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.

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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              Nine Months Ended
                                   September 30,                   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.

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.

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:

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.

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.

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 . . .