**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 March 31, 2008**





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 small business issuer as specified in its charter)





**Nevada**
            
            20-1770378(State
              or other jurisdiction of incorporation or organization)
            
            (I.R.S.
                Employer Identification No.)





**128
      Biodiesel Drive**


**Nettleton,
      MS 38858**


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





**662-963-3333**


(Issuer’s
      telephone number)





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.




x  Yes    o  No




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting company.
      See
      the definitions of “large accelerated filer,” “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act.




Large
                accelerated filero
            Accelerated
                fileroNon-accelerated
                filero
            Smaller
                reporting companyx




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




o  Yes    x  No


Indicate
      by check mark whether the registrant has filed all documents and reports
      required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange
      Act
      of 1934 subsequent to the distribution of securities under a plan confirmed
      by a
      court.


x  Yes    o  No




Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      stock, as of the latest practicable date:  **As
      of May 27, 2008, the issuer had one class of common stock, with a par value
      of
      $0.001, of which 22,510,000 shares were issued and
      outstanding.**









**UNIVERSAL
      BIOENERGY, INC.**


INDEX




Page**PART
                I. FINANCIAL INFORMATION**Item
                1. Financial StatementsConsolidated
                Balance Sheets – March 31, 2008 (unaudited) and December 31,
                2007
            
            1Consolidated
                Statements of Operations and Comprehensive Loss - for the three months
                ended March 31, 2008 and 2007
            
            2Consolidated
                Statements of Changes in Stockholder’s Equity (Capital Deficit) – for the
                three months ending March 31, 2008 and for the year ended December
                31,
                2007
            
            3Consolidated
                Statements of Cash Flows (unaudited) - for the three months ended
                March
                31, 2008 and 2007
            
            4Notes
                to Unaudited Consolidated Financial Statements
            
            5-11Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            
            12Item
                3.
            Quantitative
                and Qualitative Disclosures about Market Risk
            
            21Item
                4.
            Controls
                and Procedures
            
            21**PART
                II.**
            **OTHER
                INFORMATION**
            
            23Item
                1.
            Legal
                Proceedings
            
            23Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            
            23Item
                3.
            Defaults
                Upon Senior Securities
            
            23Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            
            24Item
                5.
            Other
                Information
            
            24Item
                6.
            Exhibits
            
            24**SIGNATURES**
            
            25










**PART
      I — FINANCIAL INFORMATION**





**ITEM
      1. FINANCIAL STATEMENTS**




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







**Universal
        Bioenergy Inc.**
 **And
        Subsidiary**
 **(f/k/a
        Palomine, Inc.)**
 **(A
        Development Stage Company)**
 
 **CONTENTS**
 
 PAGE
              1
              CONDENSED
                  CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2008 (UNAUDITED) AND
                  DECEMBER
                  31, 2007.PAGE
              2
              CONDENSED
                  CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED
                  MARCH 31,
                  2008 AND 2007 AND FROM JANUARY 23, 2007 (INCEPTION) TO MARCH 31,
                  2008
                  (UNAUDITED).PAGE
              3
              CONDENSED
                  CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIENCY FOR THE
                  PERIOD FROM JANUARY 23, 2007 (INCEPTION) TO MARCH 31, 2008
                  (UNAUDITED).PAGE
              4
              CONDENSED
                  CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED
                  MARCH 31,
                  2008 AND, 2007 AND FROM JANUARY 23, 2007 (INCEPTION) TO MARCH 31,
                  2008(UNAUDITED).PAGES
              5-
                  11
              NOTES
                  TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                  (UNAUDITED).
  
  **Universal
            Bioenergy , Inc. and Subsidiary**
 **(f/k/a
            Palomine Mining, Inc.)**
 **(A
            Development Stage Company)**
 **Condensed
            Consolidated Balance Sheets**
 
 **March 31, 2008
                      (Unaudited)**
                  
                  **December 31, 2007****ASSETS****Current
                      Assets**Cash
                  
                  **$**
                  -
                  
                  **$**
                  133,177Prepaid
                      Expenses
                  
                  
                  125,977
                  
                  
                  178,076**Total
                      Current Assets**
                  
                  
                  125,977
                  
                  
                  311,253**Deposits**
                  
                  
                  3,100
                  
                  
                  3,100**Total
                      Property and Equipment, Net**
                  
                  
                  1,946,878
                  
                  
                  1,945,972**Total
                      Assets**
                  
                  **$**
                  **2,075,955**
                  
                  **$**
                  **2,260,325****LIABILITIES
                      AND STOCKHOLDERS' DEFICIENCY****Current
                      Liabilities**Accounts
                      Payable and Accrued Expenses
                  
                  **$**
                  213,467
                  
                  **$**
                  185,068Cash
                      overdraft
                  
                  
                  2,824
                  
                  
                  -Convertible
                      loans payable, net of debt discount, related party
                  
                  
                  126,491
                  
                  
                  93,733Derivative
                      Liability
                  
                  
                  230,629
                  
                  
                  214,134Notes
                      Payable
                  
                  
                  206,250
                  
                  
                  206,250Stockholder
                      Advance
                  
                  
                  10,046
                  
                  
                  10,046**Total
                      Current Liabilities**
                  
                  
                  789,707
                  
                  
                  709,231**Long
                      Term Liabilities**Notes
                      Payable- Related Party
                  
                  
                  338,000
                  
                  
                  338,000Notes
                      Payable
                  
                  
                  1,443,750
                  
                  
                  1,443,750**Total
                      Long Term Liabilities**
                  
                  
                  **1,781,750**
                  
                  
                  **1,781,750****Total
                      Liabilities**
                  
                  
                  **2,571,457**
                  
                  
                  **2,490,981****Stockholders'
                      Deficiency**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, 22,510,000
                      and
                      22,500,000 issued and outstanding, respectevely
                  
                  
                  22,510
                  
                  
                  22,500Additional
                      paid-in capital
                  
                  
                  453,891
                  
                  
                  375,136Deferred
                      stock compensation
                  
                  
                  (50,100
                  )
                  
                  -Deficit
                      accumulated during the development stage
                  
                  
                  (921,803
                  )
                  
                  (628,292
                  )**Total
                      Stockholders' Deficiency**
                  
                  
                  **(495,502**
                  **)**
                  
                  **(230,656**
                  **)****Total
                      Liabilities and Stockholders' Deficiency**
                  
                  **$**
                  **2,075,955**
                  
                  **$**
                  **2,260,325**
  See
            Condensed Consolidated Notes to Financial Statements
  1
 
 **Universal
            Bioenergy , Inc. and Subsidiary**
 **(f/k/a
            Palomine Mining, Inc.)**
 **(A
            Development Stage Company)**
 **Condensed
            Consolidated Statement of Operations**
 **(Unaudited)**
 
 **For the Three Months Ended**
                    **March 31, 2008**
                    **(Consolidated)**
                  
                  **For the Three Months Ended**
                    **March 31, 2007**
                  
                  **For the period from January 23, 2007(inception) to March 31, 2008**
                    **Consolidated)****Operating
                      Expenses**Consulting
                      Fees
                  
                  $
                  35,414
                  
                  $
                  24,737
                  
                  $
                  96,264Contract
                      Labor
                  
                  
                  6,970
                  
                  
                  15,250
                  
                  
                  91,529Salaries
                      Expense
                  
                  
                  39,162
                  
                  
                  -
                  
                  
                  120,201Professional
                      Fees
                  
                  
                  71,659
                  
                  
                  31,200
                  
                  
                  216,992Advertising
                      Expense
                  
                  
                  50,414
                  
                  
                  -
                  
                  
                  88,731G&A
                  
                  
                  51,002
                  
                  
                  5,355
                  
                  
                  165,208**Total
                      Operating Expenses**
                  
                  
                  254,621
                  
                  
                  76,542
                  
                  
                  778,925**Loss
                      from Operations**
                  
                  
                  (254,621
                  )
                  
                  (76,542
                  )
                  
                  (778,925
                  )**Other
                      Income (Expense)**Change
                      in fair value of embedded derivative liability
                  
                  
                  12,892
                  
                  
                  -
                  
                  
                  16,986Interest
                      Expense
                  
                  
                  (54,317
                  )
                  
                  (24,272
                  )
                  
                  (165,226
                  )Other
                      income
                  
                  
                  2,535
                  
                  
                  
                  
                  
                  2,535Interest
                      Income
                  
                  
                  -
                  
                  
                  -
                  
                  
                  2,827**Total
                      Other Expense - Net**
                  
                  
                  (38,890
                  )
                  
                  (24,272
                  )
                  
                  (142,878
                  )**LOSS
                      FROM OPERATIONS BEFORE INCOME TAXES**
                  
                  
                  (293,511
                  )
                  
                  (100,814
                  )
                  
                  (921,803
                  )**Provision
                      for Income Taxes**
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -**NET
                      LOSS**
                  
                  
                  **(293,511**
                  **)**
                  
                  **(100,814**
                  **)**
                  
                  **(921,803**
                  **)****Net
                      Loss Per Share - Basic and Diluted**
                  
                  **$**
                  **(0.01**
                  **)**
                  **$**
                  **(0.01**
                  **)****Weighted
                      average number of shares outstanding during the period - Basic
                      and
                      Diluted**
                  
                  
                  **22,505,165**
                  
                  
                  **10,000,000**
  See
            Condensed Consolidated Notes to Financial Statements
  2
 
 **Universal
            Bioenergy , Inc. and Subsidiary**
 **(f/k/a
            Palomine Mining, Inc.)**
 **(A
            Development Stage Company)**
 **Condensed
            Consolidated Statement of Changes in Stockholders' Deficit**
 **For
            the Period From January 23, 2007 (Inception) to March 31,
            2008**
 **(Unaudited)**
 
 **Preferred Stock**
                  
                  **Common Stock**
                  
                  **Additional**
                    **Paid-in**
                  
                  **Deferred**
                  
                  **Accumulated Deficit**
                    **During Development****Shares**
                  
                  **Amount**
                  
                  **Shares**
                  
                  **Amount**
                  
                  **Capital**
                  
                  **Compensation**
                  
                  **Stage**
                  
                  **Total****Balance
                      at January 23, 2007 (Inception)**
                  
                  
                  -
                  
                  $
                  -
                  
                  
                  -
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  -Stock
                      issued for cash ($0.05 per share)
                  
                  
                  -
                  
                  
                  -
                  
                  
                  10,000,000
                  
                  
                  10,000
                  
                  
                  490,000
                  
                  
                  -
                  
                  
                  -
                  
                  
                  500,000Shares
                      issued in reverse acquisition and recapitalization
                  
                  
                  -
                  
                  
                  -
                  
                  
                  12,500,000
                  
                  
                  12,500
                  
                  
                  (115,464
                  )
                  
                  -
                  
                  
                  -
                  
                  
                  (102,964
                  )In
                      kind contribution of rent
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  600
                  
                  
                  -
                  
                  
                  -
                  
                  
                  600Net
                      loss for the period January 23, 2007 (Inception) to December
                      31,
                      2007
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (628,292
                  )
                  
                  (628,292
                  )**Balance,
                      for the year ended December 31, 2007**
                  
                  
                  **-**
                  
                  
                  **-**
                  
                  
                  **22,500,000**
                  
                  
                  **22,500**
                  
                  
                  **375,136**
                  
                  
                  **-**
                  
                  
                  **(628,292**
                  **)**
                  
                  **(230,656**
                  **)**Share
                      based compensation
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  28,065
                  
                  
                  -
                  
                  
                  -
                  
                  
                  28,065In
                      kind contribution of rent
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  600
                  
                  
                  -
                  
                  
                  -
                  
                  
                  600Shares
                      issued for consulting services
                  
                  
                  -
                  
                  
                  -
                  
                  
                  10,000
                  
                  
                  10
                  
                  
                  50,090
                  
                  
                  (50,100
                  )
                  
                  -
                  
                  
                  -Net
                      loss for the three months ended March 31, 2008
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (293,511
                  )
                  
                  (293,511
                  )**Balance,
                      March 31, 2008**
                  
                  
                  **-**
                  
                  **$**
                  **-**
                  
                  
                  **22,510,000**
                  
                  **$**
                  **22,510**
                  
                  **$**
                  **453,891**
                  
                  **$**
                  **(50,100**
                  **)**
                  **$**
                  **(921,803**
                  **)**
                  **$**
                  **(495,502**
                  **)**
  See
            Condensed Consolidated Notes to Financial Statements
  3
 
 **Universal
            Bioenergy , Inc. and Subsidiary**
 **(f/k/a
            Palomine Mining, Inc.)**
 **(A
            Development Stage Company)**
 **Condensed
            Consolidated Statement of Cash Flows**
 **(Unaudited)**
 
 
 
 **For the Three Months Ended**
                  
                  **For the period from January 23, 2007****March 31, 2008(Consolidated)**
                  
                  **March 31, 2007**
                  
                  **(inception) to March 31, 2008**
                    **(Consolidated)****Cash
                      Flows From Operating Activities:**Net
                      Loss
                  
                  $
                  (293,511
                  )
                  $
                  (100,814
                  )
                  $
                  (921,803
                  )Adjustments
                      to reconcile net loss to net cash used in operationsIn-kind
                      contribution of services
                  
                  
                  600
                  
                  
                  -
                  
                  
                  1,200Depreciation/Amortization
                  
                  
                  1,625
                  
                  
                  -
                  
                  
                  4,015Amortization
                      of debt discount
                  
                  
                  18,590
                  
                  
                  -
                  
                  
                  30,551Stock
                      based compensation
                  
                  
                  78,165
                  
                  
                  -
                  
                  
                  78,165Deferred
                      stock compensation
                  
                  
                  (50,100
                  )
                  
                  -
                  
                  
                  (50,100
                  )Change
                      in value of derivative liability
                  
                  
                  (12,892
                  )
                  
                  -
                  
                  
                  (16,986
                  )Increase
                      (Decrease) in:Accounts
                      Payable and Accrued Expenses
                  
                  
                  28,398
                  
                  
                  24,672
                  
                  
                  195,603Prepaid
                      Expenses
                  
                  
                  52,099
                  
                  
                  -
                  
                  
                  (123,077
                  )Deposits
                  
                  
                  -
                  
                  
                  (3,100
                  )
                  
                  (3,100
                  )**Net
                      Cash Used In Operating Activities**
                  
                  
                  **(177,026**
                  **)**
                  
                  **(79,242**
                  **)**
                  
                  **(805,532**
                  **)****Cash
                      Flows From Investing Activities:**Purchase
                      of fixed assets
                  
                  
                  (2,531
                  )
                  
                  (1,613,720
                  )
                  
                  (1,950,893
                  )**Net
                      Cash Used In Investing Activities**
                  
                  
                  **(2,531**
                  **)**
                  
                  **(1,613,720**
                  **)**
                  
                  **(1,950,893**
                  **)****Cash
                      Flows From Financing Activities:**Cash
                      overdraft
                  
                  
                  2,824
                  
                  
                  **-**
                  
                  
                  2,824Proceeds
                      from issuance of common stock
                  
                  
                  -
                  
                  
                  500,000
                  
                  
                  500,000Proceeds
                      from issuance of note payable - related party
                  
                  
                  43,556
                  
                  
                  -
                  
                  
                  603,601Proceeds
                      from issuance of note payable
                  
                  
                  -
                  
                  
                  1,650,000
                  
                  
                  1,650,000**Net
                      Cash Provided by Financing Activities**
                  
                  
                  **46,380**
                  
                  
                  **2,150,000**
                  
                  
                  **2,756,425****Net
                      Increase (Decrease) in Cash**
                  
                  
                  **(133,177**
                  **)**
                  
                  **457,038**
                  
                  
                  **-**Cash
                      at Beginning of Period
                  
                  
                  133,177
                  
                  
                  -
                  
                  
                  -**Cash
                      at End of Period**
                  
                  $
                  **-**
                  
                  $
                  **457,038**
                  
                  $
                  **-****Supplemental
                      disclosure of cash flow information:**Cash
                      paid for interest
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  -Cash
                      paid for taxes
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  -
 
 **Supplemental
            disclosure of non- cash investing and financing
            activities:**
 
 See
            Condensed Consolidated Notes to Financial Statements
  4
 NOTE
                1
              SUMMARY
                  OF SIGNIFICANT ACCOUNTING POLICIES AND
                  ORGANIZATION
 
 ***(A)
        Basis of Presentation***
  The
        accompanying unaudited 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.
 
 ***(B)
        Organization***
  Universal
        Bioenergy North America, Inc (a development stage company) (“UBNA”) was
        incorporated in the State of Nevada on January 23, 2007.
 
 Universal
        Bioenergy, Inc. (UB) f/k/a Palomine Mining, Inc. was incorporated on August
        13,
        2004 under the laws of the State of Nevada.
 
 UBNA
        was
        organized to operate and produce Biodiesel fuel using primarily soybean and
        other vegetable oil and grease in a refining process to yield Biodiesel fuel
        and
        a marketable byproduct of glycerin. The Company is located in Nettleton,
        Mississippi. UBNA and UB are hereafter referred to as “(the
        Company)”.
  In
        October 2007, UBNA entered into an Agreement and Plan of Merger (the “Merger
        Agreement”) with UB. In October 2007, UB, a then shell corporation, merged with
        UBNA and UBNA became the surviving corporation. This transaction was accounted
        for as a reverse acquisition and recapitalization of UBNA. UB did not have
        any
        operations and majority-voting control was transferred to UBNA. Since UBNA
        acquired a controlling voting interest, it was deemed the accounting acquirer,
        while UB was deemed the legal acquirer. The historical financial statements
        of
        the Company are those of UBNA, and of the consolidated entities from the
        date of
        Merger and subsequent. Since the transaction is considered a reverse acquisition
        and recapitalization, the guidance in SFAS No. 141 does not apply for
        purposes of presenting pro-forma financial information.
 
 On
        October 24, 2007, the Company changed its name to Universal Bioenergy, Inc.
        to
        better reflect its business plan.
  ***(C)
        Principles of Consolidation***
  The
        condensed unaudited consolidated financial statements include the accounts
        of UB
        and its wholly-owned subsidiary UBNA. All significant inter-company accounts
        and
        transactions have been eliminated in consolidation.
 
 ***(D)
        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.
 
 ***(E)
        Cash and Cash Equivalents***
 
 The
        Company considers cash on hand and amounts on deposit with financial
        institutions which have original maturities of three months or less to be
        cash
        and cash equivalents.
 
 ***(F)
        Loss per Share***
 
 Basic
        and
        diluted net loss per common share is computed based upon the weighted average
        number of common shares outstanding as defined by Financial Accounting Standards
        No. 128, “Earnings Per Share.” As of March 31, 2008 and 2007, there were 91,371
        and 0 common share equivalents outstanding, respectively, which are
        anti-dilutive and not included in dilutive weighted average
        calculation.
  5
 
 ***(G)
        Derivative Liabilities***
 
 Convertible
        debt is accounted for in accordance with SFAS 133, *Accounting
        for Derivative Instruments and Hedging Activities* (“SFAS
        133”) and EITF No. 00-19, *Accounting
        for Derivative Financial Instruments Indexed to, and Potentially Settled
        in a
        Company’s Own Stock* ,
        (“EITF
        00-19”). According to these pronouncements, we have recorded the embedded conversion option
        related to our convertible debt at fair value on the reporting date, resulting
        in the convertible instrument itself being recorded at a discount from the
        face
        amount.
 
 ***(H)
        Revenue and Cost Recognition***
 
 The
        Company recognizes revenue from the sale of Biodiesel fuel and related
        byproducts at the time title to the products transfers, the amount is fixed
        and
        determinable, evidence of an agreement exists and the customer bears the
        risk of
        loss, net of provisions for rebates and sales allowances.
 
 ***(I)
        Business Segments***
 
 The
        Company operates in one segment and therefore segment information is not
        presented.
 
 ***(J)
        Income Taxes***
 
 The
        Company accounts for income taxes under the Statement of Financial Accounting
        Standards Board Statement of Financial Accounting Standard No. 109, “Accounting
        for Income Taxes” (“Statement 109”). Under Statement 109, deferred tax assets
        and liabilities are recognized for the future tax consequences attributable
        to
        differences between the financial statements 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 Statement 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.
 
 ***(K)
        Property and Equipment***
 
 The
        Company values property and equipment at cost and depreciates these assets
        using
        the straight-line method over their expected useful lives. The Company uses
        useful lives for assets ranging from five years (computer equipment and office
        furniture) to fifteen years (plant equipment).
 
 ***(L)
        Fair Value of Financial Instruments***
  The
        carrying amounts of the Company’s financial instruments including accounts
        payable and accrued expenses and notes payable approximate fair value due
        to the
        relatively short period to maturity for these instruments.
  ***(M)
        Advertising and Promotional Expense***
  Advertising
        and other product-related costs are charged to expense as incurred. For the
        three months ended March 31, 2008 and 2007 advertising expense was $50,414,
        and
        $0, respectively.
 
 ***(N)
        Recent Accounting Pronouncements***
  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.
  6
 
 In
        March
        2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
        Instruments and Hedging Activities, an amendment of FASB Statement No. 133”
(SFAS 161). This statement is intended to improve transparency in financial
        reporting by requiring enhanced disclosures of an entity’s derivative
        instruments and hedging activities and their effects on the entity’s financial
        position, financial performance, and cash flows. SFAS 161
        applies to all derivative instruments within the scope of SFAS 133, “Accounting
        for Derivative Instruments and Hedging Activities” (SFAS 133) as well as related
        hedged items, bifurcated derivatives, and nonderivative instruments that
        are
        designated and qualify as hedging instruments. Entities with instruments
        subject
        to SFAS 161
        must
        provide more robust qualitative disclosures and expanded quantitative
        disclosures. SFAS 161
        is
        effective prospectively for financial statements issued for fiscal years
        and
        interim periods beginning after November 15, 2008, with early application
        permitted. We are currently evaluating the disclosure implications of this
        statement.
 
 NOTE
                2
              STOCKHOLDERS’
                  EQUITY
  **A.
        Common Stock Issued for Cash**
 
 During
        January 2007, the Company issued 10,000,000 shares of common stock for
        $500,000.
 
 During
        October 2007, the Company issued 12,500,000 shares of common stock upon
        completion of the reverse merger with then Palomine Mining, Inc. The shares
        were
        valued based on the fair value of the net assets acquired.
 
 **B.** **Common
            Stock Issued for Services**
 
 On
        February 26, 2008 the Company issued 19,763 shares of common stock as
        compensation having a fair value of $100,000. The shares vest on February
        27,
        2009. As of March 31, 2008 $9,315 is recorded as compensation
        expense.
 
 On
        February 13, 2008 the Company granted 10,000 shares of common stock for
        consulting services having a fair value of $50,100 based upon fair value
        on the
        date of grant. As of March 31, 2008 $50,100 is recorded as deferred compensation
        for future consulting services.
 
 **C.
        In kind contribution**
 
 For
        the
        three months ended March 31, 2008 ,
        a
        shareholder of the Company contributed office space with a fair value of
        $600
        (See Note 6).
 
 For
        the
        year ended December 31, 2007 ,
        a
        shareholder of the Company contributed office space with a fair value of
        $600
        (See Note 6).
 
 **D.
        Amendment to Article of Incorporation**
 
 On
        November 3, 2007, the Company amended its Articles of Incorporation to provide
        for an increase in its authorized share capital. The authorized capital stock
        increased to 1,000,000 preferred shares and 200,000,000 common shares at
        a par
        value of $0.001 per share.
 
 **E.
        Stock Split**
 
 On
        November 3, 2007, the Company declared a 5 for 1 forward stock split. All
        share
        and per share amounts have been retroactively restated in the accompanying
        financial statements.
  NOTE
                3
              NOTES
                  PAYABLE
 
 During
        December 2007 ,
        the
        Company entered into an $88,000 unsecured note payable to Mortensen Financial
        Limited, a related party. The interest rate is 6.5% per annum. The note requires
        payment of accrued interest and principal by December 31, 2010. On
        April
        30, 2008 and October 31, 2008 all accrued interest must be paid. Beginning
        April
        30, 2009 and semiannually thereafter through October 31, 2010, the Company
        is to
        pay $22,000 in semiannual installments. During
        the period from inception to March 31, 2008, the
        Company incurred interest expense of approximately $1,599 (See Note
        6).
 
 7
  During
        October 2007 ,
        the
        Company entered into a $250,000 unsecured note payable to Mortensen Financial
        Limited, a related party. The interest rate is 6.5% per annum. The note requires
        payment of accrued interest and principal by December 31, 2008.
  During
        the period from inception to March 31, 2008, the
        Company incurred interest expense of approximately $6,771 (See Note 6).
 
 During
        January 2007, the Company entered into a $1,650,000 secured note payable.
        The
        note payable is secured by all assets of the Company. The interest rate is
        6%
        per annum and the note is secured by all the assets of the Company. The note
        requires semi annual principle payments of $103,125 plus interest on June
        and
        December of each year. During
        the period from inception to March 31, 2008, the Company incurred interest
        expense of approximately $116,359.
 
 As
        of
        March 31, 2008, future minimum principle payments are as follows:
 
 2008
              
              $
              206,2502009
              
              
              206,2502010
              
              
              206,2502011
              
              
              206,2502012
                  and thereafter
              
              
              825,000Total
                  payments
              
              
              1,650,000Less
                  Current portion
              
              
              (206,250
              )**$**
              **1,443,750**
  NOTE
                4
              DERIVATIVE
                  LIABILITY AND CONVERTIBLE NOTES
                  PAYABLE
  For
        the
        following convertible notes, pursuant to EITF No.’s 98-5 and 00-27, the Company
        first reviewed and determined that no beneficial conversion feature existed. The
        Company then evaluated the convertible notes to determine if there was an
        embedded conversion option requiring bifurcation under SFAS No. 133 and EITF
        00-19. We determined that fair value accounting for an embedded conversion
        option was required and that a derivative liability would be recorded. The
        fair
        value of the conversion option is initially computed at its issuance date,
        then
        on subsequent reporting periods, marked-to-market. The change in fair value
        is
        recorded in the statement of operations. Upon conversion of a derivative
        instrument, the instrument is marked to fair value at the conversion date
        and
        the related fair value is reclassified to equity.
 
 On
        March
        18, 2008, the Company issued a $43,556 unsecured convertible note payable
        to Mortensen
        Financial Limited, a
        related
        party. The note is convertible at the option of the holder by taking the
        average
        bid price of the common stock for the five day period preceding the conversion
        and multiplying by 75%. The interest rate is 6.5% per annum. The note requires
        payments of accrued interest and principal by October 31, 2010. On October
        31,
        2008 all accrued interest must be paid. Beginning April 30, 2009 and
        semiannually thereafter through October 31, 2010, the Company is to pay $10,889
        in semiannual installments. During
        the three months ended March 31, 2008 the
        Company recognized interest expense of approximately $99.
 
 The
        initial fair value of the embedded conversion option was $29,387; this amount
        is
        recorded as a debt discount which is amortized over the life of the underlying
        convertible debt instrument. At March 31, 2008, we recognized interest expense
        of $399. At March 31, 2008, upon remeasurement, the derivative liability
        had a
        fair value of $29,280. The resulting change in fair value of $107 was recorded
        as a reduction in the derivative liability during the three months ended
        March
        31, 2008.
 
 The
        following weighted average assumptions were used on the initial date of issuance
        and the remeasurement date of March 18, 2008 and March 31, 2008,
        respectively:
 
 Exercise
                  price
              $3.76
                  and $3.76Expected
                  dividend yield
              0%
                  and 0%Expected
                  volatility
              66%
                  and 66%Risk
                  free interest rate
              1.74%
                  and 1.79%Expected
                  life of conversion option
              2.62
                  and 2.59 yearsExpected
                  forfeitures
              0%
                  and 0%
  8
 
 During
        October 2007, the Company issued a $300,000 unsecured convertible note payable
        to Mortensen
        Financial Limited, a
        related
        party. The note is convertible at the option of the holder by taking the
        average
        bid price of the common stock for the five day period preceding the conversion
        and multiplying by 75%. The interest rate is 6.5% per annum. The note requires
        payments of accrued interest and principal by October 31, 2010. On April
        30,
        2008 and October 31, 2008 all accrued interest must be paid. Beginning April
        30,
        2009 and semiannually thereafter through October 31, 2010, the Company is
        to pay
        $75,000 in semiannual installments. During
        the period from inception to March 31, 2008 the
        Company recognized interest expense of approximately $8,125.
 
 The
        initial value of the embedded conversion option was $218,228; this amount
        is
        recorded as a debt discount which is amortized over the life of the underlying
        convertible debt instrument. For the three months ended March 31, 2008, we
        recognized interest expense of $18,191. At March 31, 2008, upon remeasurement,
        the derivative liability had a fair value of $201,349. The resulting change
        in
        fair value of $12,785 was recorded as a reduction in the derivative liability
        during the three months ended March 31, 2008.
 
 The
        following weighted average assumptions were used on the initial date of issuance
        and the remeasurement date of March 18, 2008 and March 31, 2008,
        respectively:
 
 Exercise
                  price
              $3.76
                  and $3.76Expected
                  dividend yield
              0%
                  and 0%Expected
                  volatility
              66%
                  and 66%Risk
                  free interest rate
              1.74%
                  and 1.79%Expected
                  life of conversion option
              2.62
                  and 2.59 yearsExpected
                  forfeitures
              0%
                  and 0%
 
 The
        following weighted average assumptions were used on the initial date of issuance
        and the remeasurement date of October 31, 2007 and March 31, 2008,
        respectively:
 
 Exercise
                  price
              $3.75
                  and $3.76Expected
                  dividend yield
              0%
                  and 0%Expected
                  volatility
              66%
                  and 66%Risk
                  free interest rate
              3.82%
                  and 1.71%Expected
                  life of conversion option
              2.83
                  and 2.58 yearsExpected
                  forfeitures
              0%
                  and 0%
 
 The
        following table summarizes the derivative liabilities and convertible notes
        payable as of March 31, 2008:
 
 Description
              
              Convertible
                Note Payable
              
              Less: Debt
                Discount
              
              Convertible Note
                Payable, net of Debt
                Discount
              
              Derivative
                LiabilityMortensen
                  Financial
              
              $
              300,000
              
              $
              188,078
              
              $
              111,922
              
              $
              201,349MortensenFinancial
              
              $
              43,556
              
              $
              28,987
              
              $
              14,569
              
              $
              29,280Total
              
              $
              343,556
              
              $
              217,065
              
              $
              126,491
              
              $
              230,629
 
 At
        March
        31, 2008 future minimum principle payments are as follows:
 
 2009
              
              $
              171,7782010
              
              
              171,778Total
                  payments
              
              
              343,556
  9
  NOTE
                5
              COMMITMENTS
  On
        February 26, 2008, the Company entered into a one-year employment agreement
        with
        the Company’s Chief Executive Officer. The agreement renews annually. Pursuant
        to this agreement, the Company will pay an annual base salary of $60,000
        for the
        period February 26, 2008 through February 26, 2009. In addition, on February
        27,
        2009 the officer will receive a signing bonus of 19,763 shares with a fair
        value
        of $100,000 based on the value of the Company’s common shares on the effective
        date of the agreement. The agreement also calls for increase in the officer’s
        base compensation upon the Company reaching certain milestones:
 
 1.
              For
                  every $1,000,000 in Company’s profit the Executive is eligible for an
                  annual performance bonus equal to 1% of the profit in cash and
                  4% of the
                  profit on Common Stock.
 
 2.
              For
                  each successfully completed Transaction, which includes a merger
                  or
                  acquisition, the Company will pay 1% of the transaction value,
                  of which
                  10% is to be paid in cash and 90% in Common Stock.
 
 On
        January 15, 2008 the Company appointed a board of advisors for a twelve month
        period. The Advisors are to be paid a total of $10,000 per month of which
        $2,500
        is in cash and the remaining $7,500 in shares of common stock. Upon the
        execution of the agreement, the Company paid an advance of $7,500 and will
        issue
        4,491 shares of Common stock with a fair value of $22,500. For the quarter
        ended
        March 31, 2008; $18,750 is recorded as a consulting expense.
 
 During
                  2007, as part of the sale of the facility by the bankruptcy court,
                  the
                  Company assumed an agreement entered into by the former operators
                  of the
                  biodiesel facility with the state of Mississippi Commission on
                  Environmental Quality. The agreement requires the Company to deposit
                  $50,000 into a trust fund to be used by the state of Mississippi
                  for
                  closure of the facility in the event the Company ceases operations.
                  In
                  addition, the Company is required to obtain approval from the state
                  of
                  Mississippi and meet certain environmental operating criteria as
                  agreed to
                  in the settlement agreement prior to beginning operations at the
                  facility.
                  As of the date of this report, the Company has not completed its
                  obligations to the state of Mississippi and has not received approval
                  to
                  begin operations.
 
 On
        November 20, 2007, the Company entered into an agreement with an unrelated
        party
        to provide consulting services. The term of the services to be provided is
        from
        November 20, 2007 to October 22, 2008. As compensation for services received
        the
        Company is required to pay an annual fee of $200,000, a staffing fee up to
        $78,000 per month, a $10,000 travel and other expense allowance, and up to
        $30,000 per month for two months of Internet Campaign. For the period ended
        March 31, 2008 $116,655 has been recorded as a prepaid expense.
 
 On
        December 17, 2007, the Company entered into a consulting agreement. The
        Consultant is to be paid $100 per hour of which $50 is in cash and the remaining
        $50 is in Common Stock. As part of compensation the Company issued shares
        of
        common stock with a fair value of $50,600 based on the stock price within
        45
        days of the agreement. The agreement is to be in effect until canceled by
        either
        party. On February 13, 2008 the Company issued 10,000 shares of common with
        a
        fair value of $50,100 on the grant date. The issuance has been recorded as
        a
        deferred stock compensation. (See Note 2(B)).
  NOTE
                6
              RELATED
                  PARTY TRANSACTIONS
  On
        March
        18, 2008, the Company issued a $43,556 convertible note payable to Mortensen
        Financial Limited, a related party. The interest rate is 6.5 % per annum.
        The
        note is convertible at the option of the holder by taking the average bid
        price
        of the common stock for the five day period preceding the conversion and
        multiplying by 75%. The interest rate is 6.5% per annum. The note requires
        payments of accrued interest and principal by October 31, 2010. On October
        31,
        2008 all accrued interest must be paid. Beginning April 30, 2009 and
        semiannually thereafter through October 31, 2010, the Company is to pay $10,889
        in semiannual installments. During
        the three months ended March 31, 2008 the
        Company recognized interest expense of approximately $99 (See Note
        4).
 
 During
        December 2007 ,
        the
        Company entered into an $88,000 note payable with Mortensen Financial Limited,
        a
        related party. The interest rate is 6.5% per annum. The note requires payment
        of
        accrued interest and principal by December 31, 2010. On
        April
        30, 2008 and October 31, 2008 all accrued interest must be paid. Beginning
        April
        30, 2009 and semiannually thereafter through October 31, 2010 Company is
        to pay
        $22,000 semiannual installments. During
        the period from inception to March 31, 2008 the
        Company incurred interest expense of approximately $1,599 (See Note
        3).
 
 During
        October 2007, the Company issued a $300,000 convertible note payable to
        Mortensen Financial Limited, a related party. The note
        is convertible at the option of the holder by taking the average bid price
        of
        the common stock for the five day period preceding the conversion and
        multiplying by 75%. The interest rate is 6.5% per annum. The note requires
        payments of accrued interest and principal by October 31, 2010. On April
        30,
        2008 and October 31, 2008 all accrued interest must be paid. Beginning April
        30,
        2009 and semiannually thereafter through October 31, 2010 Company is to pay
        $75,000 in semiannual installments. During
        the period from inception to March 31, 2008 the
        Company incurred interest expense of approximately $8,125 (See Note
        4).
  10
 
 During
        October 2007 ,
        the
        Company entered into a $250,000 note payable to Mortensen Financial Limited,
        a
        related party. The interest rate is 6.5% per annum. The note requires payment
        of
        accrued interest and principal by December 31, 2008. During the period from
        inception to March 31, 2008 the
        Company incurred interest expense of approximately $6,771 (See Note 3).
 
 For
        the
        three months ended March 31, 2008 ,
        a
        shareholder of the Company contributed office space with a fair value of
        $600
        (See Note 2(B)).
 
 During
        the year ended December 31, 2007, the Company received $10,046 from a
        stockholder. Pursuant to the terms of the loan, the loan is non interest
        bearing, unsecured and due on demand.
 
 For
        the
        year ended December 31, 2007 the shareholder of the Company contributed $600
        of
        services on behalf of the Company (See Note 2(B)).
  NOTE
                7
              GOING
                  CONCERN
 
 As
        reflected in the accompanying financial statements, the Company is in the
        development stage with limited resources, used cash in operations of $805,532
        from inception, a working capital deficiency of $663,730 and has an accumulated
        deficit during the development stage of $921,803. 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 taken to obtain additional funding and begin
        operations provide the opportunity for the Company to continue as a going
        concern.
 
 NOTE
                8
              SUBSEQUENT
                  EVENTS
  A.
              DERIVATIVE
                  LIABILITY AND CONVERTIBLE NOTE
                  PAYABLE
  On
        April
        7, 2008, the Company issued a $300,000 unsecured convertible note payable
        to Mortensen
        Financial Limited, a
        related
        party. The note is convertible at the option of the holder by taking the
        average
        bid price of the common stock for the five day period preceding the conversion
        and multiplying by 75%. The interest rate is 6.5% per annum. The note requires
        payments of accrued interest and principal by October 31, 2010. On October
        31,
        2008 all accrued interest must be paid. Beginning April 30, 2009 and
        semiannually thereafter through October 31, 2010 Company is to pay $75,000
        in
        semiannual installments.
  11
 **ITEM
      2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
      OF
      OPERATIONS**




**FORWARD
      LOOKING STATEMENTS**





Management’s
      Discussion and Analysis contains “forward-looking” statements within the meaning
      of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
      Exchange Act of 1934, as well as historical information. Although we believe
      that the expectations reflected in these forward-looking statements are
      reasonable, we can give no assurance that the expectations reflected in these
      forward-looking statements will prove to be correct. Forward-looking statements
      include those that use forward-looking terminology, such as the words
“anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “project,”
“plan,” “will,” “shall,” “should,” and similar expressions, including when used
      in the negative. Although we believe that the expectations reflected in these
      forward-looking statements are reasonable and achievable, these statements
      involve risks and uncertainties and no assurance can be given that actual
      results will be consistent with these forward-looking statements. Current
      shareholders and prospective investors are cautioned that any forward-looking
      statements are not guarantees of future performance. Such forward-looking
      statements by their nature involve substantial risks and uncertainties, certain
      of which are beyond our control, and actual results for future periods could
      differ materially from those discussed in this report, depending on a variety
      of
      important factors, among which are our ability to implement our business
      strategy, our ability to compete with major established companies, the
      acceptance of our products in our target markets, the outcome of litigation,
      our
      ability to attract and retain qualified personnel, our ability to obtain
      financing, our ability to continue as a going concern, and other risks described
      from time to time in our filings with the Securities and Exchange Commission.
      Forward-looking statements contained in this report speak only as of the date
      of
      this report. Future events and actual results could differ materially from
      the
      forward-looking statements. You should read this report completely and with
      the
      understanding that actual future results may be materially different from what
      management expects. We will not update forward-looking statements even though
      its situation may change in the future.




**Overview**





Universal
      Bioenergy North America, Inc. is a start-up Nevada corporation formed on January
      23, 2007 which was acquired by Universal Bioenergy, Inc. (together with its
      subsidiary, the “Company”) in December 2007, for the purpose of operating a
      biodiesel plant in Nettleton, Mississippi to produce biodiesel fuel and a
      marketable byproduct of glycerin. The biodiesel plant was acquired by Universal
      Bioenergy North America out of a bankruptcy action. We do not expect to generate
      any revenue until the plant is completely operational. As of the date of this
      report, we have not manufactured any biodiesel fuel.




Based
      upon estimates of management, the plant will be able to produce annually
      approximately 10 million, 20 million, and 50 million gallons of fuel grade
      biodiesel from soybean oil (or other suitable feedstock) per the first 12,
      24,
      and 36 month periods respectively after the start of production pending
      successful raising of capital for feedstocks, reagents, and equipment expansion.
      Additionally, the plant will produce corresponding amounts (10% by biodiesel
      production volume) of marketable glycerin. As of the date of this report, we
      are
      still in the development phase and until the proposed biodiesel plant is
      operational, we will generate no revenue. We anticipate that accumulated losses
      will continue to increase until the biodiesel plant is operational.




The
      original expected production start date was slated for January 2008, but due
      to
      some difficulty in attainment of required permits from the State of Mississippi
      to commence operations, the plant did not begin production. In addition, we
      require certain raw materials including plant oils/animal fats, catalyst, and
      alcohol in order to commence production. As of the date of this report, we
      have
      not acquired any raw materials to engage in production. We are gathering
      information and negotiating pricing with vendors, but have not secured any
      agreements with providers of such raw materials.




12




Provisional
      permits from the State of Mississippi were received in May 2008, but start
      date
      of actual production can not be accurately predicted based on current economic
      environment in the marketplace. The provisional permits allow the processing
      of
      typical batch sizes to characterize the waste water emissions that will be
      produced. Testing of these emissions will determine the necessary pre-treatment
      (if any) required before disposal into local sewage system (subsequent to final
      connection to our system) or have the waste water transported to larger
      treatment facilities in a nearby city. With a formalized plan for handling
      the
      waste water, management feels confident that full permitting will be obtainable,
      but are not certain of the time it will take.





The
      high
      cost of virgin feedstock materials makes it unprofitable to use these as sole
      or
      primary feedstock choices. Alternative feedstock types are being investigated
      which are at a lower cost than the virgin feedstocks. If sufficient quantities
      can be located and favorable price including shipping negotiated, the process
      operation can produce revenues in excess of processing costs. Management
      anticipates that allocated funds from recently acquired debt from Mortensen
      Financial Limited, a shareholder and substantial debt
      holder of the
      Company, will be sufficient to acquire feedstocks, reagents, and manufacturing
      costs for approximately two batches (20-24,000 gallons each). The revenues
      from
      the sale of the fuel once the State approves the fuel can be then cycled to
      acquire additional feedstocks and reagents to continue a low volume processing
      level (significantly less than the 10 million gallons per year). As of the
      date
      of this report, the Company has no agreements to sell any of its products once
      production begins. Management anticipates that in order to reach sustainable
      profitability, a monthly volume in excess of 300,000 gallons will be required.
      Management believes in the next twelve months approximately $4,000,000 of
      working capital will be needed with the greatest portion allocated for feedstock
      and reagent costs including shipping with an estimated average cost of
      $3,000,000 barring extreme fluctuations in commodity prices; further equipment
      acquisitions, installation, and site modifications based on effluent emissions
      results and fuel quality estimated at $400,000; and normal operating overhead
      expenses of $600,000. This capital will bring production close to the 10 MGPY
      first-stage level. The Company can give no assurances as to the success of
      or
      the time it will take to raise the necessary capital; therefore, Universal
      may
      not be able to meet the first-stage production goal within the twelve month
      period slated or predict how long it will take to achieve the first-stage
      goal.





Over
      the
      past year and three months, the plant has undergone site improvement and
      development. General clean up and improvements of the site have taken place
      utilizing the debt financing previously obtained through LaCroix International
      and Mortensen Financial Limited, related parties.





An
      environmental order allowing provisional permitted production was received
      from
      the State of Mississippi Department of Environmental Quality in May 2008 to
      allow the Company to begin processing and scale-up phase of production to reach
      the nominal first-stage 10 million gallons per year (MGPY) goal subject to
      confirmation of effluent emissions. Pending confirmation of these effluent
      emissions (or appropriate treatments of emissions) from the State of Mississippi
      after production has started, the plant will work to increase production to
      the
      meet the first-stage goal over the subsequent twelve month period. During this
      early stage, Universal is planning to sell biodiesel products to the refinery's
      prior customer base, truck stops, and local distributors. The Company currently
      does not have any agreements to sell its biodiesel products.





Management
      anticipates that as production is scaled up to the 20 MGPY level and above,
      pending the raising of sufficient capital in subsequent months after the
      first-stage goal is reached, export to the European market is expected with
      the
      higher production volume as it is anticipated that this production volume will
      exceed the needs of the local/regional distribution area. Scale-up of the
      facility to the first-stage goal is subject to securing sufficient funding
      to
      cover capital expenditures and feedstock costs for this expansion of production
      capacity.





Expansion
      of the plant to increase production capacity to the second-stage goal of 20
      MGPY
      using already acquired equipment and subsequent purchases and installation
      will
      require the successful raising of further capital through further stock
      offerings and additional debt if necessary. There is no certainty that this
      capital can be raised.





13




Reaching
      the 20 MGPY second-stage production level will require additional storage
      capacity of both pre and post processing materials and products and improvements
      to logistics on the site. Not all costs have been acquired to achieve this
      stage, however, Management estimates such cost to be between $500,000 and
      $1,000,000 but information and pricing regarding costs is still being acquired
      and may vary greatly from the state estimates. To reach the 50 MGPY third-stage
      production level will require further expansion of storage capacity and the
      building of a rail spur at the site, which in preliminary discussions with
      knowledgeable rail transportation personnel could cost as much as $1,000,000
      for
      such a rail spur. With this in mind and in the present volatile economic
      environment, management is contemplating the need to move the plant to a
      location better suited logistically for the necessary movement of large volumes
      of materials and products in and out of the facility, making more possible
      the
      attainment of the higher production level goals. This likely will require the
      plant to be located near an active waterway or port to allow barge transport
      of
      materials and products. Costs for such a move have not been investigated to
      date.





Management
      further believes the Company's cash reserves will be insufficient to cover
      such
      costs for the next 12 months and may require restructuring its present debt.
      The
      Company is working with vendors to establish credit for feedstock materials
      and
      further plans to raise needed capital through the further sale of stock in
      the
      Company, revenue from sales of products, and if necessary through additional
      debt financing until sufficient production volume can be reached to cover
      operating costs and debt service. The raising of such capital through stock
      issuance, proceeds, or debt is uncertain at best due to the present volatility
      in the marketplace primarily in feedstock and transportation costs. Failure
      by
      the Company to raise the required capital will limit the overall production
      capacity of the site and the Company will not be able to sustain the losses
      incurred due to the limited production.





Universal
      Bioenergy North America, Inc. is a developmental stage company and operating
      subsidiary of the Company. The Company has generated no revenues as Universal
      Bioenergy North America, Inc. was not in production as of March 31, 2008 and
      will continue to accrue operating losses until sufficient production levels
      can
      be reached to meet all liabilities. Our operating expenses for the three months
      ending March 31, 2008, were $254,621, as compared to $76,542 for the comparable
      period in 2007 of the preceding year, the first quarter after the plant was
      acquired, an increase of 232% between these two periods. This reflects an
      increase of general expenses and capital expenditures due to the work needed
      to
      bring the plant to an operational state.





Overall,
      we sustained a net loss of $293,511for the three-month period ended March 31,
      2008, as compared to a net loss of $100,814 in the corresponding period of
      the
      preceding year. Total losses incurred since the company's inception in January
      23, 2007 are $921,803. We had six full-time employees as of March 31, 2008.
      If
      the Company obtains sufficient financing, it is expected that the number of
      employees will increase to by at least four over the next twelve month
      period.





**Liquidity
      and Capital Resources**





As
      of
      March 31, 2008, our current assets were $125,977, as compared to $311,253 at
      December 31, 2007. The reduction in assets is due to the increase in
      expenses particularly the increase in salaries by adding Dr. Craven as CEO
      and
      associated expenses per his employment, purchase of fixed assets, and increase
      in expenses in consulting costs to secure environmental permits and in costs
      associated with securing further operational debt. As of March 31, 2008, our
      current liabilities were $789,707, as compared to $709,231 at December 31,
      2007. Cash spent on investing activities during the three months ending March
      31, 2008 amounted to the purchase of fixed assets at a cost of
      $2,531.





14




As
      reflected in the accompanying financial statements, the Company is in the
      development stage with limited resources, used cash in operations of $805,532
      from inception, a working capital deficiency of $663,730 and has an accumulated
      deficit during the development stage of $921,803. 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.





**Debt**





Non-Convertible





During
      December 2007 ,
      the
      Company entered into an $88,000 note payable in favor of Mortensen Financial
      Limited, a shareholder of the Company. The interest rate is 6.5% per annum.
      The
      note requires payment of accrued interest and principal by December 31, 2010. On
      April
      30, 2008 and October 31, 2008 all accrued interest must be paid. Beginning
      April
      30, 2009 and semiannually thereafter through October 31, 2010, the Company
      is to
      pay $22,000 in semiannual installments. During
      the period from inception to March 31, 2008, the
      Company incurred interest expense of approximately $1,599.





During
      October 2007 ,
      the
      Company entered into a $250,000 note payable in favor of Mortensen Financial
      Limited, a shareholder of the Company. The interest rate is 6.5% per annum.
      The
      note requires payment of accrued interest and principal by December 31, 2008.
      During the period from inception to March 31, 2008, the
      Company incurred interest expense of approximately $6,771.





During
      January 2007, the Company entered into a $1,650,000 note payable in favor of
      Lacroix International Holdings, Inc. The interest rate is 6% per annum and
      the
      note is secured by all the assets of the Company. The note requires semi-annual
      principle payments of $103,125 plus interest on June and December of each year. During
      the period from inception to March 31, 2008, the Company incurred interest
      expense of approximately $116,359. On June 30, 3008, a payment of $0 will be
      due
      to Lacroix International Holdings, Inc. pursuant to the note. It is uncertain
      that the company will be able to make an interest payment since it may not
      be
      officially in permitted production at that time. The interest will accrue until
      the next planned payment date.





During
      the year ending December 31, 2007, the Company received an advance in the amount
      of $10,046 from Mortensen Financial Limited, a stockholder of the Company.
      Pursuant to the terms of the advance, the advance is non interest bearing,
      unsecured and due on demand.





Convertible
      Debt





On
      March
      18, 2008, the Company issued a $43,555.50 convertible note payable in favor
      of Mortensen
      Financial Limited, a shareholder of the Company .
      The
      note is convertible at the option of the holder by taking the average bid price
      of the common stock for the five day period preceding the conversion and
      multiplying by 75%. The interest rate is 6.5% per annum. The note requires
      payments of accrued interest and principal by October 31, 2010. On October
      31,
      2008 all accrued interest must be paid. Beginning April 30, 2009 and
      semiannually thereafter through October 31, 2010, the Company is to pay $10,889
      in semiannual installments. During
      the three months ended March 31, 2008 the
      Company recognized interest expense of approximately $99.





During
      October 2007, the Company issued a $300,000 convertible note payable in favor
      of Mortensen
      Financial Limited, a shareholder of the Company .
      The
      note is convertible at the option of the holder by taking the average bid price
      of the common stock for the five day period preceding the conversion and
      multiplying by 75%. The interest rate is 6.5% per annum. The note requires
      payments of accrued interest and principal by October 31, 2010. On April 30,
      2008 and October 31, 2008 all accrued interest must be paid. Beginning April
      30,
      2009 and semiannually thereafter through October 31, 2010, the Company is to
      pay
      $75,000 in semiannual installments. During
      the period from inception to March 31, 2008 the
      Company recognized interest expense of approximately $8,125.





15




Subsequent
      Event – Convertible Note





During
      April 2008, the Company issued a $300,000 convertible note payable to Mortensen
      Financial Limited, a shareholder of the Company. The note is convertible at
      the
      option of the holder by taking the average bid price of the common stock for
      the
      five day period preceding the conversion and multiplying by 75%. The interest
      rate is 6.5% per annum. The note is unsecured and requires payments of accrued
      interest and principal by October 31, 2010. Beginning April 30, 2009 and
      semiannually thereafter through October 31, 2010, Company is to pay $75,000
      in
      semiannual installments.





Mortensen
      Financial Limited, a shareholder of the Company, has lent the Company an
      aggregate of $981,556 pursuant to notes as described above (non-convertible
      notes in the aggregate of $338,000; convertible notes in the aggregate of
      $643,556).





**New
      Accounting Pronouncements**





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.





In
      March
      2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
      Instruments and Hedging Activities, an amendment of FASB Statement No. 133”
(SFAS 161). This statement is intended to improve transparency in financial
      reporting by requiring enhanced disclosures of an entity’s derivative
      instruments and hedging activities and their effects on the entity’s financial
      position, financial performance, and cash flows. SFAS 161 applies to all
      derivative instruments within the scope of SFAS 133, “Accounting for Derivative
      Instruments and Hedging Activities” (SFAS 133) as well as related hedged items,
      bifurcated derivatives, and nonderivative instruments that are designated and
      qualify as hedging instruments. Entities with instruments subject to SFAS 161
      must provide more robust qualitative disclosures and expanded quantitative
      disclosures. SFAS 161 is effective prospectively for financial statements issued
      for fiscal years and interim periods beginning after November 15, 2008,
      with early application permitted. We are currently evaluating the disclosure
      implications of this statement.





**Critical
      Accounting Policies**





Management
      uses estimates and assumptions in preparing our financial statements in
      accordance with generally accepted accounting principles. These estimates and
      assumptions affect the reported amounts of assets and liabilities, the
      disclosure of contingent assets and liabilities, and the reported revenues
      and
      expenses.





16




Property
      and Equipment





The
      Company values property and equipment at cost and depreciates these assets
      using
      the straight-line method over their expected useful lives. The Company uses
      useful lives for assets ranging from five years (computer equipment and office
      furniture) to fifteen years (plant equipment).





Income
      Taxes





The
      Company accounts for income taxes under the Statement of Financial Accounting
      Standards Board Statement of Financial Accounting Standard No. 109, “Accounting
      for Income Taxes” (“Statement 109”). Under Statement 109, deferred tax assets
      and liabilities are recognized for the future tax consequences attributable
      to
      differences between the financial statements 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 Statement 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.





As
      of
      March 31, 2008, the Company has a net operating loss carry forward of
      $875,001  available
      to offset future taxable income through 2027.





Derivative
      Liabilities





Convertible
      debt is accounted for in accordance with SFAS 133, *Accounting
      for Derivative Instruments and Hedging Activities* (“SFAS
      133”) and EITF No. 00-19, *Accounting
      for Derivative Financial Instruments Indexed to, and Potentially Settled in
      a
      Company’s Own Stock* ,
      (“EITF
      00-19”). According to these pronouncements, we have recorded the embedded
      conversion option related to our convertible debt at fair value on the reporting
      date, resulting in the convertible instrument itself being recorded at a
      discount from the face amount.





**Risk
      Factors**





*Investing
      in our common stock involves a high degree of risk. You should consider
      carefully the risks and uncertainties described below, together with all of
      the
      other information in this report, including the consolidated financial
      statements and the related notes appearing at the end of this quarterly report
      on Form 10-Q, with respect to any investment in shares of our common stock.
      If any of the following risks actually occurs, our business, financial
      condition, results of operations, and future prospects would likely be
      materially and adversely affected. In that event, the market price of our common
      stock could decline and you could lose all or part of your
      investment.*




**Risk
      Factors Related to Our Finances**





*If
      We
      Fail To Raise Additional Financing We May Not Be Able To Fund Our Operations
      And
      Implement Our Business Plan* .
      We
      require additional capital to support even minimal ongoing operations. Should
      the Company not be able to raise capital as required, the Company may need
      to
      cease operations entirely. Any additional financing may involve dilution to
      the
      Company's then-existing shareholders.  The
      Company has no current arrangements with respect to sources of additional
      financing and there can be no assurance that the Company will be able to obtain
      additional financing on terms acceptable to the Company. The Company's
      independent auditors have included an explanatory paragraph in their annual
      report dated April 10, 2008, on the Company's Financial Statements stating
      that
      the audited financial statements have been prepared on the assumption that
      the
      Company will continue as a going concern and that financing uncertainties raise
      substantial doubt about the Company's ability to continue as a going concern.
      We
      are working to identify potential investors and debt providers to sustain the
      company, but there is again no assurance that any acceptable financing will
      obtained.





17


*The
      Company Has No Revenues Which Make It Difficult To Forecast Our Future
      Results.*As a
      result of having no sales or revenues, it is impossible to predict the Company's
      future performance or the period of time in which it can sustain its
      existence.





**Risk
      Factors Related to Our Operations**





*As
      we
      have had no operating history as a producer of biodiesel, investors have no
      basis to evaluate our ability to operate profitably.* The
      Company has a limited operating history as the company was formed in August
      13,
      2004 and its operating subsidiary, Universal Bioenergy North America, Inc.,
      was
      formed in January 2007. The Company has not earned any revenues in our
      contemplated biodiesel business. Accordingly, it may be difficult for investors
      to evaluate its business prospects.





The
      Company’s business is dependent upon the implementation of our business plan,
      including our ability to make agreements with suppliers, customers, and with
      respect to future investments. There can be no assurance that the Company’s
      efforts will ultimately be successful or result in revenues or profits.





Moreover,
      the Company’s prospects must be considered in light of the risks and
      uncertainties encountered by an early-stage company and in rapidly evolving
      markets, such as other alternative energy and biofuels markets, where supply
      and
      demand may change significantly in a short amount of time. The volatility in
      these markets may lead to increases in costs for feedstock materials, reagents,
      and for transportation of same to a point where production will be wholly
      unprofitable once production has commenced if at all.





Some
      of
      these risks relate to the Company’s business plan and potential inability
      to:





·
            effectively
                manage our contemplated business operations;·
            recruit
                and retain key personnel;·
            successfully
                create and maintain relationships with vegetable oil producers and
                fat
                renderers and develop reliable feedstock and reagent supplies;
                and·
            develop
                new products that complement our contemplated business and long term
                stability.





If
      we
      cannot successfully address these risks, our contemplated business and the
      results of our contemplated operations and financial position would suffer
      potentially to the point where the company may need to cease
      operations.





*The
      loss of our Chief Executive Officer and/or President could limit our ability
      to
      execute our growth strategy, resulting in a slower rate of
      growth.* The
      Company is largely dependent upon its officers, Dr. Richard Craven and James
      E.
      Earnest, for management and direction. The Company does not maintain “key
      person” life insurance for Dr. Craven or Mr. Earnest. The loss of either Dr.
      Craven or Mr. Earnest could adversely affect the Company’s contemplated
      operations and results as the loss could cause a cessation of operations until
      qualified replacements can be found and/or a loss of expertise difficult to
      replace in a given time frame.





*Our
      ability to successfully execute our business depends on certain conditions,
      the
      satisfaction of which, are not under our control. There is no certainty that
      we
      will be able to achieve satisfaction of any or these conditions* .
      The
      Company’s ability to successfully execute our business plan depends on the
      satisfaction of several conditions. The Company’s ability to satisfy these
      conditions may be, in part or in whole, beyond our control. The principal
      conditions to be satisfied include:





·
            reaching
                definitive agreements for reliable feedstock supplies for biodiesel
                at
                prices that permit profitable production;·
            entering
                into satisfactory agreements for the sale of biodiesel at prices
                that are
                competitive in the market and allow for sufficient revenues to sustain
                the
                business;




18




·
            entering
                into satisfactory agreements for the expansion of the existing
                manufacturing facility which are tied closely to costs of said expansions
                and our ability to secure financing of these planned
                expansions;





Since
      the
      Company has yet to begin full operation as a business but is close to doing
      so
      pending successful acquisition of funding, there is no certainty that we will
      be
      able to achieve satisfaction of any or all of the above conditions in addition
      to production volume and costs control.





*Petroleum
      diesel, vegetable oils, waste oils and animal fats, and other commodity prices
      are volatile, and changes in prices of such commodities could have in the future
      a material adverse impact on our business.* The
      results of operations, financial position, and business outlook of the Company’s
      planned business are highly dependent on commodity prices, which are subject
      to
      significant volatility and uncertainty, and influence the availability of
      supplies especially for smaller producers. Accordingly, any results of our
      contemplated business could fluctuate substantially and even reach cost levels
      that could cause a cessation of operations.





Anticipated
      results are substantially dependent on commodity prices, especially prices
      for
      vegetable oils, waste oils, animal fats, and also petroleum diesel. The only
      help in this area is secure contracts at acceptable prices and terms for these
      materials, but no assurance is possible that such agreements can be obtained,
      especially without adequate funding.





As
      a
      result of the volatility of the prices for commodities, anticipated results
      may
      fluctuate substantially, and we may experience periods of declining prices
      for
      our products and increasing costs for our raw materials, which could result
      in
      operating losses or cessation of operations entirely.





*The
      Company’s contemplated business is likely to be highly sensitive to feedstock
      and reagent prices, and generally we will be unable to pass on increases in
      these prices to our customers.* The
      principal raw materials we expect to use to produce biodiesel are plant oil
      and/or animal fat feedstocks. As a result, changes in the price of feedstock
      can
      significantly affect our contemplated business. In general, rising feedstock
      prices produce lower profit margins. Because biodiesel competes with
      fossil-based fuels, the Company is not likely to be able to pass along increased
      feedstock costs to customers unless there are corresponding price increases
      in
      petroleum commodities. At certain levels, feedstock prices may make biodiesel
      uneconomical to use in fuel markets. Such lack of economy could have detrimental
      effects on our ability to maintain production.





Weather
      conditions and other factors affecting crop yields, farmer planting decisions,
      and general economic, market and regulatory factors all influence the price
      of
      feedstocks. Government policies and subsidies with respect to agriculture and
      international trade, and global and local demand and supply also impact the
      price. The significance and relative effects of these factors on the price
      of
      plant oils and other feedstocks are difficult to predict. Any event that tends
      to negatively affect the supply of feedstock, such as adverse weather or crop
      disease, could increase feedstock prices and potentially harm our
      business.





*Fluctuations
      in the selling price and production cost of diesel may reduce the Company’s
      anticipated profit margins, if profits are achieved.* Historically,
      the price of a gallon of petroleum diesel has been lower than the cost to
      produce a gallon of biodiesel. Biodiesel prices are influenced by the supply
      and
      demand for diesel, and our anticipated results of operations and financial
      position may be materially adversely affected if diesel demand or price
      decreases.





*The
      Company’s anticipated business will be subject to seasonal
      fluctuations* .
      The
      Company anticipated operating results are likely to be influenced by seasonal
      fluctuations in the price of our primary operating input, feedstocks, and the
      price of our primary product, biodiesel. Biodiesel prices are substantially
      correlated with the price of petroleum diesel, especially in connection with
      our
      indexed, gas-plus sales contracts. The price of petroleum diesel tends to rise
      during each summer and winter. Given our lack of operating history, we do not
      know yet how these seasonal fluctuations, especially the lows in spring and
      fall, will affect our results over time.





19




*Growth
      in the sale and distribution of biodiesel is dependent on the changes to and
      expansion of related infrastructure which may not occur on a timely basis,
      if at
      all, and the Company’s contemplated operations could be adversely affected by
      infrastructure disruptions.* Substantial
      development of infrastructure will be required by persons and entities outside
      the Company’s control for our contemplated operations, and the renewable fuel
      industry generally, to grow. Areas requiring expansion include, but are not
      limited to:





§
            additional
                storage facilities for biodiesel;§
            expansion
                of refining and blending facilities to produce biodiesel and form
                blends
                with petroleum diesel; and§
            growth
                in service stations equipped to handle biodiesel
                fuels.





Substantial
      investments required for these infrastructure changes and expansions may not
      be
      made or they may not be made on a timely basis in time to benefit the Company.
      Any delay or failure in making the changes to or expansion of infrastructure
      could hurt the demand or prices for the Company’s contemplated products, impede
      delivery of those products, impose additional costs on us, or otherwise have
      a
      material adverse effect on our results of contemplated operations or financial
      position. The Company’s contemplated business will be highly dependent on the
      continuing availability of infrastructure, and any infrastructure disruptions
      could have a material adverse effect on our business.





*We
      may not be able to compete effectively in the U.S. and foreign biodiesel
      industries* .
      In the
      U.S., the Company’s contemplated business would compete with other existing
      biodiesel producers and refineries. A number of competitors are divisions of
      substantially larger enterprises and have substantially greater financial
      resources than the Company has or plans to have, making the larger suppliers
      more able to weather market volatility, whereas, our smaller size would not.
      These smaller competitors operate smaller facilities which do not affect the
      local price of soybeans grown in the proximity to the facility as much as larger
      facilities. In addition, institutional investors and high net worth individuals
      could heavily invest in biodiesel production facilities and oversupply the
      demand for biodiesel, resulting in lower biodiesel price levels that might
      adversely affect the results of the Company’s contemplated operations and
      financial position.





*Any
      increase in domestic competition could result in reduced biodiesel prices.
      As a
      result, we could be forced to take other steps to compete effectively, if at
      all, which could adversely affect the results of our contemplated operations
      and
      financial position.*





The
      U.S.
      renewable fuel industry is highly dependent upon federal and state legislation,
      regulation, and subsidies/incentives and any changes in legislation or
      regulation or subsidies/incentives could materially and adversely affect the
      results of the Company’s contemplated operations and financial position.




The
      cost
      of producing biodiesel is made significantly more competitive with petroleum
      diesel by federal tax incentives. The elimination or significant reduction
      in
      such federal tax incentives or other programs benefiting biodiesel may have
      a
      material adverse effect on the results of the Company’s contemplated operations
      and financial position. Smaller producers due to lack of bargaining ability
      and
      production economies of size are more susceptible to changes in these federal
      tax incentives.




*We
      may be adversely affected by environmental, health and safety laws, regulations
      and liabilities.* As
      we
      pursue our business plan, we will become subject to various federal, state
      and
      local environmental laws and regulations, including those relating to the
      discharge of materials into the air, water and ground, the generation, storage,
      handling, use, transportation and disposal of hazardous materials, and the
      health and safety of our employees. In addition, some of these laws and
      regulations require our suppliers and our contemplated distribution facilities
      to operate under permits that are subject to renewal or modification. These
      laws, regulations and permits can often require expensive pollution control
      equipment or operational changes to limit actual or potential impacts to the
      environment. A violation of these laws and regulations or permit conditions
      can
      have a material adverse effect on our business.





20




*We
      may not be able to secure the required zoning and permits to operate and produce
      biodiesel* .
      Although the Company has been granted a provisional permit from the State of
      Mississippi, there is no guarantee that we will be able to obtain the required
      zoning and permits to operate and commence production at the levels that are
      required in order to become profitable. This could significantly affect the
      Company’s ability to generate revenues and would have a material adverse effect
      on our business.




**Risk
      Factors Related to Our Stock**





*The
      Company's Common Stock May Be Affected by Limited Trading Volume and May
      Fluctuate Significantly, Which May Affect Our Shareholders' Ability To Sell
      Shares of Our Common Stock.* Prior to
      this filing, there has been a limited public market for our common stock and
      there can be no assurance that a more active trading market for our common
      stock
      will develop. An absence of an active trading market could adversely affect
      our
      shareholders' ability to sell our common stock in short time periods, or
      possibly at all. Our common stock has experienced, and is likely to experience
      in the future, significant price and volume fluctuations, which could adversely
      affect the market price of our common stock without regard to our operating
      performance. In addition, we believe that factors such as quarterly fluctuations
      in our financial results and changes in the overall economy or the condition
      of
      the financial markets could cause the price of our common stock to fluctuate
      substantially. These fluctuations may also cause short sellers to enter the
      market from time to time in the belief that we will have poor results in the
      future. We cannot predict the actions of market participants and, therefore,
      can
      offer no assurances that the market for our stock will be stable or appreciate
      over time. These factors may negatively impact shareholders' ability to sell
      shares of our common stock.





*The
      Company’s common stock may be subject to “penny stock” rules which may be
      detrimental to investors* :
      The
      Securities and Exchange Commission has adopted regulations which generally
      define "penny stock" to be any equity security that has a market price (as
      defined) of less than $5.00 per share or an exercise price of less than $5.00
      per share. The securities may become subject to rules that impose additional
      sales practice requirements on broker-dealers who sell such securities. For
      transactions covered by these rules, the broker-dealer must make a special
      suitability determination for the purchaser of such securities and have received
      the purchaser's written consent to the transaction prior to the purchase.
      Additionally, for any transaction involving a penny stock, unless exempt, the
      rules require the delivery, prior to the transaction, of a disclosure schedule
      prepared by the Securities and Exchange Commission relating to the penny stock
      market. The broker-dealer also must disclose the commissions payable to both
      the
      broker-dealer and the registered representative, current quotations for the
      securities and, if the broker-dealer is the sole market-maker, the broker-dealer
      must disclose this fact and the broker-dealer's presumed control over the
      market. Finally, among other requirements, monthly statements must be sent
      disclosing recent price information for the penny stock held in the account
      and
      information on the limited market in penny stocks. Consequently, the "penny
      stock" rules may restrict the ability of purchasers in this offering to sell
      the
      Common Stock offered hereby in the secondary market.





**ITEM
      3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK**




**Not
      applicable.**





**ITEM
      4.  CONTROLS AND PROCEDURES**




**Evaluation
      of Disclosure Controls and Procedures**




21




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 by the
      SEC
      and that such information is accumulated and communicated to management,
      including our CEO and CFO, as appropriate, to allow for timely decisions
      regarding required disclosure. In designing and evaluating our disclosure
      controls and procedures, we recognize 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.




Management,
      with participation by our CEO and CFO, has designed the Company’s disclosure
      controls and procedures to provide reasonable assurance of achieving the desired
      objectives. As required by SEC Rule 13a-15(b), in connection with filing
      this Quarterly Report on Form 10-Q, management conducted an evaluation, with
      the
      participation of our CEO and CFO, of the effectiveness of the design and
      operation of our disclosure controls and procedures, as such term is defined
      under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934,
      as of March 31, 2008, the end of the period covered by this report.




Based
      upon the evaluation conducted by management in connection with the audit of
      the
      Company’s financial statements for the three months ending March 31, 2008, we
      identified material weaknesses in our internal control over financial reporting.
      A material weakness is “a significant deficiency, or a combination of
      significant deficiencies, that results in more than a remote likelihood that
      a
      material misstatement of the annual or interim financial statements will not
      be
      prevented or detected by us in a timely manner. As a result of this material
      weakness, our CEO and CFO concluded that our disclosure controls and procedures
      were not effective at the reasonable assurance level as of March 31,
      2008.




**Management’s
      Evaluation of Internal Control over Financial Reporting**




Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting. The Company’s internal control over
      financial reporting is designed to provide reasonable assurances regarding
      the
      reliability of financial reporting and the preparation of the consolidated
      financial statements of the Company in accordance with U.S. generally accepted
      accounting principles. Because of its inherent limitations, internal
      control over financial reporting may not prevent or detect misstatements. Also,
      projections of any evaluation of effectiveness to future periods are subject
      to
      the risk that controls may become inadequate because of changes in conditions,
      or that the degree or compliance with the policies or procedures may
      deteriorate.




With
      the
      participation of our Chief Executive Officer and our Chief Financial Officer,
      our management conducted an evaluation of the effectiveness of our internal
      control over financial reporting as of March 31, 2008 based on the framework
      in *Internal
      Control—Integrated Framework* issued
      by
      the Committee of Sponsoring Organizations of the Treadway Commission. Based
      on our evaluation and the material weaknesses described below, management
      concluded that the Company did not maintain effective internal control over
      financial reporting as of March 31, 2008 based on the specified criteria.
      Management has identified control deficiencies regarding 1) lack of segregation
      of duties; 2) lack of timely completion of financial control and reporting
      processes; and 3) need for stronger internal control environment. Management
      of
      the Company believes that these material weaknesses are due to the small size
      of
      the Company’s accounting staff. The small size of the Company’s accounting staff
      may prevent adequate controls in the future, such as segregation of duties,
      due
      to the cost/benefit of such remediation.




The
      ineffectiveness of internal controls as of March 31, 2008 stemmed in large
      part
      from several significant changes within the Company. The organization
      structure was changing as we hired additional management and were restructuring
      the company obtaining new financing, adopting new accounting procedures and
      discontinuing operations. This placed additional stress on the organization
      and our internal reporting and controls as financial personnel adjusted to
      the
      many changes instituted within the company. Although we believe the
      time to adapt in the first quarter has better positioned us to provide
      improved internal control functions into the future, during the transition,
      these changes caused control deficiencies, which in the aggregate resulted
      in a
      material weakness.




22




These
      control deficiencies could result in a misstatement of account balances that
      would result in a reasonable possibility that a material misstatement to our
      financial statements may not be prevented or detected on a timely basis.
      Accordingly, we have determined that these control deficiencies as described
      above together constitute a material weakness.




In
      light
      of this material weakness, we performed additional analyses and procedures
      in
      order to conclude that our consolidated financial statements for the quarter
      ending March 31, 2008 included in this Quarterly Report on Form 10-Q were
      fairly stated in accordance with US GAAP. Accordingly, management believes
      that despite our material weaknesses, our financial statements for the three
      months ending March 31, 2008 are fairly stated, in all material respects, in
      accordance with US GAAP.




We
      may in
      the future identify further material weaknesses or significant deficiencies
      in
      our internal control over financial reporting that we have not discovered to
      date. We plan to refine our internal control over financial reporting to meet
      the internal control reporting requirements included in Section 404 of the Sarbanes-Oxley
      Act (SOX
      404) to have effective internal controls by December 31, 2008. The effectiveness
      of the measures we implement in this regard will be subject to ongoing
      management review supported by confirmation and testing by management, as well
      as audit committee oversight. As a result, we expect that additional
      changes could be made to our internal control over financial reporting and
      disclosure controls and procedures.




**PART
      II.** **OTHER
      INFORMATION**




**Item
      1.**  **Legal
      Proceedings**




None.




**Item
      2.**  **Unregistered
      Sales of Equity Securities and Use of Proceeds**




On
      February 26, 2008 the Company issued 19,763 shares of common stock as
      compensation having a fair value of $100,000. The shares vest on February 27,
      2009. As of March 31, 2008 $9,315 is recorded as compensation.





On
      February 13, 2008 the Company granted 10,000 shares of common stock for
      consulting services having a fair value of $50,100 based upon fair value on
      the
      date of grant. As of March 31, 2008 $50,100 is recorded as deferred compensation
      for future consulting services.





The
      transactions described above were exempt from registration pursuant to Section
      4(2) of the Securities Act of 1933 by reason that: (i) no commissions were
      paid
      for the issuance of security; (ii) the issuance of such security by the Company
      did not involve a "public offering"; (iii) the purchasers of each security
      were
      sophisticated and accredited investors; (iv) the offerings were not a "public
      offering" as defined in Section 4(2) due to the insubstantial numbers of persons
      involved in such sales, size of the offering, manner of the offering and number
      of securities offered; and (v) in addition, each purchaser had the necessary
      investment intent as required by Section 4(2) since each purchaser agreed to
      and
      received security bearing a legend stating that such security is restricted
      pursuant to Rule 144 of the 1933 Securities Act. (These restrictions ensure
      that
      this security would not be immediately redistributed into the market and
      therefore not be part of a "public offering").




**Item
      3.**  **Defaults
      Upon Senior Securities**




None.




23




**Item
      4.**  **Submission
      of Matters to a Vote of Security Holders**




None.




**Item
      5.**  **Other
      Information**




During
      April 2008, the Company issued a $300,000 convertible note payable to Mortensen
      Financial Limited, a shareholder in the Company. The note is convertible at
      the
      option of the holder by taking the average bid price of the common stock for
      the
      five day period preceding the conversion and multiplying by 75%. The interest
      rate is 6.5% per annum. The note is unsecured and requires payments of accrued
      interest and principal by October 31, 2010. Beginning April 30, 2009 and
      semiannually thereafter through October 31, 2010, Company is to pay $75,000
      in
      semiannual installments.





Mortensen
      Financial Limited, a shareholder of the Company, has lent the Company an
      aggregate of $981,556 pursuant to notes as described above (non-convertible
      notes in the aggregate of $338,000; convertible notes in the aggregate of
      $643,556).




**Item
      6.**  **Exhibits**




10.3
      Universal Bioenergy Inc. promissory note in favor of Mortensen Financial Limited
      in the amount of $43,555.50 dated as of  March
      18,
      2007.





10.4
      Universal Bioenergy Inc. promissory note in favor of Mortensen Financial Limited
      in the amount of $300,000 dated as of April 7, 2007.




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





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





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





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


24





**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:
                May 30, 2008
            
            By
            /s/
                Richard CravenRichard
                Craven, Chief Executive OfficerDated:
                May 30, 2008
            
            By
            /s/
                James EarnestJames
                Earnest, Chief Financial
                Officer


25