10-Q 1 v132968_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2008

¨	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from __________ to ___________

Commission file number: 000-50284

UNIVERSAL ENERGY CORP.

(Exact name of Registrant as specified in its charter)

Delaware

(State or other Jurisdiction of Incorporation or Organization)

80-0025175

(IRS Employer I.D. No.)

30 Skyline Drive

Lake Mary, Florida 32746

(800) 975-2076

(Address and telephone number of

principal executive offices)

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

x Yes ¨ No

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

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o

Smaller reporting company x

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

¨ YES x NO

The number of shares of the registrant’s common stock, par value $0.0001 per share, outstanding as of November 10, 2008 was 1,482,170,854 and there were 498 stockholders of record.

UNIVERSAL ENERGY CORP.

FORM 10-Q

INDEX

PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets at September 30, 2008 (unaudited) and December 31, 2007	3
	Condensed Consolidated Statements of Operations (unaudited) for the Nine Months Ended September 30, 2008 and 2007	4
	Condensed Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended September 30, 2008 and 2007	5
	Notes to Condensed Consolidated Financial Statements (unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	30

Item 4.	Controls and Procedures	30

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 3.	Defaults Upon Senior Securities	37
Item 4.	Submission of Matters to a Vote of Security Holders	37
Item 5.	Other Information	38
Item 6.	Exhibits	38

SIGNATURE PAGE		41

UNIVERSAL ENERGY CORP.

AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

	September 30,			December 31,
	2008			2007
	(unaudited)
Assets

Current assets:
Cash and cash equivalents	$	44,673		$	234,987
Accounts receivable		7,717			963
Prepaid expenses		3,229			64,228

Total current assets		55,619			300,178

Prepaid drilling and completion costs		62,045			414,377
Oil and gas properties, unproven		3,403,310			2,248,771
Debt issuance costs, net of accumulated amortization of $250,979 and $70,926		420,857			578,368
Property and equipment, net of accumulated depreciation of $5,145 and $2,409		8,392			7,731
Security deposit		1,545			1,545

Total assets	$	3,951,768		$	3,550,970

Liabilities and Stockholders’ Deficit

Current liabilities:
Accounts payable	$	240,977		$	209,536
Accrued expenses		328,845			72,602
Accrued interest		40,023			70,429
Promissory notes		-			250,000
Promissory notes to stockholders, net of discounts of $0 and $80,162		350,000			1,019,838
September 2007 Convertible Debentures, net of discounts of $632,742 and $4,146,443		2,006,164			963,851
November 2007 Convertible Debentures, net of discounts of $396,547 and $1,643,775		509,690			98,872
May 2008 Convertible Debentures, net of discounts of $1,081,100		175,518			-
Promissory notes to stockholders, net of discounts of $57,199, current portion		42,801			-
Derivative liabilities		3,203,065			10,915,752

Total current liabilities		6,854,282			13,600,880

Long term liabilities:
Promissory notes to stockholders, net of discounts of $171,597, less current portion		128,403			-

Total liabilities		7,025,486			13,600,880

Commitments and contingencies

Stockholders’ deficit:
Common stock, $0.0001 par value, 6,500,000,000 shares authorized, 815,589,861 and 29,847,733 shares issued and outstanding		81,560			2,985
Additional paid-in capital		12,650,053			5,365,556
Accumulated deficit		(15,805,331	)		(15,418,451	)

Total stockholders’ deficit		(3,073,718	)		(10,049,910	)

Total liabilities and stockholders’ deficit	$	3,951,768		$	3,550,970

See accompanying notes to unaudited condensed consolidated financial statements.

UNIVERSAL ENERGY CORP.

AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2007			2008			2007
	(unaudited)			(unaudited)			(unaudited)			(unaudited)

Revenue	$	330,226		$	-		$	745,231		$	-

Cost of revenue		128,135			-			295,954			-

Gross profit		202,091			-			449,277			-

Operating expenses
General and administrative expenses		623,184			684,246			1,838,235			2,046,683
Amortization of debt issue costs		136,487			9,345			372,154			9,345
Investor awareness and public relations		10,020			52,862			128,780			1,353,780
Impairment loss on oil and gas properties		91,317			-			151,015			-
Total operating expenses		861,008			746,453			2,490,184			3,409,808

Loss from continuing operations		(658,917	)		(746,453	)		(2,040,907	)		(3,409,808	)

Other income (expense)
Accretion of original issue discounts on convertible debentures		(306,586	)		(32,212	)		(787,465	)		(32,212	)
Change in fair value of embedded derivatives		(567,555	)		1,218,844			17,339,619			1,218,844
Charges relating to repricing the 2007 Debentures		-			-			(9,404,508	)		-
Charges related to the issuance of the September 2007 Debentures and Warrants		-			(4,621,371	)		-			(4,621,371	)
Charges related to the issuance of the May 2008 Debentures and Warrants		-			-			(753,649	)		-
Excess embedded derivative value		(1,083,020	)		(116,047	)		(2,794,676	)		(116,047	)
Loss on conversion of debentures		(1,136,173	)		-			(1,224,792	)		-
Interest expense, net		(167,807	)		(142,581	)		(720,502	)		(165,860	)

Total other income (expense)		(3,261,141	)		(3,693,367	)		1,654,027			(3,716,646	)

Net loss before discontinued operations		(3,920,058	)		(4,439,820	)		(386,880	)		(7,126,454	)

Discontinued operations
Loss from operations of discontinued operations		-			-			-			(34,186	)
Loss from discontinued operations		-			-			-			(34,186	)

Net loss	$	(3,920,058	)	$	(4,439,820	)	$	(386,880	)	$	(7,160,640	)

Net loss per share from continuing operations
- basic and diluted	$	(0.01	)	$	(0.15	)	$	(0.00	)	$	(0.25	)
Net loss per share from discontinued operations
- basic and diluted	$	0.00		$	0.00		$	0.00		$	(0.00	)

Total net loss per share
- basic and diluted	$	(0.01	)	$	(0.15	)	$	(0.00	)	$	(0.25	)

Weighted average shares used in computation of net loss per share
- basic and diluted		324,937,715			29,633,969			129,256,580			28,551,593

See accompanying notes to unaudited condensed consolidated financial statements.

UNIVERSAL ENERGY CORP.

AND SUBSIDIARY

Consolidated Statements of Cash Flows

	Nine Months Ended
	September 30,
	2008			2007
	(unaudited)			(unaudited)
Cash flows from operating activities:

Net income (loss)	$	(386,880	)	$	(7,160,640	)

Adjustments to reconcile net income (loss) to net cash used in continuing operating activities:
Accretion of original issue discounts on convertible debentures		787,465			32,212
Change in fair value of derivatives		(17,339,619	)		(1,218,844	)
Charges related to the issuance of the September 2007 Debentures and Warrants		-			4,621,371
Charges related to the repricing of the Sept. 2007 & Nov. 2007 Debentures & Warrants		9,404,508			-
Charges related to the issuance of the May 2008 Debentures and Warrants		753,649			-
Excess embedded derivative value		2,794,676			116,047
Loss on debt conversions		1,224,792			-
Amortization of fair value of warrants issued with promissory notes		271,720			112,493
Amortization of debt issuance costs		372,154			9,345
Stock compensation expense – advisory board stock grants		28,317			134,225
Stock compensation expense – stock grants		-			242,531
Stock compensation expense – stock option grants		1,035,620			1,035,620
Charges related to the impairment of oil and gas properties		151,015			-
Stock issued for interest		112,828			-
Charges related to penalties on debenture agreements		76,537			-
Depreciation and amortization		2,736			1,397
Increase in assets:
Accounts receivable		(6,755	)		-
Prepaid drilling and completion costs		352,332			(2,297,481	)
Funds held in escrow		-			25,206
Prepaid expenses		60,999			131
Increase (decrease) in liabilities:
Accounts payable		31,441			122,883
Accrued expenses		256,243			33,207
Accrued interest		(30,406	)		33,000
Net cash used in operating activities of continuing operations		(46,628	)		(4,157,297	)
Net cash used in discontinued operations		-			(42,598	)
Net cash used in operating activities		(46,628	)		(4,199,895	)

Cash flows from investing activities:
Oil and gas properties		(1,305,555	)		(1,666,905	)
Security deposit		-			(1,545	)
Purchase of property and equipment		(3,396	)		(10,140	)
Net cash used in investing activities of continuing operations		(1,308,951	)		(1,678,590	)
Net cash provided by investing activities of discontinued operations		-			7,600
Net cash used in investing activities		(1,308,951	)		(1,670,990	)

Cash flows from financing activities:
Payments on promissory notes		(125,000	)		-
Net proceeds from issuance of September 2007 Debentures		-			4,000,000
Debt issuance costs for September 2007 Debentures		-			(322,122	)
Net proceeds from issuance of promissory notes		600,000			1,000,000
Net proceeds from sale of May 2008 Debentures		970,000			1,056,887
Debt issuance costs for May 2008 Debentures		(79,735	)		-
Net proceeds from conversion to May 2008 Financing		(200,000	)		-
Net cash provided by financing activities		1,165,265			5,734,765

Net decrease in cash and cash equivalents		(190,314	)		(136,120	)

Cash and cash equivalents , beginning of period		234,987			450,850

Cash and cash equivalents, end of period	$	44,673		$	314,730

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	486,700		$	-

Noncash financing activities:
	The Company issued 766,564,237 shares of common stock in redemption of debt with a face value of approximately $4,259,335 during the nine months ended September 30, 2008.

See accompanying notes to unaudited condensed consolidated financial statements.

UNIVERSAL ENERGY CORP.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited)

September 30, 2008

NOTE 1 – ORGANIZATION AND PRINCIPLES OF CONSOLIDATION

Reporting Entity. Universal Energy Corp. and Subsidiaries (“Universal” or the “Company”) were incorporated in the State of Delaware on January 4, 2002, January 24, 2002 and February 26, 2007, respectively. The Company is authorized to issue 6,500,000,000 shares of common stock, par value $0.0001. The Company’s office is located in Lake Mary, Florida. Universal Energy Corp. is an independent energy company engaged in the acquisition and development of crude oil and natural gas leases in the United States.

Principles of Consolidation. The Company’s consolidated financial statements for the periods ended September 30, 2008 and 2007, include the accounts of its wholly owned subsidiaries UT Holdings, Inc. and Universal Explorations Corp., both Delaware corporations. All intercompany balances and transactions have been eliminated.

NOTE 2 – BASIS OF PRESENTATION

The accompanying interim unaudited condensed consolidated financial statements have been prepared by Universal Energy Corp. (the “Company”) without audit, pursuant to the rules and regulations of the U. S. Securities and Exchange Commission for Form 10-Q. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. The unaudited consolidated financial statements included herein reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim period. Interim results are not necessarily indicative of the results that may be expected for the year. The unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, together with management’s discussion and analysis of financial condition and results of operation, for the year ended December 31, 2007, contained in the Company’s December 31, 2007 Annual Report on Form 10-KSB.

The Company's consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company has experienced net losses since January 4, 2002 (date of inception), which losses have caused an accumulated deficit of approximately $15,805,300 as of September 30, 2008. These factors, among others, could raise substantial doubt about the Company's ability to continue as a going concern.

Management has been able, thus far, to finance the losses, as well as the growth of the business, mostly through private placements of our common stock and various debt financings. The Company is continuing to increase revenues by continuing the development of its oil and gas prospects in Texas and Louisiana.

In view of these conditions, the Company's ability to continue as a going concern is dependent upon its ability to obtain additional financing or capital sources, to meet its operating requirements, debt obligations, and ultimately to achieve profitable operations. Management believes that its current and future plans provide an opportunity to continue as a going concern. However, there can be no assurance that management will achieve its plans. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that may be necessary in the event the Company cannot continue as a going concern.

UNIVERSAL ENERGY CORP.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates. The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Reclassifications. Certain prior periods’ balances have been reclassified to conform to the current year consolidated financial statement presentation. These reclassifications had no impact on previously reported consolidated results of operations or stockholders’ deficit.

Cash and Cash Equivalents. The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.

Concentration of Credit Risk. Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. The Company places its cash and cash equivalents with high credit quality financial institutions.

Accounts Receivable. We have receivables for sales of oil, gas and natural gas liquids. Management has established an allowance for doubtful accounts. The allowance is evaluated by management and is based on management’s periodic review of the collectability of the receivables in light of historical experience, the nature and volume of the receivables, and other subjective factors.

Full Cost Method. The Company utilizes the full-cost method of accounting for petroleum and natural gas properties. Under this method, the Company capitalizes all costs associated with acquisition, exploration and development of oil and natural gas reserves, including leasehold acquisition costs, geological and geophysical expenditures, lease rentals on undeveloped properties, interest and costs of drilling of productive and non-productive wells into the full cost pool. When the Company obtains proven oil and gas reserves, capitalized costs, including estimated future costs to develop the reserves proved and estimated abandonment costs, net of salvage, will be depleted on the units-of-production method using estimates of proved reserves. The costs of unproved properties are not amortized until it is determined whether or not proved reserves can be assigned to the properties. Until such determination is made, the Company assesses quarterly whether impairment has occurred, and includes in the amortization base drilling exploratory dry holes associated with unproved properties.

All items classified as unproved property are assessed on a quarterly basis for possible impairment or reduction in value. Properties are assessed on an individual basis or as a group if properties are individually insignificant. The assessment includes consideration of the following factors, among others: intent to drill; remaining lease term; geological and geophysical evaluations; drilling results and activity; the assignment of proved reserves; and the economic viability of development if proved reserves are assigned. During any period in which these factors indicate an impairment, the cumulative drilling costs incurred to date for such property and all or a portion of the associated leasehold costs are transferred to the full cost pool and are then subject to amortization.

Debt Issue Costs. In accordance with the Accounting Principles Board Opinion 21 “Interest on Receivables and Payables”, the Company recognizes debt issue costs on the balance sheet as deferred charges, and amortizes the balance over the term of the related debt. The Company follows the guidance in the EITF 95-13 “Classification of Debt Issue Costs in the Statement of Cash Flows” and classifies cash payments for debt issue costs as a financing activity.

UNIVERSAL ENERGY CORP.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

Valuation of Derivative Instruments. FAS 133, "Accounting for Derivative Instruments and Hedging Activities" requires bifurcation of embedded derivative instruments and measurement of fair value for accounting purposes. In addition, FAS 155, "Accounting for Certain Hybrid Financial Instruments" requires measurement of fair values of hybrid financial instruments for accounting purposes. We applied the accounting proscribed in FAS 155 to account for the 2007 and 2008 Convertible Debentures described below in Note 7, Note 8 and Note 9. In determining the appropriate fair value, the Company used a Black Scholes model. Derivative liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as Change in Fair Value of Embedded Derivatives. The effects of interactions between embedded derivatives are calculated and accounted for in arriving at the overall fair value of the financial instruments. In addition, the fair values of freestanding derivative instruments such as warrant derivatives are valued using Black Scholes models.

Revenue Recognition. The Company derives revenue primarily from the sale of produced natural gas and crude oil. The Company reports revenue as the gross amount received before taking into account royalties, production taxes and transportation costs, which are reported as separate expenses. Revenue is recorded in the month the Company’s production is delivered to the purchaser, but payment is generally received between 30 and 90 days after the date of production. No revenue is recognized unless it is determined that title to the product has transferred to a purchaser. At the end of each month, the Company estimates the amount of production delivered to the purchaser and the price the Company will receive. The Company uses its knowledge of its properties, their historical performance, the anticipated effect of weather conditions during the month of production, New York Mercantile Exchange (“NYMEX”) and local spot market prices, and other factors as the basis for these estimates.

Stock Based Compensation. Effective January 1, 2006, the Company adopted SFAS No. 123(R), “Share-Based Payment,” which requires the Company to record as an expense in its financial statements the fair value of all stock-based compensation awards. The Company currently utilizes a standard option pricing model (i.e., Black-Scholes) to measure the fair value of stock options granted to employees using the “modified prospective” method. Under the “modified prospective” method, compensation cost is recognized in the financial statements beginning with the effective date, based on the requirements of SFAS No. 123(R) for all share-based payments granted after that date, and based on the requirements of SFAS No. 123(R) for all unvested awards granted prior to the effective date of SFAS No. 123(R).

Income Taxes. The Company accounts for income taxes utilizing the asset and liability method. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. 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. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enacted date. The Company has net operating loss carryforwards that may be offset against future taxable income. Due to the uncertainty regarding the success of future operations, management has valued the deferred tax asset allowance at 100% of the related deferred tax assets. The Company’s financial position, results of operations or cash flows were not impacted by the adoption of FASB Interpretation No. 48, “Accounting for Uncertain Tax Positions.”

The Company has not recognized a liability as a result of the implementation of FIN 48. A reconciliation of the beginning and ending amount of unrecognized tax benefits has not been provided since there is no unrecognized benefit as of the date of adoption. The Company has not recognized interest expense or penalties as a result of the implementation of FIN 48.

UNIVERSAL ENERGY CORP.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

Income (Loss) per Share. The Company utilizes Financial Accounting Standards Board Statement No. 128, “Earnings Per Share.” Statement No. 128 requires the presentation of basic and diluted loss per share on the face of the statement of operations. Basic income (loss) per share has been calculated using the weighted average number of common shares outstanding during the period. For the periods ending September 30, 2008 and September 30, 2007, 4,837,939,672 shares were excluded from the diluted loss per share computation since their effect is anti-dilutive.

Sequencing Approach. Under the guidance of EITF 00-19 requiring identification and evaluation of contracts that are settled in a potentially unlimited number of shares which could affect the classification of previously issued instruments, we use the sequencing approach based on earliest issuance date for determination of continued qualification of pre-existing contracts for equity treatment. Substantial modifications are of existing instruments are treated as new issuances for the sequencing approach.

Fair Value Instruments. Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements. This Statement defines fair value for certain financial and nonfinancial assets and liabilities that are recorded at fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This guidance applies to other accounting pronouncements that require or permit fair value measurements. On February 12, 2008, the FASB finalized FASB Staff Position (FSP) No. 157-2, Effective Date of FASB Statement No. 157. This Staff Position delays the effective date of SFAS No. 157 for nonfinancial assets and liabilities to fiscal years beginning after November 15, 2008 and interim periods within those fiscal years, except for those items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The adoption of SFAS No. 157 had no effect on the Company’s consolidated financial position or results of operations.

The Company partially adopted SFAS 157 on January 1, 2008, delaying application for non-financial assets and non-financial liabilities as permitted. This statement establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:

Level 1 — quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date. Financial assets and liabilities utilizing Level 1 inputs include active exchange-traded securities and exchange-based derivatives.

Level 2 — inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data. Financial assets and liabilities utilizing Level 2 inputs include fixed income securities, non-exchange-based derivatives, mutual funds, and fair-value hedges.

Level 3 — unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date. Financial assets and liabilities utilizing Level 3 inputs include infrequently-traded, non-exchange-based derivatives and commingled investment funds, and are measured using present value pricing models.

In accordance with SFAS 157, the Company determines the level in the fair value hierarchy within which each fair value measurement in its entirety falls, based on the lowest level input that is significant to the fair value measurement in its entirety.

The following table presents the embedded derivative, the Company’s only financial assets measured and recorded at fair value on the Company’s Consolidated Balance Sheets on a recurring basis and their level within the fair value hierarchy during the three months ended September 30, 2008:

UNIVERSAL ENERGY CORP.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

	Fair Value
As of September 30, 2008	Level 1		Level 2		Level 3		Total

Embedded derivative liabilities	$	-	$	3,203,065	$	-	$	3,203,065

The following table reconciles, for the period ended September 30, 2008, the beginning and ending balances for financial instruments that are recognized at fair value in the consolidated financial statements:

Balance of Embedded derivative at December 31, 2007	$	10,915,752
Fair Value of warrants and conversion feature of the May 2008 debenture at issuance		1,723,649
Conversion of convertible debentures into common stock		(1,501,225	)
Gain on fair value adjustments to embedded derivatives		(17,339,619	)
Charge related to the repricing of the 2007 Debentures		9,404,508
Balance at September 30, 2008	$	3,203,065

The valuation of the derivatives are calculated using a Black-Scholes pricing model that is based on changes in the volatility of our shares, our stock price, the probability of a reduction in exercise and conversion price, and the time to conversion of the related financial instruments. See Note 7, Note 8 and Note 9 for more information on the valuation methods used.

Recently Issued Accounting Standards

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP in the United States. SFAS No. 162 will be effective 60 days after the SEC’s approval of the Public Company Accounting Oversight Board (“PCAOB’s”) amendments to AU Section 411. We do not expect the adoption of SFAS No. 162 to have an impact on our consolidated financial statements.

UNIVERSAL ENERGY CORP.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE 4 – OIL AND GAS PROPERTIES, UNPROVEN

The total costs incurred by geographic location and excluded from amortization are summarized as follows:

	Acquisition		Exploration		Capitalized Interest		Impairment Loss			Net Carrying Value September 30, 2008
Louisiana	$	312,270	$	2,621,160	$	64,726	$	(151,015	)	$	2,847,141
Texas		185,850		261,972		108,347		-			556,169

Totals	$	498,120	$	2,883,132	$	173,073	$	(151,015	)	$	3,403,310

Under full cost accounting, total capitalized costs of natural gas and oil properties (net of accumulated depreciation, depletion and amortization) less related deferred income taxes may not exceed an amount equal to the present value of future net revenues from proved reserves, discounted at 10% per annum, plus the lower of cost or fair value of unevaluated properties, plus estimated salvage value, less income tax effects (the “ceiling limitation”). A ceiling limitation calculation is performed at the end of each quarter. If total capitalized costs (net of accumulated depreciation, depletion and amortization) less related deferred taxes are greater than the ceiling limitation, a write-down or impairment of the full cost pool is required. A write-down of the carrying value of the full cost pool is a non-cash charge that reduces earnings and impacts stockholders’ deficiency in the period of occurrence and typically results in lower depreciation, depletion and amortization expense in future periods. Once incurred, a write-down is not reversible at a later date.

At September 30, 2008, all of the Company’s oil and gas properties are unproven and are located in Louisiana and Texas. In accordance with SFAS 143, asset retirement obligations associated with producing wells will be accrued over the life of the well.

Tropical Storm Faye and Hurricane Gustav. In August 2008, the Company’s four producing wells in Louisiana (Caviar #1, Caviar #4, Amberjack and Lake Campo) were shut-in due as ordered by the State of Louisiana for storm preparations. Production facilities at all four wells were damaged during the hurricane. Caviar #1, Caviar #4 and Amberjack were returned into production in late October 2008. When Lake Campo was returned to production, excessive water production created disposal well capacity problems and was shut-in after a few days. A workover on Lake Campo will be performed in November 2008 to perforate the Tex W-5 sand to attempt to return the well to production.

NOTE 5 – PROMISSORY NOTES

Promissory Note with Stockholder - $250,000. On June 12, 2007, the Company issued an unsecured promissory note in the amount of $250,000 to a stockholder. Interest accrues on the outstanding principal balance from and after June 12, 2007 at a rate of 11 percent per annum. Interest shall be calculated on the basis of a 360-day year, and shall be charged on the principal outstanding from time to time for the actual number of days elapsed. The Company shall pay the Holder all accrued interest and the outstanding principal on the maturity date. The maturity date of the note was December 12, 2007. The conversion feature which was in effect during the time this loan was outstanding, allows the note holder to convert outstanding principal and interest into common stock. The conversion price was subject to the pricing of certain stock offerings. During July 2008, the note holders converted $250,000 of principal balance of their note into 21,551,724 shares of common stock under the same terms as the September 2007 Debenture financing.

UNIVERSAL ENERGY CORP.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE 5 – PROMISSORY NOTES, CONTINUED

Promissory Notes - $750,000. On or about June 12, 2007, the Company issued unsecured promissory notes in the aggregate amount of $750,000 to certain investors. Interest accrues on the outstanding principal balance from and after June 12, 2007 at a rate of 11 percent per annum. Interest is calculated on the basis of a 360-day year, and is charged on the principal outstanding from time to time for the actual number of days elapsed. The Company was required to pay the Holder all accrued interest and the outstanding principal on the maturity date of December 12, 2007.

The conversion feature which was in effect during the time the loan is outstanding, allowed the note holder to convert outstanding principal and interest into common stock. The conversion price was subject to the pricing of certain stock offerings. During the nine months ended September 2008, the note holders converted $750,000 of principal balance of their note during into 55,484,046 shares of common stock under the same terms as the September 2007 Debenture financing. Note 6.

On January 9, 2008, we repaid $125,000 principal balance and $7,993 of accrued interest to one investor.

Contemporaneous with the issuance of the promissory notes, a total of 750,000 warrants were issued at an exercise price of $1.25. The warrants vested immediately and have a 5 year term from the date of the promissory note. If at any time after one year from the Initial Exercise Date there is no effective registration statement (“Registration Statement”) registering, or no current prospectus available for, the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a certificate for the number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where (A) = the Volume Weighted Average Price (“VWAP”) on the Trading Day immediately preceding the date of such election; (B) = the Exercise Price of this Warrant, as adjusted; and (X) = the number of Warrant Shares issuable upon exercise of this Warrant in accordance with the terms of this Warrant by means of a cash exercise rather than a cashless exercise.

The fair value of the warrants issued was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: risk-free interest rate of 5.13%; no dividend yields; volatility factors of the expected market price of our common stock of 23.12%; an estimated forfeiture rate of 15%; and an expected life of the warrants of 5 years. This generates a price of $0.39 per warrant based on a strike price of $1.25 at the date of grant, which was June 12, 2007. As a result, approximately $187,500 of discount on promissory notes and additional paid-in capital was recorded during the twelve month period ended December 31, 2007 relating to the issuance of the warrants.

Promissory Note - $200,000. On October 4, 2007, the Company issued an unsecured promissory note in the amount of $200,000 to Billy Raley, the Company’s CEO and Director. Interest accrued on the outstanding principal balance from and after October 4, 2007 at a rate of 11 percent per annum. Interest was calculated on the basis of a 360-day year, and was charged on the principal outstanding from time to time for the actual number of days elapsed. The Company was required to pay the Holder all accrued interest and the outstanding principal on the maturity date of April 4, 2008. The note was not paid on maturity and is therefore in default.

Promissory Note - $150,000. On October 4, 2007, the Company issued an unsecured promissory note in the amount of $150,000 to Dyron M. Watford, the Company’s CFO and Chairman. Interest accrued on the outstanding principal balance from and after October 4, 2007 at a rate of 11 percent per annum. Interest was calculated on the basis of a 360-day year, and was charged on the principal outstanding from time to time for the actual number of days elapsed. The Company was required to pay the Holder all accrued interest and the outstanding principal on the maturity date of April 4, 2008. The note was not paid on maturity and is therefore in default.

UNIVERSAL ENERGY CORP.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE 6 – PROMISSORY NOTES, CONTINUED

Contemporaneous with the issuance of the promissory notes totaling $350,000, a total of 350,000 warrants were issued at an exercise price of $1.05. The warrants vest immediately and have a 5 year term from the date of the promissory note. If at any time after one year from the Initial Exercise Date there is no effective registration statement (“Registration Statement”) registering, or no current prospectus available for, the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a certificate for the number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where (A) = the Volume Weighted Average Price (“VWAP”) on the Trading Day immediately preceding the date of such election; (B) = the Exercise Price of this Warrant, as adjusted; and (X) = the number of Warrant Shares issuable upon exercise of this Warrant in accordance with the terms of this Warrant by means of a cash exercise rather than a cashless exercise.

The fair value of the warrants issued was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: risk-free interest rate of 4.75%; no dividend yields; volatility factors of the expected market price of our common stock of 105.91%; an estimated forfeiture rate of 0%; and an expected life of the warrant of 5 years. This generates a price of $0.81 per warrant based on a strike price of $1.05 at the date of grant, which was October 4, 2007. As a result, approximately $156,800 of discount on promissory notes and additional paid-in capital was recorded during the twelve month period ended December 31, 2007 relating to the issuance of promissory notes.

Promissory Notes - $600,000. On or about March 13, 2008, the Company issued promissory notes in the amount of $600,000 to certain investors. Interest accrues on the outstanding principal balance of this note at the rate of 12% per annum. Interest is calculated on the basis of a 365-day year, and is charged on the principal outstanding from time to time for the actual number of days elapsed. The Company pays each holder all accrued interest on a calendar quarterly basis, commencing at the end of the first calendar quarter following the purchase of this note. The Company will begin making monthly cash principal payments on the first business day of each calendar month beginning on the first business day of the thirteenth full calendar month following purchase of the note. The amount of the monthly payment is based on a two-year amortization of the note. The holder has the right to convert the outstanding principal balance (in whole and not in part) into such number of securities by dividing the outstanding balance by $0.50.

Contemporaneous with the issuance of the promissory notes, a total of 1,200,000 warrants were issued at an exercise price of $0.50. The warrants vested immediately and have a 3 year term from the date of the promissory note. The fair value of the warrants issued was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: risk-free interest rate of 1.84%; no dividend yields; volatility factors of the expected market price of our common stock of 102.31%; an estimated forfeiture rate of 0%; and an expected life of the warrant of 2 years. This generates a price of $0.27 per warrant based on a strike price of $0.50 at the date of grant, which was on or about March 13, 2008. As a result, approximately $210,200 of discount on promissory notes and additional paid-in capital was recorded during the three month period ended June 30, 2008 relating to the issuance of promissory notes.

The conversion feature in effect during the time the loan is outstanding, allows the note holder to convert outstanding principal and interest into common stock. The conversion price is subject to the pricing of certain stock offerings. During June 2008, two of the note holders exchanged $200,000 of principal balance of their note into the May 2008 Debenture financing.

UNIVERSAL ENERGY CORP.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE 7 – CONVERTIBLE DEBENTURES – SEPTEMBER 2007

On or about September 13, 2007, we consummated a securities purchase agreement (the “September 2007 SPA”) in which we received aggregate proceeds of $4,000,000 reflecting a 20% original issue discount to the purchasers. Pursuant to the September 2007 SPA, we issued:

An aggregate of $5,110,294 of Senior Debentures (the “Senior Debentures”), convertible into shares of our common stock at $0.80 per share;

A Warrants to purchase up to an aggregate of 6,387,868 shares of our common stock at an exercise price of $0.88 per share, for a period of 5 years from the closing date of the financing;

B Warrants to purchase up to an aggregate of 6,387,868 units, each unit consisting of a share of our common stock and one C Warrant, at exercise price of $0.80 per unit, for a period of 1 year from the effective date of the initial registration statement; the C Warrants permit the holders thereof to purchase one share of our common stock at a price of $0.88 per share.

The Senior Debentures are due and payable on August 31, 2009, and will begin to amortize monthly commencing on September 1, 2008. The Senior Debentures bear interest at a rate of eight percent per annum. The amortization may be effected through cash payments, or at our option subject to certain conditions, through the issuance of shares of our common stock, based on a price per share equal to 80% of the lowest three (3) closing bid prices of the common stock over the 20 trading days immediately preceding the date of such payment.

Until the maturity date of the Senior Debentures, the purchasers have the right to convert the Senior Debentures, in whole or in part, into shares of our common stock at a price $0.80, which was subsequently adjusted downward to $0.50 in March 2008 (upon issuance of certain promissory notes discussed in Note 6 – Promissory Notes) and further adjusted to the lesser of $0.25 or 80% of the lowest three (3) closing bid prices of the common stock over the 20 trading days immediately preceding the date of such payment in June 2008 (upon issuance of the May 2008 Debentures discussed in Note 9). The conversion price may be adjusted downward under circumstances set forth in the Senior Debentures. If so adjusted, the aggregate number of shares issuable, upon conversion in full, will increase.

The Senior Debentures include customary default provisions and an event of default includes, among other things, a change of control, the sale of all or substantially all of our assets, the failure to file and have a registration statement declared effective on or before the deadlines set forth in the Registration Rights Agreement, or the lapse of the effectiveness of registration statements for more than 20 consecutive trading days or 30 non-consecutive days during any 12-month period (with certain exceptions) which results in such indebtedness being accelerated. Upon the occurrence of an event of default, each Debenture may become immediately due and payable, either automatically or by declaration of the holder of such Debenture. The aggregate amount payable upon an acceleration by reason of an event of default shall be equal to the greater of 125% of the principal amount of the Senior Debentures to be prepaid or the principal amount of the Senior Debentures to be prepaid, divided by the conversion price on the date specified in the Debenture, multiplied by the closing price on the date set forth in the Debenture.

The purchasers also received A Warrants to purchase 6,387,868 additional shares of common stock at a price of $0.88 per share exercisable for five (5) years. The investors also received B Warrants to purchase 6,387,868 additional shares of common stock at a price of $0.80 per share exercisable for one year after the registration statement is declared effective. The investors will also receive a C Warrant with the exercise of the B Warrant that will allow the investors to purchase 6,387,868 additional shares of common stock at a price of $0.88 per share exercisable for a period of five (5) years. The exercise price of the warrants may be adjusted downward under the circumstances set forth in the warrants. All warrants vest immediately upon issuance. If so adjusted, the aggregate number of shares issuable, upon exercise in full, will be increased so that the total aggregate cash exercise price remains constant. Upon the occurrence of an event of default, the holder of the warrant can demand payment for their warrants at fair value.

UNIVERSAL ENERGY CORP.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE 7 – CONVERTIBLE DEBENTURES – SEPTEMBER 2007, CONTINUED

The debenture agreements also have certain milestones that the Company has agreed to that if not met, results in the repricing of the conversion rate and warrant exercise price. One such milestone was a revenue target to be achieved by March 31, 2008. This milestone was not met. However, the conversion rates and exercise prices had been previously adjusted due to a subsequent rights offering in conjunction with a financing transaction to a price below the market value of the common stock at March 31, 2008.

Our obligations to the Holders in the September 2007 Financing are secured by a senior security interest and lien granted upon all of our assets pursuant to the terms of a Security Agreement entered into in connection with the closing. The Senior Debentures and the September 2007 Warrants contain anti-dilution provisions.

In connection with this transaction, each purchaser has contractually agreed to restrict its ability to convert the Senior Debentures, exercise the warrants and additional investment rights and receive shares of our common stock such that the number of shares of our common stock held by them and their affiliates after such conversion or exercise does not exceed 4.99% of the number of shares of our common stock outstanding immediately after giving effect to such conversion or exercise.

The agreements included a number of other embedded derivative instruments, and the Company has applied the provisions of FAS 155 “Accounting for Certain Hybrid Financial Instruments”, to record the fair values of the convertible debentures, and related derivatives, as of September 13, 2007, the date of issuance. The fair values of the debentures and related derivative instruments were valued using the Black-Scholes model, resulting in an initial fair value of approximately $8,621,400. The effects of interactions between embedded derivatives are calculated and accounted for in arriving at the overall fair value of the financial instruments. The excess of the fair value over the transaction price of the Debentures was recorded through the results of operations in September 2007 as a debit of approximately $4,621,400 to Charges Related to Issuance of September 2007 Convertible Debentures and Warrants.

The September 2007 Convertible Debentures and related derivatives outstanding at September 30, 2008 were again valued at fair value using the Black Scholes model, resulting in a decrease in the fair value of the liability of approximately $10,637,400, which was recorded through the results of operations as a credit to adjustments to fair value of embedded derivatives.

In connection with this financing, we paid cash fees to a broker-dealer of $120,000 and issued a warrant to purchase 280,000 shares of common stock at an exercise price of $0.88 per share. The initial fair value of the warrant was estimated at approximately $147,900 using the Black Scholes pricing model. The assumptions used in the Black Scholes model were as follows: (1) dividend yield of 0%, (2) expected volatility of 64.45%, (3) risk-free interest rate of 5.09%, and (4) expected life of 2 years. Cash fees paid, and the initial fair value of the warrant, have been capitalized as debt issuance costs and are being amortized over 24 months using the effective interest rate method.

The following table summarizes the September 2007 Convertible Debentures and discounts outstanding at September 30, 2008:

September 2007 Debentures at fair value	$	5,110,294
Penalties		76,537
Conversions		(2,547,926	)
Warrant derivative discount		(495,268	)
Original issue discount		(137,473	)
Net convertible debentures	$	2,006,164

UNIVERSAL ENERGY CORP.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE 8 – CONVERTIBLE DEBENTURES – NOVEMBER 2007

On or about November 29, 2007 we consummated a Securities Purchase Agreement (the “November SPA”) in which we received aggregate proceeds of $1,350,000 reflecting a 20% original issue discount to the purchasers. Pursuant to the November SPA, we issued:

An aggregate of $1,742,647 of Junior Debentures convertible into shares of our common stock at $0.80 per share;

D Warrants to purchase up to an aggregate of 2,178,309 shares of our common stock at an exercise price of $0.88 per share, for a period of 5 years from the closing date of the November 2007 Financing;

E Warrants to purchase up to an aggregate of 2,178,309 units, each unit consisting of a share of our common stock and one F Warrant, at exercise price of $0.80 per unit, for a period of 1 year from the effective date of the initial registration statement; the F Warrants permit the holders thereof to purchase one share of our common stock at a price of $0.88 per share.

G Warrants to purchase up to an aggregate of 2,178,309 shares at $1.00 per share for a period of five years from the closing date of the November 2007 financing.

The outstanding principal balances of the Junior Debentures are due and payable on October 31, 2009, and will begin to amortize monthly commencing on November 1, 2008. The Junior Debentures bear interest at a rate of 8 percent per annum. The amortization may be effected through cash payments, or at our option subject to certain conditions, through the issuance of shares of our common stock, based on a price per share equal to 80% of the lowest three (3) closing bid prices of the common stock over the 20 trading days immediately preceding the date of such payment.

Until the maturity date of the Junior Debentures, the purchasers have the right to convert the Junior Debentures, in whole or in part, into shares of our common stock at a price $0.80, which was subsequently adjusted downward to $0.50 in March 2008 (upon issuance of certain promissory notes discussed in Note 6 – Promissory Notes) and further adjusted to the lesser of $0.25 or 80% of the lowest three (3) closing bid prices of the common stock over the 20 trading days immediately preceding the date of such payment in June 2008 (upon issuance of the May 2008 Debentures discussed in Note 9).

The Junior Debentures include customary default provisions and an event of default includes, among other things, a change of control, the sale of all or substantially all of our assets, the failure to file and have a registration statement declared effective on or before the deadlines set forth in the Registration Rights Agreement, or the lapse of the effectiveness of registration statements for more than 20 consecutive trading days or 30 non-consecutive days during any 12-month period (with certain exceptions) which results in such indebtedness being accelerated. Upon the occurrence of an event of default, each Debenture may become immediately due and payable, either automatically or by declaration of the holder of such Debenture. The aggregate amount payable upon an acceleration by reason of an event of default shall be equal to the greater of 125% of the principal amount of the Junior Debentures to be prepaid or the principal amount of the Junior Debentures to be prepaid, divided by the conversion price on the date specified in the Debenture, multiplied by the closing price on the date set forth in the Debenture.

The purchasers also received D Warrants to purchase 2,178,309 additional shares of common stock at a price of $0.88 per share exercisable for five (5) years. The investors also received E Warrants to purchase 2,178,309 additional shares of common stock at a price of $0.80 per share exercisable for one year after the registration statement is declared effective. The investors will also receive a F Warrant with the exercise of the E Warrant that will allow the investors to purchase 2,178,309 additional shares of common stock at a price of $0.88 per share exercisable for a period of five (5) years. The Purchases also received a G Warrants that will allow the purchase of up 2,178,309 of additional shares of common stock at a price of $1.00 per share. All warrants vest immediately upon issuance. Upon the occurrence of an event of default, the holder of the warrant can demand payment for their warrants at fair value.

UNIVERSAL ENERGY CORP.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE 8 – CONVERTIBLE DEBENTURES – NOVEMBER 2007, CONTINUED

The Junior Debentures and the warrants contain anti-dilution provisions.

In connection with this transaction, each purchaser has contractually agreed to restrict its ability to convert the Junior Debentures, exercise the warrants and additional investment rights and receive shares of our common stock such that the number of shares of our common stock held by them and their affiliates after such conversion or exercise does not exceed 4.99% of the number of shares of our common stock outstanding immediately after giving effect to such conversion or exercise.

The agreements included a number of other embedded derivative instruments, and the Company has applied the provisions of FAS 155 “Accounting for Certain Hybrid Financial Instruments”, to record the fair values of the convertible debentures, and related derivatives, as of November 29, 2007, the date of issuance. The fair values of the debentures and related derivative instruments were valued using the Black-Scholes model, resulting in an initial fair value of approximately $3,234,400. The effects of interactions between embedded derivatives are calculated and accounted for in arriving at the overall fair value of the financial instruments. The excess of the fair value over the transaction price of the Debentures was recorded through the results of operations in 2007 as a debit of approximately $1,884,400 to Charges Related to Issuance of November 2007 Convertible Debentures and Warrants.

The November 2007 Convertible Debentures and related derivatives outstanding at September 30, 2008 were again valued at fair value using a the Black Scholes model, resulting in a decrease in the fair value of the liability of approximately $5,603,000 which was recorded through the results of operations as a credit to adjustments to fair value of derivatives.

In connection with this financing, we paid cash fees to a broker-dealer of $94,500 and issued a warrant to purchase 135,000 shares of Common Stock at an exercise price of $0.88 per share. The initial fair value of the warrant was estimated at approximately $73,100 using the Black Scholes pricing model. The assumptions used in the Black Scholes model were as follows: (1) dividend yield of 0%, (2) expected volatility of 145.14%, (3) risk-free interest rate of 5.09%, and (4) expected life of 1 year. Cash fees paid, and the initial fair value of the warrant, have been capitalized as debt issuance costs and are being amortized over 24 months using the effective interest rate method.

The following table summarizes the November 2007 Convertible Debentures and discounts outstanding at September 30, 2008:

November 2007 Debentures at fair value	$	1,742,647
Conversions		(836,410	)
Warrant derivative discount		(307,199	)
Original issue discount		(89,348	)
Net convertible debentures	$	509,690

UNIVERSAL ENERGY CORP.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE 9 – CONVERTIBLE DEBENTURES – MAY 2008

On or about June 9, 2008 we consummated a Securities Purchase Agreement (the “May 2008 SPA”) in which we received the following proceeds reflecting a 20% original issue discount to the purchasers. Pursuant to the May 2008 SPA, we issued:

An aggregate of $1,006,618 of Junior Debentures (the “May 2008 Debentures”) convertible into shares of our common stock at the lesser of $0.25 per share or 80% of the lowest three (3) closing bid prices of the common stock over the 20 trading days immediately preceding the date of such payment;

An aggregate of $250,000 of May 2008 Debentures convertible into shares of our common stock at the lesser of $0.25 per share or 80% of the lowest three (3) closing bid prices of the common stock over the 20 trading days immediately preceding the date of such payment (from conversion features which were in effect during the time certain promissory notes were outstanding, allows the note holder to convert outstanding principal and interest into future financings -see Note 6 – Promissory Notes).

I Warrants to purchase up to an aggregate of 5,026,471 shares of our common stock at an exercise price of $0.25 per share, for a period of 5 years from the closing date of the May 2008 Financing;

The outstanding principal balances of the May 2008 Debentures are due and payable on April 30, 2010. The May 2008 Debentures bear interest at a rate of 8 percent per annum.

Until the maturity date of the debentures, the purchasers have the right to convert their Debentures, in whole or in part, into shares of our common stock at a price equal to the lesser of $0.25 or 80% of the lowest three (3) closing bid prices of the common stock over the 20 trading days immediately preceding the date of such payment. The conversion price may be adjusted downward under circumstances set forth in the May 2008 Debentures. If so adjusted, the aggregate number of shares issuable, upon conversion in full, will increase.

The May 2008 Debentures include customary default provisions and an event of default includes, among other things, a change of control, the sale of all or substantially all of our assets, the failure to file and have a registration statement declared effective on or before the deadlines set forth in the Registration Rights Agreement, or the lapse of the effectiveness of registration statements for more than 20 consecutive trading days or 30 non-consecutive days during any 12-month period (with certain exceptions) which results in such indebtedness being accelerated. Upon the occurrence of an event of default, each Debenture may become immediately due and payable, either automatically or by declaration of the holder of such Debenture. The aggregate amount payable upon an acceleration by reason of an event of default shall be equal to the greater of 125% of the principal amount of the May 2008 Debentures to be prepaid or the principal amount of the May 2008 Debentures to be prepaid, divided by the conversion price on the date specified in the Debenture, multiplied by the closing price on the date set forth in the Debenture. Since a registration statement was not filed timely, the debentures are in technical default and have therefore been recorded as a current liability.

The purchasers also received I Warrants to purchase 5,026,471 additional shares of common stock at a price of $0.25 per share exercisable for five (5) years. All warrants vest immediately upon issuance. Upon the occurrence of an event of default, the holder of the warrant can demand payment for their warrants at fair value.

The May 2008 Debentures and the warrants contain anti-dilution provisions.

In connection with this transaction, each purchaser has contractually agreed to restrict its ability to convert the May 2008 Debentures, exercise the warrants and additional investment rights and receive shares of our common stock such that the number of shares of our common stock held by them and their affiliates after such conversion or exercise does not exceed 4.99% of the number of shares of our common stock outstanding immediately after giving effect to such conversion or exercise.

UNIVERSAL ENERGY CORP.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE 9 – CONVERTIBLE DEBENTURES – MAY 2008, CONTINUED

The agreements included a number of other embedded derivative instruments, and the Company has applied the provisions of FAS 155 “Accounting for Certain Hybrid Financial Instruments”, to record the fair values of the convertible debentures, and related derivatives, as of November 29, 2007, the date of issuance. The fair values of the debentures and related derivative instruments were valued using the Black-Scholes model, resulting in an initial fair value of approximately $1,723,600. The effects of interactions between embedded derivatives are calculated and accounted for in arriving at the overall fair value of the financial instruments. The excess of the fair value over the transaction price of the Debentures was recorded through the results of operations in 2008 as a debit of approximately $753,600 to Charges Related to Issuance of May 2008 Convertible Debentures and Warrants.

The May 2008 Convertible Debentures and related derivatives outstanding at September 30, 2008 were again valued at fair value using the Black Scholes model, resulting in a decrease in the fair value of the liability of approximately $1,099,300, which was recorded through the results of operations as a credit to adjustments to fair value of derivatives.

In connection with this financing, we paid cash fees to a broker-dealer of $53,450 and issued a warrants to purchase 294,000 shares of Common Stock at an exercise price of $0.25 per share. The initial fair value of the warrant was estimated at approximately $71,100 using the Black Scholes pricing model. The assumptions used in the Black Scholes model were as follows: (1) dividend yield of 0%, (2) expected volatility of 121.44%, (3) risk-free interest rate of 3.41%, and (4) expected life of 3 years. Cash fees paid, and the initial fair value of the warrants, have been capitalized as debt issuance costs and are being amortized over 24 months using the effective interest rate method.

The following table summarizes the May 2008 Convertible Debentures and discounts outstanding at September 30, 2008:

May 2008 Debentures at fair value	$	1,256,618
Warrant derivative discount		(834,515	)
Original issue discount		(246,585	)
Net convertible debentures	$	175,518

NOTE 10 – REPRICING OF SEPTEMBER 2007 AND NOVEMBER 2007 DEBENTURES

To satisfy a condition to the closing of the May 2008 Debenture financing transaction contemplated by the Securities Purchase Agreement, holders of the September 2007 and November 2007 Debentures (the "Existing Debenture Holders") holding 100 percent of the outstanding principal amount of the Existing Debentures and 100 percent of the Holders of warrants issued to the Existing Debenture Holders (the "Existing Warrants") executed and delivered to the Company an Amendment and Waiver Agreement, under which, among other things, the Existing Debenture Holders agreed to consent to the transactions contemplated by the Securities Purchase Agreement and waive certain covenants and provisions under the Existing Debentures which would have blocked the proposed issuance of the May 2008 Debenture Financing.

Additionally, the Consent and Amendment amended the Existing Debentures to provide that the conversion price be adjusted to equal the lesser of (i) $0.25 (subject to resets and adjustments pursuant to the terms of this Debenture and subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Company relating to the Company's securities or the securities of any Subsidiary of the Company, combinations, recapitalization, reclassifications, extraordinary distributions and similar events) (the "Fixed Conversion Price") or (ii) 80% of the average of the three (3) lowest Closing Bid Prices of the Common Stock over the twenty (20) Trading Day period ending on the Trading Day immediately preceding the applicable Conversion Date.

UNIVERSAL ENERGY CORP.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE 10 – REPRICING OF SEPTEMBER 2007 AND NOVEMBER 2007 DEBENTURES, CONTINUED

The Consent and Amendment also removes certain provisions and defaults from the Existing Debentures. They include (i)changing the references to the "Closing Date" in Section 10 (c) of the September 2007 Debentures with respect to the filing of any registration statements required to be filed by the Company to the date of this Agreement; and (ii) deleting Sections 6(c) and (d) of and Schedule 6(c) to the September 2007 Debentures and by deleting therefore references to "Milestones", "Milestones Adjustment Price", "Milestones Adjustment Notice", "Milestone Date", "Milestone Period", "Milestone Failure", "Milestone Events".

The Existing Warrants were also amended as follows: (i) the Exercise Price (as defined in, and in accordance with the terms of, the September 2007 Warrants) is reduced to $0.25 per share each subject to reset and adjustments pursuant to the terms of this Warrant and subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Company relating to the Company's securities or the securities of any Subsidiary of the Company, combinations, recapitalization, reclassification, extraordinary distributions and similar events; and (ii)Sections 5(g) and 5(h) are deleted in their entirety, and any references in the September 2007 Warrants to "Milestone Failure" and any other "milestones" references are deleted.

The following table represents the effects on the number of warrants resulting from repricing the warrants to $0.50 in March 2008 and subsequently repricing the warrants to $0.25 in June 2008 simultaneous with the closing of the May 2008 Financing as described in Note 9.

	Original Exercise Price		As adjusted for March 2008 Repricing to $0.50		As adjusted for June 2008 Repricing to $0.25
A Warrants		6,387,868		11,242,649		22,485,298
B Warrants		6,387,868		10,220,588		20,441,176
C Warrants		6,387,868		11,242,649		22,485,298
D Warrants		2,178,309		3,833,824		7,667,648
E Warrants		2,178,309		3,485,294		6,970,588
F Warrants		2,178,309		3,833,824		7,667,648
G Warrants		2,178,309		4,356,618		8,713,326

The September 2007 and November 2007 Convertible Debentures and related derivatives outstanding at June 9, 2008 were valued at fair value using a the Black Scholes model, resulting in a increase in the fair value of the liability of approximately $9,404,500, which was recorded through the results of operations as a debit to Charges Related to the Repricing the 2007 Debentures.

UNIVERSAL ENERGY CORP.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE 11 – EMBEDDED DERIVATIVE LIABILITIES

As described more fully in Note 7 - Convertible Debentures - September 2007, Note 8 – Convertible Debentures – November 2007 and Note 9 – Convertible Debentures – May 2008, the provisions of our convertible debentures financing completed in September 2007, November 2007 and May 2008, respectively, permit the Company to make its redemptions in shares of the Company’s common stock rather than cash upon satisfaction of certain conditions. Under the terms of the debenture agreements, the price per share is variable dependent upon the actual closing price of the Company’s common stock.

In accordance with the provisions of SFAS 133, Accounting for Derivative Instruments” and EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to and Potentially Settled in a Company’s Own Stock” the Company has reviewed all instruments previously recorded as permanent equity under this literature.

The following table summarizes the components of the Adjustment to Fair Value of Derivatives which were recorded as charges to results of operations in the period ended September 30, 2008. The table summarizes by category of derivative liability at September 30, 2008. For these calculations, the conversion price of the debentures and the exercise price of the warrants were adjusted to $0.25 per share along with the aggregate number of shares issuable due to a subsequent financing transaction as described in Note 10.

	Value at 09/30/08
Sept. 07 Debentures	$	1,726,843
A Warrants		883
B Warrants		399
C Warrants		11,661
Nov. 07 Debentures		831,509
D Warrants		1,256
E Warrants		571
F Warrants		4,154
G Warrants		1,427
May 08 Debentures		618,090
I Warrants		6,272
	$	3,203,065

UNIVERSAL ENERGY CORP.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE 12 – STOCKHOLDERS’ DEFICIT

During 2008, the Company issued a total of 112,500 shares to members of its advisory board. The securities were exempt from registration pursuant to Rule 506 of Regulation D and Section 4(2) of the Securities Act of 1933, as amended. For the nine month period ended September 30, 2008, the Company recorded approximately $28,300 as compensation expense under this agreement. At the date of each issuance, the shares were valued at the closing price.

NOTE 13 – COMMITMENTS AND CONTINENGENCIES

On September 14, 2006, the Company entered into a three-year employment agreement with Mr. Dyron Watford to be its chief financial officer and chairman. The employment agreement provides for a base salary of $6,000 per month subject to certain increases throughout the term of the contract. Pursuant to the agreement, Mr. Watford received 6,250,000 options to purchase common stock in the company at a price of $0.78 per share. The options will vest monthly over the term of the employment agreement and will expire five years after the vesting date. The Board of Directors amended Mr. Watford’s annual base salary to $180,000 in March 2007.

On September 15, 2006, the Company entered into a three-year employment agreement with Mr. Billy Raley to be its chief executive officer. The employment agreement provides for a base salary of $8,000 per month subject to certain increases throughout the term of the contract. Pursuant to the agreement, Mr. Raley received 6,250,000 options to purchase common stock in the company at a price of $0.78 per share. The options will vest monthly over the term of the employment agreement and will expire five years after the vesting date. The Board of Directors amended Mr. Raley’s annual base salary to $225,000 in March 2007.

In the ordinary course of business, the Company is subject to litigation. In the opinion of management, such litigation will not have a material adverse effect on the financial position or results of operations of the Company.

NOTE 14 – SUBSEQUENT EVENTS

During October and November 2008, the Company converted approximately $480,000 in debt into 664,364,542 shares of our Common Stock.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation.

The following discussion of our plan of operation, financial condition and results of operations should be read in conjunction with the Company’s consolidated financial statements, and notes thereto, included elsewhere herein. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors including, but not limited to, those discussed in this Quarterly Report. See “Special Note Regarding Forward Looking Statements” included elsewhere in this Quarterly Report. Additional risk factors are also identified in our annual report to the U. S. Securities and Exchange Commission filed on Form 10-KSB and in other SEC filings.

Corporate History

We were incorporated in the State of Delaware on January 4, 2002, under the name of "Universal Tanning Ventures, Inc." From inception until 2006, we owned and operated a single indoor tanning salon business that offered a full range of indoor tanning products and services to our customers. On May 21, 2006, we changed our name to "Universal Energy Corp." and focused our operations on the acquisition and development of oil and natural gas properties.

Our Properties

Figure 1 – US properties.

We have not yet established proven reserves on any of our properties.

Plan of Operation

We are a small independent energy company engaged in the acquisition and development of crude oil and natural gas leases in the United States. We pursue oil and gas prospects in partnership with oil and gas companies with exploration, development and production expertise. Our prospect areas currently consist of land in Louisiana and Texas.

As of September 30, 2008, we have acquired interests in oil and gas properties and have participated in the drilling of 6 wells. We currently have working interests ranging from 7.5% to 95%, see “Description of Property.” We continue to be considered an exploration-stage company due to the absence of significant revenue.

We plan to grow our business by acquiring (i) low risk in-field oil and gas rights that are primarily developmental in nature that offset existing production and (ii) energy companies that when combined with our management expertise in that area will display strong top line growth and cash flows. As we expand our business we will eventually seek to act as the operator of those properties in which we have an interest.

Since inception, we have funded our operations primarily from private placements of our common stock and debt issuances. Although we expect that, during the next 12 months, our operating capital needs will be met from our current economic resources and by additional private capital stock transactions, there can be no assurance that funds required will be available on terms acceptable to us or at all. Without additional financing, we do not expect that our current working capital will be able to fund our operations through 2008. If we are unable to raise sufficient funds on terms acceptable to us, we may be unable to complete our business plan.

We have no proven reserves as of September 30, 2008, and we have only recently begun generation of revenues from operations of our oil and gas activities. From inception to September 30, 2008, we have accumulated losses of approximately $15,805,300 and expect to incur further losses in the development of our business, all of which casts doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to generate future profitable operations and/or to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they become due.

To the extent that we are successful in finding and producing oil and gas, proceeds from that activity would be added to our working capital reserves and be available to fund future exploration.

We believe that we will require additional funds to operate throughout the next 12 months. Furthermore any expansion beyond our current plans, will require additional capital funding. We intend to continue to seek drilling opportunities on the acreage in which we currently have an interest or in other acreage and to consider the possible acquisition of producing properties. We do not have funds to undertake any of these activities and would have to obtain funding from external sources. We believe that additional capital funding is available through private or public equity financing or perhaps bank financing. Success in the field will enhance our opportunities to obtaining financing, but we will probably need to obtain reserve reports and have sufficient length of production to obtain favorable financing arrangements. Furthermore, outside events such as the price of oil, the condition of the stock market, and interest rate levels could affect our ability to obtain financing. Our ability to obtain financing may also be affected by antidilution provisions contained in the warrants we have issued, as described in detail under “Risk Factors” as contained in the Company’s December 31, 2007 Annual Report on Form 10-KSB. At this time, we have no financing arrangements in place.

We estimate the drilling and completion costs to operate our prospects and our business for the next twelve months are as follows:

Caviar	$	100,000
Amberjack		100,000
Lake Campo		75,000
Lone Oak		800,000
General and administrative		700,000
Total	$	1,775,000

Tropical Storm Faye and Hurricane Gustav. In August 2008, the Company’s four producing wells in Louisiana (Caviar #1, Caviar #4, Amberjack and Lake Campo) were shut-in due as ordered by the State of Louisiana for storm preparations. Production facilities at all four wells were damaged during the hurricane. Caviar #1, Caviar #4 and Amberjack were returned into production in late October 2008. When Lake Campo was returned to production, excessive water production created disposal well capacity problems and was shut-in after a few days. A workover on Lake Campo will be performed in November 2008 to perforate the Tex W-5 sand to attempt to return the well to production.

As of September 30, 2008, we have participated in drilling the following wells with the interests and results indicated as follows:

	Interest		Approximate
Well Name	Working	Net Revenue	Depth	Current Status
Amberjack	7.50%	4.05%	10,000’	In production as of December 2007
Lake Campo	12.50	6.75%	10,000’	In production as of January 2008, Currently shut-in, workover to return to production scheduled to return in November 2008
Caviar #1	10.00	5.40%	10,600’	In production as of July 2008
W. Rosedale	15.00	7.92%	10,300’	Plugged and abandoned in Nov. 2007
Caviar # 4	10.00	5.40%	10,800’	In production as of July 2008
East OMG	17.50	9.45%	16,500’	Plugged and abandoned in Dec. 2007

Results of Operations

CONSOLIDATED FINANCIAL INFORMATION

	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2007			2008			2007
Revenue	$	330,226		$	-		$	745,231		$	-
Operating expenses		861,008			746,453			2,490,184			3,409,808
Other income (expense)		(3,261,141	)		(3,693,367	)		1,654,027			(3,716,646	)
Net loss	$	(3,920,058	)	$	(4,439,820	)	$	(386,880	)	$	(7,160,640	)

Comparison of Three Months Ended September 30, 2008 and September 30, 2007.

Revenue. Revenue for the three months ended September 30, 2008 increased $330,226 to $330,226 from $0 for the same period in 2007. The increase was attributable to successful drilling and completion efforts at our Amberjack and Lake Campo prospects that began production in December 2007 and January 2008, respectively. Production at our Caviar #1 and Caviar #4 wells began in July 2008. In August 2008, the Company’s four producing wells in Louisiana (Caviar #1, Caviar #4, Amberjack and Lake Campo) were shut-in due as ordered by the State of Louisiana for storm preparations. Production facilities at all four wells were damaged during the hurricane. Caviar #1, Caviar #4 and Amberjack were returned into production in late October 2008. When Lake Campo was returned to production, excessive water production created disposal well capacity problems and was shut-in after a few days. A workover on Lake Campo will be performed in November 2008 to perforate the Tex W-5 sand to attempt to return the well to production.

Operating Expenses. Operating expenses for the three months ended September 30, 2008 increased $114,555 (or 15%) to $861,008 from $746,453 for the same period in 2007. The increase was primarily attributable to increased amortization of debt issuance costs and penalties associated with our outstanding debentures.

Other Income (expense). Other income (expense) for the period ended September 30, 2008 decreased $432,226 to $(3,261,141) from $(3,693,367) for the same period in 2007. The increase was attributable to change in fair value of embedded derivatives and associated charges with our convertible debentures and warrants.

Net Income (loss). Net income (loss) for the three months ended September 30, 2008 was $(3,920,058) compared to $(4,439,820) for 2007. The decrease in our net loss was due to the reasons described herein above.

Comparison of Nine Months Ended September 30, 2008 and September 30, 2007.

Revenue. Revenue for the nine months ended September 30, 2008 increased $745,231 to $745,231 from $0 for the same period in 2007. The increase was attributable to successful drilling and completion efforts at our Amberjack and Lake Campo prospects that began production in December 2007 and January 2008, respectively. Production at our Caviar #1 and Caviar #4 wells began in July 2008. In August 2008, the Company’s four producing wells in Louisiana (Caviar #1, Caviar #4, Amberjack and Lake Campo) were shut-in due as ordered by the State of Louisiana for storm preparations. Production facilities at all four wells were damaged during the hurricane. Caviar #1, Caviar #4 and Amberjack were returned into production in late October 2008. When Lake Campo was returned to production, excessive water production created disposal well capacity problems and was shut-in after a few days. A workover on Lake Campo will be performed in November 2008 to perforate the Tex W-5 sand to attempt to return the well to production.

Operating Expenses. Operating expenses for the nine months ended September 30, 2008 decreased $919,624 (or 27%) to $2,490,184 from $3,409,808 for the same period in 2007. The decrease was primarily attributable to a decrease in investor awareness expenses.

Other Income (expense). Other income (expense) for the period ended September 30, 2008 increased $5,370,673 to $1,654,027 from $(3,716,646) for the same period in 2007. The increase was attributable to change in fair value of embedded derivatives in our convertible debentures and warrants.

Net Income (loss). Net income (loss) for the nine months ended September 30, 2008 was $(386,880) compared to $(7,160,640) for 2007. The decrease in our net loss was due to the reasons described herein above.

Liquidity and Capital Resources

Net cash used in continuing operating activities of continuing operations totaled approximately $46,600 during the nine months ended September 30, 2008, compared to net cash used in continuing operating activities of approximately $4,157,300 for the same period in 2007. Net cash used in discontinued operating activities totaled approximately $0 during the nine months ended September 30, 2008, compared to net cash used in discontinued operations of approximately $42,600 for the same period in 2007.

Net cash provided by investing activities from discontinued operations totaled $0 and $7,600 during the nine months ended September 30, 2008 and 2007, respectively. Cash used in investing activities from continuing operations totaled approximately $1,309,000 and $1,678,600 during the nine months ended September 30, 2008 and 2007, respectively. The increase was primarily attributable to investments in oil and gas properties. We have no material commitments for capital expenditures.

Net cash provided by financing activities totaled approximately $1,165,300 and $5,734,800 during the nine months ended September 30, 2008 and 2007, respectively. During the nine months ended September 30, 2008, financing activities consisted of proceeds from various debt financings.

At September 30, 2008 we had cash balances in the amount of approximately $44,700. Our principal source of funds has been cash generated from financing activities. We have been unable to generate significant liquidity or cash flow from our current operations. We anticipate that cash flows from continuing operations or discontinued operations will be insufficient to fund our business operations for the full year 2008 and that we must continue attempting to raise additional capital to fund our operations and implement our business plan.

Variables and Trends

We have very limited history with respect to our acquisition and development of oil and gas properties. In the event we are able to obtain the necessary financing to move forward with our business plan, we expect our expenses to increase significantly as we grow our business. Accordingly, the comparison of the financial data for the periods presented may not be a meaningful indicator of our future performance and must be considered in light these circumstances.

Critical Accounting Policies

We prepare our financial statements in conformity with accounting principles generally accepted in the United States of America. As such, we are required to make certain estimates, judgments and assumptions that we believe are reasonable based upon the information available to us. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. The significant accounting policies that we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:

Revenue recognition. Our revenue recognition policy is significant because revenue is anticipated to be a key component of our results of operations and our forward-looking statements contained in our analyses of liquidity and capital resources. We derive our revenue primarily from the sale of produced natural gas and crude oil. We report revenue as the gross amounts we receive before taking into account production taxes and transportation costs, which are reported as separate expenses. Revenue is recorded in the month our production is delivered to the purchaser, but payment is generally received between 30 and 90 days after the date of production. No revenue is recognized unless it is determined that title to the product has transferred to a purchaser. At the end of each month we make estimates of the amount of production delivered to the purchaser and the price we will receive. We use our knowledge of our properties, their historical performance, NYMEX and local spot market prices, and other factors as the basis for these estimates. Variances between our estimates and the actual amounts received are recorded in the month payment is received.

Accounts Receivable. We have receivables for sales of oil, gas and natural gas liquids. Management has established an allowance for doubtful accounts. The allowance is evaluated by management and is based on management’s periodic review of the collectibility of the receivables in light of historical experience, the nature and volume of the receivables, and other subjective factors.

Stock-Based Compensation. During the first quarter of 2006, we adopted Statement of Financial Accounting Standards ("SFAS") No. 123R, "Share-Based Payment" using the modified prospective method of transition. Under SFAS No. 123R, the estimated fair value of stock options or restricted stock granted under our Stock Option Plan is recognized as expense. The estimated fair value of stock options is expensed on a straight-line basis over the expected service period of the option.

The estimated fair value of each option grant is determined on the date of grant using the Black-Scholes option pricing model. The Black-Scholes model is dependent upon key inputs estimated by management, including the expected term of an option and the expected volatility of our common stock price over the expected term. The risk-free interest rate is based on the yield on zero-coupon U.S. treasury securities at the time of grant for a period commensurate with the expected term. The expected volatility is calculated based on the historic monthly closing prices for a period commensurate with the expected term, which is the same method used both prior and subsequent to the adoption of SFAS 123R. Changes in the subjective assumptions could materially affect the estimated fair value of an option and consequently the amount of stock option expense recognized in the Company's results of operations.

Full Cost Method. The Company utilizes the full-cost method of accounting for petroleum and natural gas properties. Under this method, the Company capitalizes all costs associated with acquisition, exploration and development of oil and natural gas reserves, including leasehold acquisition costs, geological and geophysical expenditures, lease rentals on undeveloped properties and costs of drilling of productive and non-productive wells into the full cost pool. As of September 30, 2008, the Company had no properties with proven reserves. When the Company obtains proven oil and gas reserves, capitalized costs, including estimated future costs to develop the reserves proved and estimated abandonment costs, net of salvage, will be depleted on the units-of-production method using estimates of proved reserves. The costs of unproved properties are not amortized until it is determined whether or not proved reserves can be assigned to the properties. Until such determination is made, the Company assesses quarterly whether impairment has occurred, and includes in the amortization base drilling exploratory dry holes associated with unproved properties.

Derivative Liabilities. We record derivatives at their fair values on the date that they meet the requirements of a derivative instrument and at each subsequent balance sheet date. Any change in fair value will be recorded as non-operating, non-cash income or expense at each reporting date.

Use of Estimates. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. We regularly evaluate estimates and assumptions related to useful life and recoverability of long-lived assets, asset retirement obligations, stock-based compensation and deferred income tax asset valuation allowances. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by us may differ materially and adversely from our estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

Net operating loss carryforwards. We have not recognized the benefit in our financial statements with respect to any net operating loss carryforward for federal income tax purposes as of September 30, 2008. This benefit was not recognized due to the possibility that the net operating loss carryforward would not be utilized, for various reasons; including the potential that we might not have sufficient profits to use the carryforward or that the carryforward may be limited as a result of changes in our equity ownership. We intend to use this carryforward to offset our future taxable income. If we were to use any of this net operating loss carryforward to reduce our future taxable income and the Internal Revenue Service were to then successfully assert that our carryforward is subject to limitation as a result of capital transactions occurring in 2007 or otherwise, we may be liable for back taxes, interest and, possibly, penalties prospectively. The Company’s financial position, results of operations or cash flows were not impacted by the adoption of FASB Interpretation No. 48, “Accounting for Uncertain Tax Positions.”

Recently Issued Accounting Standards

Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements. This Statement defines fair value for certain financial and nonfinancial assets and liabilities that are recorded at fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This guidance applies to other accounting pronouncements that require or permit fair value measurements. On February 12, 2008, the FASB finalized FASB Staff Position (FSP) No. 157-2, Effective Date of FASB Statement No. 157. This Staff Position delays the effective date of SFAS No. 157 for nonfinancial assets and liabilities to fiscal years beginning after November 15, 2008 and interim periods within those fiscal years, except for those items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The adoption of SFAS No. 157 had no effect on the Company’s consolidated financial position or results of operations.

	Fair Value
As of September 30, 2008	Level 1		Level 2		Level 3		Total

Embedded derivative liabilities	$	-	$	3,203,065	$	-	$	3,203,065

Balance of Embedded derivative at December 31, 2007	$	10,915,752
Fair Value of warrants and conversion feature of the May 2008 debenture at issuance		1,723,649
Conversion of convertible debentures into common stock		(1,501,225	)
Gain on fair value adjustments to embedded derivatives		(17,339,619	)
Charge related to the repricing of the 2007 Debentures		9,404,508
Balance at September 30, 2008	$	3,203,065

Off Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Special Note Regarding Forward Looking Statements

This report includes “Forward-Looking Statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as “expects” or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “estimates” or “intends”, or stating that certain actions, events or results “may”, “could”, “should”, “would”, “might” or “will” be taken, occur or be achieved) are not statements of historical fact and may be considered “forward looking statements”.

These forward-looking statements are subject to numerous assumptions, risks and uncertainties. Factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by us in those statements include, among others, the following:

the quality of our properties with regard to, among other things, the existence of reserves in economic quantities;

uncertainties about the estimates of reserves;

our ability to increase our production of oil and natural gas income through exploration and development;

the number of well locations to be drilled and the time frame within which they will be drilled;

the timing and extent of changes in commodity prices for natural gas and crude oil;

our ability to complete potential acquisitions;

domestic demand for oil and natural gas;

drilling and operating risks;

the availability of equipment, such as drilling rigs and transportation pipelines;

changes in our drilling plans and related budgets;

the adequacy of our capital resources and liquidity including, but not limited to, access to additional borrowing capacity; and

Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. You are cautioned not to place undue reliance on such statements, which speak only as of the date of this report. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

A more comprehensive list of such factors and related discussion are set forth in our Annual Report on Form 10-KSB and our other filings made with the SEC from time to time.

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4 - CONTROLS AND PROCEDURES

Not applicable.

ITEM 4T - CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures. Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act)) as of September 30, 2008. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were not effective as a result of a material weakness in internal controls as of September 30, 2008 in ensuring that information that is required to be disclosed by us in the reports it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosure.

Our management is responsible for establishing and maintaining effective internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Exchange Act). Even an effective system of internal control over financial reporting, no matter how well designed, has inherent limitations, including the possibility of human error, circumvention or overriding of controls and, therefore, can provide only reasonable assurance with respect to reliable financial reporting. Furthermore, the effectiveness of a system of internal control over financial reporting in future periods can change as conditions change.

(b) Changes in internal control over financial reporting. Our management assessed the effectiveness of our internal control over financial reporting as of September 30, 2008. We have determined that a material weakness in our internal control over the reporting of the valuation of our September and November debentures existed during the third and fourth quarter of 2007. The control deficiency resulted from the lack of effective detective and monitoring controls within internal control over financial reporting over these accounts. In addition, as previously disclosed, the Company only has two employees and therefore, an adequate segregation of duties is difficult. Solely as a result of this material weakness, we concluded that our disclosure controls and procedures were not effective as of September 30, 2008. We have taken and will take the following actions to enhance our internal controls: retain additional specialized staff in the preparation of annual and interim financial statements and implement a system of segregation of duties in the processing of transactions within the recording cycle. Other than with respect to the identification of this weakness in internal control procedures, there was no change in our internal control over financial reporting during the quarter ended September 30, 2008 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings.

The Company is not a party to any pending legal proceedings nor is any of its property subject to pending legal proceedings.

Item 1A.

Risk Factors

You should carefully consider the following risk factors, the other information included herein and the information included in our other reports and filings. Our business, financial condition, and the trading price of our common stock could be adversely affected by these and other risks.

Risks Specific to Our Company

OUR INDEPENDENT AUDITORS HAVE EXPRESSED SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.

Our independent registered certified public accounting firm has issued its report, which includes an explanatory paragraph for going concern uncertainty on our financial statements as of December 31, 2007. Our ability to continue as a going concern is heavily dependent upon our ability to obtain additional capital to sustain operations. Currently, we have no commitments to obtain additional capital, and there can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all.

SINCE WE ARE IN THE EARLY STAGE OF DEVELOPMENT AND HAVE A LIMITED OPERATING HISTORY, IT MAY BE DIFFICULT FOR YOU TO ASSESS OUR BUSINESS AND FUTURE PROSPECTS.

We have a limited history of revenues from oil and natural gas operations. We have yet to generate positive earnings and there can be no assurance that we will ever operate profitably. With this limited operating history our company must be considered in the exploration stage. Our success is significantly dependent on a successful acquisition, drilling, completion and production program. Our operations will be subject to all the risks inherent in the establishment of a developing enterprise and the uncertainties arising from the absence of a significant operating history. We may be unable to locate recoverable reserves or operate on a profitable basis. We are in the exploration stage and potential investors should be aware of the difficulties normally encountered by enterprises in the exploration stage.

WE WILL NEED ADDITIONAL CAPITAL TO FUND OUR BUSINESS AND COMPLETE THE IMPLEMENTATION OF OUR BUSINESS PLAN.

We will require additional financing in order to carry out our business plan. Such financing may take the form of the issuance of common or preferred stock or debt securities, or may involve bank financing. There can be no assurance that we will obtain such additional capital on a timely basis, on favorable terms, or at all. If we are unable to generate the required amount of additional capital, our ability to meet our financial obligations and to implement our business plan may be adversely affected.

BECAUSE WE ARE SMALL AND DO NOT HAVE MUCH CAPITAL, WE MAY HAVE TO LIMIT OUR EXPLORATION ACTIVITY.

Because we are small and do not have much capital, we must limit our exploration activity. As such we may not be able to complete an exploration program that is as thorough as we would like. In that event, existing reserves may go undiscovered. Without finding reserves, we cannot generate revenues and you could lose your investment.

THE POTENTIAL PROFITABILITY OF OIL AND GAS VENTURES DEPENDS UPON FACTORS BEYOND THE CONTROL OF OUR COMPANY.

The potential profitability of oil and gas properties is dependent upon many factors beyond our control. For instance, world prices and markets for oil and gas are unpredictable, highly volatile, potentially subject to governmental fixing, pegging, controls, or any combination of these and other factors, and respond to changes in domestic, international, political, social, and economic environments. Additionally, due to worldwide economic uncertainty, the availability and cost of funds for production and other expenses have become increasingly difficult, if not impossible, to project. In addition, adverse weather conditions can also hinder drilling operations. These changes and events may materially affect our financial performance. These factors cannot be accurately predicted and the combination of these factors may result in our company not receiving an adequate return on invested capital.

Risks Specific to Our Industry

THE MARKETABILITY OF NATURAL RESOURCES WILL BE AFFECTED BY NUMEROUS FACTORS BEYOND OUR CONTROL.

The marketability of natural resources which may be acquired or discovered by us will be affected by numerous factors beyond our control. These factors include market fluctuations in oil and gas pricing and demand, the proximity and capacity of natural resource markets and processing equipment, governmental regulations, land tenure, land use, regulation concerning the importing and exporting of oil and gas and environmental protection regulations. The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in us not receiving an adequate return on invested capital to be profitable or viable.

EXPLORATORY DRILLING INVOLVES MANY RISKS AND WE MAY BECOME LIABLE FOR POLLUTION OR OTHER LIABILITIES WHICH MAY HAVE AN ADVERSE EFFECT ON OUR FINANCIAL POSITION.

Drilling operations generally involve a high degree of risk. Hazards such as unusual or unexpected geological formations, power outages, labor disruptions, blow-outs, sour gas leakage, fire, inability to obtain suitable or adequate machinery, equipment or labor, and other risks are involved. We may become subject to liability for pollution or hazards against which it cannot adequately insure or which it may elect not to insure. Incurring any such liability may have a material adverse effect on our financial position and operations.

Risks Related to Our Securities

IF WE ARE REQUIRED FOR ANY REASON TO REPAY OUR OUTSTANDING DEBENTURES WE WOULD BE REQUIRED TO DEPLETE OUR WORKING CAPITAL.

We have outstanding, as of September 30, 2008, $4,801,760 aggregate original principal amount of our Debentures. The Debentures bear interest at the rate of 8% per annum.

Unless deferred by the holders of the Senior Debentures, we are required to redeem the Senior Debentures on a monthly basis commencing on September 1, 2008, by payment, at our option, in cash or in shares of our common stock, one-twelfth of the aggregate original principal amount of the Senior Debentures or approximately $425,900 plus interest on the outstanding balance. Similarly, we are required to redeem the Junior Debentures on a monthly basis commencing on November 1, 2008, by payment, at our option, in cash or in shares of our common stock, one-twelfth of the aggregate original principal amount of the Junior Debentures or approximately $145,200 plus interest on the outstanding balance.

The Senior Debentures and the Junior Debentures are due and payable on September 1, 2009 and October 31, 2009, respectively, unless sooner converted into shares of our common stock. Any event of default could require the early repayment of the Debentures, including the accruing of interest on the outstanding principal balance of the Debentures if the default is not cured with the specified grace period. We anticipate that the full amount of the Debentures will be converted into shares of our common stock, in accordance with the terms of the Debentures; however no assurance can be provided that any amount of Debentures will be converted. If, prior to the maturity date, we are required to repay the Debentures in full, we would be required to use our limited working capital and raise additional funds. If we were unable to repay the notes when required, the Debenture holders could commence legal action against us to recover the amounts due. Any such action could require us to curtail or cease operations.

THERE IS AN INCREASED POTENTIAL FOR SHORT SALES OF OUR COMMON STOCK DUE TO THE SALES OF SHARES ISSUED TO THE HOLDERS IN CONNECTION WITH THE SENIOR DEBENTURES AND A WARRANTS, WHICH COULD MATERIALLY AFFECT THE MARKET PRICE OF OUR STOCK.

Downward pressure on the market price of our common stock that likely will result from sales of our common stock by the Holders issued in connection with conversions of our debentures could encourage short sales of common stock by the purchasers or others. A "short sale" is defined as the sale of stock by an investor that the investor does not own. Typically, investors who sell short believe that the price of the stock will fall, and anticipate selling at a price higher than the price at which they will buy the stock. Significant amounts of such short selling could place further downward pressure on the market price of our common stock, which could make it more difficult for existing shareholders to sell their shares.

THE ISSUANCE OF SHARES UPON CONVERSION OF THE DEBENTURES AND EXERCISE OF OUTSTANDING WARRANTS WILL CAUSE IMMEDIATE AND SUBSTANTIAL DILUTION TO OUR EXISTING STOCKHOLDERS.

The issuance of shares upon conversion of the Debentures and exercise of warrants will result in substantial dilution to the interests of other stockholders since the purchasers may ultimately convert and sell the full amount issuable on conversion or exercise as the case may be. Although no single purchaser may convert its Debentures and/or exercise its warrants if such conversion or exercise would cause it to own more than 4.99% of our outstanding common stock, this restriction does not prevent each purchaser from converting and/or exercising some of its holdings and then converting the rest of its holdings. In this way, each purchaer could sell more than this limit while never holding more than this limit. There is no upper limit on the number of shares that may be issued which will have the effect of further diluting the proportionate equity interest and voting power of holders of our common stock, including investors in this offering. In addition, the issuance of the Debentures and the warrants triggered certain anti-dilution rights for certain third parties currently holding our securities resulting in substantial dilution to the interests of other stockholders.

PAYMENT OF MANDATORY MONTHLY REDEMPTIONS IN SHARES OF COMMON STOCK WILL RESULT IN SUBSTANTIAL DILUTION.

To the extent that the Debentures are not converted and the holders do not defer the monthly redemption provisions of the Debentures, we expect to satisfy all or a significant portion of our obligation to redeem one-twelfth of the aggregate original principal amount of Debentures per month through issuance of additional shares of our common stock.

This may result in substantial dilution to the interests of other stockholders because the redemption price is 80% of the average of the three (3) lowest closing bid prices of the common stock over the twenty (20) trading day period ending on the trading day immediately preceding the applicable monthly redemption date, but not more than $0.80 per share, thus possibly requiring the issuance of more shares than would have been issued upon conversion.

IF WE FAIL TO COMPLY WITH THE TERMS AND CONDITIONS OF THE DEBENTURES, WARRANTS, THE REGISTRATION RIGHTS AGREEMENTS, OR THE SECURITIES AGREEMENT, WE MAY BE OBLIGATED TO PAY THE PURCHASERS OF THE DEBENTURES DAMAGES.

We have various obligations to file and obtain the effectiveness of certain registration statements which include certain outstanding common stock and common stock underlying outstanding Debentures and common stock underlying the warrants. If we fail to meet any obligations we have to have effective and current registration statements available (including the current registration statement related to the common stock underlying our Debentures and warrants), we may become obligated to pay damages to investors to the extent they may be entitled to such damages. In addition, to the filing of registration statements in connection with both the September 2007 and November 2007 Debentures and the Related Registration Rights Agreements and the Securities Agreement we may be required to file additional registration statements at various times in the future. We are initially seeking to register a number of shares which exceeds 33 percent of our currently issued and outstanding shares of common stock. Because of the Securities and Exchange Commission's recent interpretation of Rule 415, we cannot offer any assurances that we will be able to obtain the effectiveness of any registration statements or post-effective amendments to existing registration that we may file.

BOTH THE SEPTEMBER 2007 FINANCING, THE NOVEMBER 2007 FINANCING, AND THE MAY 2008 FINANCING IMPOSES CERTAIN RESTRICTIONS ON HOW WE CONDUCT OUR BUSINESS. IN ADDITION, ALL OF OUR ASSETS, INCLUDING OUR INTELLECTUAL PROPERTY, ARE PLEDGED TO SECURE THIS INDEBTEDNESS. IF WE FAIL TO MEET OUR OBLIGATIONS UNDER THE SENIOR DEBENTURES, OUR PAYMENT OBLIGATIONS MAY BE ACCELERATED AND THE COLLATERAL SECURING THE DEBT MAY BE SOLD TO SATISFY THESE OBLIGATIONS.

The financing documents relating to each of the September 2007 Financing, November 2007 Financing, and May 2008 Financing contain various provisions that restrict our operating flexibility. Pursuant to the agreement, we may not directly or indirectly, among other things:

pay, declare or set apart for such payment, any dividend or other distribution (whether in cash, property or other securities) on shares of capital stock or make any other payment or distribution in respect of our capital stock;

redeem, repay, repurchase or otherwise acquire (whether for cash or in exchange for property or other securities or otherwise) any shares of our capital stock;

by amendment of our charter documents, or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of the Debentures;

enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money of any kind, including but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

other than permitted liens, enter into, create, incur, assume or suffer to exist any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights) owned by us or any of our subsidiaries;

enter into any transaction with any of our affiliates;

redeem, defease, repurchase, repay or make any payments in respect of, by the payment of cash or cash equivalents (in whole or in part, whether by way of open market purchases, tender offers, private transactions or otherwise), all or any portion of any indebtedness; or

effect any type of variable price financing.

These provisions could have important consequences for us, including (i) making it more difficult for us to obtain additional debt or equity financing from another lender, or obtain new debt financing on terms favorable to us, and or (ii) causing us to use a portion of our available cash for debt repayment and service rather than other corporate purposes.

IT MAY BE MORE DIFFICULT FOR US TO RAISE FUNDS IN SUBSEQUENT STOCK OFFERINGS AS A RESULT OF THE SALES OF OUR COMMON STOCK BY THE HOLDERS IN CONNECTION WITH THE SENIOR DEBENTURES AND JUNIOR DEBENTURES.

As noted above, sales by the Holders likely will result in substantial dilution to the holdings and interest of current and new shareholders. Additionally, as noted above, the volume of shares sold by the Holders could depress the market price of our stock. These factors could make it more difficult for us to raise additional capital through subsequent offerings of our common stock, which could have a material adverse effect on our operations.

OUR COMMON STOCK IS SUBJECT TO THE “PENNY STOCK” RULES OF THE SEC AND THE TRADING MARKET IN OUR SECURITIES IS LIMITED, WHICH MAKES TRANSACTIONS IN OUR STOCK CUMBERSOME AND MAY REDUCE THE VALUE OF AN INVESTMENT IN OUR STOCK.

The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:

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

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

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

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

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

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

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

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

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

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

IF A MARKET WERE TO DEVELOP FOR OUR SHARES, THE SHARE PRICES MAY BE HIGHLY VOLATILE.

The market prices of equity securities of small companies have experienced extreme price volatility in recent years not necessarily related to the individual performance of specific companies. Factors such as announcements by us, or our competitors concerning products, technology, governmental regulatory actions, other events affecting energy companies generally and general market conditions may have a significant impact on the market price of our shares and could cause it to fluctuate substantially.

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

During 2008, the Company issued 112,500 shares of restricted common stock to members of the Company’s advisory board. At the date of each issuance, the shares were valued at the closing price. For the period ended September 30, 2008, the Company recorded approximately $28,300 as compensation expense under this agreement. The securities were exempt from registration pursuant to Rule 506 of Regulation D and Section 4(2) of the Securities Act of 1933, as amended

On or about March 13, 2008, the Company issued promissory notes in the amount of $600,000 to certain investors. Interest shall accrue on the outstanding principal balance of this note at the rate of 12% per annum. Interest shall be calculated on the basis of a 365-day year, and shall be charged on the principal outstanding from time to time for the actual number of days elapsed. The Company shall pay the holder all accrued interest on a calendar quarterly basis, commencing at the end of the first calendar quarter following the purchase of this note. The Company will begin making monthly cash principal payments on the first business day of each calendar month beginning on the first business day of the thirteenth full calendar month following purchase of the note. The amount of the monthly payment is based on a two-year amortization of the note. The holder shall have the right to convert the outstanding principal balance (in whole and not in part) into such number of securities by dividing the outstanding balance by $0.50. On June 9, 2008, certain investors converted $200,000 principal balance of their promissory notes into the May 2008 Debenture financing.

The proceeds from the above stock issuances were used for general and administrative expenses as well as the acquisition of oil and gas properties.

Item 3. Defaults Upon Senior Securities.

Not Applicable.

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

On September 2, 2008, the Company held its annual meeting of shareholders at which time the stockholders: (i) elected Dyron M. Watford and Billy Raley as directors to hold office until the election of their successors; (ii) approved an amendment to the amended Articles of Incorporation to increase the authorized common shares (iii) approved and adopted the Universal Energy Corp. 2006 Non-Statutory Stock Option Plan (iv) ratified the Company’s selection and appointment of Cross, Fernandez & Riley, LLP as the Company's independent registered public accounting firm for 2008. The following table indicates the voting tabulations of the stockholders present in person or by proxy at the 2008 annual meeting of stockholders:

	For		Against		Withheld
Election of Dyron M. Watford		138,967,529		2,191,497		1,181,239
Election of Billy R. Raley		139,166,009		2,281,157		893,099
Approve an amendment to the amended Articles of Incorporation to increase the authorized common shares		137,149,324		3,878,670		1,312,271
Approve and adopt the Universal Energy Corp. 2006 Non-Statutory Stock Option Plan		136,950,034		4,662,550		727,681
Ratify the Company’s selection and appointment of Cross, Fernandez & Riley, LLP as the Company's independent registered public accounting firm for 2008		140,615,056		683,017		1,042,192

Item 5. Other Information.

Not Applicable.

Item 6. Exhibits

EXHIBIT NUMBER		DESCRIPTION
3.1		Form of Articles of Incorporation of Universal Tanning Ventures, Inc. (previously filed in registration statement on Form SB-2 File No. 333-101551, filed with the Securities and Exchange Commission on November 27, 2002).
3.2		By-laws of Universal Tanning Ventures (previously filed in registration statement on Form SB-2 File No. 333-101551, filed with the Securities and Exchange Commission on November 27, 2002).
3.3		Certificate of Renewal and Revival, filed September 23, 2006 (previously filed with Form 10-QSB, filed with the Securities and Exchange Commission on August 14, 2006).
3.4		Certificate of Amendment of Certificate of Incorporation, filed September 23, 2006 (previously filed with Form 10-QSB, filed with the Securities and Exchange Commission on August 14, 2006).
10.1		Investment Advisory Agreement, dated as of May 5, 2006, by and among Universal Tanning Ventures, Inc. and Galileo Asset Management SA (previously filed with Form 10-QSB, filed with the Securities and Exchange Commission on August 14, 2006).
10.2		Stock Purchase Agreement, dated as of May 6, 2006, by and among Universal Tanning Ventures, Inc. and Rhino Island Capital, Ltd. (previously filed with Form 10-QSB, filed with the Securities and Exchange Commission on August 14, 2006).
10.3		Share Deposit Escrow Agreement, dated as of May 6, 2006, by and among Universal Tanning Ventures, Inc., Rhino Island Capital, Ltd. and Madison Stock Transfer, Inc. (previously filed with Form 10-QSB, filed with the Securities and Exchange Commission on August 14, 2006).
10.4		Stock Purchase Agreement, dated August 14, 2006, between Universal Energy Corp. and Mr. Isaac Rotnemer (previously filed on Form 8-K, filed with the Securities and Exchange Commission on August 18, 2006).
10.5		2006 Non-Statutory Stock Option Plan, dated September 13, 2006 (previously filed on Form 8-K, filed with the Securities and Exchange Commission on September 18, 2006).
10.6		Employment Agreement, dated as of September 14, 2006, by and between Universal Energy Corp. and Dyron M. Watford (previously filed on Form 8-K, filed with the Securities and Exchange Commission on September 18, 2006).
10.7		Stock Option Agreement between Universal Energy Corp. and Dyron M. Watford, dated September 14, 2006 (previously filed on Form 8-K, filed with the Securities and Exchange Commission on September 18, 2006).
10.8		Employment Agreement, dated as of September 15, 2006, by and between Universal Energy Corp. and Billy Raley (previously filed on Form 8-K, filed with the Securities and Exchange Commission on September 18, 2006).
10.9		Stock Option Agreement between Universal Energy Corp. and Billy Raley, dated September 15, 2006 (previously filed on Form 8-K, filed with the Securities and Exchange Commission on September 18, 2006).
10.10		Seismic Option, Farmout and Net Carried Interest Agreement between 1097885 Alberta Ltd., 0700667 BC Ltd., and Universal Energy Corp., dated September 22, 2006 (previously filed on Form 8-K, filed with the Securities and Exchange Commission on September 26, 2006).
10.11		Employment Agreement, dated as of October 6, 2006, by and between Universal Energy Corp. and Kevin Tattersall (previously filed on Form 8-K, filed with the Securities and Exchange Commission on October 12, 2006).

EXHIBIT NUMBER		DESCRIPTION
10.12		Participation Agreement, dated as of March 28, 2007, by and Between Universal Explorations Corp. and Yuma Exploration And Production Company, Inc. (previously filed on Form 8-K, filed with the Securities and Exchange Commission on April 5, 2007)
10.13		Agreement, dated as of May 2, 2007, by and Between Universal Energy Corp. and Capital Financial Media, LLC (previously filed on Form 10Q-SB, filed with the Securities and Exchange Commission on August 20, 2007).
10.14		Participation Agreement, dated as of May 2, 2007, by and Between Universal Explorations Corp. and Yuma Exploration And Production Company, Inc. (previously filed on Form 8-K, filed with the Securities and Exchange Commission on May 8, 2007)
10.15		Participation Agreement, dated as of May 2, 2007, by and Between Universal Explorations Corp. and Yuma Exploration And Production Company, Inc. (previously filed on Form 8-K, filed with the Securities and Exchange Commission on May 8, 2007)
10.16		Agreement, dated as of June 11, 2007, by and Between Universal Energy Corp. and Capital Financial Media, LLC (previously filed on Form 10Q-SB, filed with the Securities and Exchange Commission on August 20, 2007).
10.17		Form of Senior Secured Convertible Debenture (previously filed on Form 8-K, filed with the Securities and Exchange Commission on September 19, 2007).
10.18		Form of Registration Rights Agreement (previously filed on Form 8-K, filed with the Securities and Exchange Commission on September 19, 2007).
10.19		Form of “A” Warrant to Purchase Common Stock (previously filed on Form 8-K, filed with the Securities and Exchange Commission on September 19, 2007).
10.20		Form of “B” Warrant to Purchase Common Stock (previously filed on Form 8-K, filed with the Securities and Exchange Commission on September 19, 2007).
10.21		Form of “C” Warrant to Purchase Common Stock (previously filed on Form 8-K, filed with the Securities and Exchange Commission on September 19, 2007).
10.22		Form of Security Agreement (previously filed on Form 8-K, filed with the Securities and Exchange Commission on September 19, 2007).
10.23		Form of Subsidiary Guarantee (previously filed on Form 8-K, filed with the Securities and Exchange Commission on September 19, 2007).
10.24		Form of Pledge Agreement (previously filed on Form 8-K, filed with the Securities and Exchange Commission on September 19, 2007).
10.25		Form of Limited Standstill Agreement (previously filed on Form 8-K, filed with the Securities and Exchange Commission on September 19, 2007).
10.26		Form of Securities Purchase Agreement (previously filed on Form 8-K, filed with the Securities and Exchange Commission on December 5, 2007).
10.27		Form of Convertible Debenture (previously filed on Form 8-K, filed with the Securities and Exchange Commission on December 5, 2007).
10.28		Form of “D” Warrant to Purchase Common Stock (previously filed on Form 8-K, filed with the Securities and Exchange Commission on December 5, 2007).
10.29		Form of “E” Warrant to Purchase Common Stock (previously filed on Form 8-K, filed with the Securities and Exchange Commission on December 5, 2007).
10.30		Form of “F” Warrant to Purchase Common Stock (previously filed on Form 8-K, filed with the Securities and Exchange Commission on December 5, 2007).
10.31		Form of “G” Warrant to Purchase Common Stock (previously filed on Form 8-K, filed with the Securities and Exchange Commission on December 5, 2007).
10.32		Form of Securities Purchase Agreement (previously filed on Form 8-K, filed with the Securities and Exchange Commission on June 10, 2007).
10.33		Form of Convertible Debenture (previously filed on Form 8-K, filed with the Securities and Exchange Commission on June 10, 2007).
10.34		Form of “I” Warrant to Purchase Common Stock (previously filed on Form 8-K, filed with the Securities and Exchange Commission on June 10, 2007).
10.35		Form of Consent and Amendment Agreement – September 2007 (previously filed on Form 8-K, filed with the Securities and Exchange Commission on June 10, 2007).

EXHIBIT NUMBER		DESCRIPTION
10.36		Form of Consent and Amendment Agreement – November 2007 (previously filed on Form 8-K, filed with the Securities and Exchange Commission on June 10, 2007).
10.37		Form of Amended Registration Rights Agreement – September 2007 (previously filed on Form 8-K, filed with the Securities and Exchange Commission on June 10, 2007).
10.38		Form of Amended Registration Rights Agreement – November 2007 (previously filed on Form 8-K, filed with the Securities and Exchange Commission on June 10, 2007).
14		Code of Ethics (previously filed on Form 10-KSB, filed with the Securities and Exchange Commission on March 29, 2004).
31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended*
31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended*
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.*
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.*

* Filed herewith.

SIGNATURES

In accordance with the requirements of the Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: November 14, 2008

	Universal Energy Corp.

	By:	/s/Billy Raley
	Name: Billy Raley
	Title: Chief Executive Officer

	By:	/s/ Dyron M. Watford
	Name: Dyron M. Watford
	Title: Chief Financial Officer

EXHIBIT INDEX

EXHIBIT NUMBER		DESCRIPTION
3.1		Form of Articles of Incorporation of Universal Tanning Ventures, Inc. (previously filed in registration statement on Form SB-2 File No. 333-101551, filed with the Securities and Exchange Commission on November 27, 2002).
3.2		By-laws of Universal Tanning Ventures (previously filed in registration statement on Form SB-2 File No. 333-101551, filed with the Securities and Exchange Commission on November 27, 2002).
3.3		Certificate of Renewal and Revival, filed September 23, 2006 (previously filed with Form 10-QSB, filed with the Securities and Exchange Commission on August 14, 2006).
3.4		Certificate of Amendment of Certificate of Incorporation, filed September 23, 2006 (previously filed with Form 10-QSB, filed with the Securities and Exchange Commission on August 14, 2006).
10.1		Investment Advisory Agreement, dated as of May 5, 2006, by and among Universal Tanning Ventures, Inc. and Galileo Asset Management SA (previously filed with Form 10-QSB, filed with the Securities and Exchange Commission on August 14, 2006).
10.2		Stock Purchase Agreement, dated as of May 6, 2006, by and among Universal Tanning Ventures, Inc. and Rhino Island Capital, Ltd. (previously filed with Form 10-QSB, filed with the Securities and Exchange Commission on August 14, 2006).
10.3		Share Deposit Escrow Agreement, dated as of May 6, 2006, by and among Universal Tanning Ventures, Inc., Rhino Island Capital, Ltd. and Madison Stock Transfer, Inc. (previously filed with Form 10-QSB, filed with the Securities and Exchange Commission on August 14, 2006).
10.4		Stock Purchase Agreement, dated August 14, 2006, between Universal Energy Corp. and Mr. Isaac Rotnemer (previously filed on Form 8-K, filed with the Securities and Exchange Commission on August 18, 2006).
10.5		2006 Non-Statutory Stock Option Plan, dated September 13, 2006 (previously filed on Form 8-K, filed with the Securities and Exchange Commission on September 18, 2006).
10.6		Employment Agreement, dated as of September 14, 2006, by and between Universal Energy Corp. and Dyron M. Watford (previously filed on Form 8-K, filed with the Securities and Exchange Commission on September 18, 2006).
10.7		Stock Option Agreement between Universal Energy Corp. and Dyron M. Watford, dated September 14, 2006 (previously filed on Form 8-K, filed with the Securities and Exchange Commission on September 18, 2006).
10.8		Employment Agreement, dated as of September 15, 2006, by and between Universal Energy Corp. and Billy Raley (previously filed on Form 8-K, filed with the Securities and Exchange Commission on September 18, 2006).
10.9		Stock Option Agreement between Universal Energy Corp. and Billy Raley, dated September 15, 2006 (previously filed on Form 8-K, filed with the Securities and Exchange Commission on September 18, 2006).
10.10		Seismic Option, Farmout and Net Carried Interest Agreement between 1097885 Alberta Ltd., 0700667 BC Ltd., and Universal Energy Corp., dated September 22, 2006 (previously filed on Form 8-K, filed with the Securities and Exchange Commission on September 26, 2006).
10.11		Employment Agreement, dated as of October 6, 2006, by and between Universal Energy Corp. and Kevin Tattersall (previously filed on Form 8-K, filed with the Securities and Exchange Commission on October 12, 2006).

EXHIBIT NUMBER		DESCRIPTION
10.12		Participation Agreement, dated as of March 28, 2007, by and Between Universal Explorations Corp. and Yuma Exploration And Production Company, Inc. (previously filed on Form 8-K, filed with the Securities and Exchange Commission on April 5, 2007)
10.13		Agreement, dated as of May 2, 2007, by and Between Universal Energy Corp. and Capital Financial Media, LLC (previously filed on Form 10Q-SB, filed with the Securities and Exchange Commission on August 20, 2007).
10.14		Participation Agreement, dated as of May 2, 2007, by and Between Universal Explorations Corp. and Yuma Exploration And Production Company, Inc. (previously filed on Form 8-K, filed with the Securities and Exchange Commission on May 8, 2007)
10.15		Participation Agreement, dated as of May 2, 2007, by and Between Universal Explorations Corp. and Yuma Exploration And Production Company, Inc. (previously filed on Form 8-K, filed with the Securities and Exchange Commission on May 8, 2007)
10.16		Agreement, dated as of June 11, 2007, by and Between Universal Energy Corp. and Capital Financial Media, LLC (previously filed on Form 10Q-SB, filed with the Securities and Exchange Commission on August 20, 2007).
10.17		Form of Senior Secured Convertible Debenture (previously filed on Form 8-K, filed with the Securities and Exchange Commission on September 19, 2007).
10.18		Form of Registration Rights Agreement (previously filed on Form 8-K, filed with the Securities and Exchange Commission on September 19, 2007).
10.19		Form of “A” Warrant to Purchase Common Stock (previously filed on Form 8-K, filed with the Securities and Exchange Commission on September 19, 2007).
10.20		Form of “B” Warrant to Purchase Common Stock (previously filed on Form 8-K, filed with the Securities and Exchange Commission on September 19, 2007).
10.21		Form of “C” Warrant to Purchase Common Stock (previously filed on Form 8-K, filed with the Securities and Exchange Commission on September 19, 2007).
10.22		Form of Security Agreement (previously filed on Form 8-K, filed with the Securities and Exchange Commission on September 19, 2007).
10.23		Form of Subsidiary Guarantee (previously filed on Form 8-K, filed with the Securities and Exchange Commission on September 19, 2007).
10.24		Form of Pledge Agreement (previously filed on Form 8-K, filed with the Securities and Exchange Commission on September 19, 2007).
10.25		Form of Limited Standstill Agreement (previously filed on Form 8-K, filed with the Securities and Exchange Commission on September 19, 2007).
10.26		Form of Securities Purchase Agreement (previously filed on Form 8-K, filed with the Securities and Exchange Commission on December 5, 2007).
10.27		Form of Convertible Debenture (previously filed on Form 8-K, filed with the Securities and Exchange Commission on December 5, 2007).
10.28		Form of “D” Warrant to Purchase Common Stock (previously filed on Form 8-K, filed with the Securities and Exchange Commission on December 5, 2007).
10.29		Form of “E” Warrant to Purchase Common Stock (previously filed on Form 8-K, filed with the Securities and Exchange Commission on December 5, 2007).
10.30		Form of “F” Warrant to Purchase Common Stock (previously filed on Form 8-K, filed with the Securities and Exchange Commission on December 5, 2007).
10.31		Form of “G” Warrant to Purchase Common Stock (previously filed on Form 8-K, filed with the Securities and Exchange Commission on December 5, 2007).
10.32		Form of Securities Purchase Agreement (previously filed on Form 8-K, filed with the Securities and Exchange Commission on June 10, 2007).
10.33		Form of Convertible Debenture (previously filed on Form 8-K, filed with the Securities and Exchange Commission on June 10, 2007).
10.34		Form of “I” Warrant to Purchase Common Stock (previously filed on Form 8-K, filed with the Securities and Exchange Commission on June 10, 2007).
10.35		Form of Consent and Amendment Agreement – September 2007 (previously filed on Form 8-K, filed with the Securities and Exchange Commission on June 10, 2007).

EXHIBIT NUMBER		DESCRIPTION
10.36		Form of Consent and Amendment Agreement – November 2007 (previously filed on Form 8-K, filed with the Securities and Exchange Commission on June 10, 2007).
10.37		Form of Amended Registration Rights Agreement – September 2007 (previously filed on Form 8-K, filed with the Securities and Exchange Commission on June 10, 2007).
10.38		Form of Amended Registration Rights Agreement – November 2007 (previously filed on Form 8-K, filed with the Securities and Exchange Commission on June 10, 2007).
14		Code of Ethics (previously filed on Form 10-KSB, filed with the Securities and Exchange Commission on March 29, 2004).
31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended*
31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended*
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.*
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.*

* Filed herewith.