universal bioenergy inc

Analyst: Lisa Springer, CFAInitial Report

November 10th, 2008

Universal Bioenergy Inc. (OTCPK: UBRG) 1


November 10th, 2008

Company Introduction

Universal Bioenergy Inc.128 Biodiesel Drive Nettleton, MS 38858

Tel: 662-963-3333Fax: 662-963-1333www.universalbioenergy.com

MARKET DATA

SymbolExchangesCurrent PricePrice TargetRatingOutstanding SharesMarket Cap.Average 50-day Volume

Source: Yahoo Finance, Analyst Estimates

UBRGOTCPK

$1.25$3.30

Speculative Buy21.5 Million

$28.1 Million7,576

Universal Bioenergy Inc. (UBRG) is poised to commence production of renewable fuels with a particular focus on biodiesel production. UBRG owns a biodiesel fuel refinery in Mississippi that provides the Company with strategic access to major inland ports, railway hubs, highway intersections, and trucking destinations. The Com-pany also benefits from the small footprint of its refinery, which provides UBRG with potentially lower energy costs than similar biodiesel producers.

UBRG is working to obtain the necessary permits to begin operating its refinery and expects to commence production at 20,000 gallons every three to four days within the next 90 to 120 days, pending ac-quisition of sufficient working capital to make minor but necessary final plant upgrades. Following these modest capital expenditures, the Company expects to ramp up biodiesel production to 30,000 gallons per day, or approximately 11 million gallons annually. With biodiesel (B100 variant) currently selling from refineries (rack price) at around $4 per gallon on average, this would imply annualized revenues quickly rising to a $44 million range. At full capacity, the refinery could be producing 120,000 gallons per day, or 35 million gallons annually, and generating annualized revenues from biod-iesel sales exceeding $140 million annually, assuming $4 per gallon biodiesel prices.

Universal Bioenergy uses a proprietary production process called Dynamic Vibration Fusion Process (DVFP), which could cut pro-cessing time by 40%-50%, potentially resulting in huge production cost savings compared to similar-sized competitors. In addition, the Company anticipates soon signing an agreement for one of two new

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November 10th, 2008


Analyst: Lisa Springer, CFA Initial Report

November 10th, 2008


second-generation technologies which could enable UBRG to produce biodiesel at temperatures of 110 degrees versus the industry norm of 145 degrees Fahrenheit, resulting in sizable energy cost savings.

Sizable, growing domestic biodiesel market

Global biofuel sales were $20.5 billion in 2006 and are forecast to reach $80.9 billion by 2016. The U.S. is expected to emerge as the world’s largest biodiesel market, accounting for 19% of global consumption by 2012. Domestic biodiesel production is growing rapidly, rising from 28 million gallons in 2004 to 490 million gallons in 2007. U.S. demand for biodiesel is expected to exceed 800 million gallons by 2010. EPA regulations, tax incentives and en-vironmental concerns about diesel fuel exhausts are encouraging biodiesel use in North America. Biodiesel pro-vides fuel efficiency, power, torque and haulage rates comparable to conventional diesel with better lubrication that extends engine life. Biodiesel can be blended with diesel in any concentration, from 0 to 100% (B100), and used without major diesel engine modification. Rising crude prices, combined with tax incentives for biofuels, are helping biodiesel emerge as an affordable, eco-friendly alternative to conventional diesel fuel.

Strategically located refinery

UBRG’s processing facility is located in the south central region of the U.S. and is strategically located for easy access to feedstock supplies and fuel distributors. The facility is located in northeastern Mississippi, 125 miles southeast of Memphis, and is readily accessible via water, air, road, and rail transport. The area, known as “America’s Distribution Center,” hosts the world’s largest cargo airport, the nation’s second largest inland port, is a major rail hub, and is at the crossroads of major highways. In addition, the refinery’s proximity to large ma-rinas is a sales advantage for UBRG since marine biodiesel is typically priced $1 higher than truck biodiesel.

Production gains boost revenue visibility

The biodiesel refinery is located on a 4.3-acre site and offers ample space for expansion and diversification. The Company expects to commence production at 20,000 gallons every three to four days within the next 90 to 120 days. Following modest capital expenditures, the Company expects to ramp up production to 30,000 gallons per day. UBRG has four jacketed reactors, each with a capacity of 50,000 gallons, allowing the produc-tion of 30,000 gallons of biodiesel per batch per reactor. Once all four reactors are online, the Company antici-pates increasing production to 120,000 gallons per day or about 35 million gallons annually, within 24 months. Following the implementation of this plan and assum-ing $4 per gallon biodiesel prices, UBRG’s revenues could rapidly expand from our anticipated level of $44 million in its first full year of operation to an annualized rate of $140 million within two years.

Investment Highlights


November 10th, 2008


Analyst: Lisa Springer, CFA Initial Report

November 10th, 2008


Efficient production process provides cost savings and competitive advantage

UBRG will use an efficient biodiesel production method called Dynamic Vibration Fusion Process (DVFP), which could cut production time by 40%-50% and produce high-grade biodiesel that meets or exceeds ASTM standards at much lower cost than similar-sized competitors. In addition, the Company expects to soon sign an agreement for one of two new second-generation technologies which could enable UBRG to produce biodiesel at tempera-tures of 110 degrees versus 145 degrees Fahrenheit which is the current industry norm. The new technology should result in significant energy cost savings. The Company’s long-term goal is to further reduce energy costs by going completely off-grid by using wind, solar, and/or other alternative energy sources to power its plant and production process and also reducing the plant’s carbon footprint.

Secure feedstock supply

The Company’s refinery will have the ability to process a wide variety of feedstock, including used vegetable oil, animal fats, and non-edible plant oils, in addition to virgin plant oils, without requiring major technical changes to the plant. UBRG is sourcing non-edible vegetable feedstock from suppliers in Africa, Columbia and Malaysia, and is negotiating with a large rendering plant to provide it with animal fat feedstock at a 20% price savings. Over the longer-term, the Company plans to contract with farmers to cultivate oil-producing seed crops from non-edible plant sources on fallow land. Plans would entail cultivating a shrub called Jatropha, the seeds of which produce four times as much feedstock oil per acre as soybeans annually.

Skilled management team

The Company’s CEO, Dr. Richard Craven, has more than 14 years of high-level business management experience and more than nine years of marketing experience. He also taught at the university level for nearly two decades. Through much of his career, Dr. Craven has focused on developing environmentally-friendly fuels and alternative energy sources.

Dr. Craven worked as the lead chemical researcher and developer at Antek Research Inc., an environmentally focused nonprofit research firm. His research efforts focused on optimizing and improving biodiesel reactions and production, the use of reaction by-products, waste-to-fuel conversion, and waste conversion to other useful products.

By purchasing an existing production facility that was in bankruptcy proceedings, UBRG was able to acquire a nearly ready-to-operate plant at a fraction of Greenfield costs and gain access to a labor pool of experienced man-agers and technical staff.


November 10th, 2008


Biodiesel is a liquid biofuel that can be substituted for diesel as a stand-alone fuel (also known as B100 or 100% biodiesel) or used as an additive or extender by blending it with petroleum diesel. B20, a combination of 80% petroleum diesel and 20% biodiesel, is the most popular blended product qualifying for fleet compliance under the Energy Policy Act of 1992. Other variants such as B5 (5% biodiesel, 95% petroleum diesel), and B2 (2% biodie-sel, 98% petroleum diesel) are also available. Both B5 and B6-B20 blends have recently received ASTM standards approval for quality assurance.

Typical biodiesel feedstocks include vegetable oils from soybeans, rapeseed, Jatropha, and animal tallow. Soy-bean oil and yellow grease (cooking oil recycled from restaurants) are the most common feedstocks used in the United States.

The U.S. will become the world’s largest biodiesel market

Crude oil prices have fluctuated wildly in 2008 and are projected to average $115 per barrel in 2008 and $126 per barrel in 2009. Rising oil prices, combined with environmental concerns and increased regulation of greenhouse gases, are encouraging businesses and consumers to explore alternative fuel sources, including biodiesel. Ac-cording to SRI Consulting, the U.S. is on track to become the world’s largest biodiesel consumer, accounting for roughly 19% of the world’s biodiesel consumption by 2012. The U.S. currently accounts for approximately 13% of world biodiesel production.

According to the National Biodiesel Board (NBB), increased demand for biodiesel will come from four major segments - urban transit, government/regulated fleets, marine, and underground mining. These markets will use biodiesel mainly as a fuel additive to meet EPA regulations requiring the use of Ultra Low Sulfur Diesel (ULSD) in diesel-powered vehicles. Due to low lubricity, ULSD has the potential to damage diesel engines. Op-erators can avoid potential damage by using biodiesel as an additive and as a cetane booster as biodiesel has exceptional lubricity characteristics and typically higher cetane values than diesel.

Biodiesel as an alternative to petroleum diesel

There is a wide gap between crude oil supply and demand in the U.S. Only about one-quarter of the petroleum consumed in the U.S. is produced in this country. The U.S. currently relies on oil im-ported from other countries to meet domestic de-mand. Last year, crude oil imports averaged more than 5.1 million barrels per day. Biodiesel offers an attractive alternative fuel that can ease America’s dependence on foreign oil, reduce pollutants and generate carbon credits.

Biodiesel Industry Outlook


November 10th, 2008


“Go Green” initiatives encourage biodiesel acceptance

Growing concerns about global warming are encouraging “go green” initiatives and heightening acceptance of biodiesel as an affordable alternative to petroleum diesel. Stricter emissions standards are also increasing biodie-sel demand.

Source: EIA

Exhibit 1: U.S. Production & Consumption of Petroleum

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Note: HC=Hydrocarbon; CO=Carbon monoxide; PM=Particulate matter; NOx=Oxides of NitrogenSource: United States Environmental Protection Agency (EPA), October 2002 Report

Exhibit 2: Average emission impacts of biodiesel for various blending mixes


November 10th, 2008


An analysis performed by the Environmental Protection Agency indicates that the B100 variant of biodiesel could reduces carbon dioxide emissions by more than 75% as compared with petroleum diesel. The highly popular B20 variant reduces carbon dioxide emissions by 15%, particulate matter (PM) by 10%, carbon monox-ide (CO) by 11% and unburned hydrocarbon (HC) by 21%. In addition to improving the environment, reducing emissions extends engine life and creates an indirect benefit for businesses and consumers.

Government regulation is a major biodiesel growth driver

Energy Policy Act: Amendments to the 1992 Energy Policy Act in 1998, cash support from the USDA Com-• modity Credit Corporation’s Bio-energy Program, the American Jobs Creation Act of 2004, and the Energy Policy Act of 2005 have all helped to fuel growth in the biodiesel industry. The Energy Policy Act stimulates demand by including biodiesel and B20 grade biodiesel in the alternative fuel bracket. In addition, the En-ergy Policy Act mandates the purchase of alternative fuel vehicles for vehicle fleets owned by federal and state government agencies.

Jobs Act of 2004: The Jobs Act of 2004 provides fuel blenders with financial incentives of $1 per gallon for • biodiesel made from virgin vegetable oils or animal fats and $0.50 per gallon for biodiesel made from re-cycled oils and fats.

Energy Independence and Security Act of 2007: This legislation mandates that renewable fuels be phased • into the domestic fuel supply and requires fuel producers to blend a percentage of biofuel into conventional fuel. Fuel producers are required to include 500 million gallons of biodiesel in their total diesel production by 2009. The amount increases to 1.0 billion gallons of blended fuel by 2012.

Tax incentives for biodiesel production

The CCC Bioenergy Program provided a huge boost to biodiesel production by reimbursing one bushel (1 bushel = 0.0272 tons) of feedstock for every 2.5 bushel used for biodiesel production. This program expired in 2006. The Energy Policy Act of 2005 helped reduce biodiesel production costs by providing a 10 cent per gallon tax credit for the first 15 million gallons of biodiesel produced. The tax credit was available to refiners producing less than 60 million gallons annually. Although the tax credit was scheduled to expire at year-end 2008, Congress is considering an extension.

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Source: The National Biodiesel Board (NBB); EIA

Exhibit 3: Production of Biodiesel in the U.S.


November 10th, 2008


As a result of tax incentives and other factors, domestic biodiesel production has risen from 0.5 million gallons in 1999 to 491 million gallons in 2007, and is estimated to reach 650 million gallons in 2008.

Biodiesel capacity additions

Attracted by a robust growth outlook, many new producers have entered the biodiesel market. The number of biodiesel production facilities has risen from nine plants in 2001 to 171 plants in early 2008.

Biodiesel production capacity estimated at 2.3 billion gallons in early 2008 is forecast to rise to 3.3 billion gallons by year-end. Production capacity for the average biodiesel facility has more than doubled since 2001 from about 5.5 million gallons that year to 13.5 million gallons in early 2008. Most of the capacity growth has come in the last two years.

Note: Number of Plants data for 2008 is till January 2008.Source: The National Biodiesel Board (NBB); Global Energy & Utility Market Research

Exhibit 4: Number of Plants Engaged in Biodiesel Production

Exhibit 5: Production Capacity of Biodiesel in the US.


November 10th, 2008


Subsidies make biodiesel price-competitive

At present, biodiesel is more expensive to produce than petroleum diesel and relies on government support and tax exemptions to be competitive. As a result, the biodiesel industry is greatly affected by government legislation and regulation.

Governments are willing to provide these incentives because of the environmental benefits and reduced reliance on oil imports biodiesel can provide. Because it is a cleaner burning fuel, biodiesel also extends engine life while providing mileage rates, power and torque comparable to conventional diesel.

Processing advantage

UBRG has a unique processing system based on its efficient DVFP process which could reduce processing time by 40%-50% compared to similar-sized competitors and potentially enable considerable cost saving.

The process is described below:

Feed stock is pre heated at required temperature in double wall jacketed reactors. Methoxide pre-mixture is added to the pre-heated feed stock formulated to meet various feed stocks chemical reaction requirements.

IInline boiler keeps the feed stock at required temperature throughout the reaction process. Reaction process continues for about three hours as four giant 50 horsepower pumps mix the product at high pressure, creating a vibration/fusion reaction. Universal’s unique reaction could save processing time and heat-

Note: Gallon of gasoline equivalent. is the amount of energy in one gallon of gasoline regardless of the actual volume of fuel.Source: U.S. Department of Energy, Energy Efficiency & Renewable Energy Website

Exhibit 6: Average U.S. Retail Fuel Prices per Gasoline Gallon Equivalent (GGE)

Competitive Advantages/Business Strategy


November 10th, 2008


ing costs while creating a clean, quality fuel.

The product moves to separation tanks where biodiesel and glycerin are separated. Glycerin is moved to storage tank. Biodiesel is moved to Universal’s intense bubble wash system. This is a unique system because it employs intense vibration powered by air. The air is injected into the fuel by a 4” pipe which is turned down at the bottom of a coni-cal bottom tank and deflected upward, which pushes air and water through a large diameter plate that contains thousands of tiny holes. The air bubbles entrain water and these little bubbles rise through the biodiesel removing impurities and excess methanol. They then burst at the surface, expelling the methanol into the vapor recovery system. The water and impurities then fall back to the bottom when the system is turned off. This system scrubs the fuel, removing the excess methanol, soap, and other impurities, leaving a very clear, light in color biodiesel. Biodiesel is then moved to biodiesel storage tanks. The whole process is should be completed in 10 to 12 hours, which is 40%-50% faster than other similar biodiesel refiners. The Company also anticipates signing an agreement for one of two new second-generation technologies which could enable UBRG to produce biodiesel at temperatures of 110 degrees versus the industry norm of 145 degrees Fahrenheit. The ability to process fuel at lower temperatures should create huge energy cost savings for the Company and reduce the plant’s carbon footprint.

Plant size and location advantage

The small footprint of its facility is a key competitive advantage for UBRG since the Company’s energy costs for producing biodiesel should be less than its competitor’s cost. Another advantage is this facility’s location, about 125 miles southeast of Memphis, the center of America’s distribution center. This location gives the Company important transportation and logistics resources including water, air, road and rail transportation, and telecommunications. Memphis is home to the world’s largest cargo airport (Memphis International Airport), four north-south runways, a Northwest Airlines hub, and the FedEx headquarters/global operations center. In addition, the second-largest inland port in the country and a series of water ports (including Helena, W. Memphis, N. Mem-phis and Blytheville Ports) are found nearby along the Mississippi River. The I-40 and I-55 interstates and the soon-to-be-finished I-22 interstate, ex-tending east-west and north-south, respectively, position the region at a key crossroads in the in-terstate highway system. The Memphis region is a major trucking hub and, with five Class-I rail-roads (BNSF, UP, CN/IC, CSX and NS), is also an important rail hub.

Toyota is building a plant near New Albany, Mis-sissippi, about 40 miles northwest of the plant, and is a potential customer for UBRG’s biodiesel. In addition, Universal’s refinery is located in the


November 10th, 2008


middle of one of the highest truck traffic areas and furniture industry centers in America and near the South’s largest automotive parts manufacturing facility. This area potentially represents one of the largest diesel con-sumption markets in the United States.

There is a railway line in close proximity to the facility, and a previously-existed railway spur could be recon-structed for an estimated cost of $1.0 million. Rail is a cost-effective way to move biodiesel by tank car from a gathering location or single origin to a single destination since pipeline use is not possible at present for biodie-sel.

The Tennessee-Tombigbee Waterway is located just six miles away from the facility, which can barge about 500,000 gallons of biodiesel at a time. In addition, the facility’s close proximity to marinas gives UBRG a sales advantage since marine diesel typically sells for $1 more than truck diesel.

Business Strategy

Procurement Strategy Production Strategy Distribution Strategy Personnel Strategy

Non Vegetable Oil - To •be sourced from Africa, Columbia & MalaysiaYellow Grease (Waste •Oil) - To be sourced from the local market

Stage 1 - 20,000 Gallons •per 3 daysStage 2 - Upgrade to •30,000 Gallons per dayStage 3 - Producing •120,000 Gallons per dayEach upgrade requires •additional capital expen-ditureSale of By products•

Selling to customer’s of •previous owner of the facilityTargeting Truck Stops, •Local DistributorsExport to European •markets once stage 3 is reached

Hiring & Retaining •qualifiedpersonnelhaving knowledge and experience about bio-energy market

Go off-grid and use renewable energy sources (wind, solar, and other alternative fuels)•

Procurement of new technology for production that will enable the Company to produce •biodiesel at 110 degrees instead of conventional 145 degrees Fahrenheit.

The new technology also should allow producing biodiesel at a rate of about 40%-50% •faster than other producers.

Continuous search for alternative feedstock that will reduce production cost•Cost Saving

Source: Company information

Exhibit 7: Business Strategy Components


November 10th, 2008


The Company acquired its refinery at below market costs through a bankruptcy sale and has made the necessary investments in repairs, maintenance, and cleaning to return the facility to near operating mode. An experienced workforce has been hired to operate the plant.

Feedstock sourced and customers identified

UBRG will be purchasing feedstock and reagents for its current production needs. Feedstocks consist of low cost waste vegetable oils, and non-edible vegetable oils sourced from Africa, Columbia, and Malaysia, as well as from rendered animal fats sourced locally. UBRG is negotiating a supply agreement for animal fats from a large, regionally located rendering plant that could save the Company up to 20% in feedstock costs. Initial sales efforts will focus on the customers of the refinery’s previous owner. These include local and regional truck stops and distributors.

Value added through processing byproducts

Glycerin is a byproduct formed during the manufacture of biodiesel. UBRG plans to sell this byproduct (10% of the production volume), which will eliminate disposal costs and reduce overall expenses. Crude glycerin can fetch prices between $0.20 to $0.60 per gallon depending on the quality of glycerin produced and used. Pharmaceutical-grade glycerin fetches a high price but refining crude glycerin into pharmaceutical grade is a technical and costly challenge. Additionally, the increase in biodiesel production nationally is resulting in a glut of crude glycerin on the market and driving down prices. UBRG is considering multiple strategies to deal with this problem. One of the strategies UBRG is considering is to convert the glycerin into methanol on-site; methanol is an ingredient used in the manufacture of biodiesel. If this can be done economically, it will likely reduce the Company’s production costs further. While the process will require an additional glycerin-to-methanol converter, UBRG expects these costs to be offset by savings on methanol purchases. The previously mentioned second-generation processing technologies under negotiation do not produce glycerin but do produce other value-added byproducts that are expected to sell for a higher price than glycerin, thus adding to the Company’s potential profits.

Export market tapped as production ramps up

With modest capital investments, UBRG plans to quickly ramp up production to 30,000 gallons per day. The Company is already working with vendors to establish credit for feedstock materials. As production volume expands, the Company plans to pursue sales opportunities in the European market where biodiesel demand is already firmly established. Distribution agreements will be sought with well-known distributors of biodiesel and other biofuel products.

Technology enhancements

The Company plans to eventually put all four of its 50,000 gallon reactors online which will increase pro-duction capacity to more than 35 million gallons annu-ally. UBRG believes it has an innovative, efficient pro-duction process based on its DVFP technology, which could potentially reduce processing times by 40%-50%. The Company also expects to sign an agreement for new second-generation processing technologies which could


November 10th, 2008


enable lower processing temperatures and energy cost savings.

Most of America’s biofuel producers have production capacities of less than 50 million gallons per year. The competitive landscape has become significantly more crowded in recent years and the number of domestic re-fineries has increased to more than 170 currently. UBRG’s competitive advantages include the small footprint of its plant and potentially lower energy costs, its innovative technology that could produce biodiesel 40-50% faster than similar-sized competitors, and its central location close to waterways, rail hubs, and major truck routes. A few of the Company’s competitors are profiled below:

AE Biofuels Inc. (OTCBB: AEBF)

AE Biofuels Inc., based in Colorado, is developing ethanol and biodiesel plants. The company has permits for two plants together representing 110 million gallons of production, through its subsidiaries Sutton Ethanol LLC in Nebraska, and Danville Ethanol Inc. in Illinois. Additionally, the company has rights to acquire four etha-nol plant sites in Illinois, three of which are fully permitted for 110 million gallons of annual production. The company is also constructing an integrated cellulose/starch ethanol demonstration plant in Butte, Montana. AE Biofuels has also constructed a 50 million gallon biodiesel facility on the east coast of India.

Allegro Biodiesel Corp. (OTCBB: ABDS)

Allegro Biodiesel Corp. is a Louisiana-based producer and distributor of biodiesel fuels. The company com-menced production in April 2006 and was the first operators to produce biodiesel in Louisiana. Its facility uses agricultural feedstock, primarily soybean oil, for biodiesel production and has a production capacity of 12 mil-lion gallons per year. During 2007, biodiesel sales contributed $7.4 million to revenues and included tax credits of $1.9 million. In February 2008, the company began using Jatropha oil as a feedstock. Future plans include increasing annual production capacity to 20 million gallons.

Renew Energy Resources Inc. (OTCBB: VTBD)

Renew Energy Resources Inc. commenced operations in 2007. It plans to produce renewable energy from biodie-sel, ethanol, solar and wind. The company plans to produce biodiesel from animal fat for domestic distribution and to export blended biodiesel to Europe and Southeast Asia. Renew Energy Resources has unexecuted con-tracts with 3B Biofuels, an operating division of Babcock and Brown, in Germany to export between 36 million and 72 million gallons of biodiesel per year.

Earth Biofuels Inc. (OTCBB: EBOF)

Earth Biofuels Inc., incorporated in Nevada, produces and distributes alternative fuels, primarily biodiesel, LNG and ethanol. The company’s operations are located in Oklahoma and Texas. It sold its natural gas subsidiary in the second quarter of 2008. Its LNG production facility, located in Topock, Arizona, has a maximum capacity of 95,000 gallons per day and is currently running at approximately 94% efficiency. Revenues for the six months ended June 30, 2008, increased $1.4 million, or 11%, primarily due to increased LNG sales.

Competitive Analysis


November 10th, 2008


Nova Biosource Fuels Inc. (AMEX: NBF)

Nova Biosource Fuels Inc. refines and markets biodiesel that meets the quality standards and specifications of ASTM D6751. The company owns commercial-scale biodiesel refineries in Illinois and Iowa, and a third smaller facility in Montana used primarily for research, development and technology demonstration purposes. The Il-linois refinery is designed with 60 million gallons of annual production capacity and is expected to come online in 2008. The Iowa refinery is already operating and has production capacity of 10 million gallons per year. The company has also identified a site at Muskogee, Oklahoma, where it plans to construct a 120 million gallon per year biodiesel refinery.

Income statement UBRG is in an early development stage and has yet to commence biodiesel production. Since its January 2007 in-ception, the Company has been focused primarily on raising capital to acquire and upgrade its refinery, establish infrastructure and recruit skilled managers and workers.

Operating expenses increased during the three months ended March 2008 because of professional fees and ex-penses incurred in promotional activities. The breakdown of operating expenses was as follows: consulting fees (13.9%), contract labor (2.7%), salary expenses (15.4%), professional fees (28.2%), advertising expenses (19.8%) and general and administration spending (20%). Operating losses rose 233% year-over-year in the March quarter to $254,621 from $76,542 in the same quarter one year earlier.

Going forward, UBRG plans to minimize energy costs and position itself as an eco-friendly producer by powering its plant with renewable energy sources and going completely off-grid for its energy needs. The Energy Informa-tion Administration (EIA) estimated energy costs for biodiesel production averaged 16 cents per gallon in 2005 and 2006. By using renewable energy sources, UBRG expects to save millions of dollars in energy costs annually.

Financial Analysis

Source: Company’s press releases

Total Operating ExpensesOperatingProfit/(Loss)Net Interest Income/(Expense)Net Loss

$254,621($254,621)

($38,890)($293,511)

$76,542($76,542)($24,272)

($100,814)

$524,304($524,304)($103,988)($628,292)

3 months ended March 2008

3 months ended March 2007

Year ended December 2007

Exhibit 8: Selected income statement data


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Liquidity and capital requirements

As of March 31, 2008, the Company had a working capital deficit of $663,730, stockholders’ equity deficit of $495,502, and an accumulated deficit during its development stage of $921,803. UBRG expects to ramp up pro-duction from its refinery to 30,000 gallons per day (11 million gallons annually) without making significant capital expenditures but will likely need to raise additional capital to fund improvements and increase the plant to full capacity. Management estimates spending of $4.0 million will be needed to achieve the Company’s near-term business goals. Revenue outlook

The Company plans to commence biodiesel production at 20,000 gallons every three days within the next 90 to 120 days. With modest capital expenditures, we expect the Company to quickly ramp up production to 30,000 gallons per day, equivalent to 11 million gallons of biodiesel annually. Assuming biodiesel prices of approxi-mately $4 per gallon, the value of this production would exceed $44 million.

Source: Company Reports

Current AssetsDepositsTotalfixedassetsTotal current liabilities Long Term LiabilitiesStock holders’ Equity (deficit)

$125,9773,100

$1,946,878$789,707

$1,781,750($495,502)

$311,2533,100

$1,945,972$709,231

$1,781,750($230,656)

March 31, 2008

December 31, 2007

Exhibit 9: Selected balance sheet data

Year

Projected Revenues $ in millions


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At full production levels with all four reactors online, the Company would be producing 120,000 gallons of biodie-sel per day, or approximately 35 million gallons annually. At $4 per gallon biodiesel prices, the value of production would rise to $140 million.

Valuation

Alternative energy stocks have not been immune to the impact of recent stock market volatility. In fact, year-to-date through October 17, the Market Vectors Global Alternative Energy ETF (GEX), from Van Eck Securities Corp. of New York, has fallen 37%, mirroring the 37% drop in the Standard & Poor’s 500 stock index.

Despite this sizable price decline, renewable power stocks continue to trade at a premium to the overall market. These stocks were recently trading at P/E multiples averaging 20 times earnings, versus 15 times P/E multiples for the S&P 500.

To derive a value for UBRG shares, we looked at a peer group of alternative energy stocks that are already produc-ing revenues. Price/Sales multiples for the group ranged from a high of 22 times revenues for Hoku to a low of 0.3 times revenues for Cypress. The average Price/Sales multiple for the peer group was 5.9 times revenues. We value UBRG shares at a 3.0 times Price/Sales multiple. The discount to the peer group reflects the Company’s earlier development stage and the fact that our valuation is based on estimates of future revenues. By multiplying our 3.0 times Price/Sales multiple by a $44 million 2009 revenue estimate, we obtain a $132 million market capitalization target for the Company. We also assume future equity sales will increase the fully diluted share count to 40 mil-lion and thus derive a $3.30 price target for UBRG by dividing our $132 million market capitalization target by 40 million fully diluted shares outstanding.

We are initiating coverage of Universal Bioenergy with a Speculative Buy rating and a $3.30 price target. While we believe the Company has significant competitive advantages in the alternative fuels market, we caution investors to consider UBRG’s early development stage as a significant risk factor. We also encourage readers to consider the additional risk factors described below if they are considering an investment in these shares.

Ballard Cypress Energy ConversionDevices Evergreen Solar FuelCell Energy Hoku Hydrogenics Maxwell Technologies Plug PowerPeer Average

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HOKU HYGS MXWL PLUG

2.51 4.29

41.56 3.57 5.13 4.76 0.63 8.90 1.01

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1,900578 353

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188 89

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Company Stock Price

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Access to capital

UBRG has operating and net losses and a shareholders’ equity deficit. The Company anticipates at least $4.0 mil-lion in additional financing will be needed to implement its 2008/2009 business plan. There is no guarantee that financing will be available to the Company on favorable terms or on a timely basis, if at all.

Volatile feedstock prices

Prices for vegetable oils, waste oils and animal fats are volatile, and supplies vary. If feedstock prices rise signifi-cantly or if the Company is unable to lock in reliable feedstock supplies, UBRG’s production and revenues could be negatively impacted.

Weather conditions and other factors affecting crop yields, farmer planting decisions and general economic, market and regulatory factors all influence feedstock prices. Government policies and subsidies with respect to agriculture and international trade also impact feedstock prices.

Infrastructure changes needed to support biodiesel growth

Substantial infrastructure changes will be needed to support the growth of the biodiesel industry. These include additional biodiesel storage facilities, refineries and retail service stations. Delays could impede delivery of the Company’s products, increase its costs or reduce demand. All of these factors are beyond the Company’s con-trol.

Competitive threats

In the U.S., the Company competes with other biodiesel producers and refineries, some of which are divisions of substantially larger enterprises with greater financial resources. Smaller competitors also pose a threat since smaller facilities don’t affect the local price of soybeans grown in the proximity as much as larger facilities. In addition, institutional investors and high net worth individuals could heavily invest in biodiesel production facilities and oversupply the market, resulting in lower biodiesel prices.

Regulatory effect

The U.S. renewable fuel industry is highly dependent on federal and state legislation. The cost of producing biodiesel is made significantly more competitive by federal tax incentives. The elimination or reduction of fed-eral tax incentives could adversely impact the Company and other biodiesel manufacturers.

Risk Factors


November 10th, 2008


Ms. Plaxico has devoted her career to mastering the economics of alternative energy and building financial models to help these businesses succeed. She brings to Universal Bioenergy more than 10 years of execu-tive level management, corporate finance and strategic planning experience, including deep experience in the alternative fuel industry, with a particular focus on biodiesel. Ms. Plaxico’s expertise includes logistics as well as compliance with ever-changing government regulations – two critical skills for managing a suc-cessful biodiesel refinery. Her expertise also extends to inventory management, procurement, material flow and recordkeeping. She has a background in accounting and finance.

Traci PlaxicoChief Accountant

Mr. Perry has more than 30 years of hands-on oil field experience. He began his career working on drilling rigs and testing pipe pressures to prevent blowouts. Mr. Perry rapidly rose to the position of drilling fluid engineer before becoming an independent consultant to several oil and gas concerns. His experience with material flows and the construction of piping, pumps, and valves is an asset to Universal Bioenergy. A keen observer of the biodiesel industry, Mr. Perry has witnessed this industry’s evolution from low expectations a few years ago to great expectations today. Mr. Perry attended South Western Louisiana Petroleum Train-ing Service.

Dean PerryProduction and Maintenance Manager

Dr. Craven has more than 14 years of high-level business management experience and more than nine years marketing experience. In addition, he has taught at the university level for nearly two decades. Through much of his career, Dr. Craven has focused on developing environmentally-friendly fuels and alternative energy sources.

Dr. Craven worked as the lead chemical researcher and developer at Antek Research Inc., an environmen-tally focused nonprofit research firm. His research efforts focused on optimizing and improving biodiesel reactions and production, using reaction byproducts for waste-to-fuel conversion and waste conversion to other useful products.

Richard CravenCEO

Management Team


November 10th, 2008


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Lisa Springer, MBA, CFA - Senior Analyst Lisa serves Beacon Research Partners as a research analyst. She brings to the company over 15 years experience in equity research and investment marketing. Prior to joining Beacon, Lisa worked as an equity analyst for an independent research provider. She has also held positions as investor relations officer for a NYSE-listed company and director of financial analysis for a large consulting firm. Lisa earned an MBA from the University of Chicago and is a Chartered Financial Analyst (CFA).

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