****            **UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**Form
      10-Q**




x
            Quarterly
                report pursuant Section 13 or 15(d) of the Securities Exchange Act
                of
                1934
              For
                the quarterly period ended September 30,
                2008




o
            Transition
                report pursuant Section 13 or 15(d) of the Securities Exchange Act
                of
                1934
              For
                the transition period from _______ to
                _______.




**Commission
      file number 000-1321517**




STRATOS
      RENEWABLES CORPORATION




**(Exact
      name of small business issuer as specified in its charter)**




**Nevada**
              **(State or other jurisdiction of incorporation or**
              **organization)**
            **20-1699126**
              **(I.R.S. Employer Identification No.)****9440 Little Santa Monica Blvd., Suite 401**
              **Beverly Hills, California**
              **(Address of principal executive offices)**
            **90210**
              **(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 oNo x




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 o   Accelerated
      filer o


Non-accelerated
      filer o   Smaller
      reporting company x


(Do
      not
      check if a smaller reporting company)




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


Yes oNox





As
      of
      November 10, 2008, the Company had 61,569,800 outstanding shares of common
      stock.








TABLE
      OF
      CONTENTS





Part
                I – FINANCIAL
                INFORMATION
            3Item 1.
            Financial
                Statements
            3Item 2.
            Management’s
                Discussion and Analysis or Plan of Operation
            22Item 3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            34Item 4.
            Controls
                and Procedures
            34PART
                II - OTHER INFORMATION
            34Item 1.
            Legal
                Proceedings
            34Item
                1A.
            Risk
                Factors
            34Item 2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            34Item 3.
            Defaults
                Upon Senior Securities
            37Item 4.
            Submission
                of Matters to a Vote of Security Holders
            37Item
                5.
            Other
                Information
            37Item
                6.
            Exhibits
            38





2





**Part
      I** **–
      FINANCIAL INFORMATION**




**Item
      1. Financial Statements**




**Stratos
      Renewables Corporation**


(A
      Development Stage Company)


**Consolidated
      Balance Sheets**




**September 30,**
              **2008**
            
            **December 31,**
              **2007**(unaudited)**ASSETS**CURRENT
                ASSETSCash
                and cash equivalents
            
            $
            3,402,174
            
            $
            3,357,417Debt
                issuance costs
            
            
            21,324
            
            
            56,948Prepaid
                expenses
            
            
            228,871
            
            
            155,020TOTAL
                CURRENT ASSETS
            
            
            3,652,369
            
            
            3,569,385PLANT
                AND EQUIPMENT, net
            
            
            4,859,940
            
            
            4,600,923LAND
                DEPOSITS
            
            
            376,665
            
            
            -VAT
                RECEIVABLE
            
            
            1,212,190
            
            
            899,567DEBT
                ISSUANCE COSTS, net
            
            
            1,261,497
            
            
            -OTHER
                ASSETS
            
            
            109,889
            
            
            21,711TOTAL
                ASSETS
            
            $
            11,472,550
            
            $
            9,091,586**LIABILITIES
                AND STOCKHOLDERS' EQUITY**CURRENT
                LIABILITIESAccounts
                payable
            
            $
            1,001,028
            
            $
            173,032Accrued
                interest and redemption premium
            
            
            255,728
            
            
            709,398Other
                payables
            
            
            519,545
            
            
            84,648Convertible
                promissory notes, net of debt discount of $306,450 and $552,369as
                of September 30, 2008 and December 31, 2007, respectively
            
            
            1,543,550
            
            
            2,495,631Accrued
                beneficial conversion liability
            
            
            -
            
            
            250,938Accrued
                warrant liability
            
            
            5,037,502
            
            
            1,164,501TOTAL
                CURRENT LIABILITIES
            
            
            8,357,353
            
            
            4,878,148ACCRUED
                INTEREST
            
            
            102,214
            
            
            -CONVERTIBLE
                PROMISSORY NOTES, net of debt discount of $4,586,686 and $0as
                of September 30, 2008 and December 31, 2007, respectively
            
            
            2,763,314
            
            
            -TOTAL
                LIABILITIES
            
            
            11,222,881
            
            
            4,878,148COMMITMENTS
                AND CONTINGENCIESSTOCKHOLDERS'
                EQUITYPreferred
                stock; $0.001 par value; 50,000,000 sharesauthorized;
                8,571,429 and 7,142,857 shares issued and outstandingas
                of September 30, 2008 and December 31, 2007, respectively
            
            
            8,572
            
            
            7,143Common
                stock; $0.001 par value; 250,000,000 sharesauthorized; 61,569,801
                and 57,666,794 shares issued and outstandingas
                of September 30, 2008 and December 31, 2007, respectively
            
            
            61,571
            
            
            57,667Additional
                paid-in-capital
            
            
            12,008,038
            
            
            5,721,864Other
                comprehensive income
            
            
            153,611
            
            
            14,021Deficit
                accumulated during the development stage
            
            
            (11,982,123
            )
            
            (1,587,257
            )TOTAL
                STOCKHOLDERS' EQUITY
            
            
            249,669
            
            
            4,213,438TOTAL
                LIABILITIES AND STOCKHOLDERS' EQUITY
            
            $
            11,472,550
            
            $
            9,091,586




The
      accompanying notes are an integral part of these consolidated financial
      statements.





3




Stratos
      Renewables Corporation


(A
      Development Stage Company)


**Statements
      of Operations and Other Comprehensive Loss**




**For the period**
            
            **For the period****from inception**
            
            **from inception****Three Months Ended September 30,**
            
            **Nine Months Ended**
            
            **(February 27, 2007)**
            
            **(February 27, 2007)****2008**
            
            **2007**
            
            **September 30, 2008**
            
            **to September 30, 2007**
            
            **to September 30, 2008**(unaudited)
            
            (unaudited)
            
            (unaudited)
            
            (unaudited)
            
            (unaudited)REVENUE
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -COST
                OF REVENUE
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -GROSS
                PROFIT
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -OPERATING
                EXPENSESConsulting
                fees
            
            
            466,386
            
            
            -
            
            
            1,574,174
            
            
            -
            
            
            1,718,958General
                and administrative
            
            
            526,726
            
            
            -
            
            
            2,059,928
            
            
            -
            
            
            2,580,707Professional
                fees
            
            
            499,294
            
            
            -
            
            
            1,637,685
            
            
            -
            
            
            1,738,296Wages
            
            
            813,481
            
            
            -
            
            
            1,958,755
            
            
            -
            
            
            2,169,683TOTAL
                OPERATING EXPENSES
            
            
            2,305,887
            
            
            -
            
            
            7,230,542
            
            
            -
            
            
            8,207,644OTHER
                INCOME (EXPENSES)Amortization
                of debt discounts and debt issuance costs
            
            
            (962,665
            )
            
            -
            
            
            (1,670,923
            )
            
            -
            
            
            (2,280,240
            )Interest
                and financing costs
            
            
            (334,096
            )
            
            -
            
            
            (875,853
            )
            
            -
            
            
            (1,597,315
            )Change
                in value of beneficial conversion feature
            
            
            238,270
            
            
            -
            
            
            511,926
            
            
            -
            
            
            1,135,978Change
                in value of warrant liability
            
            
            (1,460,928
            )
            
            -
            
            
            (974,011
            )
            
            -
            
            
            (878,039
            )Foreign
                currency loss
            
            
            (11,208
            )
            
            -
            
            
            (154,832
            )
            
            -
            
            
            (154,832
            )Other
            
            
            (12,893
            )
            
            -
            
            
            219
            
            
            -
            
            
            819TOTAL
                OTHER EXPENSES, net
            
            
            (2,543,520
            )
            
            -
            
            
            (3,163,474
            )
            
            -
            
            
            (3,773,629
            )LOSS
                FROM OPERATIONS
            
            
            (4,849,407
            )
            
            -
            
            
            (10,394,016
            )
            
            -
            
            
            (11,981,273
            )INCOME
                TAX PROVISION
            
            
            -
            
            
            -
            
            
            850
            
            
            -
            
            
            850NET
                LOSS
            
            $
            (4,849,407
            )
            $
            -
            
            $
            (10,394,866
            )
            $
            -
            
            $
            (11,982,123
            )OTHER
                COMPREHENSIVE INCOMEForeign
                currency translation gain
            
            
            77,251
            
            
            -
            
            
            139,590
            
            
            -
            
            
            153,611COMPREHENSIVE
                LOSS
            
            $
            (4,772,156
            )
            $
            -
            
            $
            (10,255,276
            )
            $
            -
            
            $
            (11,828,512
            )LOSS
                PER COMMON SHARE - BASIC AND DILUTED
            
            $
            (0.08
            )
            $
            -
            
            $
            (0.17
            )
            $
            -
            
            $
            (0.23
            )WEIGHTED
                AVERAGE COMMON EQUIVALENTSHARES
                OUTSTANDING - BASIC AND DILUTED
            
            
            61,310,574
            
            
            -
            
            
            59,948,493
            
            
            -
            
            
            53,069,810




The
      accompanying notes are an integral part of these consolidated financial
      statements.





4




**Stratos
      Renewables Corporation**


(A
      Development Stage Company)


**Statements
      of Stockholders' Equity**




**Deficit****Accumulated****Additional**
            
            **Other**
            
            **During the**
            
            **Total****Preferred Stock**
            
            **Common Stock**
            
            **Paid-in**
            
            **Comprehensive**
            
            **Development**
            
            **Stockholders'****Shares**
            
            **Amount**
            
            **Shares**
            
            **Amount**
            
            **Capital**
            
            **Income (loss)**
            
            **Stage**
            
            **Equity****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
            
            
            
            
            
            
            
            
            4,341,397Gain
                on translation
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            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**
            **)**
            
            **4,213,438**Issuance
                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 to equity
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            3,686,052
            
            
            -
            
            
            -
            
            
            3,686,052Gain
                on translation
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            139,590
            
            
            -
            
            
            139,590Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (10,394,866
            )
            
            (10,394,866
            )**Balance,
                September 30, 2008 (unaudited)**
            
            
            **8,571,429**
            
            **$**
            **8,572**
            
            
            **61,569,801**
            
            **$**
            **61,571**
            
            **$**
            **12,008,038**
            
            **$**
            **153,611**
            
            **$**
            **(11,982,123**
            **)**
            **$**
            **249,669**




The
      accompanying notes are an integral part of these consolidated financial
      statements.





5




**Stratos
      Renewables Corporation**


(A
      Development Stage Company)


**Statements
      of Cash Flows**




**For the period**
            
            **For the period****from inception**
            
            **from inception****Nine Months Ended**
            
            **(February 27, 2007)**
            
            **(February 27, 2007)****September 30, 2008**
            
            **to September 30, 2007**
            
            **to September 30, 2008**(unaudited)
            
            (unaudited)
            
            (unaudited)CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                loss
            
            $
            (10,394,866
            )
            $
            -
            
            $
            (11,982,123
            )Adjustments
                to reconcile net loss to net cashused
                in operating activities:Amortization
                of debt discounts and debt issuance costs
            
            
            1,670,923
            
            
            -
            
            
            2,280,240Depreciation
                and amortization
            
            
            20,271
            
            
            -
            
            
            22,365Change
                in value of beneficial conversion feature
            
            
            (511,926
            )
            
            -
            
            
            (1,135,978
            )Change
                in value of warrant liability
            
            
            974,012
            
            
            -
            
            
            878,040Amortization
                of prepaid consulting
            
            
            260,058
            
            
            -
            
            
            311,730Accretion
                of interest
            
            
            461,292
            
            
            -
            
            
            1,131,442Changes
                in operating assets and liabilities:Other
                assets
            
            
            (235,035
            )
            
            -
            
            
            (255,903
            )Accounts
                payable
            
            
            772,095
            
            
            -
            
            
            942,714Interest
                payable
            
            
            211,401
            
            
            -
            
            
            250,649Other
                payables
            
            
            488,420
            
            
            -
            
            
            569,782Net
                cash used in operating activities
            
            
            (6,283,355
            )
            
            -
            
            
            (6,987,042
            )CASH
                FLOWS FROM INVESTING ACTIVITIES:Acquisition
                of plant and equipment
            
            
            (253,691
            )
            
            -
            
            
            (4,858,329
            )Deposit
                for land lease
            
            
            (366,248
            )
            
            -
            
            
            (366,248
            )VAT
                receivable
            
            
            (316,461
            )
            
            -
            
            
            (1,181,118
            )Cash
                acquired with acquisition
            
            
            -
            
            
            -
            
            
            211Net
                cash used in investing activities
            
            
            (936,400
            )
            
            -
            
            
            (6,405,484
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Proceeds
                from sale of common stock
            
            
            1,685,794
            
            
            -
            
            
            3,552,884Proceeds
                from sale of preferred stock
            
            
            1,000,000
            
            
            -
            
            
            6,000,000Payment
                of offerings cost associated with common and preferred
                stock
            
            
            (263,000
            )
            
            -
            
            
            (519,593
            )Proceeds
                from issuance of convertible debenture
            
            
            9,200,000
            
            
            -
            
            
            12,248,000Payment
                of offerings costs associated with convertible debenture
            
            
            (1,241,602
            )
            
            -
            
            
            (1,355,499
            )Principal
                payment of convertible debt
            
            
            (3,199,500
            )
            
            -
            
            
            (3,199,500
            )Net
                cash provided by financing activities
            
            
            7,181,692
            
            
            -
            
            
            16,726,292Effect
                of exchange rate changes on cash and cash equivalents
            
            
            82,820
            
            
            -
            
            
            68,408NET
                INCREASE IN CASH AND CASH
                EQUIVALENTS
            
            
            44,757
            
            
            -
            
            
            3,402,174CASH
                AND CASH EQUIVALENTS, Beginning of period
            
            
            3,357,417
            
            
            -
            
            
            -CASH
                AND CASH EQUIVALENTS, End of period
            
            $
            3,402,174
            
            $
            -
            
            $
            3,402,174SUPPLEMENTAL
                DISCLOSURES OF CASH FLOWS INFORMATION:Interest
                paid
            
            $
            -
            
            $
            -
            
            $
            -Income
                taxes paid
            
            $
            -
            
            $
            -
            
            $
            -SUPPLEMENTAL
                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
            
            $
            816,624
            
            $
            -
            
            $
            816,624Issuance
                of warrants for debt issuance costs
            
            $
            186,747
            
            $
            -
            
            $
            186,747Reclassify
                beneficial conversion feature to equity
            
            $
            3,686,052
            
            
            -
            
            $
            3,686,052




The
      accompanying notes are an integral part of these consolidated financial
      statements.





6




**Stratos
        Renewables Corporation**
 (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, formerly New Design Cabinets, Inc., or the Company,
      pursuant to the rules and regulations of the Securities 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-KSB. The
      results for the nine months ended September 30, 2008, are not necessarily
      indicative of the results to be expected for the full year ending December
      31,
      2008.





Organization
      and line of business





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 general meeting of
      shareholders 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.




Basis
      of presentation





The
      accompanying consolidated financial statements are presented in US dollars
      and
      have been prepared in accordance with accounting principles generally accepted
      in the United States of America. The accompanying consolidated financial
      statements include the accounts of Stratos Renewables Corporation and its 99.99%
      owned subsidiaries. All intercompany accounts and transactions have been
      eliminated in consolidation.




7
 
 **Stratos
            Renewables Corporation**
 (A
            Development Stage Company)
 **Notes
            to Consolidated Financial Statements**
 (Unaudited)





Minority
      interest





Minority
      interest has not been presented on the consolidated balance sheets due to
      accumulated losses which exceed the minority stockholders’ equity. In accordance
      with Accounting Principles Board Opinion No. 18, “The Equity Method of
      Accounting for Investments in Common Stock,” the minority interest has been
      written down to zero on the accompanying balance sheet.





Foreign
      currency translation





The
      reporting currency of the Company is the US dollar. The Company uses its local
      currency, Peruvian Nuevos Soles (“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 statements of stockholders’ equity. 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.





The
      Company recorded translation gains of $77,251 and $139,590 for the three and
      nine months ended September 30, 2008. The Company recorded zero translation
      gains for the three months ended September 30, 2007 and for the period from
      February 27, 2007 (date of inception) to September 30, 2007. Translation
      adjustments included in the balance sheets were $153,611 and $14,021 at
      September 30, 2008 and December 31, 2007, respectively. Asset and liability
      amounts at September 30, 2008 and December 31, 2007 were translated at 2.977
      and
      2.997 PEN to $1.00 USD, respectively. Equity accounts were stated at their
      historical rates. The average translation rate applied to the statement of
      operations for the nine months ended September 30, 2008 was 2.884 PEN to $1.00
      USD. Cash flows are also translated at average translation rates for the period;
      therefore, amounts reported on the statement of cash flows will not necessarily
      agree with changes in the corresponding balances on the consolidated balance
      sheets.





**Note
      2 - Summary of Significant Accounting Policies**





Use
      of
      estimates





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. Actual results could materially differ
      from these estimates.





Cash
      and cash equivalents





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.





Concentration
      of credit risk





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 September 30,
      2008
      and December 31, 2007, the Company had deposits in excess of federally-insured
      limits totaling $3,338,071 and $3,403,946, respectively. The Company has not
      experienced any losses on cash and cash equivalents.




8
 
 **Stratos
            Renewables Corporation**
 (A
            Development Stage Company)
 **Notes
            to Consolidated Financial Statements**
 (Unaudited)


The
      Company extends credit based on an evaluation of the customer’s financial
      condition, generally without collateral. Exposure to losses on receivables
      is
      principally dependent on each customer’s financial condition. The Company
      monitors its exposure for credit losses and maintains allowances for anticipated
      losses, as required.





VAT
      receivable





At
      September 30, 2008 and December 31, 2007, the Company recognized a VAT (value
      added tax) receivable of $1,212,190 and $899,567, 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
      receivable is classified as noncurrent.





Plant
      and equipment





Plant
      and
      equipment are stated at historical 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.





Impairment
      of long-lived assets





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 September
      30, 2008 and December 31, 2007, there were no significant impairments of its
      long-lived assets.





Income
      taxes





The
      Company accounts for income taxes in accordance with SFAS No. 109, “Accounting
      for 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.




9
 
 **Stratos
            Renewables Corporation**
 (A
            Development Stage Company)
 **Notes
            to Consolidated Financial Statements**
 (Unaudited)


The
      Company adopted FASB Interpretation 48 (“FIN 48”), “Accounting for Uncertainty
      in Income Taxes,” during 2007. 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. The adoption of FIN 48 had no affect
      on the Company’s consolidated financial statements.




Basic
      and Diluted Losses per share





The
      Company reports earnings per share in accordance with SFAS No. 128, “Earnings
      per Share.” Basic earnings per share is computed by dividing the net income by
      the weighted average number of common shares available. Diluted earnings per
      share is computed similar to basic earnings per share except that the
      denominator is increased to include the number of additional common shares
      that
      would have been outstanding if the potential common shares had been issued
      and
      if the additional common shares were dilutive. All preferred shares, warrants,
      and options were excluded from the diluted loss per share due to the
      anti-dilutive effect.





Accrued
      warrant liability and accrued beneficial conversion feature





Pursuant
      to Emerging Issues Task Force (“EITF”) No. 00-19, “Accounting for Derivative
      Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own
      Stock”, the Company has recorded the fair value of all outstanding warrants as
      an accrued warrant liability since the Company’s convertible promissory
      notes are convertible into an undetermined number of shares of common
      stock. As a result, the Company may not have enough authorized shares to satisfy
      the exercise of its outstanding warrants. In addition, the fair value of the
      beneficial conversion feature associated with the convertible promissory notes
      is recorded as an accrued beneficial conversion liability.





Fair
      value of financial instruments





On
      January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements.”
SFAS No. 157 defines fair value, establishes a three-level valuation hierarchy
      for disclosures of fair value measurement, and enhances disclosures 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.





·
            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.





The
      Company’s beneficial conversion liability is carried at fair value totaling $0
      and $250,938, as of September 30, 2008 and December 31, 2007, respectively.
      The
      beneficial conversion feature was reclassified to equity on September 18, 2008
      (See “Reclassification of Beneficial Conversion Feature” in Note 6). The Company
      carries its warrants at fair value totaling $5,037,502 and $1,164,501 as of
      September 30, 2008 and December 31, 2007, respectively. The Company used Level
      2
      inputs for its valuation methodology for the beneficial conversion liability,
      and warrant liability, and their fair values were determined by using the
      Black-Scholes option pricing model based on various assumptions.




10
 
 **Stratos
            Renewables Corporation**
 (A
            Development Stage Company)
 **Notes
            to Consolidated Financial Statements**
 (Unaudited)


Fair Value
              As of
              September 30, 2008
            
            Fair Value Measurements at September 30, 2008
              Using Fair Value HierarchyLiabilities
            
            
            
            
            
            Level
                1
            
            
            Level
                2
            
            
            Level
                3Warrant
                liability
            
            $
            5,037,502
            
            
            
            
            $
            5,037,502




The
      Company recognized a gain of $238,270 and $511,926, on the beneficial conversion
      liability for the three and nine months ended September 30, 2008, respectively.
      The Company recognized a loss of $1,460,928 and $974,011 on the warrant
      liability for the three and nine months ended September 30, 2008, respectively.





The
      Company did not identify any other non-recurring assets and liabilities that
      are
      required to be presented on the consolidated balance sheet at fair value in
      accordance with SFAS No. 157.





Recently
      issued accounting pronouncements





In
      December 2007, the Financial Accounting Standards Board or (“FASB”) issued SFAS
      No. 141 (Revised 2007 (“SFAS 141R”)), “Business Combinations.” SFAS 141R
      changes how a reporting enterprise accounts for the acquisition of a business.
      Also, SFAS 141R requires an acquiring entity to recognize all the assets
      acquired and liabilities assumed in a transaction at the acquisition-date fair
      value, with limited exceptions, and applies to a wider range of transactions
      or
      events. SFAS 141R is effective for fiscal years beginning on or after
      December 15, 2008 and early adoption and retrospective application is
      prohibited. The Company is currently evaluating the impact of adopting SFAS
      141R
      on its consolidated financial statements.





In
      December 2007, the FASB issued SFAS No. 160 (“SFAS 160”), “Noncontrolling
      Interests in Consolidated Financial Statements,” which is an amendment of
      Accounting Research Bulletin (“ARB”) No. 51.  SFAS 160 clarifies that
      a noncontrolling interest in a subsidiary is an ownership interest in the
      consolidated entity that should be reported as equity in the consolidated
      financial statements.  This statement changes the way the consolidated
      income statement is presented, thus requiring consolidated net income to be
      reported at amounts that include the amounts attributable to both parent and
      the
      noncontrolling interest.  This statement is effective for the fiscal
      years, and interim periods within those fiscal years, beginning on or after
      December 15, 2008.  The Company does not anticipate the adoption of
      SFAS 160 will have a significant impact on its consolidated results of
      operations or consolidated financial position.





In
      February 2007, the FASB issued SFAS No. 159 (“SFAS 159”), “The Fair Value Option
      for Financial Assets and Financial Liabilities.” SFAS 159 permits entities to
      choose to measure many financial assets and financial liabilities at fair value.
      Unrealized gains and losses on items for which the fair value option has been
      elected are reported in earnings. SFAS 159 is effective as of the beginning
      of
      an entity’s first fiscal year that begins after November 15, 2007. The Company
      adopted SFAS 159 on January 1, 2008, and the Company chose not to elect the
      option to measure the fair value of eligible financial assets and liabilities.





In
      June
      2007, the FASB issued FASB Staff Position No. EITF 07-3, “Accounting for
      Nonrefundable Advance Payments for Goods or Services Received for use in Future
      Research and Development Activities” (“FSP EITF 07-3”), which addresses whether
      nonrefundable advance payments for goods or services that used or rendered
      for
      research and development activities should be expensed when the advance payment
      is made or when the research and development activity has been performed.
      Management is currently evaluating the effect of FSP EITF 07-3 on its
      consolidated financial statements.


11




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


In
      June
      2008, the FASB issued EITF No. 07-5 “Determining whether an Instrument (or
      Embedded Feature) is indexed to an Entity’s Own Stock” (“EITF 07-5”). EITF 07-5
      is effective for financial statements issued for fiscal years beginning after
      December 15, 2008, and interim periods within those fiscal years. Early
      application is not permitted. Paragraph 11(a) of SFAS No. 133 specifies that
      a
      contract that would otherwise meet the definition of a derivative but is both
      (a) indexed to the Company’s own stock and (b) classified in
      stockholders’ equity in the statement of financial position would not be
      considered a derivative financial instrument. EITF 07-5 provides a new two-step
      model to be applied in determining 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. The Company believes adopting this
      statement will have a material impact on the consolidated financial statements
      because among other things, any option or warrant previously issued and all
      new
      issuances denominated in US dollars will be required to be carried as a
      liability and marked to market each reporting period.




In
      April
      2008, the FASB issued FSP SFAS 142-3 “Determination of the useful life of
      Intangible Assets,” which amends the factors a company should consider when
      developing renewal assumptions used to determine the useful life of an
      intangible asset. FSP SFAS 142-3 is effective for financial statements issued
      for fiscal years beginning after December 15, 2008, and interim periods within
      those fiscal years. SFAS 142 requires companies to consider whether renewal
      can
      be completed without substantial cost or material modification of the existing
      terms and conditions associated with the asset. FSP SFAS 142-3 replaces the
      previous useful life criteria with a new requirement—that an entity consider its
      own historical experience in renewing similar arrangements. If historical
      experience does not exist, then the Company would consider market participant
      assumptions regarding renewal including 1) highest and best use of the asset
      by
      a market participant, and 2) adjustments for other entity-specific factors
      included in SFAS 142. The Company is currently evaluating the impact that
      adopting FSP SFAS No.142-3 will have on its consolidated financial
      statements.





In
      June
      2008, FASB issued EITF Issue No. 08-4, “Transition Guidance for Conforming
      Changes to Issue No. 98-5 (“EITF No. 08-4”).” The objective of EITF No.08-4
      is to provide transition guidance for conforming changes made to EITF No. 98-5,
      “Accounting for Convertible Securities with Beneficial Conversion Features or
      Contingently Adjustable Conversion Ratios,” that result from EITF No. 00-27
“Application of Issue No. 98-5 to Certain Convertible Instruments,” and SFAS No.
      150, “Accounting for Certain Financial Instruments with Characteristics of both
      Liabilities and Equity.” This Issue is effective for financial statements issued
      for fiscal years ending after December 15, 2008. Early application is
      permitted. Management is currently evaluating the impact of adoption of
      EITF No. 08-4 on the accounting for the convertible notes and related warrants
      transactions.





On
      October 10, 2008, the FASB issued FSP 157-3, “Determining the Fair Value of a
      Financial Asset When the Market for That Asset Is Not Active,” which clarifies
      the application of SFAS 157 in a market that is not active and provides an
      example to illustrate key considerations in determining the fair value of a
      financial asset when the market for that financial asset is not active. FSP
      157-3 became effective on October 10, 2008, and its adoption did not have a
      material impact on the financial position or results for the quarter ended
      September 30, 2008.





**Note
      3 - Development Stage Company and Going Concern**





The
      Company is a new 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, and 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 and the consolidated accumulated statements of
      operations and cash flows from inception of the development stage to the date
      on
      the current balance sheet. Contingencies exist with respect to this matter,
      the
      ultimate resolution of which cannot presently be determined.





The
      accompanying consolidated financial statements have been prepared in conformity
      with generally accepted accounting principles in the United States of America,
      which contemplates continuation of the Company as a going concern. However,
      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 nine months ended September 30, 2008, the Company
      recorded a loss of $10,394,866 and as of September 30, 2008, the Company has
      a
      deficit accumulated during the development state of $11,982,123.


12




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


In
      view
      of these matters, realization of certain of the assets in the accompanying
      consolidated balance sheets is dependent upon continued operations of the
      Company, which in turn is dependent upon the Company’s ability to meet its
      financial requirements, raise additional capital, and the success of its future
      operations.





In
      the
      nine months ended September 30, 2008, management raised approximately $11.9
      million in debt and equity capital and is attempting to raise additional debt
      and equity capital. Management believes that this plan provides an opportunity
      for the Company to continue as a going concern.




**Note
      4 - Plant and Equipment**




Plant
      and
      equipment consist of the following:




Description
            
            September 30, 2008
            
            December 31, 2007Sugar
                plant
            
            $
            4,612,086
            
            $
            4,552,247Buildings
            
            
            62,075
            
            
            -Computer
                equipment and software
            
            
            175,773
            
            
            48,439Other
            
            
            31,837
            
            
            2,4164,881,771
            
            
            4,603,102Accumulated
                depreciation
            
            
            (21,831
            )
            
            (2,179
            )Plant
                and equipment, net
            
            $
            4,859,940
            
            $
            4,600,923





Depreciation
      expense amounted to $7,699 and $19,652 for the three and nine months ended
      September 30, 2008, respectively. Due to significant modifications to the
      sugar plant, the plant is currently not in service and is not being depreciated.





During
      the nine month period ended September 30, 2008, the Company made initial
      payments of $376,665 to unaffiliated third parties towards the acquisition
      of
      rights to both agricultural and industrial land.





**Note
      5 - Stockholders’ Equity**




Private
      Placement of Common Stock





From
      October 8, 2007 to June 26, 2008 the Company conducted a private placement
      of
      its securities, or Private Placement. Pursuant to this Private Placement, on
      November 14, 2007, the Company issued an aggregate of 2,666,794 shares of common
      stock and warrants to purchase an aggregate of 1,333,396 shares of common stock.
      The issuance of 2,666,794 shares of common stock has been included as a
      component in the accompanying consolidated statements of stockholders’ equity.
      The aggregate gross proceeds raised by the Company in connection with the
      Private Placement were $1,866,760. Each share of common stock was sold to
      investors at $0.70 per share. The fair value of the warrants amounted to
      $352,268. The fair value was computed using the Black-Scholes model under the
      following assumptions: (1) expected life of 1 year; (2) volatility of 100%;
      and
      (3) risk free interest of 5.0%. The warrants expire after five (5) years from
      the date of issuance and are exercisable at $0.75 per share, subject to
      adjustment in certain circumstances.





On
      March
      7, 2008, the Company received proceeds of $1,587,447 from the Private Placement.
      Pursuant to this financing, the Company issued an aggregate of 2,267,782 shares
      of common stock at a purchase price of $0.70 per share and warrants to purchase
      an aggregate of 1,133,888 shares of common stock with an exercise price of
      $0.75
      per share. The fair value of the warrants amounted to $294,360. The fair value
      was computed using the Black-Scholes model under the following assumptions:
      (1)
      expected life of 1 year; (2) volatility of 100%; and (3) risk free interest
      of
      3.0%. The warrants expire after five (5) years from the date of issuance and
      are
      exercisable at $0.75 per share, subject to adjustment in certain circumstances.





On
      June
      26, 2008, the Company received proceeds of $100,000 from the Private Placement,
      pursuant to which it issued an aggregate of 142,857 shares of common stock
      at a
      purchase price of $0.70 per share and warrants to purchase an aggregate of
      71,428 shares of common stock with an exercise price of $0.75 per share. The
      fair value of the warrants amounted to $37,488. The fair value was computed
      using the Black-Scholes model under the following assumptions: (1) expected
      life
      of 2.5 years; (2) volatility of 100%; and (3) risk free interest of 3.44%.
      The
      warrants expire after five (5) years from the date of issuance and are
      exercisable at $0.75 per share, subject to adjustment in certain circumstances.


13




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


Series
      A Preferred Stock Private Placements





On
      November 14, 2007 the Company completed a Series A Private Placement, or Series
      A Private Placement, pursuant to which we issued to MA Green 7,142,857 shares
      of
      Series A Preferred Stock and warrants to purchase 1,785,714 shares of common
      stock. The issuance of 7,142,857 shares of Preferred Stock has been included
      as
      a component in the accompanying statements of stockholders’ equity. The gross
      proceeds raised by the Company in connection with the Series A Private Placement
      were $5,000,000. Each share of Series A Preferred Stock was sold at $0.70 per
      share. The warrants expire five (5) years from the date of issuance and are
      exercisable at $0.75 per share, subject to adjustment in certain circumstances.
      The Company’s Chairman of the Board of Directors, Steven Magami, is the manager
      of MA Green.




The
      fair
      value of the 1,785,714 warrants issued with the Series A Private Placement
      was
      $471,765. The fair value was computed using the Black-Scholes model under the
      following assumptions: (1) expected life of 1 year; (2) volatility of 100%,
      (3)
      risk free interest of 5.0% and (4) dividend rate of 0%. In addition, since
      this
      convertible preferred stock is convertible into shares of common stock at a
      one
      to one ratio, an embedded beneficial conversion feature was recorded as a
      discount to additional paid in capital in accordance with Emerging Issues Task
      Force No. 00-27, “Application of Issue No. 98-5 to Certain Convertible
      Instruments.” The intrinsic value of the beneficial conversion feature was
      $471,765. The beneficial conversion feature is considered a deemed dividend,
      however, since the Company has an accumulated deficit there would be no effect
      on the consolidated stockholders’ equity.





Subsequent
      to September 30, 2008, the Company issued 829,081 shares of common stock as
      part
      of the cashless exercise of MA Green’s 1,785,714 warrants.





On
      April
      18, 2008, the Company completed a private placement of our Series A Preferred
      Stock, or the Grey K Private Placement to three accredited investors, Grey
      K LP,
      a Delaware limited partnership, Grey K Offshore Fund, Ltd., a Cayman Islands
      exempt company, and Grey K Offshore Leveraged Fund, Ltd., a Cayman Islands
      exempt company, collectively referred to herein as “Grey K”, consisting of the
      sale of an aggregate of 1,428,572 shares of Series A preferred stock at a
      purchase price of $0.70 per share, which are convertible into shares of the
      Company’s common stock. Grey K also received warrants to purchase up to an
      aggregate of 357,143 shares of common stock. The warrants have a five-year
      term
      and an exercise price of $0.75 per share. The purchasers were also granted
      certain demand and piggyback rights with respect to the shares of common stock
      underlying the Series A preferred stock and the warrants. In connection with
      the
      Grey K Private Placement, the Company received gross proceeds of $1,000,000,
      less a funding fee paid to Grey K equal to 2% of the purchase price paid and
      other expenses.





The
      fair
      value of the 357,143 warrants issued with the Grey K Private Placement was
      $142,166. The fair value was computed using the Black-Scholes model under the
      following assumptions: (1) expected life of 2.5 years; (2) volatility of 100%,
      (3) risk free interest of 2.35% and (4) dividend rate of 0%. In addition, since
      this convertible preferred stock is convertible into shares of common stock
      at a
      one to one ratio an embedded beneficial conversion feature was recorded as
      a
      discount to additional paid in capital in accordance with EITF No. 00-27,
“Application of Issue No. 98-5 to Certain Convertible Instruments.” The
      intrinsic value of the beneficial conversion feature was $145,854. The
      beneficial conversion feature is considered a deemed dividend, however, since
      the Company has an accumulated deficit, there would be no effect on the
      consolidated stockholders’ equity.


14




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


Warrants




The
      following is a summary of the warrant activity:


Outstanding
                  at December 31, 2007
              
              
              4,739,968Granted
              
              
              6,069,180Forfeited
              
              
              -Exercised
              
              
              (595,713
              )Outstanding
                  at September 30, 2008 (unaudited)
              
              
              10,213,435




During
      the nine months ended September 30, 2008, the Company issued 325,763 shares
      of
      common stock for the cashless exercise of 595,713 warrants.





Following
      is a summary of the status of warrants outstanding at September 30,
      2008:


Outstanding Warrants
              
              Exercisable WarrantsAverage
              
              
              
              Average
              
              
              
              AverageExercise
              
              
              
              Remaining
              
              
              
              RemainingPrice
              
              Warrants
              
              Contractual Life
              
              Warrants
              
              Contractual Life$
              0.70
              
              
              750,000
              
              
              4.14
              
              
              666,667
              
              
              4.14$
              0.75
              
              
              9,028,143
              
              
              4.31
              
              
              6,278,143
              
              
              4.07$
              0.85
              
              
              435,292
              
              
              4.70
              
              
              435,292
              
              
              4.70Total
              
              
              10,213,435
              
              
              
              
              
              7,380,102




**Note
      6 - Convertible Promissory Notes**




Bridge
      Financing





On
      November 14, 2007, the Company entered into a Note and Warrant Purchase
      Agreement, or Bridge Financing, with investors and issued an aggregate of
      $3,048,000 in convertible promissory notes and warrants to purchase an aggregate
      of 870,858 shares of common stock. The convertible promissory notes issued
      in
      connection with the Bridge Financing bear interest at 10% per annum. The bridge
      note holders received one (1) warrant to purchase one (1) share of common stock,
      at an exercise price of $0.75 per share, for every $3.50 invested in the Company
      in connection with the Bridge Financing. The aggregate gross proceeds raised
      by
      the Company in connection with the Bridge Financing were approximately $3.0
      million. The warrants will expire three (3) years from the closing date of
      Bridge Financing.





Further,
      upon the earlier to occur of (i) three (3) months from the closing date of
      the
      Bridge Financing (the “Maturity Date”), and (ii) the consummation of a private
      investment in a public entity financing with institutional investors for at
      least $25 million, net of offering expenses, or the PIPE, the bridge note
      holders are entitled to repayment (in cash or in common stock) equal to 25%
      to
      30% in excess of the principal and accrued interest then due and outstanding
      under the terms of the notes, or the Repayment Amount. The bridge note holders
      entitled to a Repayment Amount of 25% in excess of the principal and accrued
      interest due under the terms of the notes will receive a 5% origination fee
      as
      consideration for making loans to the Company. The bridge note holders entitled
      to a Repayment Amount of 30% in excess of the principal and accrued interest
      due
      under the terms of the notes will not be entitled to an origination fee. Upon
      the earlier to occur of the Maturity Date or the consummation of the PIPE,
      the
      bridge note holders will have the right to convert (in whole or in part) 110%
      of
      the Repayment Amount into shares of common stock of the Company at the fair
      market value of each share of common stock, or at the price per share of common
      stock sold to investors in the PIPE, as the case may be.




15




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


In
      accordance with EITF 00-19, these convertible promissory notes do not meet
      the
      definition of a “conventional convertible debt instrument” since the debt is not
      convertible into a fixed number of shares.  The debt can be converted into
      common stock at a conversion price that is a percentage of the market price.
      Therefore, the number of shares that could be required to be delivered upon
      “net-share settlement” is essentially indeterminate. As such, the convertible
      promissory notes are considered “non-conventional,” and the detachable warrants
      and the conversion feature are bifurcated from the debt and shown as a separate
      derivative liability.





A
      portion
      of the $3,048,000 proceeds from the convertible promissory notes were allocated
      to the detachable warrants. The fair value of the 870,858 warrants issued in
      connection with this transaction was $229,748. The fair value was determined
      using the Black-Scholes option pricing model and the following
      assumptions:  term of 1 year, a risk free interest rate
      of 5.0%, a dividend yield of 0% and volatility of 100%. In addition,
      the fair value of the beneficial conversion feature associated with the
      convertible promissory notes was $874,990. Both the value assigned to the
      warrants ($229,748) and the beneficial conversion feature ($874,990) is recorded
      as debt discounts and will be amortized over the terms of the convertible
      promissory notes. For the nine months ended September 30, 2008, the Company
      amortized $552,369 of the aforesaid debt discounts as other expense in the
      accompanying consolidated statements of operations.





During
      the nine months ended September 30, 2008, the Company made principal re-payments
      in the total amount of $2,798,000 towards the $3,048,000 convertible promissory
      notes. For the nine months ended September 30, 2008, the Company paid $620,135
      related to the interest and premium. For the nine months ended September 30,
      2008, the Company issued 357,143 shares of common stock in the Company for
      the
      principal conversion of $250,000, issued 703,407 shares of common stock in
      the
      Company for the conversion of interest and premium of $492,385, and issued
      106,055 shares of common stock in the Company for the 10% share conversion
      premium of $74,239. As of September 30, 2008, all principal, interest and
      premium have been paid. Total interest and premium expense for the nine months
      ended September 30, 2008 amounted to $475,166.





Reclassification
      of Beneficial Conversion Feature





In
      September 2008, the Company reclassified the beneficial conversion feature
      of
      $3,686,052 from liability to equity. The reclassification was due to the Company
      repaying all of the outstanding principal, interest and premiums of the
      $3,048,000 convertible note. These convertible promissory notes did not meet
      the
      definition of a “conventional convertible debt instrument” since the debt was
      not convertible into a fixed number of shares. Therefore, these convertible
      promissory notes and all other convertible promissory notes were considered
      “non-conventional,” and the detachable warrants and the conversion features were
      bifurcated from the debt and shown as a separate derivative liability. Because
      the convertible promissory notes were fully paid in September 2008, the Company
      is no longer required to show the conversion feature as a derivative liability.
      The Company valued the beneficial conversion features for all convertible
      promissory notes on the date that the final payment of principal and interest
      was made on the $3,048,000 Bridge Financing and reclassified the value of the
      conversion features to additional paid in capital in the consolidated balance
      sheets.





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.


16




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


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.





The
      fair
      value of the beneficial conversion feature associated with the convertible
      promissory note was $205,503 which is recorded as debt discounts and will be
      amortized over the terms of the convertible promissory note.





Convertible
      Note Financing





In
      the
      nine months ended September 30, 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 mature at
      various times between November 23, 2008 and January 1, 2009 and bear interest
      at
      the rate of 12% per annum, payable in full at maturity. If at least $25 million
      is not raised by the Company on or before the applicable maturity date, the
      Company will have an additional 3 months (extending the maturity date) to repay
      the note holders in full before the notes are in default. If the notes are
      not
      paid on or before the applicable maturity date, the Company will 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 will be entitled to receive
      115% of the sum of the original principal and accumulated interest, if the
      note
      holders choose to be repaid in cash on the maturity date. The note holders
      will
      have the option to convert 110% of the repayment amount into shares of common
      stock at $0.70 per share. The note holders will also be paid a monitoring fee
      of
      5% of the original principal amount of the note. If the note is not paid on
      or
      before the maturity date (as extended), the Company will 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.





A
      portion
      of the $1,850,000 proceeds from the convertible promissory notes were allocated
      to the detachable warrants. The fair value of the 435,292 warrants issued in
      connection with this transaction was $181,420. The fair value was determined
      using the Black-Scholes option pricing model and the following
      assumptions:  term of 5 years, a risk free interest rate ranging
      between 2.73% through 3.42%, a dividend yield of 0% and volatility
      of 100%.





In
      addition, the fair value of the beneficial conversion feature associated with
      the convertible promissory notes was $592,169. Both the value assigned to the
      warrants ($181,420) and the beneficial conversion feature ($592,169) are
      recorded as debt discounts and will be amortized over the terms of the
      convertible promissory notes.





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 Company is using the proceeds
      as working capital. 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.


17




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


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.




The
      warrants have a five-year term and an exercise price of $0.75 per share. The
      warrants also contain certain provisions for the adjustment of the exercise
      price in the event that during the term of the warrants, the Company sells
      securities below the current exercise price of $0.75. This could result in
      an
      exercise price of less than $0.75 per share. The warrants also contain a
      cashless exercise provision.





The
      Company has also agreed to provide the note holder with piggyback registration
      rights, pursuant to which the Company will use its best efforts to register
      the
      shares issuable upon the conversion of the note and the exercise of the warrants
      in the event that it proposes to register any of its securities under the
      Securities Act of 1933, prior to July 25, 2010.





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.





A
      portion
      of the $2,000,000 proceeds from the convertible promissory notes were allocated
      to the detachable warrants. The fair value of the 714,286 warrants issued in
      connection with this transaction was $373,529. The fair value was determined
      using the Black-Scholes option pricing model and the following
      assumptions:  term of 5 years, a risk free interest rate of
      3.01%, a dividend yield of 0% and volatility of 100%.





In
      addition, the fair value of the beneficial conversion feature associated with
      the convertible promissory notes was $922,914. Both the value assigned to the
      warrants ($373,529) and the beneficial conversion feature ($911,914) is recorded
      as debt discounts and will be amortized over the terms of the convertible
      promissory note.





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 warrants were valued at $186,747 using the Black-Scholes option pricing
      model and are included in the debt issuance costs on the accompanying
      consolidated financial statements. The Company is using the proceeds as working
      capital. 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.


18




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


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
      warrants may be exercised at any time from and after the date commencing
      February 27, 2009, and through and including August 27, 2013. The warrants
      have
      an exercise price of $0.75 per share. The warrants also contain certain
      provisions for the adjustment of the exercise price in the event that during
      the
      term of the warrants, the Company sells securities below the stated conversion
      price of the note. This could result in an exercise price of less than $0.75
      per
      share. The warrants also contain a cashless exercise provision.





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.





A
      portion
      of the $5,000,000 proceeds from the convertible promissory notes were allocated
      to the detachable warrants. The fair value of the 2,500,000 warrants issued
      in
      connection with this transaction was $1,307,225. The fair value was determined
      using the Black-Scholes option pricing model and the following
      assumptions:  term of 5 years, a risk free interest rate of
      3.02%, a dividend yield of 0% and volatility of 100%.





In
      addition the fair value of the beneficial conversion feature associated with
      the
      convertible promissory notes was $2,226,455. Both the value assigned to the
      warrants ($1,307,225) and the beneficial conversion feature ($2,226,455) is
      recorded as debt discounts and will be amortized over the terms of the
      convertible promissory note.





For
      the
      three and nine months ended September 30, 2008, the Company amortized $962,665
      and $1,670,923, respectively, of the aforesaid debt discounts and debt issuance
      costs as other expense in the accompanying consolidated statements of
      operations.





The
      Company has recorded interest expense of $341,080 and $889,133 for the three
      and
      nine months ended September 30, 2008, respectively.





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




Unsecured
              
              Secured**Description**
              
              Bridge Financing
              
              Convertible Notes
              
              Convertible Notes
              
              Combined-
              
              -
              
              -Balance
                  at December 31, 2007
              
              $
              3,048,000
              
              $
              -
              
              
              -
              
              $
              3,048,000Debt
                  discounts
              
              
              (552,369
              )
              
              -
              
              
              -
              
              
              (552,369
              )Balance
                  at December 31, 2007, net
              
              
              2,495,631
              
              
              -
              
              
              -
              
              
              2,495,631Payments
                  made
              
              
              (2,798,000
              )
              
              -
              
              
              -
              
              
              (2,798,000
              )Amortization
                  of debt discount
              
              
              552,369
              
              
              -
              
              
              -
              
              
              552,369Conversion
                  of notes for shares
              
              
              (250,000
              )
              
              -
              
              
              -
              
              
              (250,000
              )Issuance
                  of additional notes
              
              
              -
              
              
              7,200,000
              
              
              2,000,000
              
              
              9,200,000Debt
                  discounts
              
              
              -
              
              
              (3,762,460
              )
              
              (1,130,676
              )
              
              (4,893,136
              )Balance
                  at September 30, 2008, net (unaudited)
              
              
              -
              
              
              3,437,540
              
              
              869,324
              
              
              4,306,864Less
                  current portion
              
              
              -
              
              
              1,543,550
              
              
              -
              
              
              1,543,550Long-term
                  portion
              
              $
              -
              
              $
              1,893,990
              
              $
              869,324
              
              $
              2,763,314





**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% compounded annually, 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 September, 2008 and December 31, 2007
      there is $30,181 of accrued interest. This amount has been eliminated in
      consolidation.


19




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


**Note
      8 - Income taxes**




Deferred
      income taxes reflect the net tax effects of temporary differences between the
      carrying amounts of assets and liabilities for financial statement purposes
      and
      the amounts used for income tax purposes. The Company has incurred net operating
      losses in Peru and the United States for income tax purposes for the nine months
      ended September 30, 2008. The net operating loss carry forwards amounted to
      $4,164,432 and $4,788,789 for Peru and the United States, respectively, which
      may be available to reduce future years’ taxable income. These carry forwards
      will expire, if not utilized through 2012 and 2028 for Peru and the United
      States, respectively. Management believes that the realization of the benefits
      from these losses appears uncertain due to the Company’s limited operating
      history and continuing losses for United States income tax purposes.
      Accordingly, the Company has provided a 100% valuation allowance on the deferred
      tax asset benefit to reduce the asset to zero. The net change in the valuation
      allowance for the period ended September 30, 2008 was an increase of $2,923,428.
      Management will review this valuation allowance periodically and make
      adjustments as warranted.





Significant
      components of the Company’s deferred tax assets and liabilities at September 30,
      2008 are as follows:


Peru
              
              U.S.
              
              TotalDeferred
                  tax assets (liabilities):Net
                  operating loss carryforwards
              
              $
              4,164,432
              
              $
              4,788,789
              
              $
              8,953,221Deferred
                  tax assets, net
              
              
              1,249,330
              
              
              2,051,497
              
              
              3,300,827Valuation
                  allowance
              
              
              (1,249,330
              )
              
              (2,051,497
              )
              
              (3,300,827
              )Net
                  deferred tax assets
              
              $
              -
              
              $
              -
              
              $
              -




A
      reconciliation of the statutory income tax rate and the effective income tax
      rate for the period from inception (February 27, 2007) to September 30, 2008
      is
      as follows:




Peru
            
            U.S.Statutory
                income tax rate
            
            
            30
            %
            
            43
            %Valuation
                allowance
            
            
            (30
            )%
            
            (43
            )%Effective
                income tax rate
            
            
            0
            %
            
            0
            %





**Note
      9 - Commitments and contingencies**





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. The Company
      recorded rent expense of $18,537 and $55,611 for the three and nine months
      ended
      September 30, 2008.





**Note 10
      - Related party transactions**




On
      March
      10, 2008, Stratos Peru entered into a services agreement with Iberocons S.A.
      or
      Iberocons, pursuant to which Iberocons has conducted a feasibility analysis
      of
      using desalinated sea water as part of the irrigation process for the Company’s
      greenfields. The agreement terminated on April 29, 2008. During the nine months
      ended September 30, 2008, the Company paid $33,000 for the services. Iberocons
      owns 5% of a third party consulting company, and Antonio Salas, our former
      director and Chief Executive Officer, is a 10% owner of Iberocons. Mr. Salas
      resigned as our director and Chief Executive Officer on October 3,
      2008.


20




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


On
      January 7, 2008, Stratos Peru entered into a Consulting Services Agreement
      with a third party consulting company, or Consultant, pursuant to which the
      Consultant agreed to provide consulting services, including updating the use
      of
      funds for Phase I and structuring a financial model for the simulation of
      various scenarios regarding the Company's ethanol production. Mr. Salas owns
      95%
      of the Consultant and the Chief Executive Officer of the Consultant is the
      wife
      of Mr. Salas. Mr. Salas was also a former member of the Board of Directors
      of
      the Consultant. As of September 30, 2008, the Company has paid the
      Consultant $150,000 and has accrued approximately $220,000 for services which
      have been provided and will be paid subject to an independent
      review.





As
      discussed in Note 5, the Company completed a Series A Private Placement and
      issued to MA Green 7,142,857 shares of Series A preferred stock and warrants
      to
      purchase 1,785,714 shares of common stock. The gross proceeds raised by the
      Company in connection with the Series A Private Placement were $5,000,000.
      The
      Company’s Chairman of the Board of Directors, Steven Magami, is the manager of
      MA Green.





**Note
      11 - Subsequent Events**





Subsequent
      to September 30, 2008, the Company issued 829,081 shares of common stock as
      part
      of the cashless exercise of MA Green’s 1,785,714 warrants.


21




**Item
      2. Management’s Discussion and Analysis or Plan of
      Operation**





Certain
      statements in this Quarterly Report on Form 10-Q, or the Report, are
“forward-looking statements.” These forward-looking statements include, but are
      not limited to, statements about the plans, objectives, expectations and
      intentions of Stratos Renewables Corporation, a Nevada corporation (referred
      to
      in this Report as “we,” “us,” “our” or “registrant”) and other statements
      contained in this Report that are not historical facts. Forward-looking
      statements in this Report or hereafter included in other publicly available
      documents filed with the Securities and Exchange Commission, or the Commission,
      reports to our stockholders and other publicly available statements issued
      or
      released by us involve known and unknown risks, uncertainties and other factors
      which could cause our actual results, performance (financial or operating)
      or
      achievements to differ from the future results, performance (financial or
      operating) or achievements expressed or implied by such forward-looking
      statements. Such future results are based upon management’s best estimates based
      upon current conditions and the most recent results of operations. When used
      in
      this Report, the words “expect,” “anticipate,” “intend,” “plan,” “believe,”
“seek,” “estimate” and similar expressions are generally intended to identify
      forward-looking statements, because these forward-looking statements involve
      risks and uncertainties. There are important factors that could cause actual
      results to differ materially from those expressed or implied by these
      forward-looking statements, including our plans, objectives, expectations and
      intentions and other factors that are discussed under the section entitled
“Risk
      Factors,” in this Report and in our Annual Report on Form 10-KSB for the year
      ended December 31, 2007.





The
      following discussion and analysis summarizes our plan of operation for the
      next
      twelve months. The following discussion should be read in conjunction with
      the
      Management’s Discussion and Analysis or Plan of Operation included in our Annual
      Report on Form 10-KSB for the year ended December 31, 2007 filed
      with the Securities and Exchange Commission on April 15, 2008.





**Executive
      Overview**





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 eliminates commodity
      price
      volatility and leads 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 is successfully weaned itself from a dependency on
      foreign oil. We believe that Peru is capable of growing up to twice the amount
      of sugarcane per hectare (ha) than an equivalent operation in Brazil. (1 ha
      is
      approximately equal to 2.5 acres.) Furthermore, Sugarcane produces up to seven
      times per land mass what corn does and sugarcane-based ethanol is currently
      the
      only biofuel that creates no net carbon dioxide emissions.





Peru





Over
      the
      last five years, Peru has demonstrated significant exponential foreign direct
      investment and gross domestic product growth, adding to its promise as an
      attractive location for the cultivation, processing, distribution and use of
      alternative fuels. Specifically, Peru’s superior soil and agro-climate
      conditions allow for year-round sugarcane harvesting and high yields as water
      and nutrient content can be managed using modern irrigation technology. This
      compares favorably with uncontrolled climates in other countries where sugarcane
      is being cultivated.




22


Land
      prices in Peru are a fraction of the prices in developed countries currently
      producing other feedstock. Low transportation costs for exporting and
      distribution are also available due to coastal access and proximity to the
      Pan-American Highway.





Peru
      is
      consistently ranked one of the highest yield sugarcane producers in the world
      based on average yield per hectare. Peru also has a constructive tax, regulatory
      and alternative energy-friendly legislative environment. Additionally,
      investment-grade credit ratings were recently assigned to Peru’s long-term
      foreign and local currency debt.





Megatrends
      Driving Large Market Opportunity





Environmental,
      geopolitical and economic macroforces are driving the large and underserved
      biofuel market. Those forces are generating an increasing interest in the
      biofuels that are most efficient in reducing carbon footprints. Current policy
      initiatives, if fully implemented, could result in biofuels (mainly ethanol)
      displacing up to 5% of the worldwide motor gasoline use by 2010. 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
      U.S. Renewable Fuel Standard (RFS) mandates the use of 36 billion gallons of
      renewable fuels per year by 2022, and production is currently behind these
      mandated levels. With the institution of these initiatives, rural economic
      development opportunities are facilitated, stimulating the economies and
      communities in which they are produced.





We
      believe that ethanol production in particular creates more labor opportunities
      than other sources of energy. Sugarcane-based ethanol production enables
      countries that have existing sugar industries to produce ethanol – a higher
      value-added product rather than relying exclusively on the volatile sugar
      commodity market. Brazil is currently the world’s largest producer of sugarcane
      ethanol. We believe that we can produce at least 145 tons of sugarcane per
      ha
      per year, approximately twice the average ha in Brazil. Given Peru’s low cost of
      production, free trade agreement with the U.S. and Canada, climatic advantages
      and available land, its believed ethanol production in Peru could displace
      portions of Brazil’s ethanol export market.








**Critical
      Accounting Policies and Estimates**





Our
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations section discusses our financial statements, which have been prepared
      in accordance with accounting principles generally accepted in the United States
      of America. The preparation of the financial statements requires management
      to
      make estimates and assumptions that affect the reported amounts of assets and
      liabilities at the date of the financial statements and the reported amounts
      of
      revenues and expenses during the reporting period. On an on-going basis,
      management evaluates its estimates and judgments, including those related to
      revenue recognition, recoverability of intangible assets, and contingencies
      and
      litigation. Management bases its estimates and judgments on historical
      experience and on various other factors that are believed to be reasonable
      under
      the circumstances, the results of which form the basis for making judgments
      about the carrying value of assets and liabilities that are not readily apparent
      from other sources. Actual results may differ from these estimates under
      different assumptions or conditions. The most significant accounting estimates
      inherent in the preparation of our financial statements include estimates as
      to
      the appropriate carrying value of certain assets and liabilities which are
      not
      readily apparent from other sources, primarily the valuation of our fixed assets
      and the recoverability of our VAT receivable. The methods, estimates and
      judgments we use in applying these most critical accounting policies have a
      significant impact on the results we report in our financial statements.





Impairment
      of long-lived assets





We
      follow
      the guidance of Statement of Financial Accounting Standards No. 144, “Accounting
      for the Impairment or Disposal of Long-Lived Assets,” or 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
      indicators 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. Based on our
      review, we believe that, as of September 30, 2008, there were no significant
      impairments of long-lived assets.


23


**Plan
      of Operations**





Overview





This
      current report contains forward-looking statements that involve significant
      risks and uncertainties. The following discussion, which focuses on our plan
      of
      operation through the commencement of operations of our plant, consists almost
      entirely of forward-looking information and statements. Actual events or results
      may differ materially from those indicated or anticipated, as discussed in
      the
      section entitled “Forward Looking Statements.” This may occur as a result of
      many factors, including those set forth in the section entitled “Risk Factors.”





We
      are an
      emerging South American developmental-stage company with plans to develop
      ethanol and sugar products through the cultivation, harvesting and processing
      of
      sugarcane in low cost growing locations. From a strategic value perspective,
      our
      management believes a geographic focus in Peru will be a key component in
      achieving our goals.





We
      are
      creating long-term sustainable growth with a business model designed to
      stimulate the local economy, and we believe that our operations could create
      more than 2,000 jobs. There is currently no mass production of ethanol in Peru,
      based largely on difficulty in securing the appropriate local land. However,
      we
      have leveraged our relationships and sound business model to secure extensive
      tracts of unutilized land, and we plan to install a drip irrigation system
      with
      the assistance of a multidisciplinary and experienced land sourcing, and
      assessment and hydrological studies team comprised of industry leading
      specialists.





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





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





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 of 19% to acquire the Sugar
      Mill.  Of the purchase price, we held back $350,000, or the Holdback,
      representing approximately 7.74% of the purchase price, into an escrow
      contingencies account with Banco Continental in Lima, Peru.  The Holdback
      was established to protect us in the event Gabinete failed to fulfill certain
      tax obligations relating to the equipment for the years 2002 through 2007,
      the
      equipment was lost or damaged while in transit from Gabinete, the equipment
      was
      not delivered to us, or certain representations made by Gabinete in the asset
      purchase agreement were discovered to be false.


24


On
      July
      1, 2008, we agreed to release the Holdback, subsequent to which we 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 us as consideration for the note. If any liability issues arise
      with
      respect to the sugar mill as previously contemplated by the Holdback, the amount
      will be offset from or against amounts payable by our Company to Gabinete under
      the note.





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 and we plan to acquire and install
      a
      distillery unit to adjoin it for the production of ethanol. Additionally, we
      plan to upgrade the Sugar Mill’s capacity to crush sugarcane from 500 tons to
      1,100 tons of sugarcane per day. We estimate that we will need a total of $9.6
      million in investment and working capital to overhaul, expand and relocate
      the
      Sugar Mill, acquire the distillery and conduct operations at the mill and
      distillery through the third quarter of 2009. We are currently in the site
      selection process for the location of the Sugar Mill. This process has taken
      longer than anticipated, and there will likely be some delay in the commencement
      of operations as a result.





On
      December 4, 2007 we entered into an agreement with an advisor to the Company,
      for his services in providing us with a plan for us to hire a contractor to
      dismantle, repair and overhaul the equipment from the Sugar Mill. He will also
      provide us with engineering studies in order to determine the maximum capacity
      of sugar cane processing of the Sugar Mill and to establish the process layout
      and technical specifications that will be required for new machinery and
      equipments.





On
      February 27, 2008, Stratos Peru entered into an agreement with Panka S.A.C.
      to
      provide us with a basic engineering plan and new layout of the Sugar Mill after
      the overhauling of the Sugar Mill. Panka S.A.C. has delivered preliminary
      reports that identify the machinery standards that would be required for this
      process to be successful.





On
      March
      12, 2008, Stratos Peru entered into an agreement, the CWE Agreement, CWE
      Engineering & Supply S.A.C., or CWE, or CWE.  The CWE Agreement relates
      to the relocation of the Sugar Mill to the Industrial Lot, as described
      below, that we have obtained the rights to in the Lambayeque region. Under
      the terms of the CWE Agreement, we engaged CWE to clean, remove and disassemble
      equipment located at the Sugar Mill.   We have agreed to pay CWE a
      service fee of approximately $150,000, payable in installments.  In
      connection with the payment of the service fee, CWE issued two promissory
      notes in favor of Stratos Peru, each in the amount of $8,330 pursuant to
      which Stratos Peru could collect such amount in the event that CWE did not
      complete the project according to the timetable. The Notes had a due date of
      May
      22, 2008; however, Stratos Peru never exercised its rights under the
      Notes.  The CWE Agreement terminated on June 9, 2008 and we are negotiating
      a new agreement with CWE to complete the project.





Also
      on
      March 12, 2008, we retained a consultant to provide us with architectural
      services relating to the Sugar Mill, including the technical specifications
      relating to the architecture of the Sugar Mill and any related property
      regulations.





In
      March
      2008, we began the dismantling of all of the equipment. We anticipate that
      the
      dismantling will be complete by the first quarter of 2009.


25


After
      modifying and expanding the Sugar Mill, we plan to use approximately 40% of
      its
      capacity to produce raw sugar to be sold in the local wholesale markets, and
      60%
      of its capacity to produce an estimated 4.8 million gallons of ethanol a year.





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; and 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 and 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 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 which gives us
      the
      right to plant on all 24,000 of those hectares, rather than just
      15,000.





Field
      Installment





The
      third
      component, as part of our main objective to be the market leader in sustainable
      low-cost ethanol production, will be to take advantage of our “greenfield”
position to use only sophisticated crop management techniques to ensure maximum
      yield with high sucrose and inverted sugar content. 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.  To ensure the maximum benefit from the genetically cleaned
      sugar varieties that we intend to install on our comparatively low-cost land,
      significant investment will go into channeling water to the sites from national
      irrigation projects and on field irrigation installation with back-up water
      supply, and land preparation to ensure the longevity and productivity of the
      fields which includes grading, leveling, initial nutrient and organic
      material installation, and field layout.





We
      plan
      to 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 plantation fields,
      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 it.





Booker
      and Tate has conducted an initial reconnaissance survey of our plant sites
      and
      is engaged in discussions with us to perform additional services for
      us.


26


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.




We
      have
      evaluated a component of our business plan which previously contemplated
      breeding our own sugarcane plantlets. In order to reduce the expenditures
      associated with establishing a sugarcane seendling nursery, we have decided
      to
      use existing breeds with effective history results of sugarcane, rather than
      genetically engineering the breeds.





Our
      goal
      is to have all of the components of Phase I completed by the third quarter
      of
      2009 so that we can begin executing Phase II.





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 anticipate raising
      and
      investing funds over an additional $700 million 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 2009. 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 will begin in the fourth quarter of 2009, 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.  We estimate that
      the total cost for Stage One will be approximately $400 million.





Stage
      Two





During
      the second stage, which will begin in the third quarter of 2011, we plan to
      plant the second 24,000 hectares of land located along the northern
      Peruvian coast. We estimate that the total cost for this stage will be
      approximately $355 million.




The
      cost estimates
      above for Phase II include VAT (value added tax) which is charged at a standard
      rate of 19%. In the future, the Company will obtain income tax credits for
      VAT
      paid in connection with the purchase of capital equipment and other goods and
      services employed in its operations.





**Trends
      and Uncertainties**





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 our land sourcing program 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 may not be able to obtain additional capital on terms
      favorable to us or at all. We expect to increase our operating expenses over
      the
      coming years. We estimate that Phase I of our business plan, which is currently
      in effect, will cost a total of approximately $37 million. Furthermore, we
      estimate that we will need over an additional $700 million 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.





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 United
      States companies.


27


**Financing**





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. We anticipate
      that we will have negative cash flows from operations for our fiscal year ended
      December 31, 2008.





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
      are
      no assurances that we will be able to obtain funds required for our continued
      operation. 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 operation of our
      business.





There
      is
      substantial doubt about our ability to continue as a going concern as the
      continuation of our business is dependent upon obtaining further long-term
      financing, completion of our proposed plant and successful and sufficient market
      acceptance of our products once developed and, finally, achieving a profitable
      level of operations. The issuance of additional equity securities by us could
      result in a significant dilution in the equity interests of our current
      stockholders. Obtaining commercial loans, assuming those loans would be
      available, will increase our liabilities and future cash commitments.





**Liquidity
      and Capital Resources**





Cash
      Flows from Financing Activities





There
      are
      no assurances that we will be able to obtain further funds required for our
      continued operations. We intend to pursue various financing alternatives to
      meet
      our immediate and long-term financial requirements. 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 be unable to conduct
      our
      operations as planned, and we will not be able to meet our other obligations
      as
      they become due. In such event, we will be forced to scale down or perhaps
      even
      cease our operations.





Historically,
      we have met our immediate and long-term financial requirements primarily through
      the sale of common stock and other convertible equity securities. From February
      27, 2007 (inception) and through September 30 of 2008, we conducted the
      following private placements of our securities:





Private
      Placement of Common Stock





From
      October 8, 2007 to June 26, 2008 we conducted a private placement of our
      securities, or Private Placement. Pursuant to this Private Placement, on
      November 14, 2007, we issued an aggregate of 2,666,794 shares of common stock
      and warrants to purchase an aggregate of 1,333,396 shares of common stock.
      We
      raised $1,866,760 aggregate gross proceeds in connection with the Private
      Placement. We sold to investors each share of common stock at $0.70 per share.
      The fair value of the warrants amounted to $352,268. We computed the fair value
      using the Black-Scholes model under the following assumptions: (1) expected
      life
      of 1 year; (2) volatility of 100%; and (3) risk free interest of 5.0%. The
      warrants expire after five (5) years from the date of issuance and are
      exercisable at $0.75 per share, subject to adjustment in certain
      circumstances.


28


On
      March
      7, 2008 we received proceeds of $1,587,447 from the Private Placement. Pursuant
      to this financing, we issued an aggregate of 2,267,782 shares of common stock
      at
      a purchase price of $0.70 per share and warrants to purchase an aggregate of
      1,133,888 shares of common stock with an exercise price of $0.75 per share.
      The
      fair value of the warrants amounted to $294,360. We computed the fair value
      using the Black-Scholes model under the following assumptions: (1) expected
      life
      of 1 year; (2) volatility of 100%; and (3) risk free interest of 3.0%. The
      warrants expire after five (5) years from the date of issuance and are
      exercisable at $0.75 per share, subject to adjustment in certain circumstances.





On
      June
      26, 2008, we received proceeds of $100,000 from the Private Placement, pursuant
      to which we issued an aggregate of 142,857 shares of common stock at a purchase
      price of $0.70 per share and warrants to purchase an aggregate of 71,428 shares
      of common stock with an exercise price of $0.75 per share. The fair value of
      the
      warrants amounted to $37,488. The fair value was computed using the
      Black-Scholes model under the following assumptions: (1) expected life of 2.5
      years; (2) volatility of 100%; and (3) risk free interest of 3.44%. The warrants
      expire after five (5) years from the date of issuance and are exercisable at
      $0.75 per share, subject to adjustment in certain circumstances.





Series
      A Preferred Stock Private Placement





On
      November 14, 2007 we completed a Series A private placement, or Series A Private
      Placement, pursuant to which we issued to MA Green 7,142,857 shares of Series
      A
      Preferred Stock and warrants to purchase 1,785,714 shares of common stock.
      We
      raised $5,000,000 in gross proceeds in connection with the Series A Private
      Placement. We sold each share of Series A Preferred Stock at $0.70 per share.
      The warrants expire five (5) years from the date of issuance and are exercisable
      at $0.75 per share, subject to adjustment in certain circumstances. Our Chairman
      of the Board of Directors, Steven Magami, is the manager of MA Green.





The
      fair
      value of the 1,785,714 warrants issued with the Series A Private Placement
      was
      $471,765. The fair value was computed using the Black-Scholes model under the
      following assumptions: (1) expected life of 1 year; (2) volatility of 100%,
      (3)
      risk free interest of 5.0% and (4) dividend rate of 0%. In addition, since
      this
      convertible preferred stock is convertible into shares of common stock at a
      one-to-one ratio, an embedded beneficial conversion feature was recorded as
      a
      discount to additional paid in capital in accordance with Emerging Issues Task
      Force No. 00-27, “Application of Issue No. 98-5 to Certain Convertible
      Instruments.” The intrinsic value of the beneficial conversion feature was
      $471,765. The beneficial conversion feature is considered a deemed dividend,
      however, since the Company has an accumulated deficit there would be no effect
      on the consolidated stockholders’ equity.





Subsequent
      to September 30, 2008, the Company issued 829,081 shares of common stock as
      part
      of the cashless exercise of MA Green’s 1,785,714 warrants.





On
      April
      18, 2008, we completed a private placement of our Series A Preferred Stock,
      or
      the Grey K Private Placement, to three accredited investors, Grey K LP, a
      Delaware limited partnership, Grey K Offshore Fund, Ltd., a Cayman Island exempt
      company, and Grey K Offshore Leveraged Fund, Ltd., a Cayman Islands exempt
      company, collectively referred to herein as “Grey K”, consisting of the sale of
      an aggregate of 1,428,572 shares of Series A preferred stock at a purchase
      price
      of $0.70 per share, which are convertible into shares of common stock. Grey
      K
      also received warrants to purchase up to an aggregate of 357,143 shares of
      common stock. The warrants have a five-year term and an exercise price of $0.75
      per share. The purchasers were also granted certain demand and piggyback rights
      with respect to the shares of common stock underlying the Series A preferred
      stock and the warrants. In connection with the Grey K Private Placement, we
      received gross proceeds of $1,000,000, less a funding fee paid to Grey K equal
      to 2% of the purchase price paid and other expenses.





The
      fair
      value of the 357,143 warrants issued with the Grey K Private Placement was
      $142,166. The fair value was computed using the Black-Scholes model under the
      following assumptions: (1) expected life of 2.5 years; (2) volatility of 100%,
      (3) risk free interest of 2.35% and (4) dividend rate of 0%. In addition, since
      this convertible preferred stock is convertible into shares of common stock
      at a
      one to one ratio an embedded beneficial conversion feature was recorded as
      a
      discount to additional paid in capital in accordance with Emerging Issues Task
      Force No. 00-27, “Application of Issue No. 98-5 to Certain Convertible
      Instruments.” The intrinsic value of the beneficial conversion feature was
      $145,854. The beneficial conversion feature is considered a deemed dividend,
      however, since the Company has an accumulated deficit there would be no effect
      on the consolidated stockholders’ equity.




29


Bridge
      Financing





We
      entered into a Note and Warrant Purchase Agreement on November 14, 2007, or
      Bridge Financing, with investors and issued an aggregate of $3,048,000 in
      convertible promissory notes and warrants to purchase an aggregate of 870,858
      shares of common stock. The convertible promissory notes issued in connection
      with the Bridge Financing bear interest at 10% per annum. The bridge note
      holders received one (1) warrant to purchase one (1) share of common stock,
      at
      an exercise price of $0.75 per share, for every $3.50 invested in the Company
      in
      connection with the Bridge Financing. We raised approximately $3.0 million
      aggregate gross proceeds in connection with the Bridge Financing. The warrants
      will expire three (3) years from the closing date of Bridge Financing.





During
      the nine months ended September 30, 2008, we made principal re-payments in
      the
      total amount of $2,798,000 towards the $3,048,000 convertible promissory notes.
      For the nine months ended September 30, 2008, we paid $620,135 related to the
      interest and premium. For the nine months ended September 30, 2008, we issued
      357,143 shares of common stock in the Company for the principal conversion
      of
      $250,000, issued 703,407 shares of common stock in the Company for the
      conversion of interest and premium of $492,385, and issued 106,055 shares of
      common stock in the Company for the 10% share conversion premium of $74,239.
      As
      of September 30, 2008, all principal, interest and premium have been
      paid.




Issuance
      of $350,000 Unsecured Convertible Promissory Note





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





On
      July
      1, 2008, we agreed to release the holdback, subsequent to which we issued
      Gabinete an unsecured convertible promissory note in the principal amount of
      $350,000, for us to use as working capital. The parties have also terminated
      the
      escrow agreement in order to transfer the funds from the escrow account to
      us 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 us
      to
      Gabinete under the note.





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 our units 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 our common stock at an exercise price of $0.75 per share, with a five-year
      term and cashless exercise provision.





Convertible
      Note Financing





Between
      May 23, 2008 and July 18, 2008, we 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.
      We
      received gross proceeds of $1,850,000, less fees of $47,500 of the purchase
      price paid and other expenses. The notes mature six months from issuance and
      bear interest at the rate of 12% per annum, payable in full at maturity. If
      at
      least $25 million is not raised by us on or before the applicable maturity
      date,
      we will have an additional 3 months (extending the maturity date) to repay
      the
      note holders in full before the notes are in default. If the notes are not
      paid
      on or before the applicable maturity date, we will 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 will be entitled to receive 115% of the sum of
      the
      original principal and accumulated interest, if the note holders choose to
      be
      repaid in cash on maturity date. The note holders will have the option to
      convert 110% of the repayment amount into shares of common stock at $0.70 per
      share. The note holders will also be paid a monitoring fee of 5% of the original
      principal amount of the note. If the note is not paid on or before the maturity
      date (as extended), we will 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.




30


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





On
      July
      25, 2008, we 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 our common stock, to Whitebox
      Hedged High Yield Partners, LP, a British Virgin Islands limited partnership.
      We
      received gross proceeds of $2,000,000, less fees of 10% of the purchase price
      paid and other expenses. We are using the proceeds as working capital. 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
      us, up to a maximum of 25% of the amounts raised by us in any such financing,
      on
      the same terms as the other participants of such financing.





We
      may
      prepay the note in whole but not in part from time to time. If we prepay the
      note more than 30 days prior to the maturity date, we have 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 our common
      stock
      at a conversion price of $0.70 per share. Under certain circumstances, such
      as
      in the event of the sale of our securities 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, we will pay to the note holder an
      additional sum of $100,000.




The
      warrants have a five-year term and an exercise price of $0.75 per share. The
      warrants also contain certain provisions for the adjustment of the exercise
      price in the event that during the term of the warrants, we sell securities
      below the current exercise price of $0.75. This could result in an exercise
      price of less than $0.75 per share. The warrants also contain a cashless
      exercise provision.





We
      have
      also agreed to provide the note holder with piggyback registration rights,
      pursuant to which we will use our best efforts to register the shares issuable
      upon the conversion of the note and the exercise of the warrants in the event
      that it proposes to register any of its securities under the Securities Act
      of
      1933, prior to July 25, 2010.





The
      note
      is secured by 100% of the shares we hold in our wholly owned U.S. subsidiary
      and
      our two Peruvian subsidiaries.





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





On
      August
      27, 2008, we completed a financing pursuant to which we 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 our common stock, to an unaffiliated
      accredited investor. We 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, we also issued warrants to purchase 357,143
      shares of our common stock to a finder. The warrants were valued at $186,747
      using the Black-Scholes option pricing model and are included in the debt
      issuance costs on the accompanying consolidated financial statements. We are
      using the proceeds as working capital. 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.





We
      may
      prepay the note in whole, but not in part, from time to time. If we prepay
      the
      note 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.


31







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 our common
      stock
      at a conversion price of $0.70 per share. Under certain circumstances, such
      as
      in the event of the sale of our securities at a price less than $0.70 per share,
      the conversion price will be subject to adjustment.




So
      long
      as the note is outstanding, we 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
      warrants may be exercised at any time from and after the date commencing
      February 27, 2009 and through and including August 27, 2013. The warrants have
      an exercise price of $0.75 per share. The warrants also contain certain
      provisions for the adjustment of the exercise price in the event that during
      the
      term of the warrants, we sell securities below the stated conversion price
      of
      the note. This could result in an exercise price of less than $0.75 per share.
      The warrants also contain a cashless exercise provision.





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





Cash
      Used
      for Investing Activities





On
      October 18, 2007, we signed a purchase-sale contract with Gabinete Técnico de
      Cobranza S.A.C., and have acquired certain assets that are part of the
      sugar mill. This purchase price was $5,382,328:





·
            $5,032,328
                by bank draft issued to the order of Gabinete Técnico de Cobranza S.A.C.;
                and





·
            $350,000
                to be deposited in a bank account in order to guarantee payment of
                any
                contingency that may arise from this transaction, which subsequently
                was
                converted into a convertible promissory
                note.





We
      acquired certain assets from Gabinete Técnico de Cobranza S.A.C. as part of its
      overall business strategy to purchase, sale, produce, distribute, market,
      transport, warehouse, export and import of all kinds of products derives from
      hydrocarbons and bio-fuels.





The
      following table summarizes the fair values of the assets acquired and
      liabilities assumed at the date of acquisition:  The fair values are
      determined based on an appraisal:




Plant
                and equipment
            
            $
            4,522,965VAT
                receivable
            
            
            859,363Purchase
                price
            
            $
            5,382,328





We
      have determined that the discounted cash flows generated by the
      exploitation of the Sugar Mill will suffice to cover the carrying value of
      the
      assets acquired in this acquisition.





The
      Sugar
      Mill did not have any operations for the past several years.





**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.





32




**Recently
      Issued Accounting Pronouncements**





In
      December 2007, the Financial Accounting Standards Board, or (“FASB”) issued SFAS
      No. 141 (Revised 2007 (“SFAS 141R”)), “Business Combinations.” SFAS 141R
      changes how a reporting enterprise accounts for the acquisition of a business.
      Also, SFAS 141R requires an acquiring entity to recognize all the assets
      acquired and liabilities assumed in a transaction at the acquisition-date fair
      value, with limited exceptions, and applies to a wider range of transactions
      or
      events. SFAS 141R is effective for fiscal years beginning on or after
      December 15, 2008 and early adoption and retrospective application is
      prohibited. The
      Company is currently evaluating the impact of adopting SFAS 141R on its
      consolidated financial statements.





In
      December 2007, the FASB issued SFAS No. 160 (“SFAS 160”), “Noncontrolling
      Interests in Consolidated Financial Statements,” which is an amendment of
      Accounting Research Bulletin (“ARB”) No. 51.  SFAS 160 clarifies that
      a noncontrolling interest in a subsidiary is an ownership interest in the
      consolidated entity that should be reported as equity in the consolidated
      financial statements.  This statement changes the way the consolidated
      income statement is presented, thus requiring consolidated net income to be
      reported at amounts that include the amounts attributable to both parent and
      the
      noncontrolling interest.  This statement is effective for the fiscal
      years, and interim periods within those fiscal years, beginning on or after
      December 15, 2008.  The Company does not anticipate the adoption of
      SFAS 160 will have a significant impact on its results of operations or
      financial position.





In
      February 2007, the FASB issued SFAS No. 159 (“SFAS 159”), “The Fair Value Option
      for Financial Assets and Financial Liabilities.” SFAS 159 permits entities to
      choose to measure many financial assets and financial liabilities at fair value.
      Unrealized gains and losses on items for which the fair value option has been
      elected are reported in earnings. SFAS 159 is effective as of the beginning
      of
      an entity’s first fiscal year that begins after November 15, 2007. The Company
      adopted SFAS 159 on January 1, 2008, and the Company chose not to elect the
      option to measure the fair value of eligible financial assets and liabilities.





In
      June
      2007, the FASB issued FASB Staff Position No. EITF 07-3, “Accounting for
      Nonrefundable Advance Payments for Goods or Services Received for use in Future
      Research and Development Activities” (“FSP EITF 07-3”), which addresses whether
      nonrefundable advance payments for goods or services that used or rendered
      for
      research and development activities should be expensed when the advance payment
      is made or when the research and development activity has been performed.
      Management is currently evaluating the effect of FSP EITF 07-3 on its
      consolidated financial statements.





In
      June
      2008, the FASB issued EITF 07-5 “Determining whether an Instrument (or Embedded
      Feature) is indexed to an Entity’s Own Stock” (“EITF 07-5”). EITF 07-5 is
      effective for financial statements issued for fiscal years beginning after
      December 15, 2008, and interim periods within those fiscal years. Early
      application is not permitted. Paragraph 11(a) of SFAS No. 133 specifies that
      a
      contract that would otherwise meet the definition of a derivative but is both
      (a) indexed to the Company’s own stock and (b) classified in
      stockholders’ equity in the statement of financial position would not be
      considered a derivative financial instrument. EITF 07-5 provides a new two-step
      model to be applied in determining 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. The Company believes adopting this
      statement will have a material impact on the consolidated financial statements
      because among other things, any option or warrant previously issued and all
      new
      issuances denominated in US dollars will be required to be carried as a
      liability and marked to market each reporting period.





In
      April
      2008, the FASB issued FSP SFAS 142-3 “Determination of the useful life of
      Intangible Assets,” which amends the factors a company should consider when
      developing renewal assumptions used to determine the useful life of an
      intangible asset. FSP SFAS 142-3 is effective for financial statements issued
      for fiscal years beginning after December 15, 2008, and interim periods within
      those fiscal years. SFAS 142 requires companies to consider whether renewal
      can
      be completed without substantial cost or material modification of the existing
      terms and conditions associated with the asset. FSP SFAS 142-3 replaces the
      previous useful life criteria with a new requirement—that an entity consider its
      own historical experience in renewing similar arrangements. If historical
      experience does not exist, then the Company would consider market participant
      assumptions regarding renewal including 1) highest and best use of the asset
      by
      a market participant, and 2) adjustments for other entity-specific factors
      included in SFAS 142. The Company is currently evaluating the impact that
      adopting FSP SFAS No.142-3 will have on its consolidated financial
      statements.


In
        June
        2008, FASB issued EITF Issue No. 08-4, “Transition Guidance for Conforming
        Changes to Issue No. 98-5 (“EITF No. 08-4”).” The objective of EITF No.08-4
        is to provide transition guidance for conforming changes made to EITF No.
        98-5,
“Accounting for Convertible Securities with Beneficial Conversion Features
        or
        Contingently Adjustable Conversion Ratios,” that result from EITF No. 00-27
“Application of Issue No. 98-5 to Certain Convertible Instruments,” and SFAS No.
        150, “Accounting for Certain Financial Instruments with Characteristics of both
        Liabilities and Equity.” This Issue is effective for financial statements issued
        for fiscal years ending after December 15, 2008. Early application is
        permitted. Management is currently evaluating the impact of adoption of
        EITF No. 08-4 on the accounting for the convertible notes and related warrants
        transactions.
 
 On
        October 10, 2008, the FASB issued FSP 157-3, “Determining the Fair Value of a
        Financial Asset When the Market for That Asset Is Not Active,” which clarifies
        the application of SFAS 157 in a market that is not active and provides an
        example to illustrate key considerations in determining the fair value of
        a
        financial asset when the market for that financial asset is not active. FSP
        157-3 became effective on October 10, 2008, and its adoption did not have
        a
        material impact on the financial position or results for the quarter ended
        September 30, 2008.


33





**Item
      3. Quantitative and Qualitative Disclosures About Market Risk**





Not
      applicable.





**Item
      4. Controls and Procedures**





Evaluation
      of Disclosure Controls and Procedures





As
      of
      September 30, 2008, we carried out an evaluation of the effectiveness of the
      design and operation of our “disclosure controls and procedures” (as defined in
      the Exchange Act Rules 13a-15(e) and 15d-15(e)) under the supervision and with
      the participation of our management, including our Chief Executive Officer
      and
      our Chief Financial Officer.  Based upon that evaluation, we concluded that
      our disclosure controls and procedures are effective.





Disclosure
      controls and procedures are controls and other procedures that are designed
      to
      ensure that information required to be disclosed in our reports filed or
      submitted under the Exchange Act are recorded, processed, summarized and
      reported, within the time periods specified in the Securities and Exchange
      Commission’s rules and forms.  Disclosure controls and procedures include,
      without limitation, controls and procedures designed to ensure that information
      required to be disclosed in our reports filed under the Exchange Act is
      accumulated and communicated to management to allow timely decisions regarding
      required disclosure.





During
      the quarter ended September 30, 2008, there were no changes in our internal
      control over financial reporting that have materially affected our internal
      control over financial reporting.





**PART
      II - OTHER INFORMATION**





**Item
      1. Legal Proceedings**





None





**Item
      1A. Risk Factors**





In
      addition to the other information set forth in this Report, you should carefully
      consider the factors discussed in the section entitled “Risk Factors” in our
      Annual Report on Form 10-KSB for the year ended December 31, 2007, which to
      our
      knowledge have not materially changed. Those risks, which could materially
      affect our business, financial condition or future results, are not the only
      risks we face. Additional risks and uncertainties not currently known to us
      or
      that we currently deem to be immaterial also may materially adversely affect
      our
      business, financial condition and/or operating results.





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





Private
      Placement of Common Stock and Warrants





On
      March
      7, 2008 we received proceeds of $1,587,447 from the Private Placement. Pursuant
      to this financing, we issued an aggregate of 2,267,782 shares of common stock
      at
      a purchase price of $0.70 per share and warrants to purchase an aggregate of
      1,133,888 shares of common stock with an exercise price of $0.75 per share.
      On
      June 26, 2008, we received proceeds of $100,000 from the Private Placement,
      pursuant to which we issued an aggregate of 142,857 shares of common stock
      at a
      purchase price of $0.70 per share and warrants to purchase an aggregate of
      71,428 shares of common stock with an exercise price of $0.75 per share. The
      warrants have a “cashless” exercise provision, expire five years from the date
      of issuance, and are exercisable at $0.75 per share, subject to adjustment
      under
      certain circumstances. The common stock and warrants issued in connection with
      this financing were not registered under the Securities Act and were issued
      in
      reliance upon exemptions set forth in Section 4(2), Regulation D and/or
      Regulation S of the Securities Act. Our determination with regard to the
      applicable exemptions from registration was based on the representations of
      the
      investors, which included, in pertinent part, that such investors were either:
      (a) “accredited investors” within the meaning of Rule 501 of Regulation D
      promulgated under the Securities Act, or (b) not a “U.S. person” as such term is
      defined in Rule 902(k) of Regulation S under the Securities Act, and that the
      investors understood that the securities may not be sold or otherwise disposed
      of without registration under the Securities Act or an applicable exemption
      therefrom.




34





Private
      Placement of Series A Preferred Stock and Warrants





On
      April
      18, 2008, we completed a private placement of our Series A Preferred Stock
      to
      Grey K, consisting of the sale of an aggregate of 1,428,572 shares of Series
      A
      preferred stock at a purchase price of $0.70 per share, which are convertible
      into shares of the Company’s common stock. Grey K also received warrants to
      purchase up to an aggregate of 357,143 shares of common stock. The warrants
      have
      a five (5) year term and an exercise price of $0.75 per share. The purchasers
      were also granted certain demand and piggyback rights with respect to the shares
      of common stock underlying the Series A preferred stock and the warrants. In
      connection with this private placement, we received gross proceeds of
      $1,000,000, less a funding fee paid to Grey K equal to 2% of the purchase price
      paid and other expenses. We believe the securities were issued in reliance
      from
      exemptions from registration pursuant to Section 4(2) or Regulation D under
      the
      Securities Act.





Issuance
      of $350,000 Unsecured Convertible Promissory Note





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





On
      July
      1, 2008, we agreed to release the holdback, subsequent to which we issued
      Gabinete an unsecured convertible promissory note in the principal amount of
      $350,000, for us to use as working capital. The parties have also terminated
      the
      escrow agreement in order to transfer the funds from the escrow account to
      us 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 us
      to
      Gabinete under the note.





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 our units 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 our common stock at an exercise price of $0.75 per share, with a five-year
      term and cashless exercise provision. We believe the securities were issued
      in
      reliance from exemptions from registration pursuant to Section 4(2) or
      Regulation D under the Securities Act.





Unsecured
      Convertible Note Financing





Between
      May 23, 2008 and July 18, 2008, we 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.
      We
      received gross proceeds of $1,850,000, less fees of $47,500 of the purchase
      price paid and other expenses. The notes mature six months from issuance and
      bear interest at the rate of 12% per annum, payable in full at maturity. If
      at
      least $25 million is not raised by us on or before the applicable maturity
      date,
      we will have an additional 3 months (extending the maturity date) to repay
      the
      note holders in full before the notes are in default. If the notes are not
      paid
      on or before the applicable maturity date, we will 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 will be entitled to receive 115% of the sum of
      the
      original principal and accumulated interest, if the note holders choose to
      be
      repaid in cash on maturity date. The note holders will have the option to
      convert 110% of the repayment amount into shares of common stock at $0.70 per
      share. The note holders will also be paid a monitoring fee of 5% of the original
      principal amount of the note. If the note is not paid on or before the maturity
      date (as extended), we will 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. We believe the securities were issued in reliance from exemptions
      from registration pursuant to Section 4(2) or Regulation D under the Securities
      Act.




35





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





On
      July
      25, 2008, we 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 our common stock, to Whitebox
      Hedged High Yield Partners, LP, a British Virgin Islands limited partnership.
      We
      received gross proceeds of $2,000,000, less fees of 10% of the purchase price
      paid and other expenses. We are using the proceeds as working capital. 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
      us, up to a maximum of 25% of the amounts raised by us in any such financing,
      on
      the same terms as the other participants of such financing.





We
      may
      prepay the note in whole but not in part from time to time. If we prepay the
      note more than 30 days prior to the maturity date, we have 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 our common
      stock
      at a conversion price of $0.70 per share. Under certain circumstances, such
      as
      in the event of the sale of our securities 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, we will pay to the note holder an
      additional sum of $100,000.





The
      warrants have a five-year term and an exercise price of $0.75 per share. The
      warrants also contain certain provisions for the adjustment of the exercise
      price in the event that during the term of the warrants, we sell securities
      below the current exercise price of $0.75. This could result in an exercise
      price of less than $0.75 per share. The warrants also contain a cashless
      exercise provision.





We
      have
      also agreed to provide the note holder with piggyback registration rights,
      pursuant to which we will use our best efforts to register the shares issuable
      upon the conversion of the note and the exercise of the warrants in the event
      that it proposes to register any of its securities under the Securities Act
      of
      1933, prior to July 25, 2010.





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.





We
      believe the securities were issued in reliance from exemptions from registration
      pursuant to Section 4(2) or Regulation D under the Securities Act.





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





On
      August
      27, 2008, we completed a financing pursuant to which we 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 our common stock, to an unaffiliated
      accredited investor. We 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, we also issued warrants to purchase 357,143
      shares of our common stock to a finder. The warrants were valued at $186,747
      using the Black-Scholes option pricing model and are included in the debt
      issuance costs on the accompanying consolidated financial statements. We are
      using the proceeds as working capital. 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.




36




We
      may
      prepay the note in whole, but not in part, from time to time. If we prepay
      the
      note 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 our common
      stock
      at a conversion price of $0.70 per share. Under certain circumstances, such
      as
      in the event of the sale of our securities at a price less than $0.70 per share,
      the conversion price will be subject to adjustment.




So
      long
      as the note is outstanding, we 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
      warrants may be exercised at any time from and after the date commencing
      February 27, 2009 and through and including August 27, 2013. The warrants have
      an exercise price of $0.75 per share. The warrants also contain certain
      provisions for the adjustment of the exercise price in the event that during
      the
      term of the warrants, we sell securities below the stated conversion price
      of
      the note. This could result in an exercise price of less than $0.75 per share.
      The warrants also contain a cashless exercise provision.





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





We
      believe the securities were issued in reliance from exemptions from registration
      pursuant to Section 4(2) or Regulation D under the Securities Act.





**Item
      3. Defaults Upon Senior Securities**





None





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





No
      matters were submitted to our stockholders, through the solicitation of proxies
      or otherwise, during the nine months ended September 30, 2008.





**Item
      5. Other Information**





We
      entered into an employment agreement with Steven Magami for his services as
      our
      Chairman of the Board of Directors, effective May 15, 2008. The term of the
      agreement is for two years, ending on May 14, 2010, with automatic renewals
      of
      one year periods, subject to termination with 90 days notice by us or by Mr.
      Magami. Pursuant to the terms of the agreement, we have agreed to pay Mr. Magami
      an annual salary of $250,000. In addition to his annual salary, Mr. Magami
      will
      be eligible for a bonus to be determined for each $50,000,000 of capital raised
      by us from November 14, 2007 through the term of his agreement.





We
      entered into an employment agreement with Tom Snyder for his services as our
      President, effective May 5, 2008. The term of the agreement is for two years,
      ending on May 5, 2010. The agreement provides for automatic renewals of one
      year periods, subject to termination with 90 days notice by us or by Mr. Snyder.
      Pursuant to the terms of the agreement, we have agreed to pay Mr. Snyder an
      annual base salary of $250,000. Mr. Snyder will also receive a bonus of
      $250,000 on each anniversary date of this agreement, for so long as Mr.
      Snyder is employed by us. Mr. Snyder will also be eligible for additional
      incentive bonus amounts based on performance to be determined by our Board
      of
      Directors and its compensation committee. Mr. Snyder will also be provided
      with
      other executive benefits, including reimbursement on business travel expenses,
      an apartment for his use while in Peru, and reasonable attorney and accounting
      fees in connection with his duties as President. Finally, Mr. Snyder will be
      entitled to participate in employee fringe benefits, health insurance, life
      insurance and other programs which we may adopt from time to time.




37




We
      entered into an employment agreement with Steve Norris for his services as
      our
      Vice-Chairman of the Board of Directors, effective August 27, 2008. The term
      of
      the agreement is for two years, ending on August 27, 2010. We have agreed to
      pay
      Mr. Norris an annual salary of $180,000. Mr. Norris will also be eligible for
      bonus amounts as may be determined by our Board of Directors and its
      compensation committee. Mr. Norris will also be provided with other executive
      benefits, including reimbursement on reasonable and customary business expenses.





Our
      Board
      of Directors approved of Mr. Snyder and Mr. Norris’ agreements at its October 5,
      2008 Board of Directors Meeting, and also adopted a compensation plan, pursuant
      to which each of our non-employee directors will receive $5,000 per month for
      their service on the board.





**Item
      6. Exhibits**





The
      following is a complete list of exhibits filed as part of the periodic
      report on Form 10-Q, some of which are incorporated herein by reference
      from the reports, registration statements and other filings of the issuer with
      the Securities and Exchange Commission, as referenced below:





Exhibit
              Number
            
            Description31.1
            
            Certification
                of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002 (1)31.2
            
            Certification
                of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002 (1)32.1
            
            Certification
                of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
                Act of 2002 (1)32.2
            
            Certification
                of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
                Act of 2002 (1)





(1)
            Filed
                herewith.


38


**SIGNATURES**





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





**STRATOS
                RENEWABLES CORPORATION**Date:
                November 13, 2008
            
            By:
            /s/
                Tom SnyderTom
                Snyder,President
                and Chief Executive OfficerDate:
                November 13, 2008
            
            By:
            /s/
                Julio Cesar AlonsoJulio
                Cesar Alonso,Chief
                Financial Officer




39