UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




Form
10-Q




(Mark
One)


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


For the
quarterly period ended September 30, 2009


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


For the
transition period from _______ to _______.




Commission
file number 000-53187




STRATOS
RENEWABLES CORPORATION


(Exact
Name of Registrant as Specified in Its Charter)




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





9440
Santa Monica Blvd., Suite 401


Beverly
Hills, California  90210


(Address
of Principal Executive Offices) (Zip Code)




(310)
402-5910


(Registrant’s
Telephone Number, Including Area Code)




N/A


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




Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes x   No ̈




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period than the
registrant was required to submit and post such
files).  Yes  ̈  No  ̈





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





Large
      accelerated filer  ̈
            
            Accelerated
      filer  ̈Non-accelerated
      filer  ̈  (Do
      not check if a
              smaller
      reporting company)
            
            Smaller
      reporting company x




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





As of
November 12, 2009, the Company had 123,469,947 outstanding shares of common
stock, par value $0.001 per share.








STRATOS
RENEWABLES CORPORATION AND SUBSIDIARIES


(A
Development Stage Company)


Consolidated
Financial Statements





Contents





PageNumberPART
      I.
                            
                            FINANCIAL
      INFORMATIONItem
      1.
                            
                            Financial
      Statements
                            
                            
                            3Item
      2.
                            
                            Management’s
      Discussion and Analysis or Plan of Operations
                            
                            
                            19Item
      3.
                            
                            Quantitative
      and Qualitative Disclosures About Market Risk
                            
                            
                            28Item
      4.
                            
                            Controls
      and Procedures
                            
                            
                            28PART
      II.
                            
                            OTHER
      INFORMATION
                            
                            
                            28Item
      1.
                            
                            Legal
      Proceedings
                            
                            
                            28Item
      1A.
                            
                            Risk
      Factors
                            
                            
                            28Item
      2.
                            
                            Unregistered
      Sales of Equity Securities and Use of Proceeds
                            
                            
                            28Item
      3.
                            
                            Defaults
      Upon Senior Securities
                            
                            
                            28Item
      4.
                            
                            Submission
      of Matters to a Vote of Security Holders
                            
                            
                            29Item
      5.
                            
                            Other
      Information
                            
                            
                            29Item
      6.
                            
                            Exhibits
                            
                            
                            30SIGNATURES
                            
                            
                            31


2





PART
I – FINANCIAL INFORMATION




Item
1.  Financial Statements





Stratos
Renewables Corporation and Subsidiaries


(A
Development Stage Company)


Consolidated
Balance Sheets


As
of September 30, 2009 and December 31, 2008





September
      30,
                            
                            
                            December
      31,2009
                            
                            
                            2008(unaudited)ASSETSCURRENT
      ASSETSCash
      and cash equivalents
                            
                            $
                            38,408
                            
                            
                            $
                            761,257Funds
      held in trust for the Company
                            
                            
                            -
                            
                            
                            
                            92,652Debt
      issuance costs
                            
                            
                            48,654
                            
                            
                            
                            1,013,326Prepaid
      expenses and other current assets
                            
                            
                            389,118
                            
                            
                            
                            712,111TOTAL
      CURRENT ASSETS
                            
                            
                            476,180
                            
                            
                            
                            2,579,346PLANT
      AND EQUIPMENT, net
                            
                            
                            5,651,463
                            
                            
                            
                            5,223,296LAND
      DEPOSITS
                            
                            
                            303,036
                            
                            
                            
                            302,632VAT
      CREDITS
                            
                            
                            1,384,155
                            
                            
                            
                            1,225,130OTHER
      ASSETS
                            
                            
                            124,009
                            
                            
                            
                            118,958TOTAL
      ASSETS
                            
                            $
                            7,938,843
                            
                            
                            $
                            9,449,362LIABILITIES
      AND STOCKHOLDERS' EQUITY (DEFICIT)CURRENT
      LIABILITIESAccounts
      payable
                            
                            $
                            2,062,652
                            
                            
                            $
                            906,495Accrued
      interest
                            
                            
                            768,989
                            
                            
                            
                            425,329Other
      payables
                            
                            
                            675,352
                            
                            
                            
                            620,084Accrued
      redemption premium
                            
                            
                            206,215
                            
                            
                            
                            296,615Convertible
      promissory notes, net of debt discounts of $19,660 and$3,692,790
      as of September 30, 2009 and December 31, 2008,
    respectively
                            
                            
                            1,575,340
                            
                            
                            
                            5,602,210Secured
      promissory notes
                            
                            
                            15,382,270
                            
                            
                            
                            -Accrued
      derivative liabilities
                            
                            
                            94,474
                            
                            
                            
                            2,652,692TOTAL
      CURRENT LIABILITIES
                            
                            
                            20,765,292
                            
                            
                            
                            10,503,425STOCKHOLDERS'
      EQUITY (DEFICIT)Preferred
      stock; $0.001 par value; 50,000,000 sharesauthorized;
      628,572 and 8,571,429 shares issued and outstandingas
      of September 30, 2009 and December 31, 2008, respectively
                            
                            
                            629
                            
                            
                            
                            8,572Common
      stock; $0.001 par value; 250,000,000 sharesauthorized;
      122,748,897 and 63,495,180 shares issued and outstandingas
      of September 30, 2009 and December 31, 2008, respectively
                            
                            
                            122,749
                            
                            
                            
                            63,495Additional
      paid-in capital
                            
                            
                            6,351,964
                            
                            
                            
                            12,649,041Other
      comprehensive gain (loss)
                            
                            
                            365,005
                            
                            
                            
                            (272,344
                            )Deficit
      accumulated during the development stage
                            
                            
                            (19,666,796
                            )
                            
                            
                            (13,502,827
                            )TOTAL
      STOCKHOLDERS' DEFICIT
                            
                            
                            (12,826,449
                            )
                            
                            
                            (1,054,063
                            )TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                            
                            $
                            7,938,843
                            
                            
                            $
                            9,449,362





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


3





Stratos
Renewables Corporation and Subsidiaries


(A
Development Stage Company)


Consolidated
Statements of Operations and Other Comprehensive Loss


For
the Three and Nine Months Ended September 30, 2009 and 2008 and


For
the Period from February 27, 2007 (Date of Inception) to September 30,
2009





For
      the period fromFebruary
      27, 2007Three
      Months Ended September 30,
                                    
                                    
                                    Nine
      Months Ended September 30,
                                    
                                    
                                    (date
      of inception)2009
                                    
                                    
                                    2008
                                    
                                    
                                    2009
                                    
                                    
                                    2008
                                    
                                    
                                    to
      September 30, 2009(unaudited)
                                    
                                    
                                    (unaudited)
                                    
                                    
                                    (unaudited)
                                    
                                    
                                    (unaudited)
                                    
                                    
                                    (unaudited)REVENUE
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    -COST
      OF REVENUE
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -GROSS
      PROFIT
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -OPERATING
      EXPENSESConsulting
      fees
                                    
                                    
                                    21,929
                                    
                                    
                                    
                                    466,386
                                    
                                    
                                    
                                    83,481
                                    
                                    
                                    
                                    1,574,174
                                    
                                    
                                    
                                    1,558,515General
      and administrative
                                    
                                    
                                    232,478
                                    
                                    
                                    
                                    526,726
                                    
                                    
                                    
                                    1,208,072
                                    
                                    
                                    
                                    2,059,928
                                    
                                    
                                    
                                    4,667,018Professional
      fees
                                    
                                    
                                    294,808
                                    
                                    
                                    
                                    499,294
                                    
                                    
                                    
                                    794,424
                                    
                                    
                                    
                                    1,637,685
                                    
                                    
                                    
                                    3,392,472Salaries
      and wages
                                    
                                    
                                    587,559
                                    
                                    
                                    
                                    813,481
                                    
                                    
                                    
                                    1,904,498
                                    
                                    
                                    
                                    1,958,755
                                    
                                    
                                    
                                    4,608,269TOTAL
      OPERATING EXPENSES
                                    
                                    
                                    1,136,774
                                    
                                    
                                    
                                    2,305,887
                                    
                                    
                                    
                                    3,990,475
                                    
                                    
                                    
                                    7,230,542
                                    
                                    
                                    
                                    14,226,274LOSS
      FROM OPERATIONS
                                    
                                    
                                    (1,136,774
                                    )
                                    
                                    
                                    (2,305,887
                                    )
                                    
                                    
                                    (3,990,475
                                    )
                                    
                                    
                                    (7,230,542
                                    )
                                    
                                    
                                    (14,226,274
                                    )OTHER
      INCOME (EXPENSES)Amortization
      of debt discounts and debt issuance costs
                                    
                                    
                                    (246,131
                                    )
                                    
                                    
                                    (962,665
                                    )
                                    
                                    
                                    (2,619,703
                                    )
                                    
                                    
                                    (1,670,923
                                    )
                                    
                                    
                                    (6,400,069
                                    )Interest
      expense
                                    
                                    
                                    (607,534
                                    )
                                    
                                    
                                    (334,096
                                    )
                                    
                                    
                                    (1,270,316
                                    )
                                    
                                    
                                    (875,853
                                    )
                                    
                                    
                                    (3,299,209
                                    )Change
      in fair value of accrued derivative liabilities
                                    
                                    
                                    217,806
                                    
                                    
                                    
                                    (1,222,658
                                    )
                                    
                                    
                                    4,291,624
                                    
                                    
                                    
                                    (462,085
                                    )
                                    
                                    
                                    8,889,921Loss
      on debt extinguishment
                                    
                                    
                                    (4,423,869
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (4,423,869
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (4,423,869
                                    )Other
      expenses, net
                                    
                                    
                                    (91,161
                                    )
                                    
                                    
                                    (24,101
                                    )
                                    
                                    
                                    (105,928
                                    )
                                    
                                    
                                    (154,613
                                    )
                                    
                                    
                                    (205,596
                                    )TOTAL
      OTHER EXPENSES, net
                                    
                                    
                                    (5,150,889
                                    )
                                    
                                    
                                    (2,543,520
                                    )
                                    
                                    
                                    (4,128,192
                                    )
                                    
                                    
                                    (3,163,474
                                    )
                                    
                                    
                                    (5,438,822
                                    )LOSS
      BEFORE PROVISION FOR INCOME TAXES
                                    
                                    
                                    (6,287,663
                                    )
                                    
                                    
                                    (4,849,407
                                    )
                                    
                                    
                                    (8,118,667
                                    )
                                    
                                    
                                    (10,394,016
                                    )
                                    
                                    
                                    (19,665,096
                                    )PROVISION
      FOR INCOME TAXES
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    850
                                    
                                    
                                    
                                    850
                                    
                                    
                                    
                                    1,700NET
      LOSS
                                    
                                    $
                                    (6,287,663
                                    )
                                    
                                    $
                                    (4,849,407
                                    )
                                    
                                    $
                                    (8,119,517
                                    )
                                    
                                    $
                                    (10,394,866
                                    )
                                    
                                    $
                                    (19,666,796
                                    )OTHER
      COMPREHENSIVE INCOME (LOSS)Foreign
      currency translation gain
                                    
                                    
                                    365,985
                                    
                                    
                                    
                                    77,251
                                    
                                    
                                    
                                    637,349
                                    
                                    
                                    
                                    139,590
                                    
                                    
                                    
                                    365,005COMPREHENSIVE
      LOSS
                                    
                                    $
                                    (5,921,678
                                    )
                                    
                                    $
                                    (4,772,156
                                    )
                                    
                                    $
                                    (7,482,168
                                    )
                                    
                                    $
                                    (10,255,276
                                    )
                                    
                                    $
                                    (19,301,791
                                    )LOSS
      PER COMMON SHAREBASIC
                                    
                                    $
                                    (0.06
                                    )
                                    
                                    $
                                    (0.08
                                    )
                                    
                                    $
                                    (0.10
                                    )
                                    
                                    $
                                    (0.17
                                    )
                                    
                                    $
                                    (0.32
                                    )DILUTED
                                    
                                    $
                                    (0.06
                                    )
                                    
                                    $
                                    (0.08
                                    )
                                    
                                    $
                                    (0.10
                                    )
                                    
                                    $
                                    (0.17
                                    )
                                    
                                    $
                                    (0.32
                                    )WEIGHTED
      AVERAGE COMMON EQUIVALENTSHARES OUTSTANDINGBASIC
                                    
                                    
                                    112,740,909
                                    
                                    
                                    
                                    61,310,574
                                    
                                    
                                    
                                    80,743,253
                                    
                                    
                                    
                                    59,948,493
                                    
                                    
                                    
                                    61,977,491DILUTED
                                    
                                    
                                    112,740,909
                                    
                                    
                                    
                                    61,310,574
                                    
                                    
                                    
                                    80,743,253
                                    
                                    
                                    
                                    59,948,493
                                    
                                    
                                    
                                    61,977,491





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


4





Stratos
Renewables Corporation and Subsidiaries


(A
Development Stage Company)


Consolidated
Statement of Stockholders' Equity (Deficit)


For
the Period from February 27, 2007 (Date of Inception) to September 30,
2009





DeficitAccumulatedAdditional
                                            
                                            
                                            Other
                                            
                                            
                                            During
      the
                                            
                                            
                                            TotalPreferred
      Stock
                                            
                                            
                                            Common
      Stock
                                            
                                            
                                            Paid-in
                                            
                                            
                                            Comprehensive
                                            
                                            
                                            Development
                                            
                                            
                                            Stockholders'Shares
                                            
                                            
                                            Amount
                                            
                                            
                                            Shares
                                            
                                            
                                            Amount
                                            
                                            
                                            Capital
                                            
                                            
                                            Gain
      (loss)
                                            
                                            
                                            Stage
                                            
                                            
                                            Equity (Deficit)Balance,
      February 27, 2007
                                            
                                            
                                            -
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -Purchase
      of shares for cash
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            45,000,000
                                            
                                            
                                            
                                            45,000
                                            
                                            
                                            
                                            (44,666
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            334Shares
      issued in connection with reverse merger transaction
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            10,000,000
                                            
                                            
                                            
                                            10,000
                                            
                                            
                                            
                                            (9,789
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            211Common
      stock issued for cash
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            2,666,794
                                            
                                            
                                            
                                            2,667
                                            
                                            
                                            
                                            1,442,065
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            1,444,732Preferred
      stock issued for cash
                                            
                                            
                                            7,142,857
                                            
                                            
                                            
                                            7,143
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            4,334,254
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            4,341,397Foreign
      currency translation adjustment
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            14,021
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            14,021Net
      loss
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (1,587,257
                                            )
                                            
                                            
                                            (1,587,257
                                            )Balance,
      December 31, 2007
                                            
                                            
                                            7,142,857
                                            
                                            
                                            $
                                            7,143
                                            
                                            
                                            
                                            57,666,794
                                            
                                            
                                            $
                                            57,667
                                            
                                            
                                            $
                                            5,721,864
                                            
                                            
                                            $
                                            14,021
                                            
                                            
                                            $
                                            (1,587,257
                                            )
                                            
                                            $
                                            4,213,438Issuance
      of common stock and warrants for cash
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            2,410,639
                                            
                                            
                                            
                                            2,411
                                            
                                            
                                            
                                            1,173,586
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            1,175,997Cashless
      exercise of warrants (595,713 warrants exercisedfor 325,763
      shares)
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            325,763
                                            
                                            
                                            
                                            326
                                            
                                            
                                            
                                            (326
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Issuance
      of preferred stock and warrants for cash
                                            
                                            
                                            1,428,572
                                            
                                            
                                            
                                            1,429
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            611,405
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            612,834Conversion
      of convertible notes to common stock
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            1,166,605
                                            
                                            
                                            
                                            1,167
                                            
                                            
                                            
                                            815,457
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            816,624Reclassify
      beneficial conversion feature from liability to equity
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            3,686,051
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            3,686,051Cashless
      exercise of warrants (1,956,302 warrants exercisedfor 903,239
      shares) on November 10, 2008
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            903,239
                                            
                                            
                                            
                                            903
                                            
                                            
                                            
                                            (903
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Cashless
      exercise of warrants (285,714 warrants exercisedfor 132,652
      shares) on November 18, 2008
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            132,652
                                            
                                            
                                            
                                            132
                                            
                                            
                                            
                                            (132
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Issuance
      of 239,488 shares of common stock for legal services
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            239,488
                                            
                                            
                                            
                                            239
                                            
                                            
                                            
                                            167,403
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            167,642Issuance
      of 650,000 shares of common stock related toconsulting
      agreement
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            650,000
                                            
                                            
                                            
                                            650
                                            
                                            
                                            
                                            454,350
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            455,000Beneficial
      conversion feature associated with convertible notes
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            20,286
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            20,286Foreign
      currency translation adjustment
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (286,365
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (286,365
                                            )Net
      loss
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (11,915,570
                                            )
                                            
                                            
                                            (11,915,570
                                            )Balance,
      December 31, 2008, as previously reported
                                            
                                            
                                            8,571,429
                                            
                                            
                                            $
                                            8,572
                                            
                                            
                                            
                                            63,495,180
                                            
                                            
                                            $
                                            63,495
                                            
                                            
                                            $
                                            12,649,041
                                            
                                            
                                            $
                                            (272,344
                                            )
                                            
                                            $
                                            (13,502,827
                                            )
                                            
                                            $
                                            (1,054,063
                                            )Cumulative
      effect of reclassification of warrants and conversion
    options
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (3,706,338
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            1,955,548
                                            
                                            
                                            
                                            (1,750,790
                                            )Balance,
      January 1, 2009, as adjusted
                                            
                                            
                                            8,571,429
                                            
                                            
                                            $
                                            8,572
                                            
                                            
                                            
                                            63,495,180
                                            
                                            
                                            $
                                            63,495
                                            
                                            
                                            $
                                            8,942,703
                                            
                                            
                                            $
                                            (272,344
                                            )
                                            
                                            $
                                            (11,547,279
                                            )
                                            
                                            $
                                            (2,804,853
                                            )Issuance
      of 326,463 shares of common stock for additional interest
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            326,463
                                            
                                            
                                            
                                            326
                                            
                                            
                                            
                                            110,466
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            110,792Issuance
      of 970,682 shares of common stock for consulting services
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            970,682
                                            
                                            
                                            
                                            971
                                            
                                            
                                            
                                            246,776
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            247,747Issuance
      of 384,090 shares of common stock for compensation
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            384,090
                                            
                                            
                                            
                                            384
                                            
                                            
                                            
                                            83,230
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            83,614Tendered
      7,142,857 preferred shares for promissory note
                                            
                                            
                                            (7,142,857
                                            )
                                            
                                            
                                            (7,143
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (5,828,473
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (5,835,616
                                            )Issued
      55,586,157 shares as part of debt financing arrangement
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            55,586,157
                                            
                                            
                                            
                                            55,586
                                            
                                            
                                            
                                            2,723,722
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            2,779,308Converted
      800,000 preferred shares into 897,690 sharesof common
      stock
                                            
                                            
                                            (800,000
                                            )
                                            
                                            
                                            (800
                                            )
                                            
                                            
                                            897,690
                                            
                                            
                                            
                                            898
                                            
                                            
                                            
                                            (98
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Issued
      88,635 shares of common stock for compensation
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            88,635
                                            
                                            
                                            
                                            89
                                            
                                            
                                            
                                            4,638
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            4,727Issued
      1,000,000 shares of common stock for legal services
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            1,000,000
                                            
                                            
                                            
                                            1,000
                                            
                                            
                                            
                                            69,000
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            70,000Foreign
      currency translation adjustment
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            637,349
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            637,349Net
      loss
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (8,119,517
                                            )
                                            
                                            
                                            (8,119,517
                                            )Balance,
      September 30, 2009 (unaudited)
                                            
                                            
                                            628,572
                                            
                                            
                                            $
                                            629
                                            
                                            
                                            
                                            122,748,897
                                            
                                            
                                            $
                                            122,749
                                            
                                            
                                            $
                                            6,351,964
                                            
                                            
                                            $
                                            365,005
                                            
                                            
                                            $
                                            (19,666,796
                                            )
                                            
                                            $
                                            (12,826,449
                                            )





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


5





Stratos
Renewables Corporation and Subsidiaries


(A
Development Stage Company)


Consolidated
Statements of Cash Flows


For
the Nine Months Ended September 30, 2009 and 2008 and


For
the Period from February 27, 2007 (Date of Inception) to September 30,
2009





For
      the period fromFor
      the Nine
                        
                        
                        For
      the Nine
                        
                        
                        February
      27, 2007Months
      Ended
                        
                        
                        Months
      Ended
                        
                        
                        (date
      of inception)September
      30, 2009
                        
                        
                        September
      30, 2008
                        
                        
                        to
      September 30, 2009(unaudited)
                        
                        
                        (unaudited)
                        
                        
                        (unaudited)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                        
                        $
                        (8,119,517
                        )
                        
                        $
                        (10,394,866
                        )
                        
                        $
                        (19,666,796
                        )Adjustments
      to reconcile net loss to net cashused
      in operating activities:Amortization
      of debt discounts and debt issuance costs
                        
                        
                        2,619,703
                        
                        
                        
                        1,670,923
                        
                        
                        
                        6,400,069Depreciation
                        
                        
                        41,763
                        
                        
                        
                        20,271
                        
                        
                        
                        80,570Change
      in fair value of accrued derivative liabilities
                        
                        
                        (4,291,624
                        )
                        
                        
                        462,085
                        
                        
                        
                        (8,889,921
                        )Amortization
      of prepaid consulting
                        
                        
                        273,002
                        
                        
                        
                        260,058
                        
                        
                        
                        692,366Common
      stock and warrants issued for services
                        
                        
                        414,942
                        
                        
                        
                        -
                        
                        
                        
                        414,942Common
      stock issued as interest
                        
                        
                        110,792
                        
                        
                        
                        -
                        
                        
                        
                        110,792Loss
      on debt extinguishment
                        
                        
                        4,423,869
                        
                        
                        
                        -
                        
                        
                        
                        4,423,869Changes
      in operating assets and liabilities:Prepaid
      expenses and other assets
                        
                        
                        59,443
                        
                        
                        
                        (235,035
                        )
                        
                        
                        (231,467
                        )Accounts
      payable
                        
                        
                        1,218,594
                        
                        
                        
                        772,096
                        
                        
                        
                        2,290,963Accrued
      interest
                        
                        
                        1,153,999
                        
                        
                        
                        211,401
                        
                        
                        
                        1,646,778Other
      payables
                        
                        
                        62,614
                        
                        
                        
                        488,420
                        
                        
                        
                        694,025Accrued
      redemption premium
                        
                        
                        33,215
                        
                        
                        
                        461,292
                        
                        
                        
                        829,004Net
      cash used in operating activities
                        
                        
                        (1,999,205
                        )
                        
                        
                        (6,283,355
                        )
                        
                        
                        (11,204,806
                        )CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchases
      of plant and equipment
                        
                        
                        -
                        
                        
                        
                        (253,691
                        )
                        
                        
                        (5,529,145
                        )Deposit
      for land acquisition
                        
                        
                        -
                        
                        
                        
                        (366,248
                        )
                        
                        
                        (323,313
                        )Increase
      in VAT credits
                        
                        
                        (47,120
                        )
                        
                        
                        (316,461
                        )
                        
                        
                        (1,303,935
                        )Change
      in funds held in trust for the Company
                        
                        
                        95,289
                        
                        
                        
                        -
                        
                        
                        
                        2,637Cash
      acquired with acquisition
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        211Net
      cash provided by (used in) investing activities
                        
                        
                        48,169
                        
                        
                        
                        (936,400
                        )
                        
                        
                        (7,153,545
                        )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from sale of common stock
                        
                        
                        -
                        
                        
                        
                        1,685,794
                        
                        
                        
                        3,554,537Proceeds
      from sale of preferred stock
                        
                        
                        -
                        
                        
                        
                        1,000,000
                        
                        
                        
                        6,000,000Proceeds
      from short-term note payable
                        
                        
                        275,000
                        
                        
                        
                        -
                        
                        
                        
                        275,000Proceeds
      form issuance of long-term notes
                        
                        
                        3,000,000
                        
                        
                        
                        -
                        
                        
                        
                        3,000,000Payment
      of offering costs associated with the sale common and preferred
      stock
                        
                        
                        -
                        
                        
                        
                        (263,000
                        )
                        
                        
                        (521,246
                        )Proceeds
      from issuance of convertible debenture
                        
                        
                        -
                        
                        
                        
                        9,200,000
                        
                        
                        
                        12,248,000Payment
      of offering costs associated with issuance of convertible
      debenture
                        
                        
                        (50,000
                        )
                        
                        
                        (1,241,602
                        )
                        
                        
                        (1,415,499
                        )Principal
      payment of convertible debt
                        
                        
                        (2,000,000
                        )
                        
                        
                        (3,199,500
                        )
                        
                        
                        (4,798,000
                        )Net
      cash provided by financing activities
                        
                        
                        1,225,000
                        
                        
                        
                        7,181,692
                        
                        
                        
                        18,342,792Effect
      of exchange rate changes on cash and cash equivalents
                        
                        
                        3,187
                        
                        
                        
                        82,820
                        
                        
                        
                        53,967NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                        
                        
                        (722,849
                        )
                        
                        
                        44,757
                        
                        
                        
                        38,408CASH
      AND CASH EQUIVALENTS, beginning of period
                        
                        
                        761,257
                        
                        
                        
                        3,357,417
                        
                        
                        
                        -CASH
      AND CASH EQUIVALENTS, end of period
                        
                        $
                        38,408
                        
                        
                        $
                        3,402,174
                        
                        
                        $
                        38,408SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATION:Cash
      paid for interest
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        620,135Cash
      paid for income taxes
                        
                        $
                        850
                        
                        
                        $
                        -
                        
                        
                        $
                        1,700SUPPLEMENTAL
      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 as debt issuance costs
                        
                        $
                        -
                        
                        
                        $
                        186,747
                        
                        
                        $
                        186,747Beneficial
      conversion feature associated with convertible debenture
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        3,947,040Conversion
      of preferred stock into common stock
                        
                        $
                        800
                        
                        
                        $
                        -
                        
                        
                        $
                        800Warrant
      liability associated with convertible debenture
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        1,862,173Issuance
      of warrants with preferred stock
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        142,166Cashless
      exercise of warrants
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        1,362Issuance
      of warrants as prepaid consulting fees
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        216,106Issuance
      of common stock for accounts payable
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        167,642Reclassify
      beneficial conversion feature liability to equity
                        
                        $
                        -
                        
                        
                        $
                        3,686,052
                        
                        
                        $
                        3,686,051Issuance
      of common stock and convertible notes for consulting fees
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        550,000Preferred
      shares forfeited related to long term financing
                        
                        $
                        5,835,616
                        
                        
                        $
                        -
                        
                        
                        $
                        5,835,616Issuance
      of common stock related to long term financing
                        
                        $
                        2,779,308
                        
                        
                        $
                        -
                        
                        
                        $
                        2,779,308Interest
      converted to long term financing
                        
                        $
                        571,654
                        
                        
                        $
                        -
                        
                        
                        $
                        571,654Conversion
      of debt to secure long term financing
                        
                        $
                        5,975,000
                        
                        
                        $
                        -
                        
                        
                        $
                        5,975,000Secured
      promissory notes issued for securities and debt
                        
                        $
                        12,382,270
                        
                        
                        $
                        -
                        
                        
                        $
                        12,382,270





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


6


Stratos
Renewables Corporation and Subsidiaries


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


(Unaudited)





Note
1 - Organization and Basis of Presentation





The
unaudited consolidated financial statements have been prepared by Stratos
Renewables Corporation and its subsidiaries pursuant to the rules and
regulations of the Securities and Exchange Commission. The information furnished
herein reflects all adjustments (consisting of normal recurring accruals and
adjustments), which are, in the opinion of management, necessary to fairly
present the operating results for the respective periods. Certain information
and footnote disclosures normally present in annual consolidated financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been omitted pursuant to such rules and
regulations. These consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and footnotes
included in the Company’s Annual Report on Form 10-K/A for the fiscal year ended
December 31, 2008. The results for the nine months ended September 30, 2009 are
not necessarily indicative of the results to be expected for the full year
ending December 31, 2009.





Organization and line of
business




Stratos
Renewables Corporation (formerly New Design Cabinets, Inc. and hereinafter the
“Company”) was incorporated in the State of Nevada on September 29, 2004. The
Company’s subsidiary, Stratos del Peru S.A.C., was incorporated in Lima, Peru on
February 27, 2007 under the name of Estratosfera del Perú S.A.C. (“Stratos
Peru”). On July 11, 2007, the shareholders at a general meeting agreed to change
Stratos Peru’s name to its current one, Stratos del Peru S.A.C., 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 Company’s name 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 a development stage company as it has not commenced
generating revenue. The Company’s principal executive office is located in
California in the United States, and it also has offices and administrative
headquarters in Lima, Peru.




Development Stage Company
and Going-Concern





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




The
Company has not generated any operating revenues and has working capital
deficits, which raises substantial doubt about its ability to continue as a
going concern.  During the nine months ended September 30, 2009, the
Company recorded a net loss of $8,119,517, and as of September 30, 2009, the
Company has a deficit accumulated during the development stage of
$19,666,796.


7


Stratos
Renewables Corporation and Subsidiaries


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


(Unaudited)





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





As part
of the management’s business plan, the Company has raised approximately $25
million, net of offering costs, in order to fund operations, secure land rights,
and begin construction of the proposed plant.  Management continues to
seek additional capital through debt and equity securities.





Basis of
Presentation




The
accompanying consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
and have been consistently applied.





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




Note
2 - Summary of Significant Accounting Policies





Principles of
Consolidation





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




Use 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. The significant estimates made in the
preparation of the Company’s consolidated financial statements relate to the
determination of depreciation rates for equipment, impairment of long-lived
assets, future tax rates used to determine future income taxes, and the carrying
value of warrant and conversion option liabilities. Actual results could differ
materially from these estimates upon which the carrying values were
based.





Cash 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.




Funds Held in Trust for the
Company





On
December 31, 2008, the Company withdrew funds from its operating account that
were held in trust by an officer of the Company.  These funds were
deposited back to the operating account in January 2009.





Concentration of
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
that, 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, 2009,
the Company did not have any deposits in excess of federally insured limits. As
of December 31, 2008, the Company had deposits in excess of federally insured
limits totaling $612,559. The Company has not experienced any losses on cash and
cash equivalents.





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


8


Stratos
Renewables Corporation and Subsidiaries


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


(Unaudited)





VAT
Credits




As of
September 30, 2009 and December 31, 2008, the Company recognized a VAT (value
added tax) credit of $1,384,155 and $1,225,130, respectively, in Peru. VAT is
charged at a standard rate of 19%, and the Company obtains income tax credits
for VAT paid in connection with the purchase of capital equipment and other
goods and services employed in its operations. The Company is entitled to use
the credits against its Peruvian income tax liability or to receive a refund
credit against VAT payable or sales. As the Company does not anticipate
incurring either a Peruvian tax or a VAT liability during the next fiscal year,
the credits have been classified as non-current.





Plant and
Equipment




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




Impairment of Long-Lived
Assets




The
Company records impairment losses 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 value of the long-lived assets. Loss on long-lived
assets to be disposed of is determined in a similar manner, except that fair
values are reduced for the cost of disposal. Based on its review, the Company
believes that, as of September 30, 2009 and December 31, 2008, there was no
significant impairment of its long-lived assets.





Foreign Currency
Translation




The
reporting currency of the Company is the U.S. dollar. The Company uses Stratos
Peru’s local currency, PEN, as its functional currency. The accompanying
consolidated financial statements were translated into U.S. Dollars (“USD”) with
the PEN as the functional currency. Assets and liabilities are translated using
the exchange rates prevailing at the balance sheet dates. Translation
adjustments resulting from this process are included in accumulated other
comprehensive income in the consolidated statement of stockholders’ equity
(deficit). Transaction gains and losses that arise from exchange rate
fluctuations on transactions denominated in a currency other than the functional
currency are included in the results of operations as incurred.




Asset and
liability amounts at September 30, 2009 and December 31, 2008 were translated at
2.885 PEN to $1.00 USD and 3.142 PEN to $1.00 USD, respectively, for the
Company’s Peruvian subsidiaries. Equity accounts were stated at their historical
rates. The average translation rates applied to income statement accounts for
the nine months ended September 30, 2009 and 2008 were 3.055 PEN and 2.884 PEN
to $1.00 USD, respectively.  Cash flows are also translated at average
translation rates for the period. Therefore, amounts reported on the
consolidated statements of cash flows will not necessarily agree with changes in
the corresponding balances on the consolidated balance sheets.




Foreign Currency Transaction
Gains and Losses





Transaction
gains and losses that arise from exchange rate fluctuations on transactions
denominated in a currency other than the functional currency are included in the
results of operations as incurred.  Historically, the Company has not
entered into any currency trading or hedging transactions, although there is no
assurance that the Company will not enter into such transactions in the
future.


9


Stratos
Renewables Corporation and Subsidiaries


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


(Unaudited)





Income
Taxes




The
Company accounts for income taxes applying 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.





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 had no effect on the Company’s consolidated financial
statements.




Basic and Diluted Earnings
Per Share




Basic
earnings per share is based upon the weighted average number of common shares
outstanding.  Diluted earnings per share is based on the assumption
that all dilutive convertible shares and stock warrants were converted or
exercised. Dilution is computed by applying the treasury stock method. Under
this method, warrants are assumed to be exercised at the beginning of the period
(or at the time of issuance, if later), and as if funds obtained thereby were
used to purchase common stock at the average market price during the period. All
warrants and convertible notes were excluded from the diluted loss per share
calculation due to the anti-dilutive effect.




Accrued Derivative
Liabilities





The
Company applies a two-step model to determine whether a financial instrument or
an embedded feature is indexed to an issuer’s own stock and thus able to qualify
for equity treatment.  However, liability accounting is triggered on
all instruments and embedded features exercisable at strike prices denominated
in any currency other than the functional currency of the operating entity in
Peru.  The Company determines which instruments or embedded features
require liability accounting and records the fair values as an accrued
derivative liability. The changes in the values of the accrued derivative
liabilities are shown in the accompanying consolidated statements of operations
as “change in fair value of accrued derivative liabilities.”





Fair Value of Financial
Instruments





The
Company discloses the fair value of financial instruments held by the Company
applying a three-level valuation hierarchy.  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 to determine proper accounting recognition.




The
Company used Level 2 inputs for its valuation methodology for the conversion
option liability and warrant liability, and their fair values were determined by
using the Black-Scholes option pricing model based on various
assumptions.


10


Stratos
Renewables Corporation and Subsidiaries


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


(Unaudited)





Carrying Value
                  at
                  September 30, 2009
                
                Fair Value Measurements at
                  September 30, 2009
                  Using Fair Value HierarchyLiabilities
                
                
                
                Level
      1
                
                Level
      2
                
                Level
      3Accrued
      derivative liability
                
                $
                94,474
                
                
                
                $
                94,474




The
Company recognized gains of $6,727 and $1,778,266 on the conversion option
liability for the three and nine months ended September 30, 2009, respectively,
and $238,270 and $511,926 for the three and nine months ended September 30,
2008, respectively, and $4,869,792 for the period from February 27, 2007 (date
of inception) to September 30, 2009.  The change is recorded as change
in fair value of accrued derivative liabilities in the accompanying consolidated
statement of operations.





The
Company recognized gains of $211,079 and $2,513,358 on the warrant liability for
the three and nine months ended September 30, 2009, respectively, losses of
$1,460,928 and $974,011 for the three and nine months ended September 30, 2008,
respectively and a gain of $4,020,129 for the period from February 27, 2007
(date of inception) to September 30, 2009. The change is recorded as change in
fair value of accrued derivative liabilities in the accompanying consolidated
statement of operations.





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




Statements of Cash
Flows





In
accordance ASC topic 230, “Statement of Cash Flows,” cash flows from the
Company’s operations are calculated based upon the local currencies using the
average translation rate. As a result, amounts related to assets and liabilities
reported on the consolidated statements of cash flows will not necessarily agree
with changes in the corresponding balances on the consolidated balance
sheets.





Reclassification





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





Recent
Pronouncements





On
January 1, 2009, the Financial Accounting Standards Board (“FASB”) issued
an accounting standard regarding the accounting and reporting of non-controlling
interest in consolidated financial statements.  This standard states
that accounting and reporting for minority interests are to be recharacterized
as noncontrolling interests and classified as a component of equity. The
calculation of earnings per share continues to be based on income amounts
attributable to the parent.  This standard applies to all entities
that prepare consolidated financial statements, except not-for-profit
organizations, but affects only those entities that have an outstanding
noncontrolling interest in one or more subsidiaries or that deconsolidate a
subsidiary.  The adoption of this standard did not have a material
impact on the Company’s consolidated financial statements.





In April
2009, the FASB issued an accounting standard to make the other-than-temporary
impairments guidance more operational and to improve the presentation of
other-than-temporary impairments in the financial statements. This standard will
replace the existing requirement that the entity’s management assert it has both
the intent and ability to hold an impaired debt security until recovery with a
requirement that management assert it does not have the intent to sell the
security, and it is more likely than not it will not have to sell the security
before recovery of its cost basis. This standard provides increased disclosure
about the credit and noncredit components of impaired debt securities that are
not expected to be sold and also requires increased and more frequent
disclosures regarding expected cash flows, credit losses, and an aging of
securities with unrealized losses. Although this standard does not result in a
change in the carrying amount of debt securities, it does require that the
portion of an other-than-temporary impairment not related to a credit loss for a
held-to-maturity security be recognized in a new category of other comprehensive
income and be amortized over the remaining life of the debt security as an
increase in the carrying value of the security. This standard became effective
for interim and annual periods ending after June 15, 2009. The adoption of
this standard did not have a material impact on the Company’s consolidated
financial statements.





In April
2009, the FASB issued an accounting standard that requires disclosures about
fair value of financial instruments not measured on the balance sheet at fair
value in interim financial statements as well as in annual financial statements.
Prior to this accounting standard, fair values for these assets and liabilities
were only disclosed annually. This standard applies to all financial instruments
within its scope and requires all entities to disclose the method(s) and
significant assumptions used to estimate the fair value of financial
instruments. This standard does not require disclosures for earlier periods
presented for comparative purposes at initial adoption, but in periods after the
initial adoption, this standard requires comparative disclosures only for
periods ending after initial adoption. The adoption of this standard did not
have a material impact on the disclosures related to its consolidated financial
statements.


11


Stratos
Renewables Corporation and Subsidiaries


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


(Unaudited)





In June
2009, the FASB issued an accounting standard amending the accounting and
disclosure requirements for transfers of financial assets. This accounting
standard requires greater transparency and additional disclosures for transfers
of financial assets and the entity’s continuing involvement with them and
changes the requirements for derecognizing financial assets. In addition, it
eliminates the concept of a qualifying special-purpose entity (“QSPE”). This
accounting standard is effective for financial statements issued for fiscal
years beginning after November 15, 2009. The Company has not completed the
assessment of the impact this new standard will have on the Company’s
financial condition, results of operations, or cash flows.





In
June 2009, the FASB issued guidance which amends certain ASC concepts
related to consolidation of variable interest entities. This guidance is
effective for fiscal years beginning after November 15, 2009. The Company
is currently evaluating the impact the adoption of this guidance will have on
the consolidated financial statements.





In August
2009, the FASB issued an Accounting Standards Update (“ASU”) regarding measuring
liabilities at fair value. This ASU provides additional guidance clarifying the
measurement of liabilities at fair value in circumstances in which a quoted
price in an active market for the identical liability is not available; under
those circumstances, a reporting entity is required to measure fair value using
one or more of valuation techniques, as defined. This ASU is effective for the
first reporting period, including interim periods, beginning after the issuance
of this ASU. The adoption of this ASU did not have a material impact on the
Company’s consolidated financial statements.





In
October 2009, the FASB issued an ASU regarding accounting for own-share lending
arrangements in contemplation of convertible debt issuance or other
financing.  This ASU requires that at the date of issuance of the
shares in a share-lending arrangement entered into in contemplation of a
convertible debt offering or other financing, the shares issued shall be
measured at fair value and be recognized as an issuance cost, with an offset to
additional paid-in capital. Further, loaned shares are excluded from basic and
diluted earnings per share unless default of the share-lending arrangement
occurs, at which time the loaned shares would be included in the basic and
diluted earnings-per-share calculation.  This ASU is effective for
fiscal years beginning on or after December 15, 2009, and interim periods within
those fiscal years for arrangements outstanding as of the beginning of those
fiscal years. The Company is currently evaluating the impact of this ASU on its
consolidated financial statements.





Note
3 - Plant and Equipment




Plant and
equipment consist of the following:





Description
                    
                    September
      30, 2009
                    
                    
                    December
      31, 2008Sugar
      plant
                    
                    $
                    5,411,563
                    
                    
                    $
                    4,936,771Leasehold
      improvements
                    
                    
                    67,118
                    
                    
                    
                    61,629Computer
      equipment and software
                    
                    
                    179,378
                    
                    
                    
                    169,835Other
                    
                    
                    77,601
                    
                    
                    
                    91,8385,735,660
                    
                    
                    
                    5,260,073Less:
      Accumulated depreciation
                    
                    
                    (84,197
                    )
                    
                    
                    (36,777
                    )Plant
      and equipment, net
                    
                    $
                    5,651,463
                    
                    
                    $
                    5,223,296





Depreciation
expense amounted to $13,033 and $41,763 for the three and nine months ended
September 30, 2009, respectively, $7,699 and $20,271 for the three and nine
months ended September 30, 2008, respectively, and $80,570 for the period from
February 27, 2007 (date of inception) to September 30, 2009. Due to significant
modifications to the sugar plant in Chepen, Peru, the plant is currently
not in service and is not being depreciated.





Note
4 - Stockholders’ Equity





Under the
Company’s Amended and Restated Articles of Incorporation dated November 14,
2007, the Company is authorized to issue 300,000,000 shares of capital stock,
consisting of 250,000,000 shares of common stock, par value $0.001 per share,
and 50,000,000 shares of preferred stock, par value $0.001 per share (“Preferred
Stock”).





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


12


Stratos
Renewables Corporation and Subsidiaries


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


(Unaudited)





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





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





Conversion of Series A
Preferred Stock for Common Stock





During
the nine months ended September 30, 2009, certain holders of Series A Preferred
Stock converted 800,000 shares into 897,690 shares of the Company’s common
stock.  The principal and the 10% per annum cumulative dividends
related to the conversion were $560,000 and $68,383, respectively, with a
conversion price of $0.70 per share.





In July
2009, a certain holder of Series A Preferred Stock tendered 7,142,857 preferred
shares and the 835,616 cumulative dividend as part of a secured financing
agreement.  See Note 7.





Consulting
Agreements





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





Common Stock Issued for
Interest





In
accordance with the unsecured promissory note agreements with certain holders,
the Company issued 326,463 shares of common stock representing additional
interest of $110,792 during the nine months ended September 30, 2009, which is
recorded as interest expense in the accompanying consolidated statements of
operations.  See Note 5 for more details.





Common Stock Issued for
Advisory Services





On April
9, 2009, the Company issued 750,000 shares of common stock valued at $187,500 as
payment for advisory services.





Common Stock Issued to
Director





During
the nine months ended September 30, 2009, the Company issued 472,725 shares of
common stock valued at $88,341 pursuant to a director’s agreement for
services.





Common Stock IssuedPursuant to
Secured Note and Common Stock Purchase Agreement





On July
15, 2009, the Company entered into a Secured Note and Common Stock Purchase
Agreement (“the Agreement) with two investors.  Pursuant to the
Agreement, the Company issued 55,586,157 shares of common stock valued at
$2,779,308.  See Note 7.





Common Stock Issued for
Legal Services





Pursuant
to a contract with a legal firm, the Company issued 1,000,000 shares of common
stock valued at $70,000.





Warrants





The
following is a summary of the warrant activity:


13


Stratos
Renewables Corporation and Subsidiaries


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


(Unaudited)





WeightedAverageNumber
      of
                            
                            
                            ExerciseWarrants
                            
                            
                            PriceOutstanding,
      December 31, 2007
                            
                            
                            4,739,968
                            
                            
                            $
                            0.74Granted
                            
                            
                            6,069,180
                            
                            
                            $
                            0.76Forfeited
                            
                            
                            -
                            
                            
                            
                            -Exercised
                            
                            
                            (2,837,729
                            )
                            
                            
                            0.75Outstanding,
      December 31, 2008
                            
                            
                            7,971,419
                            
                            
                            $
                            0.75Granted
                            
                            
                            809,375
                            
                            
                            
                            -Forfeited
                            
                            
                            (3,214,286
                            )
                            
                            
                            -Exercised
                            
                            
                            -
                            
                            
                            
                            -Outstanding,
      September 30, 2009 (unaudited)
                            
                            
                            5,566,508
                            
                            
                            $
                            0.68





Note
5 - Convertible Promissory Notes




Issuance of $350,000
Unsecured Convertible Promissory Note





On
October 18, 2007, Stratos Peru entered into an asset purchase agreement, or the
Asset Purchase Agreement, and an escrow agreement, or the Escrow Agreement, with
Gabinete Técnico de Cobranzas S.A.C., a Peruvian corporation, or Gabinete,
pursuant to which Stratos Peru acquired certain assets and rights from Gabinete
relating to the Estrella del Norte sugar mill located in the province of Chepen,
Peru. Stratos Peru paid approximately $4.5 million plus a value added tax of 19%
to acquire the sugar mill. Of the purchase price, Stratos Peru held back
$350,000, or the Holdback, representing approximately 7.74% of the purchase
price, which was placed into an escrow contingencies account with a bank 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 also terminated the Escrow Agreement in
order to transfer the funds from the Escrow Account to the Company as
consideration for the note. If any liability issues arise with respect to the
sugar mill, the amount will be offset from or against amounts payable by the
Company to Gabinete under the note.





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





Convertible Note
Financing





During
the year ended December 31, 2008, the Company issued unsecured convertible
promissory notes in the principal amount of $1,850,000 and warrants to purchase
up to 435,292 shares of common stock of the Company to unaffiliated third party
investors.  The warrants expire 5 years from their various dates of
issuance and have an exercise price of $0.85 per share. They also contain a
cashless exercise provision. The Company received gross proceeds of $1,850,000,
less fees of $47,500 of the purchase price paid and other expenses. The notes
were scheduled to mature at various times between November 23, 2008 and January
1, 2009 and had interest at the rate of 12% per annum, payable in full at
maturity.





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


14


Stratos
Renewables Corporation and Subsidiaries


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


(Unaudited)





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





Pursuant
to the Secured Note and Common Stock Purchase Agreement, one of the investors
tendered $700,000 plus $124,103 of accrued interest.  See Note
7.





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 (“Whitebox”). The Company received gross proceeds of $2,000,000,
less fees of 10% of the purchase price paid and other expenses. The note matures
on December 31, 2009, or on July 23, 2009 if the note holder elects to
accelerate the maturity date. The note bears interest at the rate of 12% per
annum, payable in full at the maturity date.





The note
was paid in full on July 15, 2009 pursuant to the Secured Note and Common Stock
Purchase Agreement, and Whitebox forgave $238,635 of accrued interest, which is
included in loss on debt extinguishment in the consolidated statements of
operations for the three and nine months ended September 30,
2009.  See Note 7.





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





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





The
$5,000,000 unsecured convertible note and the $442,466 accumulated interest were
tendered as part of the Secured Note and Common Stock Purchase
agreement.  The investor also tendered the warrants to purchase
2,500,000 shares of common stock.  See Note 7.





Consulting
Agreements





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





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





Description
                    
                    AmountUnsecured
      convertible note - Gabinete
                    
                    $
                    350,000Unsecured
      convertible note - various investors
                    
                    
                    1,150,000Unsecured
      convertible note - consultants
                    
                    
                    95,000Gross
      principal balance, September 30, 2009
                    
                    
                    1,595,000Unamortized
      debt discount
                    
                    
                    (19,660
                    )Balance,
      September 30, 2009, net
                    
                    $
                    1,575,340


15





Stratos
Renewables Corporation and Subsidiaries


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


(Unaudited)





The
Company incurred interest expense of $607,534, $1,270,316, and $3,299,209 for
the three and nine months ended September 30, 2009 and for the period from
February 27, 2007 (date of inception) to September 30, 2009,
respectively.  The Company incurred interest expense of $334,096 and
$875,853 for the three and nine months ended September 30, 2008.





The Company amortized debt
discounts and debt issuance costs of $246,131 and $2,619,703 for the three and
nine months ended September 30, 2009, respectively, $962,665 and $1,670,923, for
the three and nine months ended September 30,2008, respectively, and $6,400,069
for the period from February 27, 2007 (date of inception) to September 30,
2009.





Note
6 - Short-term Notes Payable





On June
1, 2009, the Company received $275,000 as a short-term note
payable.  The note bears interest of 15% per annum and is due four to
six weeks from the date of issuance.  This note and accumulated
interest of $5,085 was tendered as part of the Secured Note and Common Stock
Purchase Agreement on July 15, 2009. See Note 7.





Note
7 - Secured Note and Common Stock Purchase Agreement





The
Company entered into a Secured Note and Common Stock Purchase Agreement (the
“Agreement”) with I2BF Biodiesel, Ltd. (“I2BF”) and Blue Day SC Ventures, (“Blue
Day”) (each, an “Investor” and collectively, the “Investors”). The Company
offered to the Investors: (a) a minimum of $3,000,000 in aggregate
principal of Secured Promissory Notes (“Notes”) issued for new cash investment
in the Company as of the date of the Agreement (the “Initial Investment”),
(b) $12,382,271 in aggregate principal amount of Notes issued concurrently
with the Initial Investment in exchange for the surrender and cancellation of
existing indebtedness and equity securities of the Company outstanding in favor
of the Investors, (c) up to an additional $1,725,000 principal amount of
Notes issued to I2BF in a subsequent closing, and (d) as consideration for
such new investment and the restructuring of the existing indebtedness and
equity securities, common stock representing an aggregate of forty-five percent
(45%) of the fully diluted equity of the Company and certain adjustment rights
relating to such common stock as are set forth in the Agreement.  The
notes are secured by substantially all of the Company’s assets.





The first
closing on July 15, 2009 (the “Initial Closing”) was for the sale of Notes in
the aggregate principal amount of $15,382,271 and an aggregate of 55,586,157
shares of the common stock of the Company, evidencing not less than 39.895% of
the outstanding common stock determined on a fully diluted basis, which was
consummated simultaneously with the execution of the Agreement (the “Closing
Date”).  The Notes accrue interest at 15% per annum and are due on
December 31, 2012.





I2BF is
required to make an additional investment in Notes with an aggregate principal
amount of $1,725,000 and shall be issued 10,238,381 additional shares of common
stock if and as soon as practicable following the closing of the credit facility
currently under negotiation between the Company and Banco Internacional del Perú
S.A.A. (“Interbank”) as evidenced by that certain letter of intent dated
May 29, 2009 (the “Interbank Facility”), provided that the Interbank
Facility shall provide credit to the Company and its subsidiaries of not less
than $15,000,000.  The obligation (but not the right) of I2BF to loan
to the Company an additional $1,750,000 shall cease in the event that the
Interbank Facility is not closed by October 15, 2009.  As of
October 15, 2009, the Company had not closed a financing deal with Interbank
which caused the loan to be in default; therefore, the notes payable and
interest payable are presented as current liabilities on the accompanying
consolidated balance sheets.





Proceeds
from the financing were partially directed to the repayment of $2,000,000 in
principal owed by the Company to Whitebox, as Whitebox forgave $238,635 of
accrued interest which is recorded as part of the loss on debt extinguishment in
the consolidated statement of operations.  Effective as of the closing
of the financing, all of the Company’s obligations to Whitebox were finally and
effectively satisfied and extinguished, including warrants formerly held by
Whitebox.





As a
result of the aforementioned agreements, the Company recorded a loss on debt
extinguishment of $4,423,869 for the three and nine months ended September
30, 2009; the breakdown is as follows:


16




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


Loss
      onDescription
                    
                    Debt
      ExtinguishmentUnamortized
      debt discounts
                    
                    $
                    (1,634,405
                    )Unamortized
      debt issuance costs
                    
                    
                    (461,246
                    )Issuance
      of common stock
                    
                    
                    (2,779,308
                    )Forgiveness
      of interest
                    
                    
                    397,300Write-off
      of accrued derivative liabilities
                    
                    
                    53,790Loss
      on debt extinguishment (unaudited)
                    
                    $
                    (4,423,869
                    )





Note
8 - Accrued Derivative Liabilities





Accrued Warrant
Liability





The
Company issued warrants as part of debt issuances, stock issuances, and
consulting services.  The warrants qualify as derivative instruments
with the fair value of all warrants being $94,474 at September 30,
2009.  The fair value was determined using the Black-Scholes option
pricing model under the following assumptions: expected life between 1.13
and 4.84 years, risk free interest rate between 0.40% and 2.31%, dividend yield
of 0%, and volatility of 120%.





Accrued Conversion Option
Liability





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





The
Company valued the $9,295,000 of the Company’s convertible notes that were
outstanding as of January 1, 2009.  The cumulative effect of this
change in accounting principle of $1,955,548 has been recognized as a reduction
of the opening balance of accumulated deficit as of that date.  That
cumulative effect adjustment is the difference between the amounts previously
recognized in the Company’s balance sheet as of December 31, 2008 and the
amounts that would have been recognized if the Company had applied this
accounting treatment from the issuance date of the outstanding convertible
notes.  The fair value of all conversion options at September 30, 2009
is $0.  The fair value was determined using the Black-Scholes option
pricing model under the following assumptions: expected life between 0.08
and .15 years, risk free interest rate of 0.14%, dividend yield of 0%, and
volatility of 120%.





Note
9 - Intercompany Promissory Note





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





Note
10 - Commitments and Contingencies





Leases





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





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





Total
rent expense for the leases described above were approximately $71,000 and
$213,000 for the three and nine months ended September 30, 2009, respectively,
approximately $19,000 and $56,000 for the three and nine months ended September
30, 2008, respectively, and approximately $396,000 for the period from February
27, 2007 (date of inception) to September 30, 2009.


17




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


Litigation





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





Note
11 – Subsequent Events





On
November 6, 2009, the Company issued a secured promissory note to I2BF for
$500,000.  The secured promissory note accrues interest at 15% per
annum, and the principal plus accrued interest is due on January 31,
2010.  The note is secured by substantially all of the Company’s
assets as fully set forth in the July 15, 2009 agreement with I2BF.





The
Company has performed an evaluation of subsequent events through November 17,
2009, which is the date the financial statements were issued.


18





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





Forward-looking
statements





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





Overview





Currently,
we are a development stage company with no revenues from operations.  We
intend to engage in the business of producing and processing sugarcane ethanol
in Peru for sale internationally. 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, as well as Europe, India, and
Asia.  We intend to eventually produce more than 90% of the sugarcane we
process and purchase the remaining 10% from local unaffiliated third party
suppliers.  We are executing on a vertically integrated, disciplined,
logistical strategy for production and expansion that is designed to reduce
commodity price volatility and lead to competitively high yields.





Sugarcane
Ethanol





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





Peru





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




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





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





Megatrends Driving the
Market Opportunity





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





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


19





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





Plan
of Operations





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




Phase I




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





·
            Mill
      and distillery acquisition, expansion and
  modification





·
            Land
      sourcing





·
            Field
      installment





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





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 (the
“Sugar Mill”)  located in the province of Chepen, Peru.   
Stratos Peru paid approximately $4.5 million plus a value added tax (“VAT”) of
19% to acquire the Sugar Mill. On July 1, 2008, we issued Gabinete an
unsecured convertible promissory note in the principal amount of $350,000 for
the Company to use as working capital. The note matured on October 30, 2009 and
is currently in default.  We are currently negotiating a payment
arrangement with Gabinete. The note accrued 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 a cashless exercise
provision.




We are in
the process of relocating the Sugar Mill to a better and more strategic location
near the Pan-American Highway, and we plan to acquire and install a distillery
unit to adjoin it for the production of Industrial Grade Alcohol also known as
ethanol. Additionally, we plan to upgrade the Sugar Mill’s crushing capacity of
sugarcane from 750 tons to 2,300 tons of sugarcane per day. After modifying,
expanding, and including the new distillery to the Sugar Mill, we plan to use
100% of its capacity to produce industrial grade ethanol to be exported to the
European markets with an estimated 17 million gallons of ethanol per year at its
maximum capacity.





Land
Sourcing




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





·
            Small
      and medium private land lots


·
            Peasant
      community land lots


·
            State-owned
      land lots





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





·
            Water
      supply


·
            Soil
      composition


·
            Climate


·
            Distance
      from the Sugar Mill


·
            Access
      to roads and other services


20





We plan
to acquire land holdings of at least 48,000 hectares in order to fulfill the
needs of operations in Phase II.  On June 19, 2008, we entered into a lease
agreement with an unaffiliated third party in order to obtain the rights to use
24,000 hectares of undeveloped land in Peru, of which 15,000 hectares are
plantable land.  On November 8, 2008, we entered into an addendum to this
lease agreement, which gives us the right to plant on all 24,000 hectares rather
than just 15,000 hectares.




Field
Installment




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





·
            Channeling
      water to the sites from national irrigation
  projects


·
            Field
      irrigation installation with back-up water
  supply


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


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





With a
replenishing supply of water buildup underneath the proposed plantation fields,
our feasibility studies show that there is ample water supply to support our
planned operations.  We will dig wells to test the water and determine the
best method for accessing the water.





Conducting
Feasibility Studies and Generating a Business Plan for Phase II




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




Our goal
is to have all of the components of Phase I including 1,000 hectares of new
sugar cane plantations in our own land, to be fully operative by the second
quarter of 2011 so that we can begin executing Phase II.  The completion of
Phase I requires a total initial investment of US$ 42.2 million, which will be
financed with incremental equity, mezzanine financing and local debt. We
anticipate that we will need approximately US$34.2 million of additional funding
to complete Phase I.





Phase II




Phase II
of our business plan will consist of our expansion in strategic locations along
the northern Peruvian coast and the cultivation of our own sugarcane supplies to
be used for production. In connection with Phase II, we need to secure over
an additional $755 million ($634 million net of 19% Peruvian VAT) in order to
plant sugarcane on 48,000 hectares of raw land and acquire and operate a total
of four mills with attached ethanol distilleries with expandable capacities and
distribution port infrastructure. By the second 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 2011.  The mill and distillers we plan to establish
in Phase II will be located in regions that we have selected based on our
extensive research of agro climatic conditions, hydrology, basic services,
logistic supplies, and social environment. We plan to establish the four
locations in two stages.





Stage
One




During
the first stage, which we anticipate will begin in the second quarter of 2011,
we plan to prepare and plant sugarcane on 24,000 hectares of land
located along the northern Peruvian coast and will conduct the required
feasibility studies for the additional 24,000 hectares of land from the
second stage.  We anticipate that the first 90 million gallons per year, or
MGY, Ethanol Facility (EDN2 and EDN3) will be fully operative by the fourth
quarter of 2012, provided the financing is in place by the end of the fourth
quarter of 2010. We estimate that the total cost for Stage One will be
approximately $400 million ($336 million net of 19% Peruvian VAT).





Stage
Two




During
the second stage, which we anticipate will begin in the fourth quarter of 2012,
we plan to plant the second 24,000 hectares of land located along the
northern Peruvian coast. We anticipate that the second 90 MGY Ethanol Facility
(EDN4 and EDN5) will be fully operative by the second quarter of 2014. We
estimate that the total cost for this stage will be approximately $355 million
($298 million net of 19% Peruvian VAT).


21





Uncertainties
and Going-Concern




The
continuation of our business will be dependent upon us raising additional
financial support and on our ability to establish reliable sources of sugarcane
for the operation of the Sugar Mill, and going forward, on our ability to
develop our own supplies of sugarcane. Additionally, we must be successful in
establishing seedling and land sourcing programs in order to allow us to develop
a consistent, reliable, and cost-effective long-term supply of
sugarcane.




We will
require a significant amount of additional capital in the future to sufficiently
fund our operations. We estimate that Phase I of our business plan, which is
currently in effect, will cost a total of approximately $ 42.2 million. We
estimate that we will need an additional $755 million to fund our expansion
during the course of Phase II of our operations, which is set to commence during
2011 and continue for five years thereafter.  We are currently in
negotiations with investors to provide additional capital; however, we may not
be able to obtain this additional capital on terms favorable to us or at
all.





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





Due to
the uncertainty of our ability to meet our current operating expenses and the
capital expenses noted above, our independent auditors, in their report on the
annual consolidated financial statements for the year ended December 31, 2008,
included an explanatory paragraph regarding concerns about our ability to
continue as a going concern. Our consolidated financial statements contain
additional note disclosures describing the circumstances that lead to this
disclosure by our independent auditors.





Results
of Operations





Comparison of the three
months ended September 30, 2009 and the three months ended September 30,
2008





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





Three Months
                
                
                Three MonthsEnded
                
                
                EndedSeptember 30,
                
                
                September 30,
                
                
                Increase
                
                
                Percentage2009
                
                
                2008
                
                
                (Decrease)
                
                
                ChangeConsulting
      fees
                
                $
                21,929
                
                
                $
                466,386
                
                
                $
                (444,457
                )
                
                
                -95.3
                %General
      and administrative
                
                $
                232,478
                
                
                $
                526,726
                
                
                $
                (294,248
                )
                
                
                -55.9
                %Professional
      fees
                
                $
                294,808
                
                
                $
                499,294
                
                
                $
                (204,486
                )
                
                
                -41.0
                %Salaries
      and wages
                
                $
                587,559
                
                
                $
                813,481
                
                
                $
                (225,922
                )
                
                
                -27.8
                %Amortization
      of debt discounts and debt issuance costs
                
                $
                246,131
                
                
                $
                962,665
                
                
                $
                (716,534
                )
                
                
                -74.4
                %Interest
      expense
                
                $
                607,534
                
                
                $
                334,096
                
                
                $
                273,438
                
                
                
                81.8
                %(Gain)
      loss in fair value of derivative liabilities
                
                $
                (217,806
                )
                
                $
                1,222,658
                
                
                $
                (1,440,464
                )
                
                
                -117.8
                %Loss
      on debt extinguishment
                
                $
                4,423,869
                
                
                $
                -
                
                
                $
                4,423,869
                
                
                
                100.0
                %





Consulting
fees were $21,929 for the three months ended September 30, 2009 compared to
$466,386 for the three months ended September 30, 2008.  During the three
months ended September 30, 2008, we incurred significant costs outsourcing
certain functions to third party consultants to assist in advising on
agricultural landscapes, other sugarcane development methods, and advising on
dismantling and rebuilding the Sugar Mill.  We expect the consulting fees
to increase as we receive additional funding.





General
and administrative costs were $232,478 for the three months ended September 30,
2009 compared to $526,726 for the three months ended September 30, 2008. 
The decrease of $294,248 was primarily due to a decrease in travel expenses of
approximately $270,000 and other cost reduction efforts.  The travel
expenses incurred during the three months ended September 30, 2008 were related
to our efforts to secure financing.





Professional
fees were $294,808 for the three months ended September 30, 2009 compared to
$499,294 for the three months ended September 30, 2008, primarily due to a
decrease in legal fees by approximately $100,000 and decreases in other
professional services and accounting services.  The decrease in legal fees
is because we had legal consultants assist in the land acquisitions and
structuring of financing arrangements during the three months ended September
30, 2008.


22





Salaries
and wages were $587,559 for the three months ended September 30, 2009 compared
to $813,481 for the three months ended September 30, 2008.  The decrease is
due to the downsizing of our staffing level in 2009 because of insufficient
funds.





Amortization
of debt discounts and debt issuance costs were $246,131 for the three months
ended September 30, 2009 compared to $962,665 for the three months ended
September 30, 2008.  These costs represent the fair value of the warrants
and beneficial conversion features that are recorded as debt discounts and
amortized over the terms of the debt.  Included in this amount are costs
associated with issuing debt which is then amortized over the terms of the
debt.  The decrease in the three months ended September 30, 2009 compared
to 2008 is because the majority of the debt discounts have been fully
amortized.





Interest
expense was $607,534 for the three months ended September 30, 2009 compared to
interest income of $334,096 for the three months ended September 30, 2008. 
The increase is due to the increase in outstanding debt.  During the three
months ended September 30, 2009, the Company increased its debt by approximately
$7.4 million.





The
change in the value of the derivative liabilities resulted in a gain of $217,806
and a loss of $1,222,658 for the three months ended September 30, 2009 and 2008,
respectively.  The gain is due to the decrease in the Company’s share
price, which causes the fair value of the derivative liabilities to decrease
thereby reducing the liabilities with a corresponding change (i.e., gain)
recorded in the consolidated statement of operations.  The loss of
$1,222,658 for the three months ended September 30, 2008 is because of a change
in estimate for the expected life of certain warrants.  Initially, these
warrants were valued with an expected life of one year; however, we changed the
estimate from one year to the warrant’s remaining contractual life.





During
the three months ended September 30, 2009, we recorded a loss on debt
extinguishment of $4,423,869 compared to nil for the three months ended
September 30, 2008.  The loss was comprised of the following:





Loss onDescription
                  
                  Debt ExtinguishmentUnamortized
      debt discounts
                  
                  $
                  (1,634,405
                  )Unamortized
      debt issuance costs
                  
                  
                  (461,246
                  )Issuance
      of common stock
                  
                  
                  (2,779,308
                  )Forgiveness
      of interest
                  
                  
                  397,300Write-off
      of accrued derivative liabilities
                  
                  
                  53,790Loss
      on debt extinguishment (unaudited)
                  
                  $
                  (4,423,869
                  )





Comparison of the nine
months ended September 30, 2009 and the nine months ended September 30,
2008





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





Nine Months
                
                
                Nine MonthsEnded
                
                
                EndedSeptember 30,
                
                
                September 30,
                
                
                Increase
                
                
                Percentage2009
                
                
                2008
                
                
                (Decrease)
                
                
                ChangeConsulting
      fees
                
                $
                83,481
                
                
                $
                1,574,174
                
                
                $
                (1,490,693
                )
                
                
                -94.7
                %General
      and administrative
                
                $
                1,208,072
                
                
                $
                2,059,928
                
                
                $
                (851,856
                )
                
                
                -41.4
                %Professional
      fees
                
                $
                794,424
                
                
                $
                1,637,685
                
                
                $
                (843,261
                )
                
                
                -51.5
                %Salaries
      and wages
                
                $
                1,904,498
                
                
                $
                1,958,755
                
                
                $
                (54,257
                )
                
                
                -2.8
                %Amortization
      of debt discounts and debt issuance costs
                
                $
                2,619,703
                
                
                $
                1,670,923
                
                
                $
                948,780
                
                
                
                56.8
                %Interest
      expense
                
                $
                1,270,316
                
                
                $
                875,853
                
                
                $
                394,463
                
                
                
                45.0
                %(Gain)
      loss in fair value of derivative liabilities
                
                $
                (4,291,624
                )
                
                $
                462,085
                
                
                $
                (4,753,709
                )
                
                
                -1028.8
                %Loss
      on debt extinguishment
                
                $
                4,423,869
                
                
                $
                -
                
                
                $
                4,423,869
                
                
                
                100.0
                %





Consulting
fees were $83,481 for the nine months ended September 30, 2009 compared to
$1,574,174 for the nine months ended September 30, 2008.  During the nine
months ended September 30, 2008, we incurred significant costs outsourcing
certain functions to third party consultants to assist in advising on
agricultural landscapes, other sugarcane development methods, and advising on
dismantling and rebuilding the Sugar Mill.  We expect the consulting fees
to increase as we receive additional funding.


23





General
and administrative costs were $1,208,072 for the nine months ended September 30,
2009 compared to $2,059,928 for the nine months ended September 30, 2008. 
The decrease was primarily due to the decrease in investor relations expenses of
approximately $200,000 and travel expenses of approximately $500,000.  The
investor relations and travel expenses incurred during the nine months ended
September 30, 2008 were related to our efforts to secure financing.  Due to
cash restrictions, we have scaled down our expenditures.





Professional
fees were $794,424 for the nine months ended September 30, 2009 compared to
$1,637,685 for the nine months ended September 30, 2008 primarily due to a
decrease in legal fees of approximately $678,000. The decrease in legal fees is
because we had legal consultants assist in the land acquisitions and structuring
of financing arrangements during the nine months ended September 30,
2008.





Salaries
and wages were $1,904,498 for the nine months ended September 30, 2009 compared
to $1,958,755 for the nine months ended September 30, 2008.  These amounts
are comparable because wages increased due to the hiring of key executives
throughout the last quarters of 2008, which would have increased our overall
salaries and wages, but we also decreased our staff level in 2009
due to our lack of funding.





Amortization
of debt discounts and debt issuance costs were $2,619,703 for the nine months
ended September 30, 2009 compared to $1,670,923 for the nine months ended
September 30, 2008.  These costs represent the fair value of the warrants
and beneficial conversion features that are recorded as debt discounts and
amortized over the terms of the debt.  Included in this amount are costs
associated with issuing debt, which is then amortized over the terms of the
debt.  Due to the payment on certain debt and the conversion of convertible
debt to secured financing, the majority of the debt discounts and debt issuance
costs have been either fully amortized or written off.





Interest
expense was $1,270,316 for the nine months ended September 30, 2009 compared to
$875,853 for the nine months ended September 30, 2008.  These costs consist
of the interest expense and the interest premium associated with the convertible
notes.  The increase is due to the increase in outstanding debt. 
During the three months ended September 30, 2009, the Company increased its debt
by approximately $7.4 million, which increased the overall interest expense for
the nine month period.





The
change in the value of the derivative liabilities resulted in a gain of
$4,291,624 and a loss of $462,085 for the nine months ended September 30, 2009
and 2008, respectively.  The gain is due to the decrease in the Company’s
share price, which causes the fair value of the derivative liabilities to
decrease thereby reducing the liabilities with a corresponding gain recorded in
the consolidated statement of operations.  We also implemented provisions
of ASC 815 and recorded on January 1, 2009 an accrued conversion option
liability of $1,778,343, which had a fair value of nil at September 30, 2009 for
a decrease of $1,778,343 in the conversion option liability.  The loss of
$462,085 for the nine months ended September 30, 2008 is because of a change in
estimate for the expected life of certain warrants.  Initially, these
warrants were valued with an expected life of one year; however, we changed the
expected life to be the expiration date of the warrants.





During
the nine months ended September 30, 2009, we recorded a loss on debt
extinguishment of $4,423,869 compared to nil for the nine months ended September
30, 2008.  The loss was comprised of the following:





Loss onDescription
                  
                  Debt ExtinguishmentUnamortized
      debt discounts
                  
                  $
                  (1,634,405
                  )Unamortized
      debt issuance costs
                  
                  
                  (461,246
                  )Issuance
      of common stock
                  
                  
                  (2,779,308
                  )Forgiveness
      of interest
                  
                  
                  397,300Write-off
      of accrued derivative liabilities
                  
                  
                  53,790Loss
      on debt extinguishment (unaudited)
                  
                  $
                  (4,423,869
                  )





Liquidity
and Capital Resources




At
September 30, 2009, our cash and cash equivalents totaled approximately $38,000,
compared to approximately $761,000 as of December 31, 2008.  Currently, our
operations are funded by financing activities.  Our existing capital
resources are not sufficient to fund our operations for the next six months, and
therefore, we will need additional financing to fund future operations through
offerings of equity or debt securities.  We can offer no assurances that we
will be able to obtain additional funds on acceptable terms, if at
all.





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


24





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 we will generate cash flows sufficient to meet our cash
flow projections or that our expenses will not exceed our projections. If our
expenses exceed estimates, we will require additional monies during the next
twelve months to execute our business plan.




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




Cash
Used in Operating Activities





Our net
cash used in operating activities for the nine months ended September 30, 2009
was $1,999,205.  During the nine months ended September 30, 2009, the cash
used in operating activities was comprised primarily of our net loss of
$8,119,517 decreased by the change in derivative liabilities value of
$4,291,624, offset primarily by the amortization of debt discounts and debt
issuance costs of $2,619,703, the loss on extinguishment of debt of $4,423,869,
and the increase of our accounts payable, accrued interest, and other payables
of $2,435,207, collectively.





Cash
Used in Investing Activities





Due to
our lack of financing, we did not make any purchases of plant and equipment
during the nine months ended September 30, 2009 compared to $619,939 for the
nine months ended September 30, 2008.





Cash
Flows from Financing Activities




Historically,
we have met our immediate and long-term financial requirements primarily through
the sale of common stock and other convertible equity securities and through the
issuance of convertible promissory notes.  During the nine months ended
September 30, 2009, we received $275,000 from short-term financing and
$3,000,000 from secured long-term financing, and repaid $2,000,000 on our
convertible promissory notes.  During the nine months ended September 30,
2008, we received net proceeds of $9,200,000 from the issuance of convertible
notes, $1,685,794 from the issuance of common stock, and $1,000,000 from the
issuance of preferred stock, and made payments of $3,199,500 on our convertible
notes.





Financings





We
entered into a Secured Note and Common Stock Purchase Agreement (the
“Agreement”) with I2BF Biodiesel, Ltd. (“I2BF”) and Blue Day SC Ventures, (“Blue
Day”) (each, an “Investor” and collectively, the “Investors”).





We
offered to the Investors: (a) a minimum of $3,000,000 in aggregate
principal of Secured Promissory Notes (“Notes”) issued for new cash investment
in our Company as of the date of the Agreement (the “Initial Investment”),
(b) $12,382,271 in aggregate principal amount of Notes issued concurrently
with the Initial Investment in exchange for the surrender and cancellation of
existing indebtedness and equity securities of our Company outstanding in favor
of Investors, (c) up to an additional $1,725,000 principal amount of Notes
issued to I2BF in a subsequent closing, and (d) as consideration for such
new investment and the restructuring of the existing indebtedness and equity
securities, common stock representing an aggregate of forty-five percent (45%)
of the fully diluted equity of our Company and certain adjustment rights
relating to such common stock as are set forth in the Agreement.





The first
closing on July 15, 2009 (the “Initial Closing”) was for the sale of Notes in
the aggregate principal amount of $15,382,271 and an aggregate of 55,586,157
shares of the common stock of our Company, evidencing not less than 39.895% of
the outstanding the common stock determined on a fully diluted basis, and was
consummated simultaneously with the execution of the Agreement (the “Closing
Date”).





I2BF is
required to make an additional investment in Notes with an aggregate principal
amount of $1,725,000 and shall be issued 10,238,381 additional shares of common
stock, and an additional Closing shall be held with respect to such investment
(the “Balance Closing”) if and as soon as practicable following the closing of a
credit facility currently under negotiation between the Company and Banco
Internacional del Perú S.A.A. (“Interbank”) and evidenced by that certain letter
of intent dated May 29, 2009 (the “Interbank Facility”), provided that the
Interbank Facility shall provide credit to our Company and its subsidiaries of
not less than $15,000,000.  The obligation (but not the right) of I2BF to
loan to the Company an additional $1,750,000 shall cease in the event that the
Interbank Facility is not closed by October 15, 2009.  As of October
15, 2009, we had not closed a financing deal with Interbank which caused the
loan to be in default; therefore, the notes payable and interest payable are
presented as current liabilities on the accompanying consolidated balance
sheets.





Proceeds
from the financing also were directed to the repayment of $2,000,000 in
principal owed by us to Whitebox.  Effective as of the closing of the
financing, all of our obligations to Whitebox were finally and effectively
satisfied and extinguished, including warrants formerly held by
Whitebox.


25





The Notes
accrue interest at 15% per annum and are due on December 31, 2012.





On
November 6, 2009, we issued a secured promissory note to I2BF for
$500,000.  The secured promissory note accrues interest at 15% per annum,
and the principal plus accrued interest is due on January 31, 2010.  The
note is secured by substantially all of the Company’s assets as fully set forth
in the July 15, 2009 agreement with I2BF.





Contractual
Obligations





At
September 30, 2009, our significant contractual obligations, except for the land
lease referred to below, were as follows:





Payments due by PeriodLess than
                
                
                One to
                
                
                Three to
                
                
                More ThanOne Year
                
                
                Three Years
                
                
                Five Years
                
                
                Five Years
                
                
                TotalPromissory
      notes
                
                $
                17,477,270
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                17,477,270Operating
      lease obligations
                
                
                21,224
                
                
                
                159,688
                
                
                
                -
                
                
                
                -
                
                
                
                180,912Total
                
                $
                17,498,494
                
                
                $
                159,688
                
                
                $
                -
                
                
                $
                -
                
                
                $
                17,658,182




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





Off-Balance
Sheet Arrangements




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





Critical
Accounting Policies





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





Use of
Estimates





The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Significant areas requiring the use of management estimates relate to the
determination of depreciation rates for equipment, impairment of long-lived
assets, future tax rates used to determine future income taxes, and the carrying
values of warrant and conversion option liabilities. Actual results could
materially differ from these estimates.





Impairment of Long-Lived
Assets




We
periodically evaluate the carrying value of long-lived assets to be held and
used and record impairment losses on long-lived assets used in operations when
indications of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets’ carrying amounts. In
that event, a loss is recognized based on the amount by which the carrying
amount exceeds the fair market value of the long-lived assets. Loss on
long-lived assets to be disposed of is determined in a similar manner, except
that fair market values are reduced for the cost of disposal. We believe that as
of September 30, 2009 and December 31, 2008, there were no significant
impairments of our long-lived assets.


26





Foreign Currency
Translation





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





Accrued Derivative
Liabilities





We apply
a two-step model to determine whether a financial instrument or an embedded
feature is indexed to an issuer’s own stock and thus able to qualify for equity
treatment.  However, liability accounting is triggered on all instruments
and embedded features exercisable at strike prices denominated in any currency
other than the functional currency of the operating entity in Peru.  We
determine which instruments or embedded features require liability accounting
and record the fair values as an accrued derivative liability. The changes in
the values of the accrued derivative liabilities are shown in the accompanying
consolidated statements of operations as “change in fair value of accrued
derivative liabilities.”





Fair Value of Financial
Instruments





The
Company discloses the fair value of financial instruments held by the Company
applying a three-level valuation hierarchy.  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 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.




We
analyze all financial instruments with features of both liabilities and equity
to determine proper accounting recognition.





Recently
Issued Accounting Pronouncements




On
January 1, 2009, the FASB issued an accounting standard regarding the
accounting and reporting of non-controlling interest in consolidated financial
statements.  The update states that accounting and reporting for minority
interests are to be recharacterized as noncontrolling interests and classified
as a component of equity. The calculation of earnings per share continues to be
based on income amounts attributable to the parent.  The update applies to
all entities that prepare consolidated financial statements, except
not-for-profit organizations, but affects only those entities that have an
outstanding noncontrolling interest in one or more subsidiaries or that
deconsolidate a subsidiary.  The adoption of the update did not have a
material impact on our consolidated financial statements.





In June
2009, the FASB issued a standard that establishes the FASB Accounting
Standards Codification (the “Codification”) as the source of authoritative
accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in
conformity with U.S. GAAP. The Codification does not change current U.S.
GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by
providing all the authoritative literature related to a particular topic in
one place. The Codification is effective for interim and annual periods ending
after September 15, 2009, and as of the effective date, all existing
accounting standard documents will be superseded. The Codification is effective
in the third quarter of 2009, and accordingly, the Quarterly Report on Form
10-Q for the quarter ending September 30, 2009 and all subsequent public filings
will reference the Codification as the sole source of authoritative
literature.


27


Item
3.  Quantitative and Qualitative Disclosure about Market Risk





Not
applicable.





Item
4. Controls and Procedures





Evaluation of Disclosure
Controls and Procedures





We have
established disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) to ensure that the information required to be disclosed
by the Company in reports that it files or submits under the Exchange Act (i) is
recorded, processed, summarized, and reported within the time periods specified
in Securities and Exchange Commission rules and forms and (ii) is accumulated
and communicated to our management, including our Chief Executive Officer and
Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosures.





We
carried out an evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) at September 30, 2009, based on the evaluation of these
controls and procedures required by paragraph (b) of Rule 13a-15 or Rule 15d-15
under the Exchange Act.  This evaluation was carried out under the
supervision and with the participation of our Chief Executive Officer and Chief
Financial Officer. Based upon that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that, at September 30, 2009, our disclosure
controls and procedures are not effective solely due to the fact that the
Company continues to have material weaknesses in its internal control over
financial reporting.  Notwithstanding the foregoing, management believes
that the disclosure information set forth in this report on Form 10-Q is
complete, compliant, and accurate and that the financial statements included in
this report fairly present in all material respects our financial condition,
results of operations, and cash flows for the periods presented.





Changes in Internal Control
Over Financial Reporting





There was
no change in the Company’s internal control over financial reporting occurred
during the quarter ended September 30, 2009 that materially affected, or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting.





PART
II - OTHER INFORMATION





Item
1.  Legal Proceedings





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





Item
1A.  Risk Factors





Not
applicable.




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





On July
17, 2009, we issued 29,545 shares of our common stock to Leonard Brooks, a
director of the Company, for services as a director pursuant to his director
agreement.  We relied on Section 4(2) of the Securities Act of 1933, as
amended (the "Securities Act") as providing an exemption from registering the
sale of these shares of common stock under the Securities Act.





On July
21, 2009, we issued 159,375 warrants to purchase an aggregate amount of 159,375
shares of our common stock to Citation Capital Management for placement agent
services rendered in connection with the secured promissory note issued on July
15, 2009 .  We relied on Section 4(2) of the Securities Act as providing an
exemption from registering the sale of these shares of common stock under the
Securities Act.





On August
11, 2009, we issued 1,000,000 shares of our common stock to our legal counsel,
Richardson & Patel LLP, in consideration for services rendered to the
Company that were valued at $70,000. We relied on Section 4(2) of the Securities
Act as providing an exemption from registering the sale of these shares of
common stock under the Securities Act.





Other
than the above, there are no unregistered sales of equity securities during the
quarter ended September 30, 2009 to report that have not already been disclosed
in a Current Report on Form 8-K.





Item
3.  Defaults upon Senior Securities





None.


28





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





None.





Item 5.  Other Information





a) 
         Bridge Financing





On
November 10, 2009, we closed a $500,000 bridge financing transaction with I2BF
BioDiesel Limited (“I2BF”).  In exchange for the loan, we issued to I2BF a
Secured Promissory Note with a principal of $500,000 on November 6, 2009
(“Bridge Note”).  The principal is subject to interest at the rate of 15%
per annum.  All unpaid principal and unpaid and accrued interest is due on
the earlier of (i) January 31, 2010, (ii) a change of control of the Company,
and (iii) upon or after the occurrence of an event of default, if any. 
Events of default under the Bridge Note are as follows: (i) our failure to pay
principal or interest upon receipt of written notice from I2BF of our failure to
pay on a due date; (ii) a voluntary bankruptcy or insolvency proceeding; (iii)
an involuntary bankruptcy or insolvency proceeding that is not dismissed or
discharged within thirty days of commencement; (iv) any of our representations
or warranties to I2BF in connection with the Bridge Note being materially false,
incorrect, incomplete, or misleading; (v) our or our subsidiary’s (a) failure to
make payments under the terms of any other indebtedness beyond any applicable
grace period or (b) default under any other indebtedness, which effect causes
indebtedness of at least $100,000 to become due prior to such indebtedness’
maturity date; (vi) a final court judgment or order for the Company or a
subsidiary to pay over $250,000 that is not discharged for a period of thirty
days; (vii) the Bridge Note not being a legal, valid, and binding obligation of
the Company enforceable against us in accordance with its terms; and (viii) a
breach by the Company or a subsidiary of any covenant contained in the Bridge
Note, and if a curable breach, failure to cure within thirty days after
receiving written notice of such breach.





In
connection with the bridge financing, we entered into a Consent and Waiver and
Amendment to Security Agreement (the “Agreement”) with I2BF and Blue Day SC
Ventures (“Blue Day”) on November 6, 2009.  The Agreement amended the
Security Agreement that we entered into with I2BF on July 15, 2009 to extend to
the Bridge Note the security interests granted by the Security Agreement. 
I2BF, however, agreed to subordinate its security interests to those granted to
Banco Internacional del Peru S.A.A. (“Interbank”), if any, in connection with a
financing by Interbank.  The Security Agreement was described and attached
as an exhibit to our Current Report on Form 8-K filed with the SEC on July 21,
2009, and the description of the Security Agreement is incorporated herein by
reference.





The
Agreement also serves as I2BF’s and Blue Day’s consent to (i) the Bridge Note,
which constitutes indebtedness that was prohibited by a Secured Note and Common
Stock Purchase Agreement (“Note and Stock Purchase Agreement”) that we entered
into with I2BF and Blue Day, and (ii) the security interest granted in
connection with the Bridge Note, which constitutes a security interest that was
also prohibited by that agreement.  The Note and Stock Purchase Agreement
was described and attached as an exhibit to our Current Report on Form 8-K filed
with the SEC on July 21, 2009, and the description of the Note and Stock
Purchase Agreement is incorporated herein by reference.





Under the
Agreement, the Company, I2BF, and Blue Day further agreed that an additional
loan to the Company by I2BF in the amount of $1,725,000, which was described in
the Note and Stock Purchase Agreement, would occur solely at I2BF’s option
following the closing of a financing by Interbank and I2BF’s satisfaction of the
conditions for such additional loan as set forth in the Note and Stock Purchase
Agreement.  If I2BF makes the additional loan, then I2BF may elect to apply
the then outstanding principal and interest under the Bridge Note against such
additional loan amount.





(b) 
         There were no changes to
the procedures by which security holders may recommend nominees to our board of
directors.


29


Item
6. Exhibits





Exhibit
      No.
                
                Description3.1
                
                Amended
      and Restated Articles of Incorporation (1)3.2
                
                Amended
      and Restated Bylaws (1)3.3
                
                Certificate
      of Amendment (2)3.4
                
                Amended
      and Restated Certificate of Designation, Power, Preference and Rights of
      Series A Preferred Stock (3)3.5
                
                Certificate
      of Amendment of the Certificate of Designation, Powers, Preferences and
      Rights of Series A Preferred Stock (4)10.1
                
                Blue
      Day Note (4)10.2
                
                I2BF
      Note (4)10.3
                
                Secured
      Note and Common Stock Purchase Agreement (4)10.4
                
                Security
      Agreement (4)10.5
                
                Consent
      and Waiver and Amendment to Security Agreement between Stratos Renewables
      Corporation, I2BF BioDiesel Limited, and Blue Day SC Ventures, dated
      November 6, 2009 *10.6
                
                Secured
      Promissory Note issued to I2BF BioDiesel Limited on November 6, 2009
      *31.1
                
                Certification
      of the Chief Executive Officer Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002 *31.2
                
                Certification
      of the Chief Financial Officer Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002 *32.1
                
                Certification
      Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  *32.2
                
                Certification
      Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  *


*
Filed herewith





(1)
            Filed
      on November 20, 2007 as an exhibit to our Current Report on Form 8-K, and
      incorporated herein by reference.


(2)
            Filed on November 26, 2007 as an
      exhibit to our Current Report on Form 8-K, and incorporated herein by
      reference.


(3)
            Filed on April 23, 2008 as an
      exhibit to our Current Report on Form 8-K, and incorporated herein by
      reference.


(4)
            Filed on July 21, 2009 as an
      exhibit to our Current Report on Form 8-K, and incorporated herein by
      reference.


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SIGNATURES




Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.





STRATOS
      RENEWABLES CORPORATIONDate:
      November 17, 2009
                  By:
                  /s/
      Thomas SnyderThomas
      SnyderChief
      Executive Officer and President
                    (Principal
      Executive Officer)Date:
      November 17, 2009
                  By:
                  /s/
      Julio Cesar AlonsoJulio
      Cesar AlonsoChief
      Financial Officer
                    (Principal
      Financial and Accounting
Officer)


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