UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




Form
10-Q




(Mark
One)


o           Quarterly
report pursuant Section 13 or 15(d) of the Securities Exchange Act of
1934


For the
quarterly period ended March 31,
2009


o           Transition
report pursuant Section 13 or 15(d) of the Securities Exchange Act of
1934


For the
transition period from _______ to _______.




Commission
file number000-50903




STRATOS
RENEWABLES CORPORATION




(Exact
Name of Registrant as Specified in Its Charter)




Nevada
              (State
      of Incorporation)
            20-1699126
              (I.R.S.
      Employer Identification No.)





9440
Santa Monica Blvd., Suite 401


Beverly
Hills, California  90210


(Address
of Principal Executive Offices) (Zip Code)




(310) 402-5901


(Registrant’s
Telephone Number, Including Area Code)




N/A


(Former
Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)




Indicate
by check mark whether the 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.  Yes x No
 ̈
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
 Large
      accelerated filer  ̈
              Accelerated
      filer  ̈Non-accelerated
      filer  ̈  (Do
      not check if asmaller reporting company)
              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  ̈  No
x
 As
of May 18, 2009, the Company had 64,796,189 outstanding shares of common stock,
par value $0.001.





STRATOS
RENEWABLES CORPORATION AND SUBSIDIARIES


(A
Development Stage Company)


Consolidated
Financial Statements





Contents





PagePART
      I.
                                    FINANCIAL
      INFORMATIONItem
      1.
                                    Financial
      StatementsConsolidated
      Balance Sheets as of March 31, 2009 and December 31, 2008
                                    
                                    3Consolidated
      Statements of Operations and Other Comprehensive Income
    (Loss)for
      the three months ended March 31, 2009 and 2008, and for the period
      fromFebruary
      27, 2007 (date of inception) to March 31, 2009
                                    
                                    4Consolidated
      Statement of Stockholders’ Equity (Deficit) for the period
      fromFebruary
      27, 2007 (date of inception) to March 31, 2009
                                    
                                    5Consolidated
      Statements of Cash Flows for the three monthsended
      March 31, 2009 and 2008, and for the period fromFebruary
      27, 2007 (date of inception) to March 31, 2009
                                    
                                    6Notes
      to Consolidated Financial Statements
                                    
                                    7Item
      2.
                                    Management’s
      Discussion and Analysis or Plan of Operations
                                    
                                    22Item
      3.
                                    Quantitative
      and Qualitative Disclosures About Market Risk
                                    
                                    32Item
      4.
                                    Controls
      and Procedures
                                    
                                    32PART
      II.
                                    OTHER
      INFORMATION
                                    
                                    32Item
      1.
                                    Legal
      Proceedings
                                    
                                    32Item
      1A.
                                    Risk
      Factors
                                    
                                    32Item
      2.
                                    Unregistered
      Sales of Equity Securities and Use of Proceeds
                                    
                                    32Item
      3.
                                    Defaults
      Upon Senior Securities
                                    
                                    33Item
      4.
                                    Submission
      of Matters to a Vote of Security Holders
                                    
                                    33Item
      5.
                                    Other
      Information
                                    
                                    33Item
      6.
                                    Exhibits
                                    
                                    33SIGNATURES
                                    
                                    34




2


Stratos
Renewables Corporation and Subsidiaries


(A
Development Stage Company)
 Consolidated
Balance Sheets
 As
of March 31, 2009 and December 31, 2008
 
 March 31,
                                
                                
                                December 31,2009
                                
                                
                                2008(unaudited)ASSETSCURRENT
      ASSETSCash
      and cash equivalents
                                
                                $
                                65,313
                                
                                
                                $
                                761,257Funds
      held in trust for the Company
                                
                                
                                -
                                
                                
                                
                                92,652Debt
      issuance costs
                                
                                
                                762,600
                                
                                
                                
                                1,013,326Prepaid
      expenses and other current assets
                                
                                
                                561,858
                                
                                
                                
                                712,111TOTAL
      CURRENT ASSETS
                                
                                
                                1,389,771
                                
                                
                                
                                2,579,346PLANT
      AND EQUIPMENT, net
                                
                                
                                5,178,771
                                
                                
                                
                                5,223,296LAND
      DEPOSITS
                                
                                
                                302,903
                                
                                
                                
                                302,632VAT
      CREDITS
                                
                                
                                1,236,455
                                
                                
                                
                                1,225,130OTHER
      ASSETS
                                
                                
                                118,351
                                
                                
                                
                                118,958TOTAL
      ASSETS
                                
                                $
                                8,226,251
                                
                                
                                $
                                9,449,362LIABILITIES
      AND STOCKHOLDERS' EQUITY (DEFICIT)CURRENT
      LIABILITIESAccounts
      payable
                                
                                $
                                1,001,268
                                
                                
                                $
                                906,495Accrued
      interest
                                
                                
                                699,401
                                
                                
                                
                                425,329Other
      payables
                                
                                
                                806,782
                                
                                
                                
                                620,084Accrued
      redemption premium
                                
                                
                                308,676
                                
                                
                                
                                296,615Convertible
      promissory notes, net of debt discounts of $2,782,384 and$3,692,790
      as of March 31, 2009 and December 31, 2008, respectively
                                
                                
                                6,512,616
                                
                                
                                
                                5,602,210Accrued
      derivative liabilities
                                
                                
                                1,263,100
                                
                                
                                
                                2,652,692TOTAL
      CURRENT LIABILITIES
                                
                                
                                10,591,843
                                
                                
                                
                                10,503,425COMMITMENTS
      AND CONTINGENCIESSTOCKHOLDERS'
      EQUITY (DEFICIT)Preferred
      stock; $0.001 par value; 50,000,000 sharesauthorized;
      8,400,009 and 8,571,429 shares issued and outstandingas
      of March 31, 2009 and December 31, 2008, respectively
                                
                                
                                8,400
                                
                                
                                
                                8,572Common
      stock; $0.001 par value; 250,000,000 sharesauthorized;
      64,202,661 and 63,495,180 shares issued and outstandingas
      of March 31, 2009 and December 31, 2008, respectively
                                
                                
                                64,203
                                
                                
                                
                                63,495Additional
      paid-in capital
                                
                                
                                9,108,030
                                
                                
                                
                                12,649,041Other
      comprehensive loss
                                
                                
                                (316,781
                                )
                                
                                
                                (272,344
                                )Deficit
      accumulated during the development stage
                                
                                
                                (11,229,444
                                )
                                
                                
                                (13,502,827
                                )TOTAL
      STOCKHOLDERS' DEFICIT
                                
                                
                                (2,365,592
                                )
                                
                                
                                (1,054,063
                                )TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                                
                                $
                                8,226,251
                                
                                
                                $
                                9,449,362
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  3




Stratos
Renewables Corporation and Subsidiaries
 (A
Development Stage Company)
 Consolidated
Statements of Operations and Other Comprehensive Income (Loss)
 For
the Three Months Ended March 31, 2009 and 2008 and
 For
the Period from February 27, 2007 (Date of Inception) to March 31,
2009
 
 For the periodfrom February 27, 2007Three Months Ended March 31,
                                  
                                  
                                  (date of inception)2009
                                  
                                  
                                  2008
                                  
                                  
                                  to March 31, 2009(unaudited)
                                  
                                  
                                  (unaudited)
                                  
                                  
                                  (unaudited)REVENUE
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -COST
      OF REVENUE
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -GROSS
      PROFIT
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -OPERATING
      EXPENSESConsulting
      fees
                                  
                                  
                                  32,020
                                  
                                  
                                  
                                  745,470
                                  
                                  
                                  
                                  1,507,054General
      and administrative
                                  
                                  
                                  471,427
                                  
                                  
                                  
                                  881,964
                                  
                                  
                                  
                                  3,930,373Professional
      fees
                                  
                                  
                                  192,894
                                  
                                  
                                  
                                  671,943
                                  
                                  
                                  
                                  2,790,942Salaries
      and wages
                                  
                                  
                                  603,946
                                  
                                  
                                  
                                  431,376
                                  
                                  
                                  
                                  3,307,717TOTAL
      OPERATING EXPENSES
                                  
                                  
                                  1,300,287
                                  
                                  
                                  
                                  2,730,753
                                  
                                  
                                  
                                  11,536,086LOSS
      FROM OPERATIONS
                                  
                                  
                                  (1,300,287
                                  )
                                  
                                  
                                  (2,730,753
                                  )
                                  
                                  
                                  (11,536,086
                                  )OTHER
      INCOME (EXPENSES)Amortization
      of debt discounts and debt issuance costs
                                  
                                  
                                  (1,188,684
                                  )
                                  
                                  
                                  (609,317
                                  )
                                  
                                  
                                  (4,969,050
                                  )Interest
      expense
                                  
                                  
                                  (364,060
                                  )
                                  
                                  
                                  (731,520
                                  )
                                  
                                  
                                  (2,392,953
                                  )Change
      in fair value of accrued derivative liabilities
                                  
                                  
                                  3,167,934
                                  
                                  
                                  
                                  203,083
                                  
                                  
                                  
                                  7,766,231Other
      income (expenses), net
                                  
                                  
                                  3,732
                                  
                                  
                                  
                                  (153,817
                                  )
                                  
                                  
                                  (95,936
                                  )TOTAL
      OTHER INCOME (EXPENSES), net
                                  
                                  
                                  1,618,922
                                  
                                  
                                  
                                  (1,291,571
                                  )
                                  
                                  
                                  308,292INCOME
      (LOSS) BEFORE PROVISION FOR INCOME TAXES
                                  
                                  
                                  318,635
                                  
                                  
                                  
                                  (4,022,324
                                  )
                                  
                                  
                                  (11,227,794
                                  )PROVISION
      FOR INCOME TAXES
                                  
                                  
                                  800
                                  
                                  
                                  
                                  800
                                  
                                  
                                  
                                  1,650NET
      INCOME (LOSS)
                                  
                                  $
                                  317,835
                                  
                                  
                                  $
                                  (4,023,124
                                  )
                                  
                                  $
                                  (11,229,444
                                  )OTHER
      COMPREHENSIVE INCOME (LOSS)Foreign
      currency translation gain (loss)
                                  
                                  
                                  (44,437
                                  )
                                  
                                  
                                  686,811
                                  
                                  
                                  
                                  (316,781
                                  )COMPREHENSIVE
      INCOME (LOSS)
                                  
                                  $
                                  273,398
                                  
                                  
                                  $
                                  (3,336,313
                                  )
                                  
                                  $
                                  (11,546,225
                                  )INCOME
      (LOSS) PER COMMON SHAREBASIC
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  (0.07
                                  )
                                  
                                  $
                                  (0.20
                                  )DILUTED
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  (0.07
                                  )
                                  
                                  $
                                  (0.20
                                  )WEIGHTED
      AVERAGE COMMON EQUIVALENTSHARES
      OUTSTANDINGBASIC
                                  
                                  
                                  63,771,610
                                  
                                  
                                  
                                  58,290,604
                                  
                                  
                                  
                                  55,474,762DILUTED
                                  
                                  
                                  72,186,856
                                  
                                  
                                  
                                  58,290,604
                                  
                                  
                                  
                                  55,474,762
 
 The
accompanying notes are an integral part of these consolidated financial
statements.


4


Stratos
Renewables Corporation and Subsidiaries
 (A
Development Stage Company)
 Consolidated
Statement of Stockholders' Equity (Deficit)
 For
the Period from February 27, 2007 (Date of Inception) to March 31,
2009
 
 DeficitAccumulatedAdditional
                                
                                
                                Other
                                
                                
                                During the
                                
                                
                                TotalPreferred Stock
                                
                                
                                Common Stock
                                
                                
                                Paid-in
                                
                                
                                Comprehensive
                                
                                
                                Development
                                
                                
                                Stockholders'Shares
                                
                                
                                Amount
                                
                                
                                Shares
                                
                                
                                Amount
                                
                                
                                Capital</fon
      t>
                                
                                
                                Gain (loss)</f
      ont>
                                
                                
                                Stage
                                
                                
                                Equity(Deficit)Balance,
      February 27, 2007
                                
                                
                                -
                                
                                
                                $
                                -
                                
                                
                                
                                -
                                
                                
                                $
                                -
                                
                                
                                $
                                -
                                
                                
                                $
                                -
                                
                                
                                $
                                -
                                
                                
                                $
                                -Purchase
      of shares for cash
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                45,000,000
                                
                                
                                
                                45,000
                                
                                
                                
                                (44,666
                                )
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                334Shares
      issued in connection with reverse merger transaction
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                10,000,000
                                
                                
                                
                                10,000
                                
                                
                                
                                (9,789
                                )
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                211Common
      stock issued for cash
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                2,666,794
                                
                                
                                
                                2,667
                                
                                
                                
                                1,442,065
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                1,444,732Preferred
      stock issued for cash
                                
                                
                                7,142,857
                                
                                
                                
                                7,143
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                4,334,254
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                4,341,397Foreign
      currency translation adjustment
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                14,021
                                
                                
                                
                                -
                                
                                
                                
                                14,021Net
      loss
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (1,587,257
                                )
                                
                                
                                (1,587,257
                                )Balance,
      December 31, 2007
                                
                                
                                7,142,857
                                
                                
                                $
                                7,143
                                
                                
                                
                                57,666,794
                                
                                
                                $
                                57,667
                                
                                
                                $
                                5,721,864
                                
                                
                                $
                                14,021
                                
                                
                                $
                                (1,587,257
                                )
                                
                                $
                                4,213,438Issuance
      of common stock and warrants for cash
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                2,410,639
                                
                                
                                
                                2,411
                                
                                
                                
                                1,173,586
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                1,175,997Cashless
      exercise of warrants (595,713 warrants exercisedfor 325,763
      shares)
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                325,763
                                
                                
                                
                                326
                                
                                
                                
                                (326
                                )
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -Issuance
      of preferred stock and warrants for cash
                                
                                
                                1,428,572
                                
                                
                                
                                1,429
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                611,405
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                612,834Conversion
      of convertible notes to common stock
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                1,166,605
                                
                                
                                
                                1,167
                                
                                
                                
                                815,457
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                816,624Reclassify
      beneficial conversion feature from liability to equity
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                3,686,051
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                3,686,051Cashless
      exercise of warrants (1,956,302 warrants exercisedfor 903,239
      shares) on November 10, 2008
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                903,239
                                
                                
                                
                                903
                                
                                
                                
                                (903
                                )
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -Cashless
      exercise of warrants (285,714 warrants exercisedfor 132,652
      shares) on November 18, 2008
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                132,652
                                
                                
                                
                                132
                                
                                
                                
                                (132
                                )
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -Issuance
      of 239,488 shares of common stock for legal services
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                239,488
                                
                                
                                
                                239
                                
                                
                                
                                167,403
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                167,642Issuance
      of 650,000 shares of common stock related toconsulting
      agreement
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                650,000
                                
                                
                                
                                650
                                
                                
                                
                                454,350
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                455,000Beneficial
      conversion feature associated with convertible notes
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                20,286
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                20,286Foreign
      currency translation adjustment
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (286,365
                                )
                                
                                
                                -
                                
                                
                                
                                (286,365
                                )Net
      loss
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (11,915,570
                                )
                                
                                
                                (11,915,570
                                )Balance,
      December 31, 2008, as previously reported
                                
                                
                                8,571,429
                                
                                
                                $
                                8,572
                                
                                
                                
                                63,495,180
                                
                                
                                $
                                63,495
                                
                                
                                $
                                12,649,041
                                
                                
                                $
                                (272,344
                                )
                                
                                $
                                (13,502,827
                                )
                                
                                $
                                (1,054,063
                                )Cumulative
      effect of reclassification of warrants and conversion
    options
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (3,706,338
                                )
                                
                                
                                -
                                
                                
                                
                                1,955,548
                                
                                
                                
                                (1,750,790
                                )Balance,
      January 1, 2009, as adjusted
                                
                                
                                8,571,429
                                
                                
                                $
                                8,572
                                
                                
                                
                                63,495,180
                                
                                
                                $
                                63,495
                                
                                
                                $
                                8,942,703
                                
                                
                                $
                                (272,344
                                )
                                
                                $
                                (11,547,279
                                )
                                
                                $
                                (2,804,853
                                )Conversion
      of preferred stock on January 8, 2009; 171,420preferred shares
      converted to common shares
                                
                                
                                (171,420
                                )
                                
                                
                                (172
                                )
                                
                                
                                183,864
                                
                                
                                
                                184
                                
                                
                                
                                (12
                                )
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -Issuance
      of 302,935 shares of common stock for additional interest
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                302,935
                                
                                
                                
                                303
                                
                                
                                
                                105,313
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                105,616Issued
      220,682 shares for consulting services
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                220,682
                                
                                
                                
                                221
                                
                                
                                
                                60,026
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                60,247Foreign
      currency translation adjustment
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (44,437
                                )
                                
                                
                                -
                                
                                
                                
                                (44,437
                                )Net
      income
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                317,835
                                
                                
                                
                                317,835Balance,
      March 31, 2009 (unaudited)
                                
                                
                                8,400,009
                                
                                
                                $
                                8,400
                                
                                
                                
                                64,202,661
                                
                                
                                $
                                64,203
                                
                                
                                $
                                9,108,030
                                
                                
                                $
                                (316,781
                                )
                                
                                $
                                (11,229,444
                                )
                                
                                $
                                (2,365,592
                                )
 
 The
accompanying notes are an integral part of these consolidated financial
statements.


5


Stratos
Renewables Corporation and Subsidiaries
 (A
Development Stage Company)
 Consolidated
Statements of Cash Flows
 For
the Three Months Ended March 31, 2009 and 2008 and
 For
the Period from February 27, 2007 (Date of Inception) to March 31,
2009
  For
      the period fromFor
      the Three
                              
                              
                              For
      the Three
                              
                              
                              February
      27, 2007Months
      Ended
                              
                              
                              Months
      Ended
                              
                              
                              (date
      of inception)March
      31, 2009
                              
                              
                              March
      31, 2008
                              
                              
                              to
      March 31, 2009(unaudited)
                              
                              
                              (unaudited)
                              
                              
                              (unaudited)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income (loss)
                              
                              $
                              317,835
                              
                              
                              $
                              (4,023,124
                              )
                              
                              $
                              (11,229,444
                              )Adjustments
      to reconcile net income (loss) to net cashused
      in operating activities:Amortization
      of debt discounts and debt issuance costs
                              
                              
                              1,188,684
                              
                              
                              
                              609,317
                              
                              
                              
                              4,969,050Depreciation
                              
                              
                              14,618
                              
                              
                              
                              3,927
                              
                              
                              
                              53,425Change
      in fair value of accrued derivative liabilities
                              
                              
                              (3,167,934
                              )
                              
                              
                              (203,083
                              )
                              
                              
                              (7,766,231
                              )Amortization
      of prepaid consulting
                              
                              
                              116,690
                              
                              
                              
                              83,107
                              
                              
                              
                              536,054Common
      stock issued for services
                              
                              
                              60,247
                              
                              
                              
                              -
                              
                              
                              
                              60,247Issuance
      of shares of common stock for additional interest
                              
                              
                              105,616
                              
                              
                              
                              -
                              
                              
                              
                              105,616Changes
      in operating assets and liabilities:Prepaid
      expenses and other assets
                              
                              
                              32,374
                              
                              
                              
                              (49,922
                              )
                              
                              
                              (258,536
                              )Accounts
      payable
                              
                              
                              94,442
                              
                              
                              
                              764,450
                              
                              
                              
                              1,166,811Accrued
      interest
                              
                              
                              274,072
                              
                              
                              
                              75,991
                              
                              
                              
                              766,851Other
      payables
                              
                              
                              187,360
                              
                              
                              
                              110,319
                              
                              
                              
                              818,771Accrued
      redemption premium
                              
                              
                              12,061
                              
                              
                              
                              690,043
                              
                              
                              
                              807,850Net
      cash used in operating activities
                              
                              
                              (763,935
                              )
                              
                              
                              (1,938,975
                              )
                              
                              
                              (9,969,536
                              )CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchases
      of plant and equipment
                              
                              
                              -
                              
                              
                              
                              (566,646
                              )
                              
                              
                              (5,529,145
                              )Deposit
      for land acquisition
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (323,313
                              )Increase
      in VAT credits
                              
                              
                              (18,479
                              )
                              
                              
                              (144,329
                              )
                              
                              
                              (1,275,294
                              )Change
      in funds held in trust for the Company
                              
                              
                              91,115
                              
                              
                              
                              -
                              
                              
                              
                              (1,537
                              )Cash
      acquired with acquisition
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              211Net
      cash provided by (used in) investing activities
                              
                              
                              72,636
                              
                              
                              
                              (710,975
                              )
                              
                              
                              (7,129,078
                              )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from sale of common stock
                              
                              
                              -
                              
                              
                              
                              1,585,794
                              
                              
                              
                              3,554,537Proceeds
      from sale of preferred stock
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              6,000,000Payment
      of offering costs associated with the sale common and preferred
      stock
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (521,246
                              )Proceeds
      from issuance of convertible debenture
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              12,248,000Payment
      of offering costs associated with issuance of convertible
      debenture
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (1,365,499
                              )Principal
      payment of convertible debt
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (2,798,000
                              )Net
      cash provided by financing activities
                              
                              
                              -
                              
                              
                              
                              1,585,794
                              
                              
                              
                              17,117,792Effect
      of exchange rate changes on cash and cash equivalents
                              
                              
                              (4,645
                              )
                              
                              
                              158,905
                              
                              
                              
                              46,135NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                              
                              
                              (695,944
                              )
                              
                              
                              (905,251
                              )
                              
                              
                              65,313CASH
      AND CASH EQUIVALENTS, Beginning of period
                              
                              
                              761,257
                              
                              
                              
                              3,357,417
                              
                              
                              
                              -CASH
      AND CASH EQUIVALENTS, End of period
                              
                              $
                              65,313
                              
                              
                              $
                              2,452,166
                              
                              
                              $
                              65,313SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATION:Interest
      paid
                              
                              $
                              -
                              
                              
                              $
                              -
                              
                              
                              $
                              620,135Income
      taxes paid
                              
                              $
                              800
                              
                              
                              $
                              800
                              
                              
                              $
                              1,650SUPPLEMENTAL
      NON-CASH INVESTING AND FINANCING ACTIVITIES:Costs
      associated with acquisition:Beneficial
      conversion feature associated with convertible debenture
                              
                              $
                              -
                              
                              
                              $
                              -
                              
                              
                              $
                              874,990Issuance
      of warrants in acquisition
                              
                              $
                              -
                              
                              
                              $
                              -
                              
                              
                              $
                              229,748Acquisition
      of shell company
                              
                              $
                              -
                              
                              
                              $
                              -
                              
                              
                              $
                              211Issuance
      of common stock for conversion of principal and interest
                              
                              $
                              -
                              
                              
                              $
                              -
                              
                              
                              $
                              816,624Issuance
      of warrants as debt issuance costs
                              
                              $
                              -
                              
                              
                              $
                              -
                              
                              
                              $
                              186,747Beneficial
      conversion feature associated with convertible debenture
                              
                              $
                              -
                              
                              
                              $
                              -
                              
                              
                              $
                              3,947,040Warrant
      liability associated with convertible debenture
                              
                              $
                              -
                              
                              
                              $
                              -
                              
                              
                              $
                              1,862,173Issuance
      of warrants with preferred stock
                              
                              $
                              -
                              
                              
                              $
                              -
                              
                              
                              $
                              142,166Cashless
      exercise of warrants
                              
                              $
                              -
                              
                              
                              $
                              -
                              
                              
                              $
                              1,362Issuance
      of warrants as prepaid consulting fees
                              
                              $
                              -
                              
                              
                              $
                              -
                              
                              
                              $
                              216,106Issuance
      of common stock for accounts payable
                              
                              $
                              -
                              
                              
                              $
                              -
                              
                              
                              $
                              167,642Reclassify
      beneficial conversion feature liability to equity
                              
                              $
                              -
                              
                              
                              $
                              -
                              
                              
                              $
                              3,686,051Issuance
      of common stock and convertible notes for consulting fees
                              
                              $
                              -
                              
                              
                              $
                              -
                              
                              
                              $
                              550,000
 The
accompanying notes are an integral part of these consolidated financial
statements.
  6


Stratos
Renewables Corporation and Subsidiaries


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


(Unaudited)





Note
1 - Organization and Basis of Presentation





The
unaudited consolidated financial statements have been prepared by Stratos
Renewables Corporation and subsidiaries (the “Company”), pursuant to the rules
and regulations of the Securities and Exchange Commission. The information
furnished herein reflects all adjustments (consisting of normal recurring
accruals and adjustments) which are, in the opinion of management, necessary to
fairly present the operating results for the respective periods. Certain
information and footnote disclosures normally present in annual consolidated
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. These consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and footnotes
included in the Company’s Annual Report on Form 10-K/A. The results for the
three months ended March 31, 2009 are not necessarily indicative of the results
to be expected for the full year ending December 31, 2009.





Organization and line of
business




Stratos
Renewables Corporation (formerly New Design Cabinets, Inc., herein the
“Company”) was incorporated in the State of Nevada on September 29, 2004.
Stratos del Peru S.A.C. was incorporated in Lima, Peru, on February 27, 2007,
with the name of Estratosfera del Perú S.A.C. On July 11, 2007, the shareholders
at the general meeting agreed to change the Company’s name to its current one,
Stratos del Peru S.A.C., or Stratos Peru, which was officially registered with
the Tax Administration of Peru on October 11, 2007.





On
November 14, 2007, Stratos Peru entered into a share exchange agreement, or the
Share Exchange, with the Company. Pursuant to the agreement, the Company issued
45,000,000 shares of its common stock to the former security holders of Stratos
Peru in exchange for 999, or 99.9%, of the issued and outstanding shares of
common stock of Stratos Peru. Upon closing the Share Exchange, the Company had
55,000,000 shares of common stock issued and outstanding as a result of the
issuance of 45,000,000 shares of common stock to the former security holders of
Stratos Peru. Effective November 20, 2007, the Company amended its articles of
incorporation to change the name of the corporation from “New Design Cabinets,
Inc.” to “Stratos Renewables Corporation.”




The Share
Exchange is deemed to be a reverse acquisition under the purchase method of
accounting. As the acquired entity, Stratos Peru is regarded as the predecessor
entity as of November 14, 2007. Accordingly, the merger of the Company and
Stratos Peru was recorded as a recapitalization of Stratos Peru, with Stratos
Peru being treated as the continuing entity and the management and board of
directors of Stratos Peru were appointed as officers and directors of the
Company. The accompanying consolidated statements of operations present the
amounts as if the acquisition occurred on February 27, 2007 (date of inception
for Stratos Peru).




Additionally,
in connection with the reverse merger transaction, the Company conducted a
private placement of common stock, preferred stock and convertible promissory
notes totaling approximately $10 million during 2007.





The
Company’s business objectives are the purchase, sale, production, distribution,
marketing, transport, warehousing, mixture, export and import of all kinds of
products derived from hydrocarbons and bio-fuels, being solids, liquids or
gases. The Company is currently a development stage company under the provisions
of Statement of Financial Accounting Standards (“SFAS”) No. 7, “Accounting and
Reporting by Development Stage Enterprises,” as it has not commenced generating
revenue. The Company’s offices and administrative headquarters are located in
Lima, Peru.




7


Stratos
Renewables Corporation and Subsidiaries
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 (Unaudited)


Development Stage Company
and Going-Concern





The
Company is a development stage company and is subject to risks and uncertainties
that include: new product development, actions of competitors, reliance on the
knowledge and skills of its employees to be able to service customers,
availability of sufficient capital, and a limited operating history.
Accordingly, the Company presents its consolidated financial statements in
accordance with accounting principles generally accepted in the United States of
America that apply in establishing new operating enterprises. As a development
stage enterprise, the Company discloses the deficit accumulated during the
development stage on the consolidated statements of operations and other
comprehensive income (loss) and consolidated statements of cash flows from
inception of the development stage to the date on the current consolidated
balance sheets. Contingencies exist with respect to this matter, the ultimate
resolution of which cannot presently be determined.




The
Company has not generated any operating revenues and has working capital
deficits, which raises substantial doubt about its ability to continue as a
going concern.  During the three months ended March 31, 2009, the
Company recorded net income of $317,835 and as of March 31, 2009, the Company
has a deficit accumulated during the development stage of
$11,229,444.





Given
that the Company is a development stage company and has not generated any
revenues to date, its cash flow projections are subject to numerous
contingencies beyond its control, including the ability to manage its expected
growth, complete construction of the proposed plant and commence
operations.   The Company’s existing capital resources are not
sufficient to fund its operations for the next twelve months, and therefore, the
Company will need additional financing to fund future operations through
offerings of equity or debt securities.   The Company can offer
no assurances that it will be able to obtain additional funds on acceptable
terms, if at all.  If the Company is not able to obtain additional
financing on a timely basis, it will not be able to meet its other obligations
as they become due and we will be forced to scale down or perhaps even cease the
operations of their business.





As part
of the management’s business plan, the Company has raised approximately $19
million in order to fund operations, secure land rights and begin construction
of the proposed plant.  Management will continue to seek additional
capital through debt and equity securities.





Basis ofPresentation




The
accompanying consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
and have been consistently applied. The accompanying consolidated financial
statements include the accounts of Stratos Renewables Corporation and its
subsidiaries.





The
Company’s subsidiaries use their local currencies, Peruvian Nuevos Soles
(“PEN”); however the accompanying consolidated financial statements have been
translated and presented in United States Dollars (“$”).




8


Stratos
Renewables Corporation and Subsidiaries
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 (Unaudited)


Note
2 - Summary of Significant Accounting Policies





Principles of
Consolidation





The
accompanying consolidated financial statements include the accounts of Stratos
Renewables Corporation and its subsidiaries. All intercompany balances and
transactions have been eliminated in consolidation.




Use ofEstimates




The
preparation of 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 disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting periods. The significant estimates made in the
preparation of the Company’s consolidated financial statements relate to the
determination of depreciation rates for equipment, future tax rates used to
determine future income taxes, and the carrying value of warrant and conversion
option liabilities. Actual results could differ materially from these estimates
upon which the carrying values were based.





Cash andCashEquivalents




The
Company considers all highly liquid investments that are readily convertible
into cash, with original maturities of three months or less when purchased, to
be cash and cash equivalents.




Funds Held in Trust for the
Company





On
December 31, 2008, the Company withdrew funds from its operating accounts which
were held in trust by an officer of the Company.  These funds were
deposited back to the operating account during the quarter ended March 31,
2009.





Concentration ofRisk




Cash
includes cash on hand and demand deposits in accounts maintained within Peru and
the United States. The Company maintains balances at financial institutions
which, from time to time, may exceed Federal Deposit Insurance Corporation
insured limits for the banks located in the United States. Balances at financial
institutions within Peru are not covered by insurance. As of March 31, 2009 and
December 31, 2008, the Company had deposits in excess of federally-insured
limits totaling $50 and $612,559, respectively. The Company has not experienced
any losses on cash and cash equivalents.





Our
operations are in Peru and virtually all of our assets and liabilities give
rise to market risks from changes in foreign currency rates. The financial risk
is the risk to our operations that arise from fluctuations in foreign exchange
rates and the degree of volatility of these rates. Currently, we do not use
derivative instruments to reduce our exposure to foreign currency
risk.





VATCredits




As
of March 31, 2009 and December 31, 2008, the Company recognized a VAT
(value added tax) credit of $1,236,455 and $1,225,130, respectively, in Peru.
VAT is charged at a standard rate of 19% and the Company obtains income tax
credits for VAT paid in connection with the purchase of capital equipment and
other goods and services employed in its operations. The Company is entitled to
use the credits against its Peruvian income tax liability or to receive a refund
credit against VAT payable or sales. As the Company does not anticipate
incurring either a Peruvian tax or a VAT liability during the next fiscal year,
the credits have been classified as non-current.




9


Stratos
Renewables Corporation and Subsidiaries
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 (Unaudited)


Plant andEquipment




Plant and
equipment are stated at cost and are depreciated using the straight-line method
over their estimated useful lives ranging from 4 to 10 years. The useful life
and depreciation method are reviewed periodically to ensure that the
depreciation method and period are consistent with the anticipated pattern of
future economic benefits. Expenditures for maintenance and repairs are charged
to operations as incurred while renewals and betterments are capitalized. Gains
and losses on disposals are included in the results of operations as
incurred.




Impairment ofLong-LivedAssets




The
Company follows the guidance of SFAS No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets” (“SFAS 144”), which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
The Company periodically evaluates the carrying value of long-lived assets to be
held and used in accordance with SFAS 144. SFAS 144 requires impairment losses
to be recorded on long-lived assets used in operations when indications of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets’ carrying amounts. In that event, a
loss is recognized based on the amount by which the carrying amount exceeds the
fair market value of the long-lived assets. Loss on long-lived assets to be
disposed of is determined in a similar manner, except that fair market values
are reduced for the cost of disposal. The Company believes that as of March 31,
2009 and December 31, 2008, there were no significant impairments of its
long-lived assets.





ForeignCurrencyTranslation




The
reporting currency of the Company is the US dollar. The Company uses its local
currency, PEN, as its functional currency. Such financial statements were
translated into U.S. Dollars (“USD”) in accordance with SFAS No. 52, “Foreign
Currency Translation,” with the PEN as the functional currency. Assets and
liabilities are translated using the exchange rates prevailing at the balance
sheet date. Translation adjustments resulting from this process are included in
accumulated other comprehensive income in the consolidated statement of
stockholders’ equity (deficit). Transaction gains and losses that arise from
exchange rate fluctuations on transactions denominated in a currency other than
the functional currency are included in the results of operations as
incurred.




Asset and
liability amounts at March 31, 2009 and December 31, 2008 were translated at
3.161 PEN and 3.142 PEN to $1.00 USD, respectively. Equity accounts were stated
at their historical rates. The average translation rate applied to the
consolidated statements of operations for the three months ended March 31, 2009
and 2008, was 3.195 PEN and 2.872 PEN to $1.00 USD, respectively. Cash
flows are also translated at average translation rates for the period;
therefore, amounts reported on the consolidated statements of cash flows will
not necessarily agree with changes in the corresponding balances on the
consolidated balance sheets.




10


Stratos
Renewables Corporation and Subsidiaries
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 (Unaudited)


Foreign Currency Transaction
Gains and Losses





Transaction
gains and losses that arise from exchange rate fluctuations on transactions
denominated in a currency other than the functional currency are included in the
results of operations as incurred.  For the three months ended March
31, 2009, the Company recorded a transaction gain of $4,047, and for the three
months ended March 31, 2008 and for the period from February 27, 2007 (date of
inception) to March 31, 2009, the Company recorded net transaction losses of
approximately $162,936 and $96,775, respectively, and are included in other
income on the consolidated statements of operations.  Historically,
the Company has not entered into any currency trading or hedging
transactions, although there is no assurance that the Company will not enter
into such transactions in the future.





IncomeTaxes




The
Company accounts for income taxes in accordance with SFAS No. 109, “Accounting
for Income Taxes” (“SFAS 109”) and Financial Accounting Standards Board
(“FASB”) Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income
Taxes.”  SFAS 109 requires a company to use the asset and liability method
of accounting for income taxes, whereby deferred tax assets are recognized for
deductible temporary differences, and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion, or all of, the
deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment. The income tax rate applicable to Peruvian companies is 30%.
If the Company distributes its earnings fully or partially, it shall apply an
additional rate of 4.1% on the distributed amount, which will be borne by the
shareholders, as long as they are individuals or companies non-domiciled in
Peru. The 4.1% tax will be borne by the Company and will apply on any amount or
payment in kind subject to income tax that may represent an indirect disposition
not subject to subsequent tax control, including amounts charged to expenses and
undeclared revenues. From January 1, 2007, the taxpayer must liquidate and pay
the 4.1% tax directly together with its monthly obligations without the
requirement of a previous tax audit by the Tax Administration of
Peru.




Under FIN
48, a tax position is recognized as a benefit only if it is “more likely
than not” that the tax position would be sustained in a tax examination, with a
tax examination being presumed to occur. The amount recognized is the largest
amount of tax benefit that is greater than 50% likely of being realized on
examination. For tax positions not meeting the “more likely than not” test, no
tax benefit is recorded.




Basic andDilutedEarningsPerShare




Earnings
per share is calculated in accordance with the SFAS No. 128, “Earnings Per
Share” (“SFAS 128”). Basic earnings per share is based upon the weighted average
number of common shares outstanding. Diluted earnings per share is based on the
assumption that all dilutive convertible shares and stock options were converted
or exercised. The following is a reconciliation of the number of shares
(denominator) used in the basic and diluted earnings per share computations for
the three months ended March 31, 2009 and 2008 and for the period from inception
(February 27, 2007) to March 31, 2009.




11


Stratos
Renewables Corporation and Subsidiaries
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 (Unaudited)


For the period frominception (February 27, 2007)March 31, 2009
                          
                          
                          March 31, 2008
                          
                          
                          to March 31, 2009(unaudited)
                          
                          
                          (unaudited)
                          
                          
                          (unaudited)Shares
                          
                          
                          Shares
                          
                          
                          SharesWeighted
      average shares used in basiccomputation
                          
                          
                          63,771,610
                          
                          
                          
                          58,290,604
                          
                          
                          
                          55,474,762Diluted
      effect of Series A Preferred Shares
                          
                          
                          8,415,246
                          
                          
                          
                          -
                          
                          
                          
                          -Weighted
      average shares used in dilutedcomputation
                          
                          
                          72,186,856
                          
                          
                          
                          58,290,604
                          
                          
                          
                          55,474,762




All warrants and convertible notes were excluded from
the diluted loss per share calculation due to the anti-dilutive
effect.





Accrued Derivative
Liabilities





Effective
January 1, 2009, the Company applies FASB’s Emerging Issues Task Force Issue
07-5 (“EITF 07-5”), “Determining whether an Instrument (or Embedded Feature) is
indexed to an Entity’s Own Stock.”  EITF 07-5 provides a two-step
model to determine whether a financial instrument or an embedded feature is
indexed to an issuer’s own stock and thus able to qualify for the SFAS 133
paragraph 11(a) scope exception. This standard triggers liability accounting on
all instruments and embedded features exercisable at strike prices denominated
in any currency other than the functional currency of the operating entity in
Peru.  Using the criteria in EITF 07-5, the Company determines which
instruments or embedded features that require liability accounting and records
the fair values as an accrued derivative liability. The changes in the values of
the accrued derivative liabilities are shown in the accompanying consolidated
statements of operations as “change in fair value of accrued derivative
liabilities.”





FairValue ofFinancialInstruments





SFAS No.
107, “Disclosures about Fair Value of Financial Instruments,” requires
disclosure of the fair value of financial instruments held by the Company. SFAS
No. 157, “Fair Value Measurements” (“SFAS 157”), adopted in January 1, 2008,
defines fair value, and establishes a three-level valuation hierarchy for
disclosures of fair value measurement that enhances disclosure requirements for
fair value measures.  The carrying amounts reported in the
consolidated balance sheets for receivables and current liabilities each qualify
as financial instruments and are a reasonable estimate of their fair values
because of the short period of time between the origination of such instruments
and their expected realization and their current market rate of interest. The
three levels of valuation hierarchy are defined as follows:





·
            Level
      1 inputs to the valuation methodology are quoted prices (unadjusted) for
      identical assets or liabilities in active
  markets.





·
            Level
      2 inputs to the valuation methodology include quoted prices for similar
      assets and liabilities in active markets, and inputs that are observable
      for the asset or liability, either directly or indirectly, for
      substantially the full term of the financial
  instrument.




12


Stratos
Renewables Corporation and Subsidiaries
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 (Unaudited)


·
            Level
      3 inputs to the valuation methodology are unobservable and significant to
      the fair value measurement.




The
Company analyzes all financial instruments with features of both liabilities and
equity under SFAS No. 150, “Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity,” SFAS No. 133, “Accounting for
Derivative Instruments and Hedging Activities,” and EITF 00-19, “Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company’s Own Stock.”




The
Company’s conversion option liability is carried at fair value totaling $262,918
and $0 as of March 31, 2009 and December 31, 2008, respectively.  The
Company carries its warrants at fair value totaling $1,000,182 and $2,652,692 as
of March 31, 2009 and December 31, 2008, respectively. The Company used Level 2
inputs for its valuation methodology for the conversion option liability and
warrant liability, and their fair values were determined by using the
Black-Scholes option pricing model based on various
assumptions.




Carrying Value
                    As of
                    March 31, 2009
                  
                  Fair Value Measurements at
                    March 31, 2009
                    Using Fair Value HierarchyLiabilities
                  
                  
                  
                  Level
      1
                  
                  Level
      2
                  
                  Level
      3Conversion
      option liability
                  
                  $
                  262,918
                  
                  
                  
                  $
                  262,918Warrant
      liability
                  
                  $
                  1,000,182
                  
                  
                  
                  $
                  1,000,182





The
Company recognized a gain of $1,515,424, a loss of $6,177 and a gain of
$4,606,950, respectively, on the conversion option liability for the three
months ended March 31, 2009 and 2008, and for the period from February 27, 2007
(date of inception) to March 31, 2009, respectively.





The
Company recognized gains of $1,652,510, $209,260 and $3,159,281, respectively,
on the warrant liability for the three months ended March 31, 2009 and 2008, and
for the period from February 27, 2007 (date of inception) to March 31, 2009,
respectively.





The
Company did not identify any other non-recurring assets and liabilities that are
required to be presented on the consolidated balance sheets at fair value in
accordance with SFAS 157.




Statementsof Cash
Flows





In
accordance with SFAS No. 95, “Statement of Cash Flows,” cash flows from the
Company’s operations are calculated based upon the local currencies using the
average translation rate. As a result, amounts related to assets and liabilities
reported on the consolidated statements of cash flows will not necessarily agree
with changes in the corresponding balances on the consolidated balance
sheets.




13


Stratos
Renewables Corporation and Subsidiaries
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 (Unaudited)


Reclassification





Certain
reclassifications have been made to the 2008 consolidated financial statements
to conform to the 2009 consolidated financial statement presentation. These
reclassifications had no effect on net income (loss) or cash flows as previously
reported.





Recent
Pronouncements





In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements — An Amendment of ARB No. 51” (“SFAS 160”).
SFAS 160 amends ARB 51 to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It is intended to eliminate the diversity in practice regarding the
accounting for transactions between equity and noncontrolling interests by
requiring that they be treated as equity transactions. Further, it requires
consolidated net income to be reported at amounts that include the amounts
attributable to both the parent and the noncontrolling interest. SFAS 160 also
establishes a single method of accounting for changes in a parent’s ownership
interest in a subsidiary that do not result in deconsolidation, requires that a
parent recognize a gain or loss in net income when a subsidiary is
deconsolidated, requires expanded disclosures in the consolidated financial
statements that clearly identify and distinguish between the interests of the
parent’s owners and the interests of the noncontrolling owners of a subsidiary,
among others.  The Company adopted SFAS 160 effective January 1,
2009.  The Company has determined the adoption of SFAS 160 did not
have a material impact to the Company’s consolidated financial position or
consolidated results of operations as of March 31, 2009.





In
January 2009, the FASB issued FSP EITF 99-20-1, “Amendments to the Impairment
Guidance of EITF Issue No. 99-20, and EITF Issue No. 99-20, Recognition of
Interest Income and Impairment on Purchased and Retained Beneficial Interests in
Securitized Financial Assets” (“FSP EITF 99-20-1”). FSP EITF 99-20-1 changes the
impairment model included within EITF 99-20 to be more consistent with the
impairment model of SFAS No. 115. FSP EITF 99-20-1 achieves this by amending the
impairment model in EITF 99-20 to remove its exclusive reliance on “market
participant” estimates of future cash flows used in determining fair value.
Changing the cash flows used to analyze other-than-temporary impairment from the
“market participant” view to a holder’s estimate of whether there has been a
“probable” adverse change in estimated cash flows allows companies to apply
reasonable judgment in assessing whether an other-than-temporary impairment has
occurred. The Company’s adoption of FSP EITF 99-20-1 did not have a material
impact on the Company’s consolidated financial statements.




In April
2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly” (“FSP
FAS 157-4”). FSP FAS 157-4 provides additional guidance for estimating
fair value measurements in accordance with FASB Statement No. 157 when
there is not an active market or where the price inputs being used represent
distressed sales. FSP FAS 157-4 provides additional guidance on the major
categories for which equity and debt securities disclosures are to be presented
and amends the disclosure requirements of FASB Statement No. 157 to require
disclosure in interim and annual periods of the inputs and valuation
technique(s) used to measure fair value and a discussion of changes in valuation
techniques and related inputs, if any, during the period. FSP FAS 157-4
shall be applied prospectively and is effective for interim and annual reporting
periods ending after June 15, 2009, with early adoption permitted for
periods ending after March 15, 2009. An entity early adopting this FSP must
also early adopt FSP No. FAS 115-2 and FAS 124-2, Recognition and
Presentation of Other-Than-Temporary Impairment (“FSP FAS 115-2 and
FAS 124-2”). The Company is in the process of evaluating the impact, if
any, of applying this FSP on its conslidated financial position, results of
operations and cash flows.


14
 Stratos
Renewables Corporation and Subsidiaries
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 (Unaudited)


In April
2009, the FASB issued FSP FAS 115-2 and FAS 124-2. This FSP amends SFAS 115,
“Accounting for Certain Investments in Debt and Equity Securities,” SFAS 124,
“Accounting for Certain Investments Held by Not-for-Profit Organizations,” and
EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on
Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held
by a Transferor in Securitized Financial Assets,” to make the
other-than-temporary impairments guidance more operational and to improve the
presentation of other-than-temporary impairments in the financial statements.
This FSP will replace the existing requirement that the entity’s management
assert it has both the intent and ability to hold an impaired debt security
until recovery with a requirement that management assert it does not have the
intent to sell the security, and it is more likely than not it will not have to
sell the security before recovery of its cost basis. This FSP provides increased
disclosure about the credit and noncredit components of impaired debt securities
that are not expected to be sold and also requires increased and more frequent
disclosures regarding expected cash flows, credit losses, and an aging of
securities with unrealized losses. Although this FSP does not result in a change
in the carrying amount of debt securities, it does require that the portion of
an other-than-temporary impairment not related to a credit loss for a
held-to-maturity security be recognized in a new category of other comprehensive
income and be amortized over the remaining life of the debt security as an
increase in the carrying value of the security. This FSP shall be effective for
interim and annual periods ending after June 15, 2009, with early adoption
permitted for periods ending after March 15, 2009. An entity may early
adopt this FSP only if it also elects to early adopt FSP FAS 157-4. Also, if an
entity elects to early adopt either FSP FAS 157-4 or FSP FAS 107-1 and APB 28-1,
the entity also is required to early adopt this FSP.  The Company is
currently evaluating this new FSP but does not believe that it will have a
significant impact on the determination or reporting of the financial
results.





In April
2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, “Interim
Disclosures about Fair Value of Financial Instruments” (“FSP FAS 107-1 and
APB 28-1”). FSP FAS 107-1 and APB 28-1 requires companies to disclose in
interim financial statements the fair value of financial instruments within the
scope of FASB Statement No. 107, Disclosures about Fair Value of Financial
Instruments. However, companies are not required to provide in interim periods
the disclosures about the concentration of credit risk of all financial
instruments that are currently required in annual financial statements. The
fair-value information disclosed in the footnotes must be presented together
with the related carrying amount, making it clear whether the fair value and
carrying amount represent assets or liabilities and how the carrying amount
relates to what is reported in the balance sheet. FSP FAS 107-1 and APB
28-1 also requires that companies disclose the method or methods and significant
assumptions used to estimate the fair value of financial instruments and a
discussion of changes, if any, in the method or methods and significant
assumptions during the period. The FSP shall be applied prospectively and is
effective for interim and annual periods ending after June 15, 2009, with
early adoption permitted for periods ending after March 15, 2009. An entity
early adopting FSP FAS 107-1 and APB 28-1 must also early adopt FSP
FAS 157-4 as well as FSP FAS 115-2 and FAS 124-2. The Company
will adopt the disclosure requirements of this pronouncement for the quarter
ended June 30, 2009, in conjunction with the adoption of FSP
FAS 157-4, FSP FAS 115-2 and FAS 124-2.


15
 Stratos
Renewables Corporation and Subsidiaries
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 (Unaudited)


Note
3 - Plant and Equipment




Plant and
equipment consist of the following:




March 31,
                    
                    
                    December 31,2009
                    
                    
                    2008Description
                    
                    (unaudited)Sugar
      plant
                    
                    $
                    4,907,145
                    
                    
                    $
                    4,936,771Leasehold
      improvements
                    
                    
                    61,259
                    
                    
                    
                    61,629Computer
      equipment and software
                    
                    
                    169,192
                    
                    
                    
                    169,835Other
                    
                    
                    92,483
                    
                    
                    
                    91,8385,230,079
                    
                    
                    
                    5,260,073Less:
      accumulated depreciation
                    
                    
                    (51,308
                    )
                    
                    
                    (36,777
                    )Plant
      and equipment, net
                    
                    $
                    5,178,771
                    
                    
                    $
                    5,223,296




Depreciation
expense amounted to $14,618, $3,927 and $53,425 for the three months ended
March 31, 2009 and 2008 and for the period from February 27, 2007 (date of
inception) to March 31, 2009, respectively. Due to significant
modifications to the sugar plant, the plant is currently not in service and
is not being depreciated.





Note
4 - Stockholders’ Equity





Under the
Company’s Amended and Restated Articles of Incorporation dated November 14,
2007, the Company is authorized to issue 300,000,000 shares of capital stock,
consisting of 250,000,000 shares of Common Stock and 50,000,000 shares of
preferred stock, $.001 par value (“Series A Preferred Stock”).





Each
share of Common Stock issued and outstanding entitles the holder thereof to one
vote on all matters submitted to the vote of the stockholders. Dividends may be
declared and paid on the Common Stock only out of legally available
funds.





On April
17, 2008, the Company created a series of the Series A Preferred Stock
consisting of 15,000,000 authorized shares which was designated as (“Series A
Convertible Preferred Stock”) with a par value of $0.001 and a conversion price
of $0.70.





Each
share of Series A Preferred Stock will automatically convert into shares of the
Company’s Common Stock if the Common Stock has been trading above $2.00 per
share for a period of 120 consecutive days.  The Series A Preferred
Stock entitles the holder to a 10% per annum cumulative dividends and a 150%
liquidation preference.  The Series A Preferred Stock contains
anti-dilution provisions and the holder is entitled to a number of votes equal
to the number of shares of Common Stock issuable upon conversion of the holder’s
Series A Preferred Stock.





Conversion of Series A
Preferred Stock for Common Stock





On
January 8, 2009, certain holders of Series A Preferred Stock converted 171,420
shares into 183,864 shares of the Company’s Common stock.  The
principal and the 10% per annum cumulative dividends related to the conversion
were $119,994 and $8,711, respectively, with a conversion price of
$0.70.




16


Stratos
Renewables Corporation and Subsidiaries
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 (Unaudited)


Consulting
Agreements





On
February 18, 2009, the Company entered into consulting agreements with two
unaffiliated third parties to provide investor relations services for the
Company.  As part of the consulting agreements, the Company issued two
separate unsecured convertible promissory notes with an aggregate principal
balance of $60,000.  The interest rate for each note was 5% with the
total principal and unpaid interest due on February 18, 2010.  The
notes were convertible into shares of Common Stock at a conversion price
calculated as the average of the closing bid price for the shares for ten
business days prior to the conversion date.  On March 20, 2009, the
holders of the notes converted the $60,000 principal and accrued interest at a
conversion price of $0.27 into 220,682 shares of Common Stock.





Common StockIssuedforInterest





Per the
unsecured promissory note agreements with certain holders, the Company issued
302,935 shares of Common Stock representing additional interest of $105,616 (see
“Convertible Note Financing” in Note 5).





Note
5 - Convertible Promissory Notes




Issuance of $350,000
Unsecured Convertible Promissory Note





On
October 18, 2007, Stratos Peru entered into an asset purchase agreement, or the
Asset Purchase Agreement, and an escrow agreement, or the Escrow Agreement, with
Gabinete Técnico de Cobranzas S.A.C., a Peruvian corporation, or Gabinete,
pursuant to which Stratos Peru acquired certain assets and rights from Gabinete
relating to the Estrella del Norte sugar mill located in the province of Chepen,
Peru. Stratos Peru paid approximately $4.5 million plus a value added tax of 19%
to acquire the sugar mill. Of the purchase price, Stratos Peru held back
$350,000, or the Holdback, representing approximately 7.74% of the purchase
price, which was placed into an escrow contingencies account with Banco
Continental in Lima, Peru, or the Escrow Account.





On July
1, 2008, Stratos Peru and the Company agreed to release the Holdback to the
Company, subsequent to which the Company issued Gabinete an unsecured
convertible promissory note in the principal amount of $350,000, for the Company
to use as working capital. The parties have also terminated the Escrow Agreement
in order to transfer the funds from the Escrow Account to the Company as
consideration for the note. If any liability issues arise with respect to the
sugar mill, the amount will be offset from or against amounts payable by the
Company to Gabinete under the note.





The note
matures on October 30, 2009, and bears interest at the rate of 8% per annum,
payable at the maturity date. Gabinete has the option to convert 110% of the
repayment amount into units of the Company at $0.70 per unit, with each unit
consisting of (i) one share of common stock and (ii) one half of a warrant to
purchase a share of the Company’s common stock at an exercise price of $0.75 per
share, with a five-year term and cashless exercise provision.





Convertible Note
Financing





During
the year ended December 31, 2008, the Company issued unsecured convertible
promissory notes in the principal amount of $1,850,000, and warrants to purchase
up to 435,292 shares of common stock of the Company, to unaffiliated third party
investors. The Company received gross proceeds of $1,850,000, less fees of
$47,500 of the purchase price paid and other expenses. The notes were scheduled
to mature at various times between November 23, 2008 and January 1, 2009, and
had interest at the rate of 12% per annum, payable in full at
maturity.




17


Stratos
Renewables Corporation and Subsidiaries
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 (Unaudited)


If at
least $25 million was not raised by the Company on or before the applicable
maturity date, the Company would have an additional 3 months (extending the
maturity date) to repay the note holders in full before the notes were in
default. If the notes were not paid on or before the applicable maturity
date, the Company would pay the interest rate plus 2% per annum and increasing
by 2% per annum each 30 days thereafter until the extended maturity date,
provided that in no event will the annual interest rate exceed 18%. The note
holders would be entitled to receive 115% of the sum of the original principal
and accumulated interest, if the note holders chose to be repaid in cash on the
maturity date. The note holders would have the option to convert 110% of the
repayment amount into shares of common stock at $0.70 per share. The note
holders would also be paid a monitoring fee of 5% of the original principal
amount of the note. If the note were not paid on or before the maturity date (as
extended), the Company would issue to the note holders shares of the common
stock equal to 5% of the then unpaid portion of the original principal amount
divided by $0.85, on each of the dates that are 7, 8 and 9 months from the date
of issuance. The warrants expire 5 years from their various dates of issuance,
and have an exercise price of $0.85 per share. They also contain a cashless
exercise provision.





The
Company received extensions on these convertible promissory notes that extend
the maturity dates between February 23, 2009 and April 18, 2009.  The
Company has not made the necessary re-payments to meet the extended maturity
dates on certain of these convertible promissory notes that total $1,850,000;
however, the Company is currently in negotiations with the convertible
promissory note holders to further extend these maturity dates.





Pursuant
to the loan provisions, the Company issued 302,935 shares of common stock valued
at $105,616, which is recorded as interest and financing expense in the
accompanying consolidated statements of operations.





Issuance of $2,000,000
Secured Convertible Promissory Note





On July
25, 2008, the Company completed a financing pursuant to which the Company issued
a secured convertible promissory note, in the principal amount of $2,000,000,
and warrants to purchase up to 714,286 shares of common stock of the Company, to
Whitebox Hedged High Yield Partners, LP, a British Virgin Islands limited
partnership. The Company received gross proceeds of $2,000,000, less fees of 10%
of the purchase price paid and other expenses. The note matures on December 31,
2009, or if the note holder elects to accelerate the maturity date, July 23,
2009. The note bears interest at the rate of 12% per annum, payable in full at
the maturity date.





So long
as any principal or interest remains outstanding under the note, the note holder
will have the right to participate in debt or equity financings undertaken by
the Company, up to a maximum of 25% of the amounts raised by the Company in any
such financing, on the same terms as the other participants of such
financing.





The note
may be prepaid by the Company in whole but not in part from time to time. If the
note is prepaid by the Company more than 30 days prior to the maturity date, the
Company has agreed to pay the note holder a prepayment fee equal to 25% of the
sum of the principal amount of the note and all accrued and unpaid interest. The
note holder will have the option to convert all of the unpaid principal and
accrued and unpaid interest on the note plus any prepayment fee, if applicable,
into shares of common stock of the Company at a conversion price of $0.70 per
share. Under certain circumstances, such as in the event of the sale of
securities of the Company at a price less than $0.70 per share, the conversion
price will be subject to adjustment. Upon the occurrence of any event of
default, in addition to all amounts owing to the note holder under the note
becoming due and payable in full, the Company will pay to the note holder an
additional sum of $100,000.




18


Stratos
Renewables Corporation and Subsidiaries
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 (Unaudited)


The note
is secured by 100% of the shares owned by the Company in its wholly-owned U.S.
subsidiary and its two Peruvian subsidiaries.





Issuance of $5,000,000
Unsecured Convertible Promissory Note





On August
27, 2008, the Company completed a financing pursuant to which the Company issued
an unsecured convertible promissory note in the principal amount of $5,000,000,
and warrants to purchase up to 2,500,000 shares of common stock of the Company,
to an unaffiliated accredited investor. The Company received gross proceeds of
$5,000,000, less placement fees of 10% of the principal amount of the note and
other expenses.  In connection with this financing, the Company also
issued warrants to purchase 357,143 shares of common stock of the Company to a
finder.  The note matures on December 31, 2009, or if the note holder
elects to accelerate the maturity date, July 23, 2009. The note bears interest
at the rate of 10% per annum, payable in full at the maturity date.




The note
may be prepaid by the Company in whole, but not in part, from time to time. If
the note is prepaid by the Company more than 30 days prior to the maturity date,
the Company has agreed to pay the note holder a prepayment fee equal to 15% of
the sum of the principal amount of the note and all accrued and unpaid interest.
Upon the occurrence of any event of default, all amounts owing to the note
holder under the note become due and payable in full.





At any
time prior to payment in full of the note, the note holder has the option to
convert any, or all of, the unpaid principal and accrued and unpaid interest on
the note plus any prepayment fee, if applicable, into shares of common stock of
the Company at a conversion price of $0.70 per share. Under certain
circumstances, such as in the event of the sale of securities of the Company at
a price less than $0.70 per share, the conversion price will be subject to
adjustment.




So long
as the note is outstanding, the Company and its subsidiaries are restricted from
incurring certain items of debt without the prior written consent of the holders
a majority of the then outstanding aggregate unpaid principal amount of the note
(plus any other additional notes of the same series which may be issued in the
future, if at all, in the aggregate amount of up to $10,000,000).





The
Company has also agreed to provide piggyback registration rights with respect to
the shares to be issued upon conversion, pursuant to which the Company will use
its best efforts to register such shares in the event that it proposes to
register any of its securities under the Securities Act.





Consulting
Agreements





In
November 2008, the Company entered into consulting agreements with five
unaffiliated third parties.  As part of the consulting agreement, the
Company issued five separate convertible notes with an aggregate principal
amount of $95,000.  The convertible notes mature on various dates
between November 17, 2009 and November 24, 2009.  Each note bears an
interest rate of 5% per annum and is convertible into shares of common stock at
$0.70 per share.




19





Stratos
Renewables Corporation and Subsidiaries
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 (Unaudited)


A summary
of the convertible promissory notes and related discounts is below:





Description
                    
                    AmountUnsecured
      convertible note - Gabinete
                    
                    $
                    350,000Unsecured
      convertible note - various investors
                    
                    
                    1,850,000Secured
      convertible note - Whitebox
                    
                    
                    2,000,000Unsecured
      convertible note - I2BF
                    
                    
                    5,000,000Unsecured
      convertible note - consultants
                    
                    
                    95,000Gross
      principal balance, March 31, 2009
                    
                    
                    9,295,000Unamortized
      debt discount
                    
                    
                    (2,782,384
                    )Balance,
      March 31, 2009, net
                    
                    $
                    6,512,616




The
Company has recorded interest expense of $364,060, $731,520 and $2,392,953 for
the three months ended March 31, 2009 and 2008 and for the and for the period
from February 27, 2007 (date of inception) to March 31, 2009,
respectively.





The
Company amortized debt discounts and debt issuance costs of $1,188,684, $609,317
and $4,969,050 for the three months ended March 31, 2009 and 2008, and for the
period from February 27, 2007 (date of inception) to March 31, 2009,
respectively.





Note
6 – Accrued Derivative Liabilities





Accrued Warrant
Liability





The
Company has issued warrants as part of the debt issuances, stock issuances and
consulting services.  The warrants met the definition of a derivative
instrument in accordance with SFAS 133 and EITF 00-19, and as such, the warrants
were initially recorded as accrued warrant liabilities.  Therefore,
the adoption of EITF 07-5 effective January 1, 2009, had no impact on the
Company’s accounting of warrant liability.  The fair value of all
warrants at March 31, 2009 is $1,000,182.  The fair value was
determined using the Black-Scholes option pricing model under the following
assumptions:  expected life between 1.63 and 4.41years, risk free
interest rate between 0.81% and 1.67%, dividend yield of 0%, and volatility
of 110%.





Accrued Conversion Option
Liability





The
conversion option embedded in the Company’s convertible debt, as described in
Note 5,  previously met the criteria of being “conventional
convertible” debt and, accordingly, it was not separately accounted for as a
derivative instrument liability.  However, the conversion option does
not meet the criteria of EITF 07-5 because it requires that the conversion price
be adjusted in certain circumstances that do not meet the “fixed-for-fixed”
criterion in that Issue.  As a result, the Company is now required to
separately account for the embedded conversion option as a derivative instrument
liability, carried at fair value and marked-to-market each period, with changes
in the fair value each period charged to operations.


20




Stratos
Renewables Corporation and Subsidiaries


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


(Unaudited)





In
accordance with the transition provisions of EITF 07-5, the new guidance has
been applied to the $9,295,000 of the Company’s convertible notes that were
outstanding as of January 1, 2009.  The cumulative effect of this
change in accounting principle of $1,955,548 has been recognized as a reduction
of the opening balance of accumulated deficit as of that date.  That
cumulative effect adjustment is the difference between the amounts previously
recognized in the Company’s balance sheet as of December 31, 2008 and the
amounts that would have been recognized if the guidance in EITF 07-5 had been
applied from the issuance date of the outstanding convertible
notes.  The fair value of all conversion options at March 31, 2009 is
$262,918.  The fair value was determined using the Black-Scholes
option pricing model under the following assumptions:  expected life
between 0.63 years, risk free interest rate of 0.43%, dividend yield of 0%,
and volatility of 110%.





Note
7 - Intercompany Promissory Note





In
connection with the Share Exchange, the Company agreed to lend Stratos Peru $5.5
million pursuant to the terms of a Promissory Note, dated as of November 14,
2007 (the “Promissory Note”). The Promissory Note is unsecured, bears interest
at a rate of 4.39% per annum, and must be repaid in full on or before November
14, 2014.  The agreement was amended which ceased the accrual of
interest as of January 1, 2008.  As of March 31, 2009 and December 31,
2008 there was $30,181 of accrued interest. This amount has been eliminated in
consolidation.





Note
8 - Commitments and Contingencies





Leases





The
Company entered into a four-year lease agreement for office space in Lima, Peru,
for monthly payments of $6,179. The lease began in January 2008.





In
September 2008, the Company entered into a one-year lease for office space in
Chiclayo, Peru for monthly payments of $1,140 for the first five months and
$1,055 for the next seven months.





On June
19, 2008, the Company entered into a 99-year land lease agreement, expiring in
2107, for approximately 24,000 hectares of land in Peru.  The annual
lease payment is approximately $192,000 ($8 per hectare) for the first year,
$240,000 ($10 per hectare) after the first year until the initial harvest, and
then $1,200,000 ($50 per hectare) thereafter.





Total
rent expense for the leases described above was approximately $71,000, $19,000
and $254,000 for the three months ended March 31, 2009 and 2008, and for the
period from February 27, 2007 (date of inception) to March 31, 2009,
respectively.





Litigation





The
Company is subject to various legal matters arising in the ordinary course of
business. After taking into consideration the Company’s legal counsels’
evaluation of these matters, the Company has determined that the resolution will
not have a material adverse effect on the Company’s consolidated financial
statements.


21


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





Forward-looking
statements





The
following discussion of our financial condition and results of operations should
be read in conjunction with the financial statements and the related notes
thereto included elsewhere in this quarterly report on Form 10-Q. This quarterly
report on Form 10-Q contains certain forward-looking statements and our future
operating results could differ materially from those discussed herein. Certain
statements contained in this discussion, including, without limitation,
statements containing the words "believes," "anticipates," "expects" and the
like, constitute "forward-looking statements" within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). However, as we issue
“penny stock,” as such term is defined in Rule 3a51-1 promulgated under the
Exchange Act, we are ineligible to rely on these safe harbor provisions. Such
forward-looking statements involve known and unknown risks, uncertainties and
other 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 such forward-looking statements. Given these
uncertainties, readers are cautioned not to place undue reliance on such
forward-looking statements. We disclaim any obligation to update any such
factors or to announce publicly the results of any revisions of the
forward-looking statements contained herein to reflect future events or
developments.





Overview





Currently,
we are a development stage company with no revenues from
operations.  We intend to engage in the business of producing,
processing and distributing sugarcane ethanol in Peru. Ethanol is a renewable
energy source that provides significant economic and environmental benefits when
mixed with gasoline and used as motor fuel.  We intend to utilize
low-cost, locally grown sugarcane feedstock and service international markets,
with a focus on the U.S., which allows for tariff-free exports.  We
intend to eventually produce more than 90% of the sugarcane we process, and
purchase the remaining 10% from local unaffiliated third party
suppliers.  We are executing on a vertically integrated, disciplined,
logistical strategy for production and expansion that is designed to reduce
commodity price volatility and lead to competitively high yields.





Sugarcane
Ethanol





Sugarcane
ethanol is a clean burning, high-octane biofuel.  It is a renewable
energy source and can be grown year after year.  Pure ethanol, a grain
alcohol produced from sources such as corn and sugarcane, is not typically used
as a replacement for gasoline.  Rather, anywhere from 10 – 85% ethanol
can be integrated into a gasoline supply to reduce both oil consumption and fuel
burning emissions that contribute to global warming.  Sugarcane has
become a primary fuel source for Brazil, a country that has successfully weaned
itself from dependency on foreign oil.  We believe that Peru is
capable of growing up to twice the amount of sugarcane per hectare than an
equivalent operation in Brazil (1 hectare is approximately equal to 2.5
acres).  Further, sugarcane produces up to seven times more per land
mass than corn and sugarcane-based ethanol is currently the only biofuel that
creates no “net carbon dioxide emissions.”





Peru





We
believe that Peru is an attractive location for the cultivation, processing,
distribution and use of alternative fuels.  Peru’s soil and
agro-climate conditions allow for year-round sugarcane harvesting and high
yields, as unlike uncontrolled climates in other countries where sugarcane is
being cultivated, water and nutrient content can be managed using modern
irrigation technology.


22


Land
prices in Peru have historically been significantly less than the prices in
developed countries currently producing other feedstock.  Reduced
transportation costs for exporting and distribution are also available due to
coastal access and proximity to the Pan-American Highway.





Peru is
consistently ranked as one of the highest yield sugarcane producers in the world
based on average yield per hectare.  We believe that Peru also has a
constructive tax, regulatory and alternative energy-friendly legislative
environment.





Megatrends Driving the
Market Opportunity





Environmental,
geopolitical and economic macro forces are driving the biofuel market. We
believe that these forces are generating an increasing interest in the biofuels
as an efficient and effective way to reduce carbon footprints.





Current
policy initiatives, if fully implemented, could result in biofuels (mainly
ethanol) displacing motor gasoline use. With regulatory directives requiring a
minimum level of ethanol content in gasoline, many countries have instituted
initiatives including tax incentives and biofuel blending mandates to accelerate
the rate of biofuel production. Currently these mandates exist in 15 countries
at national, regional or state levels – including California. Peru has mandated
that gasoline include 7.8% ethanol by 2010.  The United States
Renewable Fuel Standard (“RFS”) mandates the use of 36 billion gallons of
renewable fuels per year by 2022, and we believe that production is currently
behind these mandated levels.





Sugarcane-based
ethanol production enables countries that have existing sugar industries, such
as Peru, to produce ethanol rather than sugar from sugarcane, reducing reliance
on what has historically been a volatile sugar commodity
market.  Brazil is currently the world’s largest producer of sugarcane
ethanol.  Because we are able to harvest year round, we believe that
we can produce at least 145 tons of sugarcane per hectare per year,
approximately twice the average hectare in Brazil.  Given Peru’s low
cost of production, free trade agreements with the U.S. and Canada, climatic
advantages and available land, we believe ethanol production in Peru could
displace portions of Brazil’s ethanol export market.





Plan
of Operations





Our
business plan consists of two phases. Phase I will be primarily focused on
establishing, expanding and operating our initial ethanol production facilities
and developing our infrastructure.  Phase II will be primarily focused
on developing and expanding our operations in strategic locations.





Phase I





Phase I
of our business plan is comprised of four components:





·
            Mill
      and distillery acquisition, expansion and
  modification.





·
            Land
      sourcing.





·
            Field
      installment.





·
            Conducting
      feasibility studies and generating a business plan for Phase
      II.


23


Mill
and Distillery Acquisition, Expansion and Modification





On
October 18, 2007, Stratos Peru entered into an asset purchase agreement with
Gabinete Tecnico de Cobranzas S.A.C., or Gabinete, pursuant to which it acquired
certain assets and rights relating to the Estrella del Norte sugar mill located
in the province of Chepen, Peru, or the Sugar
Mill.    Stratos Peru paid approximately $4.5 million plus a
value added tax (“VAT”) of 19% to acquire the Sugar Mill. On July 1, 2008,
we issued Gabinete an unsecured convertible promissory note in the principal
amount of $350,000, for the Company to use as working capital. The note will
mature on October 30, 2009, and bears interest at the rate of 8% per annum,
payable at the maturity date.  Gabinete has the option to convert 110%
of the repayment amount into units of the Company at $0.70 per unit, with each
unit consisting of (i) one share of common stock and (ii) one half of a warrant
to purchase a share of the Company’s common stock at an exercise price of $0.75
per share, with a five-year term and cashless exercise provision.





We are in
the process of relocating the Sugar Mill to a better and more strategic location
near the Pan-American Highway, and we plan to acquire and install a distillery
unit to adjoin it for the production of Industrial Grade Alcohol also known as
ethanol. Additionally, we plan to upgrade the Sugar Mill’s crushing capacity of
sugarcane from 750 tons to 2,300 tons of sugarcane per day. After modifying,
expanding and including the new distillery to the Sugar Mill, we plan to use
100% of its capacity to produce industrial grade ethanol to be exported to the
European markets with an estimated 16 million gallons of ethanol per year in its
maximum capacity.





Land
Sourcing





The
second component of Phase I will be to secure land for sugarcane production from
three potential sources:





·
            Small
      and medium private land lots.


·
            Peasant
      community land lots.


·
            State
      owned land lots.





The most
important factors in locating land suitable for sugarcane production
are:





·
            Water
      supply.


·
            Soil
      composition.


·
            Climate.


·
            Distance
      from the Sugar Mill.


·
            Access
      to roads and other services.





We plan
to acquire land holdings of at least 48,000 hectares in order to fulfill the
needs of operations in Phase II.  On May 3, 2008, we entered into a
lease agreement with an unaffiliated third party in order to obtain the rights
to use 24,000 hectares of undeveloped land in Peru, of which 15,000 hectares are
plantable land.  On November 8, 2008, we entered into an addendum to
this lease agreement which gives us the right to plant on all 24,000 hectares,
rather than just 15,000.





Field
Installment





We
believe that the Peruvian coast is ideal for these modern farming techniques, as
water and nutrient content can be managed due to the sandy soil and irrigation
equipment to be installed. As part of our “greenfield” strategy, we intend
to use the following crop management techniques to ensure maximum yield with
high sucrose and inverted sugar content:


24


·
            Channeling
      water to the sites from national irrigation
  projects.


·
            Field
      irrigation installation with back-up water
  supply.





Land
preparation to ensure the longevity and productivity of the fields
which includes grading, leveling, initial nutrient and organic material
installation, and field layout.





·
            Draw
      water directly from underground aquifers, thereby avoiding difficult and
      often costly and labor-intensive efforts of using canals and/or
      pipelines.





With a
replenishing supply of water buildup underneath the proposed plantation fields,
our feasibility studies have shown that there is ample water supply to support
our planned operations.  Wells will be dug to test the water and
determine the best method for accessing to it.





Conducting
Feasibility Studies and Generating a Business Plan for Phase II





The final
component of Phase I will initially involve hiring consultants to conduct a
feasibility study based on the information provided by our land sourcing
efforts. The study will focus on generating cost estimates and designs based on
analyzing the climactic, water, soil, topography and irrigation characteristics
of the properties identified by our land sourcing team. Following the completion
of the feasibility study, we will create a comprehensive business plan for Phase
II consisting of an overview of the industry, a market analysis, competitive
analysis, marketing plan, management plan and financial plan.





Our goal
is to have all of the components of Phase I fully operative by the second
quarter of 2010, so that we can begin executing Phase II.  We
anticipate that we will need approximately $14 million ($11.8 million net of 19%
Peruvian VAT) of additional funding to complete Phase I.





Phase II





Phase II
of our business plan will consist of our expansion in strategic locations along
the northern Peruvian coast and the cultivation of our own sugarcane supplies to
be used for production. In connection with Phase II, we need to secure over
an additional $755 million ($634 million net of 19% Peruvian VAT) in order to
plant sugarcane on 48,000 hectares of raw land, and acquire and operate a total
of four mills with attached ethanol distilleries, with expandable capacities and
distribution port infrastructure. By the fourth quarter of 2014, it is our goal
to be able to process a total of 25,000 tons of sugarcane per day, and produce
approximately 180 million gallons of anhydrous ethanol annually.





We expect
to initiate Phase II in 2010. The mill and distillers we plan to establish in
Phase II will be located in regions that we have selected based on our extensive
research of agro climatic conditions, hydrology, basic services, logistic
supplies and social environment. We plan to establish the four locations in two
stages.





Stage
One





During
the first stage, which we anticipate will begin in the second quarter of 2010,
we plan to prepare and plant sugarcane on 24,000 hectares of land
located along the northern Peruvian coast, and will conduct the required
feasibility studies for the additional 24,000 hectares of land from the
second stage.  We anticipate that the first 90 million gallons per year, or
MGY, Ethanol Facility (EDN2 and EDN3) will be fully operative by the third
quarter of 2011. We estimate that the total cost for Stage One will be
approximately $400 million ($336 million net of 19% Peruvian
VAT).


25


Stage
Two





During
the second stage, which we anticipate will begin in the second quarter of 2012,
we plan to plant the second 24,000 hectares of land located along the
northern Peruvian coast. We anticipate that the second 90 MGY Ethanol Facility
(EDN4 and EDN5) will be fully operative by the third quarter of 2013. We
estimate that the total cost for this stage will be approximately $355 million
($298 million net of 19% Peruvian VAT).





Trends
and Uncertainties





We have
not generated any operating revenues and have working capital deficits, which
raises substantial doubt about our ability to continue as a going concern.
During the three months ended March 31, 2009, the Company recorded net income of
$317,835 and as of March 31, 2009, the Company has a deficit accumulated during
the development stage of $11,229,444.




Our
future growth will be dependent initially on our ability to establish reliable
sources of sugarcane for the operation of the Sugar Mill, and going forward, on
our ability to develop our own supplies of sugarcane. Additionally, we must be
successful in establishing seedling and land sourcing programs in order to allow
us to develop a consistent, reliable and cost-effective long-term supply of
sugarcane.





We will
require a significant amount of additional capital in the future to sufficiently
fund our operations. We estimate that Phase I of our business plan, which is
currently in effect, will cost a total of approximately $37 million ($31 million
net of 19% Peruvian VAT). We estimate that we will need an additional $755
million ($634 million net of 19% Peruvian VAT) to fund our expansion during the
course of Phase II of our operations, which is set to commence during 2009 and
continue for five years thereafter.





We may
not be able to obtain additional capital on terms favorable to us or at all. We
have no agreements, commitments or understandings in place to secure this
financing.





We expect
to increase our operating expenses over the coming years, which are expected to
be commensurate with the increased operations.





Most of
our operations, including the Sugar Mill, the land we have obtained the rights
to, and the land we propose to obtain the rights to on which to grow our
sugarcane supplies, are located in Peru. Although we believe that conducting
operations in Peru will provide us with significant competitive advantages, we
will also be subject to risks not typically associated with ownership of a
company in the United States.





Results
of Operations





For the three months ended
March 31, 2009 vs. the three months ended March 31, 2008





The
following table sets forth our expenses (income) for the periods
indicated:


26





Three
      Months
                
                
                Three
      MonthsEnded
                
                
                EndedMarch
      31,
                
                
                March
      31,
                
                
                Increase
                
                
                Percentage2009
                
                
                2008
                
                
                (Decrease)
                
                
                ChangeConsulting
      fees
                
                $
                32,020
                
                
                $
                745,470
                
                
                $
                (713,450
                )
                
                
                -95.7
                %General
      and administrative
                
                $
                471,427
                
                
                $
                881,964
                
                
                $
                (410,537
                )
                
                
                -46.5
                %Professional
      fees
                
                $
                192,894
                
                
                $
                671,943
                
                
                $
                (479,049
                )
                
                
                -71.3
                %Salaries
      and wages
                
                $
                603,946
                
                
                $
                431,376
                
                
                $
                172,570
                
                
                
                40.0
                %Amortization
      of debt discounts and debt issuance costs
                
                $
                1,188,684
                
                
                $
                609,317
                
                
                $
                579,367
                
                
                
                95.1
                %Interest
      expense
                
                $
                364,060
                
                
                $
                731,520
                
                
                $
                (367,460
                )
                
                
                -50.2
                %Change
      in fair value of derivative liabilities
                
                $
                (3,167,934
                )
                
                $
                (203,083
                )
                
                $
                (2,964,851
                )
                
                
                1459.9
                %





Consulting
fees were $32,020 for the three months ended March 31, 2009 compared to $745,470
for the three months ended March 31, 2008.  During the three months
ended March 31, 2008, we incurred significant costs outsourcing certain
functions to third party consultants to assist in advising on agricultural
landscapes, other sugarcane development methods, and advising on dismantling and
rebuilding the Sugar Mill.  We expect the consulting fees to increase
once we receive additional funding.





General
and administrative costs were $471,427 for the three months ended March 31, 2009
compared to $881,964 for the three months ended March 31, 2008.  The
significant decreases were due to the decrease in investor relations expenses of
approximately $316,000 and travel expenses of approximately
$75,000.  The investor relations and travel expenses incurred during
the three months ended March 31, 2008 were related to our efforts to secure
financing.





Professional
fees were $192,894 for the three months ended March 31, 2009 compared to
$671,943 for the three months ended March 31, 2008, primarily due to a decrease
in legal fees by approximately $392,000. The decrease in legal fees is because
we had legal consultants assist in the land acquisitions and structuring of
financing arrangements during the three months ended March 31,
2008.





Salaries
and wages were $603,946 for the three months ended March 31, 2009 compared to
$431,376 for the three months ended March 31, 2008.  The increase is
due to the hiring of key executives throughout the last quarters of
2008.  We expect our wages to remain consistent for each quarter in
the year ending December 31, 2009.





Amortization
of debt discounts and debt issuance costs were $1,188,684 for the three months
ended March 31, 2009 compared to $609,317 for the three months ended March 31,
2008.  These costs represent the fair value of the warrants and
beneficial conversion features that are recorded as debt discounts and amortized
over the terms of the debt.  Included in this amount are costs
associated with issuing debt which is then amortized over the terms of the
debt.  These costs will continue to increase during 2009 as the
Company continues to issue debt, in exchange for cash, in order to complete
Phase I and Phase II.





Interest
expense was $364,060 for the three months ended March 31, 2009 compared to
$731,520 for the three months ended March 31, 2008.  These costs
consist of the interest expense and the interest premium associated with the
convertible notes.  The interest expense for the three months ended
March 31, 2009 decreased by $367,460 compared to the three months ended March
31, 2008.   However, the outstanding debt increased by
approximately $6.3 million for the three months ended March 31, 2009 versus the
three months ended March 31, 2008.  The decrease in interest rate for
the three months ended March 31, 2009 is due to the repayment of debt with the
issuance of new debt with more favorable terms.  The debt outstanding
during the three months ended March 31, 2008, had a base rate of approximately
10% plus a 30% premium and an additional 10% premium if the debt were paid in
shares.  We accrued interest expense based on the fact that we
anticipated paying the debt with shares of our common stock.  However,
the majority of the principal was repaid.  The convertible notes that
are currently outstanding have premiums of 15% with interest rates between 10%
and 12%.


27


The
change in the value of the derivative liabilities resulted in a gain of
$3,167,934 and $203,083 for the three months ended March 31, 2009 and 2008,
respectively.  The gain is due to the decrease in share price which
causes the fair value of the derivative liabilities to decrease thereby reducing
the liabilities with a corresponding gain recorded in the consolidated statement
of operations.  We also implemented EITF 07-5 and recorded on January
1, 2009 an accrued conversion option liability of $1,778,343 which had a fair
value of $269,919 for a decrease of $1,515,424 in the conversion option
liability.





Liquidity
and Capital Resources





At March
31, 2009, our cash and cash equivalents totaled approximately $65,313, compared
to approximately $761,257 as of December 31, 2008.  Currently, our
operations are funded by financing activities.  Our existing capital
resources are not sufficient to fund our operations for the next twelve months,
and therefore, we will need additional financing to fund future operations
through offerings of equity or debt securities.  We can offer no
assurances that we will be able to obtain additional funds on acceptable terms,
if at all.





To date,
we have had negative cash flows from operations and we have been dependent on
sales of our equity securities and debt financing to meet our cash requirements.
We expect this situation to continue for the foreseeable future as we currently
do not have any revenue streams. Therefore, we anticipate that we will have
negative cash flows from operations for our fiscal year ending December 31,
2009.





Given
that we are a development stage company and have not generated any revenues to
date, our cash flow projections are subject to numerous contingencies and risk
factors beyond our control, including our ability to manage our expected growth,
complete construction of our proposed plant and commence operations. We can
offer no assurance that our company will generate cash flows sufficient to meet
our cash flow projections or that our expenses will not exceed our projections.
If our expenses exceed estimates, we will require additional monies during the
next twelve months to execute our business plan.





There is
no assurance that we will be able to obtain funds required for our continued
operations. There can be no assurance that additional financing will be
available to us when needed or, if available, that it can be obtained on
commercially reasonable terms. If we are not able to obtain additional financing
on a timely basis, we will not be able to meet our other obligations as they
become due and we will be forced to scale down or perhaps even cease the
operations of our business.





Cash
Used in Operating Activities





Our net
cash used in operating activities for the three months ended March 31, 2009 was
$763,935.  During the three months ended March 31, 2009, the cash used
in operating activities was comprised primarily of our net income of $317,835
decreased by the change in derivative liabilities value of $3,167,934 offset
primarily by the amortization of debt discounts and debt issuance costs of
$1,188,684 and the increase of our accounts payable, accrued interest and other
payables of $555,874, collectively.





Cash
Used in Investing Activities





Due to
our lack of financing, we did not make any purchases of plant and equipment
during the three months ended March 31, 2009 compared to $566,646 for the three
months ended March 31, 2008.


28


Cash
Flows from Financing Activities





Historically,
we have met our immediate and long-term financial requirements primarily through
the sale of common stock and other convertible equity securities and through the
issuance of convertible promissory notes.  For the three months ended
March 31, 2009 we did not receive any funds through financing or funding
compared to $1,585,794 of proceeds received from sale of common stock for the
three months ended March 31, 2008.





Contractual
Obligations





At March
31, 2009, our significant contractual obligations, except for the land lease
referred to below, were as follows:





Payments
      due by PeriodLess
      than
                                      
                                      
                                      One
      to
                                      
                                      
                                      Three
      to
                                      
                                      
                                      More
      ThanOne
      Year
                                      
                                      
                                      Three
      Years
                                      
                                      
                                      Five
      Years
                                      
                                      
                                      Five
      Years
                                      
                                      
                                      TotalPromissory
      notes
                                      
                                      $
                                      9,295,000
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      9,295,000Operating
      lease obligations
                                      
                                      
                                      84,897
                                      
                                      
                                      
                                      159,688
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      244,585Total
                                      
                                      $
                                      9,379,897
                                      
                                      
                                      $
                                      159,688
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      9,539,585





On June
19, 2008, we entered into a 99-year land lease agreement, expiring in 2107 for
approximately 24,000 hectares of land in Peru.  The annual lease
payment is approximately $192,000 for the first year, $240,000 after the first
year until the initial harvest, and then $1,200,000 thereafter.





Off-Balance
Sheet Arrangements





Our
Company has no outstanding off-balance sheet guarantees, interest rate swap
transactions or foreign currency contracts. Neither our Company nor our
operating subsidiaries engage in trading activities involving non-exchange
traded contracts.





Critical
Accounting Policies





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires our management to make
assumptions, estimates and judgments that affect the amounts reported, including
the notes thereto, and related disclosures of commitments and contingencies, if
any.  We have identified certain accounting policies that are significant
to the preparation of our consolidated financial statements.  These
accounting policies are important for an understanding of our financial
condition and results of operations.  Critical accounting policies are
those that are most important to the presentation of our financial condition and
results of operations and require management's subjective or complex judgment,
often as a result of the need to make estimates about the effect of matters that
are inherently uncertain and may change in subsequent periods.  Certain
accounting estimates are particularly sensitive because of their significance to
financial statements and because of the possibility that future events affecting
the estimate may differ significantly from management's current judgments.
 We believe the following accounting policies are critical in the
preparation of our consolidated financial statements.


29


Use of
Estimates





The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles 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.
Significant areas requiring the use of management estimates relate to the
determination of depreciation rates for equipment, future tax rates used to
determine future income taxes and the carrying values of goodwill and warrant
and conversion option liabilities. Actual results could materially differ from
these estimates.





Impairment ofLong-LivedAssets





We follow
the guidance of SFAS No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets” (“SFAS 144”), which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. We periodically
evaluate the carrying value of long-lived assets to be held and used in
accordance with SFAS 144. SFAS 144 requires impairment losses to be recorded on
long-lived assets used in operations when indications of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets’ carrying amounts. In that event, a loss is recognized
based on the amount by which the carrying amount exceeds the fair market value
of the long-lived assets. Loss on long-lived assets to be disposed of is
determined in a similar manner, except that fair market values are reduced for
the cost of disposal. We believe that as of March 31, 2009 and December 31,
there were no significant impairments of its long-lived assets.





ForeignCurrencyTranslation





Our
functional and reporting currency is the U.S. dollar. Monetary assets and
liabilities denominated in foreign currencies are translated using the exchange
rate prevailing at the balance sheet date. Gains and losses arising on
translation or settlement of foreign currency denominated transactions or
balances are included in the determination of income. Foreign currency
transactions are primarily undertaken in Peruvian Nuevos Soles and Argentinean
Pesos. We have not, to the date of these financials statements, entered into
derivative instruments to offset the impact of foreign currency
fluctuations.





AccruedDerivative
Liabilities





The
Company applies FASB issued Emerging Issues Task Force Issue 07-5 (“EITF 07-5”),
“Determining whether an Instrument (or Embedded Feature) is indexed to an
Entity’s Own Stock.”  EITF 07-5 provides a two-step model to determine
whether a financial instrument or an embedded feature is indexed to an issuer’s
own stock and thus able to qualify for the SFAS 133 paragraph 11(a) scope
exception. This standard triggers liability accounting on all instruments and
embedded features exercisable at strike prices denominated in any currency other
than the functional currency of the operating entity in Peru.  Using
the criteria in EITF 07-5, the Company determines which instruments or embedded
features that require liability accounting and records the fair values as an
accrued derivative liability. The changes in the values of the accrued
derivative liabilities are shown in the accompanying consolidated statements of
operations as “change in fair value of accrued derivative
liabilities.”





FairValue ofFinancialInstruments





On
January 1, 2008, we adopted SFAS No. 157, “Fair Value Measurements” (“SFAS
157”). SFAS 157 defines fair value, establishes a three-level valuation
hierarchy for disclosure of fair value measurement, and enhances disclosure
requirements for fair value measures. The carrying amounts reported in the
consolidated balance sheets for receivables and current liabilities each qualify
as financial instruments and are a reasonable estimate of their fair values
because of the short period of time between the origination of such instruments
and their expected realization and their current market rate of interest. The
three levels of valuation hierarchy are defined as follows:


30


·
            Level
      1 inputs to the valuation methodology are quoted prices (unadjusted) for
      identical assets or liabilities in active
  markets.





·
            Level
      2 inputs to the valuation methodology include quoted prices for similar
      assets and liabilities in active markets, and inputs that are observable
      for the asset or liability, either directly or indirectly, for
      substantially the full term of the financial
  instrument.





·
            Level
      3 inputs to the valuation methodology are unobservable and significant to
      the fair value measurement.





Recently
Issued Accounting Pronouncements





In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements — An Amendment of ARB No. 51” (“SFAS 160”).
SFAS 160 amends ARB 51 to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It is intended to eliminate the diversity in practice regarding the
accounting for transactions between equity and noncontrolling interests by
requiring that they be treated as equity transactions. Further, it requires
consolidated net income to be reported at amounts that include the amounts
attributable to both the parent and the noncontrolling interest. SFAS 160 also
establishes a single method of accounting for changes in a parent’s ownership
interest in a subsidiary that does not result in deconsolidation, requires that
a parent recognize a gain or loss in net income when a subsidiary is
deconsolidated, requires expanded disclosures in the consolidated financial
statements that clearly identify and distinguish between the interests of the
parent’s owners and the interests of the noncontrolling owners of a subsidiary,
among others.  We adopted SFAS 160 effective January 1,
2009.  We have determined the adoption of SFAS 160 did not have a
material impact to our consolidated financial position or consolidated
results of operations as of March 31, 2009.





In April
2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, “Interim
Disclosures about Fair Value of Financial Instruments” (“FSP FAS 107-1 and
APB 28-1”). FSP FAS 107-1 and APB 28-1 requires companies to disclose in
interim financial statements the fair value of financial instruments within the
scope of FASB Statement No. 107, “Disclosures about Fair Value of Financial
Instruments.” However, companies are not required to provide in interim periods
the disclosures about the concentration of credit risk of all financial
instruments that are currently required in annual financial statements. The
fair-value information disclosed in the footnotes must be presented together
with the related carrying amount, making it clear whether the fair value and
carrying amount represent assets or liabilities and how the carrying amount
relates to what is reported in the balance sheet. FSP FAS 107-1 and APB
28-1 also requires that companies disclose the method or methods and significant
assumptions used to estimate the fair value of financial instruments and a
discussion of changes, if any, in the method or methods and significant
assumptions during the period. The FSP shall be applied prospectively and is
effective for interim and annual periods ending after June 15, 2009, with
early adoption permitted for periods ending after March 15, 2009. An entity
early adopting FSP FAS 107-1 and APB 28-1 must also early adopt FSP
FAS 157-4 as well as FSP FAS 115-2 and FAS 124-2. We will adopt
the disclosure requirements of this pronouncement for the quarter ended
June 30, 2009, in conjunction with the adoption of FSP FAS 157-4 and
FSP FAS 115-2 and FAS 124-2.


31


Item
3.  Quantitative and Qualitative Disclosure about Market
Risk





Not
applicable.





Item
4. Controls and Procedures





Evaluation of Disclosure
Controls and Procedures





The
Company’s Chief Executive Officer and Chief Financial Officer have
evaluated the effectiveness of the Company’s disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of
March 31, 2009. Based upon such evaluation, the Chief Executive Officer and
Chief Financial Officer have concluded that, as of March 31, 2009, the Company’s
disclosure controls and procedures were ineffective. This conclusion by the
Company’s Chief Executive Officer and Chief Financial Officer do not
relate to reporting periods after March 31, 2009.





This
conclusion is based upon material weaknesses that relate to the
following:





1.  Accounting and Finance
Personnel Weaknesses – Our current accounting staff is relatively small
and we do not have the required infrastructure of meeting the higher demands of
being a U.S. public company.





2.  Lack of Internal Audit
Function – We lack sufficient resources to perform the internal audit
function.





In order
to mitigate these material weaknesses to the fullest extent possible, all
financial reports are reviewed by an outside accounting firm that is not our
audit firm. All unexpected results are investigated. At any time, if it appears
that any control can be implemented to continue to mitigate such weaknesses, it
will be immediately implemented. The Company is in the process of complying
with SOX 404 during 2009 and will be implementing additional internal controls
over accounting and financial reporting.





Changes in Internal Control
Over Financial Reporting





No change
in the Company’s internal control over financial reporting occurred during the
first quarter ended March 31, 2009, that materially affected, or is reasonably
likely to materially affect, the Company’s internal control over financial
reporting.





PART
II - OTHER INFORMATION





ITEM
1. LEGAL PROCEEDINGS





We know
of no material, existing or pending legal proceedings against us, nor are we
involved as a plaintiff in any material proceeding or pending litigation. There
are no proceedings in which any of our directors, officers or affiliates, or any
registered or beneficial stockholder, is an adverse party or has a material
interest adverse to our company.





ITEM
1A. RISK FACTORS





Not
applicable.





ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS





None.


32


ITEM
3. DEFAULTS UPON SENIOR SECURITIES





None.





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





None.





ITEM 5. OTHER INFORMATION





None.





Item
6. Exhibits





31.1
            Certification of the Chief
      Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002


31.2
            Certification of the Chief
      Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002


32.1
            Certification Pursuant to Section
      906 of the Sarbanes-Oxley Act of
2002


32.2
            Certification Pursuant to Section
      906 of the Sarbanes-Oxley Act of
2002


33


SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.




STRATOS
      RENEWALBE CORPORATIONBy:
                    /s/
      Thomas SnyderPresident
      and Chief Executive
Officer





Date: May
20, 2009





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated:





Signature
                                  
                                  Title
                                  
                                  Date/s/
      THOMAS SNYDER
                                  
                                  President
      and Chief Executive Officer
                                  
                                  May
      20, 2009(Principal
      Executive Officer)/s/
      JULIO CESAR ALONSO
                                  
                                  Chief
      Financial Officer
                                  
                                  May
      20, 2009(Principal
      Financial Officer andPrincipal
      Accounting Officer)


34