**SECURITIES
      AND EXCHANGE COMMISSION**


WASHINGTON,
      D.C. 20549





**FORM
      10-KSB**





(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.)





**128
      Biodiesel Drive**


**Nettleton,
      MS 38858**





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





**662-963-3333**


(Issuer’s
      telephone number)




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




**Title
                of each class**
            
            **Name
                of each exchange on which registered**None
            
            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 o




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 o No x




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. o




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




State
      issuer's revenues for its most recent fiscal year: $ 0 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:


$112,797,600
      (22,514,491 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 April 15, 2008**Common
                Stock,par
                value $0.001****per
                share
            
            22,514,491




**DOCUMENTS
      INCORPORATED BY REFERENCE**




If
      the
      following documents are incorporated by reference, briefly describe them and
      identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into
      which the document is incorporated: (1) any annual report to security holders;
      (2) any proxy or information statement; and (3) any prospectus filed pursuant
      to
      Rule 424(b) of the Securities Act of 1933 ("Securities Act"). The listed
      documents should be clearly described for identification purposes (e.g., annual
      report to security holders for fiscal year ended December 24, 1990). **Not
      Applicable.**




Transitional
      Small Business Disclosure Format (check one) Yes o No x










**UNIVERSAL
      BIOENERGY, INC.**


TABLE
      OF
      CONTENTS




**PART
                I**ITEM
                1.
            DESCRIPTION
                OF BUSINESS
            1ITEM
                2.
            DESCRIPTION
                OF PROPERTY
            5ITEM
                3.
            LEGAL
                PROCEEDINGS
            5ITEM
                4.
            SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY HOLDERS
            5**PART
                II**ITEM
                5.
            MARKET
                FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERSAND
                SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES.
            5ITEM
                6.
            MANAGEMENT'S
                DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
            6ITEM
                7.
            FINANCIAL
                STATEMENTS
            11ITEM
                8.
            CHANGES
                IN AND DISAGREEMENT WITH ACCOUNTANTS ONACCOUNTING
                AND FINANCIAL DISCLOSURE
            11ITEM
                8A.
            CONTROLS
                AND PROCEDURES
            11ITEM
                8B.
            OTHER
                INFORMATION
            13**PART
                III**ITEM
                9.
            DIRECTORS
                AND EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONSAND
                CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16 (a) OFTHE
                EXCHANGE ACT
            13ITEM
                10.
            EXECUTIVE
                COMPENSATION
            15ITEM
                11.
            SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS ANDMANAGEMENT
                AND RELATED STOCKHOLDER MATTERS
            16ITEM
                12.
            CERTAIN
                RELATIONSHIPS AND RELATED TRANSACTIONS, ANDDIRECTOR
                INDEPENDENCE
            17**PART
                IV**ITEM
                13.
            EXHIBITS
            17ITEM
                14.
            PRINCIPAL
                ACCOUNTANT FEES AND SERVICES
            18SIGNATURES
            
            19










**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.










**PA** **RT****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, ("Universal"), at a closing held
      on
      December 6, 2007. Such acquisition was consummated pursuant to and in accordance
      with the Stock Purchase and Recapitalization Agreement (the "Agreement"), dated
      October 24, 2007, among Palomine, Universal and Mortensen Financial Limited,
      a
      shareholder of Palomine ("Mortensen").




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




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.





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





Universal
      Bioenergy 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.




1




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 ran into a major dispute with their customer/investor(s) and
      a
      major operational issue and they filed for bankruptcy protection under
      Chapter-11 in early 2006. The Bankruptcy Court of the Northern District of
      Mississippi in its Order Granting Debtor‘s Motion to Sell Assets Free and Clear
      Of All Liens, Claims and Encumbrances Outside The Ordinary Course Of Business
      dated 21 st December
      2006 (the "Order"), authorized BMI to convey certain property to Universal.





Universal
      entered into a bill of sale with BMI on January 26 th ,
      2007
      (the "Bill of Sale") to acquire certain of the assets from BMI, including the
      fixtures on the land, the refinery and certain equipment, tools and other
      assets 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 Universal’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.





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





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





Management
      believes its production capacity could reach 10 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.




2




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




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




**REFINERY
      PLANT**




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





**EQUIPMENT**





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





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, UBNA has four 50,000 gallons each jacketed reactors, with
      the
      total capacity to process 120,000 gallons of biodiesel per batch, four wash
      tanks with total capacity to clean and wash 90,000 gallons of biodiesel per
      batch, and quite a few storage tanks.





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




3




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





**LOGISTICS**





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




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




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. Universal is also negotiating a long term contract for premium
        grade of white grease suitable to produce biodiesel, with a well known rendering
        house. This contract, if signed, can save up to 20% in raw material
        cost.




4





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.  DE** **SCRIPT****ION
      OF PROPERTY**





The
      principal office of the Company is located at 128 Biodiesel Drive, Nettleton,
      MS
      38858. Our telephone number at that office is 662-963-3333.





**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.




**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]. 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].





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 Owned**WWF
                  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




5




(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.





**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. 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 bio-diesel 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.





6





**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 $ 4,000,000 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.





**Liquidity
      and Capital Resources**





As
      of
      December 31, 2007, we have total assets of $2,260,325 consisting primarily
      of
      equipment and property and current liabilities of $709,231 consisting primarily
      of short term debt financing. Long term liabilities exist amounting to
      $1,781,750. Since our inception through December 31, 2007, we have an
      accumulated deficit of $628,292. 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 $628,292, 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 $ 4,000,000 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.




7




As
      of
      December 31, 2007, the Company has a net operating loss carry forward of
      $626,592 available to offset future taxable income through 2027. The increase
      in
      the valuation allowance for the period from January 23, 2007 (Inception) to
      December 31, 2007 was $225,448.





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.





*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.




8





*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.





*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:




9




§
            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.





*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.




10




*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 D** **ISA****GREEMENTS
      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.





**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.




11




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 stemmed in large
      part from several significant changes within the Company.  The
      organization structure was changing as we hired additional management, and
      were
      restructuring the company obtaining new financing, adopting new accounting
      procedures and discontinuing operations.  This placed additional
      stress on the organization and our internal reporting and controls as financial
      personnel adjusted to the many changes instituted within the
      company.  Although we believe the time to adapt in the 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.




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.




12




**ITEM
      8B.** **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.





**P** **ART****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:





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.





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.




13




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


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.




14




Indemnification
      of Officers and Directors





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.





**ITEM
      10.   EXEC** **UTIV****E
      COMPENSATION**





**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
            
            
            26,585





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.





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




15




**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 April 15, 2008 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 22,514,491 shares
      of
      common stock outstanding as of April 15, 2008.





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.





16





**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).





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.




**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.**
            
            **Exhibit**2.1
            
            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)




17




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.




**(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.




18




**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:
                April 22, 2008
            
            By
            /s/
                Richard CravenRichard
                Craven, Chief Executive OfficerDated:
                April 22,, 2008
            
            By
            /s/
                James EarnestJames
                Earnest, Chief Financial Officer




19







**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 JANUARY 23, 2007 (INCEPTION)
                TO DECEMBER 31, 2007.PAGE
            F-4
            CONSOLIDATED
                STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIENCY FOR THE PERIOD FROM
                JANUARY 23, 2007 (INCEPTION) TO DECEMBER 31, 2007.PAGE
            F-5
            CONSOLIDATED
                STATEMENT OF CASH FLOWS FOR THE PERIOD FROM JANUARY 23, 2007 (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**
 
 **ASSETS****Current
                  Assets**Cash
              
              **$**
              133,177Prepaid
                  Expenses
              
              
              178,076**Total
                  Current Assets**
              
              
              311,253**Total
                  Property and Equipment, Net**
              
              
              1,945,972**Deposits**
              
              
              3,100**Total
                  Assets**
              
              **$**
              **2,260,325****LIABILITIES
                  AND STOCKHOLDERS' DEFICIENCY****Current
                  Liabilities**Accounts
                  Payable and Accrued Expenses
              
              **$**
              185,068Convertible
                  loans payable, net of debt discount, related party
              
              
              93,733Derivative
                  Liability
              
              
              214,134Notes
                  Payable
              
              
              206,250Stockholder
                  Advance
              
              
              10,046**Total
                  Current Liabilities**
              
              
              709,231**Long
                  Term Liabilities**Notes
                  Payable- Related Party
              
              
              338,000Notes
                  Payable
              
              
              1,443,750**Total
                  Long Term Liabilities**
              
              
              **1,781,750****Total
                  Liabilities**
              
              
              **2,490,981****Stockholders'
                  Deficiency**Preferred
                  stock, $0.001 par value; 1,000,000 shares authorized, none issued
                  and
                  outstanding
              
              
              -Common
                  stock, $0.001 par value; 200,000,000 shares authorized, 22,500,000
                  issued
                  and outstanding
              
              
              22,500Additional
                  paid-in capital
              
              
              375,136Deficit
                  accumulated during the development stage
              
              
              (628,292
              )**Total
                  Stockholders' Deficiency**
              
              
              **(230,656**
              **)****Total
                  Liabilities and Stockholders' Deficiency**
              
              **$**
              **2,260,325**
  See
        Notes
        to Financial Statements
  F-2
 
 **Universal
        Bioenergy , Inc. and Subsidiary**
 **(f/k/a
        Palomine Mining, Inc.)**
 **(A
        Development Stage Company)**
 **Consolidated
        Statement of Operations**
 **For
        the Period from January 23, 2007 (Inception) to December 31,
        2007**
 
 **Operating
                  Expenses**Consulting
                  Fees
              
              $
              60,850Contract
                  Labor
              
              
              84,559Salaries
                  Expense
              
              
              81,039Professional
                  Fees
              
              
              145,333G&A
              
              
              152,523**Total
                  Operating Expenses**
              
              
              524,304**Loss
                  from Operations**
              
              
              (524,304
              )**Other
                  Income (Expense)**Change
                  in fair value of embedded derivative liability
              
              
              4,094Interest
                  Expense
              
              
              (110,909
              )Interest
                  Income
              
              
              2,827**Total
                  Other Expense - Net**
              
              
              (103,988
              )**LOSS
                  FROM OPERATIONS BEFORE INCOME TAXES**
              
              
              (628,292
              )**Provision
                  for Income Taxes**
              
              
              -**NET
                  LOSS**
              
              
              **(628,292**
              **)****Net
                  Loss Per Share - Basic and Diluted**
              
              **$**
              **(0.05**
              **)****Weighted
                  average number of shares outstanding during the period - Basic
                  and
                  Diluted**
              
              
              **12,485,380**
  See
        Notes
        to Financial Statements
  F-3
  **Universal
        Bioenergy North America, Inc. and Subsidiary**
 **(f/k/a
        Palomine Mining, Inc.)**
 **(A
        Development Stage Company)**
 **Consolidated
        Statement of Changes in Stockholders' Deficiency**
 **For
        the Period From January 23, 2007 (Inception) to December 31,
        2007**
 
 **Preferred Stock**
              
              **Common Stock**
              
              **Additional**
                **Paid-in**
              
              **Accumulated****Deficit**
                **During **Development******Shares**
              
              **Amount**
              
              **Shares**
              
              **Amount**
              
              **Capital**
              
              ****Stage****
              
              **Total****Balance
                  at January 23, 2007 (Inception)**
              
              
              -
              
              $
              -
              
              
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -Stock
                  issued for cash ($0.05 per share)
              
              
              
              
              
              
              
              
              10,000,000
              
              
              10,000
              
              
              490,000
              
              
              
              
              
              500,000Shares
                  issued in reverse acquisition and recapitalization
              
              
              -
              
              
              -
              
              
              12,500,000
              
              
              12,500
              
              
              (115,464
              )
              
              
              
              
              (102,964
              )In
                  kind contribution of rent
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              600
              
              
              
              
              
              600Net
                  loss for the period January 23, 2007 (Inception) to December 31,
                  2007
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (628,292
              )
              
              (628,292
              )**Balance,
                  for the year ended December 31, 2007**
              
              
              **-**
              
              **$**
              **-**
              
              
              **22,500,000**
              
              **$**
              **22,500**
              
              **$**
              **375,136**
              
              **$**
              **(628,292**
              **)**
              **$**
              **(230,656**
              **)**
 See
          Notes
          to Financial Statements
 F-4
  **Universal
        Bioenergy North America, Inc. and Subsidiary**
 **(f/k/a
        Palomine Mining, Inc.)**
 **(A
        Development Stage Company)**
 **Consolidated
        Statement of Cash Flows**
 **For
        the Period From January 23, 2007 (Inception) to December 31,
        2007**
 
 **Cash
                  Flows From Operating Activities:**Net
                  Loss
              
              $
              (628,292
              )Adjustments
                  to reconcile net loss to net cash used in operationsIn-kind
                  contribution of services
              
              
              600Depreciation/Amortization
              
              
              2,390Amortization
                  of debt discount
              
              
              11,961Change
                  in value of embedded conversion option
              
              
              (4,094
              )Increase
                  (Decrease) in:Accounts
                  Payable and Accrued Expenses
              
              
              167,204Prepaid
                  Expenses
              
              
              (175,176
              )Deposits
              
              
              (3,100
              )**Net
                  Cash Used In Operating Activities**
              
              
              **(628,507**
              **)****Cash
                  Flows From Investing Activities:**Purchase
                  of fixed assets
              
              
              (1,948,362
              )**Net
                  Cash Provided by Investing Activities**
              
              
              **(1,948,362**
              **)****Cash
                  Flows From Financing Activities:**Proceeds
                  from issuance of common stock
              
              
              500,000Proceeds
                  from issuance of note payable
              
              
              2,210,046**Net
                  Cash Provided by Financing Activities**
              
              
              **2,710,046****Net
                  Increase in Cash**
              
              
              133,177Cash
                  at Beginning of Period
              
              
              -**Cash
                  at End of Period**
              
              **$**
              **133,177****Supplemental
                  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 North America, Inc (a development stage company) (“UBNA”) was
      incorporated in the State of Nevada on January 23, 2007.





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





UBNA
      was
      organized to operate and produce Biodiesel fuel using primarily soybean and
      other vegetable oil and grease in a refining process to yield Biodiesel fuel
      and
      a marketable byproduct of glycerin. The Company is located in Nettleton,
      Mississippi. UBNA and UB are hereafter referred to as “(the
      Company)”.




In
      October 2007, UBNA entered into an Agreement and Plan of Merger (the “Merger
      Agreement”) with UB. In October 2007, UB, a then shell corporation, merged with
      UBNA and UBNA became the surviving corporation. This transaction was accounted
      for as a reverse acquisition and recapitalization of UBNA. UB did not have
      any
      operations and majority-voting control was transferred to UBNA. Since UBNA
      acquired a controlling voting interest, it was deemed the accounting acquirer,
      while UB was deemed the legal acquirer. Since the transaction is considered
      a
      reverse acquisition and recapitalization, the guidance in SFAS No. 141 does
      not apply for purposes of presenting pro-forma financial
      information.





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





***(B)
      Principles of Consolidation***




The
      consolidated financial statements include the accounts of UB from October 24,
      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.” As of December 31, 2007, there were 44,910 common
      share equivalents outstanding which are anti-dilutive and not included in
      dilutive weighted average calculation.





***(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 carryforward of $626,592
      available to offset future taxable income through 2027. The increase in the
      valuation allowance for the period from January 23, 2007 (Inception) to December
      31, 2007 was $225,448.





***(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**





At
      December 31, 2007 property and equipment is as follows:





2007Property
                and Equipment
            
            $
            1,794,499Land
            
            
            150,000Office
                Furniture and Equipment
            
            
            3,863Less
                accumulated depreciation
            
            
            (2,390
            )$
            1,945,972




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
      January 2007, the Company issued 10,000,000 shares of common stock for
      $500,000





During
      October 2007, the Company issued 12,500,000 upon completion of the reverse
      merger with then Palomine Mining, Inc. The shares were valued based on the
      fair
      value of the net assets acquired.


F-10




**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**




**B.
      In kind contribution**





For
      the
      period January 23, 2007 to December 31, 2007 ,
      a
      shareholder of the Company contributed office space with a fair value of $600
      (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
      4**  **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
      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 inception to December 31, 2007, the Company incurred interest
      expense of approximately $91,676.




F-11





**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**




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 potion
            
            
            (206,250
            )**$**
            **1,443,750**





**NOTE
      5**  **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
              LiabilityMotensenFinancial
            
            $
            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





**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****6**  **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 state of Mississippi Commission on
                Environmental Quality. The agreement requires the Company to deposit
                $50,000 into a trust fund to be used by the state of Mississippi
                for
                closure of the facility in the event the Company ceases operations.
                In
                addition, the Company is required to obtain approval from the state
                of
                Mississippi and meet certain environmental operating criteria as
                agreed to
                in the settlement agreement prior to beginning operations at the
                facility.
                As of the date of this report, the Company has not completed its
                obligations to the state of Mississippi and has not received approval
                to
                begin operations.




On
      November 20, 2007, the Company entered into an agreement with an unrelated
      party
      to provide consulting services. The term of the services to be provided is
      from
      November 20, 2007 to October 22, 2008. As compensation for services received
      the
      Company is required to pay an annual fee of $200,000, a staffing fee up to
      $78,000 per month, a $10,000 travel and other expense allowance, and up to
      $30,000 per month for two months of Internet Campaign. For the 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 $50,600 based on the
      stock price within 45 days of the agreement. The agreement is to be in effect
      until canceled by either party.




**NOTE
      7**  **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





**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**





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****8**  **GOING
      CONCERN**





As
      reflected in the accompanying consolidated 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. 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




**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****9**  **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 $50,600 (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 paid 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