UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-K




(Mark
One)




x
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the fiscal year ended December 31,
      2008




OR




o
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the transition period from _____________ to
  _____________





Commission
file number 000-50903





STRATOS
RENEWABLES CORPORATION


((Exact name of
registrant as specified in its charter)




Nevada
            20-1699126State
      or other jurisdiction of incorporation or organization
            I.R.S.
      Employer Identification Number9440
      Santa Monica Blvd., Suite 401Beverly
      Hills, California
            90210Address
      of principal executive offices
            Zip
      Code(310)
      402-5901Issuer’s
      telephone number




Securities
registered pursuant to Section 12(b) of the Act: None




Securities
registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 par
value







Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  Yes  o     No x




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.  Yes o     No x




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
o




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. o




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




Large
accelerated filer o     Accelerated
filer o




Non-accelerated
filer o                   Smaller
reporting company x


(Do not
check if a smaller reporting company)




Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act.)  Yes o     No x





The
aggregate market value of the Registrant’s Common Stock held by non-affiliates
of the Registrant (based upon the closing price of the Registrant’s Common Stock
as of June 30, 2008) was approximately $45.5 million (based on 26,775,321
shares of common stock outstanding on such date). Shares of the Registrant’s
Common Stock held by each executive officer and director and by each entity or
person that, to the Registrant’s knowledge, owned 5% or more of the Registrant’s
outstanding Common Stock as of June 30, 2008 have been excluded in that such
persons may be deemed to be affiliates of the Registrant. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.




The
number of outstanding shares of the Registrant’s Common Stock, $0.001 par
value, was 64,202,661 shares as of March 31, 2009.















STRATOS
RENEWABLES CORP.


TABLE
OF CONTENTS





PART
      I
            
            
            4Item
      1.  Description of Business
            
            
            4Item
      2.  Description of Properties
            
            
            14Item
      3.  Legal Proceedings
            
            
            14Item
      4.  Submission of Matters to a Vote of Security
      Holders
            
            
            14PART
      II
            
            
            14Item
      5.  Market for Common Equity and Related Stockholder Matters and
      Small Business Issuer Purchases of Equity Securities
            
            
            14Item
      6.  Selected Consolidated Financial Data
            
            
            15Item
      7.  Management’s Discussion and Analysis of Financial Condition
      and Results of Operation
            
            
            16Item
      7A.  Quantitative and Qualitative Disclosures About Market
      Risk
            
            
            30Item
      8.  Consolidated Financial Statements and Supplementary
      Data
            
            
            31Item
      9.  Changes in and Disagreements with Accountants on Accounting
      and Financial Disclosure
            
            
            32Item
      9A.  Controls and Procedures
            
            
            32Item
      9B. Other Information
            
            
            33PART
      III
            
            
            33Item
      10.  Directors, Executive Officers and Corporate
      Governance
            
            
            33Item
      11.  Executive Compensation
            
            
            38Item
      12.  Security Ownership of Certain Beneficial Owners and
      Management and Related Stockholder Matters
            
            
            41Item
      13. Certain Relationships and Related Transactions, and Director
      Independence
            
            
            46Item
      14.  Principal Accountant Fees and Services
            
            
            46Item
      15.  Exhibits
            
            
            47




2





CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS AND INFORMATION




This
Annual Report on Form 10-K, the other reports, statements, and information that
we have previously filed or that we may subsequently file with the Securities
and Exchange Commission, or SEC, and public announcements that we have
previously made or may subsequently make include, may include, incorporate by
reference or may incorporate by reference certain statements that may be deemed
to be “forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995 and are intended to enjoy the benefits of that
act. Unless the context is otherwise, the forward-looking statements included or
incorporated by reference in this Form 10-K and those reports, statements,
information and announcements address activities, events or developments that
Stratos Renewables Corporation (together with its subsidiary, Stratos del Peru
S.A.C., hereinafter referred to as “we,” “us,” “our,” “our Company” or
“Stratos”) expects or anticipates, will or may occur in the future. Any
statements in this document about expectations, beliefs, plans, objectives,
assumptions or future events or performance are not historical facts and are
forward-looking statements. These statements are often, but not always, made
through the use of words or phrases such as “may,” “should,” “could,” “predict,”
“potential,” “believe,” “will likely result,” “expect,” “will continue,”
“anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would” and
“outlook,” and similar expressions. Accordingly, these statements involve
estimates, assumptions and uncertainties, which could cause actual results to
differ materially from those expressed in them. Any forward-looking statements
are qualified in their entirety by reference to the factors discussed throughout
this document. All forward-looking statements concerning economic conditions,
rates of growth, rates of income or values as may be included in this document
are based on information available to us on the dates noted, and we assume no
obligation to update any such forward-looking statements. It is important to
note that our actual results may differ materially from those in such
forward-looking statements due to fluctuations in interest rates, inflation,
government regulations, economic conditions and competitive product and pricing
pressures in the geographic and business areas in which we conduct operations,
including our plans, objectives, expectations and intentions and other factors
discussed elsewhere in this Report.




Certain
risk factors could materially and adversely affect our business, financial
conditions and results of operations and cause actual results or outcomes to
differ materially from those expressed in any forward-looking statements made by
us, and you should not place undue reliance on any such forward-looking
statements. Any forward-looking statement speaks only as of the date on which it
is made and we do not undertake any obligation to update any forward-looking
statement or statements to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events. The risks and uncertainties we currently face are not the only ones we
face. New factors emerge from time to time, and it is not possible for us to
predict which will arise. There may be additional risks not presently known to
us or that we currently believe are immaterial to our business. In addition, we
cannot assess the impact of each factor on our business or the extent to which
any factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements. If any such risks occur, our
business, operating results, liquidity and financial condition could be
materially affected in an adverse manner. Under such circumstances, you may lose
all or part of your investment.




The
industry and market data contained in this report are based either on our
management’s own estimates or, where indicated, independent industry
publications, reports by governmental agencies or market research firms or other
published independent sources and, in each case, are believed by our management
to be reasonable estimates. However, industry and market data is subject to
change and cannot always be verified with complete certainty due to limits on
the availability and reliability of raw data, the voluntary nature of the data
gathering process and other limitations and uncertainties inherent in any
statistical survey of market shares. We have not independently verified market
and industry data from third-party sources. In addition, consumption patterns
and customer preferences can and do change. As a result, you should be aware
that market share, ranking and other similar data set forth herein, and
estimates and beliefs based on such data, may not be verifiable or
reliable.





3




PART
I




Item
1.  Description of Business




Corporate
History and Overview




We were
incorporated in the State of Nevada on September 29, 2004 as New Design
Cabinets, Inc. or NDCI. Prior to the closing of the Share Exchange, as described
below, we were an operating public company, attempting to establish a base of
operations in the custom cabinetry and furniture industry as a builder of
specialty, custom designed cabinets and wine racks. From inception to the
closing of the Share Exchange, we had limited operations and generated a total
of $61,900 in revenues from the sale of wine rack “kits” and the oversight of
various construction activities.




On
November 14, 2007, pursuant to the Agreement Concerning the Exchange of
Securities or the Share Exchange Agreement, by and among NDCI, or Stratos
Peru, and the security holders of Stratos Peru, we acquired 999 or 99.9% of the
issued and outstanding shares of common stock of Stratos Peru, and issued
45,000,000 shares of our common stock, par value $0.001, to the former common
stock holders of Stratos Peru. This acquisition is herein referred to as the
“Share Exchange.”




To date,
Stratos has had limited operations. Upon consummation of the Share Exchange, we
commenced our business plan to develop ethanol and sugar products in Peru
through the cultivation, harvesting and processing of sugarcane in low cost
growing locations.




Stratos
Peru was incorporated in Lima, Peru, on February 27, 2007, under the name
Estratosfera del Peru S.A.C. or Estratosfera. On July 11, 2007, the shareholders
of Estratosfera changed the name of the company from Estratosfera del Peru
S.A.C. to Stratos del Peru S.A.C.




Effective
November 20, 2007, we amended our articles of incorporation to change our name
to “Stratos Renewables Corporation.”





Stratos
Renewables Corporation, or Stratos, is a development stage company. Through our
wholly-owned subsidiaries, we intend to engage in the production, processing and
distribution of sugarcane ethanol in Peru (as described in more detail below).
Sugarcane ethanol is a renewable energy source that provides significant
economic and environmental benefits when mixed with gasoline and used as motor
fuel. It can be blended with gasoline in varying quantities up to pure
ethanol.  Ethanol is blended into more than fifty percent (50%) of the
gasoline sold in the U.S., typically as a blend of ten percent (10%) ethanol and
ninety percent (90%) gasoline, as reported by the Renewables Fuels Association
in their Ethanol Industry Outlook 2008, or RFA 2008 Outlook. This blend, known
as E10, is mandated in some states where auto emissions may reach harmful
levels.





In the
last year, controversies have surrounded the ethanol industry, mainly from the
corn based ethanol producers. Studies on corn ethanol published in, among other
sources, Science Magazine, and recent news about the delays in the openings of
corn ethanol facilities are mounting. The consensus in many of these reports is
that the greenhouse gas benefits of ethanol have been greatly overstated,
particularly when the derivative feedstock is corn. Authors of these studies
argue that the energy-intensive nature of corn production, government subsidies,
and the climate impacts of land use for corn-based ethanol production render the
overall environmental benefits of ethanol to a minimum. our business model
differentiates us from this as our ethanol production will be from 100% Peruvian
high yield sugarcane grown in desert lands, which currently remains the only
actively used renewable fuel source that reduces carbon emissions by more than
it takes to produce the fuel, and due to the yields, it is nineteen (19) times
more efficient than corn.





We are
currently in the development stage of becoming the first-to-market sugarcane
ethanol producer in Peru. Stratos plans to utilize the country's underdeveloped
northern coastal region to cultivate and harvest its sugarcane in order to offer
competitive industry, environmental and economic advantages of low-cost, and
high-yield sugarcane ethanol production. An added advantage to developing
ethanol in Peru is that it is not subject to the U.S. import tariff incurred by
Brazilian-exported ethanol.




4





Sugarcane
ethanol production is far less costly as it requires fewer steps during the
production process. It is also significantly more efficient than production from
corn and thus has a lower greenhouse gas profile. This is why "advanced
biofuels" like efficient sugarcane ethanol are given special preference under
the Renewable Fuels Standard (“RFS”) recently signed into law in the United
States. The RFS requires consumption of 36 billion gallons of renewable fuels by
2022 - up from about 7 billion gallons a year ago - with a minimum of 5 billion
gallons coming from "advanced biofuels."




Business Plan




We intend
to be a vertically integrated sugarcane ethanol producer in Peru, committed to
becoming the lowest cost producer of ethanol globally. We believe Peru has ideal
growing conditions for sugarcane, allowing year-round production which results
in among the highest yields of sugarcane in the world. In addition, Peru's
economic growth and expansion, as illustrated by recent exponential growth in
foreign direct investment and GDP growth over the last five years, adds to
Peru's promise as an attractive location for the development of sugarcane
plantations and production of ethanol. Investment-grade credit ratings were
recently assigned to Peru's long-term foreign and local currency debt and,
according to recent reports from several top financial institutions, the Free
Trade Agreement struck between the U.S. and Peru is expected to attract
additional investment and contribute to continued economic
growth.





For our
Phase I, we will be producing and exporting up to 180,000 liters of industrial
grade ethanol per day from our Estrella del Norte (EDN1), which was overhauled
for increased production of 2,300 tons of cane per day (“tcd”). To accomplish
this objective, we have in place five-year term sugarcane purchase agreements
from two local third party suppliers with fixed prices and required sugarcane
yields. On Phase II we intend to produce approximately 90% of the sugarcane and
will purchase the remaining 10% from local unaffiliated third party suppliers.
We believe we can produce at least 145 tons of sugarcane per hectare per year,
nearly twice the average production per hectare in Brazil, the world’s largest
sugarcane ethanol producer. (One hectare is equivalent to approximately 2.47
acres).




We
believe that we have the resources to become one of the lowest cost
sugarcane ethanol producers in the world for the following reasons:




·
            Peru
      has a comparative advantage in sugarcane production. According to the Food
      and Agriculture Organization of the UN (“FAO”), Peru’s average sugarcane
      yield per hectare per year was the fifth highest in the world in
      2006.  With the use of our technology and team of specialists,
      we anticipate being able to leverage Peru’s comparative advantage into a
      competitive edge, significantly reducing our cost of
      production.  We believe we can produce ethanol at US $0.58 per
      gallon.




·
            Peru’s
      land prices are lower than in Brazil, and are a fraction of land prices in
      developed countries producing fuel ethanol based on other
      feedstock.




·
            Transportation
      costs will be dramatically lower than Brazil due to the coastal location
      of our land and proposed operations, in addition to its proximity to the
      Pan-American Highway.  We expect to deliver to the ports at
      $0.01 per liter.




We have
tariff-free access to the U.S. market.




·
            We
      intend to take advantage of the recently signed Trade Promotion Agreement
      between the United States and Peru, or the Free Trade Agreement. Pursuant
      to the Free Trade Agreement, our fuel exports to the U.S., which we expect
      to be our main export market, will not be subject to the $0.54 per gallon
      import tariff and 2.5% ad valorem tax imposed on Brazilian fuel ethanol
      exports to the U.S.




5




We will
utilize vertical integration and economies of scale, thereby lowering the cost
of production.




·
            In
      order to take advantage of economies of scale, and avoid the hold-up
      problems, due to the nature of assets in the sugarcane ethanol cluster
      (relationship-specific assets), we will be a vertically integrated
      producer.




·
            We
      intend to have a high volume of production (estimated to be 180 million
      gallons of fuel ethanol per year) by 2014, hence benefiting from economies
      of scale.




We plan
to secure land belonging to the extensive and under utilized peasant communities
along the northern coast.




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




Phase I




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





·
            Mill
      and distillery acquisition, expansion and
  modification.





·
            Land
      sourcing.





·
            Field
      installment.





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




Mill
and distillery acquisition, expansion and modification




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




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





Land
Sourcing




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





·
            Small
      and medium private land lots.


·
            Peasant
      community land lots.


·
            State
      owned land lots.




6




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





·
            Water
      supply.


·
            Soil
      composition.


·
            Climate.


·
            Distance
      from the Sugar Mill.


·
            Access
      to roads and other services.





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




Field
Installment




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





·
            Channeling
      water to the sites from national irrigation
  projects.


·
            Field
      irrigation installation with back-up water
  supply.


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


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





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





Conducting
feasibility studies and generating a business plan for Phase II




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




Our goal
is to have all of the components of Phase I fully operative by the second
quarter of 2010, so that we can begin executing Phase II.




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 value added tax
“VAT”, which will be recuperated on a monthly basis when we are fully operative
and generating revenues) in order to plant sugarcane on 48,000 hectares of raw
land, and acquire and operate a total of four mills with attached ethanol
distilleries, with expandable capacities and distribution port infrastructure.
By the fourth quarter of 2014, it is our goal to be able to process a total of
25,000 tons of sugarcane per day, and produce approximately 180 million gallons
of anhydrous ethanol annually.




7




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





Stage
One




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




Stage
Two




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





Ethanol




Overview




Recent
studies have demonstrated that ethanol is a clean burning biofuel produced from
renewable sources, and can be grown year after year. In its most basic form,
ethanol is a grain alcohol and can be produced from sources such as corn and
sugar. Pure ethanol is normally not used as a replacement for gasoline, but the
integration of percentages ranging from 2% to 85% ethanol into a gasoline supply
has the potential to cut down on not only the amount of fossil oil consumed, but
also on the emissions generated by the burning of that fuel. Studies indicate
that the use of ethanol significantly reduces harmful exhaust emissions, which
contribute to global warming. According to a recent United Nations report,
biofuels will account for up to 25% of the world's energy needs by
2025.





Ethanol,
or ethyl alcohol, is a clear, colorless and flammable organic chemical compound
that can be used as a source of “clean” and renewable energy when blended with
gasoline. Ethanol causes gasoline to burn more thoroughly, thereby improving
combustion and reducing the amount of tailpipe carbon monoxide emissions. The
amount of harmful exhaust emissions that are produced when gasoline is burned is
inversely related to the amount of ethanol that is blended in the gasoline.
Thus, as the proportional content of ethanol in a gasoline blend is increased,
the relative amount of harmful exhaust emissions that is produced when the
gasoline is burned decreases.




Ethanol
blends can be used in almost all gasoline engines without costly modifications.
Ethanol is dispensed in service stations worldwide (5% content ethanol blends in
the European Union, or EU, and 10% ethanol content blends in the United States)
with almost no reported incompatibility with vehicles that have unmodified
conventional engines.




8




The use
of ethanol has been reported to have numerous significant long-term
environmental benefits, including the following:




·
            Ethanol
      is a renewable fuel made from
plants;


·
            Ethanol
      is not a fossil-fuel, and therefore, burning it does not increase the
      greenhouse effect;


·
            Ethanol
      can be used to increase octane at low cost as an alternative to harmful
      fuel additives;


·
            As
      an octane enhancer, ethanol is reported to reduce emissions of
      cancer-causing benzene and
butadiene;


·
            Ethanol
      is biodegradable without harmful effects on the
    environment;


·
            Ethanol’s
      high oxygen content reduces carbon monoxide levels more than any other
      oxygenate, by up to 25-30%, according to the U.S. Environmental Protection
      Agency;


·
            Ethanol
      is reported to reduce net carbon dioxide
  emissions;


·
            Ethanol
      blends are reported to reduce emissions of hydrocarbons, a large
      contributor to the depletion of the ozone
layer;


·
            High-level
      ethanol blends are reported to reduce nitrogen oxide
      emissions;


·
            High-level
      ethanol blends are reported to reduce emissions of volatile organic
      compounds, or VOCs, a major source of ground-level ozone formation;
      and


·
            Sulphur
      dioxide and particulate matter emissions decrease through the use of
      ethanol.





Ethanol
can be produced from a variety of raw materials, or feedstock, and processes.
There are two general types of ethanol:





•
            Synthetic
      ethanol, which is derived from crude oil or gas and coal; and•
            Bioethanol,
      which is distilled from grains, molasses, fruit, cellulose, sugarcane
      juice and from numerous other natural
sources.





Regardless
of the production process, synthetic ethanol and bioethanol are chemically
identical.





Ethanol
as a gasoline additive




Oxygen
causes gasoline to burn more completely. Because ethanol contains 35% oxygen,
when added to gasoline, it serves as an oxygenate that improves fuel combustion
and reduces tailpipe emissions. Other fuel additives, such as MTBE (methyl
tertiary-butyl ether), are not as effective as ethanol. It requires
approximately twice the amount of the fuel additive MTBE to obtain the same
level of oxygenation in gasoline as ethanol. Thus, gasoline blended with ethanol
produces fewer emissions than gasoline blended with MTBE. Additionally, since it
was discovered that MTBE contributes to groundwater contamination, MTBE has been
phased out in 17 states in the United States, thereby increasing the demand for
alternative means of increasing octane levels. Blending high octane content
ethanol with lower grade gasoline can increase the overall octane rating of
gasoline, allowing it to be sold as a higher octane premium blend.




Blending
ethanol with gasoline also increases the volume of available fuel and may help
to alleviate potential shortages of refined products. A new oil refinery has not
been built in the United States in the past 30 years and with gasoline demand
forecasted to increase by 1.5% per annum from the current volume of
approximately 140 billion gallons per year, we believe that the United States
will become increasingly dependent on not only crude oil imports, but also on
imports of refined petroleum products (e.g., gasoline, to meet domestic
consumption needs). The use of ethanol may help to reduce the need to import
both crude oil and refined petroleum products.





The
Ethanol Production Process




Technologically,
the process of producing ethanol from sugar is simpler than converting corn into
ethanol. Converting corn into ethanol requires additional cooking and the
application of enzymes, whereas the conversion of sugar primarily requires only
a yeast fermentation process and the removal of water. The energy requirement
for converting sugar into ethanol is about half that of corn.




The
sugarcane ethanol production process begins with cultivating and harvesting
sugarcane at a cane field. The cane is then processed at a sugar mill, where the
cane stalks are shredded and crushed to extract the cane juice. The byproducts
of the juice extraction process are cane molasses and bagasse. Sugarcane
molasses is used in the production of alcohol beverages, fuel alcohol and for
direct human consumption. Bagasse can be used to produce steam and generate
electricity within the plant, and also can be sold to paper and cardboard
industries. Excess electricity produced can be sold to utility
grids.




9




After
sugarcane juice is extracted at the mill, it is then transformed into alcohol at
a distillery through a fermentation process using yeasts as the catalyst. The
fermentation process takes four to twelve hours and generates a significant
amount of CO2 and heat. Fermentation can be conducted in batch or continuously,
using open or closed fermentation tanks. Cooling is applied to maintain the
resulting fermented mixture. Much of the CO2 that is generated during the
fermentation process can be captured and converted into marketable products,
such as dry ice, liquid CO2 for soft drinks, fire-fighting foams, filtration
products and various industrial uses.




After
fermentation, the ethanol is distilled from other byproducts, resulting in a
level of purity of approximately 95%. This mixture is often referred to as
“hydrous ethanol” because it contains 5% water. Hydrous ethanol can be
commercially used, but cannot be blended with gasoline. An additional reactant,
such as cyclohexane, is needed in order to dehydrate the ethanol, by forming a
tertiary azeotropic mixture with water and alcohol. Anhydrous ethanol is nearly
100% pure and can be blended with gasoline.




Sugarcane
is bulky and relatively expensive to transport and must be processed as soon as
possible to minimize sucrose deterioration. In order to save costs, ethanol is
often produced near a sugarcane field at a sugarcane mill with an adjoining
distillery plant.




The
Ethanol Market





Demand




The
interest in biofuels has increased primarily due to environmental, geo-political
and economic factors, including initiatives by countries to develop new markets
for agricultural products. The increase in demand for ethanol largely has been
driven by tax incentives and blending mandates, which are regulatory directives
requiring a minimum level of ethanol content in gasoline. Blending mandates
allow governments to bring biofuels into the market without providing subsidies
or tax credits for ethanol use.




On
December 19, 2007, the United States expanded its Renewable Fuel Standard, or
RFS, through the Energy Independence and Security Act of 2007, or EISA. This
legislation mandates the use of 36 billion gallons of renewable fuels per year
by 2022.




In the
last few years, several other countries increased biofuel usage targets and
mandates. Currently, biofuel blending mandates exist in at least fifteen
countries at the national or regional and state level. Countries with mandates
at the national level include Brazil, Colombia, Germany, France, Philippines,
Thailand, and the United States (under the federal RFS). Countries with regional
mandates include India (nine states plus four federal territories), China (nine
provinces and certain cities), Canada (the provinces of Saskatchewan and
Ontario) and the United States (Hawaii, Iowa, Louisiana, Minnesota, Missouri,
Montana, and Washington). In Peru, all gasoline must contain 7.8% of fuel
ethanol starting on January 1, 2010. The state-owned oil company, Petroperu,
projects fuel ethanol demand of 22.6 million gallons per year in 2010 as
reported at the F.O. Licht 4th Annual
Conference, “Sugar and Ethanol Brazil.”





In the
short to mid-term future, we believe that worldwide fuel ethanol consumption
will increase as a result of additional blending mandates prompted by the
rapidly growing fleet of flexible fuel vehicles, which are vehicles that can
efficiently use different types of fuel.





Supply




In 2007,
world production of fuel ethanol is estimated at nearly 13 billion gallons by
the Food and Agricultural Policy Research Institute. The United States is now
the world’s largest producer of fuel ethanol (6.5 billion gallons in 2007),
surpassing Brazil (5.0 billion gallons in 2007), which historically has
dominated fuel ethanol production, as reported by the RFA 2008
Outlook.




10




The
primary feedstock which are used for fuel ethanol production vary from country
to country. According to a report entitled, The Emerging Biofuels Market: Trade
and Development Implications from 2006, Brazil produces fuel ethanol primarily
from sugarcane, the United States and China use corn as the primary feedstock,
and India produces ethanol mainly from molasses (a co-product in the
manufacturing sugar industry).




According
to the Food and Agricultural Policy Research Institute’s reports on World
Biofuels from 2007 and 2008, world net trade in ethanol increased by 46.1% in
2006 over 2005, followed by a decline in 2007 of 15.1%. As demand for ethanol
increases in the future, world net trade was expected to increase 10.4% for year
end 2008, and is projected to increase by 235% by 2017. However, as there is a
clear trend of countries becoming self sufficient in the ethanol markets, world
export growth rates are expected to decrease even though supply and demand
growth rates continue to increase.




We plan
to supply the U.S. market and we believe that the Free Trade Agreement between
Peru and the U.S. gives us a significant competitive advantage over Brazilian
based ethanol producers.




Ethanol
Prices




Typically,
ethanol is sold under six to twelve month contracts between ethanol producers
and petroleum companies. Although many of these contracts are fixed price, some
of the contracts are pegged to a gasoline benchmark. To a lesser extent, ethanol
is also sold on the spot market, where prices fluctuate daily according to
market conditions.





The
Ethanol Industry




Bioethanol
is part of the “modern
biomassbased”
sources of energy, which have a less severe impact on the environment than
conventional gasoline or other petroleum derived additives. Moreover, sugarcane
ethanol has an industrial positive net energy balance, which means that the
energy contained in a ton of sugarcane ethanol is greater than the energy
required to produce it. There are a number of factors that determine the
economic viability of ethanol production, including the choice of raw material
feedstock, land availability, socioeconomic frameworks, consumer trends and new
technology.




Feedstock




We
believe that our low cost feedstock business plan will give us a
significant competitive advantage. Feedstock accounts for 70% to 80% of overall
ethanol production costs. Feedstock costs are a function of land availability
and field production costs, crop productivity, fermentable sugars/sucrose
content (in case of sugar crops) and industrial conversion ratios.




Currently,
according to the SRI Consulting Ethanol Report from February 2008, approximately
70% of the world’s ethanol supply is being produced from sugar crops, primarily
from sugar beets, sugarcane and molasses, while the remainder is produced from
grains, primarily maize or corn. Although there are several different metrics
which can be used to analyze the choice of feedstock, we believe that the lowest
gross feedstock costs, per gallon of fuel ethanol produced, are currently
achieved by sugarcane grown in the central and southern regions of Brazil. While
Peru does not yet have a developed ethanol industry due to the geography,
climate and other conditions in Peru, we believe that Peru will be able to
surpass the yields achieved in Brazil at lower gross feedstock
costs.




Profitable
feedstock production is also dependent, in part, upon obtaining a reliable
permanent source of raw materials. Most of the profitable sugar based ethanol
businesses worldwide are based on integrated plantation models that are able to
provide feedstock at less than the market price demanded from third
party growers.




Socioeconomic
frameworks




One of
the key drivers of biofuel development throughout the world has been the
increase in rural economic development opportunities that biofuel production
facilitates. Compared to other sources of energy, the production of ethanol is
more labor intensive, thus creating more jobs. It has been estimated that in
Brazil 2,333 jobs are created for every one million tons of sugarcane harvested
(which produces approximately 21 million gallons of ethanol). Further, sugar
based ethanol production also provides an opportunity for countries that have
existing sugar industries to produce a higher value-added product, ethanol,
rather than relying exclusively on the volatile sugar commodity
market.




11




Consumer
trends




The
International Energy Agency has estimated that recent policy initiatives, if
fully implemented, could result in Biofuels (mainly ethanol) displacing up to 5%
of the worldwide motor gasoline use by 2010. In OECD (Organization for Economic
Co-operation and Development) regions, most of this production would likely be
from conventional ethanol produced from grain feedstock, such as corn and wheat.
While ethanol produced from grain feedstock can provide important benefits,
production costs of using corn and wheat are generally high and reductions in
fossil energy use and CO2 emissions are modest. Ethanol production in the
southern hemisphere (Brazil and Peru) primarily utilizes sugar crops, which are
more efficient in reducing greenhouse gas emissions.




New
technologies




The
increasing use and demand for ethanol is also an incentive to promote advances
in biotechnology, particularly in the biomass-to-ethanol sector. New
technologies in sugarcane production, such as precision agriculture, energy
efficient irrigation systems, genetically modified seeds and integrated
harvesting and transport systems, could be adapted to lower sugarcane and sugar
beet production costs. In addition, advanced processing technologies, such as
increased use of industrial automation, new separation processes, higher sucrose
recovery and higher fermentation productivity, could be adopted to lower the
processing costs of converting sugarcane into ethanol.




Governmental
Regulation




Our
business is subject to extensive and frequently changing governmental laws and
regulations. These laws may impact our existing and proposed business operations
by imposing:




·
            Restrictions
      on our existing and proposed business operations and the need to install
      enhanced or additional controls;




·
            The
      need to obtain and comply with permits and
  authorizations;




·
            Liability
      for exceeding applicable permit limits or legal requirements;
      and




·
            Specifications
      for the ethanol we market and
produce.




Some of
the governmental regulations that affect us are helpful to our ethanol
production business. The ethanol fuel industry is greatly dependent upon tax
policies and environmental regulations that favor the use of ethanol in motor
fuel blends. At the end of 2007, fifteen countries had ethanol blending mandates
at the federal or regional level, requiring that gasoline contain a minimum
percentage of ethanol content. In the near future, blending mandates are
expected to be implemented by additional countries and increased by those
countries that currently impose blending mandates.




Environmental
Compliance




The cost
of compliance with environmental and safety regulations in Peru is relatively
insignificant. We anticipate that our proposed facilities will not produce
any effluents or have any smoke stacks. With regards to safety, all equipment
must be fire proof and explosion proof. In addition, modern fire suppression
systems must be installed in order to be eligible for insurance and to protect
the safety of all employees.




12




Sugarcane
Suppliers




During
Phase I, we will purchase 100% of the sugarcane to be used at the Sugar Mill and
Distillery from third party growers. During Phase II, we expect to grow and
cultivate 90% of the sugarcane needed for production. We currently have two
purchase agreements for sugarcane supply with local unaffiliated third parties.
These contracts include the cost of uncut sugarcane and the costs to cut, stow,
lift and transport to the plant site.




Ethanol
Off Takers




We
currently have signed a 5 year off take agreement with an international
distributor for industrial grade ethanol for the sale of 50,000,000 to
90,000,000 liters of industrial grade ethanol per year in European markets. We
currently have no local Peruvian off takers. Once we are in production, we
anticipate that our major local off takers will be Herco Combustibles S.A.,
Ocean Marine S.A.C. and PECSA (Peruana De Combustibles S.A.) which will be in
charge of distributing industrial grade ethanol for the demand under the local
mandates.




Research
and Development




Our
research and development expenditures will be focused primarily on the efficient
production of sugarcane based fuel ethanol. During Phase I of our business plan,
we expect to incur significant costs in implementing our seedling and compost
programs and identifying and analyzing land sources for sugarcane
production.




Intellectual
Property




We have
filed applications to register the trademarks of “Stratos Renewables
Corporation” and “Stratos del Peru” in the United States Trademark Office and in
the Peru Trademark Office. The applications are pending and are in good
standing. Aside from these trademarks, we do not have any other patents,
trademarks, service marks, trade names, copyrights or other exclusive
intellectual property rights. We do not believe that any segment of our business
is dependent upon any single or group of intellectual property
rights.




Competition




We face
substantial competition, particularly in the U.S. ethanol market, which we
expect to be our main market. Many of our competitors have longer operating
histories and significantly more resources than we do.





Suppliers




During
Phase I, we will purchase 100% of the sugarcane to be used at the Sugar Mill and
distillery from third party growers. During Phase II, we expect to grow and
cultivate 90% of the sugarcane needed for production.





Employees




As of
December 31, 2008, we had a workforce of twenty-eight full time employees, of
which four are executives. Most of our employees are employed through a Peruvian
Subsidiary except for Tom Snyder and Sanjay Pai. None of our employees are
currently represented by a union or covered by a collective bargaining
agreement. Management believes its employee relations are
satisfactory.




Marketing




We are
not currently engaged in marketing efforts at this time.




Additional
Information




We are a
public company and file annual, quarterly and special reports and other
information with the SEC. We are not required to, and do not intend to, deliver
an annual report to security holders. You may read and copy any document we file
at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C.
20549. You can request copies of these documents by writing to the SEC and
paying a fee for the copying cost. Please call the SEC at 1-800-SEC-0330 for
more information about the operation of the public reference room. Our filings
are also available, at no charge, to the public at http://www.sec.gov.




13




Item 2.  Description of
Properties




Our
principal executive offices are located at 9440 Santa Monica Blvd., Suite 401,
Beverly Hills, California 90210. We pay $3,000 per
month to ARC Investment Partners, an affiliate of Steven Magami, our Chairman of
the Board of Directors.





We lease
offices in Lima, Peru for approximately $76,000 per year. The lease is a four
year lease, which commenced in January 2008.





We lease
offices in Chiclayo, Peru for approximately $13,000 per year.  The
lease is a one year lease, which commenced in September 2008.





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




Item
3.  Legal Proceedings





We are
not a party to any material legal proceedings nor are we aware of any
circumstances that may reasonably lead any third party to initiate material
legal proceedings against us.




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





None.





PART
II





Item 5.  Market for Common Equity and Related
Stockholder Matters and Small Business Issuer Purchases of Equity
Securities





Trading
History





Our
common stock is quoted on the Over-The-Counter (“OTC”) Bulletin Board under the
symbol “SRNW.” Trading in our common stock has not been extensive and such
trades cannot be characterized as constituting an active trading market. The
following is a summary of the high and low closing prices of our common stock on
the OTC Bulletin Board during the periods presented, as reported on Yahoo!
Finance. Such prices represent inter-dealer prices, without retail mark-up, mark
down or commissions, and may not necessarily represent actual
transactions:




14




Closing
      Sale PriceQuarter
      Ended
                
                High
                
                
                LowMarch
      31, 2008
                
                $
                1.90
                
                
                $
                1.50June
      30, 2008
                
                $
                1.90
                
                
                $
                1.20September
      30, 2008
                
                $
                1.80
                
                
                $
                1.30December
      31, 2008
                
                $
                1.40
                
                
                $
                0.35March
      31, 2007
                
                $
                0.0033
                
                
                $
                0.0033June
      30, 2007
                
                $
                0.0033
                
                
                $
                0.0033September
      30, 2007
                
                $
                0.0033
                
                
                $
                0.0033December
      31, 2007
                
                $
                1.75
                
                
                $
                0.0033


On March
31, 2009, the closing sales price for our common stock was $0.23, as reported on
Yahoo! Finance. As of March 31, 2009, there were approximately 115 stockholders
of record of the common stock (not including the number of persons or entities
holding stock in nominee or street name through various brokerage firms) and
64,202,661 outstanding shares of common stock.




Dividends




We have
never declared or paid any cash dividends on our common stock. For the
foreseeable future, we intend to retain any earnings to finance the development
and expansion of our business, and we do not anticipate paying any cash
dividends on our common stock. Any future determination to pay dividends will be
at the discretion of the Board of Directors and will be dependent upon then
existing conditions, including our financial condition and results of
operations, capital requirements, contractual restrictions, business prospects
and other factors that the Board of Directors considers relevant. Each holder of
our Series A preferred stock is entitled to a 10% per annum cumulative
dividend.




There are
no restrictions in our articles of incorporation or bylaws that prevent us from
declaring dividends. The Nevada Revised Statutes, however, prohibit us from
declaring dividends where, after giving effect to the distribution of the
dividend:




·
            We
      would not be able to pay our debts as they become due in the usual course
      of business; or




·
            Our
      total assets would be less than the sum of our total liabilities plus the
      amount that would be needed to satisfy the rights of stockholders who have
      preferential rights superior to those receiving the distribution, unless
      otherwise permitted under our articles of
  incorporation.




Securities
Authorized for Issuance Under Equity Compensation Plans




We did
not have any equity compensation plans in place as of December 31,
2008.




Transfer
Agent and Registrar




The
transfer agent and registrar for our common stock is Holladay Stock Transfer,
2939 N. 67th Place, Suite C, Scottsdale, Arizona 85251. The phone number of the
transfer agent is (480) 481-3940.




Item
6.  Selected Consolidated Financial Data




Not
required.




15




Item
7.  Management’s Discussion and Analysis of Financial Condition and
Results of Operation
 
 Note
Regarding Forward-Looking Statements
  Certain
statements in this Annual Report on Form 10-K, or the Report, are
“forward-looking statements.” These forward-looking statements include, but are
not limited to, statements about the plans, objectives, expectations and
intentions of Stratos Renewables Corporation, a Nevada corporation (referred to
in this Report as “we,” “us,” “our” or “registrant”) and other statements
contained in this Report that are not historical facts. Forward-looking
statements in this Report or hereafter included in other publicly available
documents filed with the Securities and Exchange Commission, or the Commission,
reports to our stockholders and other publicly available statements issued or
released by us involve known and unknown risks, uncertainties and other factors
which could cause our actual results, performance (financial or operating) or
achievements to differ from the future results, performance (financial or
operating) or achievements expressed or implied by such forward-looking
statements. Such future results are based upon management’s best estimates based
upon current conditions and the most recent results of operations. When used in
this Report, the words “expect,” “anticipate,” “intend,” “plan,” “believe,”
“seek,” “estimate” and similar expressions are generally intended to identify
forward-looking statements, because these forward-looking statements involve
risks and uncertainties. There are important factors that could cause actual
results to differ materially from those expressed or implied by these
forward-looking statements, including our plans, objectives, expectations and
intentions and other factors that are discussed under the section entitled “Risk
Factors,” in this Report.
 
 You
should read the following discussion of our financial condition and results of
operations together with the audited consolidated financial statements and the
notes to the audited consolidated financial statements included in this annual
report.
 
 Overview
 
 Currently,
we are a development stage company with no revenues from
operations.  We intend to engage in the business of producing,
processing and distributing sugarcane ethanol in Peru. Ethanol is a renewable
energy source that provides significant economic and environmental benefits when
mixed with gasoline and used as motor fuel.  We intend to utilize
low-cost, locally grown sugarcane feedstock and service international markets,
with a focus on the U.S., which allows for tariff-free exports.  We
intend to eventually produce more than 90% of the sugarcane we process, and
purchase the remaining 10% from local unaffiliated third party
suppliers.  We are executing on a vertically integrated, disciplined,
logistical strategy for production and expansion that is designed to reduce
commodity price volatility and lead to competitively high yields.
 
 Sugarcane
Ethanol
 
 Sugarcane
ethanol is a clean burning, high-octane biofuel.  It is a renewable
energy source and can be grown year after year.  Pure ethanol, a grain
alcohol produced from sources such as corn and sugarcane, is not typically used
as a replacement for gasoline.  Rather, anywhere from 10 – 85% ethanol
can be integrated into a gasoline supply to reduce both oil consumption and fuel
burning emissions that contribute to global warming.  Sugarcane has
become a primary fuel source for Brazil, a country that has successfully weaned
itself from dependency on foreign oil.  We believe that Peru is
capable of growing up to twice the amount of sugarcane per hectare than an
equivalent operation in Brazil (1 hectare is approximately equal to 2.5
acres).  Further, sugarcane produces up to seven times more per land
mass than corn and sugarcane-based ethanol is currently the only biofuel that
creates no “net carbon dioxide emissions.”
  16
 
 Peru
 
 We believe that Peru is an attractive
location for the cultivation, processing, distribution and use of alternative
fuels.  Peru’s soil and agro-climate conditions allow for year-round
sugarcane harvesting and high yields, as unlike uncontrolled climates in other
countries where sugarcane is being cultivated, water and nutrient content can be
managed using modern irrigation technology.
 
 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.  Additionally, investment-grade credit ratings were
recently assigned to Peru’s long-term foreign and local currency
debt.
 
 Megatrends Driving the
MarketOpportunity
 
 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 U.S. Renewable Fuel
Standard (“RFS”) mandates the use of 36 billion gallons of renewable fuels per
year by 2022, and we believe that production is currently behind these mandated
levels.
 
 Sugarcane-based ethanol production
enables countries that have existing sugar industries, such as Peru, to produce
ethanol rather than sugar from sugarcane, reducing reliance on what has
historically been a volatile sugar commodity market.  Brazil is
currently the world’s largest producer of sugarcane ethanol.  Because
we are able to harvest year round, we believe that we can produce at least 145
tons of sugarcane per hectare per year, approximately twice the average hectare
in Brazil.  Given Peru’s low cost of production, free trade agreements
with the U.S. and Canada, climatic advantages and available land, we believe
ethanol production in Peru could displace portions of Brazil’s ethanol export
market.
 
 Plan
of Operations
 
 Our
business plan consists of two phases. Phase I will be primarily focused on
establishing, expanding and operating our initial ethanol production facilities
and developing our infrastructure.  Phase II will be primarily focused
on developing and expanding our operations in strategic locations.
  17
  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 located
in the province of Chepen, Peru, or the Sugar
Mill.    Stratos Peru paid approximately $4.5 million plus a
value added tax (“VAT”) of 19% to acquire the Sugar Mill. On July 1, 2008,
we issued Gabinete an unsecured convertible promissory note in the principal
amount of $350,000, for the Company to use as working capital. The note will
mature on October 30, 2009, and bears interest at the rate of 8% per annum,
payable at the maturity date.  Gabinete has the option to convert 110%
of the repayment amount into units of the Company at $0.70 per unit, with each
unit consisting of (i) one share of common stock and (ii) one half of a warrant
to purchase a share of the Company’s common stock at an exercise price of $0.75
per share, with a five-year term and cashless exercise provision.
  We are in
the process of relocating the Sugar Mill to a better and more strategic location
near the Pan-American Highway, and we plan to acquire and install a distillery
unit to adjoin it for the production of Industrial Grade Alcohol also known as
ethanol. Additionally, we plan to upgrade the Sugar Mill’s crushing capacity of
sugarcane from 750 tons to 2,300 tons of sugarcane per day. After modifying,
expanding and including the new distillery to the Sugar Mill, we plan to use
100% of its capacity to produce industrial grade ethanol to be exported to the
European markets with an estimated 16 million gallons of ethanol per year in its
maximum capacity.
 
 Land
Sourcing
  The
second component of Phase I will be to secure land for sugarcane production from
three potential sources:
 
 ·
              Small
      and medium private land lots.
 ·
              Peasant
      community land lots.
 ·
              State
      owned land lots.
 
 The most
important factors in locating land suitable for sugarcane production
are
 ·
              Water
      supply.
 ·
              Soil
      composition.
 ·
              Climate.
 ·
              Distance
      from the Sugar Mill.
 ·
              Access
      to roads and other services.
  18
  We plan to acquire land holdings of at
least 48,000 hectares in order to fulfill the needs of operations in Phase
II.  On May 3, 2008, we entered into a lease agreement with an
unaffiliated third party in order to obtain the rights to use 24,000 hectares of
undeveloped land in Peru, of which 15,000 hectares are plantable
land.  On November 8, 2008, we entered into an addendum to this lease
agreement which gives us the right to plant on all 24,000 hectares, rather than
just 15,000.
  Field
Installment
  We
believe that the Peruvian coast is ideal for these modern farming techniques, as
water and nutrient content can be managed due to the sandy soil and irrigation
equipment to be installed. As part of our “greenfield” strategy, we intend
to use the following crop management techniques to ensure maximum yield with
high sucrose and inverted sugar content:
 
 ·
              Channeling
      water to the sites from national irrigation
  projects.
 ·
              Field
      irrigation installation with back-up water
  supply.
 
 Land
preparation to ensure the longevity and productivity of the fields
which includes grading, leveling, initial nutrient and organic material
installation, and field layout.
 
 ·
              Draw
      water directly from underground aquifers, thereby avoiding difficult and
      often costly and labor-intensive efforts of using canals and/or
      pipelines.
 
 With a
replenishing supply of water buildup underneath the proposed plantation fields,
our feasibility studies have shown that there is ample water supply to support
our planned operations.  Wells will be dug to test the water and
determine the best method for accessing to it.
 
 Conducting
feasibility studies and generating a business plan for Phase II
  The final
component of Phase I will initially involve hiring consultants to conduct a
feasibility study based on the information provided by our land sourcing
efforts. The study will focus on generating cost estimates and designs based on
analyzing the climactic, water, soil, topography and irrigation characteristics
of the properties identified by our land sourcing team. Following the completion
of the feasibility study, we will create a comprehensive business plan for Phase
II consisting of an overview of the industry, a market analysis, competitive
analysis, marketing plan, management plan and financial plan.
  Our goal
is to have all of the components of Phase I fully operative by the second
quarter of 2010, so that we can begin executing Phase II.  We
anticipate that we will need approximately $14 million ($11.8 million net of 19%
Peruvian VAT) of additional funding to complete Phase I.
 
 Phase II
  Phase II
of our business plan will consist of our expansion in strategic locations along
the northern Peruvian coast and the cultivation of our own sugarcane supplies to
be used for production. In connection with Phase II, we need to secure over
an additional $755 million ($634 million net of 19% Peruvian VAT) in order to
plant sugarcane on 48,000 hectares of raw land, and acquire and operate a total
of four mills with attached ethanol distilleries, with expandable capacities and
distribution port infrastructure. By the fourth quarter of 2014, it is our goal
to be able to process a total of 25,000 tons of sugarcane per day, and produce
approximately 180 million gallons of anhydrous ethanol annually.
  19
  We expect
to initiate Phase II in 2010. The mill and distillers we plan to establish in
Phase II will be located in regions that we have selected based on our extensive
research of agro climatic conditions, hydrology, basic services, logistic
supplies and social environment. We plan to establish the four locations in two
stages.
 
 Stage
One
  During
the first stage, which we anticipate will begin in the second quarter of 2010,
we plan to prepare and plant sugarcane on 24,000 hectares of land
located along the northern Peruvian coast, and will conduct the required
feasibility studies for the additional 24,000 hectares of land from the
second stage.  We anticipate that the first 90 million gallons per year, or
MGY, Ethanol Facility (EDN2 and EDN3) will be fully operative by the third
quarter of 2011. We estimate that the total cost for Stage One will be
approximately $400 million ($336 million net of 19% Peruvian VAT).
  Stage
Two
  During
the second stage, which we anticipate will begin in the second quarter of 2012,
we plan to plant the second 24,000 hectares of land located along the
northern Peruvian coast. We anticipate that the second 90 MGY Ethanol Facility
(EDN4 and EDN5) will be fully operative by the third quarter of 2013. We
estimate that the total cost for this stage will be approximately $355 million
($298 million net of 19% Peruvian VAT).
 
 Trends and Uncertainties
  Our
future growth will be dependent initially on our ability to establish reliable
sources of sugarcane for the operation of the Sugar Mill, and going forward, on
our ability to develop our own supplies of sugarcane. Additionally, we must be
successful in establishing seedling and land sourcing programs in order to allow
us to develop a consistent, reliable and cost-effective long-term supply of
sugarcane.
  We will
require a significant amount of additional capital in the future to sufficiently
fund our operations. We estimate that Phase I of our business plan, which is
currently in effect, will cost a total of approximately $37 million ($31 million
net of 19% Peruvian VAT). We estimate that we will need an additional $755
million ($634 million net of 19% Peruvian VAT) to fund our expansion during the
course of Phase II of our operations, which is set to commence during 2009 and
continue for five years thereafter.
 
 We may
not be able to obtain additional capital on terms favorable to us or at all. We
have no agreements, commitments or understandings in place to secure this
financing.
 
 We expect
to increase our operating expenses over the coming years, which are expected to
be commensurate with the increased operations.
 
 Most of
our operations, including the Sugar Mill, the land we have obtained the rights
to, and the land we propose to obtain the rights to on which to grow our
sugarcane supplies, are located in Peru. Although we believe that conducting
operations in Peru will provide us with significant competitive advantages, we
will also be subject to risks not typically associated with ownership of a
company in the United States.
  20
 
 Results
of Operations
 
 For the year ended December
31, 2008 vs. the period February 27, 2007 (date of inception) to December 31,
2007
 
 The
following table sets forth our expenses for the periods indicated:
 For
      the periodFebruary
      27, 2007Year
      Ended
                
                
                (date
      of inception)December
      31,
                
                
                To
      December 31,
                
                
                Increase2008
                
                
                2007
                
                
                (Decrease)Income
      (expense)Consulting
      fees
                
                $
                (1,330,250
                )
                
                $
                (144,784
                )
                
                $
                (1,185,466
                )General
      and administrative
                
                $
                (2,938,167
                )
                
                $
                (520,779
                )
                
                $
                (2,417,388
                )Professional
      fees
                
                $
                (2,497,437
                )
                
                $
                (100,611
                )
                
                $
                (2,396,826
                )Wages
                
                $
                (2,492,843
                )
                
                $
                (210,928
                )
                
                $
                (2,281,915
                )Amortization
      of debt discountsand
      debt issuance costs
                
                $
                (3,171,049
                )
                
                $
                (609,317
                )
                
                $
                (2,561,732
                )Interest
      and financing costs
                
                $
                (1,317,300
                )
                
                $
                (721,462
                )
                
                $
                (595,838
                )Change
      in value of beneficialconversion
      liability
                
                $
                511,926
                
                
                $
                624,052
                
                
                $
                (112,126
                )Change
      in value of warrant liability
                
                $
                1,410,799
                
                
                $
                95,972
                
                
                $
                1,314,827
  On
November 14, 2007, we completed a share exchange agreement with Stratos Peru. As
a result of the Share Exchange, we abandoned our previous cabinetry and
furniture business and commenced the business of producing, processing and
distributing sugarcane ethanol.  Because we are the successor business
to Stratos Peru and because the operations and assets of Stratos Peru represent
our entire business and operations, our results of operations for the period
February 27, 2007 (date of inception) to December 31, 2007 are from November 14,
2007 (Share Exchange date) to December 31, 2007.  Therefore, the
changes in the expenses presented in the table above are primarily due to the
number of months included in each reporting period, except as otherwise
indicated below, and percentage variation numbers are omitted as not
relevant.
 
 Consulting
fees were $1,330,250 for the year ended December 31, 2008 compared to $144,784
for the period from November 14, 2007 to December 31, 2007.  We
incurred and continue to incur 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.
 
 General
and administrative costs were $2,938,167 for the year ended December 31, 2008
compared to $520,779 for the period from November 14, 2007 to December 31,
2007.  The significant general and administrative expenses for the
year ended December 31, 2008 were travel expenses of $905,152, investor
relations fees of $622,093, office leases of $226,779, and insurance of
$148,381.  These expenses represent 30.8%, 22.2%, 7.7% and 5.0% of
total general and administrative expenses, respectively.  Travel
expenses were for both national and international travel. Travel and investor
relations expenses are related to the Company’s efforts to secure
financing.  The remaining general and administrative expenses were to
develop the Company’s infrastructure as it continues to grow.  The
Company expects general and administrative expenses to increase by a nominal
margin in 2009 as the Company continues to grow and add
infrastructure.
  21
 
 Professional
fees were $2,497,437 for the year ended December 31, 2008 compared to $100,611
for the period from November 14, 2007 to December 31, 2007.  Legal
fees were $1,553,584, or 62.2%, of professional fees, and were for costs
incurred related to the Company obtaining financings and conforming to SEC
regulations. The Company incurred $474,793, or 19.0%, of professional fees
related to hiring of temporary personnel to provide a variety of
services.  The accounting and auditing fees were $218,551, or 8.8%, of
professional fees.
 
 Wages
were $2,492,843 for the year ended December 31, 2008 compared to $210,928 for
the period from November 14, 2007 to December 31, 2007.  Wages are
expected to increase during 2009 as the Company continues to increase personnel
to meet the needs of increased operations.
 
 Amortization
of debt discounts and debt issuance costs were $3,171,049 for the year ended
December 31, 2008 compared to $609,317 for the period from November 14, 2007 to
December 31, 2007.  These costs represent the fair value of the
warrants and beneficial conversion features that are recorded as debt discounts
and amortized over the terms of the debt.  Included in this amount are
costs associated with issuing debt which is then amortized over the terms of the
debt.  These costs will continue to increase during 2009 as the
Company continues to issue debt, in exchange for cash, in order to complete
Phase I and Phase II.
 
 Interest
expense was $1,317,300 for the year ended December 31, 2008 compared to $721,462
for the period from November 14, 2007 to December 31, 2007.  These
costs consist of the interest expense and the interest premium associated with
the convertible notes.  These expenses are expected to increase
substantially during 2009 as the Company issues more debt.
 
 The
change in value of the beneficial conversion liability resulted in a gain of
$511,926 and $624,052 for the year ended December 31, 2008 and for the period
from November 14, 2007 to December 31, 2007, respectively.  The gain
is due to the decrease in share price which causes the fair value of the
beneficial conversion option to decrease thereby reducing the liability with a
corresponding gain recorded in the consolidated statement of
operations.
 
 The
change in value of warrant liability resulted in a gain of $1,410,799 and
$95,972 for the year ended December 31, 2008 and for the period from November
14, 2007 to December 31, 2007, respectively.  The gain is due to the
decrease in share price and a decrease in the expected life through the passage
of time, which causes the fair value of the warrants to decrease thereby
reducing the liability with a corresponding gain being recorded in the
consolidated statement of operations.
  Liquidity
and Capital Resources
  At
December 31, 2008, our cash and cash equivalents totaled approximately $761,000,
compared to approximately $3,357,000 as of December 31,
2007.  Currently, our operations are funded by financing
activities.  Our existing capital resources are not sufficient to fund
our operations for the next twelve months, and therefore, we will need
additional financing to fund future operations through offerings of equity or
debt securities.  We can offer no assurances that we will be able to
obtain additional funds on acceptable terms, if at all.
  22
 
 To date,
we have had negative cash flows from operations and we have been dependent on
sales of our equity securities and debt financing to meet our cash requirements.
We expect this situation to continue for the foreseeable future as we currently
do not have any revenue streams. Therefore, we anticipate that we will have
negative cash flows from operations for our fiscal year ended December 31,
2009.
  Given
that we are a development stage company and have not generated any revenues to
date, our cash flow projections are subject to numerous contingencies and risk
factors beyond our control, including our ability to manage our expected growth,
complete construction of our proposed plant and commence operations. We can
offer no assurance that our company will generate cash flows sufficient to meet
our cash flow projections or that our expenses will not exceed our projections.
If our expenses exceed estimates, we will require additional monies during the
next twelve months to execute our business plan.
  There is
no assurance that we will be able to obtain funds required for our continued
operations. There can be no assurance that additional financing will be
available to us when needed or, if available, that it can be obtained on
commercially reasonable terms. If we are not able to obtain additional financing
on a timely basis, we will not be able to meet our other obligations as they
become due and we will be forced to scale down or perhaps even cease the
operations of our business.
  Our
independent audit firm has indicated that there is substantial doubt about our
ability to continue as a going concern as the continuation of our business is
dependent upon obtaining further long-term financing, completion of our proposed
plant and successful and sufficient market acceptance of our products once
developed and, finally, achieving a profitable level of operations. The issuance
of additional equity securities by us could result in a significant dilution in
the equity interests of our current stockholders. Obtaining commercial loans,
assuming those loans would be available, will increase our liabilities and
future cash commitments.
  Cash
Used in Operating Activities
 
 Our net cash used in operating
activities for the year ended December 31, 2008 was
$8,501,914.  During the year ended December 31, 2008, the cash used in
operating activities was comprised primarily of our net loss of $11,915,570 and
increased by the change in warrant liability value of $1,410,799 offset
primarily by the amortization of debt discounts and debt issuance costs of
$3,171,049 and the increase of our accounts payable and other payables of
$1,451,799, collectively.
 
 Cash
Used in Investing Activities
 
 During the year ended December 31,
2008, we purchased additional plant and equipment of approximately
$925,000.  In 2008, we paid approximately $323,000 as a deposit for
land acquisition.
  23
 
 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.
 
 The
following table summarizes the issuance of our common stock from November 14,
2007 (Share Exchange date) to December 31, 2008:
 Shares
                
                
                Gross
                
                
                WarrantsDate
                
                Issued
                
                
                Proceeds
                
                
                IssuedNovember
      14, 2007
                
                
                2,666,794
                
                
                $
                1,867,090
                
                
                
                1,333,396March
      2, 2008
                
                
                2,267,782
                
                
                
                1,587,447
                
                
                
                1,133,888June
      26, 2008
                
                
                142,857
                
                
                
                100,000
                
                
                
                71,4285,077,433
                
                
                $
                3,554,537
                
                
                
                2,538,712
 The
warrants have a five year term, vest on the grant date, and are exercisable at
$0.75 per share.
 
 The
following table summarizes the issuance of our preferred stock from November 14,
2007 (Share Exchange date) to December 31, 2008:
  Convertibleinto
      SharesShares
                
                Gross
                
                
                Warrants
                
                
                of
      CommonDate
                
                Issued
                
                Proceeds
                
                
                Issued
                
                
                StockNovember
      14, 2007
                
                
                7,142,857
                
                
                $
                5,000,000
                
                
                
                1,785,714
                
                
                
                7,142,857April
      18, 2008
                
                
                1,428,572
                
                
                
                1,000,000
                
                
                
                357,143
                
                
                
                1,428,5728,571,429
                
                
                $
                6,000,000
                
                
                
                2,142,857
                
                
                
                8,571,429
  The
warrants have a five year term, vest on the grant date, and are exercisable at
$0.75 per share.
 
 The
following table summarizes the issuance of convertible debt securities from
November 14, 2007 (Share Exchange date) to December 31, 2008:
  24
  Convertibleinto
      SharesPrincipal
                
                Maturity
                
                Warrants
                
                of
      CommonDate
                
                Descripton
                
                Amount
                
                Date
                
                Issued
                
                StockNovember
      14, 2007
                
                Bridge
      financing
                
                $
                3,048,000
                
                2/15/2008
                1
                870,858
                4
                -May
      23, 2008
                
                Unsecured
      convertible notes
                
                
                300,000
                
                11/23/2008
                2
                70,588
                4
                428,571
                6May
      28, 2008
                
                Unsecured
      convertible notes
                
                
                700,000
                
                11/28/2008
                2
                164,706
                4
                1,000,000
                6June
      6, 2008
                
                Unsecured
      convertible notes
                
                
                350,000
                
                12/6/2008
                2
                82,353
                4
                500,000
                6July
      1, 2008
                
                Unsecured
      convertible notes
                
                
                100,000
                
                12/29/2008
                2
                23,529
                4
                142,857
                6July
      1, 2008
                
                Unsecured
      convertible note
                
                
                350,000
                
                10/30/2009
                
                -
                
                500,000
                6July
      18, 2008
                
                Unsecured
      convertible note
                
                
                400,000
                
                1/18/2009
                2
                94,116
                4
                571,429
                6July
      25, 2008
                
                Secured
      convertible note
                
                
                2,000,000
                
                12/31/2009
                
                714,286
                4
                2,857,143
                6August
      27, 2008
                
                Unsecured
      convertible note
                
                
                5,000,000
                
                12/31/2009
                
                2,500,000
                5
                7,142,857
                6November
      2008
                
                Unsecured
      convertible notes
                
                
                95,000
                
                11/30/2009
                3
                -
                
                135,714
                6$
                12,343,000
                
                
                
                4,520,436
                
                13,278,571
 
 (1)  The
total principal of $3,048,000 was repaid with $2,798,000 of cash and the
remaining $250,000 of principal was repaid with 357,143 shares of our common
stock.
 
 (2)  We
received extensions on these convertible promissory notes that extend the
maturity dates between February 23, 2009 and April 18, 2009.  The
Company has not made the necessary re-payments subsequent to year end to meet
the extended maturity dates on certain of these convertible promissory notes
that total $1,450,000; however, the Company is currently in negotiations with
the convertible promissory note holders to further extend these maturity
dates.
 
 (3)  In
November 2008, we entered into five consulting agreements wherewith we issued
five convertible notes with an aggregate principal balance of
$95,000.  These notes are due on various days in November
2009.
 
 (4)  The
warrants have a five year term, vest on the grant date, and are exercisable at
$0.75 per share.
 
 (5)  The
warrants have a five year term, cliff vest on February 27, 2009, and are
exercisable at $0.75 per share.
 
 (6)  The
holders of the convertible notes have the option to convert any or all of the
unpaid principal and accrued and unpaid interest into shares of our common stock
at a conversion price of $0.70 per share.
 
 Contractual Obligations
 
 At
December 31, 2008, our significant contractual obligations, except for the land
lease referred to below, were as follows:
  25
 
 Payments
      due by PeriodLess
      than
                
                
                One
      to
                
                
                Three
      to
                
                
                More
      ThanOne
      Year
                
                
                Three
      Years
                
                
                Five
      Years
                
                
                Five
      Years
                
                
                TotalPromissory
      notes
                
                $
                9,295,000
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                9,295,000Operating
      lease obligations
                
                
                84,897
                
                
                
                159,688
                
                
                
                -
                
                
                
                -
                
                
                
                244,585Total
                
                $
                9,379,897
                
                
                $
                159,688
                
                
                $
                -
                
                
                $
                -
                
                
                $
                9,539,585
  On June
19, 2008, we entered into a 99-year land lease agreement, expiring in 2107 for
approximately 24,000 hectares of land in Peru.  The annual lease
payment is approximately $192,000 for the first year, $240,000 after the first
year until the initial harvest, and then $1,200,000 thereafter.
 
 Off-Balance
Sheet Arrangements
  Our
Company has no outstanding off-balance sheet guarantees, interest rate swap
transactions or foreign currency contracts. Neither our Company nor our
operating subsidiaries engage in trading activities involving non-exchange
traded contracts.
 
 Critical
Accounting Policies
 
 The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires our management to make
assumptions, estimates and judgments that affect the amounts reported, including
the notes thereto, and related disclosures of commitments and contingencies, if
any.  We have identified certain accounting policies that are significant
to the preparation of our 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 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, future tax rates used to
determine future income taxes and the carrying values of goodwill and warrant
liability. Actual results could materially differ from these
estimates.
 
 Plant and
equipment
  Plant and
equipment are stated at historical cost and are depreciated using the
straight-line method over their estimated useful lives ranging from 4 to 10
years. The useful life and depreciation method are reviewed periodically to
ensure that the depreciation method and period are consistent with the
anticipated pattern of future economic benefits. Expenditures for maintenance
and repairs are charged to operations as incurred while renewals and betterments
are capitalized. Gains and losses on disposals are included in the results of
operations.
  26
  Impairment of long-lived
assets
  We
follows the guidance of SFAS No. 144, “Accounting for the Impairment or Disposal
of Long-Lived Assets” (“SFAS 144”), which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. We periodically
evaluate the carrying value of long-lived assets to be held and used in
accordance with SFAS 144. SFAS 144 requires impairment losses to be recorded on
long-lived assets used in operations when indications of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets’ carrying amounts. In that event, a loss is recognized
based on the amount by which the carrying amount exceeds the fair market value
of the long-lived assets. Loss on long-lived assets to be disposed of is
determined in a similar manner, except that fair market values are reduced for
the cost of disposal. We believe that as of December 31, 2008 and 2007, there
were no significant impairments of its long-lived assets.
 
 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 and Argentinean
Pesos. We have not, to the date of these financials statements, entered into
derivative instruments to offset the impact of foreign currency
fluctuations.
 
 Accrued warrant liability
and accrued beneficial conversion liability
 
 Emerging
Issues Task Force (“EITF”) No. 00-19 “Accounting for Derivative Financial
Instruments Indexed to and Potentially Settled in, a Company’s Own Stock” (“EITF
00-19”), provides a criteria for determining whether freestanding contracts that
are settled in a company’s own stock, including common stock warrants, should be
designated as either an equity instrument, an asset or as a liability under
SFAS No. 133 “Accounting for Derivative Instruments and Hedging
Activities.” Under the provisions of EITF 00-19, a contract designated as an
asset or a liability must be carried at fair value on a company’s balance sheet,
with any changes in fair value recorded in a company’s results of
operations.  Using the criteria in EITF 00-19, we recorded the fair
value of all outstanding warrants as an accrued warrant liability. The changes
in the values of these warrants are included in our consolidated statements of
operations as “change in value of warrant liability.”
 
 We issued
a convertible promissory note that was convertible into an undetermined number
of shares of common stock.  As a result, we did not have enough
authorized shares to satisfy the exercise of its outstanding warrants and
convertible notes.  Therefore, we recorded as an accrued beneficial
conversion liability, the fair value of the beneficial conversion feature
associated with the convertible promissory note.  During the year
ended December 31, 2008, the promissory note was retired and the fair value of
the beneficial conversion feature was reclassified to additional paid-in
capital.
  27
 
 Fair value of financial
instruments
 
 On
January 1, 2008, we adopted SFAS No. 157, “Fair Value Measurements” (“SFAS
157”). SFAS 157 defines fair value, establishes a three-level valuation
hierarchy for disclosure of fair value measurement, and enhances disclosure
requirements for fair value measures. The carrying amounts reported in the
consolidated balance sheets for receivables and current liabilities each qualify
as financial instruments and are a reasonable estimate of their fair values
because of the short period of time between the origination of such instruments
and their expected realization and their current market rate of interest. The
three levels of valuation hierarchy are defined as follows:
 
 ·
              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.
  We
analyze all financial instruments with features of both liabilities and equity
under SFAS No. 150, “Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity,” SFAS No. 133 and EITF
00-19.
  We did
not identify any other non-recurring assets and liabilities that are required to
be presented on the consolidated balance sheets at fair value in accordance with
SFAS 157.
 
 In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permits
entities to choose to measure many financial assets and financial liabilities at
fair value. Unrealized gains and losses on items for which the fair value option
has been elected are reported in earnings. SFAS 159 is effective as of the
beginning of an entity’s first fiscal year that begins after November 15, 2007.
We adopted SFAS 159 on January 1, 2008. We chose not to elect the option to
measure the fair value of eligible financial assets and
liabilities.
 
 Recently
Issued Accounting Pronouncements
  In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS
141R”), which replaces SFAS 141. SFAS 141R retains the purchase method of
accounting for acquisitions, but requires a number of changes, including changes
in the way assets and liabilities are recognized in the purchase accounting as
well as requiring the expensing of acquisition-related costs as incurred.
Furthermore, SFAS 141R provides guidance for recognizing and measuring the
goodwill acquired in the business combination and determines what information to
disclose to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. SFAS 141R is effective for fiscal
years beginning on or after December 15, 2008. Earlier adoption is prohibited.
We are evaluating the impact, if any, that the adoption of this statement will
have on our consolidated results of operations or consolidated financial
position.
  28
 
 In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements — An Amendment of ARB No. 51” (“SFAS
160”).  SFAS 160 amends ARB 51 to establish accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. It is intended to eliminate the diversity in
practice regarding the accounting for transactions between equity and
noncontrolling interests by requiring that they be treated as equity
transactions. Further, it requires consolidated net income to be reported at
amounts that include the amounts attributable to both the parent and the
noncontrolling interest. SFAS 160 also establishes a single method of accounting
for changes in a parent’s ownership interest in a subsidiary that do not result
in deconsolidation, requires that a parent recognize a gain or loss in net
income when a subsidiary is deconsolidated, requires expanded disclosures in the
consolidated financial statements that clearly identify and distinguish between
the interests of the parent’s owners and the interests of the noncontrolling
owners of a subsidiary, among others. SFAS 160 is effective for fiscal years
beginning on or after December 15, 2008, with early adoption permitted, and it
is to be applied prospectively. SFAS 160 is to be applied prospectively as of
the beginning of the fiscal year in which it is initially applied, except for
the presentation and disclosure requirements, which must be applied
retrospectively for all periods presented. We have not yet evaluated the impact
that SFAS 160 will have on our consolidated financial position or consolidated
results of operations.
 
 In
February 2008, the FASB issued FSP No. 157-1 ("FSP 157-1"), "Application of FASB
Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements
That Address Fair Value Measurements for Purposes of Lease Classification or
Measurement under Statement 13."  FSP 157-1 indicates that it does not
apply under SFAS 13, "Accounting for Leases," and other accounting
pronouncements that address fair value measurements for purposes of lease
classification or measurement under SFAS 13. This scope exception does not apply
to assets acquired and liabilities assumed in a business combination that are
required to be measured at fair value under SFAS 141 or SFAS 141R, regardless of
whether those assets and liabilities are related to leases.
 
 Also in
February 2008, the FASB issued FSP No. 157-2 ("FSP 157-2"), "Effective Date
of FASB Statement No. 157."  With the issuance of FSP 157-2, the FASB
agreed to: (a) defer the effective date in SFAS No. 157 for one year for certain
nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually), and (b) remove certain leasing transactions from the
scope of SFAS 157. The deferral is intended to provide the FASB time to consider
the effect of certain implementation issues that have arisen from the
application of SFAS 157 to these assets and liabilities.
 
 On May 9,
2008, the FASB issued FASB Staff Position No. APB 14-1 ("FSP APB 14-1"),
"Accounting for Convertible Debt Instruments That May Be Settled in Cash upon
Conversion (Including Partial Cash Settlement)."  FSP APB 14-1
clarifies that convertible debt instruments that may be settled in cash upon
conversion (including partial cash settlement) are not addressed by paragraph 12
of APB Opinion No. 14,  "Accounting for Convertible Debt and Debt
Issued with Stock Purchase Warrants." Additionally, FSP APB 14-1 specifies that
issuers of such instruments should separately account for the liability and
equity components in a manner that will reflect the entity's nonconvertible debt
borrowing rate when interest cost is recognized in subsequent periods. FSP
APB14-1 is effective for financial statements issued for fiscal years beginning
after December 15, 2008, and interim periods within those fiscal years. We are
currently evaluating the impact that FSP APB 14-1 will have on our consolidated
results of operations or consolidated financial position.
  29
 
 On June
16, 2008, the FASB issued FASB Staff Position No. EITF 03-6-1 (“FSP EITF
03-6-1”), “Determining Whether Instruments Granted in Share-Based Payment
Transactions Are Participating Securities,” to address the question of whether
instruments granted in share-based payment transactions are participating
securities prior to vesting. FSP EITF 03-6-1 indicates that unvested share-based
payment awards that contain rights to dividend payments should be included in
earnings per share calculations. The guidance will be effective for fiscal years
beginning after December 15, 2008. We are currently evaluating the requirements
of FSP EITF 03-6-1 and the impact that its adoption will have on the
consolidated results of operations or consolidated financial
position.
 
 In June
2008, the FASB issued EITF 07-5 (“EITF 07-5”), “Determining whether an
Instrument (or Embedded Feature) is indexed to an Entity’s Own
Stock.”  EITF 07-5 is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within those
fiscal years. Early application is not permitted. Paragraph 11(a) of SFAS No.
133  “Accounting for Derivatives and Hedging
Activities,”  specifies that a contract that would otherwise meet the
definition of a derivative but is both (a) indexed to the Company’s own stock
and (b) classified in stockholders’ equity in the statement of financial
position would not be considered a derivative financial instrument. EITF 07-5
provides a new two-step model to be applied in determining whether a financial
instrument or an embedded feature is indexed to an issuer’s own stock and thus
able to qualify for the SFAS 133 paragraph 11(a) scope exception. This standard
triggers liability accounting on all options and warrants exercisable at strike
prices denominated in any currency other than the functional currency of the
operating entity in the Peru. We are currently evaluating the impact of the
adoption of EITF 07-5 on the accounting for related warrants
transactions.
 
 In June
2008, FASB issued Emerging Issues Task Force Issue 08-4, “Transition Guidance
for Conforming Changes to Issue No. 98-5” (“EITF 08-4”). The objective of
EITF 08-4 is to provide transition guidance for conforming changes made to EITF
98-5, “Accounting for Convertible Securities with Beneficial Conversion Features
or Contingently Adjustable Conversion Ratios,”  that result from EITF
00-27, “Application of Issue No. 98-5 to Certain Convertible
Instruments,”  and SFAS 150, “Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity.”  EITF 08-4 is effective for financial statements issued for
fiscal years ending after December 15, 2008. Early application is permitted. We
are currently evaluating the impact of adoption of EITF 08-4 on the accounting
for the convertible notes and related warrants transactions.
  On
October 10, 2008, the FASB issued FSP 157-3, “Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active,” which clarifies
the application of SFAS 157 in a market that is not active and provides an
example to illustrate key considerations in determining the fair value of a
financial asset when the market for that financial asset is not active. FSP
157-3 became effective on October 10, 2008, and its adoption did not have a
material impact on our consolidated results of operations or consolidated
financial position.
  Item
7A.  Quantitative and Qualitative Disclosures About Market
Risk
 
 Not
required.
 30


Item 8.  Consolidated Financial Statements and
Supplementary Data




STRATOS
RENEWABLES CORPORATION AND SUBSIDIARIES
 (A
Development Stage Company)
 Consolidated
Financial Statements
 For
the Year Ended December 31, 2008 and for the
 Period
from February 27, 2007 (Date of Inception) to December 31, 2007
 
 Contents
 
 PageReport
      of Independent Registered Public Accounting Firm
                
                F-2Consolidated
      Financial Statements:Consolidated
      Balance Sheets as of December 31, 2008 and 2007
                
                F-3Consolidated
      Statements of Operations and Other Comprehensive Loss for the year ended
      December 31, 2008, for the period from February 27, 2007  (date
      of inception) to December 31, 2007, and for the period from February 27,
      2007 (date of inception) to December 31, 2008
                
                F-4Consolidated
      Statements of Stockholders’ Deficit for the period from February 27, 2007
      (date of inception) to December 31, 2008
                
                F-5Consolidated
      Statements of Cash Flows for the year ended December 31,
      2008,  for the period from February 27, 2007 (date of inception)
      to December 31, 2007, and for the period from February 27, 2007 (date of
      inception)  to December 31, 2008
                
                F-6Notes
      to Consolidated Financial Statements
                
                F-7
 
 31
  Report of
Independent Registered Public Accounting Firm
  Board of
Directors and Stockholders of
 Stratos
Renewables Corporation
  We have
audited the accompanying consolidated balance sheets of Stratos Renewables
Corporation (a development stage company) and Subsidiaries (the “Company”) as of December
31, 2008 and 2007, and the related consolidated statements of operations and
other comprehensive loss, stockholders' equity (deficit), and cash flows for the
year ended December 31, 2008, for the period from February 27, 2007 (date of
inception) to December 31, 2007, and for the period from February 27, 2007 (date
of inception) to December 31, 2008.  These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
  We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material
misstatement.  The Company is not required to have, nor were we
engaged to perform, an audit of internal control over financial reporting. Our
audit included consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no
such opinion.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
  In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Stratos
Renewables Corporation and Subsidiaries as of December 31, 2008 and 2007, and
the consolidated results of its operations and its cash flows for the year ended
December 31, 2008, for the period from February 27, 2007 (date of inception) to
December 31, 2007, and for the period from February 27, 2007 (date of inception)
to December 31, 2008, in conformity with accounting principles generally
accepted in the United States of America.
 
 The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern.  As discussed in Note 1
to the consolidated financial statements, the Company has negative working
capital and the Company’s significant operating losses raise substantial doubt
about its ability to continue as a going concern.  The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
 
 
 /s/ Moore
Stephens Wurth Frazer and Torbet, LLP
 
 Walnut,
California
 April 14,
2009
 
 F-2
 Stratos
Renewables Corporation and Subsidiaries
 (A
Development Stage Company) Consolidated
Balance Sheets As
of December 31, 2008 and 2007
 December
      31,
                
                
                December
      31,2008
                
                
                2007ASSETSCURRENT
      ASSETSCash
      and cash equivalents
                
                $
                761,257
                
                
                $
                3,357,417Funds
      held in trust for the Company
                
                
                92,652
                
                
                
                -Debt
      issuance costs
                
                
                1,013,326
                
                
                
                56,948Prepaid
      expenses and other current assets
                
                
                712,111
                
                
                
                155,020TOTAL
      CURRENT ASSETS
                
                
                2,579,346
                
                
                
                3,569,385PLANT
      AND EQUIPMENT, net
                
                
                5,223,296
                
                
                
                4,600,923LAND
      DEPOSITS
                
                
                302,632
                
                
                
                -VAT
      RECEIVABLE
                
                
                1,225,130
                
                
                
                899,567OTHER
      ASSETS
                
                
                118,958
                
                
                
                21,711TOTAL
      ASSETS
                
                $
                9,449,362
                
                
                $
                9,091,586LIABILITIES
      AND STOCKHOLDERS' EQUITY (DEFICIT)CURRENT
      LIABILITIESAccounts
      payable
                
                $
                906,495
                
                
                $
                173,032Accrued
      interest
                
                
                425,329
                
                
                
                39,248Other
      payables
                
                
                620,084
                
                
                
                84,648Accrued
      redemption premium
                
                
                296,615
                
                
                
                670,150Convertible promissory notes, net of debt discounts of $3,692,790
      and$552,369 as of December 31, 2008 and 2007, respectively
                
                
                5,602,210
                
                
                
                2,495,631Accrued
      beneficial conversion liability
                
                
                -
                
                
                
                250,938Accrued
      warrant liability
                
                
                2,652,692
                
                
                
                1,164,501TOTAL
      CURRENT LIABILITIES
                
                
                10,503,425
                
                
                
                4,878,148COMMITMENTS
      AND CONTINGENCIESSTOCKHOLDERS'
      EQUITY (DEFICIT)Preferred
      stock; $0.001 par value; 50,000,000 sharesauthorized;
      8,571,429 and 7,142,857 shares issued and outstandingas
      of December 31, 2008 and 2007, respectively
                
                
                8,572
                
                
                
                7,143Common
      stock; $0.001 par value; 250,000,000 sharesauthorized;
      63,495,180 and 57,666,794 shares issued and outstandingas
      of December 31, 2008 and 2007, respectively
                
                
                63,495
                
                
                
                57,667Additional
      paid-in capital
                
                
                12,649,041
                
                
                
                5,721,864Other
      comprehensive income (loss)
                
                
                (272,344
                )
                
                
                14,021Deficit
      accumulated during the development stage
                
                
                (13,502,827
                )
                
                
                (1,587,257
                )TOTAL
      STOCKHOLDERS' EQUITY (DEFICIT)
                
                
                (1,054,063
                )
                
                
                4,213,438TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                
                $
                9,449,362
                
                
                $
                9,091,586
 See
report of independent registered public accounting firm.
  The
accompanying notes are an integral part of these consolidated financial
statements.
  F-3
  Stratos
Renewables Corporation and Subsidiaries
 (A
Development Stage Company) Consolidated
Statements of Operations and Other Comprehensive Loss
 For
the Year Ended December 31, 2008, For the Period from February 27, 2007 (date of
inception) to December 31, 2007,
 and
For the Period from February 27, 2007 (date of inception) to December 31,
2008
 For
      the period from
                  
                  
                  For
      the period fromFebruary
      27, 2007
                  
                  
                  February
      27, 2007For
      the Year Ended
                  
                  
                  (date
      of inception)
                  
                  
                  (date
      of inception)December
      31, 2008
                  
                  
                  to
      December 31, 2007
                  
                  
                  to
      December 31, 2008REVENUE
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -COST
      OF REVENUE
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -GROSS
      PROFIT
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -OPERATING
      EXPENSESConsulting
      fees
                  
                  
                  1,330,250
                  
                  
                  
                  144,784
                  
                  
                  
                  1,475,034General
      and administrative
                  
                  
                  2,938,167
                  
                  
                  
                  520,779
                  
                  
                  
                  3,458,946Professional
      fees
                  
                  
                  2,497,437
                  
                  
                  
                  100,611
                  
                  
                  
                  2,598,048Wages
                  
                  
                  2,492,843
                  
                  
                  
                  210,928
                  
                  
                  
                  2,703,771TOTAL
      OPERATING EXPENSES
                  
                  
                  9,258,697
                  
                  
                  
                  977,102
                  
                  
                  
                  10,235,799OTHER
      INCOME (EXPENSES)Amortization
      of debt discounts and debt issuance costs
                  
                  
                  (3,171,049
                  )
                  
                  
                  (609,317
                  )
                  
                  
                  (3,780,366
                  )Interest
      expense
                  
                  
                  (1,317,300
                  )
                  
                  
                  (721,462
                  )
                  
                  
                  (2,038,762
                  )Change
      in value of beneficial conversion liability
                  
                  
                  511,926
                  
                  
                  
                  624,052
                  
                  
                  
                  1,135,978Change
      in value of warrant liability
                  
                  
                  1,410,799
                  
                  
                  
                  95,972
                  
                  
                  
                  1,506,771Other
                  
                  
                  (90,399
                  )
                  
                  
                  600
                  
                  
                  
                  (89,799
                  )TOTAL
      OTHER EXPENSES, net
                  
                  
                  (2,656,023
                  )
                  
                  
                  (610,155
                  )
                  
                  
                  (3,266,178
                  )LOSS
      FROM OPERATIONS
                  
                  
                  (11,914,720
                  )
                  
                  
                  (1,587,257
                  )
                  
                  
                  (13,501,977
                  )INCOME
      TAX EXPENSE
                  
                  
                  850
                  
                  
                  
                  -
                  
                  
                  
                  850NET
      LOSS
                  
                  $
                  (11,915,570
                  )
                  
                  $
                  (1,587,257
                  )
                  
                  $
                  (13,502,827
                  )OTHER
      COMPREHENSIVE INCOME (LOSS)Foreign
      currency translation (loss) gain
                  
                  
                  (286,365
                  )
                  
                  
                  14,021
                  
                  
                  
                  (272,344
                  )COMPREHENSIVE
      LOSS
                  
                  $
                  (12,201,935
                  )
                  
                  $
                  (1,573,236
                  )
                  
                  
                  (13,775,171
                  )LOSS
      PER COMMON SHARE - BASIC AND DILUTED
                  
                  $
                  (0.20
                  )
                  
                  $
                  (0.03
                  )
                  
                  $
                  (0.25
                  )WEIGHTED
      AVERAGE COMMON EQUIVALENTSHARES
      OUTSTANDING - BASIC AND DILUTED
                  
                  
                  60,601,437
                  
                  
                  
                  46,930,529
                  
                  
                  
                  54,365,228
 See
report of independent registered public accounting firm.
  The
accompanying notes are an integral part of these consolidated financial
statements.
  F-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 December 31,
2008
  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
                    
                    
                    8,571,429
                    
                    
                    $
                    8,572
                    
                    
                    
                    63,495,180
                    
                    
                    $
                    63,495
                    
                    
                    $
                    12,649,041
                    
                    
                    $
                    (272,344
                    )
                    
                    $
                    (13,502,827
                    )
                    
                    $
                    (1,054,063
                    )
  See
report of independent registered public accounting firm.
  The
accompanying notes are an integral part of these consolidated financial
statements.
   F-5
  Stratos
Renewables Corporation and Subsidiaries
 (A
Development Stage Company)
 Consolidated
Statements of Cash Flows
 For
the Year Ended December 31, 2008, for the Period from February 27, 2007 (date of
inception) to December 31, 2007,
 and
for the Period from February 27, 2007 (date of inception) to December 31,
2008
  For
      the period from
                            
                            
                            For
      the period fromFebruary
      27, 2007
                            
                            
                            February
      27, 2007For
      the Year Ended
                            
                            
                            (date
      of inception)
                            
                            
                            (date
      of inception)December
      31, 2008
                            
                            
                            to
      December 31, 2007
                            
                            
                            to
      December 31, 2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net loss
                            
                            $
                            (11,915,570
                            )
                            
                            $
                            (1,587,257
                            )
                            
                            $
                            (13,502,827
                            )Adjustments to reconcile net loss to net cashused in operating activities:Amortization of debt discounts and debt issuance costs
                            
                            
                            3,171,049
                            
                            
                            
                            609,317
                            
                            
                            
                            3,780,366Depreciation
      and amortization
                            
                            
                            36,713
                            
                            
                            
                            2,094
                            
                            
                            
                            38,807Change in value of beneficial conversion liability
                            
                            
                            (511,926
                            )
                            
                            
                            (624,052
                            )
                            
                            
                            (1,135,978
                            )Change
      in value of warrant liability
                            
                            
                            (1,410,799
                            )
                            
                            
                            (95,972
                            )
                            
                            
                            (1,506,771
                            )Amortization
      of prepaid consulting
                            
                            
                            367,692
                            
                            
                            
                            51,672
                            
                            
                            
                            419,364Changes in operating assets and liabilities:Prepaid
      expenses and other assets
                            
                            
                            (270,042
                            )
                            
                            
                            (20,868
                            )
                            
                            
                            (290,910
                            )Accounts payable
                            
                            
                            901,750
                            
                            
                            
                            170,619
                            
                            
                            
                            1,072,369Accrued interest
                            
                            
                            453,531
                            
                            
                            
                            39,248
                            
                            
                            
                            492,779Other payables
                            
                            
                            550,049
                            
                            
                            
                            81,362
                            
                            
                            
                            631,411Accrued
      redemption premium
                            
                            
                            125,639
                            
                            
                            
                            670,150
                            
                            
                            
                            795,789Net
      cash used in operating activities
                            
                            
                            (8,501,914
                            )
                            
                            
                            (703,687
                            )
                            
                            
                            (9,205,601
                            )CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchases
      of plant and equipment
                            
                            
                            (924,507
                            )
                            
                            
                            (4,604,638
                            )
                            
                            
                            (5,529,145
                            )Deposit
      for land acquisition
                            
                            
                            (323,313
                            )
                            
                            
                            -
                            
                            
                            
                            (323,313
                            )Increase
      in VAT receivable
                            
                            
                            (392,158
                            )
                            
                            
                            (864,657
                            )
                            
                            
                            (1,256,815
                            )Funds
      held in trust for the Company
                            
                            
                            (92,652
                            )
                            
                            
                            -
                            
                            
                            
                            (92,652
                            )Cash
      acquired with acquisition
                            
                            
                            -
                            
                            
                            
                            211
                            
                            
                            
                            211Net
      cash used in investing activities
                            
                            
                            (1,732,630
                            )
                            
                            
                            (5,469,084
                            )
                            
                            
                            (7,201,714
                            )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from sale of common stock
                            
                            
                            1,687,447
                            
                            
                            
                            1,867,090
                            
                            
                            
                            3,554,537Proceeds
      from sale of preferred stock
                            
                            
                            1,000,000
                            
                            
                            
                            5,000,000
                            
                            
                            
                            6,000,000Payment of offering costs associated with the sale common and preferred
      stock
                            
                            
                            (264,653
                            )
                            
                            
                            (256,593
                            )
                            
                            
                            (521,246
                            )Proceeds from issuance of convertible debenture
                            
                            
                            9,200,000
                            
                            
                            
                            3,048,000
                            
                            
                            
                            12,248,000Payment of offering costs associated with issuance of convertible
      debenture
                            
                            
                            (1,251,602
                            )
                            
                            
                            (113,897
                            )
                            
                            
                            (1,365,499
                            )Principal
      payment of convertible debt
                            
                            
                            (2,798,000
                            )
                            
                            
                            -
                            
                            
                            
                            (2,798,000
                            )Net
      cash provided by financing activities
                            
                            
                            7,573,192
                            
                            
                            
                            9,544,600
                            
                            
                            
                            17,117,792Effect
      of exchange rate changes on cash and cash equivalents
                            
                            
                            65,192
                            
                            
                            
                            (14,412
                            )
                            
                            
                            50,780NET
      INCREASE (DECREASE) IN CASH ANDCASH
      EQUIVALENTS
                            
                            
                            (2,596,160
                            )
                            
                            
                            3,357,417
                            
                            
                            
                            761,257CASH
      AND CASH EQUIVALENTS, Beginning of period
                            
                            
                            3,357,417
                            
                            
                            
                            -
                            
                            
                            
                            -CASH
      AND CASH EQUIVALENTS, End of period
                            
                            $
                            761,257
                            
                            
                            $
                            3,357,417
                            
                            
                            $
                            761,257SUPPLEMENTAL
      DISCLOSURES OF CASH FLOWS INFORMATION:Interest
      paid
                            
                            $
                            620,135
                            
                            
                            $
                            -
                            
                            
                            $
                            620,135Income
      taxes paid
                            
                            $
                            850
                            
                            
                            $
                            -
                            
                            
                            $
                            850SUPPLEMENTAL
      NON-CASH INVESTING AND FINANCING ACTIVITIES:Costs
      associated with acquisition:Beneficial conversion feature associated with convertible
      debenture
                            
                            $
                            -
                            
                            
                            $
                            874,990
                            
                            
                            $
                            874,990Issuance of warrants in acquisition
                            
                            $
                            -
                            
                            
                            $
                            229,748
                            
                            
                            $
                            229,748Acquisition of shell company
                            
                            $
                            -
                            
                            
                            $
                            211
                            
                            
                            $
                            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
                            
                            $
                            3,947,040
                            
                            
                            $
                            -
                            
                            
                            $
                            3,947,040Warrant
      liability associated with convertible debenture
                            
                            $
                            1,862,173
                            
                            
                            $
                            
                            
                            
                            $
                            1,862,173Issuance
      of warrants with preferred stock
                            
                            $
                            142,166
                            
                            
                            $
                            -
                            
                            
                            $
                            142,166Cashless
      exercise of warrants
                            
                            $
                            1,362
                            
                            
                            $
                            -
                            
                            
                            $
                            1,362Issuance
      of warrants as prepaid consulting fees
                            
                            $
                            216,106
                            
                            
                            $
                            -
                            
                            
                            $
                            216,106Issuance
      of shares for legal services
                            
                            $
                            167,642
                            
                            
                            $
                            -
                            
                            
                            $
                            167,642Reclassify
      beneficial conversion feature liability to equity
                            
                            $
                            3,686,051
                            
                            
                            $
                            -
                            
                            
                            $
                            3,686,051Issuance
      of common stock and convertible notes for consulting fees
                            
                            $
                            550,000
                            
                            
                            $
                            -
                            
                            
                            $
                            550,000
 See
report of independent registered public accounting firm.
  F-6
  Stratos
Renewables Corporation and
Subsidiaries
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 For
the Year Ended December 31, 2008, for the
 Period
from February 27, 2007 (Date of Inception) to December 31, 2007,
 And
for the Period from February 27, 2007 (Date of Inception) to December 31,
2008
 Note 1 - Organization and Basis of
Presentation
 
 Organization and line of
business
  Stratos
Renewables Corporation (formerly New Design Cabinets, Inc., herein the
“Company”) was incorporated in the State of Nevada on September 29, 2004.
Stratos del Peru S.A.C. was incorporated in Lima, Peru, on February 27, 2007,
with the name of Estratosfera del Perú S.A.C. On July 11, 2007, the shareholders
at the general meeting agreed to change the Company’s name to its current one,
Stratos del Peru S.A.C., or Stratos Peru, which was officially registered with
the Tax Administration of Peru on October 11, 2007.
 
 On
November 14, 2007, Stratos Peru entered into a share exchange agreement, or the
Share Exchange, with the Company. Pursuant to the agreement, the Company issued
45,000,000 shares of its common stock to the former security holders of Stratos
Peru in exchange for 999, or 99.9%, of the issued and outstanding shares of
common stock of Stratos Peru. Upon closing the Share Exchange, the Company had
55,000,000 shares of common stock issued and outstanding as a result of the
issuance of 45,000,000 shares of common stock to the former security holders of
Stratos Peru. Effective November 20, 2007, the Company amended its articles of
incorporation to change the name of the corporation from “New Design Cabinets,
Inc.” to “Stratos Renewables Corporation.”
  The Share
Exchange is deemed to be a reverse acquisition under the purchase method of
accounting. As the acquired entity, Stratos Peru is regarded as the predecessor
entity as of November 14, 2007. Accordingly, the merger of the Company and
Stratos Peru was recorded as a recapitalization of Stratos Peru, with Stratos
Peru being treated as the continuing entity and the management and board of
directors of Stratos Peru were appointed as officers and directors of the
Company. The accompanying consolidated statements of operations present the
amounts as if the acquisition occurred on February 27, 2007 (date of inception
for Stratos Peru).
  Additionally,
in connection with the reverse merger transaction, the Company conducted a
private placement of common stock, preferred stock and convertible promissory
notes totaling approximately $10 million during 2007.
 
 The
Company’s business objectives are the purchase, sale, production, distribution,
marketing, transport, warehousing, mixture, export and import of all kinds of
products derived from hydrocarbons and bio-fuels, being solids, liquids or
gases. The Company is currently a development stage company under the provisions
of Statement of Financial Accounting Standards (“SFAS”) No. 7, “Accounting and
Reporting by Development Stage Enterprises,” as it has not commenced generating
revenue. The Company’s offices and administrative headquarters are located in
Lima, Peru.
 
 Development Stage Company
and Going-Concern
 
 The
Company is a development stage company and is subject to risks and uncertainties
that include: new product development, actions of competitors, reliance on the
knowledge and skills of its employees to be able to service customers,
availability of sufficient capital, and a limited operating history.
Accordingly, the Company presents its consolidated financial statements in
accordance with accounting principles generally accepted in the United States of
America that apply in establishing new operating enterprises. As a development
stage enterprise, the Company discloses the deficit accumulated during the
development stage and the consolidated accumulated statements of operations and
cash flows from inception of the development stage to the date on the current
consolidated balance sheet. Contingencies exist with respect to this matter, the
ultimate resolution of which cannot presently be determined.
    See
report of independent registered public accounting firm.
 F-7
 Stratos
Renewables Corporation and Subsidiaries
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 For
the Year Ended December 31, 2008, for the
 Period
from February 27, 2007 (Date of Inception) to December 31, 2007,
 And
for the Period from February 27, 2007 (Date of Inception) to December 31,
2008
  The
accompanying consolidated financial statements have been prepared in conformity
with generally accepted accounting principles in the United States of America,
which contemplates continuation of the Company as a going concern. However, the
Company has not generated any operating revenues and has working capital
deficits, which raises substantial doubt about its ability to continue as a
going concern.  During the year ended December 31, 2008, the Company
recorded a loss of $11,915,570 and as of December 31, 2008, the Company has a
deficit accumulated during the development stage of $13,502,827.
 
 In view
of these matters, realization of certain of the assets in the accompanying
consolidated balance sheets is dependent upon continued operations of the
Company, which in turn is dependent upon the Company’s ability to meet its
financial requirements, raise additional capital, and the success of its future
operations.
  During
the year ended December 31, 2008, management raised approximately $11.9 million
in debt and equity capital and is attempting to raise additional debt and equity
capital to support its future operations.
 
 Basis of
presentation
  The
accompanying consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements include the accounts of
Stratos Renewables Corporation and its subsidiaries.
 
 Minority
interest has not been presented on the consolidated balance sheets due to
accumulated losses which exceed the minority stockholders’ equity. In accordance
with Accounting Principles Board Opinion (“APB”) No. 18, “The Equity Method of
Accounting for Investments in Common Stock,” the minority interest has been
written down to zero on the accompanying balance sheets.
 
 The
Company’s subsidiaries use their local currencies, Peruvian Nuevos Soles
(“PEN”); however the accompanying consolidated financial statements have been
translated and presented in United States Dollars ($).
 
 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.
    See
report of independent registered public accounting firm.
 F-8
  Stratos
Renewables Corporation and Subsidiaries
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 For
the Year Ended December 31, 2008, for the
 Period
from February 27, 2007 (Date of Inception) to December 31, 2007,
 And
for the Period from February 27, 2007 (Date of Inception) to December 31,
2008
  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, future tax rates used to
determine future income taxes, and the carrying value of warrant liability.
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 accounts which
were held in trust by an officer of the Company.  These funds were
deposited back to the operating account subsequent to year end.
 
 Concentration of credit
risk
  Cash
includes cash on hand and demand deposits in accounts maintained within Peru and
the United States. The Company maintains balances at financial institutions
which, from time to time, may exceed Federal Deposit Insurance Corporation
insured limits for the banks located in the United States. Balances at financial
institutions within Peru are not covered by insurance. As of December 31, 2008
and December 31, 2007, the Company had deposits in excess of federally-insured
limits totaling $612,559 and $3,403,946, respectively. The Company has not
experienced any losses on cash and cash equivalents.
 
 VAT
receivable
  As
of December 31, 2008 and 2007, the Company recognized a VAT (value added
tax) receivable of $1,225,130 and $899,567, respectively, in Peru. VAT is
charged at a standard rate of 19% and the Company obtains income tax credits for
VAT paid in connection with the purchase of capital equipment and other goods
and services employed in its operations. The Company is entitled to use the
credits against its Peruvian income tax liability or to receive a refund credit
against VAT payable or sales. As the Company does not anticipate incurring
either a Peruvian tax or a VAT liability during the next fiscal year, the
receivable is classified as noncurrent.
  Plant and
equipment
  Plant and
equipment are stated at historical cost and are depreciated using the
straight-line method over their estimated useful lives ranging from 4 to 10
years. The useful life and depreciation method are reviewed periodically to
ensure that the depreciation method and period are consistent with the
anticipated pattern of future economic benefits. Expenditures for maintenance
and repairs are charged to operations as incurred while renewals and betterments
are capitalized. Gains and losses on disposals are included in the results of
operations.
    See
report of independent registered public accounting firm.
 F-9
  Stratos
Renewables Corporation and Subsidiaries
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 For
the Year Ended December 31, 2008, for the
 Period
from February 27, 2007 (Date of Inception) to December 31, 2007,
 And
for the Period from February 27, 2007 (Date of Inception) to December 31,
2008
  Impairment of long-lived
assets
  The
Company follows the guidance of SFAS No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets” (“SFAS 144”), which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
The Company periodically evaluates the carrying value of long-lived assets to be
held and used in accordance with SFAS 144. SFAS 144 requires impairment losses
to be recorded on long-lived assets used in operations when indications of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets’ carrying amounts. In that event, a
loss is recognized based on the amount by which the carrying amount exceeds the
fair market value of the long-lived assets. Loss on long-lived assets to be
disposed of is determined in a similar manner, except that fair market values
are reduced for the cost of disposal. The Company believes that as of December
31, 2008 and 2007, there were no significant impairments of its long-lived
assets.
 
 Foreign currency
translation
  The
reporting currency of the Company is the US dollar. The Company uses its local
currency, PEN, as its functional currency. Such financial statements were
translated into U.S. Dollars (“USD”) in accordance with SFAS No. 52, “Foreign
Currency Translation,” with the PEN as the functional currency. Assets and
liabilities are translated using the exchange rates prevailing at the balance
sheet date. Translation adjustments resulting from this process are included in
accumulated other comprehensive income in the consolidated statements of
stockholders’ equity. Transaction gains and losses that arise from exchange rate
fluctuations on transactions denominated in a currency other than the functional
currency are included in the results of operations as incurred.
  The
Company recorded a translation loss of $286,365, a translation gain of $14,021,
and a translation loss of $272,344 for the year ended December 31, 2008, for the
period from February 27, 2007 (date of inception) to December 31, 2007, and for
the period from February 27, 2007 (date of inception) to December 31, 2008,
respectively.  Translation adjustments included in the consolidated
balance sheets were translation losses of $272,344 and translation gains of
$14,021 at December 31, 2008 and 2007, respectively. Asset and liability amounts
at December 31, 2008 and December 31, 2007 were translated at 3.142 PEN and
2.997 PEN to $1.00 USD, respectively. Equity accounts were stated at their
historical rates. The average translation rate applied to the consolidated
statements of operations for the year ended December 31, 2008, and for the
period from February 27, 2007 (date of inception) to December 31, 2007, was
2.941 PEN and 3.118 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.  For the year ended December 31,
2008, for the period from February 27, 2007 (date of inception) to December 31,
2007, and for the period from February 27, 2007 (date of inception) to December
31, 2008, the Company recorded net transaction losses of approximately $100,822,
$0 and $100,822, respectively.  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.
    See
report of independent registered public accounting firm.
 F-10
  Stratos
Renewables Corporation and Subsidiaries
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 For
the Year Ended December 31, 2008, for the
 Period
from February 27, 2007 (Date of Inception) to December 31, 2007,
 And
for the Period from February 27, 2007 (Date of Inception) to December 31,
2008
 Income
taxes
  The
Company accounts for income taxes in accordance with SFAS No. 109, “Accounting
for Income Taxes” (“SFAS 109”). SFAS 109 requires a company to use the asset and
liability method of accounting for income taxes, whereby deferred tax assets are
recognized for deductible temporary differences, and deferred tax liabilities
are recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment. The income tax rate applicable to Peruvian companies is 30%.
If the Company distributes its earnings fully or partially, it shall apply an
additional rate of 4.1% on the distributed amount, which will be borne by the
shareholders, as long as they are individuals or companies non-domiciled in
Peru. The 4.1% tax will be borne by the Company and will apply on any amount or
payment in kind subject to income tax that may represent an indirect disposition
not subject to subsequent tax control, including amounts charged to expenses and
undeclared revenues. From January 1, 2007, the taxpayer must liquidate and pay
the 4.1% tax directly together with its monthly obligations without the
requirement of a previous tax audit by the Tax Administration of
Peru.
  The
Company adopted Financial Accounting Standards Board (“FASB”) Interpretation 48
(“FIN 48”), “Accounting for Uncertainty in Income Taxes,” during 2007. A tax
position is recognized as a benefit only if it is “more likely than not” that
the tax position would be sustained in a tax examination, with a tax examination
being presumed to occur. The amount recognized is the largest amount of tax
benefit that is greater than 50% likely of being realized on examination. For
tax positions not meeting the “more likely than not” test, no tax benefit is
recorded. The adoption of FIN 48 had no effect on the Company’s consolidated
financial statements.
  Basic anddilutedlosses per
share
  Earnings
per share is calculated in accordance with the SFAS No. 128, “Earnings Per
Share” (“SFAS 128”). Net earnings per share for all periods presented have been
restated to reflect the adoption of SFAS 128. Basic earnings per share is based
upon the weighted average number of common shares outstanding. Diluted earnings
per share is based on the assumption that all dilutive convertible shares and
stock options were converted or exercised. Dilution is computed by applying the
treasury stock method. Under this method, options and 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.  As of December 31, 2008 and
2007, the following potential dilutive shares were excluded from diluted loss
per share for all periods presented because of their anti-dilutive
effect.
    See
report of independent registered public accounting firm.
 F-11
 
 Stratos
Renewables Corporation and Subsidiaries
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 For
the Year Ended December 31, 2008, for the
 Period
from February 27, 2007 (Date of Inception) to December 31, 2007,
 And
for the Period from February 27, 2007 (Date of Inception) to December 31,
2008
 2008
                
                
                2007Warrants
                
                
                7,971,419
                
                
                
                4,739,968Convertible
      notes
                
                
                13,278,571
                
                
                
                4,354,286Preferred
      stock
                
                
                8,571,429
                
                
                
                7,142,857Total
                
                
                29,821,419
                
                
                
                16,237,111
 
 Accrued warrant liability
and accrued beneficial conversionliability
 
 Emerging
Issues Task Force (“EITF”) No. 00-19 “Accounting for Derivative Financial
Instruments Indexed to and Potentially Settled in, a Company’s Own Stock” (“EITF
00-19”), provides a criteria for determining whether freestanding contracts that
are settled in a company’s own stock, including common stock warrants, should be
designated as either an equity instrument, an asset or as a liability under
SFAS No. 133 “Accounting for Derivative Instruments and Hedging
Activities” (“SFAS 133”). Under the provisions of EITF 00-19, a contract
designated as an asset or a liability must be carried at fair value on a
company’s balance sheet, with any changes in fair value recorded in a company’s
results of operations.  Using the criteria in EITF 00-19, the Company
recorded the fair value of all outstanding warrants as an accrued warrant
liability. The changes in the values of these warrants are shown in the
accompanying consolidated statements of operations as “change in value of
warrant liability.”
 
 The
Company issued a convertible promissory note that was convertible into an
undetermined number of shares of common stock.  As a result, the
Company did not have had enough authorized shares to satisfy the exercise of its
outstanding warrants and convertible notes; therefore, the Company recorded as
an accrued beneficial conversion liability, the fair value of the beneficial
conversion feature associated with the convertible promissory
note.  During the year ended December 31, 2008, the promissory note
was retired and the fair value of the beneficial conversion feature was
reclassified to additional paid-in capital.
 
 Fair value of financial
instruments
 
 On
January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements”
(“SFAS 157”). SFAS No. 157 defines fair value, establishes a three-level
valuation hierarchy for disclosure of fair value measurement, and enhances
disclosure requirements for fair value measures. The carrying amounts reported
in the consolidated balance sheets for receivables and current liabilities each
qualify as financial instruments and are a reasonable estimate of their fair
values because of the short period of time between the origination of such
instruments and their expected realization and their current market rate of
interest. The three levels of valuation hierarchy are defined as
follows:
 
 ·
              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.
    See
report of independent registered public accounting firm.
 F-12
  Stratos
Renewables Corporation and Subsidiaries
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 For
the Year Ended December 31, 2008, for the
 Period
from February 27, 2007 (Date of Inception) to December 31, 2007,
 And
for the Period from February 27, 2007 (Date of Inception) to December 31,
2008
  ·
              Level
      3 inputs to the valuation methodology are unobservable and significant to
      the fair value measurement.
  The
Company analyzes all financial instruments with features of both liabilities and
equity under SFAS No. 150, “Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity,” SFAS No. 133, “Accounting for
Derivative Instruments and Hedging Activities,” and EITF 00-19, “Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company’s Own Stock.”
  The
Company’s beneficial conversion liability is carried at fair value totaling
$250,938 as of December 31, 2007. The Company did not record any beneficial
conversion liability as of December 31, 2008, as the beneficial conversion
feature was reclassified to equity on September 18, 2008 (See “Reclassification
of Beneficial Conversion Feature” in Note 6).  The Company carries its
warrants at fair value totaling $2,652,692 and $1,164,501 as of December 31,
2008 and December 31, 2007, respectively. The Company used Level 2 inputs for
its valuation methodology for the beneficial conversion liability and warrant
liability, and their fair values were determined by using the Black-Scholes
option pricing model based on various assumptions.
  Fair
      Value
                As
      of
                December
      31, 2008
              
              Fair
      Value Measurements at
                December
      31, 2008
                Using
      Fair Value HierarchyLiabilities
              
              
              
              Level
      1
              
              Level
      2
              
              Level
      3Warrant
      liability
              
              $
              2,652,692
              
              
              
              $
              2,652,692
  The
Company recognized gains of $511,926, $624,052 and $1,135,978, on the beneficial
conversion liability for the year ended December 31, 2008, for the period from
February 27, 2007 (date of inception) to December 31, 2007, and for the period
from February 27, 2007 (date of inception) to December 31, 2008,
respectively.
 
 The
Company recognized a gain of $1,410,799, $95,972 and $1,506,771 on the warrant
liability for the year ended December 31, 2008, for the period from February 27,
2007 (date of inception) to December 31, 2007, and for the period from February
27, 2007 (date of inception) to December 31, 2008, respectively.
 
 The
Company did not identify any other non-recurring assets and liabilities that are
required to be presented on the consolidated balance sheets at fair value in
accordance with SFAS 157.
  Statementsof Cash
Flows
 
 In
accordance with SFAS No. 95, “Statement of Cash Flows,” cash flows from the
Company’s operations are calculated based upon the local currencies using the
average translation rate. As a result, amounts related to assets and liabilities
reported on the consolidated statements of cash flows will not necessarily agree
with changes in the corresponding balances on the consolidated balance
sheets.
    See
report of independent registered public accounting firm.
 F-13
 
  Stratos
Renewables Corporation and Subsidiaries
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 For
the Year Ended December 31, 2008, for the
 Period
from February 27, 2007 (Date of Inception) to December 31, 2007,
 And
for the Period from February 27, 2007 (Date of Inception) to December 31,
2008
 RecentPronouncements
  In June
2007, the FASB issued FASB Staff Position No. EITF 07-3, “Accounting for
Nonrefundable Advance Payments for Goods or Services Received for use in Future
Research and Development Activities” (“FSP EITF 07-3”), which addresses whether
nonrefundable advance payments for goods or services that are used or rendered
for research and development activities should be expensed when the advance
payment is made or when the research and development activity has been
performed. The implementation of FSP EITF 07-3 did not have a material impact on
the Company’s consolidated financial statements.
 
 In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS
141R”), which replaces SFAS 141. SFAS 141R retains the purchase method of
accounting for acquisitions, but requires a number of changes, including changes
in the way assets and liabilities are recognized in the purchase accounting as
well as requiring the expensing of acquisition-related costs as incurred.
Furthermore, SFAS 141R provides guidance for recognizing and measuring the
goodwill acquired in the business combination and determines what information to
disclose to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. SFAS 141R is effective for fiscal
years beginning on or after December 15, 2008. Earlier adoption is prohibited.
The Company is evaluating the impact, if any, that the adoption of this
statement will have on its consolidated results of operations or consolidated
financial position.
 
 In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements - An Amendment of ARB No. 51” (“SFAS
160”).  SFAS 160 amends ARB 51 to establish accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. It is intended to eliminate the diversity in
practice regarding the accounting for transactions between equity and
noncontrolling interests by requiring that they be treated as equity
transactions. Further, it requires consolidated net income to be reported at
amounts that include the amounts attributable to both the parent and the
noncontrolling interest. SFAS 160 also establishes a single method of accounting
for changes in a parent’s ownership interest in a subsidiary that do not result
in deconsolidation, requires that a parent recognize a gain or loss in net
income when a subsidiary is deconsolidated, requires expanded disclosures in the
consolidated financial statements that clearly identify and distinguish between
the interests of the parent’s owners and the interests of the noncontrolling
owners of a subsidiary, among others. SFAS 160 is effective for fiscal years
beginning on or after December 15, 2008, with early adoption permitted, and it
is to be applied prospectively. SFAS 160 is to be applied prospectively as of
the beginning of the fiscal year in which it is initially applied, except for
the presentation and disclosure requirements, which must be applied
retrospectively for all periods presented. The Company has not yet evaluated the
impact that SFAS 160 will have on its consolidated financial position or
consolidated results of operations.
 
 In
February 2008, the FASB issued FASB Staff Position No. 157-1 ("FSP 157-1"),
"Application of FASB Statement No. 157 to FASB Statement No. 13 and Other
Accounting Pronouncements That Address Fair Value Measurements for Purposes of
Lease Classification or Measurement under Statement 13."  FSP 157-1
indicates that it does not apply under SFAS 13, “Accounting for Leases,” and
other accounting pronouncements that address fair value measurements for
purposes of lease classification or measurement under SFAS 13. This scope
exception does not apply to assets acquired and liabilities assumed in a
business combination that are required to be measured at fair value under SFAS
141 or SFAS 141R, regardless of whether those assets and liabilities are related
to leases.
    See
report of independent registered public accounting firm.
 F-14
 
  Stratos
Renewables Corporation and Subsidiaries
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 For
the Year Ended December 31, 2008, for the
 Period
from February 27, 2007 (Date of Inception) to December 31, 2007,
 And
for the Period from February 27, 2007 (Date of Inception) to December 31,
2008
 Also in
February 2008, the FASB issued FASB Staff Position No. 157-2 ("FSP 157-2"),
"Effective Date of FASB Statement No. 157."  With the issuance of FSP
157-2, the FASB agreed to: (a) defer the effective date in SFAS No. 157 for one
year for certain nonfinancial assets and nonfinancial liabilities, except those
that are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually), and (b) remove certain leasing transactions
from the scope of SFAS 157. The deferral is intended to provide the FASB time to
consider the effect of certain implementation issues that have arisen from the
application of SFAS 157 to these assets and liabilities.
 
 In March
2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments
and Hedging Activities" (“SFAS 161”). SFAS 161 is intended to improve financial
reporting of derivative instruments and hedging activities by requiring enhanced
disclosures to enable financial statement users to better understand the effects
of derivatives and hedging on an entity's financial position, financial
performance and cash flows. The provisions of SFAS 161 are effective for interim
periods and fiscal years beginning after November 15, 2008, with early adoption
encouraged. The Company does not anticipate that the adoption of SFAS 161 will
have a material impact on its consolidated results of operations or consolidated
financial position.
 
 In April
2008, the FASB issued FASB Staff Position (“FSP”) 142-3 “Determination of the
Useful Life of Intangible Assets,” which amends the factors a company should
consider when developing renewal assumptions used to determine the useful life
of an intangible asset under SFAS 142. This issue is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years. SFAS 142 requires companies to
consider whether renewal can be completed without substantial cost or material
modification of the existing terms and conditions associated with the asset. FSP
142-3 replaces the previous useful life criteria with a new requirement—that an
entity consider its own historical experience in renewing similar arrangements.
If historical experience does not exist then the Company would consider market
participant assumptions regarding renewal including 1) highest and best use of
the asset by a market participant, and 2) adjustments for other entity-specific
factors included in SFAS 142. The Company is currently evaluating the impact
that adopting FSP 142-3 will have on its consolidated financial
statements.
 
 In May
2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles" (“SFAS 162”). SFAS 162 is intended to improve financial
reporting by identifying a consistent framework, or hierarchy, for selecting
accounting principles to be used in preparing financial statements that are
presented in conformity with GAAP for nongovernmental entities. SFAS 162 is
effective 60 days following the SEC's approval of the Public Company Accounting
Oversight Board (“PCAOB”) amendments to AU Section 411, "The Meaning of
Present Fairly in Conformity with Generally Accepted Accounting Principles." The
Company does not expect the adoption of SFAS 162 will have a material impact on
its consolidated results of operations or consolidated financial
position.
 
 In May
2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts, an interpretation of FASB Statement No. 60” (“SFAS 163”).
The scope of SFAS 163 is limited to financial guarantee insurance (and
reinsurance) contracts issued by enterprises included within the scope of SFAS
60. Accordingly, SFAS 163 does not apply to financial guarantee contracts issued
by enterprises excluded from the scope of SFAS 60 or to some insurance contracts
that seem similar to financial guarantee insurance contracts issued by insurance
enterprises (such as mortgage guaranty insurance or credit insurance on trade
receivables). SFAS 163 also does not apply to financial guarantee insurance
contracts that are derivative instruments included within the scope of SFAS No.
133, “Accounting for Derivative Instruments and Hedging Activities”. The
Company does not expect the adoption of SFAS 163 will have a material impact on
its consolidated results of operations or consolidated financial
position.
    See
report of independent registered public accounting firm.
 F-15
 Stratos
Renewables Corporation and Subsidiaries
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 For
the Year Ended December 31, 2008, for the
 Period
from February 27, 2007 (Date of Inception) to December 31, 2007,
 And
for the Period from February 27, 2007 (Date of Inception) to December 31,
2008
 On May 9,
2008, the FASB issued FASB Staff Position No. APB 14-1 ("FSP APB 14-1"),
"Accounting for Convertible Debt Instruments That May Be Settled in Cash upon
Conversion (Including Partial Cash Settlement)."  FSP APB 14-1
clarifies that convertible debt instruments that may be settled in cash upon
conversion (including partial cash settlement) are not addressed by paragraph 12
of APB Opinion No. 14, “Accounting for Convertible Debt and Debt Issued with
Stock Purchase Warrants." Additionally, FSP APB 14-1 specifies that issuers of
such instruments should separately account for the liability and equity
components in a manner that will reflect the entity's nonconvertible debt
borrowing rate when interest cost is recognized in subsequent periods. FSP
APB 14-1 is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods within those fiscal
years. The Company is currently evaluating the impact that FSP APB 14-1 will
have on its consolidated results of operations or consolidated financial
position.
 
 On June
16, 2008, the FASB issued FASB Staff Position No. EITF 03-6-1 (“FSP EITF
03-6-1”), “Determining Whether Instruments Granted in Share-Based Payment
Transactions Are Participating Securities,” to address the question of whether
instruments granted in share-based payment transactions are participating
securities prior to vesting. FSP EITF 03-6-1 indicates that unvested share-based
payment awards that contain rights to dividend payments should be included in
earnings per share calculations. The guidance will be effective for fiscal years
beginning after December 15, 2008. The Company is currently evaluating the
requirements of FSP EITF 03-6-1 and the impact that its adoption will have on
the consolidated results of operations or consolidated financial
position.
 
 In June
2008, the FASB issued Emerging Issues Task Force Issue 07-5 (“EITF 07-5”),
“Determining whether an Instrument (or Embedded Feature) is indexed to an
Entity’s Own Stock.” EITF 07-5 is effective for financial statements issued
for fiscal years beginning after December 15, 2008, and interim periods within
those fiscal years. Early application is not permitted. Paragraph 11(a) of SFAS
No. 133  “Accounting for Derivatives and Hedging
Activities,”  specifies that a contract that would otherwise meet the
definition of a derivative but is both (a) indexed to the Company’s own stock
and (b) classified in stockholders’ equity in the statement of financial
position would not be considered a derivative financial instrument. EITF 07-5
provides a new two-step model to be applied in determining whether a financial
instrument or an embedded feature is indexed to an issuer’s own stock and thus
able to qualify for the SFAS 133 paragraph 11(a) scope exception. This standard
triggers liability accounting on all options and warrants exercisable at strike
prices denominated in any currency other than the functional currency of the
operating entity in Peru. The Company is currently evaluating the impact of the
adoption of EITF 07-5 on the accounting for related warrants
transactions.
 
 In June
2008, FASB issued Emerging Issues Task Force Issue 08-4, “Transition Guidance
for Conforming Changes to Issue No. 98-5” (“EITF 08-4”). The objective of
EITF 08-4 is to provide transition guidance for conforming changes made to EITF
98-5, “Accounting for Convertible Securities with Beneficial Conversion
Features or Contingently Adjustable Conversion Ratios,” that result from
EITF 00-27, “Application of Issue No. 98-5 to Certain Convertible
Instruments,” and SFAS 150, “Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity.” EITF 08-4 is
effective for financial statements issued for fiscal years ending after December
15, 2008. Early application is permitted. The Company is currently evaluating
the impact of adoption of EITF 08-4 on the accounting for the convertible notes
and related warrants transactions.
    See
report of independent registered public accounting firm.
 F-16
 
  Stratos
Renewables Corporation and Subsidiaries
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 For
the Year Ended December 31, 2008, for the
 Period
from February 27, 2007 (Date of Inception) to December 31, 2007,
 And
for the Period from February 27, 2007 (Date of Inception) to December 31,
2008
 On
October 10, 2008, the FASB issued FSP 157-3, “Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active,” which
clarifies the application of SFAS 157 in a market that is not active and
provides an example to illustrate key considerations in determining the fair
value of a financial asset when the market for that financial asset is not
active. FSP 157-3 became effective on October 10, 2008, and its adoption did not
have a material impact on the Company’s consolidated results of operations or
consolidated financial position.
 
 In
January 2009, the FASB issued FSP EITF 99-20-1, “Amendments to the Impairment
Guidance of EITF Issue No. 99-20, and EITF Issue No. 99-20, Recognition of
Interest Income and Impairment on Purchased and Retained Beneficial Interests in
Securitized Financial Assets” (“FSP EITF 99-20-1”). FSP EITF 99-20-1 changes the
impairment model included within EITF 99-20 to be more consistent with the
impairment model of SFAS No. 115. FSP EITF 99-20-1 achieves this by amending the
impairment model in EITF 99-20 to remove its exclusive reliance on “market
participant” estimates of future cash flows used in determining fair value.
Changing the cash flows used to analyze other-than-temporary impairment from the
“market participant” view to a holder’s estimate of whether there has been a
“probable” adverse change in estimated cash flows allows companies to apply
reasonable judgment in assessing whether an other-than-temporary impairment has
occurred. The adoption of FSP EITF 99-20-1 did not have a material impact on the
Company’s consolidated financial statements.
  Note
3 - Plant and Equipment
  Plant and
equipment consist of the following:
  December
      31,
                
                
                December
      31,Description
                
                2008
                
                
                2007Sugar
      plant
                
                $
                4,936,771
                
                
                $
                4,552,247Leasehold
      improvements
                
                
                61,629
                
                
                
                -Computer
      equipment and software
                
                
                169,835
                
                
                
                48,439Other
                
                
                91,838
                
                
                
                2,4165,260,073
                
                
                
                4,603,102Less:
      accumulated depreciation
                
                
                (36,777
                )
                
                
                (2,179
                )Plant
      and equipment, net
                
                $
                5,223,296
                
                
                $
                4,600,923
 
 Depreciation
expense amounted to $36,713, $2,094 and $38,807 for the year ended December
31, 2008, for the period from February 27, 2007 (date of inception) to December
31, 2007, and for the period from February 27, 2007 (date of inception) to
December 31, 2008, respectively. Due to significant modifications to
the sugar plant, the plant is currently not in service and is not being
depreciated.
    See
report of independent registered public accounting firm.
 F-17
 
  Stratos
Renewables Corporation and Subsidiaries
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 For
the Year Ended December 31, 2008, for the
 Period
from February 27, 2007 (Date of Inception) to December 31, 2007,
 And
for the Period from February 27, 2007 (Date of Inception) to December 31,
2008
 During
the year ended December 31, 2008, the Company made initial payments of
$302,632 to unaffiliated third parties towards the acquisition of rights to both
agricultural and industrial land.
  Note
4 - Stockholders’ Equity
 
 Under the
Company’s Amended and Restated Articles of Incorporation dated November 14,
2007, the Company is authorized to issue 300,000,000 shares of capital stock,
consisting of 250,000,000 shares of Common Stock and 50,000,000 shares of
preferred stock, $.001 par value (“Series A Preferred Stock”).
 
 Each
share of Common Stock issued and outstanding entitles the holder thereof to one
vote on all matters submitted to the vote of the stockholders. Dividends may be
declared and paid on the Common Stock only out of legally available
funds.
 
 On April
17, 2008, the Company created a series of the Series A Preferred Stock
consisting of 15,000,000 authorized shares which was designated as (“Series A
Convertible Preferred Stock”) with a par value of $0.001 and a conversion price
of $0.70.
 
 Each
share of Series A Preferred Stock will automatically convert into shares of the
Company’s Common Stock if the Common Stock has been trading above $2.00 per
share for a period of 120 consecutive days.  The Series A Preferred
Stock entitles the holder to a 10% per annum cumulative dividends and a 150%
liquidation preference.  The Series A Preferred Stock contains
anti-dilution provisions and the holder is entitled to a number of votes equal
to the number of shares of Common Stock issuable upon conversion of the holder’s
Series A Preferred Stock.
 
 Private
Placementsof Common
Stock
 
 From
October 8, 2007 to June 26, 2008, the Company conducted a private placement of
its securities (“Private Placement”). Pursuant to this Private Placement, on
November 14, 2007, the Company issued an aggregate of 2,666,794 shares of common
stock and warrants to purchase an aggregate of 1,333,396 shares of common stock.
The issuance of 2,666,794 shares of common stock has been included as a
component in the accompanying consolidated statements of stockholders’ equity.
The aggregate gross proceeds raised by the Company in connection with the
Private Placement were $1,867,090. Each share of common stock was sold to
investors at $0.70 per share. The fair value of the warrants amounted to
$352,268 at the date of issuance. The fair value was computed using the
Black-Scholes option pricing model under the following assumptions: (1) expected
life of 1 year; (2) volatility of 100%; and (3) risk free interest rate of 5.0%.
The warrants expire after five (5) years from the date of issuance and are
exercisable at $0.75 per share, subject to adjustment in certain
circumstances.
  On March
7, 2008, the Company received proceeds of $1,587,447 from a private
placement of its securities. Pursuant to this financing, the Company issued an
aggregate of 2,267,782 shares of common stock at a purchase price of $0.70 per
share and warrants to purchase an aggregate of 1,133,888 shares of common stock
with an exercise price of $0.75 per share. The fair value of the warrants
amounted to $294,360 at date of issuance. The fair value was computed using the
Black-Scholes option pricing model under the following assumptions: (1) expected
life of 1 year; (2) volatility of 100%; and (3) risk free interest rate of 3.0%.
The warrants expire after five (5) years from the date of issuance and are
exercisable at $0.75 per share, subject to adjustment in certain
circumstances.
    See
report of independent registered public accounting firm.
 F-18
 Stratos
Renewables Corporation and Subsidiaries
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 For
the Year Ended December 31, 2008, for the
 Period
from February 27, 2007 (Date of Inception) to December 31, 2007,
 And
for the Period from February 27, 2007 (Date of Inception) to December 31,
2008
 On June
26, 2008, the Company received proceeds of $100,000 from a private
placement, pursuant to which it issued an aggregate of 142,857 shares of common
stock at a purchase price of $0.70 per share and warrants to purchase an
aggregate of 71,428 shares of common stock with an exercise price of $0.75 per
share. The fair value of the warrants amounted to $37,488 at date of issuance.
The fair value was computed using the Black-Scholes option pricing model under
the following assumptions: (1) expected life of 2.5 years; (2) volatility of
100%; and (3) risk free interest rate of 3.44%. The warrants expire after five
(5) years from the date of issuance and are exercisable at $0.75 per share,
subject to adjustment in certain circumstances.
 
 Series A Preferred Stock
Private Placements
  On
November 14, 2007, the Company completed Series A Private Placement, pursuant to
which the Company issued to MA Green 7,142,857 shares of Series A Preferred
Stock and warrants to purchase 1,785,714 shares of common stock. The issuance of
7,142,857 shares of Preferred Stock has been included as a component in the
accompanying statements of stockholders’ equity. The gross proceeds raised
by the Company in connection with the Series A Private Placement were
$5,000,000. Each share of Series A Preferred Stock was sold at $0.70 per share.
The warrants expire five (5) years from the date of issuance and are exercisable
at $0.75 per share, subject to adjustment in certain circumstances. The
Company’s Chairman of the Board of Directors, Steven Magami, is the manager of
MA Green.
 
 The fair
value of the 1,785,714 warrants issued with the Series A Private Placement was
$471,765 on the date of issuance. The fair value was computed using the
Black-Scholes option pricing model under the following assumptions: (1) expected
life of 1 year; (2) volatility of 100%; (3) risk free interest rate of 5.0%; and
(4) dividend rate of 0%. In addition, since this convertible preferred stock is
convertible into shares of common stock at a one to one ratio, an embedded
beneficial conversion feature was recorded as a discount to additional
paid-in-capital in accordance with EITF No. 00-27, “Application of Issue No.
98-5 to Certain Convertible Instruments.” The intrinsic value of the beneficial
conversion feature was $471,765. The beneficial conversion feature is considered
a deemed dividend, however, since the Company has an accumulated deficit there
was no effect on the consolidated statements of stockholders’
equity.
 
 On April
18, 2008, the Company completed a private placement  of Series A
Preferred Stock, or the Grey K Private Placement, to three accredited investors,
Grey K LP, a Delaware limited partnership, Grey K Offshore Fund, Ltd., a Cayman
Islands exempt company, and Grey K Offshore Leveraged Fund, Ltd., a Cayman
Islands exempt company, collectively referred to herein as “Grey K,” consisting
of the sale of an aggregate of 1,428,572 shares of Series A Preferred Stock at a
purchase price of $0.70 per share, which are convertible into shares of the
Company’s common stock. Grey K also received warrants to purchase up to an
aggregate of 357,143 shares of common stock. The warrants have a five-year term
and an exercise price of $0.75 per share. The purchasers were also granted
certain demand and piggyback rights with respect to the shares of common stock
underlying the Series A Preferred Stock and the warrants. In connection with the
Grey K Private Placement, the Company received gross proceeds of $1,000,000,
less a funding fee paid to Grey K equal to 2% of the purchase price paid and
other expenses.
 
 The fair
value of the 357,143 warrants issued with the Grey K Private Placement was
$142,166 on the date of issuance. The fair value was computed using the
Black-Scholes option pricing model under the following assumptions: (1) expected
life of 2.5 years; (2) volatility of 100%; (3) risk free interest rate of 2.35%;
and (4) dividend rate of 0%. In addition, since this convertible preferred stock
is convertible into shares of common stock at a one to one ratio, an embedded
beneficial conversion feature was recorded as a discount to additional
paid-in-capital in accordance with EITF No. 00-27. The intrinsic value of the
beneficial conversion feature was $145,854. The beneficial conversion feature is
considered a deemed dividend, however, since the Company has an accumulated
deficit, there was no effect on the consolidated statements of stockholders’
equity.
    See
report of independent registered public accounting firm.
 F-19
 Stratos
Renewables Corporation and Subsidiaries
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 For
the Year Ended December 31, 2008, for the
 Period
from February 27, 2007 (Date of Inception) to December 31, 2007,
 And
for the Period from February 27, 2007 (Date of Inception) to December 31,
2008
 Consulting
Agreements
 
 In
November 2008, the Company entered into two-year term consulting agreements with
five unaffiliated third parties to provide investor relations services for the
Company.  As part of the consulting agreements, the Company issued
650,000 shares of common stock at $0.70 per share with total value of $455,000,
paid $65,000 in cash, and issued unsecured convertible promissory notes of
$95,000 (as described in Note 5) with total consideration for these services
amounting to $615,000.
 
 Warrants
  The
following is a summary of the warrant activity:
  WeightedAverageNumber
      of
                
                
                ExerciseWarrants
                
                
                PriceOutstanding,
      February 27, 2007 (date of inception)
                
                
                -
                
                
                
                -Granted
                
                
                4,739,968
                
                
                $
                0.74Forfeited
                
                
                -
                
                
                
                -Exercised
                
                
                -
                
                
                
                -Outstanding,
      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
                
                
                $
                0.75
 
 During
the year ended December 31, 2008, the Company issued 1,361,654 shares of common
stock for the cashless exercise of 2,837,729 warrants.
    See
report of independent registered public accounting firm.
 F-20
  Stratos
Renewables Corporation and Subsidiaries
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 For
the Year Ended December 31, 2008, for the
 Period
from February 27, 2007 (Date of Inception) to December 31, 2007,
 And
for the Period from February 27, 2007 (Date of Inception) to December 31,
2008
 Following
is a summary of the status of warrants outstanding at December 31,
2008:
  Outstanding
      Warrants
                  
                  
                  Exercisable
      WarrantsAverage
                  
                  
                  
                  
                  
                  Average
                  
                  
                  
                  
                  
                  AverageExercise
                  
                  
                  
                  
                  
                  Remaining
                  
                  
                  
                  
                  
                  RemainingPrice
                  
                  
                  Warrants
                  
                  
                  Contractual
      Life
                  
                  
                  Warrants
                  
                  
                  Contractual
      Life$0.70
                  
                  
                  
                  750,000
                  
                  
                  
                  3.89
                  
                  
                  
                  750,000
                  
                  
                  
                  3.89$0.75
                  
                  
                  
                  6,856,715
                  
                  
                  
                  4.20
                  
                  
                  
                  4,231,715
                  
                  
                  
                  3.94$0.85
                  
                  
                  
                  364,704
                  
                  
                  
                  4.46
                  
                  
                  
                  364,704
                  
                  
                  
                  4.46Total
                  
                  
                  
                  7,971,419
                  
                  
                  
                  
                  
                  
                  
                  5,346,419
 Note
5 - Convertible Promissory Notes
  Bridge
Financing
  On
November 14, 2007, the Company entered into a Note and Warrant Purchase
Agreement, or Bridge Financing, with investors and issued an aggregate of
$3,048,000 in convertible promissory notes and warrants to purchase an aggregate
of 870,858 shares of common stock. The convertible promissory notes issued in
connection with the Bridge Financing bear interest at 10% per annum. The bridge
note holders received one (1) warrant to purchase one (1) share of common stock,
at an exercise price of $0.75 per share, for every $3.50 invested in the Company
in connection with the Bridge Financing. The aggregate gross proceeds raised by
the Company in connection with the Bridge Financing were approximately $3
million. The warrants will expire three (3) years from the closing date of
Bridge Financing.
  Further,
upon the earlier to occur of (i) three (3) months from the closing date of the
Bridge Financing (the “Maturity Date”), and (ii) the consummation of a private
investment in a public entity (“PIPE”) financing with institutional investors
for at least $25 million, net of offering expenses, the bridge note holders are
entitled to repayment (in cash or in common stock) equal to 25% to 30% in excess
of the principal and accrued interest then due and outstanding under the terms
of the notes, or the Repayment Amount. The bridge note holders entitled to a
Repayment Amount of 25% in excess of the principal and accrued interest due
under the terms of the notes will receive a 5% origination fee as consideration
for making loans to the Company. The bridge note holders entitled to a Repayment
Amount of 30% in excess of the principal and accrued interest due under the
terms of the notes will not be entitled to an origination fee. Upon the earlier
to occur of the Maturity Date or the consummation of the PIPE, the bridge note
holders will have the right to convert (in whole or in part) 110% of the
Repayment Amount into shares of common stock of the Company at the fair market
value of each share of common stock, or at the price per share of common stock
sold to investors in the PIPE, as the case may be.
 
 In
accordance with EITF 00-19, these convertible promissory notes do not meet the
definition of a “conventional convertible debt instrument” since the debt is not
convertible into a fixed number of shares. The debt can be converted into
common stock at a conversion price that is a percentage of the market price.
Therefore, the number of shares that could be required to be delivered upon
“net-share settlement” is essentially indeterminate. As such, the convertible
promissory notes are considered “non-conventional,” and the detachable warrants
and the conversion feature are bifurcated from the debt and shown as a separate
derivative liability.
    See
report of independent registered public accounting firm.
 F-21
 
  Stratos
Renewables Corporation and Subsidiaries
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 For
the Year Ended December 31, 2008, for the
 Period
from February 27, 2007 (Date of Inception) to December 31, 2007,
 And
for the Period from February 27, 2007 (Date of Inception) to December 31,
2008
 A portion
of the $3,048,000 proceeds from the convertible promissory notes were allocated
to the detachable warrants. The fair value of the 870,858 warrants issued in
connection with this transaction was $229,748. The fair value was determined
using the Black-Scholes option pricing model with the following
assumptions:  term of 1 year, a risk free interest rate
of 5.0%, a dividend yield of 0%, and volatility of 100%. In addition,
the fair value of the beneficial conversion feature associated with the
convertible promissory notes was $874,990. Both the value assigned to the
warrants of $229,748 and the beneficial conversion feature of $874,990 is
recorded as debt discounts and will be amortized over the terms of the
convertible promissory notes.
 
 During
the year ended December 31, 2008, the Company made principal re-payments in the
total amount of $2,798,000 towards the $3,048,000 convertible promissory notes.
For the year ended December 31, 2008, the Company paid $620,135 related to the
interest and premium.  For the year ended December 31, 2008, the
Company issued 357,143 shares of common stock in the Company for the principal
conversion of $250,000, issued 703,407 shares of common stock in the Company for
the conversion of interest and premium of $492,385, and issued 106,055 shares of
common stock in the Company for the 10% share conversion premium of $74,239. As
of December 31, 2008, all principal, interest and premium have been
paid.  Total interest and premium expense amounted to $475,166,
$711,593 and $1,186,759 for the year ended December 31, 2008, for the
period from February 27, 2007 (date of inception) to December 31, 2007 and for
the period from February 27, 2007 (date of inception) to December 31, 2008,
respectively.
 
 Issuance of $350,000
Unsecured Convertible Promissory Note
 
 On
October 18, 2007, Stratos Peru entered into an asset purchase agreement, or the
Asset Purchase Agreement, and an escrow agreement, or the Escrow Agreement, with
Gabinete Técnico de Cobranzas S.A.C., a Peruvian corporation, or Gabinete,
pursuant to which Stratos Peru acquired certain assets and rights from Gabinete
relating to the Estrella del Norte sugar mill located in the province of Chepen,
Peru. Stratos Peru paid approximately $4.5 million plus a value added tax of 19%
to acquire the sugar mill. Of the purchase price, Stratos Peru held back
$350,000, or the Holdback, representing approximately 7.74% of the purchase
price, which was placed into an escrow contingencies account with Banco
Continental in Lima, Peru, or the Escrow Account.
 
 On July
1, 2008, Stratos Peru and the Company agreed to release the Holdback to the
Company, subsequent to which the Company issued Gabinete an unsecured
convertible promissory note in the principal amount of $350,000, for the Company
to use as working capital. The parties have also terminated the Escrow Agreement
in order to transfer the funds from the Escrow Account to the Company as
consideration for the note. If any liability issues arise with respect to the
sugar mill, the amount will be offset from or against amounts payable by the
Company to Gabinete under the note.
 
 The note
will mature on October 30, 2009, and bears interest at the rate of 8% per annum,
payable at the maturity date. Gabinete has the option to convert 110% of the
repayment amount into units of the Company at $0.70 per unit, with each unit
consisting of (i) one share of common stock and (ii) one half of a warrant to
purchase a share of the Company’s common stock at an exercise price of $0.75 per
share, with a five-year term and cashless exercise provision.
    See
report of independent registered public accounting firm.
 F-22
 
  Stratos
Renewables Corporation and Subsidiaries
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 For
the Year Ended December 31, 2008, for the
 Period
from February 27, 2007 (Date of Inception) to December 31, 2007,
 And
for the Period from February 27, 2007 (Date of Inception) to December 31,
2008
 The fair
value of the beneficial conversion feature associated with the convertible
promissory note was $205,503, which is recorded as debt discounts and will be
amortized over the term of the convertible promissory note.
 
 Convertible Note
Financing
 
 During
the year ended December 31, 2008, the Company issued unsecured convertible
promissory notes in the principal amount of $1,850,000, and warrants to purchase
up to 435,292 shares of common stock of the Company, to unaffiliated third party
investors. The Company received gross proceeds of $1,850,000, less fees of
$47,500 of the purchase price paid and other expenses. The notes mature at
various times between November 23, 2008 and January 1, 2009, and bear interest
at the rate of 12% per annum, payable in full at maturity. If at least $25
million is not raised by the Company on or before the applicable maturity date,
the Company will have an additional 3 months (extending the maturity date) to
repay the note holders in full before the notes are in default. If the notes are
not paid on or before the applicable maturity date, the Company will pay the
interest rate plus 2% per annum and increasing by 2% per annum each 30 days
thereafter until the extended maturity date, provided that in no event will the
annual interest rate exceed 18%. The note holders will be entitled to receive
115% of the sum of the original principal and accumulated interest, if the note
holders choose to be repaid in cash on the maturity date. The note holders will
have the option to convert 110% of the repayment amount into shares of common
stock at $0.70 per share. The note holders will also be paid a monitoring fee of
5% of the original principal amount of the note. If the note is not paid on or
before the maturity date (as extended), the Company will issue to the note
holders shares of the common stock equal to 5% of the then unpaid portion of the
original principal amount divided by $0.85, on each of the dates that are 7, 8
and 9 months from the date of issuance. The warrants expire 5 years from their
various dates of issuance, and have an exercise price of $0.85 per share. They
also contain a cashless exercise provision.
 
 A portion
of the $1,850,000 proceeds from the convertible promissory notes were allocated
to the detachable warrants. The fair value of the 435,292 warrants issued in
connection with this transaction was $181,420. The fair value was determined
using the Black-Scholes option pricing model with the following
assumptions:  term of 5 years, a risk free interest rate ranging
between 2.73% through 3.42%, a dividend yield of 0%, and volatility
of 100%.
 
 In
addition, the fair value of the beneficial conversion feature associated with
the convertible promissory notes was $592,169. Both the value assigned to the
warrants of $181,420 and the beneficial conversion feature of $592,169 are
recorded as debt discounts and will be amortized over the terms of the
convertible promissory notes.
 
 As of
December 31, 2008, the Company received extensions on these convertible
promissory notes that extend the maturity dates between February 23, 2009 and
April 18, 2009.  The Company has not made the necessary re-payments
subsequent to year end to meet the extended maturity dates on certain of these
convertible promissory notes that total $1,450,000; however, the Company is
currently in negotiations with the convertible promissory note holders to
further extend these maturity dates.
    See
report of independent registered public accounting firm.
 F-23
 
  Stratos
Renewables Corporation and Subsidiaries
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 For
the Year Ended December 31, 2008, for the
 Period
from February 27, 2007 (Date of Inception) to December 31, 2007,
 And
for the Period from February 27, 2007 (Date of Inception) to December 31,
2008
 Issuance of $2,000,000
Secured Convertible Promissory Note
 
 On July
25, 2008, the Company completed a financing pursuant to which the Company issued
a secured convertible promissory note, in the principal amount of $2,000,000,
and warrants to purchase up to 714,286 shares of common stock of the Company, to
Whitebox Hedged High Yield Partners, LP, a British Virgin Islands limited
partnership. The Company received gross proceeds of $2,000,000, less fees of 10%
of the purchase price paid and other expenses. The Company is using the proceeds
as working capital. The note matures on December 31, 2009, or if the note holder
elects to accelerate the maturity date, July 23, 2009. The note bears interest
at the rate of 12% per annum, payable in full at the maturity
date.
  So long
as any principal or interest remains outstanding under the note, the note holder
will have the right to participate in debt or equity financings undertaken by
the Company, up to a maximum of 25% of the amounts raised by the Company in any
such financing, on the same terms as the other participants of such
financing.
 
 The note
may be prepaid by the Company in whole but not in part from time to time. If the
note is prepaid by the Company more than 30 days prior to the maturity date, the
Company has agreed to pay the note holder a prepayment fee equal to 25% of the
sum of the principal amount of the note and all accrued and unpaid interest. The
note holder will have the option to convert all of the unpaid principal and
accrued and unpaid interest on the note plus any prepayment fee, if applicable,
into shares of common stock of the Company at a conversion price of $0.70 per
share. Under certain circumstances, such as in the event of the sale of
securities of the Company at a price less than $0.70 per share, the conversion
price will be subject to adjustment. Upon the occurrence of any event of
default, in addition to all amounts owing to the note holder under the note
becoming due and payable in full, the Company will pay to the note holder an
additional sum of $100,000.
  The
warrants have a five-year term and an exercise price of $0.75 per share. The
warrants also contain certain provisions for the adjustment of the exercise
price in the event that during the term of the warrants, the Company sells
securities below the current exercise price of $0.75. This could result in an
exercise price of less than $0.75 per share. The warrants also contain a
cashless exercise provision.
 
 The
Company has also agreed to provide the note holder with piggyback registration
rights, pursuant to which the Company will use its best efforts to register the
shares issuable upon the conversion of the note and the exercise of the warrants
in the event that it proposes to register any of its securities under the
Securities Act of 1933, prior to July 25, 2010.
  The note
is secured by 100% of the shares owned by the Company in its wholly-owned U.S.
subsidiary and its two Peruvian subsidiaries.
 
 A portion
of the $2,000,000 proceeds from the convertible promissory notes was allocated
to the detachable warrants. The fair value of the 714,286 warrants issued in
connection with this transaction was $373,529. The fair value was determined
using the Black-Scholes option pricing model with the following
assumptions:  term of 5 years, a risk free interest rate of
3.01%, a dividend yield of 0%, and volatility of 100%.
 
 In
addition, the fair value of the beneficial conversion feature associated with
the convertible promissory notes was $922,914. Both the value assigned to the
warrants of $373,529 and the beneficial conversion feature of $922,914 was
recorded as debt discounts and is being amortized over the terms of the
convertible promissory note.
    See
report of independent registered public accounting firm.
 F-24
 
  Stratos
Renewables Corporation and Subsidiaries
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 For
the Year Ended December 31, 2008, for the
 Period
from February 27, 2007 (Date of Inception) to December 31, 2007,
 And
for the Period from February 27, 2007 (Date of Inception) to December 31,
2008
 Issuance of $5,000,000
Unsecured Convertible Promissory Note
 
 On August
27, 2008, the Company completed a financing pursuant to which the Company issued
an unsecured convertible promissory note in the principal amount of $5,000,000,
and warrants to purchase up to 2,500,000 shares of common stock of the Company,
to an unaffiliated accredited investor. The Company received gross proceeds of
$5,000,000, less placement fees of 10% of the principal amount of the note and
other expenses.  In connection with this financing, the Company also
issued warrants to purchase 357,143 shares of common stock of the Company to a
finder.  The warrants were valued at $186,747 using the Black-Scholes
option pricing model and are included in the debt issuance costs on the
accompanying consolidated financial statements.  The Company is using
the proceeds as working capital. The note matures on December 31, 2009, or if
the note holder elects to accelerate the maturity date, July 23, 2009. The note
bears interest at the rate of 10% per annum, payable in full at the maturity
date.
  The note
may be prepaid by the Company in whole, but not in part, from time to time. If
the note is prepaid by the Company more than 30 days prior to the maturity date,
the Company has agreed to pay the note holder a prepayment fee equal to 15% of
the sum of the principal amount of the note and all accrued and unpaid interest.
Upon the occurrence of any event of default, all amounts owing to the note
holder under the note become due and payable in full.
 
 At any
time prior to payment in full of the note, the note holder has the option to
convert any, or all of, the unpaid principal and accrued and unpaid interest on
the note plus any prepayment fee, if applicable, into shares of common stock of
the Company at a conversion price of $0.70 per share. Under certain
circumstances, such as in the event of the sale of securities of the Company at
a price less than $0.70 per share, the conversion price will be subject to
adjustment.
  So long
as the note is outstanding, the Company and its subsidiaries are restricted from
incurring certain items of debt without the prior written consent of the holders
a majority of the then outstanding aggregate unpaid principal amount of the note
(plus any other additional notes of the same series which may be issued in the
future, if at all, in the aggregate amount of up to $10,000,000).
 
 The
warrants may be exercised at any time from and after the date commencing
February 27, 2009, and through and including August 27, 2013. The warrants have
an exercise price of $0.75 per share. The warrants also contain certain
provisions for the adjustment of the exercise price in the event that during the
term of the warrants, the Company sells securities below the stated conversion
price of the note. This could result in an exercise price of less than $0.75 per
share. The warrants also contain a cashless exercise provision. To date, the
warrants have not been exercised.
 
 The
Company has also agreed to provide piggyback registration rights with respect to
the shares to be issued upon conversion, pursuant to which the Company will use
its best efforts to register such shares in the event that it proposes to
register any of its securities under the Securities Act.
 
 A portion
of the $5,000,000 proceeds from the convertible promissory notes was allocated
to the detachable warrants. The fair value of the 2,500,000 warrants issued in
connection with this transaction was $1,307,225.  The fair value was
determined using the Black-Scholes option pricing model with the following
assumptions:  term of 5 years, a risk free interest rate of
3.02%, a dividend yield of 0%, and volatility of 100%.
    See
report of independent registered public accounting firm.
 F-25
 
  Stratos
Renewables Corporation and Subsidiaries
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 For
the Year Ended December 31, 2008, for the
 Period
from February 27, 2007 (Date of Inception) to December 31, 2007,
 And
for the Period from February 27, 2007 (Date of Inception) to December 31,
2008
 In
addition, the fair value of the beneficial conversion feature associated with
the convertible promissory notes was $2,226,455. Both the value assigned to the
warrants of $1,307,225 and the beneficial conversion feature of $2,226,455 is
recorded as debt discounts and will be amortized over the terms of the
convertible promissory note.
 
 Consulting
Agreements
 
 In
November 2008, the Company entered into consulting agreements with five
unaffiliated third parties.  As part of the consulting agreement, the
Company issued five separate convertible notes with an aggregate principal
amount of $95,000.  The convertible notes mature on various dates
between November 17, 2009 and November 24, 2009.  Each note bears an
interest rate of 5% per annum and is convertible into shares of common stock at
$0.70 per share.  The Company determined that the convertible notes
contained a beneficial conversion feature as the conversion price of $0.70 was
below the market price on the date of the agreement.  The intrinsic
value of the beneficial conversion feature was $20,286, which was recorded as a
debt discount and will be amortized over the life of the convertible
notes.
 
 A summary
of the convertible promissory notes and related discounts is below:
  Unsecured
                
                
                SecuredBridge
                
                
                Convertible
                
                
                ConvertibleDescription
                
                Financing
                
                
                Notes
                
                
                Notes
                
                
                CombinedBalance,
      December 31, 2007
                
                $
                3,048,000
                
                
                $
                -
                
                
                $
                -
                
                
                $
                3,048,000Debt
      discounts
                
                
                (552,369
                )
                
                
                -
                
                
                
                -
                
                
                
                (552,369
                )Balance,
      December 31, 2007, net
                
                
                2,495,631
                
                
                
                -
                
                
                
                -
                
                
                
                2,495,631Issuance
      of additional notes
                
                
                -
                
                
                
                7,295,000
                
                
                
                2,000,000
                
                
                
                9,295,000Debt
      discounts
                
                
                -
                
                
                
                (4,533,057
                )
                
                
                (1,296,443
                )
                
                
                (5,829,500
                )Payments
      made
                
                
                (2,798,000
                )
                
                
                -
                
                
                
                -
                
                
                
                (2,798,000
                )Amortization
      of debt discounts
                
                
                552,369
                
                
                
                1,743,324
                
                
                
                393,386
                
                
                
                2,689,079Conversion
      of notes for common shares
                
                
                (250,000
                )
                
                
                -
                
                
                
                -
                
                
                
                (250,000
                )Balance,
      December 31, 2008, net
                
                $
                -
                
                
                $
                4,505,267
                
                
                $
                1,096,943
                
                
                $
                5,602,210
  The
Company has recorded interest expense of $1,317,300, $721,462 and $2,038,762 for
the year ended December 31, 2008, for the period from February 27, 2007 (date of
inception) to December 31, 2007, and for the period from February 27, 2007 (date
of inception) to December 31, 2008, respectively.
 
 The
Company amortized debt discounts and debt issuance costs of $3,171,049, $609,317
and $3,780,366 for the year ended December 31, 2008, for the period from
February 27, 2007 (date of inception) to December 31, 2007, and for the period
from February 27, 2007 (date of inception) to December 31, 2008,
respectively.
    See
report of independent registered public accounting firm.
 F-26
 
 Stratos
Renewables Corporation and Subsidiaries
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 For
the Year Ended December 31, 2008, for the
 Period
from February 27, 2007 (Date of Inception) to December 31, 2007,
 And
for the Period from February 27, 2007 (Date of Inception) to December 31,
2008
 Note
6 – Accrued Beneficial Conversion Liability
 
 The
Bridge Financing agreement as discussed in Note 5, did not meet the definition
of a “conventional convertible debt instrument” in accordance with EITF 00-19
since the debt is not convertible into a fixed number of shares. The debt
can be converted into common stock at a conversion price that is a percentage of
the market price. Therefore, the number of shares that could be required to be
delivered upon “net-share settlement” is essentially indeterminate. As such, all
convertible promissory notes are considered “non-conventional,” and the
detachable warrants and the conversion feature are to be bifurcated from the
debt and shown as a separate derivative liability.
 
 In
September 2008, the Company reclassified the beneficial conversion feature of
$3,686,052 from liability to equity in accordance with EITF
00-19.  The reclassification was due to the Company repaying all of
the outstanding principal, interest and premiums of the $3,048,000 convertible
notes. Because the convertible promissory notes were fully paid in September
2008, the Company is no longer required to show the conversion feature as a
derivative liability on the accompanying consolidated balance sheets. The
Company valued the beneficial conversion features for all convertible promissory
notes on the date that the final payment of principal and interest was made on
the $3,048,000 Bridge Financing and reclassified $3,686,051 from accrued
beneficial conversion liability to additional paid-in-capital in the
consolidated balance sheets.  The Company recorded gains on the change
in the accrued beneficial conversion liability of $511,926, $624,052, and
$1,135,978 for the year ended December 31, 2008, for the period from February
27, 2007 (date of inception) to December 31, 2007, and for the period from
February 27, 2007 (date of inception) to December 31, 2008,
respectively.
 
 Note
7 – Accrued Warrant Liability
 
 The
Company has issued warrants as part of the debt issuances, stock issuances and
consulting services.  The warrants meet the definition of a derivative
instrument in accordance with SFAS 133, and therefore, should be accounted for
as a derivative instrument. However, SFAS 133, paragraph 11(a) provides an
exemption for instruments that are (i) classified in stockholders’ equity and
(ii) are “indexed to the issuer’s own stock.”  In order to be
classified in stockholder’s equity, they must meet all the criteria in EITF
00-19.  The warrant agreements have clauses that allow the holders to
exchange the warrants for securities, cash or property if the Company effects
any merger or consolidation.  This clause causes the warrants to fail
one of the criteria. Therefore, the warrants are initially recorded as accrued
warrant liabilities at their fair values on the date of issuance with subsequent
changes in value being recorded in operations.
 
 The fair
value of the accrued warrant liabilty at December 31, 2008 and 2007 was
$2,652,692 and $1,164,501, respectively.  The Company recorded gains
on the change in the accrued warrant liability of $1,410,799, $95,972, and
$1,506,771 for the year ended December 31, 2008, for the period from February
27, 2007 (date of inception) to December 31, 2007, and for the period from
February 27, 2007 (date of inception) to December 31, 2008,
respectively.
 
 Note
8 - 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 December 31, 2008 and 2007
there was $30,181 of accrued interest. This amount has been eliminated in
consolidation.
    See
report of independent registered public accounting firm.
 F-27
 
  Stratos
Renewables Corporation and Subsidiaries
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 For
the Year Ended December 31, 2008, for the
 Period
from February 27, 2007 (Date of Inception) to December 31, 2007,
 And
for the Period from February 27, 2007 (Date of Inception) to December 31,
2008
 Note
9 - Income taxes
  In
accordance with SFAS 109, deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial statement purposes and the amounts used for income tax purposes. The
Company has incurred net operating losses in Peru and the United States for
income tax purposes from February 27, 2007 (date of inception) through December
31, 2008.  The Company has incurred losses for U.S. income tax
purposes of approximately $7,123,000 which can be used to offset future years’
taxable income, and these losses expire in the year ending 2028 for federal tax
purposes and in the year ending 2018 for state purposes.  The
Company’s Peruvian subsidiaries have combined tax losses of approximately
$4,578,000 to offset future years’ taxable income earned in Peru expiring in
fiscal year 2012.  Management believes that the realization of the
benefits from these losses appears uncertain due to the Company’s limited
operating history and continuing losses for income tax purposes. Accordingly,
the Company has provided a 100% valuation allowance on the deferred tax asset
benefit to reduce the asset to zero. The net change in the valuation allowance
for the year ended December 31, 2008 was an increase of $4,047,491. Management
will review this valuation allowance periodically and make adjustments as
warranted.
 
 Significant
components of the Company’s deferred tax assets and liabilities at December 31,
2008 are as follows:
  Peru
                
                
                U.S.
                
                
                TotalDeferred
      tax assets (liabilities):Net
      operating loss carryforwards
                
                $
                1,373,311
                
                
                $
                3,051,579
                
                
                $
                4,424,890Deferred
      tax assets, net
                
                
                1,373,311
                
                
                
                3,051,579
                
                
                
                4,424,890Valuation
      allowance
                
                
                (1,373,311
                )
                
                
                (3,051,579
                )
                
                
                (4,424,890
                )Net
      deferred tax assets
                
                $
                -
                
                
                $
                -
                
                
                $
                -
    See
report of independent registered public accounting firm.
 F-28
 
  Stratos
Renewables Corporation and Subsidiaries
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 For
the Year Ended December 31, 2008, for the
 Period
from February 27, 2007 (Date of Inception) to December 31, 2007,
 And
for the Period from February 27, 2007 (Date of Inception) to December 31,
2008
 Significant
components of the Company’s deferred tax assets and liabilities at December 31,
2007 are as follows:
  Peru
                
                
                U.S.
                
                
                TotalDeferred
      tax assets (liabilities):Net
      operating loss carryforwards
                
                $
                147,003
                
                
                $
                230,396
                
                
                $
                377,399Deferred
      tax assets, net
                
                
                147,003
                
                
                
                230,396
                
                
                
                377,399Valuation
      allowance
                
                
                (147,003
                )
                
                
                (230,396
                )
                
                
                (377,399
                )Net
      deferred tax assets
                
                $
                -
                
                
                $
                -
                
                
                $
                -
  A
reconciliation of the statutory income tax rate and the effective income tax
rate for the year ended December 31, 2008, and for the period from inception
(February 27, 2007) to December 31, 2007, is as follows:
  February
      27, 2007(date
      of inception)December
      31,
                
                
                to
      Decmeber 31,2008
                
                
                2007Statutory
      federal income tax rate
                
                
                (0.34
                )
      %
                
                
                (0.34
                )
      %State
      income taxes (benefit), net of federal taxes
                
                
                (0.09
                )
                
                
                (0.09
                )Difference
      in foreign rate
                
                
                0.05
                
                
                
                0.04Change
      in derivative liabilities
                
                
                (0.07
                )
                
                
                (0.20
                )Non-cash
      financing costs
                
                
                0.10
                
                
                
                0.34Other
                
                
                0.01
                
                
                
                -Valuation
      allowance
                
                
                0.34
                
                
                
                0.25Effective
      income tax rate
                
                
                -
                %
                
                
                -
                %
  The
provision for income taxes for the year ended December 31, 2008 of $850 is
related to a mandatory state tax.
 
 Note
10 - Commitments and contingencies
 
 Leases
 
 The
Company entered into a four-year lease agreement for office space in Lima, Peru,
for monthly payments of $6,179. The lease began in January 2008.  The
Company recorded rent expense of $74,148 for the year ended December 31,
2008.
 
 The
Company entered into a one-year lease for office space in Chiclayo, Peru for
monthly payments of $1,140 for the first five months and $1,055 for next seven
months.  The lease began September 1, 2008.  The Company
recorded rent expense of $4,560 for the year ended December 31, 2008. The future
minimum lease payments under these leases, with the exception of the land lease
referred to below, are as follows:
  Years
      EndingDecember
      31,
                
                Amount2009
                
                $
                84,8972010
                
                
                78,6642011
                
                
                81,024Total
                
                $
                244,585
    See
report of independent registered public accounting firm.
 F-29
 
 Stratos
Renewables Corporation and Subsidiaries
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 For
the Year Ended December 31, 2008, for the
 Period
from February 27, 2007 (Date of Inception) to December 31, 2007,
 And
for the Period from February 27, 2007 (Date of Inception) to December 31,
2008
 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 for the first year, $240,000 after the
first year until the initial harvest, and then $1,200,000
thereafter.  The annual lease cost per hectare of land is increased
from $8 per hectare for the first year to $10 per hectare beginning in the
second year until the Company begins to harvest.  Once the Company
begins to harvest, the Company is to pay $50 per hectare until the end of the
term.
 
 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
- Related party transactions
 
 On
January 7, 2008, Stratos Peru entered into a Consulting Services Agreement with
a consulting company, or Consultant, pursuant to which the Consultant agreed to
provide consulting services, including updating the use of funds for Phase I and
structuring a financial model for the simulation of various scenarios regarding
the Company’s ethanol production. Mr. Salas, former director and Chief Executive
Officer, owns 95% of the Consultant and the Chief Executive Officer of the
Consultant is the wife of Mr. Salas.  Mr. Salas was also a former
member of the Board of Directors of the Consultant.  As of December
31, 2008, the Company has paid the Consultant $230,000.
 
 On March
10, 2008, Stratos Peru entered into a services agreement with Iberocons S.A. or
Iberocons, pursuant to which Iberocons has conducted a feasibility analysis of
using desalinated sea water as part of the irrigation process for the Company’s
greenfields. The agreement was terminated on April 29, 2008. During the year
ended December 31, 2008, the Company paid $33,000 for the services. Antonio
Salas, the Company’s former director and Chief Executive Officer, is a 10% owner
of Iberocons. Mr. Salas resigned as the Company’s director and Chief Executive
Officer on October 3, 2008.
 
 As
discussed in Note 5, the Company completed a Series A Private Placement and
issued to MA Green 7,142,857 shares of Series A preferred stock and warrants to
purchase 1,785,714 shares of common stock. The gross proceeds raised by the
Company in connection with the Series A Private Placement were $5,000,000. The
Company’s Chairman of the Board of Directors, Steven Magami, is the manager of
MA Green.
    See
report of independent registered public accounting firm.
 F-30


9.  Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
 
 None.





Item
9A.  Controls and Procedures





Evaluation of Disclosure
Controls and Procedures





The
Company’s Chief Executive Officer and Chief Financial Officer have
evaluated the effectiveness of the Company’s disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of
December 31, 2008. Based upon such evaluation, the Chief Executive Officer
and Chief Financial Officer have concluded that, as of December 31, 2008, the
Company’s disclosure controls and procedures were ineffective. This conclusion
by the Company’s Chief Executive Officer and Chief Financial
Officer does not relate to reporting periods after December 31,
2008.





Management’s Report on
Internal Control Over Financial Reporting





Under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting as of December
31, 2008, based on the framework stated by the Committee of Sponsoring
Organizations of the Treadway Commission. Furthermore, due to our financial
situation, we will be implementing further internal controls as we become
operative so as to fully comply with the standards set by the Committee of
Sponsoring Organizations of the Treadway Commission.





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in
Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control
system was designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes, in accordance with generally accepted accounting principles. Because
of inherent limitations, a system of internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate due to change in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.





Based on
its evaluation as of December 31, 2008, our management concluded that our
internal controls over financial reporting were ineffective as of December 31,
2008. A material weakness is a deficiency, or a combination of control
deficiencies, in internal control over financial reporting such that there is a
reasonable possibility that a material misstatement of the Company’s annual or
interim financial statements will not be prevented or detected on a timely
basis.









32




The
material weakness relates to the following:


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





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





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


.


This annual report does not include an
attestation report of the Company’s independent registered public accounting
firm regarding internal control over financial reporting. Management’s report
was not subject to attestation by our registered public accounting firm pursuant
to temporary rules of the SEC that permit us to provide only management’s report
in this Annual Report on Form 10-K.





Changes in Internal Control
Over Financial Reporting





No change
in the Company’s internal control over financial reporting occurred during the
fourth quarter ended December 31, 2008, that materially affected, or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting.




Item
9B. Other Information





None.





PART
III





Item
10.  Directors, Executive Officers and Corporate
Governance





Directors
and Officers





Our
directors are elected annually and serve until the next annual meeting of the
stockholders or until their successors are elected and qualify, subject to their
prior death, resignation or removal. Officers serve at the discretion of our
Board of Directors. There are no family relationships among any of our directors
and executive officers. Our board members are encouraged to attend meetings of
the Board of Directors and the annual meeting of stockholders.




The
following table sets forth certain biographical information with respect to our
directors and executive officers:





Name
            
            Age
            
            PositionSteven
      Magami
            
            32
            
            Chairman
      of the Board of DirectorsStephen
      Norris
            
            59
            
            DirectorJose
      Gonzales
            
            51
            
            DirectorThomas
      Snyder
            
            70
            
            President
      and Chief Executive OfficerJorge
      Eduardo Aza
            
            35
            
            Chief
      Operating OfficerJulio
      Cesar Alonso
            
            29
            
            Chief
      Financial Officer and TreasurerSanjay
      Pai
            
            50
            
            Chief
      Strategy OfficerValerie
      Broadbent
            
            70
            
            Secretary





Steven S. Magami, Chairman of the
Board of Directors, has led a career as a private equity investor and
C-level executive, with a particular focus on the renewable energy &
financial services industries.  Mr. Magami is the Chairman of Stratos
Renewables Corporation, a large-scale agro-energy project based in Latin America
which Mr. Magami co-founded and was the founding investor in.  He is also a
Partner of ARC Investment Partners, a private equity firm backed by prominent
U.S. families, which he helped build with an emphasis on renewable energy
companies in emerging markets.  Among other portfolio companies, Mr. Magami
financed and helped build one of the largest biodiesel facilities in the world
based in Latin America.  Previously, Mr. Magami managed private equity
funds, with a primary focus on the financial services industry, on behalf of
Goldman Sachs & GE among others, and built a successful portfolio of 20
companies through buyouts and growth capital and venture investments yielding
top decile returns in the industry.   He started his career as an
investment banker advising well-known buyout firms on industry roll-up &
consolidation strategies.  Mr. Magami is a member of the Board of EMQ
Children’s Services, and is active in various philanthropic and charitable
causes.




33





Stephen Norris, Vice Chairman of the
Board of Directors, was a co-founder of The Carlyle Group and served as
President of its management company for 10 years. Mr. Norris played a major role
in recruiting former President, George W. Bush, to serve as director of one of
its portfolio companies in addition to enlisting former Secretary of State James
Baker III and former Secretary of Defense Frank C. Carlucci to be senior
partners of Carlyle.  He was appointed by President George H. W. Bush
to serve as one of five governing members of the $100 billion Federal Retirement
System Thrift Investment Board.  He earned a BS and JD from the
University of Alabama, was a fellow at Yale Law School and earned an LLM in
Taxation from New York University.





Jose Gonzales,
Director, has 27 years of managerial experience in industry,
academia, and the Navy (recently retired as a Rear Admiral upper half), with
past successful experience in planning, organizing, leading and supervising
multi-party projects under cost and time constraints, enhancing teamwork,
communication and creative problem solving skills. He graduated from the U.S.
Naval Academy in 1979, with a B.Sc. in Naval Architecture.  After a
three-year sea duty, he attended MIT graduating with a Professional Degree in
Ocean Engineering and a M.Sc. in Systems Management in 1984.  After
six years as Superintendent of Shipbuilding and Ship-repair at SIMA ́s Naval
Shipyard, he attended Harvard University graduating as an MPA in
1991.  He was Under Secretary of the Peruvian Navy from 1998 until
1999 and Chairman of the Board of the Naval Retirement Fund from 2005 until
2007.





Thomas Snyder, President and Chief
Executive Officer, has overseen the execution of more than 40 complex
industrial projects (construction of fertilizer/ammonia/oil &
gas/petro-chemical facilities) in more than 20 countries, having a track record
as CEO of companies with interests throughout the world.  These
companies have been well known for developing innovative means of financing and
structuring complex transactions. Mr. Snyder has raised more than $2 billion of
equity and project finance debt and has successfully formed and managed joint
ventures with governments, banks, insurance companies, OPIC and global
investment groups.





Jorge Eduardo Aza, Chief Operating
Officer, has over a decade of experience in the supply chain management
industry.  Mr. Aza has developed logistic projects in the mining
industry, has experience in freight forwarding operations, and has held
financial positions with different global logistics companies such as Eagle
Global Logistic and UTI Worldwide Inc.  Mr. Aza holds a B.S.c. degree
in Business Administration and Finance from UPC, a member of Laureate
Universities in Peru.




Julio Cesar Alonso, Chief Financial
Officer and Treasurer, previously served as a senior financial auditor of
PricewaterhouseCoopers, leading teams for planning and execution of financial
audits for local companies such as Nextel del Perú, Grupo Backus, Grupo Graña y
Montero, Grupo Quimica Suiza, IBM del Peru, Kraft Foods del Perú, Eckerd Peru
and Talma Menzies, and international companies such as Rentokil US Pest Control
and Teleflex Corp.  Mr. Alonso has participated as a team member of
the Transaction Services Group in charge of all due diligence projects for
PricewaterhouseCoopers. He also has experience working for cargo transportation
and integrated logistics companies. Mr. Alonso holds a B.S.c. in Business
Administration and Finance from the UPC, a member of Laureate Universities in
Peru.





Sanjay Pai, Chief Strategy
Officer, was a founding investor and director of Comanche Clean Energy, a
Brazilian sugarcane ethanol company. Mr. Pai has worked closely with Comanche
management to raise more than $200 million and build the company including the
purchase of two facilities and build one new state of the art
facility.  His involvement in the sugarcane industry dates back to the
early 1990s when he advised a Brazilian sugarcane cooperative.  Along
with English, Mr. Pai is fluent in Hindi, Italian, Portuguese, Spanish and
French.




34




Valerie Broadbent, Secretary,is the managing member of Berkeley Consulting Group, LLC and Chief
Administrative Officer of MBA Holdings, LLC, which consults and advises
companies on organization, corporate administration and business
strategies.  Ms. Broadbent has more than 30 years of experience
working in corporate administration for both public companies and in the private
sector. She has previously served as corporate secretary for three public
companies and a variety of other private companies.




To the
best of our knowledge, none of our directors, executive officers, promoters or
control persons, or any nominated directors, has been involved in any of the
following events during the past five years:




·
            any
      bankruptcy petition filed by or against any business of which such person
      was a general partner or executive officer either at the time of the
      bankruptcy or within two years prior to that
  time;




·
            any
      conviction in a criminal proceeding or being subject to a pending criminal
      proceeding, excluding traffic violations and other minor
      offences;




·
            being
      subject to any order, judgment or decree, not subsequently reversed,
      suspended or vacated, of any court of competent jurisdiction, permanently
      or temporarily enjoining, barring, suspending or otherwise limiting his
      involvement in any type of business, securities or banking activities;
      or




·
            being
      found by a court of competent jurisdiction in a civil action, the SEC or
      the Commodity Futures Trading Commission to have violated a federal or
      state securities or commodities law, and the judgment has not been
      reversed, suspended, or vacated.




Board
of Directors




Our Board
of Directors is currently composed of three members, Steven Magami, Stephen
Norris and Jose Gonzales. Steven Magami is our Chairman of the Board of
Directors. In this capacity, he is responsible for presiding at meetings of the
Board of Directors and exercising and performing such other powers and duties as
may be from time to time assigned by the Board of Directors or prescribed by our
Amended and Restated Bylaws.





Director
Qualifications




We
believe that our directors should have the highest professional and personal
ethics and values, consistent with our longstanding values and standards. They
should have broad experience at the policy-making level in business or banking.
They should be committed to enhancing stockholder value and should have
sufficient time to carry out their duties and to provide insight and practical
wisdom based on experience. Their service on other boards of public companies
should be limited to a number that permits them, given their individual
circumstances, to perform responsibly all director duties for us. Each director
must represent the interests of all stockholders. When considering potential
director candidates, the Board of Directors also considers the candidate’s
character, judgment, diversity, age and skills, including financial literacy and
experience in the context of our needs and the needs of the Board of
Directors.




Board
Committees




Audit
Committee.




We have
adopted an Audit Committee Charter, although at this time, we do not yet have a
separately designated standing audit committee. Pursuant to Section 3(a)(58)(B)
of the Exchange Act, the entire Board of Directors acts as an audit committee
for the purpose of overseeing the accounting and financial reporting processes,
and audits of our financial statements. The SEC recently adopted new regulations
relating to audit committee composition and functions, including disclosure
requirements relating to the presence of an “audit committee financial expert”
serving on its audit committee. We have only recently begun increasing our
operations, and we are now seeking to acquire an independent director who
qualifies as an “audit committee financial expert” as soon as reasonably
practicable. Our current directors, by virtue of their education and past
employment experience, have considerable knowledge of financial statements,
finance, and accounting, and have significant employment experience involving
financial oversight responsibilities. Accordingly, we believe that our current
directors capably fulfill the duties and responsibilities of an audit committee
in the absence of such a designated expert at this time.




35




Our Audit
Committee will oversee our accounting and financial reporting processes,
internal systems of accounting and financial controls, relationships with
independent auditors and audits of financial statements. Specific
responsibilities include the following:




·
            selecting,
      hiring and terminating our independent
auditors;




·
            evaluating
      the qualifications, independence and performance of our independent
      auditors;




·
            approving
      the audit and non-audit services to be performed by our independent
      auditors;





·
            reviewing
      the design, implementation, adequacy and effectiveness of our internal
      controls and critical accounting
policies;




·
            overseeing
      and monitoring the integrity of our financial statements and our
      compliance with legal and regulatory requirements as they relate to
      financial statements or accounting
matters;




·
            reviewing
      with management and our independent auditors any earnings announcements
      and other public announcements regarding our results of operations;
      and




·
            preparing
      the audit committee report that the Commission requires in our annual
      proxy statement.




Compensation
Committee and Nominating and Corporate Governance Committee.




We have
adopted a Compensation Committee charter and a Nominating and Governance
Committee charter, although we have not yet designated a Compensation Committee
or a Nominating committee, due to our lack of independent directors. We intend
to retain independent directors to serve on these committees, as soon as
reasonably practicable.




Our
Compensation Committee will assist our Board of Directors in determining the
development plans and compensation of our executive officers and employees.
Specific responsibilities include the following:




·
            approving
      the compensation and benefits of our executive
  officers;




·
            reviewing
      the performance objectives and actual performance of our executive
      officers; and




·
            administering
      our stock option and other equity compensation
  plans.




Our
Nominating and Governance Committee will assist the Board of Directors by
identifying and recommending individuals qualified to become members of our
Board of Directors, reviewing correspondence from our stockholders,
establishing, evaluating and overseeing our corporate governance guidelines, and
recommending compensation plans for our directors. Specific responsibilities
include the following:




·
            evaluating
      the composition, size and governance of our Board of Directors and its
      committees and making recommendations regarding future planning and the
      appointment of directors to our
committees;




·
            establishing
      a policy for considering stockholder nominees for election to our Board of
      Directors;




·
            evaluating
      and recommending candidates for election to our Board of Directors;
      and




36




·
            recommending
      and determining the compensation of our
  directors.




Board
Meetings




Our Board
of Directors held 13 formal meetings during the year ended December 31,
2008.  Each Director attended at least 75% of the meetings of the
Board of Directors and the Board Committees of which he was a
member.




Code
of Ethics




Our Chief
Executive Officer and all senior financial officers, including the Chief
Financial Officer, are bound by a Code of Ethics that complies with Item 406 of
Regulation S-B of the Exchange Act.




A Code of
Ethics relates to written standards that are reasonably designed to deter
wrongdoing and to promote:




·
            honest
      and ethical conduct, including the ethical handling of actual or apparent
      conflicts of interest between personal and professional
      relationships;




·
            full,
      fair, accurate, timely and understandable disclosure in reports and
      documents that are filed with, or submitted to, the SEC and in other
      public communications made by an
issuer;





·
            compliance
      with applicable governmental laws, rules and
  regulations;




·
            the
      prompt internal reporting of violations of the code to an appropriate
      person or persons identified in the code;
and




·
            accountability
      for adherence to the code.




Insider
Trading Policy




In order
to take an active role in the prevention of insider trading violations by our
officers, directors, employees and other related individuals, we have
adopted an Insider Trading Policy and Whistleblower Policy and
Procedures.




Foreign
Corrupt Practices Act




We have
adopted policies and procedures relating to the U.S. Foreign Corrupt
Practices Act, or the FCPA.  The FCPA makes it illegal to give or
offer to give money or anything of value to a foreign official, a foreign
political party, a party official or a candidate for political office in order
to influence official acts or decisions of that person or entity, to obtain or
retain business, or to secure any improper advantage.  It is our policy
that Stratos, our directors, officers, employees and agents strictly comply with
the FCPA in the U.S. and in every jurisdiction in which we operate.




Stockholder
Relations




We do not
have any restrictions on stockholder nominations under our Amended and Restated
Articles of Incorporation or Amended and Restated Bylaws. The only restrictions
are those applicable generally under Nevada law. Currently, the entire Board of
Directors decides on nominees, on the recommendation of one or more members of
the Board of Directors. The Board of Directors will consider suggestions from
individual stockholders, subject to evaluation of the person’s merits.
Stockholders may communicate nominee suggestions directly to any of the board
members, accompanied by biographical details and a statement of support for the
nominees. The suggested nominee should also provide a statement of consent to
being considered for nomination. Although there are no formal criteria for
nominees, our Board of Directors believes that persons should be actively
engaged in business endeavors, have a financial background, and be familiar with
acquisition strategies and money management.




The Board
of Directors has not adopted a formal methodology for communications from
stockholders but plans to adopt one as soon as reasonably
practicable.




We do not
have a policy regarding the attendance of board members at the annual meeting of
stockholders.




37





Item
11.  Executive Compensation




The
following table sets forth all compensation received during the two years ended
December 31, 2008 by our current President and each of the other most highly
compensated executive officers.





Non-Non-Equity
            
            qualifiedName
      and
            
            
            
            
            
            
            
            
            
            
            
            Incentive
            
            Deferred
            
            All
      OtherPrincipal
            
            
            
            Salary
            
            Bonus
            
            Stock
            
            Option
            
            Plan
            
            Compensation
            
            Compensation
            
            TotalPosition
            
            Year
            
            ($)
            
            ($)
            
            Awards
            
            Awards
            
            Compensation
            
            Earnings
            
            ($)
            
            ($)Tom
      Snyder,
              President, and Chief Executive
      Officer(1)
            
            2008
            
            $
            166,667
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            166,667Eduardo
      Aza, Chief Operating
      Officer (2)
            
            2008
              2007
            
            $
              $
            98,667
              16,000
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
              $
            98,667
              16,000Julio
      Alonso Chief Financial
      Officer and
      Treasurer (3)
            
            2008
              2007
            
            $
              $
            75,666
              11,400
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
              $
            75,666
              11,400Sanjay
      PaiChief Strategy
      Officer(4)
            
            2008
            
            $
            93,750
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            93,750Kenneth
      P. Laurent,
              President and Chief Executive
      Officer (5)
            
            2007Todd
      Laurent, Secretary and
      Treasurer(6)
            
            2007Carlos
      Antonio Salas, Chief
      Executive Officer, and
              Director(7)
            
            2008
              2007
            
            $
              $
            124,200
              27,600
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
              $
            124,200
              27,600Luis
      Goyzueta
              President(8)
            
            2008
              2007
            
            $
              $
            39,800
              33,774
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
              $
            39,800
              33,774




(1) Thomas
Snyder has served as President of Stratos from May 5, 2008 until present date.
Mr. Snyder also served as a consultant of Stratos Peru from March 1, 2008 to May
5, 2008; pursuant to a consulting agreement with Stratos Peru he received a
salary of $5,000 per month. Mr. Snyder gave up his position as a consultant of
Stratos to assume the position of President pursuant to which he receives a
salary of $20,833 per month. On October 8, 2008 Mr. Snyder was also appointed to
the position of Chief Executive Officer.




38




(2) Eduardo
Aza has served asChief Operating Officer
of Stratos from November 22, 2007. Mr. Aza was paid $8,000 a month under the
terms of the one year agreement that ended on November 4,
2008.    Mr. Aza’s contract was renewed upon its expiration
and pursuant to the new contract we have agreed to pay him a monthly salary of
$9,333.





(3) Julio
Cesar Alonsohas
served as Chief Financial Officer from November 5, 2007. Mr. Alonso was paid
$5,700 a month under the terms of the one year agreement that ended on November
4, 2008.   Upon its expiration, the contract was renewed for an
indefinite term. Pursuant to the terms of the agreement, we have agreed to pay
Mr. Alonso $9,333 per month.




(4) Sanjay
Pai has served as the Chief Strategy Officer for Stratos since April 1,
2008.  Mr. Pai received salary of $10,417 per month pursuant to his
employment agreement with Stratos.





(5) Kenneth
Laurent served as the President and Chief Executive Officer of NDCI. Mr. Laurent
did not receive any direct cash or non-cash compensation during the fiscal year
ending December 31, 2007. Mr. Laurent resigned from both positions on November
14, 2007.





(6) Todd
Laurent served as the Secretary and Treasurer of NDCI.  Mr. Laurent
did not receive any direct cash or non-cash compensation during the fiscal year
ending December 31, 2007. Mr. Laurent resigned on November 14,
2007.





(7) Carlos
Antonio Salas has served as Chief Executive Officer and a Director of Stratos
Peru since November 5, 2007, and as Chief Executive Officer and Director of
Stratos since November 14, 2007. Beginning on November 5, 2007, Mr. Salas
received salary of $13,800 per month pursuant to his employment agreement with
Stratos Peru.  Mr. Salas was not compensated for either of his roles
with Stratos. Mr. Salas resigned from both positions on October 3,
2008.





(8) Luis
Goyzueta served as President and a Director of Stratos from November 14, 2007
until March 10, 2008, when he resigned from both positions. Mr. Goyzueta did not
receive any compensation for his services rendered to Stratos. Mr. Goyzueta also
served as a manager of Stratos Peru since November 5, 2007, pursuant to an
employment agreement with Stratos Peru. As a manager of Stratus Peru, Mr.
Goyzueta received a salary of $12,700 per month. Mr. Goyzueta resigned from his
position as a manager of Stratos Peru on March 10, 2008.




39




Outstanding
Equity Awards At Fiscal Year-End





No option
awards, unexercised options, unvested stock awards or equity incentive plan
awards were granted to our named executive officers during fiscal year ended at
December 31, 2008.




Director
Compensation





The
following table summarizes the compensation paid to Stratos’ directors for the
fiscal year ended December 31, 2008:




Fees
            
            
            
            
            
            Non-EquityEarned
      or
            
            Stock
            
            Option
            
            Incentive
      Plan
            
            All
      OtherPaid
      in
            
            Awards
            
            Awards
            
            Compensation
            
            Compensation
            
            TotalName
            
            Cash
            
            ($)
            
            ($)
            
            ($)
            
            ($)
            
            ($)Steven
      Magami (1)
            
            $
            177,000
            
            
            
            
            
            
            
            
            
            $
            177,000Stephen
      Norris  (2)
            
            $
            75,000
            
            
            
            
            
            
            
            
            
            $
            75,000Jose
      Gonzales (3)
            
            $
            35,000
            
            
            
            
            
            
            
            
            
            $
            35,000Carlos
      Antonio Salas (4)Luis
      Goyzueta (5)Luis
      Francisco de las Casas (6)





(1)
Steven Magami has served as our Chairman of the Board of Directors and President
since November 14, 2007, pursuant to which he received $10,000 per month in
compensation.  On June 4, 2008 he resigned as President but remained
Chairman of the Board of Directors.  Mr. Magami began receiving a
monthly compensation of $20,833 pursuant to his new agreement effective April
2008.





(2) Stephen
Norris has served as our Vice Chairman of the Board of Directors since August
27, 2008 pursuant to which he receives $15,000 per month in
compensation.





(3) Jose
Gonzales has served as a Director on the Board of Directors since June 4, 2008
pursuant to which he receives $5,000 per month in compensation.





(4) Carlos
Antonio Salas resigned as a Director of Stratos on October 3, 2008.





(5) Luis
Goyzueta resigned as a Director of Stratos on March 10, 2008.





(6) Luis
Francisco de las Casas resigned as a Director of Stratos on June 4,
2008.





Employment
Agreements




Other
than as described below, we are not party to any employment contracts with our
officers and directors.





Thomas
Snyder:  Thomas Snyder has served as President of Stratos since
June 4, 2008 and as Chief Executive Officer since October 8,
2008.  Pursuant to his employment contract with the company, he
receives an annual salary of $250,000 and an annual bonus of
$250,000.




40





Steven Magami:Steven Magami has
served as our Chairman of the Board of Directors since November 14, 2007 and
received $10,000 per month for his services. He continued to serve solely as our
Chairman of the Board through March 14, 2008, when he was additionally appointed
President of Stratos. On June 4, 2008 he resigned as President but remained
Chairman of the Board of Directors.  He currently has an employment
agreement with the Company and receives an annual salary of
$250,000.





Eduardo Aza: Our wholly-owned
subsidiary, Stratos Peru, entered into an employment agreement with Mr. Aza for
his services as Chief Operating Officer effective November 22, 2007. The term of
the agreement was for one year, which ended on November 4, 2008.  His
contract was renewed upon expiration under an indefinite term labor contract.
Pursuant to the terms of the agreement, we have agreed to pay Mr. Aza an annual
salary of $112,000 per year.




Julio Cesar Alonso:Our wholly-owned
subsidiary, Stratos Peru, entered into an employment agreement with Mr. Alonso
for his services as Chief Financial Officer effective November 5, 2007. The term
of the agreement was for one year, which ended on November 4,
2008.  His contract was renewed upon expiration under an indefinite
term labor contract. Pursuant to the terms of the agreement, we have agreed to
pay Mr. Alonso an annual salary of $112,000 per year.





Carlos Antonio Salas:Our wholly owned
subsidiary, Stratos Peru, entered into an employment agreement with Mr. Salas
for his services as Chief Executive Officer effective November 5, 2007. The term
of the agreement was for one year, ending on November 4, 2008. Pursuant to the
terms of the agreement, we agreed to pay Mr. Salas an annual salary of $165,600
per year. In addition to his annual salary, Mr. Salas was granted one additional
month of salary in July under Peruvian Labor laws.  Mr. Salas resigned
from his role as Chief Executive Officer and Director on October 3,
2008.





Stock
Option Plans





None.





Section
16(a) Beneficial Ownership Reporting Compliance





Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our directors
and officers, and persons who beneficially own more than ten percent of our
common stock, to file initial reports of ownership and reports of changes in
ownership of our common stock and our other equity securities with the SEC.
Based solely upon the Company’s review of the information received, the Company
believes that, during the year ended December 31, 2008, all persons complied
with such filing requirements on a timely basis.





Item
12.  Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters





The
following tables set forth the ownership, as of the date of this prospectus, of
our common stock by each person known by us to be the beneficial owner of more
than 5% of our outstanding common stock, our directors, and our executive
officers and directors as a group.  To the best of our knowledge, the
persons named have sole voting and investment power with respect to such shares,
except as otherwise noted.  There are not any pending or anticipated
arrangements that may cause a change in control.





The
information presented below regarding beneficial ownership of our voting
securities has been presented in accordance with the rules of the Securities and
Exchange Commission and is not necessarily indicative of ownership for any other
purpose. Under these rules, a person is deemed to be a "beneficial owner" of a
security if that person has or shares the power to vote or direct the voting of
the security or the power to dispose or direct the disposition of the security.
A person is deemed to own beneficially any security as to which such person has
the right to acquire sole or shared voting or investment power within 60 days
through the conversion or exercise of any convertible security, warrant, option
or other right. More than one person may be deemed to be a beneficial owner of
the same securities. The percentage of beneficial ownership by any person as of
a particular date is calculated by dividing the number of shares beneficially
owned by such person, which includes the number of shares as to which such
person has the right to acquire voting or investment power within 60 days, by
the sum of the number of shares outstanding as of such date plus the number of
shares as to which such person has the right to acquire voting or investment
power within 60 days. Consequently, the denominator used for calculating such
percentage may be different for each beneficial owner. Except as otherwise
indicated below and under applicable community property laws, we believe that
the beneficial owners of our common stock listed below have sole voting and
investment power with respect to the shares shown.




41





As of
March 31, 2009, we had 64,202,661 shares of common stock and 8,400,009 shares of
Series A preferred stock issued and outstanding.





Name
      of Beneficial Owner and
            
            Shares
      of common stock
              Beneficially
      Owned
            
            Shares of Series A preferred
      stock
              Beneficially
      OwnedAddress(1)
            
            Number(2)
            
            Percentage(2)
            
            Number(2)
            
            Percentage(2)Steven
      Magami (3)
            
            
            14,739,956
            
            20.66
            
            
            7,142,857
            
            85.03Stephen
      Norris
            
            
            2,500,000
            
            3.86
            
            
            -
            
            -Jose
      Gonzales
            
            
            -
            
            -
            
            
            -
            
            -Tom
      Snyder (4)
            
            
            2,250,000
            
            3.48
            
            
            -
            
            -Eduardo
      Aza
            
            
            3,018,018
            
            4.70
            
            
            -
            
            -Sanjay
      Pai
            
            
            500,000
            
            *
            
            
            -
            
            -Julio
      Alonso
            
            
            540,541
            
            *
            
            
            -
            
            -Valerie
      Broadbent (5)
            
            
            200,000
            
            *
            
            
            -
            
            -Carlos
      Antonio Salas (6)
            
            
            5,000,000
            
            7.79
            
            
            -
            
            -Luis
      Goyzueta (7)
            
            
            8,787,327
            
            13.61
            
            
            -
            
            -All
      Executive Officers and Directors as a Group (8 persons) (8)
            
            
            23,748,515
            
            32.83
            
            
            7,142,857
            
            85.03





*           Less
than 1%





(1)
            Unless
      otherwise indicated, the address of the beneficial owner is 9440 Santa
      Monica Blvd., Suite 401, Beverly Hills, CA
  90210.




(2)
            Beneficial
      ownership is determined in accordance with the rules of the SEC. Shares of
      common stock subject to options or warrants currently exercisable or
      exercisable within 60 days of the date of this Annual Report, are deemed
      outstanding for computing the percentage ownership of the stockholder
      holding the options or warrants, but are not deemed outstanding for
      computing the percentage ownership of any other stockholder. Unless
      otherwise indicated in the footnotes to this table, we believe
      stockholders named in the table have sole voting and sole investment power
      with respect to the shares set forth opposite such stockholder’s name.
      Percentage of ownership is based on 64,202,661 shares of common stock
      outstanding as of March 31, 2009.




(3)
            Steven
      Magami’s indirect holdings consist of 7,597,099 shares of common stock, of
      which. 6,768,018 shares of common stock are held by SGM Capital, LLC and
      829,081 shares of common stock are held by MA Green, LLC.  Mr.
      Magami’s indirect holdings also consist of 7,142,857 shares of Series A
      preferred stock held by MA Green, LLC, currently convertible into
      7,142,857 shares of common stock.  Mr. Magami is the manager of
      SGM Capital, LLC and MA Green, LLC and exercises voting and investment
      control over the shares.  Thus for the purpose of this table,
      Mr. Magami is deemed to be the beneficial owner of 14,739,956 shares of
      common stock and 7,142,857 shares of Series A preferred
    stock.





(4)
            Tom
      Snyder’s direct holdings consist of warrants to purchase 500,000 shares of
      common stock and indirect holdings consist of 1,750,000 shares of common
      stock held by Fast Track Investments, LLC.  Mr. Snyder is the
      manager of Fast Track Investments, LLC and exercises voting and investment
      control over the shares.




42




(5)
            Valerie
      Broadbent’s indirect holdings consist of 200,000 shares of common stock
      which shares are held by Berkeley Consulting Group, LLC  Ms.
      Broadbent is the manager of Berkeley Consulting Group, LLC and exercises
      voting and investment control over the
shares.





(6)
            Carlos
      Antonio Salas’ address is Osa Mayor #141, Casa N 6, Urb. Monterrico,
      Santiago de Surco, Lima, Peru.





(7)
            Luis
      Humberto Goyzueta’s address is Av. La Merced 810, Surco, Lima, Peru. Mr.
      Luis Humberto Goyzueta’s holdings consist of 8,430,290 shares of common
      stock and warrants to purchase 357,037 shares of common
    stock.





(8)
            Consists
      of direct and indirect holdings of 23,748,515 shares of common stock and
      7,142,857 shares of Series A preferred
stock.




Description
of Securities





We are
presently authorized under our Amended and Restated Articles of Incorporation to
issue 300,000,000 shares of capital stock, consisting of 250,000,000 shares of
common stock and 50,000,000 shares of preferred stock, $.001 par value. As of
March 31, 2009, we had 64,202,661 shares of common stock, 8,400,009 shares of
Series A preferred stock and warrants to purchase an aggregate of 7,971,419
shares of common stock issued and outstanding.




The
following descriptions of our capital stock are only summaries and do not
purport to be complete and are subject to and qualified by our Amended and
Restated Articles of Incorporation, our Amended and Restated Bylaws, by the
Amended and Restated Certificate of Designation of our Series A preferred stock
and by the provisions of applicable corporate laws of the State of Nevada.




Common
Stock




As of
March 31, 2009, we had 64,202,661 shares of common stock issued and outstanding.
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. Our common
stock may be issued for such consideration and for such corporate purposes as
the Board of Directors may from time to time determine. Fully paid shares of
common stock are not liable to any further call or assessment. Dividends may be
declared and paid on our common stock only out of legally available funds. Upon
the sale of substantially all of the stock or assets of the Company or
dissolution, liquidation, or winding up of the Company, whether voluntary or
involuntary, after all liquidation preferences payable to any series of
preferred stock have been satisfied, the remaining net assets of the Company
will be distributed to the holders of common stock and preferred stock in
proportion to the number of shares of common stock then held by them and the
number of shares of common Stock which the holders of preferred stock have the
right to acquire upon conversion of the preferred stock held by them. To the
extent that additional shares of common stock may be issued in the future, the
relative interests of the then existing stockholders may be
diluted.




Series A Preferred
Stock




As of
March 31, 2009 we have an aggregate of 8,400,009 issued and outstanding shares
of Series A preferred stock. Upon the purchase of their Series A preferred
stock, the holders of the Series A preferred stock received a funding fee equal
to 2% of the purchase price paid. The holders of our Series A preferred stock
are entitled to the following rights, preferences and privileges:




Optional
Conversion




The
holders of our Series A preferred stock have the right to convert the Series A
preferred stock at any time into shares of our common stock. The initial
conversion ratio is 1:1 and is subject to anti-dilution adjustment as described
below. In addition, the holder has the right to convert one and a half times the
total number of shares of Series A Preferred held by the holder into shares of
our common stock, upon the closing of a financing (whether debt or equity) or
multiple financings led by one or more institutional investors whereby an
aggregate amount of $25.0 million, net of offering expenses, is received by the
Company. Accumulated dividends, if any, are payable on conversion.




43




Automatic
Conversion




Each
share of Series A preferred stock will automatically convert into shares of our
common stock, at the then applicable conversion rate, if the common stock has
been trading above $2.00 per share for a period of 120 consecutive days. In no
event shall the Series A preferred stock automatically convert into shares of
common stock until nine months from November 14, 2007. Accumulated dividends, if
any, are payable on conversion.




Anti-dilution




The
conversion rate of the Series A preferred stock is subject to adjustment, on a
full ratchet basis, to prevent dilution in the event that we issue additional
shares at a purchase price per share less than the conversion price. There will
be no adjustment to the conversion rate of the Series A preferred stock for
issuances of (i) shares of common stock issued upon conversion of the Series A
preferred stock, (ii) shares issued to employees, consultants or directors in
accordance with plans approved by the Board of Directors, (iii) shares issued
upon exercise of warrants existing on November 14, 2007, (iv) shares of common
stock issued as a dividend or distribution on the Series A preferred stock, (v)
shares issued or issuable pursuant to equipment lease and bank financing
arrangements, (vi) shares of common stock issued or issuable pursuant to an
acquisition of another company by us, or (vii) shares of common stock that are
otherwise excluded by vote or written consent of the holder of the Series A
preferred stock.




Dividend




The
holders of Series A preferred stock are entitled to a 10% per annum cumulative
dividend.




Liquidation




In the
event of the liquidation, dissolution or winding up of our operation, the rights
of the holders of Series A preferred stock are senior to the rights of the
holders of common stock. Each share of Series A preferred stock entitles the
holder to a liquidation amount of $1.05, subject to adjustment in certain
circumstances. After payment of the liquidation amount to the holders of Series
A preferred stock, the holders of common stock and Series A preferred stock are
entitled to receive our remaining assets in proportion to the number of
shares of common stock then held by them, with the shares of Series A preferred
stock treated for this purpose as if they had been converted into shares of
common stock at the then applicable conversion rate. A sale of all or
substantially all of our assets or our merger or consolidation or into
any other company is treated as a liquidation, dissolution or winding up of
us.




Voting
Rights




The
holders of Series A preferred stock are 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. The holders of Series A preferred stock shall vote
with holders of common stock on all matters except as otherwise required by
law.Further, so long as there is a minimum of 1,000,000
shares of Series A preferred stock issued and outstanding, the holders of Series
A preferred stock will have the exclusive right to elect one director to the
Board of Directors.




Protective
Provisions




So long
as any of the Series A preferred stock shall be issued and outstanding, we
shall not, without first obtaining the approval of the holders of more than 50%
of the outstanding shares of the Series A preferred stock: (1) amend, alter or
repeal any provision of our Amended and Restated Articles of Incorporation
or the Amended and Restated Bylaws, if such action would adversely alter the
rights, preferences, privileges or powers of, or restrictions provided for the
benefit of the Series A preferred stock; (2) increase or decrease the authorized
number of shares of Series A preferred stock; (3) authorize or create any new
class or series of shares having rights, preferences or privileges with respect
to dividends or payments upon liquidation senior to or on a parity with Series A
preferred stock or having voting rights other than those granted to the Series A
preferred stock generally; (4) enter into any transaction or series of related
transactions deemed to be a liquidation, dissolution or winding up of the
Company; (5) authorize a merger, acquisition or sale of substantially all of the
assets of the Company or any of its subsidiaries; (6) voluntarily liquidate or
dissolve; or (7) except in the ordinary course of business, borrow any money, or
otherwise incur any indebtedness, other than pursuant to the Bridge
Financing.




44




Convertible Promissory
Notes




As of
March 31, 2009, we have $9,295,000 of convertible promissory notes which are
convertible into 13,278,571 shares of common stock at an average conversion
price of $0.70




Warrants




As of March 31, 2009, we have warrants to purchase 7,971,419
shares of common stock at an average price of $0.75 per share with an average
remaining contractual term of 4.46 years.




Registration
Rights




We have
granted certain registration rights in connection with the Private Placement,
Series A Private Placement and Bridge Financing. We are obligated to file with
the SEC within 30 days after we close the PIPE, a registration statement
covering the resale of:




·
            100%
      of the common stock and common stock underlying the warrants issued in
      connection with the Private
Placement;




·
            100%
      of the common stock underlying the Series A preferred stock and common
      stock underlying the warrants issued in connection with the Series A
      Private Placement; and




·
            100%
      of the common stock underlying the promissory notes and common stock
      underlying the warrants issued in connection with the Bridge
      Financing.




If the
SEC limits the number of securities that may be registered on the registration
statement, such number of securities will be cutback (in the following order) to
comply with any such limitation imposed by the SEC: (i) shares of common stock
underlying any and all warrants to be registered, (ii) common stock and (iii)
shares of common stock underlying the Series A preferred stock. Any required
cutbacks will be applied to investors pro-rata in accordance with the number of
securities sought to be included in such registration statement. We are required
to use best efforts to have the registration statement declared effective by the
SEC within 150 days after the filing date.




If the
registration statement is not filed within 30 days after we close the PIPE, or
is not declared effective by the SEC within 150 days after we close the PIPE, we
will be required to pay to each investor an amount equal to 1.5% of the purchase
price paid by such investor for its securities, for each 30 day period until the
registration statement is filed or declared effective. The maximum amount we
will be obligated to pay for the failure to file the registration statement or
cause the registration statement to be declared effective is 10% of the purchase
price of the securities paid by each investor. Similar payments will be required
to be made by us to the investors if effectiveness of the registration statement
is suspended for more than 30 consecutive days. In no event will we be liable
for liquidated damages as to any shares of common stock, any shares of common
stock underlying warrants, any shares of common stock underlying Series A
preferred stock or any shares of common stock underlying convertible promissory
notes which are not permitted by the SEC to be included in the registration
statement solely due to comments received by us from the SEC.




45




In
addition, at any time after November 14, 2008, the holders of Series A preferred
stock shall have the right to require that we file a registration statement
with the SEC covering the shares of common stock underlying the Shares A
preferred stock and the common stock underlying the warrants issued to the
investor in the Series A Private Placement. We shall file the registration
statement no later than thirty days after the Company’s receipt of the request.
If in the good faith judgment of the Board of Directors of the Company, the
filing of the registration statement would be materially detrimental to the
Company, then the Company shall have the one time right to defer such filing for
a period of not more than one hundred eighty days after receipt of the request.
The registration statement filed pursuant to the request of the holder of Series
A preferred stock may include other securities of the Company and may include
securities of the Company being sold for the account of the Company. The penalty
provisions set forth above are also applicable to the demand registration
statement. These registration rights are also applicable to all holders of
Series A preferred stock, whether purchased pursuant to the Series A Private
Placement or at a later date.




Item 13. Certain Relationships and Related Transactions, and
Director Independence.





Other
than as set forth in this Report, Stratos has not entered into any material
transactions with any director, executive officer, and nominee for director,
beneficial owner of five percent or more of its common stock, or family members
of such persons.




On
January 7, 2008, we entered into a Consulting Services Agreement with a third
party consulting company, or Consultant, pursuant to which the Consultant agreed
to provide consulting services, including updating the use of funds for Phase I
and structuring a financial model for the simulation of various scenarios
regarding our ethanol production. Mr. Salas owns 95% of the Consultant and the
Chief Executive Officer of the Consultant is the wife of Mr.
Salas.  Mr. Salas was also a former member of the Board of Directors
of the Consultant.  As of December 31, 2008, the Company has paid the
Consultant $230,000 for services.





On March
10, 2008, we entered into a services agreement with Iberocons S.A. or Iberocons,
pursuant to which Iberocons has conducted a feasibility analysis of using
desalinated sea water as part of the irrigation process for our greenfields. The
agreement was terminated on April 29, 2008. During the year ended December 31,
2008, the Company paid $33,000 for the services. Iberocons owns 5% of a third
party consulting company, and Antonio Salas, the Company’s former director and
Chief Executive Officer, is a 10% owner of Iberocons. Mr. Salas resigned as the
Company’s director and Chief Executive Officer on October 3, 2008.





Anti-Takeover
Provisions




Our
Amended and Restated Articles of Incorporation and Amended and Restated Bylaws
contain provisions that may make it more difficult for a third party to acquire
or may discourage acquisition bids for the Company. Our Board of Directors is
authorized, without the action of our stockholders, to issue authorized but
unissued common stock and preferred stock. The existence of undesignated
preferred stock and authorized but unissued common stock enables us to
discourage or to make it more difficult to obtain control of us by means of a
merger, tender offer, proxy contest or otherwise.





Director
Independence





The Board
of Directors has determined that the Board of Directors is “independent” in
accordance with the Marketplace Rules of the NASDAQ Stock Market as well as the
independence standards adopted by the Board of Directors. The Board of Directors
has determined that Messrs. Steven Magami, Stephen Norris and Jose Gonzales are
“independent” directors under these standards.





Item
14.  Principal Accountant Fees and Services





On
December 4, 2007 we appointed Moore Stephens Wurth Frazer and Torbet, LLP as our
independent auditors for the fiscal years ended December 31, 2008 and
2007.




46




The
following table shows the fees paid or accrued by us for the audit and other
services provided by Moore Stephens Wurth Frazer and Torbet, LLP for fiscal 2008
and 2007.




2008
            
            
            2007Audit
      Fees
            
            $
            117,000
            
            
            $
            85,000Audit-Related
      Fees
            
            
            -
            
            
            
            -Tax
      Fees
            
            
            6,000
            
            
            
            -All
      Other Fees
            
            
            -
            
            
            
            -Total
            
            $
            123,000
            
            
            $
            85,000




As
defined by the SEC, (i) “audit fees” are fees for professional services rendered
by our principal accountant for the audit of our annual financial statements and
review of financial statements included in our Form 10-K, or for services that
are normally provided by the accountant in connection with statutory and
regulatory filings or engagements for those fiscal years; (ii) “audit-related
fees” are fees for assurance and related services by our principal accountant
that are reasonably related to the performance of the audit or review of our
financial statements and are not reported under “audit fees;” (iii) “tax fees”
are fees for professional services rendered by our principal accountant for tax
compliance, tax advice, and tax planning; and (iv) “all other fees” are fees for
products and services provided by our principal accountant, other than the
services reported under “audit fees,” “audit-related fees,” and “tax
fees.”




Under
applicable SEC rules, the Audit Committee is required to pre-approve the audit
and non-audit services performed by the independent auditors in order to ensure
that they do not impair the auditors’ independence. The SEC’s rules specify the
types of non-audit services that an independent auditor may not provide to its
audit client and establish the Audit Committee’s responsibility for
administration of the engagement of the independent auditors. Until such time as
we have an Audit Committee in place, the Board of Directors will pre-approve the
audit and non-audit services performed by the independent auditors.




Consistent
with the SEC’s rules, the Audit Committee Charter requires that the Audit
Committee review and pre-approve all audit services and permitted non-audit
services provided by the independent auditors to us or any of our subsidiaries.
The Audit Committee may delegate pre-approval authority to a member of the Audit
Committee and if it does, the decisions of that member must be presented to the
full Audit Committee at its next scheduled meeting.





Item
15.  Exhibits





21
            Subsidiaries31.1
            Certification
      of the Chief Executive Officer Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200231.2
            Certification
      of the Chief Financial Officer Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200232.1
            Certification
      Pursuant to Section 906 of the Sarbanes-Oxley Act of
  200232.2
            Certification
      Pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002





47




SIGNATURES




In
accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.




STRATOS
      RENEWABLES CORPORATION,

                  a
      Nevada corporationDate:
      April 15, 2009
              By:
              /s/
      THOMAS SNYDERThomas
      Snyder, CEO(Principal
      Executive Officer)




In
accordance with the Exchange Act, this Report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.




Signature
              
              Title
              
              Date/s/
      STEVEN MAGAMI
              
              Chairman
      of the Board of Directors
              
              April
      15, 2009Steven
      Magami
              
              (Principal
      Executive Officer)/s/
      STEPHEN NORRIS
              
              Director
              
              April
      15, 2009Stephen
      Norris/s/
      JOSE GONZALES
              
              Director
              
              April
      15, 2009Jose
      Gonzales/s/
      THOMAS SNYDER
              
              President
      and Chief Executive Officer
              
              April
      15, 2009Thomas
      Snyder/s/
      JULIO CESAR ALONSO
              
              Chief
      Financial Officer and Treasurer
              
              April
      15, 2009Julio
      Cesar Alonso
              
              (Principal
      Accounting Officer)




48