SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-K/A





(Mark
One)




x ANNUAL REPORT UNDER SECTION 13 OR
15(D) OF THE SECURITIES


EXCHANGE
ACT OF 1934




FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2007




o TRANSITION REPORT UNDER SECTION 13 OR
15(D) OF THE SECURITIES


EXCHANGE
ACT OF 1934




For
the transition period from ____ to ____




Commission
File Number 333-123465





UNIVERSAL
BIOENERGY, INC.





(Exact
name of small business issuer as specified in its charter)





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





279
Old Moody Blvd.


Palm
Coast, Florida 32164





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





(386)
437-7176


(Issuer’s
telephone number)




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




Title
      of each class
            
            Name
      of each exchange on which registeredNone
            
            None




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




Common
stock, par value $0.001 per share


(Title of
class)




Check
whether the issuer is not required to file reports pursuant to Section 13
or 15(d) of the Exchange Act ̈




Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15 (d) of the Exchange Act during the past 12 months (or for a 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 x No  ̈


Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.


Indicate
by check mark whether the registrant is a large accelerated filer, a
non-accelerated filer, or smaller reporting company


Large
Accelerated filer  ̈          Accelerated
Filer  ̈          Non-Accelerated
Filer  ̈          Smaller
Reporting Company x





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




State
issuer's revenues for its most recent fiscal year: $660 for the fiscal year
ended December 31, 2007.




The
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the most recent price at which the
common equity was sold as of  December 31, 2007.




As of
December 31, 2007, the aggregate market value of the voting and non-voting
common equity held by non-affiliates is:


$112,725,000:
(22,500,000 shares at $5.01 per share).




State the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date.




Class
            
            Outstanding
      as of December 31, 2007Common
      Stock, par value $0.001per
      share
            
            22,500,000




DOCUMENTS
INCORPORATED BY REFERENCE




Documents
incorporated by reference:
None.








ANNUAL
REPORT ON FORM 10-K


FOR
THE YEAR ENDED DECEMBER 31, 2007





TABLE
OF CONTENTS




PagePART
      I
                  
                  5ITEM
      1. DESCRIPTION OF BUSINESS
                  
                  5ITEM
      2. DESCRIPTION OF PROPERTY.
                  
                  8ITEM
      3. LEGAL PROCEEDINGS.
                  
                  8ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
                  
                  8PART
      II
                  
                  9ITEM
      5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND SMALL
      BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES.
                  
                  9ITEM
      6. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
    OPERATION.
                  
                  10ITEM
      7. FINANCIAL STATEMENTS.
                  
                  14ITEM
      8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
      FINANCIAL DISCLOSURE.
                  
                  14ITEM
      8A. CONTROLS AND PROCEDURES.
                  
                  15ITEM
      8B. OTHER INFORMATION.
                  
                  16PART
      III
                  
                  16ITEM
      9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE
      GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
    ACT.
                  
                  16ITEM
      10. EXECUTIVE COMPENSATION.
                  
                  18ITEM
      11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
      RELATED STOCKHOLDER MATTERS.
                  
                  19ITEM
      12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE.
                  
                  19PART
      IVITEM
      13. EXHIBITS
                  
                  21ITEM
      14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
                  
                  21SIGNATURES
                  
                  23




3


Introductory Note





Caution
Concerning Forward-Looking Statements





This
Report and our other communications and statements may contain “forward-looking
statements,” including statements about our beliefs, plans, objectives, goals,
expectations, estimates, projections and intentions. These statements are
subject to significant risks and uncertainties and are subject to change based
on various factors, many of which are beyond our control. The words “may,”
“could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,”
“intend,” “plan,” “target,” “goal,” and similar expressions are intended to
identify forward-looking statements. All forward-looking statements, by their
nature, are subject to risks and uncertainties. Our actual future results may
differ materially from those set forth in our forward-looking statements.
Forward-looking statements include, but are not limited to, statements
about:





·
            our
      expectations regarding our expenses and
revenue;


·
            our
      anticipated cash needs and our estimates regarding our capital
      requirements and our needs for additional
  financing;


·
            plans
      for future products, for enhancements of existing products and for
      development of new technologies;


·
            our
      anticipated growth strategies;


·
            existing
      and new customer relationships;


·
            our
      technology strengths;


·
            our
      intellectual property, third-party intellectual property and claims
      related to infringement thereof;


·
            anticipated
      trends and challenges in our business and the markets in which we
      operate;


·
            and
      sources of new revenue.





However,
other factors besides those referenced could adversely affect our results, and
you should not consider any such list of factors to be a complete set of all
potential risks or uncertainties. Any forward-looking statements made by us
herein speak as of the date of this Annual Report. We do not undertake to update
any forward-looking statement, except as required by law.




4




PART
I





ITEM
1.  DESCRIPTION OF BUSINESS





OVERVIEW





Company
History





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





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





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





New
Business Model





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




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, Universal 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 to 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 has been 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 (ii) 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 1,000,000 shares of preferred stock with a par value of
$0.001 per share.




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





History
of Universal 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 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 the 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.




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 21st  December
2006 (the "Order"), authorized BMI to convey certain property to
UBNA.




5




UBNA
entered into a bill of sale with BMI on January 26th, 2007
(the "Bill of Sale") to acquire certain of the assets from BMI, including the
fixtures on the land, the refinery and certain equipment, tools and other
assets 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 original capacity to produce
about 20,000 gallons of biodiesel per day. However, the plant was never operated
consistently at its full production capacity during the period due to lack of
sufficient funds and/or washing and storage capacity. The company had two 50,000
capacity reactors, two 12,000 gallon capacity washing tanks and two 50,000
gallon capacity storage tanks.





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





Management
believes its production capacity could reach10 Million Gallons Per Year (MGPY)
with the installed equipment. With additional heating sources, management
believes that the capacity can be increased to 20 MGPY and is expected to reach
production capacity of 50 MGPY as soon as it can install already acquired
additional equipment, excess storage capacity, and additional heating
source.





BACKGROUND





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





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





Pure
biodiesel (B100) is considered an alternative fuel under 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 2010, and depending on other factors,
including crude oil prices, the industry projects that demand could be much
higher.




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





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




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




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.





EQUIPMENT





The plant
had original capacity to produce about 120,000 gallons of biodiesel per week.
However, the plant was never operated consistently at its full production
capacity during the period due to lack of sufficient funds and/or washing and
storage capacity. The company had two 50,000 capacity reactors, two 12,000
gallon capacity washing tanks and two 50,000 gallon capacity storage
tanks.





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 acquisition of the assets from bankruptcy, the 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 120,000 gallons of biodiesel per batch, four wash
tanks with total capacity to clean and wash 90,000 gallons of biodiesel per
batch, and the required storage tanks.





Management
believes its production capacity to reach 10 Million Gallons Per Year (MGPY)
with installed equipment. With additional heating sources, management believes
that the capacity can be increased to 20 MGPY and is expected to reach
production capacity of 50 MGPY with additional equipment, additional heating
source, and storage tanks.





PROCESS





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





Universal’s
simple process can be described as follows:





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


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


·
            Inline
      boiler keeps the feed stock at required temperature through out the
      reaction process


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


·
            The
      product moves to separation tanks where biodiesel and glycerin are
      separated


·
            Glycerin
      is moved to storage tank


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


·
            Specially
      designed pumps and wash tank completely take out all the impurities and
      Methanol from the biodiesel during four hour process. Biodiesel is moved
      to biodiesel storage tanks





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





LOGISTICS





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




7




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




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





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





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





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





PRODUCTS




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





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





DISTRIBUTION





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





Universal
is negotiating contracts with various vendors to meet their raw material
requirements. Universal is also exploring the possibility of importing oil from
Africa and Asia. 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.





ITEM
2.  DESCRIPTION OF PROPERTY





The
principal office of the Company is located at 279 Old Moody Road, Palm Coast, FL
32164. Our telephone number at that office is (386) 437-7176.
 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





There are
no legal proceedings to which the Company is a party or to which its property is
subject, nor to the best of management's knowledge are any material legal
proceedings contemplated.





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





No
matters were submitted to a vote of shareholders of the Company during the
fourth quarter of the fiscal year ended December 31, 2007.




8




PART
II





ITEM
5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND SMALL
BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES.





The
Company's common stock had been trading on the Over the Counter Bulletin Board
("OTCBB") sponsored by the National Association of Securities Dealers, Inc.
under the symbol [POMM.OB] at a bid price of $5.00. On November 14, 2007, the
Company effectuated a forward stock split, wherein shares of common stock held
by each stockholder of record were automatically increased at the rate of one
for five (1 for 5) without any further action on the part of the stockholders
and a change of name to Universal Bioenergy, Inc. and is now traded on OTC Pink
Sheets under the symbol [UBRG.PK] at a bid price of $5.00.





The
Company has not declared or paid any cash dividends on its common stock nor does
it anticipate paying any in the foreseeable future. Furthermore, the Company
expects to retain any future earnings to finance its operations and expansion.
The payment of cash dividends in the future will be at the discretion of its
Board of Directors and will depend upon its earnings levels, capital
requirements, any restrictive loan covenants and other factors the Board
considers relevant.





The
Company has no equity compensation plans.





Dividend
Policy




The
payment of dividends by the Company is within the discretion of its Board of
Directors and depends in part upon the Company’s earnings, capital requirements
and financial condition. Since its inception, the Company has not paid any
dividends on its common stock and does not anticipate paying such dividends in
the foreseeable future. The Company intends to retain earnings, if any, to
finance its operations or make acquisitions.




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"). 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). See Form 8-K of the
Company as filed on December 14, 2007.




9




ITEM:
6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION





FORWARD
LOOKING STATEMENTS





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




Overview





Universal
Bioenergy Inc. (UBRG) formerly 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, Universal and Mortensen Financial Limited, a shareholder of Palomine
("Mortensen").





UBNA (now
a subsidiary of UBRG) is a start-up Nevada corporation formed on January 23,
2007, for the purpose of operating a maximum capacity 50,000,000 gallons per
year (MGPY) biodiesel plant in Nettleton, Mississippi to produce biodiesel fuel
and a marketable byproduct of glycerin. We do not expect to generate any revenue
until the plant is completely operational. Our board of directors reserves the
right to change the location of the plant site, in their sole discretion, for
any reason. We anticipate the final plant site will have access to water, truck,
and rail transportation.




Based
upon estimates of management, the plant will annually produce 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 and produce corresponding amounts
(10% by biodiesel production volume) of marketable glycerin. We are still in the
development phase, and until the proposed biodiesel plant is operational, we
will generate no revenue. We anticipate that accumulated losses will continue to
increase until the biodiesel plant is operational.




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





Plan
of Operations for Initial Start-Up of Biodiesel Plant





Environmental
permits were obtained from the State of Mississippi in April 2008 to allow the
company to begin the scale-up phase of production to reach the nominal first
stage 10 MGPY subject to confirmation of effluent emissions. Pending
confirmation of these effluent emissions and issuance of the final permits by
the State of Mississippi, the plant will work to increase production
to 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. As
production is scaled up to the 20 MGPY level and above in subsequent months
after the first stage goal is reached, export to the European market is expected
with the higher production volume. Universal is exploring the possibility to
distribute their complete production volume through a well known and nationally
respected distributor of biodiesel and other biofuel products.





Management
believes that present cash reserves incurred through debt financing will be
sufficient for expenses for needed feedstock and reaction materials to begin
production. Sustaining production at the 10 MGPY level and 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 the initial offering
and additional debt if necessary.





Management
believes in the next twelve months approximately $ 2,000,000 of working capital
will be needed for operating expenses, and management further believes the
company's cash reserves will be insufficient to cover such costs. The company is
working with vendors to establish credit for feedstock materials and further
plans to raise needed capital through the continued issuance of outstanding
shares from the initial offering, revenue from sales of products, and if
necessary through additional debt until sufficient production volume can be
reached to cover operating costs and debt service. The raising of such capital
through stock issuance or debt is uncertain at best due to the present
volatility in the marketplace.




10


Liquidity
and Capital Resources





As of
December 31, 2007, we have total assets of $12,180218 consisting of good will,
equipment and property and current liabilities of $919,883 consisting primarily
of short term debt financing. Long term liabilities exist amounting to
$1,585,546. Since our inception, we have generated no revenue from operations.
For the period from inception to December 31, 2007, we had a net
loss of $984,328, primarily due to equipment acquisition, facility improvements,
and business start-up costs.





The
Company has incurred recurring losses from operations and has a net working
capital deficiency and net capital deficiency that raises substantial doubt
about its ability to continue as a going concern. The Report of Independent
Registered Public Accounting Firm included in this Annual Report stated that
these conditions, among others, raise substantial doubt about the Company’s
ability to continue as a going concern. Historically, our cash needs have
been met primarily through proceeds from private placements of our equity
securities and debt instruments including debt instruments convertible into our
equity securities. Company management intends to raise additional cash to fund
future operations and to provide additional working capital. However, there is
no assurance that such financing will be obtained. The Company expects that it
will require $ 2,000,000 in order to fund its business for the next 12 months.
We expect to continue to raise capital in the future, but cannot guarantee that
such financing activities will be sufficient to fund our current and future
projects and our ability to meet our cash and working capital
needs.





Critical
Accounting Policies





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





Property and
Equipment





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





Income
Taxes





The
Company accounts for income taxes under the Statement of Financial Accounting
Standards Board Statement of Financial Accounting Standard No. 109, “Accounting
for Income Taxes” (“Statement 109”). Under Statement 109, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statements carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under Statement 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.




As of
December 31, 2007, the Company has a net operating loss carry forward of
$984,328 available to offset future taxable income through 2027.





Derivative
Liabilities





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





Risk
Factors





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




Risk
Factors Related to Our Finances





If We Fail To Raise Additional
Financing We May Not Be Able To Fund Our Operations And Implement Our Business
Plan. We require additional capital to support even minimal ongoing
operations. Should the Company not be able to raise capital as required, the
Company may need to cease operations entirely. Any additional financing may
involve dilution to the Company's then-existing shareholders. The Company
has no current arrangements with respect to sources of additional financing and
there can be no assurance that the Company will be able to obtain additional
financing on terms acceptable to the Company. The Report of Independent
Registered Public Accounting Firm included in this Annual Report stating that
the financial statements have been prepared on the assumption that the Company
will continue as a going concern and that financing uncertainties raise
substantial doubt about the Company's ability to continue as a going
concern.




11




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





Risk
Factors Related to Our Operations





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





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





Moreover,
the Company’s prospects must be considered in light of the risks and
uncertainties encountered by an early-stage company and in rapidly evolving
markets, such as the ethanol market, where supply and demand may change
significantly in a short amount of time.





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





·
            effectively
      manage our contemplated business
operations;


·
            recruit
      and retain key personnel;


·
            successfully
      create and maintain relationships with vegetable oil producers and develop
      reliable feedstock supplies; and


·
            develop
      new products that complement our contemplated
  business.





If we
cannot successfully address these risks, our contemplated business and the
results of our contemplated operations and financial position would
suffer.




The loss of our Chief Executive
Officer and/or President could limit our ability to execute our growth strategy,
resulting in a slower rate of growth.  The Company is largely
dependent upon its officers, Dr. Richard Craven and James E. Earnest, for
management and direction. The Company does not maintain “key person” life
insurance for Mr. Craven or Mr. Earnest. The loss of either Dr. Craven or Mr.
Earnest could adversely affect the Company’s contemplated operations and
results.





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





·
            reaching
      definitive agreements for reliable feedstock supplies for
      biodiesel;


·
            entering
      into satisfactory agreements for the sale of
  biodiesel;


·
            entering
      into satisfactory agreements for the expansion of the existing
      manufacturing facility;





Since the
Company has yet to begin full operation as a business, there is no certainty
that we will be able to achieve satisfaction of any or all of the above
conditions.





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





Anticipated
results may be substantially dependent on commodity prices, especially prices
for vegetable oils, waste oils, animal fats and also petroleum
diesel.





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




12




The Company’s contemplated business
is likely to be highly sensitive to feedstock prices, and generally we will be
unable to pass on increases in feedstock prices to our customers. The
principal raw material we expect to use to produce biodiesel is feedstock. As a
result, changes in the price of feedstock can significantly affect our
contemplated business. In general, rising feedstock prices produce lower profit
margins. Because biodiesel competes with fossil-based
fuels, the Company is not likely to be able to pass along increased feedstock
costs to customers. At certain levels, feedstock prices may make biodiesel
uneconomical to use in fuel markets.





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





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





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





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




§           additional
storage facilities for biodiesel;


§           expansion
of refining and blending facilities to handle biodiesel; and


§           growth
in service stations equipped to handle biodiesel fuels.





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





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





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





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




The cost
of producing biodiesel is made significantly more competitive with petroleum
diesel by federal tax incentives. The elimination or significant reduction in
such federal tax incentives or other programs benefiting biodiesel may have a
material adverse effect on the results of the Company’s contemplated operations
and financial position.




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




13




We may not be able to secure the
required zoning and permits to enlarge are biodiesel refinery. There is
no guarantee that we will be able to obtain the required zoning and permits to
increase the size of our biodiesel refinery. This could limit our ability to
increase our biodiesel production which could damage the Company’s ability to
generate revenues.




Risk
Factors Related to Our Stock





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





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





ITEM 7.  FINANCIAL
STATEMENTS





The
financial statements required by this item are set forth beginning on page
F-1.





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





(i) 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. This decision to engage Webb was ratified by the majority approval
of the Board of Directors of the Company.




(ii)
Management of the Company has not had any disagreements with Murrell related to
any matter of accounting principles or practices, financial statement disclosure
or auditing scope or procedure. For the most recent fiscal year and any
subsequent interim period through Murrell’s termination on December 20, 2007,
there has been no disagreement between the Company and Murrell on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreement, if not resolved to the satisfaction of
Murrell would have caused it to make a reference to the subject matter of the
disagreement in connection with its reports.




(iii) The
Company’s Board of Directors participated in and approved the decision to change
independent accountants.





(iv) In
connection with its review of financial statements through July 31, 2007, there
have been no disagreements with Murrell on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure,
which disagreements if not resolved to the satisfaction of Murrell would have
caused them to make reference thereto in their report on the financial
statements.





(v)
During the most recent audit period and the interim period subsequent to
December 20, 2007 there have been no reportable events with the Company as set
forth in Item 304(a)(1)(iv)(B) of Regulation S-B.




(vi) The
Company requested that Murrell furnish it with a letter addressed to the SEC
stating whether or not it agrees with the above statements. A copy of such
letter is filed as an Exhibit to the Form 8-K/A filed with the Securities and
Exchange Commission on February 27, 2008.




14


ITEM
8A (T).  CONTROLS AND PROCEDURES





Evaluation
of Disclosure Controls and Procedures





We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified by the SEC
and that such information is accumulated and communicated to management,
including our CEO and CFO, as appropriate, to allow for timely decisions
regarding required disclosure. In designing and evaluating our disclosure
controls and procedures, we recognize that any controls and procedures, no
matter how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management is required to apply
its judgment in evaluating the cost-benefit relationship of possible controls
and procedures.





Management,
with participation by our CEO and CFO, has designed the Company’s disclosure
controls and procedures to provide reasonable assurance of achieving the desired
objectives. As required by SEC Rule 13a-15(b), in connection with filing
this Annual Report on Form 10-K, management conducted an evaluation, with the
participation of our CEO and CFO, of the effectiveness of the design and
operation of our disclosure controls and procedures, as such term is defined
under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934,
as of December 31, 2007, the end of the period covered by this
report.




Based
upon the evaluation conducted by management in connection with the audit of the
Company’s financial statements for the years ended December 31, 2007 and
2006, we identified material weaknesses in our internal control over financial
reporting. A material weakness is “a significant deficiency, or a combination of
significant deficiencies, that results in more than a remote likelihood that a
material misstatement of the annual or interim financial statements will not be
prevented or detected by us in a timely manner.” As a result of this material
weakness, our CEO and CFO concluded that our disclosure controls and procedures
were not effective at the reasonable assurance level as of December 31,
2007.




Management’s
Evaluation of Internal Control over Financial Reporting





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





With the
participation of our Chief Executive Officer and our Chief Financial Officer,
our management conducted an evaluation of the effectiveness of our internal
control over financial reporting as of December 31, 2007 based on the
framework in Internal
Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on our evaluation and the
material weaknesses described below, management concluded that the Company did
not maintain effective internal control over financial reporting as of December
31, 2007 based on the specified criteria. Management has identified control
deficiencies regarding 1) lack of segregation of duties; 2) lack of timely
completion of financial control and reporting processes; 3) need for
stronger internal control environment and 4) revenue recognition and sales
cut-off. Management of the Company believes that these material weaknesses are
due to the small size of the Company’s accounting staff, exacerbated by the
resignation of the Company’s Chief Financial Officer and Corporate Controller
earlier in 2007. Management took action to replace these positions; however, the
small size of the Company’s accounting staff may prevent adequate controls in
the future, such as segregation of duties, due to the cost/benefit of such
remediation.





The
ineffectiveness of internal controls as of December 31, 2007 was the result of
several significant changes within the Company.  The organization
structure was changing as we hired additional management, and were restructuring
the company obtaining new financing, adopting new accounting procedures and
discontinuing operations. This placed additional stress on the organization
and our internal reporting and controls as financial personnel adjusted to the
many changes instituted within the company.  Although we believe
the time to adapt in the fourth quarter has better positioned us to provide
improved internal control functions into the future, during the transition,
these changes caused control deficiencies, which in the aggregate resulted in a
material weakness.





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





In light
of this material weakness, we performed additional analyses and procedures in
order to conclude that our consolidated financial statements for the year ended
December 31, 2007 included in this Annual Report on Form 10-KSB were
fairly stated in accordance with US GAAP. Accordingly, management believes
that despite our material weaknesses, our financial statements for the year
ended December 31, 2007 are fairly stated, in all material respects, in
accordance with US GAAP.




15




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





This
annual report 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-KSB.




ITEM
8 B.  OTHER INFORMATION





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.  Please see Form 8-K as filed by the
Company on March 7, 2008.





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. This decision to engage Webb was ratified by the majority approval
of the Board of Directors of the Company. Please see Form 8-K/A as filed by the
Company on January 28, 2008.





PART
III





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





Executive Officers and
Directors





The
following table sets forth information about the Company’s officers and
directors as of December 31, 2007:





Name
                  
                  Age
                  
                  Principal
      PositionRichard
      D. Craven
                  
                  44
                  
                  Chief
      Executive Officer
                    and
      DirectorJames
      E. Earnest
                  
                  51
                  
                  President
      and DirectorTraci
      Plaxico
                  
                  37
                  
                  Secretary





Dr.
Richard D. Craven





Dr.
Richard D. Craven was appointed as our Chief Executive Officer and a member of
the board of directors of the Company on February 26, 2008. Dr. Craven has more
than fourteen years of business management experience and more than nine years’
experience in marketing. In addition, he has taught at the university level for
nearly two decades. He has spent much of his career involved in the development
of environmentally-friendly fuels, alternative energy, and biotechnology. Prior
to joining the Company, Dr. Craven was employed as a Managing Director of Antek
Energy, LLC, an alternative energy production, management and consulting concern
from January 2007 to February 2008. During the period May 2005 to February 2008,
Dr. Craven worked as a Senior Advisor for Chemical Research for Antek Research
Incorporated, a renewable energy research firm. Dr. Craven’ s related research
projects were aimed at optimizing and improving biodiesel reactions and
production, from component miscibility to use of reaction by-products to
catalytic reactions for waste-to-fuel conversion and waste conversion to other
useful products. All his work at Antek centers on the development of sustainable
energy source utilization systems and other environmentally conscious
projects.





During
the period of December 2004 to February 2008, Dr. Craven founded Kiraco
Financial Services, a business financial services and commercial mortgages
firm.




16




In
addition, Dr. Craven has been a member of the teaching faculty at the following
universities and colleges: University of Phoenix Online, Phoenix, AZ (11/03 to
present); Argosy University, Chicago, IL (10/07 to present); Art Institute of
Pittsburgh, Pittsburgh, PA (1/03 to present); Axia College of Western
International University/University of Phoenix, Phoenix, AZ (1/05 to 12/06);
Mississippi Gulf Coast Community College - JD Campus, Gulfport, MS (8/02 to
8/03) and Spring Hill College, Mobile, AL (8/99 to 5/02).





James E.
Earnest





Mr.
Earnest has served as the Company’s President and as a member of the board of
directors of the Company since October 24, 2007. Mr. Earnest is a trained
engineer with more than 25 years’ experience successfully managing companies in
industries as diverse as agricultural equipment, wood production and heavy
equipment manufacturing. Mr. Earnest was recently responsible for designing,
planning and setting up a 10 MGPY capacity biodiesel facility. His skill set
includes engineering, project management and manufacturing. He is an
entrepreneur and nonstop innovator. Previously, he was owner and manufacturing
manager of a furniture component company. In addition he was a plant manager of
a woodworking facility. During this stage, Mr. Earnest gained experience at all
levels of production and distribution. He has also been a design, test, and
project engineer for an agricultural equipment company. These experiences helped
him develop the ability to work with vendors to design new components and
systems, to reduce their costs through manufacturing innovations. He received
his BS in Agricultural Engineering from Mississippi State University. Mr.
Earnest was awarded the Young Engineer Award by the National Society of
Agricultural Engineers in 1986 for the Mississippi Chapter.




For the
recent years, Mr. Earnest has been involved with the following companies: August
2006 to May 2007, Mr. Earnest was Project Manager for Tri-State Petroleum and
from 1994 to 2005 Co-Owner and Vice-President of Wood Technologies,
Inc.





Traci
Plaxico





Mrs.
Plaxico has served as the Company’s Secretary since October 24, 2007. Mrs.
Plaxico has spent her career mastering the economics of the alternative energy
industry and building the financial models necessary for companies in this field
to achieve success. She brings to Universal Bioenergy more than ten years of
executive level management, corporate finance and strategic planning, including
deep experience in the alternative fuel industry, with particular focus on
biodiesel. Mrs. Plaxico’s expertise includes logistics as well as compliance
with ever-changing government regulations - two critical roles for running a
successful biodiesel manufacturing facility. In addition, she brings experience
in inventory management, procurement, material flow and recordkeeping. She also
has a background in accounting and finance. Mrs. Plaxico grew up in a farming
environment, studying horticulture. She has attended Itawamba Community
College.





For the
recent years, Mrs. Plaxico was involved with the following companies: September
1999 to January 2004, Mrs. Plaxico was in Customer Relations at National Bank of
Commerce and from October 2004 to April 2006, she was the office manager at
Biodiesel of Mississippi, Inc.





Audit Committee and
Financial Expert





We do not
have an Audit Committee.  Dr. Craven, performs some of the same functions
of an Audit Committee, such as: recommending a firm of independent certified
public accountants to audit the annual financial statements;  reviewing
 the  independent auditors  independence,  the financial
statements and their audit report; and reviewing management's
 administration of the system of internal  accounting  controls.
We do not currently have a written audit committee charter or similar
document.





We have
no financial expert. We believe the cost related to retaining a financial expert
at this time is prohibitive. Further, because we have no business operations,
management believes the services of a financial expert are not
warranted.





Code of
Ethics





A code of
ethics relates to written standards that are reasonably designed to deter
wrongdoing and to promote:





1.
            Honest
      and ethical conduct, including the ethical handling of actual or apparent
       conflicts of interest between personal and professional
      relationships;





2.
            Full,
       fair,  accurate,  timely  and  understandable
       disclosure  in reports and  documents  that are filed
      with,  or submitted  to, the Commission and in other public
      communications made by an issuer;





3.
            Compliance
      with applicable governmental laws, rules and
  regulations;





4.
            The
      prompt internal reporting of violations of the code to an appropriate
      person or persons identified in the code;
and




17




5.
            Accountability
      for adherence to the code.





We have
not adopted a corporate code of ethics that applies to our principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions.





Nominating
Committee





We do not
have a Nominating Committee or Nominating Committee Charter.  Dr. Craven
performs some of the functions associated with a Nominating Committee. We have
elected not to have a Nominating Committee in that we are a development stage
company with limited operations and resources.





ITEM
10: EXECUTIVE COMPENSATION





Our
bylaws provide for indemnification of each person (including the heirs,
executors, administrators, or estate of such person) who is or was director and
officer of the corporation to the fullest extent permitted or authorized by
current or future legislation or judicial or administrative decision against all
fines, liabilities, costs and expenses, including attorneys’ fees, arising out
of his or her status as a director, officer, agent, employee or representative.
Nevada Revised Statute 78.7502 allows indemnification so long as the officers
and directors acted in good faith. The foregoing right of indemnification
shall not be exclusive of other rights to which those seeking an indemnification
may be entitled. The corporation may maintain insurance, at its expense, to
protect itself and all officers and directors against fines, liabilities, costs,
and expenses, whether or not the corporation would have the legal power to
indemnify them directly against such liability. Such indemnification has
the effect of reducing the liability of officers and directors.




Section
78.751 of the Nevada Revised Statutes requires that the determination that
indemnification is proper in a specific case must be made by (a) the
stockholders, (b) the board of directors by majority vote of a quorum consisting
of directors who were not parties to the action, suit or proceeding or (c)
independent legal counsel in a written opinion (i) if a majority vote of a
quorum consisting of disinterested directors is not possible or (ii) if such an
opinion is requested by a quorum consisting of disinterested
directors.





Insofar
as indemnification for liabilities arising under the Securities Act of 1933, as
amended (the "Securities Act") may be permitted to our directors, officers and
controlling persons (within the meaning of the Securities Exchange Act) pursuant
to the foregoing provisions, or otherwise, we have been advised that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.





Compliance with Section
16(a) of the Act





Section
16(a) of the Exchange Act requires our officers and directors, and persons who
own more than ten percent (10%) of our shares of common stock, to file reports
of ownership and changes in ownership with the SEC. Officers, directors and
greater than ten percent (10%) stockholders are required by regulations
promulgated by the SEC to furnish us with copies of all Section 16(a) forms that
they file. With reference to transactions during the fiscal year ended
December 31, 2007, to our knowledge, based solely on review of the copies of
such reports furnished to us and written representations, all Section 16(a)
forms required to be filed with the SEC were not filed.





SUMMARY
COMPENSATION TABLE





The
following table sets forth the cash compensation (including cash bonuses) paid
or accrued and equity awards granted by us for years ended December 31, 2007 and
2006 to our Chief Executive Officer and our most highly compensated officers
other than the Chief Executive Officer at December 31, 2007 whose total
compensation exceeded $100,000.





Name &
                              Principal
                              Position
                            
                            Year
                            
                            Salary ($)
                            
                            Bonus
                              ($)
                            
                            Stock
                              Awards($)
                            
                            Option
                              Awards
                              ($)
                            
                            Non-Equity
                              Incentive Plan
                              Compensation ($)
                            
                            Change in
                              Pension Value
                              and Non-
                              Qualified
                              Deferred
                              Compensation
                              Earnings ($)
                            
                            All Other
                              Compensation ($)
                            
                            Total ($)Richard
      Craven
                              CEO
      and Director
                            
                            
                            2007
                            
                            0
                            
                            
                            0
                            
                            0
                            
                            
                            0
                            
                            0
                            
                            
                            0
                            
                            0
                            
                            
                            0James
      E. Earnest
                              President
      and Director
                            
                            
                            2007
                            
                            26,585
                            
                            
                            0
                            
                            0
                            
                            
                            0
                            
                            0
                            
                            
                            0
                            
                            0
                            
                            
                            26,585Traci
      Plaxico
                              Secretary
                            
                            
                            2007
                            
                            4,454
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            4,454





Eugene N.
Larabie and Barry Brown former officers and directors of the Company did not
receive any compensation from the Company for any of the 2005, 2006 and 2007
fiscal years.




18




*Salary
is received from the Company’s subsidiary Universal Bioenergy North America,
Inc.




OUTSTANDING
EQUITY AWARDS





No other
named executive officer has received an equity award.





DIRECTOR
COMPENSATION





We do not
pay directors compensation for their service as directors.





Employment
and Other Agreements





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.




ITEM  11.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS





SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT





The
following table sets forth certain information, as of December 31, 2007 with
respect to the beneficial ownership of the Company's outstanding common stock by
(i) any holder of more than five (5%) percent; (ii) each of the named executive
officers, directors and director nominees; and (iii) our directors, director
nominees and named executive officers as a group. Except as otherwise indicated,
each of the stockholders listed below has sole voting and investment power over
the shares beneficially owned. The below table is based on 22,500,000 shares of
common stock outstanding as of December 31, 2007.





Name of Beneficial Owner
                        
                        Common
                          Stock
                          Beneficially
                          Owned (1)
                        
                        Percentage of
                          Common
                          Stock (1)Richard
      Craven (2)
                        
                        
                        0
                        
                        0James
      E. Earnest (2)
                        
                        
                        0
                        
                        0Traci
      Plaxico (2)
                        
                        
                        0
                        
                        0All
      officers and directors as a group (3 persons)
                        
                        
                        0
                        
                        0





(1)
Beneficial ownership is determined in accordance with the Rule 13d-3(d) (1) of
the Exchange Act, as amended and generally includes voting or investment power
with respect to securities. Pursuant to the rules and regulations of the
Securities and Exchange Commission, shares of common stock that an individual or
group has a right to acquire within 60 days pursuant to the exercise of options
or warrants are deemed to be outstanding for the purposes of computing the
percentage ownership of such individual or group, but are not deemed to be
outstanding for the purposes of computing the percentage ownership of any other
person shown in the table.





(2)
Richard Craven is the Chief Executive Officer and Director of the Company; James
E. Earnest is the President and Director of the Company; Traci Plaxico is the
Secretary of the Company.





As of the
time of this 10-KSB filing, 49% of the outstanding shares of the Company are
owned by 11 foreign entities in an amount of 1,000,000 shares each (4.45%
ownership each). No Form 3, Schedule 13D or Schedule 13G has been filed with
respect to such shareholders and the company has relied on the lack of filing of
such forms that no shareholder is the beneficial owner of more than its listed
holdings (as set forth on the shareholder list) as a result of any contract,
arrangement, understanding, relationship or otherwise that would entitle such
shareholder to vote or direct the vote of another shareholder and/or investment
power (power to dispose, or to direct the disposition of the common stock held
by such other shareholder).




ITEM
12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE TRANSACTIONS WITH MANAGEMENT AND OTHERS




During
December 2007, the Company entered into an $88,000 note payable with a related
party. The interest rate is 6.5% per annum. The note is unsecured and requires
payment of accrued interest and principal by December 31, 2010. On April 30,
2008 and October 31, 2008, all accrued interest must be paid. Beginning April
30, 2009, and semiannually thereafter through October 31, 2010, Company is to
pay $22,000 semiannual installments. During the period from inception to
December 31, 2007, the Company incurred interest expense of approximately $169
(See Note 4 of the Notes to the Consolidated Financial Statements).




19




During
October 2007, the Company issued a $300,000 convertible note payable with 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
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 Company is to pay $75,000 in semiannual installments. During the period
from inception to December 31, 2007 the Company incurred interest expense of
approximately $3,250 (See Note 5 of the Notes to the Consolidated Financial
Statements).





During
October 2007, the Company entered into a $250,000 note payable with a related
party. The interest rate is 6.5% per annum. The note is unsecured and requires
payment of accrued interest and principal by December 31, 2008. During the
period from inception to December 31, 2007 the Company incurred interest expense
of approximately $2,708 (See Note 4 of the Notes to the Consolidated Financial
Statements).





During
the year ending December 31, 2007, the Company received a $10,046 advance from a
related party. Pursuant to the terms of the advance, the advance is non interest
bearing, unsecured and due on demand.




For the
year ending December 31, 2007, the shareholder of the Company contributed $600
of services on behalf of the Company (See Note 3 (B) of the Notes to the
Consolidated Financial Statements).





Director
Independence




Our
directors are not "independent" directors within the meaning of Marketplace Rule
4200 of the National Association of Securities Dealers, Inc.





20





PART
IV




ITEM
13. EXHIBITS




The
following documents are filed as a part of this report or are incorporated by
reference to previous filings, if so indicated:





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)31.1
              
              Rule 13a-14(a)/15d-14(a)
      certification of Certificate of Chief Executive Officer
  *31.2
              
              Rule 13a-14(a)/15d-14(a)
      certification of principal financial and accounting officer
    *







*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.





ITEM  14.  PRINCIPAL
ACCOUNTANT FEES AND SERVICES





(1)
  Audit Fees




The
aggregate fees billed by the independent accountants for the fiscal year ended
December 31, 2007 and 2006 for professional services for the audit of the
Company's annual financial statements and the reviews included in the Company's
Form 10-QSB and services that are normally provided by the accountants in
connection with statutory and regulatory filings or engagements for those fiscal
years were $20,363.75 and $0, respectively.




21




(2)
  Audit-Related Fees




The
aggregate fees billed in each of the last two fiscal years for assurance and
related services by the principal accountants that are reasonably related to the
performance of the audit or review of the Company's financial statements and are
not reported under Item 9 (e)(1) of Schedule 14A was $0 and $0
respectively.




(3)
  Tax Fees




The
aggregate fees billed in each of the last two fiscal years for professional
services rendered by the principal accountants for tax compliance, tax advice,
and tax planning was $0 and $0 respectively.




(4)
  All Other Fees




During
the last two fiscal years there were no other fees charged by the principal
accountants other than those disclosed in (1) and (2) above.




Our Board
approves the engagement letter of our independent registered public accounting
firm with respect to audit, tax and review services. Other fees are subject to
pre-approval by the Board. The audit and tax fees paid to the auditors with
respect to fiscal years 2007 and 2006 were pre-approved by our
directors.




(5)
  Audit Committee's Pre-approval Policies




At the
present time, there are not sufficient directors, officers and employees
involved with the Company, to make any pre-approval policies meaningful. Once we
have elected more directors and appointed directors and non-directors to the
Audit Committee it will have meetings and function in a meaningful
manner.


22





SIGNATURES




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





UNIVERSAL
      BIOENERGY, INC.(Registrant)




Dated:
      September 2, 2009
                By
                /s/ Richard
      CravenRichard
      Craven, Chief Executive OfficerDated
      September 2, 2009
                By
                /s/James Michael
      AtorJames
      Michael Ator, Chief  Financial
Officer




23





Universal
Bioenergy Inc.


And
Subsidiary


(f/k/a
Palomine, Inc.)


(A
Development Stage Company)




CONTENTS





PAGE
              F-1
              REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMPAGE
              F-2
              CONSOLIDATED
      BALANCE SHEET AS OF DECEMBER 31, 2007PAGE
              F-3
              CONSOLIDATED
      STATEMENT OF OPERATIONS FOR THE PERIOD FROM AUGUST 13, 2004 (INCEPTION) TO
      DECEMBER 31, 2007.PAGE
              F-4
              CONSOLIDATED
      STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIENCY FOR THE PERIOD FROM
      AUGUST 13, 2004 (INCEPTION) TO DECEMBER 31, 2007.PAGE
              F-5
              CONSOLIDATED
      STATEMENT OF CASH FLOWS FOR THE PERIOD FROM AUGUST 13,
      2004 (INCEPTION) TO DECEMBER 31, 2007.PAGES
              F-6
      - F-16
              NOTES
      TO CONSOLIDATED FINANCIAL
STATEMENTS









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, and the related
consolidated statements of operations, changes in stockholders’ deficiency and
cash flows for the period from January 23, 2007 (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.





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 and the results of
its consolidated operations and its cash flows for the period from January 23,
2007 (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 8 to the
financial statements, the Company is in the development stage, has used cash in
operations of $628,507 from inception, has a working capital deficiency of
$397,978 and has an accumulated deficit during the development stage of
$628,292. 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 8. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.




WEBB
& COMPANY, P.A.





Boynton
Beach, Florida


April 10,
2008




F-1




Universal
Bioenergy, Inc. and Subsidiary


(f/k/a
Palomine Mining, Inc.)


(A
Development Stage Company)


Consolidated
Balance Sheet


December
31, 2007 and January 31, 2007


December 31,2007
                        
                        
                        January 31,2007ASSETSCurrent
      AssetsCash
                        
                        
                        135,634
                        
                        
                        
                        2,820Prepaid
      Expenses
                        
                        
                        176,626
                        
                        
                        
                        100Deposits
                        
                        
                        3,100Total
      Current Assets
                        
                        
                        316,360Long
      Term AssetsGoodwill
                        
                        
                        9,898,787Total
      Property and Equipment-Net
                        
                        
                        1,815,071Land
                        
                        
                        150,000Total
      Long Term Assets
                        
                        
                        11,863,858Total
      Assets
                        
                        
                        12,180,218
                        
                        
                        
                        2,920LIABILITIES AND STOCKHOLDERS'
      DEFICIENCYCurrent
      LiabilitiesAccounts
      Payable
                        
                        
                        83,051
                        
                        
                        
                        6,360Accrued
      Expenses
                        
                        
                        120,559Convertible
      loans payable
                        
                        
                        89,639Derivative
      Liability
                        
                        
                        214,134Notes
      Payable
                        
                        
                        412,500
                        
                        
                        
                        10,000Total
      Current Liabilities
                        
                        
                        919,883
                        
                        
                        
                        16,360Long
      Term LiabilitiesNotes
      Payable- Related Party
                        
                        
                        338,000Notes
      Payable
                        
                        
                        1,237,500Stockholder
      Advance
                        
                        
                        10,046Total Long Term
      Liabilities
                        
                        
                        1,585,546
                        
                        
                        
                        0Total
      Liabilities
                        
                        
                        2,505,429
                        
                        
                        
                        16,360Stockholders'
      EquityPreferred
      stock, $0.001 par value; 1,000,000 shares authorized, none issued and
      outstandingCommon
      stock, $0.001 par value; 200,000,000 shares authorized, 22,500,000 issued
      and outstanding
                        
                        
                        22,500
                        
                        
                        
                        21,500Additional
      paid-in capital
                        
                        
                        10,636,617
                        
                        
                        
                        300Deficit
      accumulated during the development stage
                        
                        
                        (41,440
                        )
                        
                        
                        (41,440
                        )Net
      Loss
                        
                        
                        (942,888
                        )Total
      Stockholders' Equity
                        
                        
                        9,674,789
                        
                        
                        
                        (3,760
                        )Total
      Liabilities and Stockholders' Equity
                        
                        
                        12,180,218
                        
                        
                        
                        2920




See Notes
to Financial Statements





F-2





Universal
Bioenergy, Inc. and Subsidiary


(f/k/a
Palomine Mining, Inc.)


Consolidated
Statement of Operations


For
the Period from August 13, 2004 (Inception) to December 31, 2007





December 31,2007
                                  
                                  
                                  January 31, 2007
                                  
                                  
                                  CumulativeOperating
      ExpensesMineral
      Expenditure-Palomine
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  11,000Maintenance
      and Plant Operations
                                  
                                  
                                  102,872
                                  
                                  
                                  
                                  
                                  
                                  
                                  102,872Organization
      Costs
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  1,500Maintenance
      and Plant Operations-Good Will
                                  
                                  
                                  52,918
                                  
                                  
                                  
                                  
                                  
                                  
                                  52,918Salary
      of Officers
                                  
                                  
                                  31,039
                                  
                                  
                                  
                                  
                                  
                                  
                                  31,039Professional
      Fees
                                  
                                  
                                  217,184
                                  
                                  
                                  
                                  10,947
                                  
                                  
                                  
                                  240,695Professional
      Fees-Good Will
                                  
                                  
                                  13,900
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  13,900G&A
                                  
                                  
                                  167,952
                                  
                                  
                                  
                                  2,817
                                  
                                  
                                  
                                  173,381G&A-Good
      Will
                                  
                                  
                                  35,190
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  35,190Total
      Operating Expenses included in Good Will
                                  
                                  
                                  102,008Total Operating Expenses not
      included in Good Will
                                  
                                  
                                  519,047Total  Loss
      from Operations
                                  
                                  
                                  621,055
                                  
                                  
                                  
                                  13,764
                                  
                                  
                                  
                                  662,495Other
      Income (Expense)Change
      in fair value of embedded derivative liability
                                  
                                  
                                  4,094
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  4,094Interest
      Expense
                                  
                                  
                                  (32,724
                                  )
                                  
                                  
                                  
                                  
                                  
                                  
                                  (32,724
                                  )Interest
      Expense-Good Will
                                  
                                  
                                  (82,174
                                  )
                                  
                                  
                                  
                                  
                                  
                                  
                                  (82,174
                                  )Sale
      of scrap-Good Will
                                  
                                  
                                  607
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  607Interest
      Income-Good Will
                                  
                                  
                                  2,827
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  2,827In
      Kind
                                  
                                  
                                  2,400
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  2,400Loss
      From Other Income
                                  
                                  
                                  26,230Loss
      From Other Income-Goodwill
                                  
                                  
                                  78,741Total
      Loss from Other Income
                                  
                                  
                                  104,970
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  104,970Net
      Loss
                                  
                                  
                                  940,948
                                  
                                  
                                  
                                  13,764
                                  
                                  
                                  
                                  982,388Weighted
      average number of shares outstanding during the period - Basic and
      Diluted
                                  
                                  
                                  21,750,000
                                  
                                  
                                  
                                  21,500,000
                                  
                                  
                                  
                                  21,750,000Net
      Loss Per Share - Basic and Diluted
                                  
                                  
                                  (0.04
                                  )
                                  
                                  
                                  (0.01
                                  )
                                  
                                  
                                  (0.05
                                  )





See Notes
to Financial Statements





F-3




Universal
Bioenergy, Inc. and Subsidiary


(f/k/a
Palomine Mining, Inc.)


(A
Development Stage Company)


Consolidated
Statement of Changes in Stockholders' Deficiency


For
the Period From August 13, 2004 (Inception) to December 31, 2007





All
      Transactions have been
                                                
                                                Preferred Stock
                                                
                                                
                                                Common Stock
                                                
                                                
                                                Additional
                                                  Paid-in
                                                
                                                
                                                Accumulated
                                                  Deficit
                                                  at DevelopmentAdjusted
      to reflect a five from
                                                
                                                Shares
                                                
                                                Amount
                                                
                                                
                                                Shares
                                                
                                                
                                                Amount
                                                
                                                
                                                Capital
                                                
                                                
                                                Stage
                                                
                                                
                                                TotalOne
      Forward SplitBalance
      at August 3, 2004 (Inception)Stock
      issued for cash9/8/2004
      at .0002
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                10,000,000
                                                
                                                
                                                
                                                10,000
                                                
                                                
                                                
                                                (8,000
                                                )
                                                
                                                
                                                
                                                
                                                
                                                2,00010/4/2004
      at .0002
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                6,000,000
                                                
                                                
                                                
                                                6,000
                                                
                                                
                                                
                                                (4,800
                                                )
                                                
                                                
                                                
                                                
                                                
                                                1,20010/26/2004
      at .002
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                5,000,000
                                                
                                                
                                                
                                                5,000
                                                
                                                
                                                
                                                5,000
                                                
                                                
                                                
                                                
                                                
                                                
                                                10,00010/29/2004
      at .02
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                500,000
                                                
                                                
                                                
                                                500
                                                
                                                
                                                
                                                9,500
                                                
                                                
                                                
                                                
                                                
                                                
                                                10,000Net
      Loss for the period
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                (6,240
                                                )
                                                
                                                
                                                (6,240
                                                )Balance,
      1/31/2005
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                21,500,000
                                                
                                                
                                                $
                                                21,500
                                                
                                                
                                                
                                                1,700
                                                
                                                
                                                
                                                (6,240
                                                )
                                                
                                                
                                                16,960Non
      Cash Services by Director
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                2,400
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                2,400Net
      Loss for Year
                                                
                                                -
                                                
                                                
                                                -
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                (21,436
                                                )
                                                
                                                
                                                (21,436
                                                )Balance,
      1/31/2006
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                $
                                                21,500
                                                
                                                
                                                
                                                4,100
                                                
                                                
                                                
                                                (27,676
                                                )
                                                
                                                
                                                (2,076
                                                )Non
      Cash Services by Director
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                2,400
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                2,400Net
      Loss For Year
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                (13,764
                                                )
                                                
                                                
                                                (13,764
                                                )Balance,
      1/31/2007
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                21,500,000
                                                
                                                
                                                
                                                21,500
                                                
                                                
                                                
                                                6,500
                                                
                                                
                                                
                                                (41,440
                                                )
                                                
                                                
                                                (13,440
                                                )9,000,000
      shares 1.00 bid
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                1,000,000
                                                
                                                
                                                
                                                1,000
                                                
                                                
                                                
                                                9,000,000
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                9,000,000New
      Issue at 1.00
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                999,000
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                1,000.000Sale
      of UBNA Stock
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                500,000
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                500,000Cancelled
      Note
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                88,046
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                88,046Money
      from acquisition
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                43,080
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                43,080Net
      Loss for the Year
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                (942,888
                                                )
                                                
                                                
                                                (942,888
                                                )Balance,
      for the year ended December 31, 2007
                                                
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                22,500,000
                                                
                                                
                                                $
                                                22,500
                                                
                                                
                                                $
                                                10,665,947
                                                
                                                
                                                
                                                (984,328
                                                )
                                                
                                                
                                                9,674,798




See Notes
to Financial Statements




F-4




Universal
Bioenergy, Inc. and Subsidiary


(f/k/a
Palomine Mining, Inc.)


(A
Development Stage Company)


Consolidated
Statement of Cash Flows


For
the Periods Ending December 31, 2007, January 31, 2007, and from August 13, 2004
(Inception)


December 31, 2007
                                    
                                    
                                    January 31, 2007
                                    
                                    
                                    Cumulative PeriodCash
      Flows From Operating Activities:Net
      Loss
                                    
                                    
                                    (942,888
                                    )
                                    
                                    
                                    (13,764
                                    )
                                    
                                    
                                    (984,328
                                    )Interest
      Income
                                    
                                    
                                    2,627
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    2,627In-kind
      contribution of services
                                    
                                    
                                    2,400
                                    
                                    
                                    
                                    2,400
                                    
                                    
                                    
                                    7,200Sales
                                    
                                    
                                    607
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    607Depreciation/Amortization
                                    
                                    
                                    14,351
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    14,351Imbedded
      Conversion
                                    
                                    
                                    (4,094
                                    )
                                    
                                    
                                    
                                    
                                    
                                    
                                    (4,094
                                    )Deposits
                                    
                                    
                                    (4,700
                                    )
                                    
                                    
                                    
                                    
                                    
                                    
                                    (4,700
                                    )Accounts
      Payable
                                    
                                    
                                    83,051
                                    
                                    
                                    
                                    1,816
                                    
                                    
                                    
                                    83,051Accrued
      Expenses
                                    
                                    
                                    120,559
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    120,559Prepaid
      Expenses
                                    
                                    
                                    (175,026
                                    )
                                    
                                    
                                    
                                    
                                    
                                    
                                    (175,026
                                    )Net
      Cash Used In Operating Activities
                                    
                                    
                                    (903,114
                                    )
                                    
                                    
                                    (9,548
                                    )
                                    
                                    
                                    (939,753
                                    )Cash
      Flows From Investing Activities:Purchase
      of fixed assets
                                    
                                    
                                    1,965,071
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    1,965,071Net
      Cash Provided by Investing Activities
                                    
                                    
                                    (1,965,071
                                    )
                                    
                                    
                                    
                                    
                                    
                                    
                                    (1,965,071
                                    )Cash
      Flows From Financing Activities:Derivative
      Liability
                                    
                                    
                                    214,134
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    214,134UBNA
      Stock
                                    
                                    
                                    500,000
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    500,000Pal
      Note
                                    
                                    
                                    78,046
                                    
                                    
                                    
                                    10,000
                                    
                                    
                                    
                                    88,046Original
      Stock Issue
                                    
                                    
                                    0
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    23,200Cancellation
      of  Pal Note
                                    
                                    
                                    (88,046
                                    )
                                    
                                    
                                    
                                    
                                    
                                    
                                    (76,987
                                    )Lacroix’s
      Note
                                    
                                    
                                    1,650,000
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    1,650,000Mortenson’s
      Notes
                                    
                                    
                                    639,639
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    639,639Mortenson’s
      Note
                                    
                                    
                                    10,046
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    10,046Net
      Cash Provided by Financing Activities
                                    
                                    
                                    3,003,819
                                    
                                    
                                    
                                    10,000
                                    
                                    
                                    
                                    3,037,019Net
      Increase in Cash
                                    
                                    
                                    135,634
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    138,454Cash
      at Beginning of Period
                                    
                                    
                                    2,820
                                    
                                    
                                    
                                    2,468Cash
      at End of Period
                                    
                                    
                                    138,454
                                    
                                    
                                    
                                    2,820
                                    
                                    
                                    
                                    138,454Supplemental
      disclosure of cash flow information:Cash
      paid for interest
                                    
                                    $
                                    
                                    
                                    
                                    
                                    -Cash
      paid for taxes
                                    
                                    $
                                    
                                    
                                    
                                    
                                    -




See Notes
to Financial Statements




F-5


Universal
Bioenergy, Inc.


And
Subsidiary


(f/k/a
Palomine Mining, Inc.)


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


As of December 31,
2007




NOTE
1 SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION





(A)
Organization





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 (a development stage company) (“UBNA”) 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.




In
October 2007, UBNA entered into an Agreement and Plan of Merger (the “Merger
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.





(B) Principles of
Consolidation




The
consolidated financial statements include the accounts of UBRG from February 1,
2007 to December 31, 2007 and its wholly-owned subsidiary UBNA from January 23,
2007(Inception) to December 31, 2007. All significant inter-company accounts and
transactions have been eliminated in consolidation.





(C) Use of
Estimates





In
preparing financial statements in conformity with generally accepted accounting
principles, management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and revenues and
expenses during the reported period. Actual results could differ from those
estimates.


F-6





Universal
Bioenergy, Inc.


And
Subsidiary


(f/k/a
Palomine Mining, Inc.)


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


As of December 31,
2007





(D) Cash and Cash
Equivalents





The
Company considers cash on hand and amounts on deposit with financial
institutions which have original maturities of three months or less to be cash
and cash equivalents.





(E) Loss per
Share





Basic and
diluted net loss per common share is computed based upon the weighted average
number of common shares outstanding as defined by Financial Accounting Standards
No. 128, “Earnings Per Share.”





(F) Derivative
Liabilities





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





(G) Revenue and Cost
Recognition





The
Company recognizes revenue from the sale of Biodiesel fuel and related
byproducts at the time title to the products transfers, the amount is fixed and
determinable, evidence of an agreement exists and the customer bears the risk of
loss, net of provisions for rebates and sales allowances.





(H) Business
Segments





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


F-7





Universal
Bioenergy, Inc.


And
Subsidiary


(f/k/a
Palomine Mining, Inc.)


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


As of December 31,
2007





(I) Income
Taxes





The
Company accounts for income taxes under the Statement of Financial Accounting
Standards Board Statement of Financial Accounting Standard No. 109, “Accounting
for Income Taxes” (“Statement 109”). Under Statement 109, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statements carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under Statement 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.





As of
December 31, 2007, the Company has a net operating loss carry forward of
$924,328 available to offset future taxable income through 2027.





(J) Property and
Equipment





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





(K) Fair Value of Financial
Instruments





The
carrying amounts of the Company’s financial instruments including accounts
payable, accrued expenses, derivative liability and notes payable approximate
fair value due to the relatively short period to maturity for these
instruments.





(L) Concentration of Credit
Risk





The
Company at times has cash in banks in excess of FDIC insurance limits. At
December 31, 2007, the Company had approximately $13,427 in excess of FDIC
insurance limits.





(M) Advertising and
Promotional Expense





Advertising
and other product-related costs are charged to expense as incurred. Advertising
expense was $38,317 in 2007.


F-8





Universal
Bioenergy, Inc.


And
Subsidiary


(f/k/a
Palomine Mining, Inc.)


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


As of December 31,
2007




(N) Recent Accounting
Pronouncements





In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. The
objective of SFAS 157 is to increase consistency and comparability in fair value
measurements and to expand disclosures about fair value measurements. SFAS 157
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements. SFAS 157 applies under other accounting pronouncements that
require or permit fair value measurements and does not require any new fair
value measurements. The provisions of SFAS No. 157 are effective for fair value
measurements made in fiscal years beginning after November 15, 2007. The
adoption of this statement is not expected to have a material effect on the
Company’s future reported financial position or results of
operations.





In
February 2007, the Financial Accounting Standards Board (FASB) issued SFAS No.
159, “The Fair Value Option for Financial Assets and Financial Liabilities -
Including an Amendment of FASB Statement No. 115”. This statement permits
entities to choose to measure many financial instruments and certain other items
at fair value. Most of the provisions of SFAS No. 115 apply only to entities
that elect the fair value option. However, the amendment to SFAS No., 115
“Accounting for Certain Investments in Debt and Equity Securities” applies to
all entities with available-for-sale and trading securities. SFAS No. 159 is
effective as of the beginning of an entity’s first fiscal year that begins after
November 15, 2007. Early adoption is permitted as of the beginning of a fiscal
year that begins on or before November 15, 2007, provided the entity also elects
to apply the provision of SFAS No. 157, “Fair Value Measurements”. The adoption
of this statement is not expected to have a material effect on the Company’s
financial statements.





In
December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No.
160, “Noncontrolling Interests
in Consolidated Financial Statements - an amendment of ARB No. 51”. This
statement improves the relevance, comparability, and transparency of the
financial information that a reporting entity provides in its consolidated
financial statements by establishing accounting and reporting standards that
require; the ownership interests in subsidiaries held by parties other than the
parent and the amount of consolidated net income attributable to the parent and
to the noncontrolling interest be clearly identified and presented on the face
of the consolidated statement of income, changes in a parent’s ownership
interest while the parent retains its controlling financial interest in its
subsidiary be accounted for consistently, when a subsidiary is deconsolidated,
any retained noncontrolling equity investment in the former subsidiary be
initially measured at fair value, entities provide sufficient disclosures that
clearly identify and distinguish between the interests of the parent and the
interests of the noncontrolling owners. SFAS No. 160 affects those entities that
have an outstanding noncontrolling interest in one or more subsidiaries or that
deconsolidate a subsidiary. SFAS No. 160 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15,
2008. Early adoption is prohibited. The adoption of this statement is not
expected to have a material effect on the Company's financial
statements.


F-9




Universal
Bioenergy, Inc.


And
Subsidiary


(f/k/a
Palomine Mining, Inc.)


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


As of December 31,
2007





NOTE
2 PROPERTIES
AND EQUIPMENT





2007Historical CostProperty
      and Equipment
                      
                      
                      1,715,071Land
                      
                      
                      150,000Building
                      
                      
                      100,000)Total
                      
                      
                      1,915,071




Depreciation
expense for the period January 23, 2007 to December 31, 2007 was $2,390. 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,
2007.





NOTE
3 STOCKHOLDERS’
EQUITY





A.
Common Stock Issued for Cash





During
October 2007, the Company issued 1,000,000 shares at $5.00 bid as part of the
acquisition of UBNA.





NOTE4 DETERMINATION OF GOOD
WILL





Good
      Will Calculation of the Acquisition of UBNA by Palomine Mining
      Inc.Under
      FAS 157: assets and liabilities must be valued fair market at the date of
      the transaction of the acquisition occurred.Transaction
      Date: October 27,2007Closing
      Date: December 6, 2007Good
      Will Formula:Purchase
      Price minus Hard Assets plus Liabilities equals good will.




Purchase
      Price: $10,000,000
              (2,000,000
      common shares times $5.00 bid)
 
 $10,000,000
                  
                  minus
                  $1,978,475
                  plus
                  $1,877,262
                  equals
                  $9,898,787Assets$                150,000
                  
                  Property
      purchased in BR$              1,685,395
                  
                  Equipment
      and Capital Improvements$                100,000
                  
                  Building$                    5,909
                  
                  Prepaid
      Expenses$                    3,100
                  
                  Deposits$                  34,071
                  
                  Cash$              1,978,475





During
January 2007, the Company entered into a $1,650,000 note payable. The interest
rate is 6% per annum  plus interest and the note is secured by all the
assets of the Company. The note requires semi annual principle payments of
$103,125 on June and December of each year.





$
                  1,650,000
                  
                  
                  $
                  99,000
                  
                  
                  $
                  91,076
                  
                  
                  Note
      Payable
                  
                  $
                  1,650,0006
                  %
                  
                  
                  
                  
                  
                  $
                  7,924
                  
                  January
                    Interest
                  Accrued
      Interest
                  
                  $
                  82,17412
                  
                  
                  $
                  8,250
                  
                  
                  $
                  74,250
                  
                  Feb-Oct
                    interest
                  Cash
      on hand
                  
                  $
                  43,0809
                  
                  
                  
                  
                  
                  
                  $
                  82,174
                  
                  
                  Operations
                  
                  $
                  102,008$
                  1,877,262


F-10




B.
In kind contribution





For the
period January 1, 2007 to December 31, 2007, a shareholder of the Company
contributed office space with a fair value of $2400 (See Note 7).




C.
Amendment to Article of Incorporation





On
November 3, 2007, the Company amended its Articles of Incorporation to provide
for an increase in its authorized share capital. The authorized capital stock
increased to 1,000,000 preferred shares and 200,000,000 common shares at a par
value of $0.001 per share.





D.
Stock Split





On
November 3, 2007, the Company declared a 5 for 1 forward stock split. All share
and per share amounts have been retroactively restated in the accompanying
financial statements.




NOTE
5 NOTES
PAYABLE





During
December 2007, the Company entered into an $88,000 note payable. The interest
rate is 6.5% per annum. The note is unsecured and requires payment of accrued
interest and principal by December 31, 2010. On April 30, 2008 and October 31,
2008, all accrued interest must be paid. Beginning April 30, 2009 and
semiannually thereafter through October 31, 2010, Company is to pay $22,000
semiannual installments. During the period from inception to December 31, 2007,
the Company incurred interest expense of approximately $169 (See Note
7).





During
October 2007, the Company entered into a $250,000 note payable. The interest
rate is 6.5% per annum. The note is unsecured and requires payment of accrued
interest and principal by December 31, 2008. During the period from inception to
December 31, 2007, the Company incurred interest expense of approximately $2,708
(See Note 7).





During
December 2007, the Company received a $10,046 advance from a related shareholder
party. Pursuant to the terms of the advance, the advance is non interest
bearing, unsecured, and due on demand.





During
January 2007, the Company entered into a $1,650,000 note payable. 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 January 23 to December
31, 2007, the Company incurred interest expense of approximately
$91,676.


F-11





Future
minimum principle payments are as follows:





2008
                          
                          $
                          206,2502009
                          
                          
                          206,2502010
                          
                          
                          206,2502011
                          
                          
                          206,2502012
      and thereafter
                          
                          
                          825,000Total
      payments
                          
                          
                          1,650,000Less
      Current portion
                          
                          
                          (206,250
                          )$
                          1,443,750




NOTE
6 DERIVATIVE
LIABILITY AND CONVERTIBLE NOTE PAYABLE





During
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 Company is
to pay $75,000 in semiannual installments. During the period from inception to
December 31, 2007 the Company incurred interest expense of approximately
$3,250.




Under
EITF No.’s 98-5 and 00-27, the Company first reviewed and determined that no
beneficial conversion feature existed. The Company then evaluated the
convertible note to determine if there was an embedded conversion option
requiring bifurcation under SFAS No. 133 and EITF 00-19. We determined that fair
value accounting for an embedded conversion option was required and that a
derivative liability would be recorded. The fair value of the conversion option
is initially computed at its issuance date, then on subsequent reporting
periods,    marked-to-market. The change in fair value is
recorded in the statement of operations. Upon conversion of a derivative
instrument, the instrument is marked to fair value at the conversion date and
the related fair value is reclassified to equity.





The
initial value of the embedded conversion option was $218,228; this amount is
recorded as a debt discount which is amortized over the life of the underlying
convertible debt instrument. At December 31, 2007, we recognized interest
expense of $11,961. At December 31, 2007, upon remeasurement, the derivative
liability had a fair value of $214,134. The resulting change in fair value of
$4,094 was recorded as a reduction in the derivative liability.


F-12




Universal
Bioenergy, Inc.


And
Subsidiary


(f/k/a
Palomine Mining, Inc.)


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


As of December 31,
2007





The
following weighted average assumptions were used on the initial date of issuance
and the remeasurement date at December 31, 2007:





Exercise
      price
                
                $
                3.35-$3.38Expected
      dividend yield
                
                
                0
                %Expected
      volatility
                
                
                66
                %Risk
      free interest rate
                
                
                3.82
                %Expected
      life of conversion option
                
                2.83-3.0
      yearsExpected
      forfeitures
                
                
                0
                %




The
following table summarizes the derivative liabilities and convertible notes
payable as of December 31, 2007:





Description
                      
                      Convertible
                        Note
      Payable
                      
                      
                      Less:
      Debt
                        Discount
                      
                      
                      Convertible
                        Note
                        Payable,
      net
                        of
      Debt
                        Discount
                      
                      
                      Derivative
                        LiabilityMotensen
      Financial
                      
                      $
                      300,000
                      
                      
                      $
                      206,267
                      
                      
                      $
                      93,733
                      
                      
                      $
                      214,134





Future
minimum principle payments are as follows:





2009
                          
                          $
                          150,0002010
                          
                          
                          150,000Total
      payments
                          
                          
                          300,000




F-13





NOTE
7 COMMITMENTS





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 Mississippi Department on Environmental Quality (MDEQ). 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. Upon removal of certain liquids the MDEQ agreed to dismiss the
requirement.




On
November 20, 2007, the Company entered into an agreement with an unrelated party
to provide consulting services. The term of the services to be provided is from
November 20, 2007 to October 22, 2008. As compensation for services received the
Company is required to pay an annual fee of $200,000, a staffing fee up to
$78,000 per month, a $10,000 travel and other expense allowance, and up to
$30,000 per month for two months of Internet Campaign. For the year ended
December 31, 2007, the Company paid $200,000 of which $166,666 has been recorded
as prepaid expense, and a $39,000 staffing fee.





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 will
issue shares of common stock with a fair value of $50,100 based on the
stock price within 45 days of the agreement. The agreement is to be in effect
until canceled by either party.





As of December 31,
2007





NOTE
8 RELATED
PARTY TRANSACTIONS




During
December 2007, the Company entered into an $88,000 note payable with a related
party. The interest rate is 6.5% per annum. The note is unsecured and requires
payment of accrued interest and principal by December 31, 2010. On April 30,
2008 and October 31, 2008, all accrued interest must be paid. Beginning April
30, 2009 and semiannually thereafter through October 31, 2010, Company is to pay
$22,000 semiannual installments. During the period from inception to December
31, 2007 the Company incurred interest expense of approximately $169 (See Note
4).


F-14





During
October 2007, the Company issued a $300,000 convertible note payable with 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
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 Company is to pay $75,000 in semiannual installments. During the period
from inception to December 31, 2007 the Company incurred interest expense of
approximately $3,250 (See Note 5).





During
October 2007, the Company entered into a $250,000 note payable with a related
party. The interest rate is 6.5% per annum. The note is unsecured and requires
payment of accrued interest and principal by December 31, 2008. During the
period from inception to December 31, 2007 the Company incurred interest expense
of approximately $2,708 (See Note 4).





During
the year ended December 31, 2007, the Company received a $10,046 advance from a
related party. Pursuant to the terms of the advance, the advance is non interest
bearing, unsecured and due on demand.





For the
year ended December 31, 2007 the shareholder of the Company contributed $600 of
services on behalf of the Company (See Note 3 (B)).




NOTE
9 GOING
CONCERN





As
reflected in the accompanying consolidated financial statements, the Company has
used cash and equivalents in operations and asset purchases of $10,523,483 from
inception and  has a working capital deficiency of $603,523 and has an
accumulated deficit during the development stage of $984,328. This raises
substantial doubt about its ability to continue as a going concern. The ability
of the Company to continue as a going concern is dependent on the Company’s
ability to raise additional capital and implement its business plan. The
consolidated financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.





Management
believes that actions presently taken to obtain additional funding and begin
operations provide the opportunity for the Company to continue as a going
concern.


F-15




NOTE
10 SUBSEQUENT
EVENTS





A.
Employment Agreement




On
February 26, 2008, the Company entered into a one-year employment agreement with
the Company’s Chief Executive Officer. The agreement renews annually so that at
all times, the term of the agreement is one year. Pursuant to this agreement,
the Company will pay an annual base salary of $60,000 for the period February
26, 2008 through February 26, 2009. In addition, the officer received a signing
bonus of 19,763 shares with a fair value of $100,000 based on the value of the
Company’s common shares on the effective date of the agreement. That vest one
year after issuance. 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.





B.
Stock issued for services





On
February 13, 2008 the Company issued 10,000 shares of common stock for
consulting services having a fair value of $50,100 (See Note 6).





C.
Appointment of Board Advisors





On
January 15, 2008 the Company appointed an individual to the board of advisors
for a twelve month period. The Advisor is to be paid $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 will pay an advance of $7,500 and will
issue 4,491 shares of Common stock with a fair value of $22,500.




D.
Advances





In
January 2008, the Company received a $10,000 advance from a related party. The
advance is unsecured, non interest bearing and due on demand.


F-16