013 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; with the exception of the legal proceeding indicated below; 

 

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 June 30, 2013, 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. While not required for smaller reporting companies, we include the following previously disclosed risk factors in addition to the risk factors previously provided:

 

 

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

 

Period October 1, 2013 through December 31, 2013 

 

There were no sales of unregistered senior securities during the fiscal period ended September 30, 2013 except as follows for certain Promissory Notes (“Note”) and issuances of equity at the initiation and request of the Note holders:

 

On October 18, 2013, the Company completed a full conversion one of its amended Notes payable dated October 16, 2013 with a principal amount of $50,000. A total of $50,000 worth of the Note was converted, and 77,000,000 common shares were issued for this conversion. Previously, on October 16, 2013, a non-affiliated party purchased a partial interest of $50,000 worth of a Note dated December 30, 2012, in a private non-public transaction from a non-related creditor. An amended Note for $50,000 dated October 16, 2013 at 12% interest was issued to the new Note Holder. This conversion of debt reduced the Company’s Notes Payables by $50,000. A balance of $00.00 of remains on the Amended Note, and $71,150 remains on the original Note.

 

On October 28, 2013, the Company completed a partial conversion one of its amended Notes payable dated July 18, 2013 with a principal amount of $130,000. This was the sixth in a series of conversions for this Note, including one on October 11, 2013, one on October 16, 2013, and one on October 28, 2013. A total of $46,000 worth of the Note was converted, and 76,483,517 common shares were issued for these three partial conversions. Previously, on July 18, 2013, a non-affiliated party purchased four existing Notes in a private non-public transaction from a non-related creditor. An amended Note for $130,000 dated July 18, 2013 at 12% interest was issued to the new Note Holder. The amended Note consolidated the four original Notes, which included $96,200 in principal, $19,049 in accrued interest and a $14,751 premium. This conversion of debt reduced the Company’s Notes Payables by $46,000. A balance of $28,457 of remains on the Amended Note.

 

On October 28, 2013 the Company completed the final and full conversion of one of its Notes payable dated March 18, 2013, for a Note with a principle amount of $42,500, and a total of 126,285,714 common shares were issued. The final conversion of the Note included $42,500 in principal and $1,700 in accrued interest that was due on the Note upon conversion. This leaves a remaining balance of $0.00 on this Note. This conversion of debt reduced the Company’s Notes Payables by a principal amount of $42,500.

 

On December 20, 2013 the Company completed a partial conversion of one of its Notes payable dated June 12, 2013, for a Note with a principle amount of $53,000, and a total of 75,000,000 common shares were issued. The final conversion of the Note included $15,000 in principal and $00.00 in accrued interest that was due on the Note upon conversion. This leaves a remaining balance of $38,000 on this Note. This conversion of debt reduced the Company’s Notes Payables by a principal amount of $15,000. 

 

Item 3.  Defaults upon Senior Securities

 

There were no defaults upon senior securities during the period ended December 31, 2013.

 

Item 4. Mine Safety Disclosure

 

Not applicable.

 

Item 5.  Other Information

 

There is no other information to report with respect to which information is not otherwise called for by this form except as follows:

 

Changes in Control

 

On January 11, 2013, Global Energy Group LLC, purchased a portfolio of 14 of the Company’s Promissory Notes, in a private transaction directly from the individual Note Holders, with a total principal amount of $3,234,775. On April 10, 2013, the Company, (at the request of the Note Holder), converted this portfolio of 14 Promissory Notes into common shares of stock; and issued 1,568,630,000 common shares for that conversion. The Promissory Notes were converted into common stock at the market price at the time of conversion. The 1,568,630,000 shares is the equivalent of 61.78% of the Company’s 2,538,903,268 outstanding shares of common stock that were issued and outstanding on May 20, 2013, as reported in the Company’s Form 10-Q Report for the period ended March 31, 2013. The purchasing party was Global Energy Group LLC, and its controlling entity is Rainco Management LLC and the control person for Rainco Management LLC is Nicole C Singletary. Solomon Ali, our Senior Vice President of Corporate Finance and Investor Relations, previously served as CEO of Rainco Industries, and currently serves as an outside consultant for Rainco Industries. Rainco Industries Inc., (although having similar names), has no affiliation with Rainco Management LLC. Global Energy Group is now deemed an affiliate.

 

The shares issued to Global Energy Group are restricted securities. Restricted securities are securities acquired in unregistered, private sales from the issuer or from an affiliate of the issuer. Investors typically receive restricted securities through private placement offerings pursuant to Regulation D, employee stock benefit plans, as compensation for professional services, or in exchange for providing "seed money" or start-up capital to the company. Rule 144(a)(3) identifies what sales result in restricted securities. Pursuant to Rule 144 of the Securities Act of 1933, control securities are those held by an affiliate of the issuing company. An affiliate is a person, such as an officer, director or large shareholder, (e.g. owning 10% of a company’s outstanding shares), in a relationship of control with the issuer. Control means the power to direct the management and policies of the company in question, whether through the ownership of voting securities, by contract, or otherwise.

 

Therefore, Global Energy Group is subject to the limitations of Rule 144 on sales of any of its stock. The restrictions on the sales of restricted stock per Rule 144 include holding the stock for a minimum of six months after issuance, and it would therefore be limited to selling an amount equal to 1% of the Company’s issued and outstanding shares every 90 days. When and if it did decide to sell any of its stock, the federal securities laws require them to file a Form 144, (Notice of Proposed Sale of Securities), notifying the SEC of their intent to sell any of its stock in accordance with the Rule 144 guidelines and limitations.

 

 

 

 

Item 6.  Exhibits

 

Exhibit No.		Exhibit
3.1		Articles of Incorporation (1)
3.2		Bylaws
3.3		Amendment to Articles of Incorporation (2)
3.3(a)		Amendment to Articles of Incorporation (7)
10.5		Employment Agreement by and between Universal Bioenergy and Dr. Richard Craven (3)
10.6		Employment Agreement by and between Universal Bioenergy and Vince M. Guest (4)
10.7		Employment Agreement by and between Universal Bioenergy and Solomon Ali (4)
14.1		Code of Ethics (5)
31.1	*	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act. (2)(6)
31.2	*	Certification of Principal Financial and Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.
32.1	*	Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.
32.2	*	Certification of Chief Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.

 

*filed herewith

 

(1)	Incorporated by reference to the registration statement on Form SB-2 as filed on March 21, 2005
(2)	Incorporated by reference to the Current Report on Form 8-K as filed on October 31, 2007.
(3)	Incorporated by reference to the Current Report on Form 8-K as filed on February 29, 2008
(4)	Incorporated by reference to the Form 10K for year ended December 31, 2009 as filed on August 12, 2010
(5)	Incorporated by reference to the 2nd amended Form 10K/A for year ended December 31, 2007 as filed on January 4, 2010.
(6)	Incorporated by reference to the 2nd amended Form 10K/A for year ended December 31, 2007 as filed on January 4, 2010.
(7)	Incorporated by reference to the Current Report on Form 8-K as filed on December 28, 2012

 

 

 

 

SIGNATURES

 

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

 

	UNIVERSAL BIOENERGY, INC.
Dated: February 19, 2014		By	/s/ Vince M. Guest
			Vince M. Guest
		President and Chief Executive Officer, Principle Financial Officer, Principal Accounting Officer and Director