UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-K




x ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES


EXCHANGE
ACT OF 1934


For
the Fiscal Year Ended December 31, 2008


OR


 ̈
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES


EXCHANGE
ACT OF 1934


For the
transition period from N/A to N/A


Commission
File Number:  333-123465




Universal
Bioenergy, Inc.


(Name of
registrant as specified in its charter)


Nevada
              
              20-1770378State
      of Incorporation
              
              IRS
      Employer Identification No.


19800
Mac Arthur Blvd., Suite 300


Irvine,
CA  92612


(Address
of principal executive offices)




(888) 263-2009


(Issuer’s
telephone number)




Securities
registered under Section 12(b) of the Exchange Act:  None


Securities
registered under Section 12(g) of the Exchange Act:


Common
Stock, $0.001 par value per share


(Title
of Class)


Common
Stock, $.001 Par Value




Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act.o YesxNo




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. o Yes    x
No




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. Yes ̈ No
x




Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files). 
Yes ̈No ̈





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  ̈




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




Large accelerated filer 
       ̈
              Non-accelerated filer ̈
            
            Accelerated filer ̈
              Smaller
      Reporting companyx





Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act. Yes  ̈ No
x


The
aggregate market value of voting  and non-voting common equity  held
by non-affiliates computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common equity, as of
the last business day of the registrant’s most recently completed fiscal year,
December 31, 2008 was approximately $440,000.


Solely
for purposes of the foregoing calculation, all of the registrant’s directors and
officers as of December 31, 2009, are deemed to be affiliates.This determination of
affiliate status for this purpose does not reflect a determination that any
persons are affiliates for any other purposes.


State the
number of shares outstanding of each of the issuer’s classes of equity
securities, as of the latest practicable date: As atMay 25, 2010there
were 45,155,000 shares
of Common Stock, $0.001 par value per
share issued and outstanding and 100,000 Series A
preferred stock, $0.001 par value per
share and 232,080Series B preferred stock., $.001 par value per
share.


Documents
Incorporated By Reference -None










Universal
Bioenergy, Inc.


FORM
10-K ANNUAL REPORT


FOR
THE FISCAL YEARS ENDED DECEMBER 31, 2008 AND 2007


TABLE
OF CONTENTS




PART IITEM 1.
                                                                                
                                                                                BUSINESS
                                                                                
                                                                                4ITEM 1A.
                                                                                
                                                                                RISK FACTORS
                                                                                
                                                                                9ITEM 1B.
                                                                                
                                                                                UNRESOLVED STAFF COMMENTS
                                                                                
                                                                                13ITEM 2.
                                                                                
                                                                                PROPERTIES
                                                                                
                                                                                14ITEM 3.
                                                                                
                                                                                LEGAL PROCEEDINGS
                                                                                
                                                                                14ITEM 4.
                                                                                
                                                                                REMOVED AND RESERVED
                                                                                
                                                                                14PART IIITEM 5.
                                                                                
                                                                                MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
      STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
      SECURITIES
                                                                                
                                                                                15ITEM 6.
                                                                                
                                                                                SELECTED FINANCIAL DATA
                                                                                
                                                                                16ITEM 7.
                                                                                
                                                                                MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS
                                                                                
                                                                                17ITEM 7A.
                                                                                
                                                                                QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
      MARKET RISK
                                                                                
                                                                                25ITEM 8.
                                                                                
                                                                                CONSOLIDATED FINANCIAL STATEMENTS AND
      SUPPLEMENTARY DATA
                                                                                
                                                                                F-1ITEM 9.
                                                                                
                                                                                CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
      ACCOUNTING AND FINANCIAL DISCLOSURE
                                                                                
                                                                                26ITEM 9A.
                                                                                
                                                                                CONTROLS AND PROCEDURES
                                                                                
                                                                                26ITEM 9B.
                                                                                
                                                                                OTHER INFORMATION
                                                                                
                                                                                27PART IIIITEM 10.
                                                                                
                                                                                DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE
      GOVERNANCE.
                                                                                
                                                                                28ITEM 11.
                                                                                
                                                                                EXECUTIVE COMPENSATION
                                                                                
                                                                                29ITEM 12.
                                                                                
                                                                                SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
      AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
                                                                                
                                                                                32ITEM 13.
                                                                                
                                                                                CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
      AND DIRECTOR INDEPENDENCE
                                                                                
                                                                                34ITEM 14.
                                                                                
                                                                                PRINCIPAL ACCOUNTANT FEES AND
      SERVICES
                                                                                
                                                                                35PART IVITEM 15.
                                                                                
                                                                                EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
                                                                                
                                                                                36SIGNATURES
                                                                                
                                                                                37


CERTIFICATIONS





Exhibit
      31 – Management certification
                39Exhibit
      32 – Sarbanes-Oxley Act
                41




2




FORWARD-LOOKING
STATEMENTS




This
Annual Report contains certain forward-looking statements regarding management’s
plans and objectives for future operations including plans and objectives
relating to our planned marketing efforts and future economic performance. The
forward-looking statements and associated risks set forth in this Annual Report
include or relate to, among other things, (a)  our growth strategies,
(b) anticipated trends in the mining industry, (c) our ability to
obtain and retain sufficient capital for future operations, and (d) our
anticipated needs for working capital. These statements may be found under
“Management’s Discussion and Analysis or Plan of Operations” and “Business,” as
well as in this Annual Report generally. Actual events or results may differ
materially from those discussed in forward-looking statements as a result of
various factors, including, without limitation, the risks outlined under “Risk
Factors” and matters described in this Annual Report generally. In light of
these risks and uncertainties, there can be no assurance that the
forward-looking statements contained in this Annual Report will in fact
occur.




The
forward-looking statements herein are based on current expectations that involve
a number of risks and uncertainties. Such forward-looking statements are based
on assumptions described herein. The assumptions are based on judgments with
respect to, among other things, future economic, competitive and market
conditions, and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond our control.
Accordingly, although we believe that the assumptions underlying the
forward-looking statements are reasonable, any such assumption could prove to be
inaccurate and therefore there can be no assurance that the results contemplated
in forward-looking statements will be realized. In addition, as disclosed
elsewhere in the “Risk Factors” section of this annual report, there are a
number of other risks inherent in our business and operations which could cause
our operating results to vary markedly and adversely from prior results or the
results contemplated by the forward-looking statements. Management decisions,
including budgeting, are subjective in many respects and periodic revisions must
be made to reflect actual conditions and business developments, the impact of
which may cause us to alter marketing, capital investment and other
expenditures, which may also materially adversely affect our results of
operations. In light of significant uncertainties inherent in the
forward-looking information included in this annual report, the inclusion of
such information should not be regarded as a representation by us or any other
person that our objectives or plans will be achieved.




Some
of the information in this annual report contains forward-looking statements
that involve substantial risks and uncertainties. Any statement in this annual
report that is not a statement of an historical fact constitutes a
“forward-looking statement”. Further, when we use the words “may”, “expect”,
“anticipate”, “plan”, “believe”, “seek”, “estimate”, “internal”, and similar
words, we intend to identify statements and expressions that may be forward-
looking statements. We believe it is important to communicate certain of our
expectations to our investors. Forward-looking statements are not guarantees of
future performance. They involve risks, uncertainties and assumptions that could
cause our future results to differ materially from those expressed in any
forward-looking statements. Many factors are beyond our ability to control or
predict. You are accordingly cautioned not to place undue reliance on such
forward-looking statements. Important factors that may cause our actual results
to differ from such forward-looking statements include, but are not limited to,
the risk factors discussed herein.




3


PART
I






As used
in this annual report, “we”, “us”, “our”, “Universal”, “Company” or “our
company” refers to Universal Bioenergy, Inc. and all of its
subsidiaries.




ITEM
1.  BUSINESS.




Company
History




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





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





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




Changed
Business Model




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




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




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




4





History
of Universal Bioenergy North America, Inc. (UBNA)





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





UBNA owns
a biodiesel fuel refinery located at Nettleton, Mississippi, acquired from
Biodiesel of Mississippi, Inc. through a bankruptcy sale. It was the first
biodiesel manufacturing refinery to sell biodiesel to the public in the state of
Mississippi. The plant is located in the northeastern part of the state on 4.3
acres of land that at one time was the home of an old Bunge Grain Elevator
facility. During the grain elevator operation time, there was a railway spur
constructed to facilitate the movement of huge quantities of various grains but
has since been removed by the railway company.




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




UBNA
entered into a bill of sale with BMI on January 26th, 2007 (the "Bill of Sale")
to acquire certain assets from BMI, including the fixtures on the land, the
refinery and certain equipment, tools, and other assets as listed in the
Bill of Sale (collectively, the "Assets"). For all the terms and provisions of
the Bill of Sale, it is attached in its entirety as Exhibit 2.2 to UBRG’s
Current Report on Form 8-K as filed on December 14, 2007.




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





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





Further,
since the acquisition of the assets from bankruptcy, management acquired
additional reactors and tanks to increase the processing, washing, and storage
capacity. Today, UBNA has four 50,000 gallon each jacketed reactors, four
washing tanks, and additional storage tanks.





Management
believes its production capacity could reach 10 million gallons per year
(MGPY) with the installed equipment. With additional heating sources, management
believes that the capacity could be increased to 20 MGPY and could reach
production capacity of 50 MGPY pending installation of additional equipment,
excess storage capacity, and additional heating sources.




5




BACKGROUND





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





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





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





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




Currently,
there is a biodiesel tax incentive that is a federal tax credit. The credit
equates to one penny for every 1 percent of biodiesel in a fuel
blend made from agricultural products like vegetable oils, and one-half penny
per percent for recycled oils. This incentive is taken by petroleum distributors
and passed on to consumers. The USDA developed a study that estimated this
incentive will increase the demand for biodiesel to at least 124 million gallons
per year exceeding 800 million gallons by the end of 2010, and depending on
other factors, including crude oil prices, the industry projects that demand
could be much higher.




The tax
credit was allowed to expire on December 31, 2009, causing widespread layoffs in
the biodiesel industry since the credit is needed by most producers to remain
economically viable.  The Senate voted on March 10, 2010 to restore the
credit.   As of May 26, 2010 the House was moving towards a vote as
well.  Restoration of the credit will then require reconciliation and
signature of President Obama.




Any
diesel car or truck can run on biodiesel with no conversion necessary. In 2008
just 4 percent of U.S. passenger cars ran on diesel, but analysts expect that
number to rise fast, in lockstep with rising oil prices. J.D. Power Automotive
Forecasting predicts that diesel's share of the market will increase to more
than 10 percent by the middle of the next decade - fueled in large part by the
surge in biodiesel production and popularity.





Total
production of biodiesel shot up from 25 million gallons in 2004 to over 400
million gallons in 2007. Nearly 100 new plants have or are under
construction.




Feedstock
costs account for a large percentage (70+ %) of the direct biodiesel production
costs, including capital cost and return. Well-priced feedstock will assist the
company in moving forward in its development stage commitments. It takes about
7.6 pounds of soybean oil, which costs about 40 cents per pound, to produce a
gallon of biodiesel. Feedstock costs alone, therefore, are at least $3.04 per
gallon of soy biodiesel. Fats and greases cost less and produce less expensive
biodiesel, as low as $2.00 per gallon depending on availability of low cost
sources. The quality of the fuel is equivalent to soy biodiesel fuel with proper
processing.




6


REFINERY
PLANT





UBRG owns
a biodiesel fuel refinery located in northeastern Mississippi. The plant is
located on 4.3 acres of land and provides ample space to expand.





Due to a
lack of working capital, the temporary operating permits were allowed to expire
in September 2008 and the plant is currently dormant.





EQUIPMENT





The plant
had original capacity to produce about 20,000 gallons of biodiesel per week.
However, the plant was never operated consistently at its full production
capacity during its initial existence due to a lack of capital and washing and
storage capacity. The company had two 50,000 gallon capacity reactors, two
12,000 gallon capacity washing tanks, and two 50,000 gallon capacity storage
tanks.





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





Furthermore,
since the acquisition of the assets from bankruptcy, management acquired
additional reactors and tanks to increase the processing, washing, and storage
capacity. Today, UBRG has four 50,000 gallons each jacketed reactors with the
total capacity to process 20,000+ gallons of biodiesel per batch per reactor,
four wash tanks with total capacity to clean and wash 90,000 gallons of
biodiesel per batch, and required storage tanks.





Management
believes its production capacity could reach 10 million gallons per year (MGPY)
with the installed equipment and adequate economic conditions. With additional
heating sources, management believes that the capacity could be increased to 20
MGPY and could further reach production capacity of 50 MGPY with additional
equipment, additional heating source, and storage tanks.





LOGISTICS





The plant
is located in northeastern Mississippi, about 125 miles southeast of Memphis,
TN. Memphis is considered North America’s Distribution Center.




The
location of the Memphis region has given rise to an important complex of
transportation and logistics resources including water, air, road and rail
transportation and telecommunications. “North America's Distribution
Center,”Memphis is
home to the largest cargo airport (Memphis International Airport) in the world,
four north-south runways, a Northwest Airlines hub, and the FedEx
headquarters/global operations center. In addition to the resources found in the
Memphis metropolitan region, the regional cities of Olive Branch (6,000 ft.
runway), Millington (8,000 ft. runway), West Memphis (6,000 ft. runway) and
Blytheville (11,602 ft. runway) have important general aviation airports. The
former Eaker Air Force Base in Blytheville has become a major economic
development center in the northern part of the region. The second largest inland
port in the country and a series of water ports (including Helena, W. Memphis,
N. Memphis and Blytheville Ports) are found along the Mississippi River. The
I-40, I-22, and I-55 interstates, extending east-west and north-south
respectively, position the region at a key crossroad in the interstate highway
system. As a result, the Memphis region is also an important trucking hub. With
five Class-I railroads (BNSF, UP, CN/IC, CSX, and NS), the region is also an
important rail hub. The region's extensive logistic functions also support the
Super Terminal and growth of the area's global communications infrastructure. As
a result, Memphis is poised to emerge as an important information processing and
communications hub.




7


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





There is
a railway line in close proximity to the facility, and the old railway spur
could be reconstructed for an estimated cost of $1 million. The railway is a
cost-effective and efficient way to move biodiesel by tank car from a gathering
location or single origin to a single destination for distribution.





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





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





PRODUCTS




Besides
biodiesel, Universal also intends to sell the byproducts from its bio-fuel
manufacturing or convert them into value-added products. Although this is not a
significant revenue source, it effectively reduces expenses by avoiding disposal
costs. For example glycerin is a byproduct of biodiesel manufacturing and is
used in cosmetic industry products, such as soap. The current price of
pharmaceutical glycerin is high; however, that is likely to change in the next
few years due to an increase in supply from biodiesel production (and thus an
increase of available glycerin). An alternative is for Universal to pursue
developing technologies to convert the glycerin into value-added products that
are in higher demand than the crude glycerin.




DISTRIBUTION




Universal
is planning to sell biodiesel products to the refineries prior customers, truck
stops, local distributors and export to the European market if economical to do
so. Universal is also exploring the possibility to distribute their complete
production to a single source distributor or user once production
starts.




Universal
attempted negotiating contracts with various vendors to meet their raw material
requirements but economic conditions have made sourcing economically priced
materials difficult. As economic conditions improve, Universal will again seek
the needed raw materials for production. Universal is also exploring the
possibility of importing oil from Africa and Asia if again it is economically
viable. In order to achieve its strategic goals, Universal intends to develop a
network of qualified representatives and staff that are knowledgeable in the
bio-fuels industry to coordinate with both suppliers and distributors to market
and sell Universal’s products. In addition, the Company intends to expand its
current management to retain skilled directors, officers, and employees with
experience relevant to its business focus. Obtaining the assistance of
individuals with an in-depth knowledge of markets will allow us to build market
share more effectively.




Off-Balance Sheet Arrangements




We do not
have any off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that is material to investors.




8


Limited
Operating History; Need for Additional Capital




There is
no historical financial information about us on which to base an evaluation of
our performance. We are a developmental stage company and have not generated
revenues from operations. We cannot guarantee we will be successful in our
business operations. Our business is subject to risks inherent in the
establishment of a new business enterprise, including limited capital resources,
possible delays in the in start of biofuels production, and possible cost
overruns or delays in production due to increases in the cost of
services.




To become
profitable and competitive, we must commence fuel production or add additional
revenue generating streams before any profit will be possible.  We are
seeking funding to provide the capital required for our production and
diversification plans.




Revenues





Revenue
from product sales is recognized upon shipment to customers at which time such
customers are invoiced. Units are shipped under the terms of FOB shipping point
when determination is made that collectability is probable. Our company has
adopted the Securities and Exchange Commission’s Staff Accounting Bulletin (SAB)
No. 104, which provides guidance on the recognition, presentation, and
disclosure of revenue in financial statements.




Employees





As of
fiscal year end December 31, 2008, the Company had 3 employees.





WHERE YOU CAN FIND MORE
INFORMATION





You are
advised to read this Form 10-K in conjunction with other reports and documents
that we file from time to time with the SEC. In particular, please read our
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K that we file from
time to time. You may obtain copies of these reports directly from us or from
the SEC at the SEC’s Public Reference Room at 100 F. Street, N.E. Washington,
D.C. 20549, and you may obtain information about obtaining access to the
Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC
maintains information for electronic filers at its website
http://www.sec.gov.




ITEM 1A
- Risk Factors




An
investment in our common stock involves a high degree of risk. You should
carefully consider the following information about these risks, together with
the other information contained in this Annual Report on Form 10-K, before
investing in our common stock. If any of the events anticipated by the risks
described below occur, our results of operations and financial condition could
be adversely affected which could result in a decline in the market price of our
common stock, causing you to lose all or part of your investment.




9


The
Report Of Our Independent Registered Public Accounting Firm Contains Explanatory
Language That Substantial Doubt Exists About Our Ability To Continue As A Going
Concern




The
independent auditor’s report on our financial statements contains explanatory
language that substantial doubt exists about our ability to continue as a going
concern. The report states that we depend on the continued contributions of our
executive officers to work effectively as a team, to execute our business
strategy, and to manage our business. The loss of key personnel, or their
failure to work effectively, could have a material adverse effect on our
business, financial condition, and results of operations. If we are unable to
obtain sufficient financing in the near term or achieve profitability, then we
would, in all likelihood, experience severe liquidity problems and may have to
curtail our operations. If we curtail our operations, we may be placed into
bankruptcy or undergo liquidation, the result of which will adversely affect the
value of our common shares.




We
lack an operating history and have losses which we expect to continue into the
future. As a result, we may have to suspend or cease activities.




We were
incorporated in August, 2004, and we have not started our proposed business
activities or realized any revenues. We have no operating history upon which an
evaluation of our future success or failure can be made. Our net loss was
$12,887,012 from inception to December 31, 2008. Our ability to achieve and
maintain profitability and positive cash flow is dependent upon:




·
            our
      ability to generate revenues


·
            our
      ability to implement our refinery


·
            our
      ability to reduce costs


·
            restoration
      of the biodiesel fuel tax credit


·
            our
      ability to implement diversification of
  products.





Based
upon current plans, we expect to incur operating losses in future periods. As a
result, we may not generate revenues in the future. Failure to generate revenues
will cause us to suspend or cease activities.




Nevada Law
And Our Articles Of Incorporation Protect Our Directors From Certain Types Of
Lawsuits, Which Could Make It Difficult For Us To Recover Damages From Them In
The Event Of A Lawsuit.




Nevada
law provides that our directors will not be liable to our company or to our
stockholders for monetary damages for all but certain types of conduct as
directors. Our Articles of Incorporation require us to indemnify our directors
and officers against all damages incurred in connection with our business to the
fullest extent provided or allowed by law. The exculpation provisions may have
the effect of preventing stockholders from recovering damages against our
directors caused by their negligence, poor judgment, or other circumstances. The
indemnification provisions may require our company to use our assets to defend
our directors and officers against claims, including claims arising out of their
negligence, poor judgment, or other circumstances.





II.  Risks Associated
with Our Current Stage of Business





Failure
to achieve and maintain effective internal controls in accordance with section
404 of the Sarbanes-Oxley Act could have a material adverse effect on our
business and operating results.




It may be
time consuming, difficult and costly for us to develop and implement the
additional internal controls, processes and reporting procedures required by the
Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal
auditing, and other finance staff in order to develop and implement appropriate
additional internal controls, processes, and reporting procedures. If we are
unable to comply with these requirements of the Sarbanes-Oxley Act, we may not
be able to obtain the independent accountant certifications that the
Sarbanes-Oxley Act requires of publicly traded companies.




If we
fail to comply in a timely manner with the requirements of Section 404 of
the Sarbanes-Oxley Act regarding internal control over financial reporting or to
remedy any material weaknesses in our internal controls that we may identify,
such failure could result in material misstatements in our financial statements,
cause investors to lose confidence in our reported financial information, and
have a negative effect on the trading price of our common stock.




10


Pursuant
to Section 404 of the Sarbanes-Oxley Act and current SEC regulations,
beginning with our August, 2004 report on Form 10-Q for our fiscal period
ending January 31, 2006, we will be required to prepare assessments regarding
internal controls over financial reporting and beginning with our annual report
on Form 10-K for our fiscal period ending January 31, 2006, furnish a
report by our management on our internal control over financial reporting. We
have begun the process of documenting and testing our internal control
procedures in order to satisfy these requirements, which is likely to result in
increased general and administrative expenses and may shift management time and
attention from revenue-generating activities to compliance activities. While our
management is expending significant resources in an effort to complete this
important project, there can be no assurance that we will be able to achieve our
objective on a timely basis. There also can be no assurance that our auditors
will be able to issue an unqualified opinion on management's assessment of the
effectiveness of our internal control over financial reporting. Failure to
achieve and maintain an effective internal control environment or complete our
Section 404 certifications could have a material adverse effect on our
stock price.




In
addition, in connection with our on-going assessment of the effectiveness of our
internal control over financial reporting, we may discover “material weaknesses”
in our internal controls as defined in standards established by the Public
Company Accounting Oversight Board, or the PCAOB. A material weakness is a
significant deficiency, or 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. The PCAOB
defines “significant deficiency” as a deficiency that results in more than a
remote likelihood that a misstatement of the financial statements that is more
than inconsequential will not be prevented or detected.




In the
event that a material weakness is identified, we will employ qualified personnel
and adopt and implement policies and procedures to address any material
weaknesses that we identify. However, the process of designing and implementing
effective internal controls is a continuous effort that requires us to
anticipate and react to changes in our business and the economic and regulatory
environments and to expend significant resources to maintain a system of
internal controls that is adequate to satisfy our reporting obligations as a
public company. We cannot assure you that the measures we will take will
remediate any material weaknesses that we may identify or that we will implement
and maintain adequate controls over our financial process and reporting in the
future.




Any
failure to complete our assessment of our internal control over financial
reporting, to remediate any material weaknesses that we may identify or to
implement new or improved controls, or difficulties encountered in their
implementation, could harm our operating results, cause us to fail to meet our
reporting obligations or result in material misstatements in our financial
statements. Any such failure could also adversely affect the results of the
periodic management evaluations of our internal controls and, in the case of a
failure to remediate any material weaknesses that we may identify, would
adversely affect the annual auditor attestation reports regarding the
effectiveness of our internal control over financial reporting that are required
under Section 404 of the Sarbanes-Oxley Act. Inadequate internal controls
could also cause investors to lose confidence in our reported financial
information, which could have a negative effect on the trading price of our
common stock.




Because We Are Quoted On The Pink
sheets Instead Of An Exchange Or National Quotation System, Our Investors May
Have A Tougher Time Selling Their Stock Or Experience Negative Volatility On The
Market Price Of Our Stock.




Our
common stock is traded on the Pink Sheets. The Pink Sheets is often highly
illiquid. There is a greater chance of volatility for securities that trade on
the Pink Sheets as compared to a national exchange or quotation system. This
volatility may be caused by a variety of factors, including the lack of readily
available price quotations, the absence of consistent administrative supervision
of bid and ask quotations, lower trading volume, and market conditions.
Investors in our common stock may experience high fluctuations in the market
price and volume of the trading market for our securities. These fluctuations,
when they occur, have a negative effect on the market price for our securities.
Accordingly, our stockholders may not be able to realize a fair price from their
shares when they determine to sell them or may have to hold them for a
substantial period of time until the market for our common stock
improves.





11




Once
publicly trading, the application of the “penny stock” rules could adversely
affect the market price of our common shares and increase your transaction costs
to sell those shares. The Securities and Exchange Commission has adopted rule
3a51-1 which establishes the definition of a “penny stock,” for the purposes
relevant to us, as any equity security that has a market price of less than
$5.00 per share or with an exercise price of less than $5.00 per share, subject
to certain exceptions. For any transaction involving a penny stock, unless
exempt, rule 15g-9 require:




·
            that
      a broker or dealer approve a person’s account for transactions in penny
      stocks; and


·
            the
      broker or dealer receive from the investor a written agreement to the
      transaction, setting forth the identity and quantity of the penny stock to
      be purchased.





In order
to approve a person’s account for transactions in penny stocks, the broker or
dealer must:




·
            obtain
      financial information and investment experience objectives of the person;
      and


·
            make
      a reasonable determination that the transactions in penny stocks are
      suitable for that person and the person has sufficient knowledge and
      experience in financial matters to be capable of evaluating the risks of
      transactions in penny stocks.





The
broker or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule prescribed by the SEC relating to the penny stock market,
which, in highlight form:




·
            sets
      forth the basis on which the broker or dealer made the suitability
      determination; and


·
            that
      the broker or dealer received a signed, written agreement from the
      investor prior to the transaction.


·
            Generally,
      brokers may be less willing to execute transactions in securities subject
      to the “penny stock” rules. This may make it more difficult for investors
      to dispose of our common stock and cause a decline in the market value of
      our stock.




FINRA
sales practice requirements may also limit a stockholder's ability to buy and
sell our stock.





In
addition to the “penny stock” rules described above, the Financial Industry
Regulatory Authority (FINRA) has adopted rules that require that in recommending
an investment to a customer, a broker-dealer must have reasonable grounds for
believing that the investment is suitable for that customer. Prior to
recommending speculative low priced securities to their non-institutional
customers, broker-dealers must make reasonable efforts to obtain information
about the customer's financial status, tax status, investment objectives and
other information. Under interpretations of these rules, FINRA believes that
there is a high probability that speculative low priced securities will not be
suitable for at least some customers. FINRA requirements make it more difficult
for broker-dealers to recommend that their customers buy our common stock, which
may limit your ability to buy and sell our stock and have an adverse effect on
the market for our shares.





12




The
market price for our common shares is particularly volatile given our status as
a relatively unknown company with a small and thinly traded public float,
limited operating history and lack of profits which could lead to wide
fluctuations in our share price. The price at which you purchase our common
shares may not be indicative of the price that will prevail in the trading
market. You may be unable to sell your common shares at or above your purchase
price, which may result in substantial losses to you.




The
market for our common shares is characterized by significant price volatility
when compared to seasoned issuers, and we expect that our share price will
continue to be more volatile than a seasoned issuer for the indefinite future.
The volatility in our share price is attributable to a number of factors. First,
as noted above, our common shares are sporadically and thinly traded. As a
consequence of this lack of liquidity, the trading of relatively small
quantities of shares by our shareholders may disproportionately influence the
price of those shares in either direction. The price for our shares could, for
example, decline precipitously in the event that a large number of our common
shares are sold on the market without commensurate demand, as compared to a
seasoned issuer which could better absorb those sales without adverse impact on
its share price. Secondly, we are a speculative or “risky” investment due to our
limited operating history and lack of profits to date, and uncertainty of future
market acceptance for our potential products. As a consequence of this enhanced
risk, more risk-adverse investors may, under the fear of losing all or most of
their investment in the event of negative news or lack of progress, be more
inclined to sell their shares on the market more quickly and at greater
discounts than would be the case with the stock of a seasoned issuer. Many of
these factors are beyond our control and may decrease the market price of our
common shares, regardless of our operating performance. We cannot make any
predictions or projections as to what the prevailing market price for our common
shares will be at any time, including as to whether our common shares will
sustain their current market prices, or as to what effect that the sale of
shares or the availability of common shares for sale at any time will have on
the prevailing market price.




Shareholders
should be aware that, according to SEC Release No. 34-29093, the market for
penny stocks has suffered in recent years from patterns of fraud and abuse. Such
patterns include (1) control of the market for the security by one or a few
broker-dealers that are often related to the promoter or issuer;
(2) manipulation of prices through prearranged matching of purchases and
sales and false and misleading press releases; (3) boiler room practices
involving high-pressure sales tactics and unrealistic price projections by
inexperienced sales persons; (4) excessive and undisclosed bid-ask
differential and markups by selling broker-dealers; and (5) the wholesale
dumping of the same securities by promoters and broker-dealers after prices have
been manipulated to a desired level, along with the resulting inevitable
collapse of those prices and with consequent investor losses. Our management is
aware of the abuses that have occurred historically in the penny stock market.
Although we do not expect to be in a position to dictate the behavior of the
market or of broker-dealers who participate in the market, management will
strive within the confines of practical limitations to prevent the described
patterns from being established with respect to our securities. The occurrence
of these patterns or practices could increase the volatility of our share
price.




Volatility
in our common share price may subject us to securities litigation, thereby
diverting our resources that may have a material effect on our profitability and
results of operations.




As
discussed in the preceding risk factors, the market for our common shares is
characterized by significant price volatility when compared to seasoned issuers,
and we expect that our share price will continue to be more volatile than a
seasoned issuer for the indefinite future. In the past, plaintiffs have often
initiated securities class action litigation against a company following periods
of volatility in the market price of its securities. We may in the future be the
target of similar litigation. Securities litigation could result in substantial
costs and liabilities and could divert management’s attention and
resources.




ITEM
1B.  UNRESOLVED STAFF COMMENTS




None





13




ITEM
2.  PROPERTIES




The
principal office of the Company is located at 19800 MacArthur Blvd., Suite 300,
Irvine, CA  92612.  UBRG owns UBNA which owns a biodiesel fuel
refinery located in northeastern Mississippi. The plant is located on 4.3 acres
of land which provides ample space to expand at address 128 Biodiesel Drive,
Nettleton MS 38858.





ITEM
3.  LEGAL PROCEEDINGS




We are
currently not involved in any litigation that we believe could have a materially
adverse effect on our financial condition or results of operations. There is no
action, suit, proceeding, inquiry or investigation before or by any court,
public board, government agency, self-regulatory organization or body pending
or, to the knowledge of the executive officers of our company or any of our
subsidiaries, threatened against or affecting our company, our common stock, any
of our subsidiaries or of our company’s or our company’s subsidiaries’ officers
or directors in their capacities as such, in which an adverse decision could
have a material adverse effect.




While the
Company is not the subject of an investigation, current management has recently
become aware that the Company may have been the recipient of certain assets
which may be subject to the disgorgement order in the SEC vs Abellan, et al
case.  Additionally, current management has recently become aware that the
conversion of certain notes to preferred stock may have constituted an illegal
act since it occurred subsequent to a freeze order issued pertaining to SEC vs
Abellan, et al.  Current and former management assert that they were not
aware of the freeze order at the time of the conversion.  Additionally,
certain documents and correspondence provided to the SEC pertaining to the
conversion document indicate that the conversion was being negotiated prior to
the date of the freeze order.  The documents and correspondence were
provided to the SEC in response to a subpoena issued in an informal
investigation of another company.  The Company was not the focus of the
informal investigation.  The potential financial effects of this are more
thoroughly discussed in Note 16 to the financial statements.




ITEM
4.  REMOVED AND RESERVED




14





PART
II





ITEM
5.  MARKET FOR REGISTRANT’S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND
ISSUERS PURCHASES OF EQUITY SECURITIES.





Universal
common stock is traded in the over-the-counter market, and quoted in the
National Association of Securities Dealers Inter-dealer Quotation System and can
be accessed on the Internet at www.pinksheets.com
under the symbol “UBRG.PK.”





At
December 31, 2008, there were 21,525,000 shares of common stock of Universal
outstanding and there were approximately 21 shareholders of record of the
Company’s common stock.





The
following table sets forth for the periods indicated the high and low bid
quotations for Universal’s common stock. These quotations represent inter-dealer
quotations, without adjustment for retail markup, markdown or commission and may
not represent actual transactions.





Periods
                
                High
                
                
                LowFiscal
      Year 2008First
      Quarter (January – March 2008)
                
                $
                5.01
                
                
                $
                5.01Second
      Quarter (April – June 2008)
                
                $
                5.01
                
                
                $
                5.01Third
      Quarter (July – September 2008)
                
                $
                5.01
                
                
                $
                5.01Fourth
      Quarter (October – December 2008)
                
                $
                .51
                
                
                $
                .30





Periods
                
                High
                
                
                LowFiscal
      Year 2007 - 11 MonthsFirst
      Quarter (January – March 2007)
                
                $
                00
                
                
                $
                .00Second
      Quarter (April – June 2007)
                
                $
                00
                
                
                $
                00Third
      Quarter (July – September 2007)
                
                $
                0.005
                
                
                $
                0.00Fourth
      Quarter (October – December 2007)
                
                $
                5.05
                
                
                $
                5.05





On May
25, 2010, the closing bid price of our common stock was $0.06.





Dividends





We may
never pay any dividends to our shareholders. We did not declare any dividends
for the year ended December 31, 2008. Our Board of Directors does not intend to
distribute dividends in the near future. The declaration, payment and amount of
any future dividends will be made at the discretion of the Board of Directors,
and will depend upon, among other things, the results of our operations, cash
flows and financial condition, operating and capital requirements, and other
factors as the Board of Directors considers relevant. There is no assurance that
future dividends will be paid, and if dividends are paid, there is no assurance
with respect to the amount of any such dividend.





Transfer
Agent





Universal’s
Transfer Agent and Registrar for the common stock is Corporate Stock Transfer
located in Denver, Colorado.





15


Recent
Sales of Unregistered Securities




Shareholder Name
                  
                  Number of Shares OwnedWWF
      International, Ltd (1)
                  
                  
                  1,000,000Forester
      Capital, Inc (1)
                  
                  
                  1,000,000Lyon
      Global Investments, LLC (1)
                  
                  
                  1,000,000Morrison
      Holdings, LLC (1)
                  
                  
                  1,000,000Lakewood
      Management, Inc. (1)
                  
                  
                  1,000,000Kaifeng,
      Ltd. (1)
                  
                  
                  1,000,000Lemma
      II, LLC (1)
                  
                  
                  1,000,000L&S
      Capital Management, LLC (1)
                  
                  
                  1,000,000Centaur
      Partners, Inc (1)
                  
                  
                  1,000,000Sunrise
      Financial, LLC (1)
                  
                  
                  1,000,000




(1) These
shareholders received their shares as a result of the consummation by the
Company of its acquisition of Universal Bioenergy North America, Inc., a Nevada
Corporation ("Universal") on December 6, 2007. As a result of the closing,
Universal has become a wholly owned subsidiary of the Company. In exchange for
all of the issued and outstanding shares of Universal, the Company issued to the
shareholders of Universal 2,000,000 shares of common stock of the company
(pre-forward split of 1 for 5 shares). Mortensen Financial Ltd., a shareholder
of the Company contributed 1,800,000 shares of common stock of the Company to
the amount of shares being delivered to Universal shareholders by the Company.
The shareholders are all of the former shareholders of Universal. The shares
were issued with the standard restrictive legend with respect to
transferability. All such transactions were private offerings made without
advertising or public solicitation. The transaction was exempt from the
registration requirement of the Securities Act of 1933, as amended, by Section
4(2).





Forward
Stock Splits





Share
data in this report have been adjusted to reflect the following stock splits
relating to the Company's common stock: November 14, 2007 the board of directors
authorized a 5-for-1 forward split. This forward split is reflected in the
statement of shareholder’s equity for December 31, 2007.





ITEM
6.  SELECTED FINANCIAL DATA





The
following information has been summarized from financial information included
elsewhere and should be read in conjunction with such financial statements and
notes thereto.





16




Summary
of Statements of Operations of UBRG





Year Ended December
31, 2008 and Eleven Months Ended December 31, 2007





Statement
      of Operations DataFor
      the Year Ended
                                  December
      31,2008
                              
                              
                              For
      the Eleven Months Ended December 31, 2007RestatedRevenues
                              
                              $
                              -
                              
                              
                              $
                              -Operating
      and Other Expenses
                              
                              
                              (4,255,956
                              )
                              
                              
                              (8,589,616
                              )Net
      Loss
                              
                              $
                              (4,255,956
                              )
                              
                              $
                              (8,589,616
                              )Balance
      Sheet Data:For
      the Year Ended
                                  December
      31,2008
                              
                              
                              For
      the Eleven Months Ended December 31, 2007RestatedCash
                              
                              $
                              -
                              
                              
                              $
                              133,177Total
      Assets
                              
                              
                              293,100
                              
                              
                              
                              3,910,325Current
      Liabilities
                              
                              
                              199,971
                              
                              
                              
                              659,231Non
      Current Liabilities
                              
                              
                              -
                              
                              
                              
                              1,831,750Total
      Liabilities
                              
                              
                              199,971
                              
                              
                              
                              2,490,981Working
      Capital (Deficit)
                              
                              
                              (199,973
                              )
                              
                              
                              (347,978
                              )Shareholders'Equity
                              
                              $
                              93,129
                              
                              
                              $
                              1,419,344




ITEM
7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OR PLAN OF OPERATION





The
following is management’s discussion and analysis of certain significant factors
that have affected our financial position and operating results during the
periods included in the accompanying consolidated financial statements, as well
as information relating to the plans of our current management. This report
includes forward-looking statements. Generally, the words “believes,”
“anticipates,” “may,” “will,” “should,” “expect,” “intend,” “estimate,”
“continue,” and similar expressions or the negative thereof or comparable
terminology are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties, including the matters set forth
in this report or other reports or documents we file with the Securities and
Exchange Commission from time to time, which could cause actual results or
outcomes to differ materially from those projected. Undue reliance should not be
placed on these forward-looking statements which speak only as of the date
hereof. We undertake no obligation to update these forward-looking
statements.





The
following discussion and analysis should be read in conjunction with our
consolidated financial statements and the related notes thereto and other
financial information contained elsewhere in this Form 10-K.





17


Overview





Our
subsidiary, Universal Bioenergy North America, Inc. is a development stage
Nevada corporation formed on January 23, 2007 which was acquired by Universal
Bioenergy, Inc. (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 or other revenue
generating merger/acquisition (M&A) candidate is located, purchase
negotiated, and closed. As of the date of this report, we have not manufactured
any biodiesel fuel but are negotiating with potential M&A
candidates.




Based
upon estimates of management, the plant should 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, equipment expansion, and
economic conditions. Additionally, the plant will produce corresponding amounts
(10% by biodiesel production volume) of marketable glycerin or other processed,
value-added products made from the glycerin. As of the date of this report, we
are still in the development phase, and until the proposed biodiesel plant is
operational or companies merged with or acquired, we will generate no revenue.
We anticipate that accumulated losses will continue to increase until the
biodiesel plant is operational or another revenue-generating M&A agreement
is closed.




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.




Provisional
permits from the State of Mississippi were received in May 2008, but the start
date of actual production can not be accurately predicted based on the current
economic environment in the marketplace. The provisional permits allowed the
processing of typical batch sizes to characterize the waste water emissions that
would be produced. Testing of these emissions would 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 could be obtained but are not certain of the time it will take as the
present economic environment makes it unprofitable to produce biodiesel at this
site.  The provisional permits were allowed to expire in September
2008.





The high
cost of virgin feedstock materials makes it unprofitable to use these as sole or
primary feedstock choices to produce biodiesel based on comparable diesel
product prices. Alternative feedstock types are being investigated which are at
a lower cost than the virgin feedstock, but the high cost of similar commodities
has also increased the cost of these feedstock sources. If sufficient quantities
can be located and favorable price including shipping negotiated, the process
operation can produce revenues in excess of processing costs. As of the date of
this report, the Company has no agreements to sell any of its products once
production begins nor secured economically viable feedstock sources due to their
high costs. 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 anticipated
equipment acquisitions, installation, and site modifications based on effluent
emission 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.





18


Over the
past two plus years, the plant underwent site improvement and development.
General clean up and improvements of the site took 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 and verification of fuel quality, 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. We currently do not have any agreements to sell its biodiesel
products due to the plant not being in production. The provisional permits were
allowed to expire in September 2008.




In an
attempt to satisfy the provisional permit requirements for processing,
management has sought feedstock that would allow economical production of
biodiesel and allow characterization of effluent emissions as required. Virgin
feedstock plant oils increased in price to a point that made using them as a
primary feedstock uneconomical for the company. Lower cost feedstock sources
were sought and a supplier identified that could supply waste vegetable oils for
our trial processing runs. Upon receiving the initial shipment of feedstock, it
was found that the material did not meet the required quality specifications to
allow production of biodiesel that would meet American Society for Testing and
Materials (ASTM) specifications using the present production equipment on site.
During further attempts to identify an economical new supplier, the time
limitations for the provisional permits expired in September 2008. Due to the
high cost of feedstock at that time and the economic downturn in the biofuels
marketplace, it was deemed by management unprofitable to pursue production of
biodiesel until feedstock costs became more economically viable or petroleum
prices rising to a point that would make biodiesel more competitive overall in
the marketplace. There is no certainty as to when such conditions will exist if
at all.





Management
anticipates that after production commences and production is scaled up to the
20 MGPY level and above when the market conditions improve, pending the raising
of sufficient capital in subsequent months after the first-stage goal is
reached, export to the European and/or other markets 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 and second 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/or additional debt if necessary. There is no certainty that this
capital can be raised.





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 determined or quoted 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 stated 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 or require additional land
purchase adjacent to the site, which in preliminary discussions with
knowledgeable rail transportation personnel could cost as much as $1,000,000 for
such a rail spur not including land costs. With this in mind and in the present
volatile economic environment, management is contemplating the need and
possibility of moving 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.





19




Management
anticipated the lack of working capital and negotiated to restructure its debt
by converting the said debt to preferred shares to better position our company
to secure further capital to cover plant start up and overhead costs for the
next 12 months. The Company will work with vendors to establish credit for
feedstock materials and further plans to raise needed capital through revenue
from sales of products equity and/or debt financing, if necessary, until
sufficient production volume can be reached to cover operating costs and debt
service or other revenue generating businesses are acquired. Management believes
that the inability for our company to raise sufficient capital will limit the
overall production capacity, if any, of the site, and we will not be able to
sustain the losses incurred due to the limited production.





The
economic uncertainty in the present economy and biofuels marketplace
necessitated that management determine a new direction for our company in order
to secure and increase shareholder value. In December 2009, management decided
to diversify the direction and product/service offerings of our company. These
include development of feedstock programs for biofuels to better stabilize and
reduce feedstock costs, seek other value-added products from biodiesel
production byproducts, and seek merger and acquisitions that will allow
diversification into solar, wind, synthetic fuels, energy efficiency technology,
and other related technologies and services that can better facilitate the
development of a vertically integrated energy production/service company.
Management is seeking acquisition and merger candidates and other companies that
can play a synergistic role in our diversification strategy and increase
shareholder value. There is no certainty that such candidates and companies will
or can be found and if found, successfully acquired or merged into our company.
If such candidates or companies are not found, there is doubt of our remaining a
going concern.


The
economic viability of most biodiesel producers, including us, is dependent on
the biodiesel fuel tax credit.  The tax credit was allowed to expire on
December 31, 2009, causing widespread layoffs in the biodiesel industry. 
The Senate voted on March 10, 2010 to restore the credit.   As of May
26, 2010 the House was moving towards a vote as well.  Restoration of the
credit will then require reconciliation and signature of President
Obama.




Critical
Accounting Policies





Use of Estimates and
Assumptions





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States (“GAAP”) requires management to make
estimates and assumptions that affect (i) the reported amounts of assets
and liabilities, (ii) the disclosure of contingent assets and liabilities
known to exist as of the date the financial statements are published, and
(iii) the reported amount of net sales and expenses recognized during the
periods presented. Adjustments made with respect to the use of estimates often
relate to improved information not previously available. Uncertainties with
respect to such estimates and assumptions are inherent in the preparation of
financial statements; accordingly, actual results could differ from these
estimates.




These
estimates and assumptions also affect the reported amounts of revenues, costs
and expenses during the reporting period.  Management evaluates these
estimates and assumptions on a regular basis.  Actual results could differ
from those estimates.





20


Revenue and Cost
Recognition





Revenue
includes product sales. The Company recognizes revenue from the sale of
Biodiesel fuel and related byproducts at the time title to the product transfer,
the amount is fixed and determinable, evidence of an agreement exists and the
customer bears the risk of loss, net of provision for rebates and sales
allowances in accordance with Topic 605 “Revenue Recognition in Financial
Statements”





Property and
Equipment





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





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





Asset Category
                
                Depreciation/
                  Amortization PeriodPlant
      building
                
                40
      YearsPlant
      equipment
                
                15
      YearsFurniture
      and Fixture
                
                3
      YearsOffice
      equipment
                
                3
      YearsLeasehold
      improvements
                
                5
      Years





Depreciation
has been suspended until the plant resumes production.





Additionally,
in consideration of the current economic state of the biodiesel fuel industry,
and the dormant, non-operating, non-permitted status of the plant, management
has impaired the value of the land, plant, and equipment to reflect its current
estimated fair value.





Share-Based
Compensation





The
Company applies Topic 718 “Share-Based Payments” (“Topic 718”) to share-based
compensation, which requires the measurement of the cost of services received in
exchange for an award of an equity instrument based on the grant-date fair value
of the award.  Compensation cost is recognized when the event occurs.
 The Black-Scholes option-pricing model is used to estimate the fair value
of options granted.




21




Goodwill and Other
Intangible Assets




The
Company adopted Statement of Financial Accounting Standard (“FASB”) Accounting
Standards Codification (“ASC”) Topic 350 Goodwill and Other Intangible
Assets, effective July 1, 2002. In accordance with (“ASC Topic 350”)
"Goodwill and Other Intangible Assets," goodwill, represents the excess of the
purchase price and related costs over the value assigned to net tangible and
identifiable intangible assets of businesses acquired and accounted for under
the purchase method, acquired in business combinations is assigned to reporting
units that are expected to benefit from the synergies of the combination as of
the acquisition date. Under this standard, goodwill and intangibles with
indefinite useful lives are no longer amortized. The Company assesses goodwill
and indefinite-lived intangible assets for impairment annually during the fourth
quarter, or more frequently if events and circumstances indicate impairment may
have occurred in accordance with ASC Topic 350. If the carrying value of a
reporting unit's goodwill exceeds its implied fair value, the Company records an
impairment loss equal to the difference. ASC Topic 350 also requires that the
fair value of indefinite-lived purchased intangible assets be estimated and
compared to the carrying value. The Company recognizes an impairment loss when
the estimated fair value of the indefinite-lived purchased intangible assets is
less than the carrying value. During 2007 the Company impaired its intangible
assets by $8,486,644 due to the general economic decline in the biodiesel
market, and by an additional $1,650,000 in 2008 due to the expiration of permits
and Environmental Protection Agency status.





Impairment of Long-Lived
Assets





In
accordance with ASC Topic 3605, long-lived assets, such as
property, plant, and equipment, and purchased intangibles, are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Goodwill and other
intangible assets are tested for impairment.  Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to estimated undiscounted future cash flows expected to be generated by the
asset. If the carrying amount of an asset exceeds its estimated future cash
flows, an impairment charge is recognized by the amount by which the carrying
amount of the asset exceeds the fair value of the asset. There were events or
changes in circumstances that necessitated an impairment of long lived assets.
During 2008, the Company impaired its long lived assets based on the value of
the Land, Equipment, and building facility by $1,655,972.  Due to the
reduction in valuations in Mississippi of land and building and diminished
economic viability of biodiesel production the total valuations of that
acquisition has reduced significantly in overall value of the assets to
$290,000.




RESULTS
OF OPERATIONS





Fiscal
Year Ended December 31, 2008 compared to December 31, 2007





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 December 31, 2008 and
will continue to accrue operating losses until sufficient production levels can
be reached to meet all liabilities.





For the
year ended December 31, 2008 and the eleven months ended December 31, 2007, we
generated no revenue. Our future revenue plan is uncertain and is dependent on
our ability to effectively refine our products, generate sales, and obtain
contract feedstock opportunities or merge or acquire companies presently
generating revenues. There are no assurances of the ability of our company to
begin refining feedstock or identifying, negotiating, and successfully closing
mergers or acquisition candidates. The cost of modifying our refinery is cost
intensive as is merging or acquiring other business entities, so it is critical
for us to raise appropriate capital to implement our business plan. We incurred
losses of approximately $4,255,956 for year ended December 31, 2008. Our losses
since our inception through December 31, 2008 amount to $12,887,012





Part of
these losses and need for impairment as determined by management is due in part
to a decrease in value of assets related to the economic downturn in the local
area and in the commercial real estate marketplace. Management believes that
there has been a 30% or greater reduction in the value of real property at the
Nettleton, MS plant site due to these conditions. There is no guarantee that
such asset reduction will be recouped as economic conditions
improve.





22


Liquidity
and Capital Resources





As of
December 31, 2008, our current assets were $0, 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 Chief
Executive Officer and associated expenses pursuant to his employment agreement,
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 December 31, 2008, our current liabilities were $199,973, as
compared to $659,231 at December 31, 2007. The LaCroix and Mortensen notes
were converted to preferred B shares in the company and are no longer classified
as in default during 2007 or 2008.




As
reflected in the accompanying financial statements, we are in the development
stage with limited resources, used cash in operations of $719,428 from
inception, a working capital deficiency of $199,973 and have an accumulated
deficit during the development stage of $12,905,012 This raises substantial
doubt about our ability to continue as a going concern. The ability of our
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 we are
unable to continue as a going concern.





Debt





Non-Convertible





During
December 2007, we entered into an $88,000 note payable in favor of Mortensen
Financial Limited, a shareholder of our company. The interest rate was 6.5% per
annum. The note required payment of accrued interest and principal by December
31, 2010. On April 30, 2008 and October 31, 2008 all accrued interest was
required to be paid. Beginning April 30, 2009 and semiannually thereafter
through October 31, 2010, we were to pay $22,000 in semiannual installments. No
payments have been made since the inception of the note agreement.  On
September 18, 2008, we converted this debt to preferred B shares.





During
October 2007, we entered into a $250,000 note payable in favor of Mortensen
Financial Limited, a shareholder our company. The interest rate was 6.5% per
annum. The note required payment of accrued interest and principal by December
31, 2008.  On September 18, 2008, we converted this debt to preferred B
shares.





During
January 2007, we entered into a $1,650,000 note payable in favor of Lacroix
International Holdings, Inc. The interest rate was 6% per annum and the note was
secured by all the assets of our company. The note required semi-annual
principle payments of $103,125 plus interest on June and December of each year.
During the period from inception to September 30, 2008, we incurred interest
expense of approximately $116,359. On September 30, 2008, a payment of $103,000
was due to Lacroix International Holdings, Inc. pursuant to the note. It was
uncertain that we would be  able to make an interest payments since we may
not be officially in permitted production at that time. Accordingly, the
interest would accrue until the next planned payment date.  We were
delinquent in the required semi-annual payments effective September 30, 2008 and
did not make any principle reduction of this note.  On September 18, 2008,
we converted this debt to preferred B shares.





During
the Eleven Months ended December 31, 2007, we received an advance in the amount
of $10,046 from Mortensen Financial Limited, a stockholder of our company.
Pursuant to the terms of the advance, the advance is non interest bearing,
unsecured and due on demand.  On September 18, 2008, we converted this debt
to preferred B shares.





23


Convertible
Debt




On March
18, 2008, we issued a $43,555.50 convertible note payable in favor of Mortensen
Financial Limited, a shareholder of our company. The note was 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 was 6.5% per annum. The note requires payments of accrued interest and
principal by October 31, 2010. On October 31, 2008, all accrued interest was
required to be paid. Beginning April 30, 2009 and semiannually thereafter
through October 31, 2010, we were to pay $10,889 in semiannual installments. On
September 18, 2008, we converted this debt to preferred B shares.





During
October 2007, we issued a $300,000 convertible note payable in favor of
Mortensen Financial Limited, a shareholder of our company. The note was
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 was 6.5% per annum. The note required payments of accrued
interest and principal by October 31, 2010. On April 30, 2008 and October 31,
2008 all accrued interest was required to be paid. Beginning April 30, 2009 and
semiannually thereafter through October 31, 2010, we are to pay $75,000 in
semiannual installments. On September 18, 2008, we converted this debt to
preferred B shares.





On April
7, 2008, the Company issued a $300,000 unsecured convertible note payable to
Mortensen Financial Limited, a related party. The note was 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 required payments of accrued interest and
principal by October 31, 2010. On October 31, 2008 all accrued interest was
required to be paid. Beginning April 30, 2009 and semiannually thereafter
through October 31, 2010, we were to pay $75,000 in semiannual
installments.





On
September 18, 2008, we converted all of the above mentioned debt to 132,350
preferred B shares.





On
September 18, 2008 the Company converted the following debt to preferred
shares:




Converting
                    
                    Preferred B
                    
                    
                    Debt & Accrued
                    
                    
                    Common StockParties
                    
                    Shares issued
                    
                    
                    Interest Converted
                    
                    
                    SurrenderedMortenson
      Financial, Inc.
                    
                    
                    34,000
                    
                    
                    
                    745,991
                    
                    
                    
                    -LaCroix
      Financial, Inc.
                    
                    
                    82,500
                    
                    
                    
                    1,818,821
                    
                    
                    
                    -Mortenson
      Financial, Inc.
                    
                    
                    15,850
                    
                    
                    
                    300,000
                    
                    
                    
                    -Mortenson
      Financial, Inc.
                    
                    
                    100,000
                    
                    
                    
                    -
                    
                    
                    
                    (1,000,000
                    )




On
September 18, 2008 the Company converted the Notes payables Lacroix
International Holdings, Ltd. in the amount of $1,818,821 of principle and
accrued interest for 82,500 preferred Series B shares.





On
September 18, 2008 Mortenson Financial Ltd. in the amount of $745,991 of
principle and accrued interest for 34,000 of preferred Series B shares and
converted another note in the amount of $300,000 to 15,850 of preferred Series B
Shares.





24


On
September 18, 2008 Mortenson Financial Ltd. converted 1,000,000 common shares to
100,000 of preferred Series B Shares.




Other
Considerations





There are
numerous factors that affect the business and the results of its operations.
Sources of these factors include general economic and business conditions,
federal and state regulation of business activities, the level of demand for
product services, the level and intensity of competition in the alternative
energy industry, and the ability to develop new services based on new or
evolving technology and the market's acceptance of those new services, the
Company’s ability to timely and effectively manage periodic product transitions,
the services, customer and geographic sales mix for any particular period, and
our ability to continue to improve our infrastructure including personnel and
systems to keep pace with the Company’s anticipated rapid growth.





ITEM 7A. 
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





The
Company has one convertible note payable. 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 Company converted the entire note to Preferred Series B
Stock on September 18, 2008.  The Company does not engage in any hedging
activities.


25





ITEM
8.  FINANCIAL STATEMENTS





UNIVERSAL
BIOENERGY, INC.





TABLE OF CONTENTS
                    
                    PageINDEPENDENT
      REGISTERED PUBLIC ACCOUNTING FIRM:
                    
                    F-2S.E.
      Clark & Company.Webb
      and CompanyFINANCIAL
      STATEMENTS:Consolidated
      Balance Sheets at December 31, 2008 and December 31, 2007
                    
                    F-4Consolidated
      Statements of Operations for the Period fromAugust
      13, 2004 (inception) through December 31, 2008
                    
                    F-5Consolidated
      Statements of Stockholders’ Equity for the Period fromAugust
      13, 2004 (inception) through December 31, 2008
                    
                    F-6Consolidated
      Statements of Cash Flows for the Period fromAugust
      13, 2004 (inception) through December 31, 2008
                    
                    F-7NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS
                    
                    F-8


F-1


S.E.Clark
& Company, P.C.





Registered
Firm:  Public Company Accounting Oversight Board




Report of Independent
Registered Public Accounting Firm





Board of
Directors


and
Stockholders


Universal
Bioenergy, Inc.





We have
audited the accompanying consolidated balance sheet of Universal Bioenergy, Inc.
(the “Company”) as of December 31, 2008 and the related consolidated statements
of operations, changes in stockholders’ deficit, and cash flows for the year
then ended, and for the period from August 13, 2004 (inception) through December
31, 2008.  These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.  We did not
audit the consolidated financial statements for the eleven month period ended
December 31, 2007 which are presented for comparative purposes. Those statements
were audited by other auditors whose report contained an unqualified opinion
with added comment pertaining to the Company’s ability to continue as a going
concern.





We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement.  The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting.  Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting.  Accordingly, we express no such
opinion.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements.  An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.  We believe that our audit provides a reasonable
basis for our opinion.





In our
opinion the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Universal Bioenergy, Inc. as
of December 31, 2008 and the results of its operations and its cash flows for
the year then ended, and for the period from August 13, 2004 (inception) through
December 31, 2008, in conformity with accounting principles generally accepted
in the United States of America.





The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the accumulation of losses and shortage of
capital raise substantial doubt about its ability to continue as a going
concern. Management's plans concerning these matters are also described in Note
2  The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of asset carrying amounts or
the amount and classification of liabilities that might result should the
Company be unable to continue as a going concern.





/s/
S.E.Clark & Company, P.C.




Tucson,
Arizona


May 21,
2010




744 N. Country Club Road, Tucson, AZ
85716  (520) 323-7774, Fax (520) 323-8174,seclarkcpa@aol.com


F-2









REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  
 To the
Board of Directors of:
 Universal
Bioenergy, Inc. and Subsidiary
 (f/k/a
Palomine, Inc.)
 
 We have
audited the accompanying consolidated balance sheet of Universal Bioenergy, Inc.
and Subsidiary (f/k/a Palomine, Inc.) as of December 31, 2007 (restated), and
the related consolidated statements of operations, changes in stockholders’
deficiency and cash flows for the period from February 1, 2007 to December 31,
2007 (restated) and the period August 13, 2004 (inception) to December 31, 2007.
These financial statements are the responsibility of the Company’s
management.  Our responsibility is to express an opinion on these
financial statements based on our audit.  The financial
statements  for the year ended January 31, 2007 were audited by other
auditors whose report dated May 29, 2007 on these statements included an
explanatory paragraph describing conditions that raised substantial doubt about
the Company’s ability to continue as a going concern. The financial statements
for the period from August 13, 2004 (inception) to December 31, 2007 in so
far as they relate to amounts for the period through January 31, 2007, are based
solely on the report of the other auditors.
 
 We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audit provides a reasonable basis
for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly
in all material respects, the financial position of Universal Bioenergy, Inc.
and Subsidiary (f/k/a Palomine, Inc.) as of December 31, 2007 (restated) and the
results of its consolidated operations and its cash flows for the period from
February 1, 2007 to December 31, 2007 (restated) and the period August 13, 2004
(inception) to December 31, 2007 in conformity with accounting principles
generally accepted in the United States of America.
  
 The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern.  As discussed in Note 2
to the financial statements, the Company has recurring losses from inception of
$8,631,056 and negative working capital.  These factors raise
substantial doubt about the Company's ability to continue as a going
concern.  Management's plans concerning these matters are also
described in Note 2.  The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
 
 
 
 WEBB
& COMPANY, P.A.
 Certified
Public Accountants
 
 Boynton
Beach, Florida
 April 10,
2008, except for Note 14, to
 which
the date is December 21, 2009













F-3




UNIVERSAL
BIOENERGY, INC.
 (A
Development Stage Company)
 
 CONSOLIDATED
BALANCE SHEETS
 
 December 31,2008
                                                  
                                                  
                                                  2007(Restated)ASSETS:CURRENT
      ASSETSCash
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  $
                                                  133,177Prepaid
      expenses
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  178,076Total
      current assets
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  311,253PROPERTY
      AND EQUIPMENT, net
                                                  
                                                  
                                                  290,000
                                                  
                                                  
                                                  
                                                  1,945,972Intangible
      assets
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  1,650,000Deposit
                                                  
                                                  
                                                  3,100
                                                  
                                                  
                                                  
                                                  3,100TOTAL
      ASSETS
                                                  
                                                  $
                                                  293,100
                                                  
                                                  
                                                  $
                                                  3,910,325LIABILITIES
      AND STOCKHOLDERS' EQUITY:CURRENT
      LIABILITIES:Bank
      overdraft
                                                  
                                                  $
                                                  1,213
                                                  
                                                  
                                                  $
                                                  -Accounts
      payable and accrued expenses
                                                  
                                                  
                                                  98,760
                                                  
                                                  
                                                  
                                                  87,218Accrued
      interest
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  97,850Convertible
      note - affiliate
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  7,867Note
      payable- affiliate
                                                  
                                                  
                                                  100,000
                                                  
                                                  
                                                  
                                                  260,046Note
      payable
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  206,250Total
      current liabilities
                                                  
                                                  
                                                  199,973
                                                  
                                                  
                                                  
                                                  659,231Convertible
      note - affiliate
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  300,000Note
      payable - affiliate
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  44,000Note
      payable
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  1,487,750TOTAL
      LIABILITIES
                                                  
                                                  
                                                  199,973
                                                  
                                                  
                                                  
                                                  2,490,981COMMITMENTS
      AND CONTINGENCIES
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -STOCKHOLDERS'
      EQUITY:Preferred
      stock Series A, $.001 par value, 1,000,000 shares
    authorized;100,000
      and none issued and outstanding sharesDecember
      31, 2008 and 2007, respectfully
                                                  
                                                  
                                                  100
                                                  
                                                  
                                                  
                                                  -Preferred
      stock Series B, $.001 par value, 1,000,000 shares
    authorized;232,080
      and none issued and outstanding sharesDecember
      31, 2008 and 2007, respectfully
                                                  
                                                  
                                                  232
                                                  
                                                  
                                                  
                                                  -Common
      stock, $.001 par value, 200,000,000 shares authorized;21,525,000
      and 22,500,000 issued and outstanding as ofDecember
      31, 2008 and 2007, respectfully
                                                  
                                                  
                                                  21,525
                                                  
                                                  
                                                  
                                                  22,500Additional
      paid-in capital
                                                  
                                                  
                                                  12,976,284
                                                  
                                                  
                                                  
                                                  10,045,900Accumulated
      deficit - development stage company
                                                  
                                                  
                                                  (12,905,012
                                                  )
                                                  
                                                  
                                                  (8,649,056
                                                  )Total
      stockholders' equity
                                                  
                                                  
                                                  93,129
                                                  
                                                  
                                                  
                                                  1,419,344TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                                                  
                                                  $
                                                  293,100
                                                  
                                                  
                                                  $
                                                  3,910,325
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
 
 F-4
  UNIVERSAL BIOENERGY, INC.
 (A
Development Stage Company)
 
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 
 For the PeriodFor the Year Ended
                      
                      
                      For the Eleven Months
                      
                      
                      from August 13, 2004December 31
                      
                      
                      Ended December 31
                      
                      
                      (inception) through2008
                      
                      
                      2007
                      
                      
                      December 31, 2008(Restated)Revenue
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -Total
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -OPERATING
      EXPENSES:General
      and administrative
                      
                      
                      654,415
                      
                      
                      
                      102,803
                      
                      
                      
                      798,658Impairment
      of assets
                      
                      
                      3,484,048
                      
                      
                      
                      8,486,644
                      
                      
                      
                      11,970,692Total
      operating expenses
                      
                      
                      4,138,463
                      
                      
                      
                      8,589,447
                      
                      
                      
                      12,769,350OTHER
      (INCOME) AND EXPENSES:Interest
      expense
                      
                      
                      117,493
                      
                      
                      
                      169
                      
                      
                      
                      117,662Total
      other expense
                      
                      
                      117,493
                      
                      
                      
                      169
                      
                      
                      
                      117,662NET
      LOSS
                      
                      $
                      4,255,956
                      
                      
                      $
                      8,589,616
                      
                      
                      $
                      12,887,012NET
      LOSS PER SHARE:Basic
      and diluted loss per share
                      
                      $
                      (0.19
                      )
                      
                      $
                      (0.40
                      )Weighted
      average of shares outstanding
                      
                      
                      22,004,505
                      
                      
                      
                      21,574,850
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
 
 F-5
  UNIVERSAL BIOENERGY, INC.
 (A
Development Stage Company)
 CONSOLDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
 AND
FOR THE PERIOD FROM AUGUST 13, 2004 (INCEPTION) THROUGH DECEMBER 31, 2008
 
 AdditionalCommon Stock
                      
                      
                      Preferred A
                      
                      
                      Preferred B
                      
                      
                      Paid-in
                      
                      
                      AccumulatedShares
                      
                      
                      Amount
                      
                      
                      Shares
                      
                      
                      Amount
                      
                      
                      Shares
                      
                      
                      Amount
                      
                      
                      Capital
                      
                      
                      Deficit
                      
                      
                      TotalBALANCE
      AT AUGUST 13, 2004
                      
                      
                      -
                      
                      
                      $
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -Common stock issued for cash
                      
                      
                      4,300,000
                      
                      
                      
                      4,300
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      18,900
                      
                      
                      
                      -
                      
                      
                      
                      23,200Net loss
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (6,240
                      )
                      
                      
                      (6,240
                      )BALANCE
      AT JANUARY 31, 2005
                      
                      
                      4,300,000
                      
                      
                      $
                      4,300
                      
                      
                      
                      -
                      
                      
                      $
                      -
                      
                      
                      
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      18,900
                      
                      
                      $
                      (6,240
                      )
                      
                      $
                      16,960Services by director
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      2,400
                      
                      
                      
                      -
                      
                      
                      
                      2,400Net loss
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (21,436
                      )
                      
                      
                      (21,436
                      )BALANCE
      AT JANUARY 31, 2006
                      
                      
                      4,300,000
                      
                      
                      $
                      4,300
                      
                      
                      
                      -
                      
                      
                      $
                      -
                      
                      
                      
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      21,300
                      
                      
                      $
                      (27,676
                      )
                      
                      $
                      (2,076
                      )Services by director
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      $
                      -
                      
                      
                      
                      -
                      
                      
                      $
                      -
                      
                      
                      
                      2,400
                      
                      
                      
                      -
                      
                      
                      
                      2,400Net loss
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (13,764
                      )
                      
                      
                      (13,764
                      )BALANCE
      AT JANUARY 31, 2007
                      
                      
                      4,300,000
                      
                      
                      $
                      4,300
                      
                      
                      
                      -
                      
                      
                      $
                      -
                      
                      
                      
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      23,700
                      
                      
                      $
                      (41,440
                      )
                      
                      $
                      (13,440
                      )Stock dividend
                      
                      
                      18,000,000
                      
                      
                      
                      18,000
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (18,000
                      )
                      
                      
                      -In-kind return of shares
                      
                      
                      (1,800,000
                      )
                      
                      
                      (1,800
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,800
                      
                      
                      
                      -
                      
                      
                      
                      -In-kind contribution of rent
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      2,400
                      
                      
                      
                      -
                      
                      
                      
                      2,400Shares issued in purchase of
                        subsidiary
                      
                      
                      2,000,000
                      
                      
                      
                      2,000
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      10,018,000
                      
                      
                      
                      -
                      
                      
                      
                      10,020,000Pre-acquisition accumulated deficit of
                        subsidiary
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Net loss
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      
                      
                      
                      
                      (8,589,616
                      )
                      
                      
                      (8,589,616
                      )BALANCE
      AT DECEMBER 31, 2007 (Restated)
                      
                      
                      22,500,000
                      
                      
                      $
                      22,500
                      
                      
                      
                      -
                      
                      
                      $
                      -
                      
                      
                      
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      10,045,900
                      
                      
                      $
                      (8,649,056
                      )
                      
                      $
                      1,419,344Common stock issued for services
                        @$5.01
                      
                      
                      10,000
                      
                      
                      
                      10
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      50,090
                      
                      
                      
                      -
                      
                      
                      
                      50,100Common stock issued for services
                        @$.1185
                      
                      
                      15,000
                      
                      
                      
                      15
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,763
                      
                      
                      
                      -
                      
                      
                      
                      1,778In kind rent
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,800
                      
                      
                      
                      -
                      
                      
                      
                      1,800Preferred Series A stock issued for
                        services
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      100,000
                      
                      
                      
                      100
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      11,750
                      
                      
                      
                      -
                      
                      
                      
                      11,850Preferred Series B issue for
                        conversion of debt
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      132,080
                      
                      
                      
                      132
                      
                      
                      
                      2,864,081
                      
                      
                      
                      -
                      
                      
                      
                      2,864,213Conversion of common stock to
                        preferred B shares
                      
                      
                      (1,000,000
                      )
                      
                      
                      (1,000
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      100,000
                      
                      
                      
                      100
                      
                      
                      
                      900
                      
                      
                      
                      -
                      
                      
                      
                      -Net loss
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (4,255,956
                      )
                      
                      
                      (4,255,956
                      )BALANCE
      AT DECEMBER 31, 2008
                      
                      
                      21,525,000
                      
                      
                      $
                      21,525
                      
                      
                      
                      100,000
                      
                      
                      $
                      100
                      
                      
                      
                      232,080
                      
                      
                      $
                      232
                      
                      
                      $
                      12,976,284
                      
                      
                      $
                      (12,905,012
                      )
                      
                      $
                      93,129
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
 
 F-6
  UNIVERSAL BIOENERGY, INC.
 (A
Development Stage Company)
 
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 For the PeriodFor the Year ended
                                        
                                        
                                        For the Eleven Months
                                        
                                        
                                        from August 13, 2004December 31
                                        
                                        
                                        Ended December 31
                                        
                                        
                                        (inception) through2008
                                        
                                        
                                        2007
                                        
                                        
                                        December 31, 2008(Restated)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      Loss
                                        
                                        $
                                        (4,255,956
                                        )
                                        
                                        $
                                        (8,589,616
                                        )
                                        
                                        $
                                        (12,887,012
                                        )Adjustments
      to reconcile net loss to net cash(used
      in) operating activities:In
      kind rent
                                        
                                        
                                        1,800
                                        
                                        
                                        
                                        2,400
                                        
                                        
                                        
                                        9,000Impairment
      of assets
                                        
                                        
                                        3,484,048
                                        
                                        
                                        
                                        8,486,644
                                        
                                        
                                        
                                        11,970,692Common
      stock issued for services
                                        
                                        
                                        51,878
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        51,878Preferred
      Series A stock issued for services
                                        
                                        
                                        11,850
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        11,850Changes
      in assets and liabilities:Prepaid
      expenses
                                        
                                        
                                        -
                                        
                                        
                                        
                                        100
                                        
                                        
                                        
                                        -Accounts
      payable and accrued expenses
                                        
                                        
                                        123,949
                                        
                                        
                                        
                                        (6,145
                                        )
                                        
                                        
                                        124,164Net
      cash used by operating activities
                                        
                                        
                                        (582,431
                                        )
                                        
                                        
                                        (106,617
                                        )
                                        
                                        
                                        (719,428
                                        )CASH
      FLOWS FROM INVESTING ACTIVITIES:Cash
      from acquisition
                                        
                                        
                                        -
                                        
                                        
                                        
                                        108,974
                                        
                                        
                                        
                                        108,974Net
      cash provided by investing activities
                                        
                                        
                                        -
                                        
                                        
                                        
                                        108,974
                                        
                                        
                                        
                                        108,974CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from the issuance of common stock
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        23,200Proceeds
      from notes payable
                                        
                                        
                                        449,254
                                        
                                        
                                        
                                        128,000
                                        
                                        
                                        
                                        587,254Net
      cash provided by financing activities
                                        
                                        
                                        449,254
                                        
                                        
                                        
                                        128,000
                                        
                                        
                                        
                                        610,454INCREASE
      AND (DECREASE) IN CASH
                                        
                                        
                                        (133,177
                                        )
                                        
                                        
                                        130,357
                                        
                                        
                                        
                                        0CASH,
      BEGINNING OF YEAR
                                        
                                        
                                        133,177
                                        
                                        
                                        
                                        2,820
                                        
                                        
                                        
                                        -CASH,
      END OF YEAR
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        133,177
                                        
                                        
                                        $
                                        0SUPPLEMENTAL
      CASH FLOW INFORMATION:Interest
      paid
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        169Taxes
      paid
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -Supplemental
      disclosure of non-cash investing and financing activitiesConversion
      of notes and accrued interestto
      Preferred Series B Stock
                                        
                                        $
                                        2,864,213
                                        
                                        
                                        $
                                        -In-kind
      rent
                                        
                                        $
                                        1,800
                                        
                                        
                                        $
                                        2,400Stock
      dividend
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        18,000
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
 
 F-7




UNIVERSAL
BIOENERGY, INC.


(A
Development Stage Company)


CONSOLIDATED
NOTES TO FINANCIAL STATEMENTS


AS
OFDECEMBER 31,
2008 AND 2007





NOTE
1 - DESCRIPTION OF BUSINESS





Universal
Bioenergy, Inc. (UBRG) f/k/a Palomine Mining, Inc. was incorporated on August
13, 2004 under the laws of the State of Nevada.





Universal
Bioenergy North America, Inc (“UBNA”), our wholly owned subsidiary, was
incorporated in the State of Nevada on January 23, 2007.





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 a Purchase Agreement with UBRG. In October 2007,
UBRG, a then shell corporation, acquired UBNA. On October 24, 2007, the Company
changed its name to Universal Bioenergy, Inc. to better reflect its business
plan. The purchase was consummated on December 6, 2007.





On
October 24, 2007, the Company changed its name to Universal Bioenergy, Inc. to
better reflect its business plan during development stage.





On March
7, 2008, the Board of Directors approved a change in the Company’s fiscal year
end from January 31 to December 31.




NOTE
2 - GOING CONCERN ISSUES




The
accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America which
contemplate continuation of the Company as a going concern.  The Company
has net losses for the period from inception (August 13, 2004) to December 31,
2008 of $12,887,012.  Further, the Company has inadequate working capital
to maintain or develop its operations, and is dependent upon funds from private
investors and the support of certain stockholders.




These
factors raise substantial doubt about the ability of the Company to continue as
a going concern.  The financial statements do not include any adjustments
that might result from the outcome of these uncertainties.  In this regard,
Management is planning to raise any necessary additional funds through loans and
additional sales of its common stock. There is no assurance that the Company
will be successful in raising additional capital.




The
Company's ability to meet its obligations and continue as a going concern is
dependent upon its ability to obtain additional financing, achievement of
profitable operations and/or the discovery, exploration, development and sale of
mining reserves. The Company cannot reasonably be expected to earn revenue in
the exploration stage of operations. Although the Company plans to pursue
additional financing, there can be no assurance that the Company will be able to
secure financing when needed or to obtain such financing on terms satisfactory
to the Company, if at all.




F-8




NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES




The
Company prepares its financial statements in accordance with accounting
principles generally accepted in the United States of America.  Significant
accounting policies are as follows:





Principle of
Consolidation





The
consolidated financial statements include the accounts of Universal Bioenergy,
Inc. and Universal Bioenergy North America, Inc.  Intercompany accounts and
transactions have been eliminated in the consolidated financial
statements.





Use of Estimates and
Assumptions





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States (“GAAP”) requires management to make
estimates and assumptions that affect (i) the reported amounts of assets
and liabilities, (ii) the disclosure of contingent assets and liabilities
known to exist as of the date the financial statements are published, and
(iii) the reported amount of net sales and expenses recognized during the
periods presented. Adjustments made with respect to the use of estimates often
relate to improved information not previously available. Uncertainties with
respect to such estimates and assumptions are inherent in the preparation of
financial statements; accordingly, actual results could differ from these
estimates.





Revenue and Cost
Recognition





Revenue
includes product sales. The Company recognizes revenue from the sale of
Biodiesel fuel and related byproducts at the time title to the product
transfers, the amount is fixed and determinable, evidence of an agreement exists
and the customer bears the risk of loss, net of provision for rebates and sales
allowances in accordance with ASC Topic 605 “Revenue Recognition in Financial
Statements”.





Cash and Cash
Equivalents





The
Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents. At December 31, 2008 and 2007
the Company had no cash equivalents.





Property and
Equipment





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





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





Asset Category
              
              Depreciation/
                Amortization PeriodBuilding
              
              40
      YearsPlant
      Equipment
              
              15
      YearsFurniture
      and Fixture
              
              3
      YearsOffice
      equipment
              
              3
      YearsLeasehold
      improvements
              
              5
      Years





F-9


Goodwill and Other
Intangible Assets




The
Company adopted Statement of Financial Accounting Standard (“FASB”) Accounting
Standards Codification (“ASC”) Topic 350 Goodwill and Other Intangible
Assets, effective July 1, 2002. In accordance with (“ASC Topic 350”)
"Goodwill and Other Intangible Assets," goodwill, represents the excess of the
purchase price and related costs over the value assigned to net tangible and
identifiable intangible assets of businesses acquired and accounted for under
the purchase method, acquired in business combinations is assigned to reporting
units that are expected to benefit from the synergies of the combination as of
the acquisition date. Under this standard, goodwill and intangibles with
indefinite useful lives are no longer amortized. The Company assesses goodwill
and indefinite-lived intangible assets for impairment annually during the fourth
quarter, or more frequently if events and circumstances indicate impairment may
have occurred in accordance with ASC Topic 350. If the carrying value of a
reporting unit's goodwill exceeds its implied fair value, the Company records an
impairment loss equal to the difference. ASC Topic 350 also requires that the
fair value of indefinite-lived purchased intangible assets be estimated and
compared to the carrying value. The Company recognizes an impairment loss when
the estimated fair value of the indefinite-lived purchased intangible assets is
less than the carrying value. During 2007 the Company impaired its intangible
assets by $8,486,644 due to the general economic decline in the biodiesel
market, and by an additional $1,650,000 in 2008 due to the expiration of permits
and Environmental Protection Agency status.





Impairment of Long-Lived
Assets





In
accordance with ASC Topic 365, long-lived assets, such as
property, plant, and equipment, and purchased intangibles, are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Goodwill and other
intangible assets are tested for impairment.  Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to estimated undiscounted future cash flows expected to be generated by the
asset. If the carrying amount of an asset exceeds its estimated future cash
flows, an impairment charge is recognized by the amount by which the carrying
amount of the asset exceeds the fair value of the asset. There were events or
changes in circumstances that necessitated an impairment of long lived assets.
During 2008, the Company impaired its long lived assets based on the value of
the Land, Equipment, and building facility by $1,655,972.  Due to the
reduction in valuations in Mississippi of land and building and diminished
economic viability of biodiesel production the total valuations of that
acquisition has reduced significantly the overall value of the assets to
$290,000.





Income
Taxes





Deferred
income taxes are provided based on the provisions of ASC Topic 740, "Accounting for Income Taxes",
to reflect the tax consequences in future years of differences between the tax
bases of assets and liabilities and their financial reporting amounts based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income.  Valuation allowances
are established when necessary to reduce deferred tax assets to the amount
expected to be realized.





The
Company adopted the provisions of ASC Topic 740; "Accounting For Uncertainty In
Income Taxes-An Interpretation Of ASC Topic 740 ("ASC Topic 740").  ASC
Topic 740 contains a two-step approach to recognizing and measuring uncertain
tax positions. The first step is to evaluate the tax position for recognition by
determining if the weight of available evidence indicates it is more likely than
not, that the position will be sustained on audit, including resolution of
related appeals or litigation processes, if any. The second step is to measure
the tax benefit as the largest amount, which is more than 50% likely of being
realized upon ultimate settlement. The Company considers many factors when
evaluating and estimating the Company's tax positions and tax benefits, which
may require periodic adjustments. At December 31, 2008 and 2007, the Company did
not record any liabilities for uncertain tax positions.





F-10


Share-Based
Compensation





The
Company applies Topic 718 “Share-Based Payments” (“Topic 718”) to share-based
compensation, which requires the measurement of the cost of services received in
exchange for an award of an equity instrument based on the grant-date fair value
of the award.  Compensation cost is recognized when the event occurs.
 The Black-Scholes option-pricing model is used to estimate the fair value
of options granted.





Concentration of Credit
Risk





The
Company maintains its operating cash balances in banks located in Irvine,
California.  The Federal Depository Insurance Corporation (FDIC) insures
accounts at each institution up to $250,000.





Earnings Per
Share




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





Fair Value of Financial
Instruments




The fair
value of a financial instrument is the amount at which the instrument could be
exchanged in a current transaction between willing parties other than in a
forced sale or liquidation.





The
carrying amounts of the Company’s financial instruments, including cash,
accounts payable, accrued liabilities, and related party payables approximate
fair value, due to maturities.





Reclassification





Certain
prior period amounts have been reclassified to conform to current year
presentations.





Derivative
Liabilities





Convertible
debt is accounted for in accordance with ASC Topic 815, Accounting for Derivative
Instruments and Hedging Activities (“Topic 815”) and ASC Topic 815.40,
Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in a Company’s Own
Stock, (“Topic 815.40”). According to these pronouncements, we have
recorded the embeddedconversionoption 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.





F-11


Business
Segments





The
Company operates in one segment and therefore segment information is not
presented.





Advertising and Promotional
Expense




Advertising
and other product-related costs are charged to expense as incurred. For the year
ended December 31, 2008 and eleven months ended December 31, 2007
advertising expense was $1,965, and $0, respectively.





Recent Accounting
Pronouncements





Recent
accounting pronouncements that the Company has adopted or that will be required
to adopt in the future are summarized below.




In
January 2010, the Financial Accounting Standards Board (“FASB”) issued guidance
to amend the disclosure requirements related to recurring and nonrecurring fair
value measurements. The guidance requires new disclosures on the transfers
of assets and liabilities between Level 1 (quoted prices in active market for
identical assets or liabilities) and Level 2 (significant other observable
inputs) of the fair value measurement hierarchy, including the reasons and the
timing of the transfers. Additionally, the guidance requires a roll forward
of activities on purchases, sales, issuance, and settlements of the assets and
liabilities measured using significant unobservable inputs (Level 3 fair value
measurements). The guidance became effective for us with the reporting period
beginning January 1, 2010, except for the disclosure on the roll forward
activities for Level 3 fair value measurements, which will become effective for
us with the reporting period beginning July 1, 2011. Other than requiring
additional disclosures, adoption of this new guidance did not have a material
impact n our financial statements.




On
July 1, 2009, we adopted guidance issued by the FASB on business
combinations. The guidance retains the fundamental requirements that the
acquisition method of accounting (previously referred to as the purchase method
of accounting) be used for all business combinations, but requires a number of
changes, including changes in the way assets and liabilities are recognized and
measured as a result of business combinations. It also requires the
capitalization of in-process research and development at fair value and requires
the expensing of acquisition-related costs as incurred. We have applied this
guidance to business combinations completed since July 1,
2009.




On
July 1, 2009, we adopted guidance issued by the FASB that changes the
accounting and reporting for non-controlling interests. Non-controlling
interests are to be reported as a component of equity separate from the parent’s
equity, and purchases or sales of equity interests that do not result in a
change in control are to be accounted for as equity transactions. In addition,
net income attributable to a non-controlling interest is to be included in net
income and, upon a loss of control, the interest sold, as well as any interest
retained, is to be recorded at fair value with any gain or loss recognized in
net income. Adoption of the new guidance did not have a material impact on our
financial statements.




On
July 1, 2009, we adopted guidance on fair value measurement for
nonfinancial assets and liabilities, except for items that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at
least annually). Adoption of the new guidance did not have a material impact on
our financial statements.




Recent
Accounting Guidance Not Yet Adopted




In June
2009, the FASB issued guidance on the consolidation of variable interest
entities, which is effective for us beginning July 1, 2010. The new
guidance requires revised evaluations of whether entities represent variable
interest entities, ongoing assessments of control over such entities, and
additional disclosures for variable interests. We believe adoption of this new
guidance will not have a material impact on our financial
statements.





F-12


NOTE
4 - NET LOSS PER SHARE





The net
loss per common share is calculated by dividing the loss by the weighted average
number of shares outstanding during the periods.





The
following table represents the computation of basic and diluted losses per
share:





For the Year
                      Ended
                      December 31,
                      2008
                    
                    
                    For the Eleven
      Months
                      Ended December
                      31, 2007Losses
      available for common shareholders
                    
                    $
                    (4,255,956
                    )
                    
                    $
                    (8,589,616
                    )Weighted
      average common shares outstanding
                    
                    
                    (22,004,505
                    )
                    
                    
                    (21,574,850
                    )Basic
      loss per share
                    
                    $
                    (.19
                    )
                    
                    $
                    (.40
                    )Fully
      diluted loss per share
                    
                    $
                    (.19
                    )
                    
                    $
                    (.40
                    )Net
      loss per share is based upon the weighted average shares of common stock
      outstanding





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




NOTE
5 - EQUITY




On
November 3, 2007, the Company amended its articles of incorporation and
authorized 200,000,000 shares of common stock, at $.001 par value and 21,515,000
are issued and outstanding as of December 31, 2008.





On
November 3, 2007, the Company authorized an aggregate of 1,000,000 preferred
series A and B shares, at $.001 par value and there are 100,000 series A issued
and 232,350 series B issued and outstanding, respectively, as of December 31,
2008.





FORWARD
SPLIT


On
November 3, 2007, the Company authorized a 5 for 1 forward split of its
4,300,000 issued and outstanding which was treated as a stock dividend. After
the 5 for 1 forward split the Company has 22,500,000 issued and outstanding on
December 31, 2007.




The
Company issued 2,000,000 shares in the acquisition of UBNA with a fair value of
$10,020,000 and cancelled 1,800,000 shares from a related party.




At
December 31, 2008, there were no outstanding stock options or
warrants.


F-13




Common
Stock Issued for Services
 
 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 and recorded the $50,100 as an expense.
 
 On
September 29, 2008 the Company issued 7,500 common shares to Traci Plaxico for
services rendered as officer and director of the Company.  The shares
were trading at $.1185 per share and the Company expensed $889.
 
 On
September 29, 2008 the Company issued 7,500 common shares to James Earnest for
services rendered as officer and director of the Company.  The shares
were trading at $.1185 per share and the Company expensed $889.
 
 Mortenson
Financial, Inc. surrendered 1,000,000 common shares in exchange for 100,000
preferred B shares and valued the exchange at the fair value of the shares at
the date of the exchange on September 29, 2008.
 
 In
kind contribution
 
 For the
year ended December 31, 2008 and For the Eleven Months Ended December 31, 2007 a
shareholder of the Company contributed $1,800 and $2,400 of services on behalf
of the Company, respectively.
  Issuance
of preferred shares
 
 On
September 18, 2008 the Company converted the following debt to preferred
shares:
  Converting
                      
                      Preferred
      B
                      
                      
                      Debt
      & Accrued
                      
                      
                      Common
      StockParties
                      
                      Shares
      issued
                      
                      
                      Interest Converted
                      
                      
                      SurrenderedMortenson
      Financial, Inc.
                      
                      
                      34,000
                      
                      
                      
                      745,991
                      
                      
                      
                      -LaCroix
      Financial, Inc.
                      
                      
                      82,500
                      
                      
                      
                      1,818,821
                      
                      
                      
                      -Mortenson
      Financial, Inc.
                      
                      
                      15,850
                      
                      
                      
                      300,000
                      
                      
                      
                      -Mortenson
      Financial, Inc.
                      
                      
                      100,000
                      
                      
                      
                      -
                      
                      
                      
                      (1,000,000
                      )
  In
September 18, 2008 the Company converted the Notes payables of Lacroix
International Holdings, Ltd. in the amount of $1,818,821 of principle and
accrued interest for 82,500 preferred Series B shares.
 
 On
September 18, 2008 the Company converted the notes payables of Mortenson
Financial Ltd. in the amount of $745,991 of principle and accrued interest for
34,000 of preferred Series B shares and converted another note in the amount of
$300,000 to 15,850 of preferred Series B Shares.
 
 On
September 18, 2008 Mortenson Financial Ltd. converted 1,000,000 common shares to
100,000 of preferred Series B Shares.
 
 The
Preferred Series B shares are non-voting.
 
 100,000
shares of Preferred Series A shares were also issued to then management for
compensation.  The Preferred Series A shares are voting at the ratio
of 300 common shares per one share of preferred.




F-14


The
Preferred Series B shares are convertible to common shares at a rate to be
mutually agreed upon by the Company, Lacroix, and
Mortensen.   However, documents provided by former management to
the SEC establish that management of Lacroix and Mortensen had tentatively
agreed to convert the preferred shares received from the note conversions into
common shares at the rate of ten shares of common to one share of
preferred.  Additionally, common shares were converted to preferred
shares by Mortensen at a 10:1 ratio.  Conversion at the 10:1 rate
would result in the issuance of 2,320,800 shares of common stock or 9.7%
dilution as of December 31, 2008.  Conversion at an implied market
rate ($.80 per share) would result in the issuance of approximately 3,580,000
shares of common stock or 14.3% dilution as of December 31, 2008.  See
Note 16 regarding legal restrictions on the conversion of these shares to common
stock.





NOTE
6 - PROPERTY AND EQUIPMENT





The
Company has fixed assets as of December 31, 2008 and December 31, 2007 as
follows:





December
      31,
                              2008
                            
                            
                            December
      31,
                              2007Equipment
                            
                            $
                            165,000
                            
                            
                            $
                            1,698,362Land
                            
                            
                            50,000
                            
                            
                            
                            150,000Building
                            
                            
                            75,000
                            
                            
                            
                            100,000Accumulated
      depreciation
                            
                            
                            
                            
                            
                            
                            (2,390
                            )Total
                            
                            $
                            290,000
                            
                            
                            $
                            1,945,972





Depreciation
expense for the year ended December 31, 2008 and eleven months ended December
31, 2007 was $0 and $2,390 respectively. The Company has not recorded any
depreciation expense related to its processing facility as it has not been
placed in service as of December 31, 2008.  The Company impaired the
assets to its value and adjusted accumulated depreciation to zero during that
impairment.  See Note 3,- Impairment of Long-Lived
Assets.





NOTE
7 – ACQUISITON





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


As a
result of the closing, Universal has become a wholly owned subsidiary of
Palomine. In exchange for all of the issued and outstanding shares of Universal,
Palomine issued to the shareholders of Universal 2,000,000 shares of common
stock of Palomine. Mortensen, a shareholder of Palomine contributed 1,800,000
shares of common stock of Palomine to the amount of shares being delivered to
Universal shareholders by Palomine. Such issuance represents an issuance of 44%
of the issued and outstanding shares of Palomine. In addition, pursuant to the
terms of the Agreement, an amendment to the certificate of incorporation of
Palomine was filed with the State of Nevada whereby: (i) the name of the company
has been changed to Universal Bioenergy, Inc., (ii) the shares of common stock
of Palomine issued and outstanding at the time of the closing (4,500,000 shares)
were increased by a forward stock split in the amount of five (5) shares for
each share of Palomine issued and outstanding (resulting in 22,500,000 shares
issued and outstanding); and (ii) the authorized shares of Palomine were
increased to 200,000,000 shares of common stock with a par value of $0.001 per
share; and 1,000,000 shares of preferred stock with a par value of $0.001 per
share. As a result the company has treated this acquisition under the purchase
method of accounting, whereas the company issued 2,000,000 shares at the five
day average of the value of the stock given to the seller. The five day average
of the values of stock was $5.01 during the closing of the purchase of the
Companies subsidiary Universal Bioenergy North America, Inc.





F-15


Prior to
the Agreement, Universal Bioenergy North American, Inc. purchased assets out of
bankruptcy.  The purchase of those assets determined the value of the
stock exchange in the Agreement.





Purchase
      Price Allocation
                
                December
                  6,
      2007Tangible Assets AllocationLand
                
                $
                150,000Equipment
      and capital improvements
                
                
                1,695,972Building
                
                
                100,000Prepaid
      expenses
                
                
                178,076Deposits
                
                
                3,100Cash
                
                
                108,974Intangible Asset AllocationPermits
                
                
                225,000Environmental
      Protection Agency approvals (EPA)
                
                
                650,000Mississippi
      Department of Environmental Quality (MDEQ)
                
                
                225,000National
      Biodiesel Board membership
                
                
                50,000Intellectual
      property rights to operate the refinery
                
                
                500,000LiabilitiesAccounts
      payables
                
                
                (45,533
                )Accrued
      expenses
                
                
                (83,366
                )Convertible
      notes payables
                
                
                (307,867
                )Notes
      payables
                
                
                (1,650,000
                )Fair
      values of net assets
                
                
                1,533,356Total
      Purchase price
                
                
                10,020,000Goodwill
                
                $
                8,486,644




F-16


Proforma
Statement of Operations:





The
Company’s Proforma statement of operations if the companies were consolidated as
of January 1, 2007 would be as follows:





Proforma
      Statement of OperationsFor
      the
                          Eleven
                          Months
                          ended
                          December
                          31,
      2007Operating
      ExpensesGeneral
      & Administrative
                        
                        $
                        605,335Impairment
      of assets
                        
                        
                        8,486,644Total
      Operating Expense
                        
                        
                        9,091,979Other
      Income (Expense)Fair
      value of derivative
                        
                        
                        4,094Interest
      Expense
                        
                        
                        (98,948
                        )Interest
      Income
                        
                        
                        2,827Total
      Other Income (Expenses)
                        
                        
                        (92,027
                        )Net
      Loss
                        
                        $
                        (9,184,006
                        )Proforma
      Loss per Share
                        
                        
                        (.041
                        )Proforma
      Weighted Average Shares Outstanding
                        
                        
                        22,500,000





NOTE
8- GOODWILL AND OTHER INTANGIBLE ASSETS





The
Company assessed the allocation of the purchase price, primarily through the
determination of the fair value and remaining useful lives of the 2007
Acquisitions' respective intangible assets. As of December 31, 2007 the Company
recorded intangible assets for a total amount of $1,650,000.  As of
December 31, 2007 the Company recorded goodwill for a total of $8,486,644. The
Company has assessed this goodwill and has determined that the goodwill was
impaired since the company had not generated revenues to substantiate such value
as of December 31, 2007.





The
Company has not amortized the intangible assets since the Company has not
started operation of its Refinery and has no revenues through December 31, 2008
and is still a development stage company. Once the asset has been placed in
service the will calculate the weighted average of the amortization period, in
total and by major define-lived intangible asset on a straight-line basis over
the estimated useful lives of the assets over ten years. The Company has no
operating revenue and believes the goodwill should be impaired. The company has
recorded an impairment of $1,650,000 for December 31, 2008 and $8,486,644 in
December 31, 2007.


F-17





Goodwill
      and Intangible Assets
                    
                    December
      31,
                      2008
                    
                    
                    December
      31,
                      2007Purchase
      AgreementsGoodwill
                    
                    $
                    -
                    
                    
                    $
                    8,486,644Other
      Intangible Assets
                    
                    
                    1,650,000
                    
                    
                    
                    1,650,000Total
      Goodwill and Intangibles Assets
                    
                    
                    1,650,000
                    
                    
                    
                    10,136,644Impairment
      of Goodwill and Intangible Assets
                    
                    
                    (1,650,000
                    )
                    
                    
                    (8,486,644
                    )Accumulated
      Amortization
                    
                    
                    -
                    
                    
                    
                    -Net
      Goodwill and Intangible Assets
                    
                    $
                    -
                    
                    
                    $
                    1,650,000





NOTE
9 – CONVERTIBLE DEBENTURE





December
      31,
                    2008
                  
                  
                  December
                    31,
      2007During
      October 2007, the Company issued a $300,000 convertible note payable. 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. 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.  The Company converted the entire note
      to Preferred Series B Stock on September 18, 2008.
                  
                  $
                  -
                  
                  
                  $
                  307,867Total
      long-term note payable
                  
                  
                  -
                  
                  
                  
                  307,867Less
      current portion
                  
                  
                  -
                  
                  
                  
                  7,867Long-term
      portion of note payable
                  
                  $
                  -
                  
                  
                  $
                  300,000




F-18


For the
above convertible notes, pursuant to ASC Topic 470, 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 ASC Topic 815 and ASC Topic 815.40. 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.





NOTE
10 – NOTE PAYABLE AND NOTE PAYABLE AFFILIATES





Notes
payable to affiliates comprise the following as of:





December
      31,
                                  2008
                                
                                
                                December
      31,
                                  2007During
      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 December 31,
      2008, the Company incurred interest expense of approximately $3,041. The
      Company converted the entire note to Preferred Series B Stock on September
      18, 2008.
                                
                                $
                                -
                                
                                
                                $
                                88,000During
      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 December
      31, 2008, the Company incurred interest expense of approximately $10,867.
      The Company converted the entire note to Preferred Series B Stock on
      September 18, 2008.
                                
                                
                                -
                                
                                
                                
                                250,000During
      December 2007, the Company received a $10,046 advance from an affiliate.
      Pursuant to the terms of the advance, the advance is non interest bearing,
      unsecured, and due on demand. The Company converted the entire note to
      Preferred Series B Stock on September 18, 2008.
                                
                                
                                -
                                
                                
                                
                                10,046In
      February 2008 the Company did not issue the required stock for the
      $100,000 bonus and the Company issued a note payable that has no interest
      rate and is due upon demand
                                
                                
                                100,000
                                
                                
                                
                                -Total
      long-term note payable
                                
                                
                                100,000
                                
                                
                                
                                348,046Less
      current portion
                                
                                
                                100,000
                                
                                
                                
                                304,046Long-term
      portion of note payable
                                
                                $
                                -
                                
                                
                                $
                                44,000




F-19





Notes
payable are comprised of the following as of:





December
                            31,
      2008
                          
                          
                          December
                            31,
      2007During
      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 December 31, 2008, the Company incurred interest expense of
      approximately $141,312.  The Company is delinquent and was
      required to make its first semi annual payment on September 30, 2008 and
      has not.  The note is accordingly classified as
      current.  The Company converted the entire note to Preferred
      Series B Stock on September 18, 2008.
                          
                          $
                          -
                          
                          
                          $
                          1,650,000Total
      long-term note payable
                          
                          
                          -
                          
                          
                          
                          1,650,000Less
      current portion
                          
                          
                          -
                          
                          
                          
                          162,250Long-term
      portion of note payable
                          
                          $
                          -
                          
                          
                          $
                          1,487,750





On
September 18, 2008 the Company converted the  debt to preferred shares
as disclosed in Note 5 above.





NOTE
11 - INCOME TAXES





The
Company adopted ASC Topic 740 which requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the financial statement or tax returns. Under this method,
deferred tax liabilities and assets are determined based on the difference
between financial statements and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse. Temporary differences between taxable income reported for financial
reporting purposes and income tax purposes are insignificant.


F-20





For
income tax reporting purposes, the Company’s aggregate unused net operating
losses approximate $2,420,035 which expire in various years through 2028,
subject to limitations of Section 382 of the Internal Revenue Code, as amended.
The Company has provided a valuation reserve against the full amount of the net
operating loss benefit, because in the opinion of management based upon the
earning history of the Company, it is more likely than not that the benefits
will not be realized.




Under the
Tax Reform Act of 1986, the benefits from net operating losses carried forward
may be impaired or limited on certain circumstances. Events which may cause
limitations in the amount of net operating losses that the Company may utilize
in any one year include, but are not limited to, a cumulative ownership change
of more than 50% over a three-year period. The impact of any limitations that
may be imposed for future issuances of equity securities, including issuances
with respect to acquisitions have not been determined.





The
provision (benefit) for income taxes from continued operations for the year
ended December 31, 2008 and eleven months ended December 31, 2007
consist of the following:





December
                                  31,
      2008
                                
                                
                                December
                                  31,
      2007Current:Federal
                                
                                $
                                -
                                
                                
                                $
                                -State
                                
                                
                                -
                                
                                
                                
                                -Deferred:Federal
                                
                                $
                                1,463,829
                                
                                
                                $
                                2,759,168State
                                
                                
                                250,578
                                
                                
                                
                                472,3131,714,407
                                
                                
                                
                                3,231,481Valuation
      allowance
                                
                                
                                (1,714,407
                                )
                                
                                
                                (3,231,481
                                )(Benefit)
      provision for income taxes, net
                                
                                $
                                -
                                
                                
                                $
                                -





The
difference between income tax expense computed by applying the federal statutory
corporate tax rate and actual income tax expense is as follows:





December
                              31,
      2008
                            
                            
                            December
                              31,
      2007Statutory
      federal income tax rate
                            
                            
                            34.0
                            %
                            
                            
                            34.0
                            %State
      income taxes and other
                            
                            
                            9.0
                            %
                            
                            
                            9.0
                            %Valuation
      allowance
                            
                            
                            (43
                            )%
                            
                            
                            (43
                            )%Effective
      tax rate
                            
                            
                            -
                            
                            
                            
                            -





Deferred
income taxes result from temporary differences in the recognition of income and
expenses for the financial reporting purposes and for tax purposes. The tax
effect of these temporary differences representing deferred tax asset and
liabilities result principally from the
following:


F-21





December
                          31,
      2008
                        
                        
                        December
                          31,
      2007Net
      operating loss carryforward
                        
                        $
                        1,714,407
                        
                        
                        $
                        3,231,481Valuation
      allowance
                        
                        
                        (1,714,407
                        )
                        
                        
                        (3,231,481
                        )Deferred income tax
      asset
                        
                        $
                        -
                        
                        
                        $
                        -





The
Company has a net operating loss carryforward of approximately $12,205,012
however in accordance with IRC 382 the loss is limited to 49% of the loss
carryforward.  The loss is limited due the change in control of at
least 50%, therefore this loss of $6,470,925 is available to offset future
taxable income through 2028.





NOTE
12 – COMMITMENTS AND CONTINGENCIES





On
February 26, 2008, the Company entered into a one-year employment agreement with
the Company’s Chief Executive Officer.  The employment agreement
renews annually. Pursuant to this employment 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 was to have received a
signing bonus of 19,763 shares of Company common stock with a fair value of
$100,000 based on the value of the Company’s common stock on the effective date
of the agreement.  The officer never received the shares of Company
common stock and the $100,000 stock bonus was converted to a note payable at no
interest.  As of December 31, 2008 the note payable is still
outstanding.  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 Company common stock with a fair value of $22,500. For the
quarter ended March 31, 2008; $18,750 is recorded as a consulting
expense.  The Company never issued the shares of Company common stock
and the Company and the parties terminated the contract in January
2008.





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. The Company and the
parties mutually terminated this agreement early in January
2008.


F-22





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.




NOTE
– 13 RESTATEMENTS





December
      31, 2007
                    
                    
                    December
      31, 2007
                    
                    
                    December
      31, 2007As
      Originally Reported
                    
                    
                    As
      Adjusted
                    
                    
                    Effect
      of ChangeAssetsTotal
      Assets
                    
                    $
                    2,260,325
                    
                    
                    $
                    3,910,325
                    
                    
                    $
                    1,650,000LiabilitesTotal
      Liabilities
                    
                    $
                    2,490,981
                    
                    
                    $
                    2,490,981
                    
                    
                    $
                    -Stockholders'
      EquityAccumulated
      deficit
                    
                    $
                    (628,292
                    )
                    
                    $
                    (8,649,056
                    )
                    
                    $
                    8,020,764Statement
      of OperationsOperating
      expenses
                    
                    $
                    (524,304
                    )
                    
                    $
                    (8,589,447
                    )
                    
                    $
                    (8,065,143
                    )Other
      expenses
                    
                    $
                    (103,988
                    )
                    
                    $
                    (169
                    )
                    
                    $
                    103,819Net
      Loss
                    
                    $
                    (628,292
                    )
                    
                    $
                    (8,589,616
                    )
                    
                    $
                    7,961,324Net
      Loss per share
                    
                    
                    (0.05
                    )
                    
                    
                    (0.40
                    )
                    
                    
                    (0.29
                    )Statement
      of CashflowsNet
      Loss
                    
                    $
                    (628,292
                    )
                    
                    $
                    (8,589,616
                    )
                    
                    $
                    7,961,324Net
      cash used in operating activities
                    
                    $
                    (628,507
                    )
                    
                    $
                    (106,617
                    )
                    
                    $
                    521,890Purchase
      of fixed and intangible assets
                    
                    $
                    (1,948,362
                    )
                    
                    $
                    108,974
                    
                    
                    $
                    2,057,336Net
      cash provided by financing activities
                    
                    $
                    2,710,046
                    
                    
                    $
                    128,000
                    
                    
                    $
                    (2,582,046
                    )Cash
      - Beginning of the Year
                    
                    $
                    -Cash
      - End of the Year
                    
                    $
                    133,177
                    
                    
                    $
                    133,177
                    
                    
                    $
                    -





The
restatement for the eleven months ended December 31, 2007 was the result of the
Company applying the purchase method of accounting for the acquisition of UBNA
which was originally accounted for as a reverse merger and recapitalization. The
Company recognized the purchase method of accounting because the company
acquired less then 51% of the public shell. Due to this change in accounting
method the Company only recognized expenses from UBNA for the period from
December 6, 2007 to December 31, 2007.





NOTE
14  RELATED PARTY TRANSACTIONS





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. The Company did not make any payments and converted the
entire note to Preferred Series B Stock on September 18,
2008.


F-23





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.
The Company did not make any payments and converted the entire note to Preferred
Series B Stock on September 18, 2008.





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. The Company did not make any payments
and converted the entire note to Preferred Series B Stock on September 18,
2008.





During
the eleven months 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.





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. The Company did not make any payments and converted
the entire note to Preferred Series B Stock on September 18,
2008.





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. The Company did
not make any payments and converted the entire note to Preferred Series B Stock
on September 18, 2008.





For the
year ended December 31, 2008, a shareholder of the Company contributed office
space with a fair value of $1,800.





NOTE
15 – SUBEQUENT EVENTS





On April
14, 2009 the Company issued 2,200,000 to each officer and director of the
Company with a total shares issued of 8,800,000.  The stock was
trading at $.035 and the Company expensed $77,000 for each issuance of shares of
stock with a total expense of $308,000.


F-24


In March
2009 the Company entered into a Lease Agreement with MIPCO.  The lease
with MIPCO required the Company to retrofit the building and update the
permits.  MIPCO paid a partial deposit of $10,000 and failed to
fulfill the Agreement and the Lease Agreement has been terminated.





On July
9, 2009 the Company sold 25,000 units in a private placement for $25,000 at
$1.00 per unit.  The Units are similar to a debenture and act as a
debt to the company. The term is for three years, and the Units
receive a return of a 30% annual stock dividend and no is paid for the
reduction of this debt.  After the six month holding period the
purchaser has the option to convert part or all of the Units into common stock
at a exercise price of 5 cents per share, based on the principal
invested.





On
October 13, 2009 the Company converted the outstanding notes of $100,000 owed to
four unrelated entities to 5,000,000 common shares of stock.  The
stock was trading at $0.1185 and $100,000 was applied to the reduction of debt
and the remaining balance of $492,500 was expensed to interest
expense.





On
November 22, 2009 the Company sold 45,000 units in a private placement for
$45,000 at $1.00 per unit.  The Units are similar to a debenture and
act as a debt to the company. The term is for three years, and
the Units receive a return of a 30% annual stock dividend and no is
paid for the reduction of this debt.  After the six month holding
period the purchaser has the option to convert part or all of the Units into
common stock at a exercise price of 5 cents per share, based on the
principal invested.





On
November 23, 2009 the Company issued 1,360,000 common shares to Vince
M. Guest in accordance with the terms of his employment
agreement.





On
November 23, 2009 the Company issued 1,360,000 common shares to
Solomon RC Ali in accordance with the terms of his employment
agreement.





On
November 23, 2009 the Company issued 1,360,000 common shares to
Richard D. Craven in accordance with the terms of his employment
agreement.





On
January 12, 2010 the Company issued 750,000 common shares to James Michael Ator
for settlement of his outstanding employment agreement.





Entry into a Material
Definitive Agreement.





Universal
Bioenergy Corporation, a Nevada corporation (the “ Company”), and
NDR Energy Group, LLC, a Maryland limited liability company (“NDR” or “NDR Energy Group”),
have entered into a Member Interest Purchase Agreement, (the “Purchase Agreement”)
dated as of April 12, 2010.  Pursuant to the Purchase Agreement and
subject to the conditions set forth therein, the Company purchased forty nine
49% of the Member Interests of NDR with a total investment valued at $2.5
million in cash and common stock of the Company.




The
completion of the acquisition was approved by the Board of Directors of the
Company.





Each of
the Company and NDR Energy Group has made customary representations and
warranties in the Purchase Agreement. NDR Energy Group has also agreed to
various covenants in the Purchase Agreement, including, among other things, (i)
to conduct its business in the ordinary course consistent with past practice in
all material respects during the period between the execution of the Purchase
Agreement and the closing of the transaction and (ii) not to solicit alternate
transactions.


F-25





Universal’s  management
believes that the association with NDR Energy Group  will give the
Company the needed sales outlets through NDR Energy Group’s distribution
channels, the  marketing / brokering of natural gas, biofuels, and
energy efficiency conversions as part of its new business focus.





Additional
Summary of the Purchase Agreement





According
to the agreement, the Company retains the right to purchase additional equity of
the Member Interests of NDR Energy.  NDR Energy will appoint 2 seats
on its Board of Managers as selected by the Company.  The Company
agrees to provide NDR Energy Group with Management Support Services. The Company
will provide NDR Energy Group with $1,000,000 in working capital. The Company
will arrange, on a best efforts basis, a “Financing Facility / Credit Line up to
an estimated amount of $300 million dollars drawn on a major U.S. bank or
similar financial institution, to purchase its natural gas contract receivables,
and help fund its growth and expansion. NDR Energy Group agrees to comply in
accordance with the related financial covenants.





The
original 49% interest in NDR Energy was purchased for 1,000,000 shares of
Universal Bioenergy  common stock, and a $1,000,000 loan to
NDR.





The
option to acquire the final 2% member interest  in NDR was  assigned
to the officers of Universal, Richard D. Craven, Vince M. Guest and Solomon Ali,
 along with a grant of  4,000,000 shares of stock as a bonus for
managing and closing the NDR Energy acquisition.  The 2% stake  was
acquired for 4,000,000 shares of stock, by exercising the  option.
 The  4,000,000 in stock was paid as a premium on the purchase
 price for the additional 2% of  NDR’ s member interests. All of the
stock was issued to NDR. The 2% member interest in NDR Energy is owned by
another entity.  This option was extended to Richard Craven prior to
knowledge of the SEC Enforcement matter discussed below and current management
asserts that they were  not fully informed  by Richard
Craven of his involvement in the SEC Enforcement matter.





Departure of Directors or
Certain Officers; Election of Directors; Appointment of Certain Officers;
Compensatory Arrangements of Certain Officers.





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





Vince M.
Guest has taken the position as Chief Executive Officer and Principal
Financial Officer.





NOTE
16 - SUBSEQUENT DISCOVERY OF FACTS THAT EXISTED AS OF THE BALANCE SHEET
DATE





Management
has recently become aware that cash and other assets invested in the Company
prior to December 31, 2008 may have been received as a result of illegal
activities by persons affiliated with certain current and former shareholders,
Lacroix International Holdings Ltd. (Lacroix) and Mortensen Financial Ltd.
(Mortensen).  See SEC vs. Abellan, et al, (Case
3:08-CV-05502).   Management has also recently become aware that
the Securities and Exchange Commission (SEC) has subsequently obtained an order
of disgorgement pertaining to the assets held by Lacroix and Mortensen which
currently include shares of preferred and common stock of the
Company.


F-26





The risk of
disgorgement





The
approximate $1 million in cash invested in the Company by Mortensen has been
depleted.  Additionally, the approximate $1.6 million value of the
dormant biodiesel plant invested by Lacroix, with its unknown but implicit
environmental liability, has been impaired to a net value of
$290,000.  At the advice of counsel, management believes, lacking
definitive proof, it is not likely that the SEC would move to disgorge ownership
of the biodiesel plant from the Company.





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





The risk of
rescission





Management
has also recently become aware that the stated September 17, 2008 restructuring
of debt to preferred shares was transacted subsequent to a September 11, 2008
injunction obtained by the SEC freezing the assets of Lacroix and
Mortensen.  The restructuring accordingly may constitute an illegal
act.  Current and former management both assert that they did not
receive notice of the freeze and were not aware of the freeze at the time of the
conversion.





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





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





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





At the
advice of counsel, management believes it is possible, but unlikely that the SEC
would move to rescind the note to preferred conversion transaction which would
improve their standing in the event of liquidation, but would dilute the
potential of liquidity through the market.  In an attempt to obtain
clarification of this, and to provide full and fair disclosure, management
requested clarification from SEC staff, who declined to provide clarification or
comment.


F-27


The risk of
dilution





As stated
elsewhere, the preferred shares are convertible to common shares at a rate to be
mutually agreed upon by the Company, Lacroix, and
Mortensen.   However, documents provided by former management to
the SEC establish that management of Lacroix and Mortensen had tentatively
agreed to convert the preferred shares received from the note conversions into
common shares at the rate of ten shares of common to one share of
preferred.  Additionally, common shares were converted to preferred
shares by Mortensen at a 10:1 ratio.  Conversion at the 10:1 rate
would result in the issuance of 2,320,800 shares of common stock or 9.7%
dilution as of December 31, 2008.  Conversion at an implied market
rate ($.80 per share) would result in the issuance of approximately 3,580,000
shares of common stock or 14.3% dilution as of December 31, 2008.





Current
management has advised the stock transfer agent to freeze the preferred and
common shares of Lacroix and Mortensen held in name or in street name,
preventing their further conversion to cash.  The Board of Directors
of the Company has also frozen the option to convert the preferred shares to
common.  Counsel has advised management that such conversion of
preferred shares to common could constitute a further violation of the asset
freeze.  In an attempt to obtain clarification of this, and to provide
full and fair disclosure, management requested clarification from SEC staff, who
declined to provide clarification or comment.





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





*  *  *  *  *  *


F-28


ITEM
9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.




On
December 20, 2007, Murrell, Hall, McIntosh & Co., PLLP (“Murrell”) was
dismissed as independent auditor for the Company. On December 20, 2007, the
Company engaged Webb & Company, PA (“Webb”) as its principal independent
accountant.  On February 4, 2010, SE Clark & Company ("SEC") was
appointed as the independent registered public account firm for Universal
Bioenergy, Inc., commencing immediately, and Webb & Company ("WEB") was
dismissed as the independent auditors for the Company as of February 4,
2010.





ITEM
9A. CONTROLS AND PROCEDURES





Our
management team, under the supervision and with the participation of our
principal executive officer and our principal financial officer, evaluated 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 amended (Exchange Act), as of the last
day of the fiscal period covered by this report, December 31, 2008. The term
disclosure controls and procedures means our controls and other procedures that
are designed to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the SEC’s rules
and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act is
accumulated and communicated to management, including our principal executive
and principal financial officer, or persons performing similar functions, as
appropriate to allow timely decisions regarding required disclosure. Based on
this evaluation, our principal executive officer and our principal financial
officer originally concluded that our disclosure controls and procedures were
effective as of December 31, 2008.





However,
our Chief Executive Officer has concluded that our disclosure controls and
procedures as of April 14, 2010 may not be effective due to possible material
weaknesses in our internal controls over financial reporting described below and
other factors related to the Company’s financial reporting
processes.





The
Company is in the process of evaluating the internal controls and procedures to
ensure that the internal controls and procedures satisfy the criteria set forth
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)
in Internal Control — Integrated Framework. The Company and its independent
registered public accounting firm identified certain significant internal
control deficiencies that we considered to be, in the aggregate, a material
weakness.





The
Company’s concern was the filing of our 2007 Form 10K/A on September 9, 2009 by
James Michael Ator (“former management”) without Board of Directors approval and
without approval from our independent auditors. The other area of concern was
the proper internal signature by the Board of Directors for all filings that are
issued. The Company’s former management further did not properly record the
acquisition of UBNA as the purchase method of accounting and recorded it as a
reverse merger and recapitalization. The acquisition was less than 51% and
should have been recorded as the purchase method of accounting.





The
Company’s former management was also involved with the Mortenson and LaCroix
transactions as described in Note 16 to the financial statements. Although
former management asserts they had no knowledge of the Abellan scheme or the
freeze order, in the best interest of the Company they resigned, surrendered the
preferred A shares, and have no further affiliation with the
Company.  Due to the size of our Company and the costs associated to
remediate these issues, we still consider these concerns to be extremely
relevant.


26





Our
principal executive officer and our principal financial officer, are responsible
for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act Rules 13a-15(f).
Management is required to base its assessment of the effectiveness of our
internal control over financial reporting on a suitable, recognized control
framework, such as the framework developed by the Committee of Sponsoring
Organizations (COSO). The COSO framework, published in Internal Control-Integrated
Framework, is known as the COSO Report. Our principal executive officer
and our principal financial officer have chosen the COSO framework on which to
base its assessment. Based on this evaluation, our management concluded that our
internal control over financial reporting was effective as of December 31,
2008.





This
annual report on Form 10-K does not include an attestation report of our
registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by our registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit us to provide only management’s report in this
annual report on Form 10-K.





This
annual report does not include an attestation report of the company’s registered
public accounting firm regarding internal control over financial reporting. Our
principal executive officer and our principal financial officer, report was not
subject to attestation by the company’s registered public accounting firm
pursuant to temporary rules of the Securities and Exchange Commission that
permit the company to provide only management’s report in this annual
report.





It should
be noted that any system of controls, however well designed and operated, can
provide only reasonable and not absolute assurance that the objectives of the
system are met. In addition, the design of any control system is based in part
upon certain assumptions about the likelihood of certain events. Because of
these and other inherent limitations of control systems, there can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions, regardless of how remote.





Changes
in Internal Control Over Financial Reporting





During
the fiscal year ended December 31, 2008, there were no changes in our internal
control over financial reporting that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.





ITEM 9B. OTHER
INFORMATION


None.


27


PART
III





ITEM
10.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.





Director
and Executive Officer





Set forth
below is information regarding the Company’s current directors and executive
officers. There are no family relationships between any of our directors or
executive officers. The directors are elected annually by stockholders. The
executive officers serve at the pleasure of the Board of Directors.





Name
              
              Age
              
              TitleVince
      Guest
              
              52
              
              Chief
      Executive Officer, Director, Principle  Financial
      OfficerSolomon
      Ali
              
              46
              
              Director





The
background and principal occupations of the sole officer and director of the
Company is as follows:





Officers
and Directors:





Vince M.
Guest - was appointed as our Chief Executive Officer, president, on April 14,
2010.  Previously on March 5, 2009, Vince M. Guest was appointed to
serve as Senior Vice President of Marketing. Vince Guest has more than 25 years
of experience drawn from several Fortune 500 firms in business / market
development, market analysis, advertising, commercial real estate acquisitions /
development, mortgage banking, corporate finance, energy services and real
estate asset management of $2.5 billion. Previously he served as President of
AmeriCapital Financial Corporation directing the commercial and residential real
estate investment services group for 26 states nationwide. He worked as Director
of Energy Services for New Energy Ventures, managing the energy services
division for the state of California. Prior to that, he worked in managerial /
professional positions for Trammel Crow-Winthrop Management, TRW, Citicorp and
Bristol-Myers Squibb.





Solomon
R.C. Ali will serve as Senior Vice President of Investor Relations with 22 years
experience in investor relations, investment banking, mergers &
acquisitions, corporate structure, and raising investment capital through
capital markets and private equity.  In the past 5 years, Mr. Ali has
assisted public companies in raising capital and providing investor relations
through his consulting services company.





Audit
Committee Financial Expert





The
Company does not have an audit committee or a compensation committee of its
board of directors. In addition, the Company’s board of directors has determined
that the Company does not have an audit committee financial expert serving on
the board.  As the Company develops its operations, it will create an
audit and a compensation committee and will seek an audit committee financial
expert for its board and audit committee.





Conflicts
of Interest





Members
of our management are associated with other firms involved in a range of
business activities.  Consequently, there are potential inherent
conflicts of interest in their acting as officers and directors of our company.
Although the officers and directors are engaged in other business activities, we
anticipate they will devote an important amount of time to our
affairs.


28





Our
officers and directors are now and may in the future become shareholders,
officers or directors of other companies, which may be formed for the purpose of
engaging in business activities similar to ours.  Accordingly,
additional direct conflicts of interest may arise in the future with respect to
such individuals acting on behalf of us or other entities. Moreover, additional
conflicts of interest may arise with respect to opportunities which come to the
attention of such individuals in the performance of their duties or
otherwise.  Currently, we do not have a right of first refusal
pertaining to opportunities that come to their attention and may relate to our
business operations.





Our
officers and directors are, so long as they are our officers or directors,
subject to the restriction that all opportunities contemplated by our plan of
operation which come to their attention, either in the performance of their
duties or in any other manner, will be considered opportunities of, and be made
available to us and the companies that they are affiliated with on an equal
basis. A breach of this requirement will be a breach of the fiduciary duties of
the officer or director. If we or the companies with which the officers and
directors are affiliated both desire to take advantage of an opportunity, then
said officers and directors would abstain from negotiating and voting upon the
opportunity. However, all directors may still individually take advantage of
opportunities if we should decline to do so. Except as set forth above, we have
not adopted any other conflict of interest policy with respect to such
transactions.





Compliance
with Section 16(A) Of The Exchange Act 9.A. Directors And Executive Officers,
Promoters, And Control Persons:





The
Company is aware that all filings of Form 4 and 5 required by Section 16(a) of
the Exchange Act of 1934 where Directors, Officers or holders of 10% of the
Company's shares have not been timely and the Company has instituted procedures
to begin compliance.




Code
of Ethics




We have
adopted a code of ethics that applies to all of our executive officers,
directors and employees. Code of ethics codifies the business and ethical
principles that govern all aspects of our business. This document will be made
available in print, free of charge, to any shareholder requesting a copy in
writing from the Company.




ITEM
11.  EXECUTIVE COMPENSATION





General. Effective April 14,
2010 Vince Guest presently serves as the Company’s chief executive
officer.





Summary
Compensation Table





The
following table sets forth for the year ended December 31, 2008 and eleven
months ended December 31, 2007 compensation awarded to, paid to, or earned by,
Mr. Richard Craven, who was former management and was the Chief Executive
Officer, and our other most highly compensated executive officers whose
total compensation during the last fiscal year exceeded $100,000, if
any.




29




2008 and 2007 SUMMARY
COMPENSATION TABLE




Name
      and Principal Position
                            
                            Year
                            
                            Salary ($)
                            
                            
                            Bonus ($)
                            
                            
                            Stock
                              Awards
                              ($)
                            
                            
                            Option
                              Awards
                              ($)
                            
                            
                            Non-Equity
                              Incentive
                              Plan
                              Compensation
                              ($)
                            
                            Change
      in
                              Pension
                              Value
      and
                              Nonqualified
                              Deferred
                              Compensation
                              Earnings
                              ($)
                            
                            
                            All
      Other
                              Compensation
                              ($)
                            
                            
                            Total
                              ($)Richard
      Craven
                            
                            2008
                            
                            
                            60,000
                            
                            
                            
                            100,000
                            
                            
                            
                            0
                            
                            
                            
                            0
                            
                            
                            
                            0
                            
                            
                            
                            0
                            
                            
                            
                            0
                            
                            
                            
                            160,0002007
                            
                            
                            0
                            
                            
                            
                            
                            
                            
                            
                            0
                            
                            
                            
                            0
                            
                            
                            
                            0
                            
                            
                            
                            0
                            
                            
                            
                            0
                            
                            
                            
                            0





2008
and 2007 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE





Option
      Awards
                                          
                                          
                                          Stock
      AwardsNumber
      of
                                            Securities
                                            Underlying
                                            Unexercised
                                            Options
                                            (#)
                                          
                                          
                                          Number
      of
                                            Securities
                                            Underlying
                                            Unexercised
                                            Options
                                            (#)
                                          
                                          
                                          Equity
                                            Incentive
                                            Plan Awards:
                                            Number
      of
                                            Securities
                                            Underlying
                                            Unexercised
                                            Unearned
                                            Options
                                            (#)
                                          
                                          
                                          Option
                                            Exercise
                                            Price
                                            ($)
                                          
                                          
                                          Option
                                            Expiration
                                            Date
                                          
                                          
                                          Number of
                                            Shares
      or
                                            Units
      of
                                            Stock That
                                            Have
      Not
                                            Vested
                                            (#)
                                          
                                          
                                          Market
                                            Value of
                                            Shares or
                                            Units
      of
                                            Stock That
                                            Have
      Not
                                            Vested
                                            ($)
                                          
                                          
                                          Equity Incentive
                                            Plan
      Awards:
                                            Number
      of
                                            Unearned
                                            Shares,
      Units
                                            or
      Other
                                            Rights
      That
                                            Have
      Not
                                            Vested
                                            (#)
                                          
                                          
                                          Equity
                                            Incentive
                                            Plan Awards:
                                            Market
      or
                                            Payout
      Value
                                            of
      Unearned
                                            Shares,
                                            Units
                                            or
      Other
                                            Rights
      That
                                            Have
      Not
                                            Vested
                                            ($)Name
                                          
                                          Exercisable
                                          
                                          
                                          UnexercisableRichard
      Craven
                                          
                                          
                                          0
                                          
                                          
                                          
                                          0
                                          
                                          
                                          
                                          0
                                          
                                          
                                          
                                          0
                                          
                                          
                                          
                                          0
                                          
                                          
                                          
                                          0
                                          
                                          
                                          
                                          0
                                          
                                          
                                          
                                          0
                                          
                                          
                                          
                                          00
                                          
                                          
                                          
                                          0
                                          
                                          
                                          
                                          0
                                          
                                          
                                          
                                          0
                                          
                                          
                                          
                                          0
                                          
                                          
                                          
                                          0
                                          
                                          
                                          
                                          0
                                          
                                          
                                          
                                          0
                                          
                                          
                                          
                                          0





2008 and
2007 OPTION EXERCISES AND STOCK VESTED TABLE




2007
and 2006 PENSION BENEFITS TABLE




Name
                          
                          Plan
                            Name
                          
                          Number of
                            Years
                            Credited
                            Service
                            (#)
                          
                          
                          Present
                            Value
                            of Accumulated
                            Benefit
                            ($)
                          
                          
                          Payments During
                            Last
                            Fiscal
      Year
                            ($)Richard
      Craven
                          
                          
                          
                          
                          0
                          
                          
                          
                          0
                          
                          
                          
                          00
                          
                          
                          
                          0
                          
                          
                          
                          0




2008 and
2007 NONQUALIFIED DEFERRED COMPENSATION TABLE




Name
                  
                  Executive
                    Contributions
                    in
      Last Fiscal Year
                    ($)
                  
                  
                  Registrant
                    Contributions in
                    Last
                    Fiscal
      Year
                    ($)
                  
                  
                  Aggregate Earnings
                    in
      Last Fiscal
                    Year
                    ($)
                  
                  
                  Aggregate
                    Withdrawals /
                    Distributions
                    ($)
                  
                  
                  Aggregate Balance
                    at
                    Last
      Fiscal Year-
                    End
                    ($)Richard
      Craven
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  00
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0
                  
                  
                  
                  0




30





2008 and
2007 DIRECTOR COMPENSATION TABLE




Name
                      
                      Fees Earned
                        or
                        Paid in Cash
                        ($)
                      
                      
                      Stock Awards
                        ($)
                      
                      
                      Option Awards
                        ($)
                      
                      
                      Non-Equity
                        Incentive
                        Plan
                        Compensation
                        ($)
                      
                      
                      Change
                        in
      Pension
                        Value
      and
                        Nonqualified
                        Deferred
                        Compensation
                        Earnings
                        ($)
                      
                      
                      All
      Other
                        Compensation
                        ($)
                      
                      
                      Total
                        ($)Richard
      Craven
                      
                      
                      0
                      
                      
                      
                      0
                      
                      
                      
                      0
                      
                      
                      
                      0
                      
                      
                      
                      0
                      
                      
                      
                      0
                      
                      
                      
                      00
                      
                      
                      
                      0
                      
                      
                      
                      0
                      
                      
                      
                      0
                      
                      
                      
                      0
                      
                      
                      
                      0
                      
                      
                      
                      0





2008 and
2007 ALL OTHER COMPENSATION TABLE




Name
                          
                          Year
                          
                          Perquisites
                            and
      Other
                            Personal
                            Benefits
                            ($)
                          
                          Tax
                            Reimbursements
                            ($)
                          
                          
                          Insurance
                            Premiums
                            ($)
                          
                          
                          Company
                            Contributions
                            to Retirement
                            and
                            401(k)
      Plans
                            ($)
                          
                          
                          Severance
                            Payments /
                            Accruals
                            ($)
                          
                          
                          Change
                            in Control
                            Payments /
                            Accruals
                            ($)
                          
                          
                          Total ($)Richard
      Craven
                          
                          2008
                          
                          
                          0
                          
                          
                          
                          0
                          
                          
                          
                          0
                          
                          
                          
                          0
                          
                          
                          
                          0
                          
                          
                          
                          0
                          
                          
                          
                          02007
                          
                          
                          0
                          
                          
                          
                          0
                          
                          
                          
                          0
                          
                          
                          
                          0
                          
                          
                          
                          0
                          
                          
                          
                          0
                          
                          
                          
                          0





2008 and
2007 PERQUISITES TABLE




Name
                        
                        Year
                        
                        Personal Use
                          of
                          Company
                          Car/Parking
                        
                        
                        Financial Planning/
                          Legal
      Fees
                        
                        
                        Club Dues
                        
                        
                        Executive
                          Relocation
                        
                        
                        Total Perquisites
                          and
                          Other Personal
                          BenefitsRichard
      Craven
                        
                        2008
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        02007
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        0
                        
                        
                        
                        0




31


2008 and
2007 POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL TABLE




Name
                                                          
                                                          Benefit
                                                          
                                                          Before
                                                            Change in
                                                            Control
                                                            Termination
                                                            w/o Cause or
                                                            for
                                                            Good Reason
                                                          
                                                          After Change in
                                                            Control
                                                            Termination
                                                            w/o Cause or
                                                            for Good
                                                            Reason
                                                          
                                                          Voluntary
                                                            Termination
                                                          
                                                          Death
                                                          
                                                          Disability
                                                          
                                                          Change in
                                                            ControlRichard
      Craven
                                                          
                                                          Basic salary
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          -




Compensation
of Directors





Our
current compensation policy for directors is to compensate them through options
to purchase common stock as consideration for their joining our board and/or
providing continued services as a director. We do not currently provide our
directors with cash compensation, although we do reimburse their expenses, with
exception for a chairman of the board. No additional amounts are payable to the
Company’s directors for committee participation or special assignments. There
are no other arrangements pursuant to which any directors was compensated during
the Company’s last completed fiscal year for any service provided.


.


ITEM
12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.




The following table lists stock
ownership of our Common Stock as ofMay 25, 2010based on45,155,000shares of common stock issued and
outstanding. The information includes beneficial ownershipby (i) holders of more than 5% of our
Common Stock, (ii) each of two directors and executive officers and (iii)
all of our directors and executive officers as a group. Except as noted below,
to our knowledge, each person named in the table has sole voting and investment
power with respect to all shares of our Common Stock beneficially owned
by them.


Name
      and Address of Owner
                                  
                                  Title
      of Class
                                  
                                  Number
                                    of
      Shares
                                    Owned
      (1)
                                  
                                  
                                  Percentage
                                    of
      ClassVince
      M. Guest
                                  
                                  Common
      Stock
                                  
                                  
                                  3,560,000
                                  
                                  
                                  
                                  7.88
                                  %Solomon
      R.C. Ali
                                  
                                  Common
      Stock
                                  
                                  
                                  3,560,000
                                  
                                  
                                  
                                  7.88
                                  %Richard
      D. Craven
                                  
                                  Common
      Stock
                                  
                                  
                                  3,560,000
                                  
                                  
                                  
                                  7.88
                                  %All
      Officers and Directors
                                    As
      a Group (3 persons)
                                  
                                  Common
      Stock
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  %





(1)
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities.





As of
December 31, 2007, 49% of the outstanding shares of the Company are owned by 11
foreign entities of Mortenson and LaCroix in an amount of 1,000,000 shares each
(4.45% ownership each). On April 14, 2010 Current Management became aware of
SEC vs. Abellan, et
al, (Case 3:08-CV-05502) and instructed the transfer agent to freezeany
remaining shares held by the Defendants in accordance with that Court
Order.  Schedule 13D or Schedule 13G have not been filed with respect
to such shareholders and the company is uncertain of Defendants beneficial
ownership of those shares.





Changes in
Control




We are
not aware of any arrangements that may result in a change in control of the
Company.


32




DESCRIPTION
OF SECURITIES




General




Our
authorized capital stock consists of 200,000,000 shares of common stock, par
value $ .001.




Common
Stock




The
shares of our common stock presently outstanding, and any shares of our common
stock issues upon exercise of stock options and/or warrants, will be fully paid
and non-assessable. Each holder of common stock is entitled to one vote for each
share owned on all matters voted upon by shareholders, and a majority vote is
required for all actions to be taken by shareholders. In the event we liquidate,
dissolve or wind-up our operations, the holders of the common stock are entitled
to share equally and ratably in our assets, if any, remaining after the payment
of all our debts and liabilities and the liquidation preference of any shares of
preferred stock that may then be outstanding. The common stock has no preemptive
rights, no cumulative voting rights, and no redemption, sinking fund, or
conversion provisions. Holders of common stock are entitled to receive
dividends, if and when declared by the Board of Directors, out of funds legally
available for such purpose, subject to the dividend and liquidation rights of
any preferred stock that may then be outstanding.




Voting
Rights





Each
holder of Common Stock is entitled to one vote for each share of Common Stock
held on all matters submitted to a vote of stockholders.





Preferred
Stock





The
Company authorized an aggregate of 1,000,000 shares of preferred series A shares
at a $.001 par value and preferred series B shares with 100,000 series A issued
shares and 232,350 series B issued shares outstanding as of December 31,
2008.  The preferred series A shares are voting at the equivalent of
300 common shares to each preferred share.  The preferred series B
shares are non-voting.





Dividends





Subject
to preferences that may be applicable to any then-outstanding securities with
greater rights, if any, and any other restrictions, holders of Common Stock are
entitled to receive ratably those dividends, if any, as may be declared from
time to time by the Company’s board of directors out of legally available funds.
The Company and its predecessors have not declared any dividends in the past.
Further, the Company does not presently contemplate that there will be any
future payment of any dividends on Common Stock.


33





Options
and Warrants:




As of
December 31, 2008 there were no options to acquire shares of the Company’s
common stock outstanding, and there are no warrants outstanding





Convertible
Securities





At
December 31, 2008, the Company has no convertible debt.




Transfer
Agent





On June
1, 2006, the Company engaged Corporate Stock Transfer to serve in the capacity
of transfer agent. Their mailing address and telephone number as as
follows:


Corporate
Stock Transfer 3200 Cherry Creek Drive South, Suite 430, Denver CO, 89009,
Telephone (303) 282-4800, Fax (303) 282-5800.





ITEM
13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.





On March
18, 2008, the Company issued a $43,556 convertible note payable to Mortensen
Financial Limited, a related party. The interest rate was 6.5 % per annum. The
note was 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 was 6.5% per annum. The note requires
payments of accrued interest and principal by October 31, 2010. On October 31,
2008 all accrued interest was required to be paid. Beginning April 30, 2009 and
semiannually thereafter through October 31, 2010, the Company was to pay $10,889
in semiannual installments.





During
December 2007, the Company entered into an $88,000 note payable with Mortensen
Financial Limited, a related party. The interest rate was 6.5% per annum. The
note required payment of accrued interest and principal by December 31, 2010. On
April 30, 2008 and October 31, 2008 all accrued interest was to required to be
paid. Beginning April 30, 2009 and semiannually thereafter through October 31,
2010, Company is to pay $22,000 semiannual installments.





During
October 2007, the Company issued a $300,000 convertible note payable to
Mortensen Financial Limited, a related party. The note was 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 was 6.5% per annum. The note required payments of accrued interest and
principal by October 31, 2010. On April 30, 2008 and October 31, 2008 all
accrued interest was to required to be paid. Beginning April 30, 2009 and
semiannually thereafter through October 31, 2010,  Company was to pay
$75,000 in semiannual installments.





During
October 2007, the Company entered into a $250,000 note payable to Mortensen
Financial Limited, a related party. The interest rate was 6.5% per annum. The
note required payment of accrued interest and principal by December 31,
2008.


34


On April
7, 2008, the Company issued a $300,000 unsecured convertible note payable to
Mortensen Financial Limited, a related party. The note was 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 was 6.5% per annum. The note required payments of accrued interest and
principal by October 31, 2010. On October 31, 2008 all accrued interest was to
required to be paid. Beginning April 30, 2009 and semiannually thereafter
through October 31, 2010 Company was to pay $75,000 in semiannual
installments.





For the
year ended December 31, 2008, a shareholder of the Company contributed office
space with a fair value of $1,800.





During
the eleven months 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.





All of
the above related party notes were converted on September 18, 2009 to 132,350
preferred series B shares.





On
February 26, 2008, Universal Bioenergy and Dr. Richard Craven entered into an
employment agreement whereby Dr. Craven was appointed as Chief Executive Officer
and a member of the Board of Directors of Universal. The term of the agreement
is for one year. Pursuant to the employment agreement, Dr. Craven will receive a
base salary of $60,000 per year and a signing bonus in common stock of Universal
with a value of $100,000 (determined on the February 26, 2008) to vest on
February 27, 2009. Dr. Craven is also entitled to a performance bonus which is
equal to Five Percent (5%) of every One Million Dollars of profit (before taxes)
of Universal (One Percent (1% to be paid in cash; and Four Percent (4%) to be
paid in restricted common stock of Universal). Please see Form 8-K as filed by
the Company on February 28, 2008.





On March
7, 2008, the Board of Directors approved a change in the Company’s fiscal year
end from January 31 to December 31.





ITEM
14.PRINCIPAL ACCOUNTANT FEES
AND SERVICES




Audit Fees. The aggregate
fees billed by S.E. Clark and Company for professional services rendered for
audit of the Company annual financial statements for 12 months ended December
31, 2008 and Webb & Company PA for professional services rendered for the
audit of the Company’s annual financial statements for 11 months ended
December 31, 2007 approximated $12,000 and $20,363 respectively. The
aggregate fees billed by S.E. Clark and Company for review of  the
financial statements included in the  company’s Forms 10-Q for Fiscal
year ended 2008 and Webb & Company PA fiscal year 2007 approximated
$7,500 and $7,500 per year.





Audit-Related
Fees.  The aggregate fees billed by S.E. Clark & Company
for assurance and related services that are reasonably related to the
performance of the audit or review of the Company’s financial statements for the
year ended December 31, 2008 and by Webb & Company PA for the
fiscal 11 months ended December 31, 2007, and that are not disclosed
in the paragraph captioned “Audit Fees” above, were $0 and $0,
respectively.





Tax Fees.The
aggregate fees billed by S.E. Clark & company for professional services
rendered for tax compliance, tax advice and tax planning for the year ended
December, 31, 2008 and by Webb & Company  for the fiscal 11
months ended December 31, 2007 were $0 and $0.





All Other Fees.  The
aggregate fees billed by for products and services, of S. E. Clark & Company
other than the services described in the paragraphs “Audit Fees,” “Audit-Related
Fees,” and “Tax Fees” above for the year ended December, 31, 2008 and by Webb
& Company, PA for the fiscal 11 months ended December 31,
2007 approximated $0 and $0 respectively.


35





The Board
has received and reviewed the written disclosures and the letter from the
independent registered public accounting firm required by Independence Standards
Board Standard No. 1 (Independence Discussions with Audit Committees), and
has discussed with its auditors its independence from the Company. The Board has
considered whether the provision of services other than audit services is
compatible with maintaining auditor independence.




Based on
the review and discussions referred to above, the Board approved the inclusion
of the audited consolidated financial statements be included in the Company’s
Annual Report on Form 10-K for its 2008 fiscal year for filing with the
SEC.




The Board
pre-approved all fees described above.




PART
IV




ITEM
15.  EXHIBITS AND REPORTS.





Exhibit No.
              
              Exhibit2.1
              
              The
      Bankruptcy Court of the Northern District of Mississippi in its Order
      Granting Debtor‘s Motion to Sell Assets Free and Clear Of All Liens,
      Claims And Encumbrances Outside The Ordinary Course Of Business dated
      21st  December 2006 (the “Order”). (3)2.2
              
              Bill
      of sale with BMI on January 26, 2007 in connection with the Order.
      (3)3.1
              
              Articles
      of Incorporation (1)3.2
              
              Bylaws
      (1)3.3
              
              Amendment
      to Articles of Incorporation (2)10.1
              
              Stock
      Purchase and Reorganization Agreement between Palomine, Inc., Universal
      Bioenergy North America, Inc., and Mortensen Financial Limited dated
      October 24, 2007. (2)10.2
              
              Universal
      Bioenergy North America, Inc. promissory note in favor of LaCroix
      International Holdings, Inc. in the amount of One Million Six Hundred
      Fifty Thousand Dollars ($1,650,000) dated January 26, 2007.
      (3)10.3
              
              Universal
      Bioenergy North America, Inc. promissory note in favor of Mortensen
      Financial Limited in the amount of $300,000 dated October 30, 2007.
      (3)10.4
              
              Universal
      Bioenergy North America, Inc. promissory note in favor of Mortensen
      Financial Limited in the amount of $250,000 dated October 30, 2007.
      (3)10.5
              
              Employment
      Agreement by and between Universal and Dr. Richard
      Craven  (4)14.1
              
              Code
      of Ethics (5)21
              *
              Subsidiaries31.2
              *
              Certification
      of Principal Financial and Accounting Officer Pursuant to Section 302 of
      the Sarbanes-Oxley Act. (2)32.1
              *
              Certification
      of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
      Act.  (2)32.2
              *
              Certification
      of Chief Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley
      Act.  (2)







*filed
herewith


(1)
            Incorporated by
      reference to the registration statement on Form SB-2 as filed on
      March 21, 2005.


(2)
              Incorporated
      by reference to the Current Report on Form 8-K as filed on October
      31, 2007.





(3)
            Incorporated
      by reference to the Current Report on Form 8-K as filed on December
      14, 2007.





(4)
            Incorporated
      by reference to the Current Report on Form 8-K as filed on February
      29, 2008.





(5)
            Incorporated
      by reference to the 2nd
      amended Form 10K/A for year ended December 31, 2007 as filed on January 4,
      2010.





ITEM
15: SIGNATURES


36





SIGNATURES





In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, there unto duly authorized.





Registrant
                            Date:
      June 15, 2010
                          
                          Universal
      Bioenergy, Inc.
                            By:
      /s/ Vince M. GuestVince
      M. GuestChief
      Executive Officer (Principle Executive Officer,
                            Principle
      Financial Officer) and
President




Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.


By:
                          /s/
      Vince M.  GuestVince
      GuestDirector,
      Chief Executive Officer,
                            (Principal
      Executive Officer,
                            Principal
      Financial Officer), and
                            PresidentBy:
                          /s/
      Solomon AliSolomon
      AliDirector




37