**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10–QSB**





x
            QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d)OF
                THE SECURITIES ACT OF 1934**For
                the quarterly period ended October 31,
                2007**





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: 333-**  **123465**





**UNIVERSAL
      BIOENERGY,**  **INC.**


(Exact
      name of registrant as specified in its charter)





Nevada
            
            20-1770378(State
                or other jurisdiction of
            
            (IRS
                Employer Identification No.)Incorporation
                or organization)





128
      Biodiesel Drive


Nettleton,
      MS 38858


(Address,
      including zip code, of principal executive offices)





**662-963-3333**





(Registrant’s
      telephone number, including area code)





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for the past 90 days.





(1)Yes x No
o





(2)Yes x No
o





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act): Yeso Nox





APPLICABLE
      ONLY TO CORPORATE ISSUERS:





State
      the
      number of shares outstanding of each of the issuer's class of common equity,
      as
      of the latest practicable date: At December 21, 2007, the issuer had
      outstanding 22,500,000 shares of Common Stock, par value $.001 per
      share.




Transitional
      Small Business Disclosure Format (Check one): Yeso Nox





**UNIVERSAL
      BIOENERGY, INC.**





**INDEX**




PART
                I.
            
            FINANCIAL
              INFORMATIONItem
                1.
            
            Financial
                InformationCONDENSED
                BALANCE SHEET AS OF OCTOBER 31, 2007 (UNAUDITED)
            F-1CONDENSED
                STATEMENTS OF OPERATIONS FOR THE THREE MONTHS AND NINE MONTHS ENDED
                OCTOBER 31, 2007 AND 2006 AND FOR THE PERIOD FROM AUGUST 13, 2004
                (INCEPTION) TO OCTOBER 31, 2007 (UNAUDITED)
            F-2CONDENSED
                STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIENCY) FOR THE PERIOD
                FROM AUGUST 13, 2004 (INCEPTION) TO OCTOBER 31, 2007
                (UNAUDITED)
            F-3CONDENSED
                STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED OCTOBER 31, 2007
                AND
                2006 AND FOR THE PERIOD FROM AUGUST 13, 2004 (INCEPTION) TO OCTOBER
                31,
                2007 (UNAUDITED)
            F-4Item
                2.
            
            Management's
                Discussion and Analysis or Plan of Operations
            4Item
                3.
            
            Controls
                and Procedures
            12Item
                3A(T).
            
            Controls
                and Procedures
            12PART
                II.
            
            OTHER
                INFORMATIONItem
                1.
            
            Legal
                Proceedings
            13Item
                2.
            
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            13Item
                3.
            
            Defaults
                upon Senior Securities
            13Item
                4.
            
            Submission
                of Matters to a Vote of Security Holders
            13Item
                5.
            
            Other
                Information
            13Item
                6.
            
            Exhibits
            13Signatures
            
            
            14




2




PART
      I —
FINANCIAL INFORMATION





ITEM
      1.
      FINANCIAL STATEMENTS




THE
      ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL
      STATEMENTS.





**UNIVERSAL
      BIOENERGY, INC.**


**(F/K/A
      PALOMINE MINING, INC.)**


**(A
      DEVELOPMENT STAGE COMPANY** **)**





**CONTENTS**





PAGE
            F-1
            CONDENSED
                BALANCE SHEET AS OF OCTOBER 31, 2007 (UNAUDITED)PAGE
            F-2
            CONDENSED
                STATEMENT OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED OCTOBER
                31,
                2007 AND 2006 AND FOR THE PERIOD FROM AUGUST 13, 2004 (INCEPTION)
                TO
                OCTOBER 31, 2007 (UNAUDITED)PAGE
            F-3
            CONDENSED
                STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIENCY) FOR THE PERIOD
                FROM AUGUST 13, 2004 (INCEPTION) TO OCTOBER 31, 2007
                (UNAUDITED)PAGE
            F-4
            CONDENSED
                STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED OCTOBER 31, 2007
                AND
                2006 AND FOR THE PERIOD FROM AUGUST 13, 2007 (INCEPTION) TO OCTOBER
                31,
                2007 (UNDAUDITED)PAGES
            F5 –
                F11
            NOTES
                TO UNAUDITED FINANCIAL STATEMENTS


3
 **Universal
          Bioenergy, Inc.**
 **(f/k/a
          Palomine Mining, Inc.)**
 **(An
          Exploration Stage Company)**
 **Condensed
          Balance Sheet**
 **October
          31, 2007**
 **(Unaudited)**
 
 **ASSETS****Total
                    Current Assets**Prepaid
                    expenses
                
                $
                500Total
                    Current Assets
                
                
                500**Other
                    Assets**Deposits
                
                
                2,400Total
                    Assets
                
                **$**
                **2,900****STOCKHOLDERS'
                    DEFICIT****Current
                    Liabilities**Accounts
                    payable
                
                $
                17,819Stockholder
                    Loans
                
                
                88,046Accrued
                    Interest
                
                
                -Loans
                    payable - related party
                
                
                0**Total
                    Current Liabilities**
                
                
                **105,865****Commitments
                    and Contingencies**
                
                
                -**Stockholders'
                    Deficit**Preferred
                    stock, $0.001 par value; 1,000,000 shares authorized,none
                    issued and outstanding
                
                
                -Common
                    stock, $0.001 par value; 200,000,000 shares authorized,21,500,000
                    shares issued and outstanding
                
                
                21,500Additional
                    paid-in capital
                
                
                8,300Deficit
                    accumulated during the development stage
                
                
                (132,765
                )**Total
                    Stockholders' Deficit**
                
                
                **(102,965**
                **)****Total
                    Stockholders' Deficit**
                
                **$**
                **2,900**
                ****
 See accompanying notes to condensed financial statements
 F-1
 
 **Universal
          Bioenergy, Inc.**
 **(f/k/a
          Palomine Mining, Inc.)**
 **(An
          Exploration Stage Company)**
 **Condensed
          Statements of Operations**
 **(Unaudited)**
 
 **For the Period from August 13, 2004****Three Months Ended October 31,**
                
                **Nine Months Ended  October 31,**
                
                **(Inception) to****2007**
                
                **2006**
                
                **2007**
                
                **2006**
                
                **October 31, 2007****Operating
                    Expenses**Mineral
                    property option payments and exploration expenditures
                
                $
                -
                
                $
                -
                
                $
                -
                
                $
                -
                
                $
                11,000Office
                
                
                1,246
                
                
                640
                
                
                2,560
                
                
                2,122
                
                
                7,989Organization
                    Costs
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                1,500Professional
                    Fees
                
                
                51,769
                
                
                2,156
                
                
                88,765
                
                
                9,057
                
                
                112,276**Total
                    Operating Expenses**
                
                
                53,015
                
                
                2,796
                
                
                91,325
                
                
                11,179
                
                
                132,765**Loss
                    from Operations**
                
                
                (53,015
                )
                
                (2,796
                )
                
                (91,325
                )
                
                (11,179
                )
                
                (132,765
                )**Provision
                    for Income Taxes**
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -**Net
                    Loss**
                
                **$**
                **(53,015**
                **)**
                **$**
                **(2,796**
                **)**
                **$**
                **(91,325**
                **)**
                **$**
                **(11,179**
                **)**
                **$**
                **(132,765**
                **)****Net
                    Loss Per Share - Basic and Diluted**
                
                **$**
                **(0.00**
                **)**
                **$**
                **(0.00**
                **)**
                **$**
                **(0.00**
                **)**
                **$**
                **(0.00**
                **)****Weighted
                    average number of shares outstanding during the period - basic
                    and
                    diluted**
                
                
                **21,500,000**
                
                
                **21,500,000**
                
                
                **21,500,000**
                
                
                **21,500,000**
  See
            accompanying notes to condensed financial statements
 F-2
  **Universal
          Bioenergy, Inc.**
 **(f/k/a
          Palomine Mining, Inc.)**
 **(An
          Exploration Stage Company)**
 **Condensed
          Statement of Changes in Stockholders' Deficiency**
 **For
          the period from August 13, 2004 (inception) to October 31,
          2007**
 **(Unaudited)**
  DeficitPreferred stock
                
                Common stock
                
                Additional
                
                accumulated during
                
                Total$.001 Par Value
                
                $.001 Par Value
                
                paid-in
                
                development
                
                Stockholder'sShares
                
                Amount
                
                Shares
                
                Amount
                
                capital
                
                stage
                
                DeficitBalance
                    August 13, 2004 (inception)
                
                
                -
                
                $
                -
                
                
                -
                
                $
                -
                
                $
                -
                
                $
                -
                
                $
                -Common
                    stock issued to cash ($0.001 per share)
                
                
                -
                
                
                -
                
                
                10,000,000
                
                
                10,000
                
                
                (8,000
                )
                
                -
                
                $
                2,000Common
                    stock issued to cash ($0.001 per share)
                
                
                -
                
                
                -
                
                
                6,000,000
                
                
                6,000
                
                
                (4,800
                )
                
                -
                
                $
                1,200Common
                    stock issued to cash ($0.01 per share)
                
                
                -
                
                
                -
                
                
                5,000,000
                
                
                5,000
                
                
                5,000
                
                
                
                
                $
                10,000Common
                    stock issued to cash ($0.10 per share)
                
                
                
                
                
                
                
                
                500,000
                
                
                500
                
                
                9,500
                
                
                
                
                $
                10,000In
                    kind contribution of rent
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                2,400
                
                
                
                
                $
                2,400Net
                    loss for the period ended January 30, 2006
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (27,676
                )
                $
                (27,676
                )Balance,
                    January 31, 2006
                
                
                -
                
                
                -
                
                
                21,500,000
                
                
                21,500
                
                
                4,100
                
                
                (27,676
                )
                
                (2,076
                )In
                    kind contribution of rent
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                2,400
                
                
                -
                
                
                2,400Net
                    loss for the for the period ended January 31,2007
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (13,764
                )
                
                (13,764
                )Balance,
                    January 31, 2007
                
                
                **-**
                
                
                **-**
                
                
                **21,500,000**
                
                
                **21,500**
                
                
                **6,500**
                
                
                **(41,440**
                **)**
                
                **(13,440**
                **)**In
                    kind contribution of rent
                
                
                -
                
                
                -
                
                
                -
                
                
                
                
                
                1,800
                
                
                
                
                
                1,800Net
                    loss for the for the nine months ended October 31, 2007
                
                
                -
                
                
                -
                
                
                -
                
                
                
                
                
                
                
                
                (91,325
                )
                
                (91,325
                )**Balance,
                    for the nine months ended October 31, 2007**
                
                
                **-**
                
                **$**
                **-**
                
                
                **21,500,000**
                
                **$**
                **21,500**
                
                **$**
                **8,300**
                
                **$**
                **(132,765**
                **)**
                **$**
                **(102,965**
                **)**
 See
            accompanying notes to condensed financial statements
  F-3
 
 **Universal
          Bioenergy, Inc.**
 **(f/k/a
          Palomine Mining, Inc.)**
 **(An
          Exploration Stage Company)**
 **Condensed
          Statements of Cash Flows**
 **(Unaudited)**
  **For the Period from August 13, 2004****Nine Months Ended October 31,**
                
                **(Inception) to****2007**
                
                **2006**
                
                **October 31, 2007****Cash
                    Flows From Operating Activities:**Net
                    Loss
                
                $
                (91,325
                )
                $
                (11,179
                )
                $
                (132,765
                )Adjustments
                    to reconcile net loss to net cash used in operationsIn-kind
                    contribution
                
                
                1,800
                
                
                1,800
                
                
                6,600Changes
                    in operating assets and liabilities:Prepaid
                    expenses
                
                
                (400
                )
                
                (100
                )
                
                (500
                )Deposits
                
                
                (2,400
                )
                
                -
                
                
                (2,400
                )Increase
                    in accounts payable
                
                
                11,459
                
                
                298
                
                
                17,819**Net
                    Cash Used In Operating Activities**
                
                
                **(80,866**
                **)**
                
                **(9,181**
                **)**
                
                **(111,246**
                **)****Cash
                    Flows From Financing Activities:**Advances
                    from stockholders
                
                
                78,046
                
                
                10,000
                
                
                88,046Proceeds
                    from issuance of common stock
                
                
                -
                
                
                -
                
                
                23,200**Net
                    Cash Provided by Financing Activities**
                
                
                **78,046**
                
                
                **10,000**
                
                
                **111,246****Net
                    Increase (Decrease) in Cash**
                
                
                (2,820
                )
                
                819
                
                
                -Cash
                    at Beginning of Period
                
                
                2,820
                
                
                2,468
                
                
                -**Cash
                    at End of Period**
                
                **$**
                **-**
                
                **$**
                **3,287**
                
                **$**
                **-****Supplemental
                    disclosure of cash flow information:**Cash
                    paid for interest
                
                $
                -
                
                $
                -
                
                $
                -Cash
                    paid for taxes
                
                $
                -
                
                $
                -
                
                $
                -
 See
            accompanying notes to condensed financial statements
 F-4
  **UNIVERSAL
            BIOENERGY, INC.**
 **(F/K/A
            PALOMINE MINING, INC.)**
 **(A
            DEVELOPMENT STAGE COMPANY)**
 **NOTES
            TO CONDENSED FINANCIAL STATEMENTS**
 **AS
            OF OCTOBER 31, 2007**
 **(UNAUDITED)**
 **NOTE 1**
                **SUMMARY
                    OF SIGNIFICANT ACCOUNTING POLICIES AND
                    ORGANIZATION**
 
 ***(A)
          Basis of Presentation***
 
 The
          accompanying unaudited condensed financial statements have been prepared
          in
          accordance with accounting principles generally accepted in The United
          States of
          America and the rules and regulations of the Securities and Exchange Commission
          for interim financial information.  Accordingly, they do not include
          all the information necessary for a comprehensive presentation of financial
          position and results of operations.
 
 It
          is
          management's opinion, however that all material adjustments (consisting
          of
          normal recurring adjustments) have been made which are necessary for a
          fair
          financial statements presentation.  The results for the interim period
          are not necessarily indicative of the results to be expected for the
          year.
 
 Palomine
          Mining Inc. (the "Company") was incorporated on August 13, 2004 under the
          laws
          of the State of Nevada. The Company is an Exploration Stage Company as
          defined
          by the Financial Accounting Standards Board Statement No. 7 ("SFAS 7").
          The
          Company is a mining resource company focused on the exploration and mining
          of
          precious metals, primarily gold. Currently, the Company has a contractual right
          to acquire an 80% interest in a property known as the Gab claim property
          in the
          Northwest Territories, Canada. The Company's fiscal year end is January
          31.
 
 Activities
          during the development stage include developing the business plan and raising
          capital.
 
 On
          October 24, 2007, the Company changed its name to Universal Bioenergy,
          Inc. to
          better reflect its business plan.
 
 ***(B)
          Use of Estimates***
 
 In
          preparing financial statements in conformity with generally accepted accounting
          principles, management is required to make estimates and assumptions that
          affect
          the reported amounts of assets and liabilities and the disclosure of contingent
          assets and liabilities at the date of the financial statements and revenues
          and
          expenses during the reported period. Actual results could differ from those
          estimates.
  F-5
  **UNIVERSAL
            BIOENERGY, INC.**
 **(F/K/A
            PALOMINE MINING, INC.)**
 **(A
            DEVELOPMENT STAGE COMPANY)**
 **NOTES
            TO CONDENSED FINANCIAL STATEMENTS**
 **AS
            OF OCTOBER 31, 2007**
 **(UNAUDITED)**
 ***(C)
              Cash and Cash Equivalents***
 
 The
              Company considers all highly liquid temporary cash investments with
              an original
              maturity of three months or less to be cash equivalents. At October
              31, 2007 the
              Company had no cash equivalents.
 
 ***(D)
              Loss Per Share***
 
 Basic
              and
              diluted net loss per common share is computed based upon the weighted
              average
              common shares outstanding as defined by Financial Accounting Standards
              No. 128,
“Earnings Per Share.” As of October 31, 2007 and 2006 there were no common share
              equivalents outstanding.
 
 ***(E)
              Income Taxes***
 
 The
              Company accounts for income taxes under the Statement of Financial
              Accounting
              Standards No. 109, “ *Accounting
              for Income Taxes* ”
(“SFAS
              109”). Under SFAS 109, deferred tax assets and liabilities are recognized
              for
              the future tax consequences attributable to differences between the
              financial
              statement carrying amounts of existing assets and liabilities and their
              respective tax bases. Deferred tax assets and liabilities are measured
              using
              enacted tax rates expected to apply to taxable income in the years
              in which
              those temporary differences are expected to be recovered or settled.
              Under SFAS
              109, the effect on deferred tax assets and liabilities of a change
              in tax rates
              is recognized in income in the period that includes the enactment date.
 
 ***(F)
              Business Segments***
 
 The
              Company operates in one segment and therefore segment information is
              not
              presented.
 
 ***(G)
              Foreign Currency Adjustment***
 
 The
              Company's functional currency for all operations worldwide is the U.S.
              dollar.
              Non-monetary assets and liabilities are translated at historical rates
              and
              monetary assets and liabilities are translated at exchange rates in
              effect at
              the end of the year. Income statement accounts are translated at average
              rates
              for the year. Gains and losses from translation of foreign currency
              financial
              statements into U.S. dollars are included in current results of operations.
              Gains and losses resulting from foreign currency transactions are also
              included
              in current results of operations.
  F-6
 **UNIVERSAL
                BIOENERGY, INC.**
 **(F/K/A
                PALOMINE MINING, INC.)**
 **(A
                DEVELOPMENT STAGE COMPANY)**
 **NOTES
                TO CONDENSED FINANCIAL STATEMENTS**
 **AS
                OF OCTOBER 31, 2007**
 **(UNAUDITED)**
 ***(H)
                      Mining exploration Costs***
 
 In
                      accordance with the views expressed by the U.S. Securities
                      and Exchange
                      Commission in "Current Accounting and Disclosure Issues in
                      the Extractive
                      Industry", the Company expenses mining exploration costs as
                      they are
                      incurred.
 
 ***(I)
                      Recent Accounting Pronouncements***
 
 In
                      September 2006, the FASB issued SFAS No. 157, “ *Fair
                      Value Measurements* ”.
                      The
                      objective of SFAS 157 is to increase consistency and comparability
                      in fair value
                      measurements and to expand disclosures about fair value measurements.
                      SFAS 157
                      defines fair value, establishes a framework for measuring fair
                      value in
                      generally accepted accounting principles, and expands disclosures
                      about fair
                      value measurements. SFAS 157 applies under other accounting
                      pronouncements that
                      require or permit fair value measurements and does not require
                      any new fair
                      value measurements. The provisions of SFAS No. 157 are effective
                      for fair value
                      measurements made in fiscal years beginning after November
                      15, 2007. The
                      adoption of this statement is not expected to have a material
                      effect on the
                      Company's future reported financial position or results of
                      operations.
 
 In
                      February 2007, the Financial Accounting Standards Board (FASB)
                      issued SFAS No.
                      159, “ *The
                      Fair Value Option for Financial Assets and Financial Liabilities
                      - Including an
                      Amendment of FASB Statement No. 115* ”.
                      This
                      statement permits entities to choose to measure many financial
                      instruments and
                      certain other items at fair value. Most of the provisions of
                      SFAS No. 159 apply
                      only to entities that elect the fair value option. However,
                      the amendment to
                      SFAS No. 115 “ *Accounting
                      for Certain Investments in Debt and Equity Securities* ”
applies
                      to all entities with available-for-sale and trading securities.
                      SFAS No. 159 is
                      effective as of the beginning of an entity’s first fiscal year that begins after
                      November 15, 2007. Early adoption is permitted as of the beginning
                      of a fiscal
                      year that begins on or before November 15, 2007, provided the
                      entity also elects
                      to apply the provision of SFAS No. 157, “ *Fair
                      Value Measurements”.* The
                      adoption of this statement is not expected to have a material
                      effect on the
                      Company's financial statements.
 
 In
                      December 2007, the Financial Accounting Standards Board (FASB)
                      issued SFAS No.
                      160, “ *Noncontrolling
                      Interests in Consolidated Financial Statements - an amendment
                      of ARB No.
                      51* ”.
                      This
                      statement improves the relevance, comparability, and transparency
                      of the
                      financial information that a reporting entity provides in its
                      consolidated
                      financial statements by establishing accounting and reporting
                      standards that
                      require; the ownership interests in subsidiaries held by parties
                      other than the
                      parent and the amount of consolidated net income attributable
                      to the parent and
                      to the noncontrolling interest be clearly identified and presented
                      on the face
                      of the consolidated statement of income, changes in a parent’s ownership
                      interest while the parent retains its controlling financial
                      interest in its
                      subsidiary be accounted for consistently, when a subsidiary
                      is deconsolidated,
                      any retained noncontrolling equity investment in the former
                      subsidiary be
                      initially measured at fair value, entities provide sufficient
                      disclosures that
                      clearly identify and distinguish between the interests of the
                      parent and the
                      interests of the noncontrolling owners. SFAS No. 160 affects
                      those entities that
                      have an outstanding noncontrolling interest in one or more
                      subsidiaries or that
                      deconsolidate a subsidiary. SFAS No. 160 is effective for fiscal
                      years, and
                      interim periods within those fiscal years, beginning on or
                      after December 15,
                      2008. Early adoption is prohibited. The adoption of this statement
                      is not
                      expected to have a material effect on the Company's financial
                      statements.
 F-7
 
  **UNIVERSAL
                      BIOENERGY, INC.**
 **(F/K/A
                      PALOMINE MINING, INC.)**
 **(A
                      DEVELOPMENT STAGE COMPANY)**
 **NOTES
                      TO CONDENSED FINANCIAL STATEMENTS**
 **AS
                      OF OCTOBER 31, 2007**
 **(UNAUDITED)**
  **NOTE
                    2**  **MINERAL
                    PROPERTY**
 
 Pursuant
                    to a mineral property option agreement dated October 28, 2004
                    (and amended on
                    December 31, 2005), the Company was granted an option to acquire
                    a 100%
                    undivided right, title and interest in one mineral claim unit,
                    known as the Gab
                    claim, located approximately 80 miles northeast of Yellowknife,
                    Northwest
                    territories, Canada, for:
 
 a)
                    Cash
                    Payments
 Cash
                    payment of $1,000 upon execution of the agreement
 
 b)
                    Expenditure Commitments
 Expenditures
                    for exploration and development work on the claim totaling
                    at least $160,000 by December 31, 2007, which work shall
                    be
                    conducted by the Company under the direction of a qualified
                    geologist or project engineer as follows:
 -
                    $10,000
                    in expenditures on the Claim by June 1, 2005
 -
                    an
                    additional $50,000 in expenditures on the Claim by
                    December 31, 2006
 -
                    an
                    additional $100,000 in expenditures on the Claim by
                    December 31, 2007
 
 c)
                    Assessment Work
 All
                    Claim
                    payments and assessment work required to keep the Claim
                    and
                    this Option in good standing during the term of this agreement.
 
 Because
                    we did not incur minimum exploration expenditures of at least
                    $50,000 by
                    December 31, 2006, our mineral property option agreement on the
                    Gab property is
                    not in good standing. However, our contract with Mr. Braden provides
                    that the
                    owner and optionor, Mr. Braden, must provide us with a 30 day
                    written notice of
                    termination of the option, during which time we have the right
                    to cure the
                    default by completing the required exploration expenditures.
                    Mr. Braden has not
                    provided us with such written notice to date.
  F-8
 **UNIVERSAL
                      BIOENERGY, INC.**
 **(F/K/A
                      PALOMINE MINING, INC.)**
 **(A
                      DEVELOPMENT STAGE COMPANY)**
 **NOTES
                      TO CONDENSED FINANCIAL STATEMENTS**
 **AS
                      OF OCTOBER 31, 2007**
 **(UNAUDITED)**
 **NOTE
                    3**  **STOCKHOLDERS’
                    EQUITY (DEFICIENCY)**
 
 ***(A)
                    Common Stock Issued for Cash***
 
 On
                    September 8, 2004, the Company sold 2,000,000 shares of its common
                    stock at
                    $0.001 per share.
 
 On
                    October 4, 2004, the Company sold 1,200,000 shares of its common
                    stock at $0.001
                    per share.
 
 On
                    October 26, 2004, the Company sold 1,000,000 shares of its common
                    stock at $0.01
                    per share.
 
 On
                    October 29, 2004,  the
                    Company sold 100,000 shares of its common stock for $0.10 per
                    share.
 
 ***(B)
                    In-Kind Contribution***
 
 As
                    of
                    October 31, 2007 the shareholder of the Company contributed $1,800
                    of services
                    on behalf of the Company (See Note 3).
 
 For
                    the
                    period August 13, 2004 (Inception) to January 31, 2007 the shareholder
                    of the
                    Company contributed $4,800 of services on behalf of the Company
                    (See Note 3).
 
 ***(C)
                    Stock Split***
 
 During
                    December 2007, the Company declared a 5 for 1 common stock forward
                    split
                    effective to stockholders of record on December 6, 2007. Per
                    share and weighted
                    average amounts have been retroactively restated in the accompanying
                    financial
                    statements and related notes to reflect this stock split.
  **NOTE
                    4** **RELATED
                    PARTY TRANSACTIONS**
 During
                      the period ended October 31, 2007, the Company received $78,046
                      from a principal
                      stockholder. Pursuant to the terms of the loan, the loan is
                      non interest
                      bearing, unsecured and due on demand.
  F-9
 **UNIVERSAL
                      BIOENERGY, INC.**
 **(F/K/A
                      PALOMINE MINING, INC.)**
 **(A
                      DEVELOPMENT STAGE COMPANY)**
 **NOTES
                      TO CONDENSED FINANCIAL STATEMENTS**
 **AS
                      OF OCTOBER 31, 2007**
 **(UNAUDITED)**
  During
                      the period ended October 31, 2006, the Company received $10,000
                      from a principal
                      stockholder. Pursuant to the terms of the loan, the loan is
                      non interest
                      bearing, unsecured and due on demand.
 
 For
                      the
                      period from August 13, 2004 (Inception) to October 31, 2007
                      the shareholder of
                      the Company contributed $6,600 of services on behalf of the
                      Company (See Note 2
                      (B)).
 **NOTE
                      5**  **GOING
                      CONCERN**
 
 As
                      reflected in the accompanying financial statements, the Company
                      is in the
                      development stage with no operations and has a net loss since
                      inception of
                      $132,765 and used cash in operations of $111,246 for the period
                      from August 13,
                      2004 (inception) to October 31, 2007. This raises substantial
                      doubt about its
                      ability to continue as a going concern. The ability of the
                      Company to continue
                      as a going concern is dependent on the Company’s ability to raise additional
                      capital and implement its business plan. The financial statements
                      do not include
                      any adjustments that might be necessary if the Company is unable
                      to continue as
                      a going concern.
 
 Management
                      believes that actions presently being taken to obtain additional
                      funding and
                      implement its strategic plans provide the opportunity for the
                      Company to
                      continue as a going concern.
 
 **NOTE
                      6**  **SUBSEQUENT
                      EVENTS**
 
 ***(A)
                      Stock Split***
 
 During
                      December 2007, the Company declared a 5 for 1 common stock
                      forward split
                      effective to stockholders of record on December 6, 2007. Per
                      share and weighted
                      average amounts have been retroactively restated in the accompanying
                      financial
                      statements and related notes to reflect this stock split.
 
 On
                      October 24, 2007, the Company entered into a Reorganization
                      and Stock Purchase
                      agreement with Universal Bioenergy North America, Inc, (“Universal”), a Nevada
                      corporation. The agreement provided that at closing, Universal
                      will become a
                      wholly owned subsidiary of the Company and the Company would
                      issue 2,000,000
                      shares of its common stock to the shareholders of Universal
                      for 100% of the
                      outstanding common shares of Universal. Mortensen, a shareholder
                      of the Company
                      contributed 1,800,000 shares of common stock of Company to
                      the amount of shares
                      being delivered to the shareholders of Universal This transaction,
                      upon change
                      in control, is intended to be accounted for as a reverse acquisition
                      and
                      recapitalization of Universal. The Company completed the merger
                      on December 6,
                      2007.
 F-10
 **UNIVERSAL
                        BIOENERGY, INC.**
 **(F/K/A
                        PALOMINE MINING, INC.)**
 **(A
                        DEVELOPMENT STAGE COMPANY)**
 **NOTES
                        TO CONDENSED FINANCIAL STATEMENTS**
 **AS
                        OF OCTOBER 31, 2007**
 **(UNAUDITED)**
 ***(B)
                      Contribution of Common Stock***
 
 During
                      December 2007, the principal stockholder contributed 1,800,000
                      shares of common
                      stock to the Company for no consideration. The shares were
                      cancelled by the
                      Company upon receipt.
 F-11




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





FORWARD-LOOKING
      STATEMENTS





Statements
      in this report may be "forward-looking statements." Forward-looking statements
      include, but are not limited to, statements that express our intentions,
      beliefs, expectations, strategies, predictions or any other statements relating
      to our future activities or other future events or conditions. These statements
      are based on current expectations, estimates and projections about our business
      based, in part, on assumptions made by management. These statements are not
      guarantees of future performance and involve risks, uncertainties and
      assumptions that are difficult to predict. Therefore, actual outcomes and
      results may, and are likely to, differ materially from what is expressed or
      forecasted in the forward-looking statements due to numerous factors, including
      those described above and those risks discussed from time to time in this
      report, including the risks described under "Risk Factors" in our form 8-KB
      filed December 12, 2007 and any risks described in any other filings we make
      with the SEC. Any forward-looking statements speak only as of the date on which
      they are made, and we do not undertake any obligation to update any
      forward-looking statement to reflect events or circumstances after the date
      of
      this report.





Our
      discussion and analysis of our financial condition and results of operations
      are
      based upon our financial statements, which have been prepared in accordance
      with
      accounting principles generally accepted in the United States. The preparation
      of these financial statements requires us to make estimates and judgments that
      affect the reported amounts of assets, liabilities, revenues and expenses.
      On an
      on-going basis, we evaluate these estimates, including those related to useful
      lives of real estate assets, cost reimbursement income, bad debts, impairment,
      net lease intangibles, contingencies and litigation. We base our estimates
      on
      historical experience and on various other assumptions that are believed to
      be
      reasonable under the circumstances, the results of which form the basis for
      making judgments about the carrying values of assets and liabilities that are
      not readily apparent from other sources. There can be no assurance that actual
      results will not differ from those estimates.





OVERVIEW





Company
      History





Palomine,
      Inc. was incorporated in the State of Nevada in August, 2004. Before closing
      down all operations in 2007, Palomine's primary business was as an exploration
      stage company engaged in the acquisition and exploration of mineral properties
      with a view to exploiting any mineral deposits that it discovered that
      demonstrate economic feasibility. Palomine had the sole and exclusive right
      and
      option to acquire an 80% undivided right, title and interest in and to the
      mineral property known as the Gab claim.





Palomine’s
      plan of operation was to conduct exploration work on the Gab property in order
      to ascertain whether it possessed economic quantities of gold. Mineral property
      exploration is typically conducted in phases.  Each subsequent phase of
      exploration work is recommended by a geologist based on the results from the
      most recent phase of exploration.  Palomine did not commence the initial
      phase of exploration on the Gab claim.





Due
      to a
      lack of funding, Palomine’s directors decided not to proceed with the
      exploration of the Gab claim and abandoned this business model at the close
      of
      the third quarter 2007.





**Description,
      Location and Access**





The
      Gab
      property is located near Cross Lake, five miles south of Thistlewaite Lake
      and
      approximately 80 miles northeast of Yellowknife in the southern part of the
      Northwest Territories, Canada.  The property is located at approximately
      Latitude 63°05”N and Longitude 113°30’W.




The
      mining claim is accessible by float plane to nearby Gordon Lake or by
      helicopter. An old winter road exists from Cross Lake to the old mine site
      of
      Discovery Mines. Facilities and the skilled population base at Yellowknife
      are readily available and can provide all the necessary services needed for
      property exploration.




4




The
      area
      inclusive of the Gab property exhibits sub arctic alder and white lodge pine
      intermixed with tundra bogs.  Good rock exposure is found along the lake
      shores. Winters are cold with generally medium snowfall accumulations and
      summers are temperate with adequate precipitation.





**Gab
      Claim Mineral Property Option Agreement**





On
      October 28, 2004, we entered into an agreement with Max Braden of Yellowknife,
      Northwest Territories, whereby he granted Palomine the sole and exclusive right
      and option to acquire an 80% undivided right, title and interest in and to
      the
      Gab claim subject to certain obligations.  On December 31, 2005, we entered
      into an amending agreement with Mr. Braden whereby Palomine paid him $1,000
      to
      extend the obligation deadlines. These obligations, as amended, are as follows:










•
            pay
                to Max Braden $1,000 upon execution of the agreement
                (paid);





•
            provide
                funding of minimum cumulative expenditures for exploration and development
                work on the claim in the following manner:





-
            $10,000
                of expenditures to be incurred, or caused to be incurred, by June
                1, 2005
                (completed); and-
            No
                less than a further $50,000 of expenditures to be incurred, or caused
                to
                be incurred by December 31, 2006 (not incurred);
                and


-
            No
                less than a further $100,000 of expenditures to be incurred, or caused
                to
                be incurred by December 31, 2007;





•
            pay
                or cause to be paid, to Max Braden, or on Braden’s behalf as we may
                determine, all claim payments and assessment work required to keep
                the
                claim and this option in good standing during the term of the agreement.





The
      terms
      of this agreement, including the percentage of the property under option, were
      determined by negotiation between our directors and the owner of the property,
      Mr. Braden.





Because
      we did not incur minimum exploration expenditures of at least $50,000 by
      December 31, 2006, the mineral property option agreement respecting the Gab
      property is not in good standing.  However, the agreement provides that the
      vendor must provide us with 30 day’s written notice of the termination of the
      option during which we have the right to cure the default by completing the
      required exploration expenditures.





Mr.
      Braden has not provided us with such written notice to date], however due to
      a
      lack of funding Palomine’s directors decided not to proceed with the exploration
      of the Gab claim and abandoned this business model at the close of the third
      quarter 2007.





New
      Business Model





Beginning
      with the second quarter 2007, the board of directors directed the Company's
      management to begin searching for acquisition targets with a business possessing
      greater potential to add value to shareholders.




5





Palomine
      Mining, Inc. ("Palomine" or "we") consummated its acquisition of Universal
      Bioenergy North America, Inc., a Nevada Corporation, ("Universal"), at a closing
      held on December 6, 2007. Such acquisition was consummated pursuant to and
      in
      accordance with the Stock Purchase and Recapitalization Agreement (the
      "Agreement"), dated October 24, 2007, among Palomine, Universal and Mortensen
      Financial Limited, a shareholder of Palomine("Mortensen").




As
      a
      result of the closing, Universal has become a wholly owned subsidiary of
      Palomine. In exchange for all of the issued and outstanding shares of Universal,
      Palomine issued to the shareholders of Universal 2,000,000 shares of common
      stock of Palomine. Mortensen, a shareholder of Palomino contributed 1,800,000
      shares of common stock of Palomine to the amount of shares being delivered
      to
      Universal shareholders by Palomine. Such issuance represents an issuance of
      44%
      of the issued and outstanding shares of Palomine. In addition, pursuant to
      the
      terms of the Agreement, an amendment to the certificate of incorporation of
      Palomine was filed with the State of Nevada whereby: (i) the name of the company
      has been changed to Universal Bioenergy, Inc., (ii) the shares of common stock
      of Palomine issued and outstanding at the time of the closing (4,500,000 shares)
      were increased by a forward stock split in the amount of five (5) shares for
      each share of Palomine issued and outstanding (resulting in 22,500,000 shares
      issued and outstanding); and (ii) the authorized shares of Palomine were
      increased to 200,000,000 shares of common stock with a par value of $0.001
      per
      share; and 1,000,000 shares of preferred stock with a par value of $0.001 per
      share.




For
      all
      the terms and provisions of the Agreement, reference is hereby made to such
      agreement annexed as Exhibit 1.1 to our Current Report on Form 8-K filed with
      the Securities and Exchange Commission on October 31, 2007. All statements
      made
      herein concerning the foregoing agreement are qualified by references to said
      exhibit.





History
      of Universal





Universal
      Bioenergy North America, Inc. was formed as a Nevada Corporation on January
      23
      2007 **.**





Universal
      owns a Biodiesel fuel refinery located at Nettleton, Mississippi, acquired
      from
      Biodiesel of Mississippi, Inc. thru Bankruptcy sale. It is the first Biodiesel
      plant which selling Biodiesel to public in the state of Mississippi. The Plant
      is located in the northeastern part of the state, on a 4.3 acre of land that
      at
      one time was the home of the old Bunge Grain Elevator facility. During the
      grain
      elevator operation time, there was an railway Spur constructed to facilitate
      the
      movement of huge quantities of various grains.





In
      2002,
      Biodiesel of Mississippi, Inc. ("BMI") acquired the land from city of Nettleton
      and started building a Biodiesel refinery. The original idea was to construct
      an
      economically designed, but highly efficient refinery like a rig in the middle
      of
      sea. The plant started producing the Biodiesel during 2004. BMI management
      ran
      into a major dispute with their customer/investor(s) or a major operational
      issue and they filed for bankruptcy protection under Chapter-11 in early 2006.
      The Bankruptcy Court of the Northern District of Mississippi in its Order
      Granting Debtor‘s Motion to Sell Assets Free and Clear Of All Liens, Claims And
      Encumbrances Outside The Ordinary Course Of Business dated 21 st December
      2006 (the "Order"), authorized BMI to convey certain property to Universal.





Universal
      entered into a bill of sale with BMI on January 26 th ,
      2007
      (the "Bill of Sale") to acquire certain of the assets from BMI, including the
      fixtures on the land, the refinery and certain equipment, tools and other assets
      all as listed in the Bill of Sale (collectively, the "Assets"). For all the
      terms and provisions of the Bill of Sale.




6







The
      plant
      and assets were not in operation during the bankruptcy period. As a result,
      the
      facility needed major repair, cleanup, painting and maintenance to get it ready
      to be brought back into operation. The plant had original capacity to produce
      about 20,000 gallons of Biodiesel per day. However, the plant was never operated
      consistently at its full production capacity during the period due to lack
      of
      sufficient funds and/or washing and storage capacity. The company had two 50,000
      capacity reactors, two 12,000 gallon capacity washing tanks and two 50,000
      gallon capacity storage tanks.





Universal
      management commenced the extensive project of cleaning, painting and repairing
      the plant in late February 2007. Weather was not favorable during February-April
      for the exterior cleaning. However, major cleaning, repairing, maintenance
      and
      painting were competed by October 2007.





Further,
      since acquisition of the assets from Bankruptcy, the management acquired
      additional reactors and tanks to increase the processing, washing and storage
      capacity. Today, UBNA has four 50,000 Gallon each jacketed Reactors, four
      washing tanks and quite a few storage tanks.





Management
      believes its production capacity to reach 10 Million Gallons Per Year (MGPY)
      with installed equipment. With additional heating sources, management believes
      that the capacity can be increased to 20 MGPY and is expected to reach
      production capacity of 50 MGPY as soon as it can install already acquired
      additional equipment, excess storage capacity and adding more heating source
      at
      an estimated cost of One Million Dollars.





**BACKGROUND**





Biodiesel
      is a domestically produced, renewable fuel that can be manufactured from
      vegetable oils, animal fats, or recycled restaurant greases. Biodiesel is safe,
      biodegradable, and reduces serious air pollutants such as particulates, carbon
      monoxide, hydrocarbons, and air toxics. Blends of 20% Biodiesel with 80%
      petroleum diesel (B20) can generally be used in unmodified diesel engines.
      The
      U.S. has also developed a low sulfur diesel standard. This has encouraged the
      blending of diesel and Biodiesel, with Biodiesel having the benefits of being
      non-toxic, biodegradable and sulfur-free. In addition, Biodiesel provides
      similar fuel economy and better engine lubrication than petroleum diesel-thus
      prolonging the life of the diesel engine. Biodiesel can be blended in any
      concentration, from 0 to 100% (B100), and used without diesel engine
      modification. However, current industry capacity is also unable to meet the
      growing demand.





According
      to the US Department of Energy, the use of Biodiesel has grown dramatically
      during the last few years. The Energy Policy Act was amended by the Energy
      Conservation Reauthorization Act of 1998 to include Biodiesel fuel use as a
      way
      for federal, state, and public utility fleets to meet requirements for using
      alternative fuels.





Pure
      Biodiesel (B100) is considered an alternative fuel under EPAct. Lower-level
      Biodiesel blends are not considered alternative fuels, but covered fleets can
      earn one EPAct credit for every 450 gallons of B100 purchased for use in blends
      of 20% or higher.





That
      amendment started the sharp increase in the number of Biodiesel users, which
      now
      include the U.S. Postal Service and the U.S. Departments of Defense, Energy,
      and
      Agriculture. Countless school districts, transit authorities, national parks,
      public utility companies, and garbage and recycling companies also use the
      fuel.




7




Currently,
      there is a Biodiesel tax incentive that is a federal tax credit. The credit
      equates to a one penny per percent of Biodiesel in a fuel blend made from
      agricultural products like vegetable oils, and one-half penny per percent for
      recycled oils. This incentive is taken by petroleum distributors and passed
      on
      to consumers. The USDA developed a study that estimated this incentive will
      increase the demand for Biodiesel to at least 124 million gallons per year
      exceeding 800 million gallons by 2010, and depending on other factors, including
      crude oil prices, the industry projects that demand could be much higher.




Any
      diesel car can run on Biodiesel, with no conversion necessary. This year just
      4
      percent of U.S. passenger cars run on diesel, but analysts expect that number
      to
      rise fast, in lockstep with rising oil prices. J.D. Power Automotive Forecasting
      predicts that diesel's share of the market will increase to more than 10 percent
      by the middle of the next decade - fueled in large part by the surge in
      Biodiesel production and popularity.




Total
      production shot up from 25 million gallons in 2004 to 250 million last year.
      Nearly 100 new plants are now under construction




Feedstock
      costs account for a large percentage of the direct Biodiesel production costs,
      including capital cost and return. It takes about 7.6 pounds of soybean oil,
      which costs about 45 cents per pound, to produce a gallon of Biodiesel.
      Feedstock costs alone, therefore, are at least $3.40 per gallon of soy
      Biodiesel. Fats and greases cost less and produce less expensive Biodiesel,
      as
      low as $2.00 per gallon. The quality of the fuel is equivalent to soy Biodiesel
      fuel.




**REFINERY
      PLANT**




Universal
      owns a Biodiesel fuel refinery located in northeastern Mississippi. It is the
      first Biodiesel plant selling Biodiesel to public in the state of Mississippi.
      The plant is located on a 4.3 acre of land, provides ample space to grow.





**EQUIPMENT**





The
      plant
      had original capacity to produce about 20,000 gallons of Biodiesel. However,
      the
      plant was never operated consistently at its full production capacity during
      the
      period due to lack of sufficient funds and/or washing and storage capacity.
      The
      company had two 30,000 capacity reactors, two 12,000 gallon capacity washing
      tanks and two 50,000 gallon capacity storage tanks.





UBNA
      management commenced the extensive project of cleaning, painting and repairing
      the plant in late February 2007. Weather was not favorable during February-April
      for the exterior cleaning. However, major cleaning, repairing, maintenance
      and
      painting were completed in October, 2007.





Furthermore,
      since acquisition of the assets from Bankruptcy, the management acquired
      additional reactors and tanks to increase the processing, washing and storage
      capacity. Today, UBNA has four 50,000 gallons each jacketed reactors, with
      the
      total capacity to process 120,000 gallons of Biodiesel per batch, four wash
      tanks with total capacity to clean and wash 90,000 gallons of Biodiesel per
      batch, and quite a few storage tanks.





Management
      believes its production capacity to reach 10 Million Gallons Per Year MGPY)
      with
      installed equipment. With additional heating sources, management believes that
      the capacity can be increased to 20 MGPY and is expected to reach production
      capacity of 50 MGPY as soon as it can install already acquired additional
      equipment and adding more heating source and storage tanks for an estimated
      cost
      of One Million Dollars.




8




**PROCESS**





Management
      believes Universal’s highly economical and efficient Ultra Vibration Fusion
      System is a unique processing system. Management estimates that the Ultra
      Vibration Fusion System will reduce the process time considerably and will
      be
      able to produce ASTM Grade Biodiesel Fuel at considerable cost saving.





Universal’s
      simple process can be described as follows:





·
            Feed
                stock is pre heated at required temperature in double wall jacketed
                reactors


·
            Methoxide
                pre mixture is added to the pre heated feed stock formulated to meet
                various feed stocks chemical reaction requirement


·
            Inline
                boiler keeps the feed stock at required temperature through out the
                reaction process·
            Reaction
                process continues for about 3 hours as four giant 50 horsepower pumps
                involving forced air mix the product at extremely high pressure creating
                ultra-vibration and fusion reaction. Universal’s unique reaction saves
                considerable processing time and heating while creating a better
                burning
                fuel.


·
            The
                product moves to separation tanks where Biodiesel and Glycerin are
                separated·
            Glycerin
                is moved to storage tank


·
            Biodiesel
                is moved to Universal’s Ultra Vibration Fusion wash system. This is a
                unique system because it employs intense vibration powered by air.
                The air
                is injected in to the fuel by a 4” pipe which is turned down at the bottom
                of a tank deflected upward which pushes oxygen and water through
                thousands
                of tiny holes, placed at specific distance. The oxygen attaches to
                the
                water and these tiny bubbles explode on the surface attaching the
                methanol
                to the water and falling back to the bottom when the system is turned
                off.
                This system scrubs the fuel, removing the excess methanol soap and
                other
                impurities, leaving a very clear, light in color, meeting ASTM
                Specification Biodiesel Fuel·
            Specially
                designed pumps and wash tank completely takes out all the impurities
                and
                Methanol from the Biodiesel during four hours process. Biodiesel
                is moved
                to Biodiesel storage tanks





The
      whole
      process is expected to be completed in 10 to 12 hours.





**LOGISTICS**





The
      plant
      is located in northeastern Mississippi, about 100 miles south east of Memphis,
      TN. Memphis is considered as America’s Distribution Center.




The
      location of the Memphis region has given rise to an important complex of
      transportation and logistics resources including water, air, road and rail
      transportation and telecommunications. Referring to itself as**"**North America's Distribution Center,**"** Memphis is home
      to the largest cargo airport (Memphis International Airport) in the world,
      four
      north-south runways, a Northwest Airlines hub, and the FedEx headquarters/global
      operations center. In addition to the resources found in the Memphis
      metropolitan region, the regional cities of Olive Branch (6,000 ft. runway),
      Millington (8,000 ft. runway), West Memphis (6,000 ft. runway) and Blytheville
      (11,602 ft. runway) have important general aviation airports. The former Eaker
      Air Force Base in Blytheville has become a major economic development center
      in
      the northern part of the region. The second largest inland port in the country
      and a series of water ports (including Helena, W. Memphis, N. Memphis and
      Blytheville Ports) are found along the Mississippi River. The I-40 and I-55
      interstates, extending east-west and north-south respectively, position the
      region at a key crossroads in the interstate highway system. As a result, the
      Memphis region is also an important trucking hub. With five Class-I railroads
      (BNSF, UP, CN/IC, CSX, and NS), the region is also an important rail hub. The
      region's extensive logistic functions also support the Super Terminal and growth
      of the area's global communications infrastructure. As a result, Memphis is
      poised to emerge as an important information processing and communications
      hub.




9




In
      addition, Toyota is building a plant near New Albany, MS, about 40 miles North
      West of the Plant. Universal’s refinery is located therefore in the middle of
      one of the highest truck traffic area and furniture industry centers in the
      United States and near the largest automotive arts manufacturing facility of
      MS.
      Thus it is located in the middle of one of the largest potential diesel
      consumption market in the United States.





There
      is
      a railway line in close proximity to the facility, and the old railway spur
      could be reconstructed for an estimated cost of $250k. The railway is a
      cost-effective and efficient way to move Biodiesel by tank car from a gathering
      location or single origin to a single destination.





The
      Tombigbee Waterway is also located just six miles away from the facility, which
      can barge about 500,000 gallons of material at a time.





Management
      believes that the rail and Waterway transport potential provides excellent
      logistic benefit to the facility.





**PRODUCTS**




Universal
      owns a Biodiesel fuel processing refinery. Palomine’s mission is to manufacture
      Biodiesel and bring it to market cost effectively.





Universal
      also intends to sell the byproducts from its bio-fuel manufacturing. Although
      this is not a significant revenue source, it effectively reduces expenses by
      avoiding disposal costs. For example Glycerin is a byproduct of Biodiesel
      manufacturing, and is used in cosmetic industry products, such as soap. The
      current price of pharmaceutical glycerin is high; however, that is likely to
      change in the next few years due to increased Biodiesel production (and thus
      an
      increase of available glycerin). An alternative is for Universal to purchase
      a
      glycerin-to-methanol converter. Since methanol is one of the ingredients needed
      to manufacture Biodiesel, producing its own may allow Universal to avoid the
      expense of purchasing (and transporting) methanol from outside sources-and
      the
      cost of the converter would be offset by the cost savings. Although the
      technology is only one step beyond experimental, it does present a promising
      alternative.





**DISTRIBUTION**





Universal
      is planning to sell Biodiesel products to the refineries prior customers, truck
      stops, local distributors and export to European market. Universal is exploring
      a possibility to distribute their complete production thru a well known and
      nationally reputed distributor of Biodiesel and other Biofuel products.




Universal
        is negotiating contracts with various vendors to meet their raw material
        requirements. Universal is also exploring the possibility of importing oil
        from
        Africa and Asia. Universal is also negotiating a long term contract for premium
        grade of white grease suitable to produce Biodiesel, with a well known rendering
        house. This contract, if signed, can save upto 20% in raw material
        cost.




10




In
      order
      to achieve its strategic goals, Universal intends to develop a network of
      qualified representatives and staff that are knowledgeable in the bio-fuels
      industry to coordinate with both suppliers and distributors to market and sell
      Universal’s products. In addition, the Company intends to expand its current
      management to retain skilled directors, officers and employees with experience
      relevant to its business focus. Obtaining the assistance of individuals with
      an
      in-depth knowledge of markets will allow us to build market share more
      effectively.




**RESULTS
      OF OPERATIONS**





**COMPARISON
      OF THE THREE MONTHS ENDED OCTOBER 31, 2007 AND 2006**





We
      did
      not receive any revenues during the three month period ended October
      31, 2007. We do not anticipate generating revenues unless we enter into
      commercial production on the Gab claim, which is doubtful.





For
      the
      three month period ended October 31, 2007, compared to the three month period
      ended October 31, 2006, the Company had a net loss of $53,015 and $2,796,
      respectively; an increase of approximately 1897%.





Mining
      exploration costs were $0 during the three month period ended October
      31, 2007 and the three month period ended October 31, 2006. The Company did
      not
      perform any exploration or mining operation on its Gab claim property during
      either period, thus no costs were incurred in either period.





General
      office expenses increased 195% to $1,246 during the three month period ended
      October 31, 2007, as compared to $640 for the comparable period in 2006.
      Similarly, professional fees increased over 2,401 % to $51,769 during the three
      month period ended October 31, 2007, as compared to $2,156 for the comparable
      period in 2006. The increase in was due primarily to the increased legal
      fees.





**COMPARISON
      OF THE NINE MONTHS ENDED OCTOBER 31, 2007 AND 2006**





We
      incurred operating expenses in the amount of $91,325 for the nine-month
      period ended October 31, 2007, compared to operating expenses of $11,179 for
      the
      same period in 2006. This increase is due primarily to an increase in legal
      fees.





Our
      net
      loss for the nine-month period ended October 31, 2007 increased from the
      comparative period in fiscal 2007 (2007: $91,325; 2006: $11,179). The increase
      in net loss was due primarily to an increase in professional fees to $88,765
      in
      the first nine months of fiscal 2007 to $9,057 compared to the same period
      of
      fiscal 2006.





At
      October 31, 2007, we had total assets of $2,900, consisting of $ 500
      in prepaid expenses and $2,400 in Deposits. At the same date, our
      liabilities consisted of accounts payable of $17,819, and outstanding loans
      of
      $88,046 with total liabilities of $105,865. Comparatively, at October 31, 2006,
      we had total assets of $ 3,387, consisting of cash of $3,287 and prepaid
      expenses of $100. At October 31, 2006, our liabilities consisted of accounts
      payable and accrued liabilities of $4,842 and loan payables of $10,000, with
      total liabilities of $14,842.




We
        did
        not receive any revenues during the nine-month period ended October 31, 2007.
        We
        do not anticipate generating revenues unless we enter into commercial production
        on the Gab claim, which is doubtful. We have not attained profitable operations
        to date, and are dependent upon obtaining financing to pursue exploration
        activities. For these reasons, our auditors have expressed substantial doubt
        that we will be able to continue as a going concern.




11




**LIQUIDITY
      AND CAPITAL RESOURCES**





At
      October 31, 2007, the Company had $2,900 in total assets, a working capital
      deficit of $102,965 and had $80,866 of net cash used by operations during the
      nine month period ended October 31, 2007.





As
      of
      October 31, 2007, the funds received from shareholder loans were spent mainly
      on
      payment of professional fees.





ITEM
      3.
      CONTROLS AND PROCEDURES.





The
      Company's Chief Executive Officer and chief financial and accounting officer
      (the "Certifying Officer") is responsible for establishing and maintaining
      disclosure controls and procedures for the Company. The Certifying Officer
      has
      concluded (based upon his evaluation of these controls and procedures as of
      October 31, 2007) that the Company's disclosure controls and procedures are
      effective to ensure that information required to be disclosed by the Company
      in
      this report is accumulated and communicated to the Company's management,
      including its principal executive officers as appropriate, to allow timely
      decisions regarding required disclosure. The Certifying Officer also has
      indicated that there were no changes in the Company's internal controls or
      other
      factors that could materially affect such controls subsequent to the date of
      his
      evaluation, and that there were no corrective actions necessary with regard
      to
      any deficiencies or material weaknesses.




ITEM
      3A(T). CONTROLS AND PROCEDURES.





MANAGEMENT'S
      INTERNAL CONTROL OVER FINANCIAL REPORTING





The
      Company's internal control over financial reporting disclosure, financial
      controls, and reporting procedures are designed to ensure that information
      required to be disclosed in our reports and filed or submitted under the
      Securities Exchange Act of 1934 (the "Exchange Act") is accurately recorded,
      processed, summarized, and reported, according to the rules and regulations
      and
      within the time periods proscribed by the Exchange Act. The Company believes
      that its internal controls and procedures relating to its financial reporting
      are designed to provide reasonable assurance of achieving the Company's goals
      of
      compliance with the Exchange Act. However, the design of any system of financial
      control is based upon certain assumptions about the likelihood of future events
      and is affected by the amount of resources available to a company and inherent
      risks within any control procedure. There can be no assurance that any design
      will succeed in achieving its stated objectives under all future events, no
      matter how remote, or that the degree of compliance with the policies or
      procedures may not deteriorate. Because of the inherent limitations in financial
      disclosure, controls, and procedures, the Company may not be able to prevent
      or
      detect all misstatements or failures to comply with the Exchange
      Act.




Accordingly,
        even effective disclosure controls and procedures can only provide reasonable
        assurance of achieving their control objectives.
 
 The
        Company's internal control over financial reporting disclosure, financial
        controls, and reporting procedures are designed by, or under the supervision
        of,
        the Company's Certifying Officer. The Company's Certifying Officer, the board
        of
        directors, management, and other personnel, are involved in implementing
        the
        Company's internal control over financial reporting disclosure, financial
        controls, and reporting procedures in an effort to provide reasonable assurance
        regarding the reliability of financial reporting, the preparation of financial
        statements, and the structural flexibility required to effectuate such
        procedures.




12




The
      Company's internal control over financial reporting disclosure, financial
      controls, and reporting procedures are consistent with generally accepted
      accounting principles, and includes those policies and procedures
      that:





(1)
            pertain
                to the maintenance of records in reasonable detail and accurately
                and
                fairly reflect the transactions and dispositions of the assets of
                the
                Company;





(2)
            provide
                reasonable assurance that transactions are recorded as necessary
                to permit
                preparation of financial statements in accordance with generally
                accepted
                accounting principles, and that receipts and expenditures of the
                Company
                are being made only with the authorization of the management and
                directors
                of the Company; and





(3)
            provide
                reasonable assurance regarding prevention or timely detection of
                unauthorized acquisition, use, or disposition of the Company's assets,
                or
                unauthorized transactions, that could have a material effect on the
                Company's financial statements.





The
      Certifying Officer is aware of no changes in the Company's financial reporting
      disclosure, financial controls, or reporting procedures during the quarter
      ended
      October 31, 2007, that could materially affect the Company's ability to comply
      with the Exchange Act. The Certifying Officer is aware of no instances during
      the quarter ended October 31, 2007, whereby the Company's internal control
      over
      financial reporting disclosure, financial controls, and reporting procedures
      revealed any deficiency or material weakness requiring corrective action by
      the
      Company.




PART
      II–
OTHER INFORMATION





ITEM
      1.
      LEGAL PROCEEDINGS.





The
      Company is not a party to any pending legal proceeding. Management is not aware
      of any threatened litigation, claims or assessments.





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





None.





ITEM
      3.
      DEFAULTS UPON SENIOR SECURITIES





None.





ITEM
      4.
      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





None.




ITEM
      5.
      OTHER INFORMATION




ITEM
      6.
      EXHIBITS




Exhibit
                  No.
              
              Description31.1
              
              Certification
                  ofPresident,
                  Principal Executive Officer and Principal Financial
                  Officer32.1
              
              Certification
                  ofPresident,
                  Principal Executive Officer and Principal Financial
                  Officer




13




**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.(Registrant)Dated:
                  December 21, 2007
              
              By
              /s/
                  James EarnestJames
                  Earnest, PresidentDated:
                  December 21, 2007
              
              By
              /s/
                  James EarnestJames
                  Earnest, Chief Financial Officer
 14