UNITED
STATES

SECURITIES
AND EXCHANGE COMMISSION

Washington,
D.C. 20549



AMENDMENT
NO. 3



TO



FORM
10-K/A



|[X] |  | ANNUAL
                                                                                                                                                                                                                                 REPORT
                                                                                                                                                                                                                                 PURSUANT
                                                                                                                                                                                                                                 TO
                                                                                                                                                                                                                                 SECTION
                                                                                                                                                                                                                                 13
                                                                                                                                                                                                                                 OR
                                                                                                                                                                                                                                 15(d)
                                                                                                                                                                                                                                 OF
                                                                                                                                                                                                                                 THE
                                                                                                                                                                                                                                 SECURITIES
                                                                                                                                                                                                                                 AND
                                                                                                                                                                                                                                 EXCHANGE
                                                                                                                                                                                                                                 ACT
                                                                                                                                                                                                                                 OF
                                                                                                                                                                                                                                 1934
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|[  ] |  | TRANSITION
                                                                                                                                                                                                                                                   REPORT
                                                                                                                                                                                                                                                   PURSUANT
                                                                                                                                                                                                                                                   TO
                                                                                                                                                                                                                                                   SECTION
                                                                                                                                                                                                                                                   13
                                                                                                                                                                                                                                                   OR
                                                                                                                                                                                                                                                   15(d)
                                                                                                                                                                                                                                                   OF
                                                                                                                                                                                                                                                   THE
                                                                                                                                                                                                                                                   SECURITIES
                                                                                                                                                                                                                                                   EXCHANGE
                                                                                                                                                                                                                                                   ACT
                                                                                                                                                                                                                                                   OF
                                                                                                                                                                                                                                                   1934
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



For
the fiscal year ended December 31, 2012



Commission
File Number: 000-53881



PETROSONIC
ENERGY, INC.

(Exact
name of registrant as specified in its charter)



Nevada

(State
or other jurisdiction of

incorporation
or organization)



914
Westwood Boulevard, No. 545

Los
Angeles, California 90024

(Address
of principal executive offices)



(855)
626-3317

(Issuer’s
telephone number)



Securities
registered pursuant to Section 12(b) of the Act:



Title
of each class

None



Securities
registered pursuant to Section 12(g) of the Act:



Common
Stock, par value $0.001 per share



Indicate
by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. YES [  ]
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 [  ]
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 [  ]



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



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 the 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. [X]



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



|Large
    accelerated filer [  ]                                                                                                                                                       | Accelerated
    filer [  ]        | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------- | 
|                                                                                                                                                                                       |                                   | 
|Non-accelerated
                                                                                     filer [  ]
        
        (Do
        not check if a smaller reporting company) | Smaller
    reporting company [X] | 



Indicate
by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act). YES [  ] NO [X]



The
aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at
which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of
the registrant’s most recently completed second fiscal quarter was $15,612,478.



At
April 30, 2013, there were 79,166,405 shares of the registrant’s common stock outstanding.



DOCUMENTS
INCORPORATED BY REFERENCE



Not
applicable.


















EXPLANATORY
NOTE



On
June 13, 2013 Petrosonic Energy, Inc. (the “Company”) received a letter from the Securities and Exchange Commission
relating to the Form 10-K for the year ended December 31, 2012 that was filed on May 3, 2013 (the “Original Report”).
The Company filed Amendment No. 1 to the Original Report on July 12, 2013 to respond to the comment letter. On August 14, 2013
the Securities and Exchange Commission issued a comment letter to Amendment No. 1 , and on September 27, 2013 the Company filed
Amendment No. 2 to the Original Report to respond to the comment letter. On October 12, 2013 the Securities and Exchange Commission
issued a comment letter to Amendment No. 2. The purpose of this amendment (“Amendment No. 3 ”) is to respond
to that comment letter.



The
disclosures in Amendment No. 3 continue to speak as of the date of the Original Report, and do not reflect events occurring
after the filing of the Original Report. Accordingly, Amendment No. 3 should be read in conjunction with our other filings
made with the Securities and Exchange Commission subsequent to the filing of the Original Report and any other amendments to those
filings. The filing of Amendment No. 3 shall not be deemed to be an admission that the Original Report, when made, included
any untrue statement of a material fact or omitted to state a material fact necessary to make a statement not misleading.



2







PETROSONIC
ENERGY, INC.



INDEX



|            |                                                                                                                  | Page
|----------- | ---------------------------------------------------------------------------------------------------------------- | ----
|PART 1      |                                                                                                                  |     
|            |                                                                                                                  |     
|Item
    1  | Business                                                                                                         | 4   
|            |                                                                                                                  |     
|Item
    1A | Risk
    Factors                                                                                                 | 17  
|            |                                                                                                                  |     
|Item
    2  | Properties                                                                                                       | 27  
|            |                                                                                                                  |     
|Item
    3  | Legal
    Proceedings                                                                                            | 27  
|            |                                                                                                                  |     
|PART II     |                                                                                                                  |     
|            |                                                                                                                  |     
|Item
    5  | Market
    for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 27  
|            |                                                                                                                  |     
|Item
    6  | Selected
    Financial Data                                                                                      | 28  
|            |                                                                                                                  |     
|Item
    7  | Management’s
    Discussion and Analysis of Financial Condition and Results of Operations                        | 29  
|            |                                                                                                                  |     
|Item
    7A | Quantitative
    and Qualitative Disclosures About Market Risk                                                   | 33  
|            |                                                                                                                  |     
|Item
    8  | Financial
    Statements and Supplementary Data                                                                  | 34  
|            |                                                                                                                  |     
|Item
    9  | Changes
    in and Disagreements with Accountants on Accounting and Financial Disclosure                         |     
|            |                                                                                                                  |     
|Item
    9A | Controls
    and Procedures                                                                                      | 34  
|            |                                                                                                                  |     
|Item
    9B | Other
    Information                                                                                            | 35  
|            |                                                                                                                  |     
|PART III    |                                                                                                                  |     
|            |                                                                                                                  |     
|Item
    10 | Directors,
    Executive Officers and Corporate Governance                                                       | 36  
|            |                                                                                                                  |     
|Item
    11 | Executive
    Compensation                                                                                       | 38  
|            |                                                                                                                  |     
|Item
    12 | Security
    Ownership of Certain Beneficial Owners and Management Related Stockholder Matters                   | 40  
|            |                                                                                                                  |     
|Item
    13 | Certain
    Relationships and Related Transactions, and Director Independence                                    | 41  
|            |                                                                                                                  |     
|Item
    14 | Principal
    Accountant Fees and Services                                                                       | 42  
|            |                                                                                                                  |     
|PART IV     |                                                                                                                  |     
|            |                                                                                                                  |     
|Item
    15 | Exhibits
    and Financial Statement Schedules                                                                   | 43  
|            |                                                                                                                  |     
|            | Signatures                                                                                                       | 44  
|            |                                                                                                                  |     
|            | Exhibit
    Index                                                                                                | 45  



3







CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS



This
document and the documents incorporated by reference herein contain forward-looking statements. We have based these statements
on our beliefs and assumptions, based on information currently available to us. These forward-looking statements are subject to
risks and uncertainties. Forward-looking statements include the information concerning our possible or assumed future results
of operations, our total market opportunity and our business plans and objectives set forth under the sections entitled “Business”,
“Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”



Forward-looking
statements are not guarantees of performance. Our future results and requirements may differ materially from those described in
the forward-looking statements. Many of the factors that will determine these results and requirements are beyond our control.
In addition to the risks and uncertainties discussed in the sections titled “Business”, “Risk Factors”
and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” investors should
consider the following:



|● |  | our
                                                                                           ability to successfully implement our
                                                                                           business strategy,
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|● |  | our
                                                                                                                                                   limited
                                                                                                                                                   cash
                                                                                                                                                   and
                                                                                                                                                   our
                                                                                                                                                   history
                                                                                                                                                   of
                                                                                                                                                   losses,
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|● |  | whether
                                                                                                                                                   our
                                                                                                                                                   technology
                                                                                                                                                   will
                                                                                                                                                   perform
                                                                                                                                                   as
                                                                                                                                                   expected,
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|● |  | the
                                                                                                                                                   acceptance
                                                                                                                                                   of
                                                                                                                                                   our
                                                                                                                                                   technology
                                                                                                                                                   by
                                                                                                                                                   the
                                                                                                                                                   oil
                                                                                                                                                   industry,
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|● |  | emerging
                                                                                                                                                   competition
                                                                                                                                                   and
                                                                                                                                                   rapidly
                                                                                                                                                   advancing
                                                                                                                                                   technology
                                                                                                                                                   in
                                                                                                                                                   our
                                                                                                                                                   industry
                                                                                                                                                   that
                                                                                                                                                   may
                                                                                                                                                   outpace
                                                                                                                                                   our
                                                                                                                                                   technology,
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|● |  | our
                                                                                                                                                   ability
                                                                                                                                                   to
                                                                                                                                                   raise
                                                                                                                                                   cash
                                                                                                                                                   as
                                                                                                                                                   and
                                                                                                                                                   when
                                                                                                                                                   we
                                                                                                                                                   need
                                                                                                                                                   it,
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|● |  | the
                                                                                                                                                   impact
                                                                                                                                                   of
                                                                                                                                                   competition
                                                                                                                                                   and
                                                                                                                                                   changes
                                                                                                                                                   to
                                                                                                                                                   the
                                                                                                                                                   competitive
                                                                                                                                                   environment
                                                                                                                                                   on
                                                                                                                                                   our
                                                                                                                                                   products
                                                                                                                                                   and
                                                                                                                                                   services,
                                                                                                                                                   and
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|● |  | other
                                                                                                                                                   factors
                                                                                                                                                   detailed
                                                                                                                                                   from
                                                                                                                                                   time
                                                                                                                                                   to
                                                                                                                                                   time
                                                                                                                                                   in
                                                                                                                                                   our
                                                                                                                                                   filings
                                                                                                                                                   with
                                                                                                                                                   the
                                                                                                                                                   Securities
                                                                                                                                                   and
                                                                                                                                                   Exchange
                                                                                                                                                   Commission.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



These
forward-looking statements speak only as of the date of this report. We do not intend to update or revise any forward-looking
statements, except as required by law.



PART
I



References
to “we,” “our,” “us,” the “Company”, or the “Registrant” refer to
Petrosonic Energy, Inc. (previously Bearing Mineral Exploration, Inc.), a Nevada corporation and its majority-owned subsidiary,
Petrosonic Albania sh.a, sometimes referred to as “Petrosonic Albania” or “Petrosonic”, a body corporate
under the laws of Albania. The outstanding capital stock of Petrosonic Albania is owned 60% by the Company and 40% by Albnafta,
a body corporate under the laws of Albania. Albnafta is wholly-owned by our Chief Executive Officer and director, Art Agolli.



ITEM
1.     BUSINESS



Overview
of Our Business



We
were incorporated in the State of Nevada on June 11, 2008 under the name “Bearing Mineral Exploration, Inc.”, with
authorized capital stock of 75,000,000 shares at $0.001 par value. We were organized for the purpose of conducting
gold exploration activities on a mineral claim located in the Province of Newfoundland, Canada. We were not able to establish
the existence of a commercially minable gold deposit and sought other viable business opportunities.



4









On
April 17, 2012, we issued 20,000,003 (post-split) shares of our common stock to Art Agolli, at that time our sole officer and
director, in exchange for all of his right, title and interest in a letter of intent with Sonoro Energy Ltd. (“Sonoro”),
a Canadian publicly traded company (TSX-V:SNV) based in Calgary, Alberta, Canada. Sonoro was the holder of all of the legal and
equitable rights and entitlements to a sonic reactor and technology that it developed for the treatment and upgrading of heavy
oil by sonicated solvent de-asphalting. Mr. Agolli owns approximately 1.5% of Sonoro’s issued and outstanding shares of
common stock (based on the number of shares of common stock reported by Sonoro to be outstanding on December 31, 2012, which is
the most recent report currently available). Mr. Agolli was one of the founders of Sonoro and, from time-to-time through
2011 he provided business development consulting services to Sonoro.



On
May 16, 2012, we effected an 11.25-for-1 forward stock split of our common stock and an increase in our authorized number of common
shares to 843,750,000. Additionally, on May 16, 2012, we changed our name to “Petrosonic Energy, Inc.” to better reflect
our new business direction.



On
July 27, 2012, pursuant to the terms of an Asset Purchase and Sale Agreement (the “Purchase Agreement”) we acquired
certain assets from Sonoro, including technology relating to the treatment and upgrading of heavy oil by sonicated solvent de-asphalting,
two sonic reactors, one located in Albania and one located in Richmond, British Columbia, Canada, and a solvent recovery system
originally located in or around Turin, Italy, which has been moved to Petrosonic’s facility in Albania. On the same day,
pursuant to the terms of a Share Purchase Agreement with Sonoro, we acquired 60,000 shares of Petrosonic Albania sh.a.



Pursuant
to the terms of the Purchase Agreement, in exchange for the assets, we agreed to pay to Sonoro the following consideration: (i)
CDN $250,000, which was paid in June 2012, (ii) a convertible debenture in the principal amount of CDN$250,000, which was issued
in July 2012 (the “Debenture”) and (iii) a 10% royalty interest in our realized net revenues for a period of 10 years
from the time we commence commercial operations, which will occur when we process an average of 50 barrels of feed stock per day
over a period of 30 consecutive days utilizing the technology acquired. Sonoro had the right to demand repayment of the Debenture
prior to the maturity date, which was July 27, 2014, if we raised gross proceeds of not less than $1,750,000 in financing over
a period of 24 months. In January 2013, we completed a financing of gross proceeds in excess of $1,750,000. Sonoro thereafter
demanded payment of the Debenture, which we paid in January 2013.



Our
obligation to complete the purchase of the assets was conditioned upon, among other things, the completion of a review of the
financial condition, business affairs, properties and title of the assets, the completion of financing raising at least $500,000,
and the termination of a license agreement between Sonoro and Petrosonic Albania sh.a.



Until
the closing of the purchase transaction, Sonoro agreed that, without our written consent, it would not engage in any transaction
other than the ordinary course of business or permit any liens or other encumbrances to be placed against the assets; sell or
transfer the assets; permit any material adverse change to occur with respect to the assets; or make any material change with
respect to the business of Petrosonic Albania sh.a.



The
Purchase Agreement contained representations and warranties from Sonoro relating to its due incorporation, due execution of the
Purchase Agreement, ownership of the technology and the sonic reactors, its solvency and its compliance with the securities laws
of Alberta. Sonoro also agreed to indemnify us for any damages we sustain after the closing date as a result of a breach of the
representations and warranties. We provided representations and warranties regarding our due incorporation and due execution of
the Purchase Agreement. We agreed to indemnify Sonoro for any damages sustained by Sonoro as a result of a breach of any of our
representations and warranties.



Pursuant
to the Purchase Agreement, Sonoro entered into a non-competition and non-solicitation agreement with us (the “Non-Compete
Agreement”) and into a consulting agreement (the “Consulting Agreement”). The Non-Compete Agreement has a term
of 5 years. During that period, Sonoro agrees that it will not compete with us anywhere in the world, save and except for in the
Republic of Iraq, in any business activity or transaction directly relating to the assets we purchased. Sonoro also agrees that
it will not solicit any employee, agent, salesperson, contractor, customer, supplier or dealer of or to us as of the date of the
Non-Compete Agreement, or within the one year prior to the date of the Non-Compete Agreement, to leave, to stop selling to, or
to stop buying from us or otherwise to cease dealing with us. Pursuant to the Consulting Agreement, Sonoro agrees to make certain
employees available to us on a part-time basis to provide ongoing technical support to us for a period of one year. We agree to
pay certain costs relating to travel from Canada to Albania for the employees and to reimburse Sonoro for the salaries of the
employees.



5







Contemporaneous
with the completion of this transaction, we entered into a license agreement with Sonoro (the “Iraq License Agreement”)
for commercialization of our newly acquired technology by Sonoro in the Republic of Iraq. The license is non-exclusive, royalty-free
and fully paid-up. The license lasts for the period that Sonoro uses our technology in the Republic of Iraq. The Iraq License
Agreement may be terminated by either party upon 30 days written notice if the other party materially violates any of the provisions
or conditions of the license and fails to discontinue or remedy such violation within the 30 day period or by either party immediately
if the other party becomes insolvent or unable to pay its debts as they mature, institutes a bankruptcy or insolvency proceeding
or has such a proceeding instituted against it which is not dismissed within 30 days, makes an assignment for the benefit of creditors,
or commences dissolution or liquidation proceedings.



On
September 15, 2012, we signed a memorandum of understanding with Quadrise Canada Corporation, a private emulsion technology company
for the upstream and downstream oil industry that has an exclusive license in a heavy crude and asphaltene emulsification technology.
The technology enables us to convert de-asphalted oil and asphaltenes into readily marketable emulsified fuel oil and high-end
asphalt. In accordance with the agreement, Quadrise licensed to us, on an exclusive basis, the right to use the technology in
Albania and for projects to be determined in Iraq. The license also allows us to expand our use of the technology into other jurisdictions,
subject to Quadrise’s rights. In accordance with the memorandum of understanding, Quadrise delivered to our plant in Albania
a synthetic fuel manufacturing unit capable of delivering 120 bbl/hour of feedstock. Ownership of the manufacturing unit is retained
by Quadrise and Quadrise retains control, through a blend master designated by Quadrise, of the process and operation of the manufacturing
unit. Pursuant to the memorandum of understanding, we are to provide the feedstock which will be processed into synthetic heavy
hydrocarbon emulsion fuel oil. We are responsible for the capital and operating costs associated with the operation of the manufacturing
unit in Albania. We are permitted by the memorandum of understanding to operate the technology for a testing period of three months,
to assess its commercial viability, including new operations we may undertake in other jurisdictions, including Iraq. The fee
for manufacturing the synthetic heavy hydrocarbon emulsion fuel oil is based on the type of feedstock and water used, but for
the purposes of the memorandum of understanding, the cost was estimated to be approximately $6.30 per barrel of synthetic heavy
hydrocarbon emulsion fuel oil based on an average of 500 barrels per day average monthly input of feedstock. If we increase the
volume above 1,000 barrels per day, the cost is expected to be reduced. Quadrise has also agreed to work with us for other applications
of the technology that may reduce costs or enhance the value of our projects in Albania. The memorandum of understanding also
includes provisions for the preparation of a master service agreement between us and Quadrise.



Prior
to the consummation of these transactions, we were a shell corporation as that term is defined in Rule 405 of the Securities
Act and Rule 12b-2 of the Exchange Act. Since entering into these transactions, we believe that we are no longer a
shell corporation. Our primary operations will consist of both heavy oil emulsification, wherein we use the technology licensed
to us by Quadrise Canada Corporation to make heavy crude oil less viscous so that it can be used for fuel oil and, once our facility
in Albania is completed, we will begin upgrading heavy crude oil with the sonication technology we acquired from Sonoro. This
process will not only reduce viscosities, but will separate and remove asphaltenes from heavy crude oil. Asphaltenes are defined
by scientists as any petroleum product that dissolves in toulene, but doesn’t dissolve in pentane or heptane solutions.
Among the asphaltenes found in heavy crude oil are sulphur, vanadium and nickel. We expect our facility to be complete in the
fourth quarter of 2013 and to begin sonication operations during the first quarter of 2014. The audited financial statements of
Petrosonic Albania sh.a for the fiscal years ended December 31, 2011 and 2010 can be found in our Annual Report on Form 10-K/T
filed with the SEC under “Item 8. Financial Statements and Supplementary Data”. For accounting purposes, we have accounted
for the Purchase Agreement under the purchase method of accounting.



We
have earned no revenue and have accumulated losses since inception. We expect to generate operating losses during some or all
of our planned development stages, which raises substantial doubt about our ability to continue as a going concern. In view of
these matters, our ability to continue as a going concern is dependent upon our ability to meet our financial requirements and
to raise additional capital, which may likely involve the further issuance of capital stock, and the success of our future operations.



6







Sonication
Operation Plans and Business Focus



API
gravity is a measure of how heavy or light a petroleum liquid is compared to water, one of the qualitative measures for crude
oil. Petrosonic has acquired a commercial process which improves heavy oil densities by 6 to 15 API from as low as 8 API, reduces
viscosities of oil by 99% to pipeline specifications and reduces sulphur and heavy metals by over 50%.



This
process is especially beneficial to producers with the following intrinsic challenges:



| | ● | stranded
                                                                                                                                                           heavy
                                                                                                                                                           oil
                                                                                                                                                           due
                                                                                                                                                           to
                                                                                                                                                           transportation
                                                                                                                                                           issues
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● |  | diluent
                                                                                                                                                                                                                   supply
                                                                                                                                                                                                                   issues
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● |  | limited
                                                                                                                                                                                                                   refining
                                                                                                                                                                                                                   markets
                                                                                                                                                                                                                   (light
                                                                                                                                                                                                                   oil
                                                                                                                                                                                                                   refiners
                                                                                                                                                                                                                   struggle
                                                                                                                                                                                                                   with
                                                                                                                                                                                                                   heavy
                                                                                                                                                                                                                   oil)
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● |  | heavy
                                                                                                                                                                                                                   discounts
                                                                                                                                                                                                                   due
                                                                                                                                                                                                                   to
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● |  | density
                                                                                                                                                                                                                   adjustments
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● |  | high
                                                                                                                                                                                                                   sulfur
                                                                                                                                                                                                                   content
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● |  | high
                                                                                                                                                                                                                   metals
                                                                                                                                                                                                                   content
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



It
is estimated that there are approximately 7.5 billion barrels of oil reserves present in Albania. Current production in Albania
is approximately 21,000 to 22,000 barrels of oil per day (“bopd”).

http://www.balkanalysis.com/albania/2012/02/05/albania-oil-industry-enjoys-revival-but-investor-government-relations-remain-a-question/)



We
plan to have our first 1,000 bopd stand-alone facility operational by the end of the 4th quarter of 2013 in Albania. If we are
able to successfully establish our first commercial facility, we believe heavy oil producers may then integrate the Petrosonic
system at their cost into their treatment facilities. Petrosonic would license the sonication technology and retain a royalty
fee, or we may form joint ventures with heavy oil producers to install and manage the plants jointly. Petrosonic may also choose
to develop its own stand-alone facilities.



Further
upside opportunities exist in several other applications which we are developing, including, heavy oil emulsification, waste oil
separation and oil separations from drill cuttings.



Vision
and Strategy



During
2013 and 2014 we plan to work toward completion of the following milestones:



| | ● | Complete
    the section of the Albanian facility that will be dedicated to the emulsification technology.A portion of the Albanian
    processing facility will be devoted to the emulsification of de-asphalted oil and asphaltenes using the technology that we
    acquired from Quadrise Canada Corporation. On April 10, 2013 we announced the execution of a Master Toll Services Agreement
    with IDK Petrol Albania Sila, an Albanian energy company. Under the agreement, IDK engaged us as a processor and producer
    of heavy hydrocarbon emulsion fuel oil and emulsified bitumen from heavy oil and agreed to pay us per barrel fees based on
    both the quantity of oil to be processed and the quality of the end product produced. Pricing of the processed oil, delivery
    dates and specifications, among other terms, will be determined at the time each purchase order is issued. The Master Toll
    Services Agreement does not require IDK to provide a minimum amount of feedstock during the term of the agreement. We have
    completed installing all of the equipment and infrastructure necessary to begin emulsifying heavy crude oil and we received
    the fire permit that is required before we can undertake emulsification processing. We expect to begin generating revenues
    from emulsification processing in the fourth quarter of 2013.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Expand
    emulsification processing to other countries.As noted in the discussion of our agreement with Quadrise Canada Corporation,
    Quadrise licensed to us, on an exclusive basis, the right to use the emulsification technology in Albania and for projects
    to be determined in Iraq. The license also allows us to expand our use of the technology to sell emulsified oil into other
    jurisdictions, subject to Quadrise’s rights. We expect to begin to expand our use of the emulsification technology to
    sell emulsified oil into other countries during 2014. We cannot estimate what this will cost us, since we will only emulsify
    the oil as we receive orders.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



7







| | ● | Complete
    the section of the Albanian facility that will be dedicated to the sonication process.We expect to complete the section
    of the Albanian facility that will be dedicated to the sonication process during the fourth quarter of 2013. We estimate that
    completion of the facility could cost as much as $1.7 million. If we are able to complete the facility as planned, we expect
    to begin generating revenues during 2014 from utilizing the technology we acquired from Sonoro to develop a business relating
    to the treatment and upgrading of heavy oil by sonicated solvent de-asphalting.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Key
Success Factors



Our
success will be dependent upon:



| | ● |  | our
                                                                                                                                                           ability
                                                                                                                                                           to
                                                                                                                                                           attract
                                                                                                                                                           and
                                                                                                                                                           develop
                                                                                                                                                           numerous
                                                                                                                                                           emulsification
                                                                                                                                                           and
                                                                                                                                                           sonication
                                                                                                                                                           projects
                                                                                                                                                           once
                                                                                                                                                           our
                                                                                                                                                           facility
                                                                                                                                                           is
                                                                                                                                                           complete;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● |  | access
                                                                                                                                                   to
                                                                                                                                                   an
                                                                                                                                                   ample
                                                                                                                                                   producer
                                                                                                                                                   oil
                                                                                                                                                   supply
                                                                                                                                                   and
                                                                                                                                                   our
                                                                                                                                                   ability
                                                                                                                                                   to
                                                                                                                                                   find
                                                                                                                                                   equitable
                                                                                                                                                   profit
                                                                                                                                                   distribution;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● |  | our
                                                                                                                                                   ability
                                                                                                                                                   to
                                                                                                                                                   minimize
                                                                                                                                                   technical
                                                                                                                                                   risk
                                                                                                                                                   through
                                                                                                                                                   avoidance
                                                                                                                                                   of
                                                                                                                                                   scale
                                                                                                                                                   up
                                                                                                                                                   issues;
                                                                                                                                                   and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● |  | our
                                                                                                                                                   ability
                                                                                                                                                   to
                                                                                                                                                   find
                                                                                                                                                   strategic
                                                                                                                                                   partners
                                                                                                                                                   who
                                                                                                                                                   can
                                                                                                                                                   help
                                                                                                                                                   finance
                                                                                                                                                   our
                                                                                                                                                   operations
                                                                                                                                                   and/or
                                                                                                                                                   gain
                                                                                                                                                   quick
                                                                                                                                                   access
                                                                                                                                                   to
                                                                                                                                                   markets.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We
are also considering selling the asphaltenes generated by our process. Asphaltenes are present in most petroleum materials, and
in all heavy oils and bitumens from oil sands. Asphaltenes can be used in road construction, waterproofing and roofing. Using
our technology, we can separate the asphaltenes from the oil being processed. We have undertaken third party testing of these
asphaltenes on a batch basis and, based on the results, we have had discussions with asphalt producers for potential contracts.
We are in the process of developing this business opportunity, although we have no customers for asphaltenes at this time and
we have no competitive presence in this market.



Priorities



Our
immediate priorities are to:



| | ● |  | strengthen
                                                                                                                                                         our
                                                                                                                                                         operations
                                                                                                                                                         and
                                                                                                                                                         management
                                                                                                                                                         as
                                                                                                                                                         we
                                                                                                                                                         move
                                                                                                                                                         forward
                                                                                                                                                         in
                                                                                                                                                         the
                                                                                                                                                         oil
                                                                                                                                                         sector;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● |  | complete
                                                                                                                                                                                                                 the
                                                                                                                                                                                                                 facility
                                                                                                                                                                                                                 in
                                                                                                                                                                                                                 Albania,
                                                                                                                                                                                                                 which
                                                                                                                                                                                                                 we
                                                                                                                                                                                                                 expect
                                                                                                                                                                                                                 to
                                                                                                                                                                                                                 commission
                                                                                                                                                                                                                 by
                                                                                                                                                                                                                 the
                                                                                                                                                                                                                 end
                                                                                                                                                                                                                 of
                                                                                                                                                                                                                 the
                                                                                                                                                                                                                 fourth
                                                                                                                                                                                                                 quarter
                                                                                                                                                                                                                 of
                                                                                                                                                                                                                 2013;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● |  | establish
                                                                                                                                                                                                                 a
                                                                                                                                                                                                                 second
                                                                                                                                                                                                                 country
                                                                                                                                                                                                                 oil
                                                                                                                                                                                                                 processing
                                                                                                                                                                                                                 project;
                                                                                                                                                                                                                 and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● |  | build
                                                                                                                                                                                                                 a
                                                                                                                                                                                                                 firm
                                                                                                                                                                                                                 backlog
                                                                                                                                                                                                                 of
                                                                                                                                                                                                                 projects
                                                                                                                                                                                                                 with
                                                                                                                                                                                                                 financing
                                                                                                                                                                                                                 commitments.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
Industry



Traditional
Heavy Oil Opportunities



Crude
oil is the world’s most actively traded commodity. Heavy crude oil is a type of highly viscous crude oil that does not flow
easily (sometimes referred to as non-conventional oil). Typically, it is defined as crude oil with an API gravity of less than
22 API. For example, Canadian extra-heavy crude (Athabasca bitumen) has a viscosity of 10,000+ cP. (The cgs physical unit for
dynamic viscosity is the poise (P). It is more commonly expressed, particularly in ASTM standards, as centipoise(cP).)
Water at 20°C has a viscosity of 1.0020 cP, about the same as cold molasses, and API gravity between 8-14 API. In comparison,
WTI, a type of light crude oil used as a benchmark in oil pricing of New York Mercantile Exchange’s oil futures, has an
API of approximately 39.6. Heavy oils can be upgraded to high quality light synthetic oils using specialized refining processing.



8







Heavy
oil, compared to light crude oil, has specific technical issues relating to production, transportation, and refining. Light crude
oil is easier and less expensive to produce, since it generally has a higher percentage of light hydrocarbons that can be recovered
with simple distillation at a refiner. Heavy crude oil can’t be produced, transported and refined by conventional methods
because it has high concentrations of sulfur and metals, particularly nickel and vanadium. Heavy crude oil requires extra refining
to produce more valuable and in-demand products, such as gasoline, home heating oil and diesel fuel. These challenges must be
overcome in order for heavy oil to become a significant contributor to global growing demand.



Global
Need, Supply and Production



Until
recent years conventional, light crude oil has been abundantly available and has easily met world demand for this form of energy.
By 2007, however, demand for crude oil worldwide substantially increased, straining the supply of conventional oil. This has led
to consideration of alternative or insufficiently utilized energy sources, among which heavy crude oil and natural bitumen are
perhaps the most readily available to supplement short- and long-term needs. Heavy oil has long been exploited as a source of
refinery feedstock, but has commanded lower prices because of its lower quality relative to conventional oil. Natural bitumen
is a very viscous crude oil that may be immobile in the reservoir. (When natural bitumen is mobile in the reservoir, it is generally
known as extra-heavy oil.) (U.S. Geological Survey, “Heavy Oil and Natural Bitumen Resources in Geological Basins of the
World”, Report 2007-1084). According to “2010: Survey of Energy Resources”, a report issued by the World Energy
Council, the volume of original oil in place in known deposits of natural bitumen and extra-heavy oil appears to be at least of
the same order of magnitude as the volume of original oil in place at discovered conventional (light) oil accumulations. Total
resources of heavy oil in known accumulations are 3,396 billion barrels of original oil in place. The total natural bitumen resource
in known accumulations amounts to 5,505 billion barrels of oil originally in place.



The
following chart shows the regional distribution of heavy oil and natural bitumen in billions of barrels:



|Region                     |  | Heavy
    Oil |       |  | Bitumen | 
|-------------------------- |  | ------------- | ----- |  | ------- | 
|                           |  |               |       |  |         | 
|North America              |  |               | 651   |  |         | 
|South America              |  |               | 1,127 |  |         | 
|Europe                     |  |               | 75    |  |         | 
|Africa                     |  |               | 83    |  |         | 
|Transcaucasia              |  |               | 52    |  |         | 
|Middle East                |  |               | 971   |  |         | 
|Russia                     |  |               | 182   |  |         | 
|South Asia                 |  |               | 18    |  |         | 
|East Asia                  |  |               | 168   |  |         | 
|Southeast Asia and Oceania |  |               | 68    |  |         | 



|* | Does
                                                                                                                                     not
                                                                                                                                     include
                                                                                                                                     extra-heavy
                                                                                                                                     oil.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Source:
                                                                                                                                     U.S.
                                                                                                                                     Geological
                                                                                                                                     Survey
                                                                                                                                     Report
                                                                                                                                     2007-1084,
                                                                                                                                     Heavy
                                                                                                                                     Oil
                                                                                                                                     and
                                                                                                                                     Natural
                                                                                                                                     Bitumen
                                                                                                                                     Resources
                                                                                                                                     in
                                                                                                                                     Geological
                                                                                                                                     Basins
                                                                                                                                     of
                                                                                                                                     the
                                                                                                                                     World
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As
the table above indicates, heavy oils are found around the world, with an estimated 54% of the world’s heavy oil and an
estimated 84% percent of the natural bitumen located in the Western Hemisphere. The Eastern Hemisphere, however, contains an estimated
85% of the world’s light oil reserves, with the Middle East accounting for approximately 56% of these reserves.



Among
the more notable heavy oil reserves are: Venezuela’s Orinoco Heavy Oil Belt; Canada’s Athabasca Oil Sands; Russia’s
Volga-Ural Basin; Brazil’s offshore Campos Basin; Alaska’s Prudhoe Bay; and China’s Luda field in Bohai Bay.



9







Significance
of Traditional Heavy Oil



Around
the globe, some of the most prolific oilfields are reaching maturity and have begun to experience reduced production rates. What
large conventional oilfields remain lie mostly in the lands of Middle Eastern, OPEC nations. At the same time, the world’s
demand for oil continues to grow every year, fueled in part by the rapidly growing economies of China and India. This declining
availability of conventional oil combined with rising demand has driven up oil prices and put more pressure on the search for
alternate energy sources.



Into
the picture come the tremendous deposits of heavy oil and bitumen, a solid or viscous material with adhesive properties which
is derived from petroleum, that are found in the Western hemisphere. These non-conventional resources are more difficult to extract,
so they have barely been touched in the past. With the price of oil reaching new highs in 2005 and 2006, investments in these
more challenging oil deposits are rapidly accelerating.



The
U.S. oil industry alone has invested $86 billion in “frontier hydrocarbons” since 2000, developing technologies to
recover and convert inferior grades of oil, such as heavy oil and bitumen, into a more usable form for refineries, and to turn
waste and residue hydrocarbons into high-value products.



The
worldwide importance of heavy oils will continue to emerge as the price of oil remains high and the demand for it remains strong.
For example, the tight worldwide oil supply is expected to continue to force crude prices higher and turn Canada’s oil sands
into the single largest contributor to net new global supply by the end of the decade, according to CIBC World Markets: “All
of the net increase in oil production is expected to come from non-conventional sources,”says Jeff Rubin, chief economist
at CIBC World Markets, “While deepwater oil is the primary source today, we forecast that the Canadian oil sands will
become the single largest contributor to incremental global supply by 2010.”



Industry
Trends in Production and Transport of Heavy Oil



The
market factors behind Petrosonic’s upgrading derive from the oil industry’s needs relative to the production and refining
infrastructure. As production shifts more to heavier oil it becomes necessary for refining capacity to adapt to it, either by
pre-upgrading the oil or by major refining changes. Until then heavy oil producers face a penalty due to refining and pipeline
infrastructure limitations driven by:



| | ● |  | the
                                                                                           need to maintain low capital costs
                                                                                           and operating costs;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● |  | the
                                                                                                                                                   ability
                                                                                                                                                   to
                                                                                                                                                   produce
                                                                                                                                                   and
                                                                                                                                                   transport
                                                                                                                                                   heavy
                                                                                                                                                   oil
                                                                                                                                                   within
                                                                                                                                                   the
                                                                                                                                                   same
                                                                                                                                                   systems
                                                                                                                                                   as
                                                                                                                                                   those
                                                                                                                                                   established
                                                                                                                                                   for
                                                                                                                                                   conventional
                                                                                                                                                   oil,
                                                                                                                                                   i.e.
                                                                                                                                                   using
                                                                                                                                                   existing
                                                                                                                                                   transport
                                                                                                                                                   pipelines;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● |  | delivery
                                                                                                                                                   of
                                                                                                                                                   heavy
                                                                                                                                                   oil
                                                                                                                                                   to
                                                                                                                                                   the
                                                                                                                                                   point
                                                                                                                                                   of
                                                                                                                                                   sale
                                                                                                                                                   with
                                                                                                                                                   reduced
                                                                                                                                                   expenditures
                                                                                                                                                   on
                                                                                                                                                   diluents;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● |  | production
                                                                                                                                                   and
                                                                                                                                                   transportable
                                                                                                                                                   technology
                                                                                                                                                   that
                                                                                                                                                   allows
                                                                                                                                                   the
                                                                                                                                                   exploitation
                                                                                                                                                   of
                                                                                                                                                   heavy
                                                                                                                                                   oil
                                                                                                                                                   reserves
                                                                                                                                                   at
                                                                                                                                                   lower
                                                                                                                                                   total
                                                                                                                                                   cost,
                                                                                                                                                   particularly
                                                                                                                                                   for
                                                                                                                                                   smaller
                                                                                                                                                   fields
                                                                                                                                                   –
                                                                                                                                                   without
                                                                                                                                                   massive
                                                                                                                                                   infrastructure
                                                                                                                                                   expenditures.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Issues
for Heavy Oil Producers



Because
of the demands placed by the industry on the production and transport of heavy oil, heavy oil producers, especially small to medium
size ones, face price penalties:



| | ● |  | smaller
                                                                                                                                                         producers
                                                                                                                                                         face
                                                                                                                                                         high
                                                                                                                                                         costs
                                                                                                                                                         due
                                                                                                                                                         to
                                                                                                                                                         the
                                                                                                                                                         need
                                                                                                                                                         to
                                                                                                                                                         blend
                                                                                                                                                         heavy
                                                                                                                                                         oil
                                                                                                                                                         with
                                                                                                                                                         diluents
                                                                                                                                                         for
                                                                                                                                                         pipeline
                                                                                                                                                         transportation
                                                                                                                                                         or
                                                                                                                                                         face
                                                                                                                                                         penalties
                                                                                                                                                         for
                                                                                                                                                         failure
                                                                                                                                                         to
                                                                                                                                                         meet
                                                                                                                                                         pipeline
                                                                                                                                                         specifications
                                                                                                                                                         for
                                                                                                                                                         viscosity
                                                                                                                                                         and
                                                                                                                                                         API;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● |  | fixed
                                                                                                                                                                                                                 producer
                                                                                                                                                                                                                 “upgrading”
                                                                                                                                                                                                                 facilities
                                                                                                                                                                                                                 to
                                                                                                                                                                                                                 increase
                                                                                                                                                                                                                 the
                                                                                                                                                                                                                 API
                                                                                                                                                                                                                 have
                                                                                                                                                                                                                 been
                                                                                                                                                                                                                 limited
                                                                                                                                                                                                                 by
                                                                                                                                                                                                                 the
                                                                                                                                                                                                                 poor
                                                                                                                                                                                                                 economics
                                                                                                                                                                                                                 of
                                                                                                                                                                                                                 small
                                                                                                                                                                                                                 scale
                                                                                                                                                                                                                 and
                                                                                                                                                                                                                 short
                                                                                                                                                                                                                 production
                                                                                                                                                                                                                 life;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● |  | upgrading
                                                                                                                                                   is
                                                                                                                                                   generally
                                                                                                                                                   limited
                                                                                                                                                   to
                                                                                                                                                   de-asphalting
                                                                                                                                                   (removal
                                                                                                                                                   of
                                                                                                                                                   heavy
                                                                                                                                                   asphaltene
                                                                                                                                                   components
                                                                                                                                                   –
                                                                                                                                                   up
                                                                                                                                                   to
                                                                                                                                                   16%
                                                                                                                                                   by
                                                                                                                                                   mass)
                                                                                                                                                   and
                                                                                                                                                   vis-breaking
                                                                                                                                                   (low
                                                                                                                                                   temperature
                                                                                                                                                   cracking).
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



10







Second
Country Oil Projects



One
of our goals is to establish oil processing projects in countries other than Albania. The discussions below illustrate opportunities
that we believe could make it possible for us to expand into other countries.



Oil
Sands



The
world’s two largest sources of bitumen (and related extraction and recovery operations) are in Canada and in Venezuela.
There are also known oil shale or bituminous reserves in the United States, Mexico, South America, Africa, Kazakhstan and other
locations.



In
Canada, oil sands are found in three locations in the province of Alberta: The Athabasca, Peace River and Cold Lake regions. They
cover 141,000 square kilometers.



Oil
Sands Production in Canada



The
Canadian oil sands industry is dominated by large integrated multi-national companies, including Albion Sands Energy Inc., Canadian
Natural Resources Limited, Chevron, EnCana Corporation, Husky Energy Inc., Imperial Oil Resources Limited, Petro-Canada (Fort
Hills), Shell Canada Limited, Suncor Energy Inc. and Syncrude Canada Ltd.



More
recent entrants, with projects under development or already underway, include TOTAL (Joslyn), Exxon Mobil, Synenco, Fort Hills
(UTS), Kearl Lake Project with Imperial Oil Resources Limited, and BP (British Petroleum).



There
is an estimated 1.7 to 2.5 trillion barrels of bitumen in place in Alberta’s oil sands. Canada’s recoverable oil resource
is second only to Saudi Arabia’s. Approximately 1.3 million barrels are produced per day and production is expected to grow
to three million barrels per day by 2020. Over the next 10 years there is expected to be over $60 billion of direct capital expenditures
into development of the oil sands. (“Facts about Alberta’s Oil Sands and its Industry”, Oil Sands Discovery
Centre, www.oilsandsdiscovery.com.) But to produce one million barrels of oil a day requires withdrawals of enough water from
the Athabasca River to sustain a city of two million people every year. Despite some recycling, the majority of this water never
returns to the river and is pumped into some of the world’s largest man-made dykes containing toxic waste.



Oil
sands extraction usually takes at least two tons of oil sand to fill one barrel of upgraded synthetic crude oil. Furthermore,
for every barrel of synthetic oil produced in Alberta, more than 80 kg of greenhouse gases are released into the atmosphere, and
3 to 5 barrels of waste water are dumped into tailing ponds. Production waste streams released into ponds have still relatively
large amounts of unrecovered bitumen and expensive diluents (as much as 4%). In large volumes typical for the oil extraction,
these waste streams pose major environmental burdens as well as lost economic potential, inasmuch as we believe, based on our
knowledge of bitumen and naphtha recovery processes, that we would be able to separate the oil from the waste and sell the heavy
crude oil into the market.



Bitumen
and naphtha recovery processes involve separation of the complex mixtures of mineral matter (sand, clay), water and small amounts
of soluble organic from the bitumen. Current operators use a combination of energy (hydro-transport, heat, conventional mixing),
chemical (caustic) addition, flotation and light solvent dilation to achieve the necessary separations. We are in the process
of testing the theory that taking the bitumen and diluents out of the waste oil in the tailing ponds will be substantially similar
to removing impurities from the bitumen, such as clay and other metals. We cannot guarantee that it will be possible to economically
remove the bitumen and diluents out of the waste oil in the tailing ponds.



Petrosonic’s
Opportunity



We
believe Petrosonic will be able to take advantage of an opportunity that traditional upgrading technology cannot address –
upstream upgrading on smaller scales. The viability of upgrading is constantly changing due to production mix, refining infrastructure
costs, and oil pricing. However, there are three markets for small upgraders that make sense:



11







| | ● |  | Pipeline
                                                                                                                                                         systems
                                                                                                                                                         where
                                                                                                                                                         access
                                                                                                                                                         to
                                                                                                                                                         the
                                                                                                                                                         pipeline
                                                                                                                                                         requires
                                                                                                                                                         blending
                                                                                                                                                         of
                                                                                                                                                         heavy
                                                                                                                                                         oil.
                                                                                                                                                         Condensate
                                                                                                                                                         prices
                                                                                                                                                         and
                                                                                                                                                         heavy
                                                                                                                                                         oil
                                                                                                                                                         differentials
                                                                                                                                                         have
                                                                                                                                                         been
                                                                                                                                                         stable
                                                                                                                                                         for
                                                                                                                                                         some
                                                                                                                                                         time
                                                                                                                                                         and
                                                                                                                                                         long
                                                                                                                                                         term
                                                                                                                                                         projections
                                                                                                                                                         indicate
                                                                                                                                                         that
                                                                                                                                                         low
                                                                                                                                                         condensate
                                                                                                                                                         prices
                                                                                                                                                         following
                                                                                                                                                         the
                                                                                                                                                         global
                                                                                                                                                         economic
                                                                                                                                                         slow-down
                                                                                                                                                         will
                                                                                                                                                         be
                                                                                                                                                         short-lived;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● |  | Heavy
                                                                                                                                                                                                                 oil
                                                                                                                                                                                                                 producers
                                                                                                                                                                                                                 in
                                                                                                                                                                                                                 markets
                                                                                                                                                                                                                 where
                                                                                                                                                                                                                 light
                                                                                                                                                                                                                 oil
                                                                                                                                                                                                                 dominates
                                                                                                                                                                                                                 refinery
                                                                                                                                                                                                                 infrastructure.
                                                                                                                                                                                                                 Internationally
                                                                                                                                                                                                                 there
                                                                                                                                                                                                                 are
                                                                                                                                                                                                                 several
                                                                                                                                                                                                                 markets
                                                                                                                                                                                                                 like
                                                                                                                                                                                                                 this;
                                                                                                                                                                                                                 and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● |  | Markets
                                                                                                                                                                                                                 where
                                                                                                                                                                                                                 upgrading
                                                                                                                                                                                                                 asphalt
                                                                                                                                                                                                                 by-products
                                                                                                                                                                                                                 can
                                                                                                                                                                                                                 command
                                                                                                                                                                                                                 premium
                                                                                                                                                                                                                 prices.
                                                                                                                                                                                                                 This
                                                                                                                                                                                                                 is
                                                                                                                                                                                                                 especially
                                                                                                                                                                                                                 attractive
                                                                                                                                                                                                                 in
                                                                                                                                                                                                                 the
                                                                                                                                                                                                                 United
                                                                                                                                                                                                                 States,
                                                                                                                                                                                                                 given
                                                                                                                                                                                                                 the
                                                                                                                                                                                                                 economic
                                                                                                                                                                                                                 infrastructure
                                                                                                                                                                                                                 stimulus
                                                                                                                                                                                                                 measures
                                                                                                                                                                                                                 being
                                                                                                                                                                                                                 implemented
                                                                                                                                                                                                                 through
                                                                                                                                                                                                                 the
                                                                                                                                                                                                                 2009
                                                                                                                                                                                                                 American
                                                                                                                                                                                                                 Recovery
                                                                                                                                                                                                                 and
                                                                                                                                                                                                                 Reinvestment
                                                                                                                                                                                                                 Act,
                                                                                                                                                                                                                 which
                                                                                                                                                                                                                 provides
                                                                                                                                                                                                                 $105.3
                                                                                                                                                                                                                 billion
                                                                                                                                                                                                                 for
                                                                                                                                                                                                                 infrastructure
                                                                                                                                                                                                                 investment.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



To
take advantage of these opportunities Petrosonic must be able to:



| | ● |  | economically
                                                                                           upgrade heavy oil from small and medium
                                                                                           sized producers;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● |  | add
                                                                                                                                                   value
                                                                                                                                                   and
                                                                                                                                                   allow
                                                                                                                                                   producers
                                                                                                                                                   to
                                                                                                                                                   capture
                                                                                                                                                   a
                                                                                                                                                   larger
                                                                                                                                                   share
                                                                                                                                                   of
                                                                                                                                                   the
                                                                                                                                                   market
                                                                                                                                                   price
                                                                                                                                                   for
                                                                                                                                                   refinery
                                                                                                                                                   products;
                                                                                                                                                   and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● |  | provide
                                                                                                                                                                                                                 operating
                                                                                                                                                                                                                 plants
                                                                                                                                                                                                                 to
                                                                                                                                                                                                                 heavy
                                                                                                                                                                                                                 oil
                                                                                                                                                                                                                 producers
                                                                                                                                                                                                                 in
                                                                                                                                                                                                                 return
                                                                                                                                                                                                                 for
                                                                                                                                                                                                                 tolling
                                                                                                                                                                                                                 process
                                                                                                                                                                                                                 fees
                                                                                                                                                                                                                 or
                                                                                                                                                                                                                 purchase
                                                                                                                                                                                                                 heavy
                                                                                                                                                                                                                 oil
                                                                                                                                                                                                                 at
                                                                                                                                                                                                                 a
                                                                                                                                                                                                                 premium
                                                                                                                                                                                                                 to
                                                                                                                                                                                                                 blenders.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Upgraded
oil provides uplift in crude’s value and eliminates issues related to transport of crude oil to pipeline and refinery companies.



The
Petrosonic Process



As
noted above, the Petrosonic heavy oil process will enable heavy sour oil and bitumen (from most heavy oil and oil sands fields
in the world) to be converted from nominally an API gravity of 8° to 14° to a value-added synthetic crude oil of between
18° and 23° API. This is achieved through the reduction of undesirable constituents of the raw heavy oil and/or bitumen.
The process incorporates two stages: solvent de-asphalting and distillation.



While
solvent de-asphalting and distillation are both proven and well known technologies, the innovation associated with the Petrosonic
upgrading process lies in the rapid de-asphalting achieved by sonication of the de-asphalting phase with the Petrosonic reactor
stage.



Test
Data



Sonoro
completed an extensive test program of heavy oils both in house and independently with the complete upgrading process which has
shown to consistently achieve the target improvements in API. The tests were carried out in Sonoro’s research and development
site in Richmond, British Columbia (in house). The lab work for the specifics of the de-asphalted oil and asphaltenes generated
was carried out by Alberta Research Council in their laboratory (independent) in Edmonton, Alberta. The tests were carried out
during 2010 and 2011. For Canadian bitumen samples this represents an upgrade from nominally 10° API to 25° API. The test
program included heavy oils and bitumen from the Canadian Athabasca and Lloydminster fields, heavy oil from U.S. refineries, and
crude oil from two international oil producers. The upgraded oil quality is typically:



| | ● |  | Density
    - from 23° to 28° API gravity, meeting pipeline specifications.
| | - |  | ---------------------------------------------------------------------------



| | ● |  | Viscosity
    -less than 100 cSt at 25°C (greater than 99% reduction), meeting pipeline specifications.
| | - |  | -------------------------------------------------------------------------------------------------------



| | ● |  | Liquid
    yields - From 85% to 92% by volume depending on the quantity and quality of asphaltene by-product required.
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| | ● |  | Sulphur
    - reduction by up to 40% by mass.
| | - |  | ---------------------------------------------



| | ● |  | Heavy
    Metals - typical reduction of vanadium up to 80% and nickel by up to 88% by mass.
| | - |  | -------------------------------------------------------------------------------------------





12







The
following tables illustrate some of the data from the extensive test program that Sonoro conducted. This is critical in establishing
the application of the Petrosonic process on a broad basis.



The
table below (Table 1) shows key performance parameters for Alberta/Cold Lake oil:



Table
1



|Analysis                |  | Raw Bitumen |        |  | Upgraded Oil [Petrosonic ID 090309E-2] | 
|----------------------- |  | ----------- | ------ |  | -------------------------------------- | 
|Total Acid Number (TAN) |  |             | 1.24   |  |                                        | 
|API Gravity             |  |             | 14.4   |  |                                        | 
|Density @15oC           |  |             | 0.9690 |  |                                        | 
|Nickel                  |  |             | 46     |  |                                        | 
|Vanadium                |  |             | 95     |  |                                        | 
|Sulphur                 |  |             | 3.62   |  |                                        | 



Table
2 shows a PONA (fundamental heavy oil testing of paraffins, olefins, napthenes and aromatics) summary by hydrocarbon group for
Alberta/Cold Lake oil using commercially available light naphtha:



Table
2



|             |  |  | Raw
    Bitumen |        |  | Upgraded
    Oil [Petrosonic ID: 090309E-2] | 
|------------ |  |  | --------------- | ------ |  | ------------------------------------------- | 
|Group        |  |  | %
    Wt        |        |  | %
    Mol                                   | 
|Aromatics    |  |  |                 | 14.175 |  |                                             | 
|i-Paraffins  |  |  |                 | 25.572 |  |                                             | 
|Naphthenes   |  |  |                 | 30.728 |  |                                             | 
|Olefins      |  |  |                 | 11.431 |  |                                             | 
|Paraffins    |  |  |                 | 4.715  |  |                                             | 
|Oxygenates   |  |  |                 | 0.000  |  |                                             | 
|Unidentified |  |  |                 | 13.380 |  |                                             | 
|Plus         |  |  |                 | 0.000  |  |                                             | 
|TOTAL        |  |  |                 | 100.00 |  |                                             | 





13







Table
3 shows a PONA summary by carbon number for Alberta/Cold Lake oil. Table 3 reflects the effectiveness of the Petrosonic upgrading
process through the reduction in the oil’s carbon number from C9/C10 to C7/C8, which indicates the generation of new lighter
end fractions, each having a lower density and thus serving to increase the API. Given the high sensitivity of the API calculation
to density, even small changes in density create significant gains in API quality.



Table
3



|             |  |  | Raw
    Bitumen |        |  | Upgraded
    Oil[Petrosonic Code 090309E-2] | 
|------------ |  |  | --------------- | ------ |  | ------------------------------------------- | 
|Carbon
    # |  |  | %
    Wt        |        |  | %
    Mol                                   | 
|C4           |  |  |                 | 0.001  |  |                                             | 
|C5           |  |  |                 | 0.060  |  |                                             | 
|C6           |  |  |                 | 3.063  |  |                                             | 
|C7           |  |  |                 | 17.245 |  |                                             | 
|C8           |  |  |                 | 17.245 |  |                                             | 
|C9           |  |  |                 | 29.209 |  |                                             | 
|C10          |  |  |                 | 17.940 |  |                                             | 
|C11          |  |  |                 | 1.511  |  |                                             | 
|C12          |  |  |                 | -      |  |                                             | 
|C13          |  |  |                 | -      |  |                                             | 
|C14          |  |  |                 | -      |  |                                             | 
|>C15         |  |  |                 | 13.726 |  |                                             | 
|TOTAL        |  |  |                 | 100.00 |  |                                             | 



The following table (Table 4) illustrates
some of the data from the extensive test program that Sonoro conducted. This is critical in establishing the application of the
Petrosonic process on a broad basis.



Table
4



|           |  |  |          |  |  | Raw |      |  | Upgraded | 
|---------- |  |  | -------- |  |  | --- | ---- |  | -------- | 
|           |  |  | Specific |  |  |     |      |  | Vanadium | 
|Country    |  |  | Source   |  |  | API |      |  | (g)      | 
|           |  |  |          |  |  |     |      |  |          | 
|Canada     |  |  | CP       |  |  |     | 10.6 |  |          | 
|Canada     |  |  | CDL      |  |  |     | 14.4 |  |          | 
|US (Texas) |  |  | TG       |  |  |     | 17.4 |  |          | 
|US (Texas) |  |  | TK       |  |  |     | 14.9 |  |          | 
|US (Texas) |  |  | TQ       |  |  |     | 11.2 |  |          | 
|Albania    |  |  | AB       |  |  |     | 10.8 |  |          | 
|Albania    |  |  | AD       |  |  |     | 10.2 |  |          | 
|Albania    |  |  | AM       |  |  |     | 21.0 |  |          | 
|Venezuela  |  |  | VP       |  |  |     | 9.4  |  |          | 
|US (Utah)  |  |  | US       |  |  |     | 14.5 |  |          | 



Stages
in the Petrosonic Process



Step
1: Solvent De-asphalting



The
primary process of solvent de-asphalting dissolves bitumen in a common paraffinic solvent. The solvent is selected to ensure complete
dissolution of the oil-soluble component of the bitumen with the solvent to form a de-asphalted oil while the insoluble hydrocarbon
component known as asphaltenes are readily filtered through simple separation. This asphaltene fraction is concentrated with heavy
metals such as nickel and vanadium as well as sulphur.



The
Petrosonic reactor, using its low-frequency/high-energy/high-amplitude reactor design, allows for significant improvement in the
mass transfer efficiency of the solvent de-asphalting step in particular, cutting the de-asphalting time required from 6 to 10+
hours to 2 minutes.



Step
2: Solvent Recovery



At
the completion of the two-stage Petrosonic upgrading process, the upgraded oil is required to be separated from the solvent through
a standard solvent recovery process such as an evaporator or distillation column. Given the significant differential in boiling
points of the upgraded oil and the solvent for recovery, the separation process is economical and readily applicable to recover
solvent with a solvent residual of less than 4% remaining in the oil. Such a small solvent residual in the oil is well within
the expected quality parameters for pipeline and refinery specifications. The recovered solvent is reused at the solvent de-asphalting
stage to complete the loop on the Petrosonic upgrading process.





14







Petrosonic’s
Technology



SonoProcess



We
believe Petrosonic’s technology advantage is based upon the use of our Petrosonic reactor technology and the unique cavitational
and enhanced mass transfer effects that it provides. Petrosonic has developed a unique competency in the design of enhanced mass
transfer energy processes and the proprietary applications that result from this.



In
recent years the use of cavitational technologies and ultrasound has been researched extensively for oil processing – usually
in the context of desulphurization or “cold cracking”. Our own research does not support this and we make no claims
that it can create a unique upgrading process. The chemistries used in the Petrosonic process are established and our advantage
is that we make these more effective by reducing the time of separation and the energy input required to de-asphalt the crude
oil from asphaltenes and heavy metals.



Our
intent is to expand the uses of our SonoprocessTM technology by adding complementary proprietary process technologies, such
as the emulsion process we have licensed from Quadrise Canada Corporation and by using even more conventional and cheaper solvents,
such as propane.



Petrosonic reactors are based on low-frequency and high-amplitude:



| | ● |  | an
                                                                                                                                                   electromagnetic
                                                                                                                                                   drive
                                                                                                                                                   puts
                                                                                                                                                   a
                                                                                                                                                   massive
                                                                                                                                                   steel
                                                                                                                                                   bar
                                                                                                                                                   into
                                                                                                                                                   resonance
                                                                                                                                                   and
                                                                                                                                                   this
                                                                                                                                                   allows
                                                                                                                                                   efficient
                                                                                                                                                   transfer
                                                                                                                                                   of
                                                                                                                                                   energy
                                                                                                                                                   to
                                                                                                                                                   the
                                                                                                                                                   reaction
                                                                                                                                                   chambers;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● |  | there
                                                                                                                                                   are
                                                                                                                                                   no
                                                                                                                                                   moving
                                                                                                                                                   parts
                                                                                                                                                   and
                                                                                                                                                   so
                                                                                                                                                   Petrosonic
                                                                                                                                                   reactors
                                                                                                                                                   have
                                                                                                                                                   a
                                                                                                                                                   high
                                                                                                                                                   reliability
                                                                                                                                                   and
                                                                                                                                                   operational
                                                                                                                                                   availability;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● |  | the
                                                                                                                                                   reaction
                                                                                                                                                   chambers
                                                                                                                                                   are
                                                                                                                                                   attached
                                                                                                                                                   at
                                                                                                                                                   the
                                                                                                                                                   mid-node
                                                                                                                                                   points
                                                                                                                                                   one
                                                                                                                                                   half
                                                                                                                                                   wavelength
                                                                                                                                                   from
                                                                                                                                                   the
                                                                                                                                                   drive
                                                                                                                                                   system,
                                                                                                                                                   enabling
                                                                                                                                                   the
                                                                                                                                                   reactors
                                                                                                                                                   to
                                                                                                                                                   apply
                                                                                                                                                   Petrosonic
                                                                                                                                                   energy
                                                                                                                                                   to
                                                                                                                                                   physical,
                                                                                                                                                   chemical
                                                                                                                                                   and
                                                                                                                                                   biological
                                                                                                                                                   processes;
                                                                                                                                                   and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● |  | Petrosonic
                                                                                                                                                                                                                   reactors
                                                                                                                                                                                                                   are
                                                                                                                                                                                                                   thus
                                                                                                                                                                                                                   able
                                                                                                                                                                                                                   to
                                                                                                                                                                                                                   achieve
                                                                                                                                                                                                                   more
                                                                                                                                                                                                                   sustainable
                                                                                                                                                                                                                   processes
                                                                                                                                                                                                                   –
                                                                                                                                                                                                                   better
                                                                                                                                                                                                                   reactivity,
                                                                                                                                                                                                                   less
                                                                                                                                                                                                                   reagents,
                                                                                                                                                                                                                   less
                                                                                                                                                                                                                   energy,
                                                                                                                                                                                                                   greater
                                                                                                                                                                                                                   effectiveness
                                                                                                                                                                                                                   and
                                                                                                                                                                                                                   more
                                                                                                                                                                                                                   product
                                                                                                                                                                                                                   for
                                                                                                                                                                                                                   overall
                                                                                                                                                                                                                   economic
                                                                                                                                                                                                                   advantage.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Petrosonic
Heavy Oil Process Provisional and PCT Patent Applications



As
part of the transaction with Sonoro, we acquired the following heavy oil process provisional and PCT applications based on the
SonoprocessTM:



| | ● |  | Patent
                                                                                                                                                         Application
                                                                                                                                                         No:
                                                                                                                                                         WO2009111871.
                                                                                                                                                         Jurisdiction:
                                                                                                                                                         WIPO.
                                                                                                                                                         Title:
                                                                                                                                                         Method
                                                                                                                                                         for
                                                                                                                                                         Treating
                                                                                                                                                         Heavy
                                                                                                                                                         Crude
                                                                                                                                                         Oil.
                                                                                                                                                         Application
                                                                                                                                                         Status:
                                                                                                                                                         Closed.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● |  | Patent
                                                                                                                                                                                                                 Application
                                                                                                                                                                                                                 No:
                                                                                                                                                                                                                 EA201071060.
                                                                                                                                                                                                                 Jurisdiction:
                                                                                                                                                                                                                 Eurasisa.
                                                                                                                                                                                                                 Title:
                                                                                                                                                                                                                 Method
                                                                                                                                                                                                                 for
                                                                                                                                                                                                                 Treating
                                                                                                                                                                                                                 Heavy
                                                                                                                                                                                                                 Crude
                                                                                                                                                                                                                 Oil.
                                                                                                                                                                                                                 Status:
                                                                                                                                                                                                                 Pending.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● |  | Patent
                                                                                                                                                                                                                 Application
                                                                                                                                                                                                                 No:
                                                                                                                                                                                                                 EP2260089.
                                                                                                                                                                                                                 Jurisdiction:
                                                                                                                                                                                                                 Europe.
                                                                                                                                                                                                                 Title:
                                                                                                                                                                                                                 Method
                                                                                                                                                                                                                 for
                                                                                                                                                                                                                 Treating
                                                                                                                                                                                                                 Heavy
                                                                                                                                                                                                                 Crude
                                                                                                                                                                                                                 Oil.
                                                                                                                                                                                                                 Status:
                                                                                                                                                                                                                 Pending.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● |  | Patent
                                                                                                                                                                                                                 Application
                                                                                                                                                                                                                 No:
                                                                                                                                                                                                                 2156/MUMNP/2010.
                                                                                                                                                                                                                 Jurisdiction:
                                                                                                                                                                                                                 India.
                                                                                                                                                                                                                 Title:
                                                                                                                                                                                                                 Method
                                                                                                                                                                                                                 for
                                                                                                                                                                                                                 Treating
                                                                                                                                                                                                                 Heavy
                                                                                                                                                                                                                 Crude
                                                                                                                                                                                                                 Oil.
                                                                                                                                                                                                                 Status:
                                                                                                                                                                                                                 Pending.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● |  | Patent
                                                                                                                                                                                                                 Application
                                                                                                                                                                                                                 No:
                                                                                                                                                                                                                 US
                                                                                                                                                                                                                 13/822,818.
                                                                                                                                                                                                                 Jurisdiction:
                                                                                                                                                                                                                 United
                                                                                                                                                                                                                 States.
                                                                                                                                                                                                                 Title:
                                                                                                                                                                                                                 Method
                                                                                                                                                                                                                 for
                                                                                                                                                                                                                 Treating
                                                                                                                                                                                                                 Heavy
                                                                                                                                                                                                                 Crude
                                                                                                                                                                                                                 Oil.
                                                                                                                                                                                                                 Status:
                                                                                                                                                                                                                 This
                                                                                                                                                                                                                 application
                                                                                                                                                                                                                 is
                                                                                                                                                                                                                 pending
                                                                                                                                                                                                                 at
                                                                                                                                                                                                                 the
                                                                                                                                                                                                                 USPTO
                                                                                                                                                                                                                 and
                                                                                                                                                                                                                 awaiting
                                                                                                                                                                                                                 examination.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Competition



Currently
heavy oil is upgraded by refineries and upgraders (refineries that upgrade crude to synthetic crude grade level but not to full
end products such as diesel, jet fuel etc.). These facilities refine large quantities of crude from 60,000 to 500,000 bbl/day
and they are capital intensive, require long lead times, significant engineering and intensive water use.



There
have been other technologies introduced that upgrade heavy oil via other methods such as Headwaters Incorporated’s proprietary
HCAT technology or Ivanhoe Energy’s HTL heavy oil upgrading technology. However, these technologies upgrade heavy crudes
in smaller volumes and are also very complex, capital intensive and require intense use of energy and water. They also have the
associated environmental downsides such as carbon emissions.



15







Disadvantages
of Petrosonic Process/Technology



There
are few inherent disadvantages to the Petrosonic process. The technology has been proven on a batch basis, but long-term 24 hour
operations have not yet been attempted. In addition, one sonicator at current dimensions can process up to 500 barrels of heavy
oil per day, thus requiring additional sonicators to increase the processing capacity. While the processing capacity of one sonicator
can be an advantage for small and medium size operations, it may be considered as a disadvantage for larger operations.



In
addition, there are technical and logistical risks associated with the SonoprocessTM rollout in Albania. These risks can
be attributed to two general categories of risk: operational and logistical, which are influenced by the market risk factors which
are presented separately.



The
design of thesonicator chambers and the solvent
recoveryequipment was based on an estimation of the
required solvent and any changes and variations in the solvent will impact the overall ability to commission the project. Our
process relies on the availability of certain solvents such as light naphtha, pentane and LPGs. Light naphtha and pentane are
liquids and LPGs are liquefied gases and as such require different pressures and heat to be mixed with heavy crude and recovered.
In case the liquid solvents are not available for any reason in the jurisdiction in which we are operating, changing from one
solvent to the other will require some modifications to our equipment and process. These modifications may cause some interruption
or delays of the processing.



The
ability to procure suitable safe installation for commissioning the equipment is critical given the limited number of suitable
contractors available in Albania. The ability to source and deliver piping or other equipment could cause commissioning or optimization
delays. The equipment to be assembled into a continuous heavy oil upgrading process has not been operated in the proposed configuration
elsewhere. The process is expected to operate as designed but unforeseen assembly and commissioning situations are normal and
expected. Remaining equipment to be ordered is minor in scope but any delays or problems in sources of supply from European sources
could lead to minor delays.



Marketing
and Sales Strategy



Petrosonic’s
business model as it relates to sonicated de-asphalting of heavy oil is to provide integrated upgrading systems to heavy oil producers
in exchange for revenue sharing in the economic uplift produced as a result of the SonoprocessingTM. Given the relative ease
of integration and transportation, the process is designed to be easily applicable to the upstream and midstream constituents.
The immediate marketing and sales strategy is to sell our processing services on toll or joint venture basis to heavy oil upstream
producers directly or process for third parties at our stand alone facilities on toll basis. As a result, business models can
take on various forms:



| | ● |  | Oil
                                                                                                                                                         Producers:
                                                                                                                                                         Decrease
                                                                                                                                                         viscosity
                                                                                                                                                         and
                                                                                                                                                         need
                                                                                                                                                         for
                                                                                                                                                         diluents;
                                                                                                                                                         improve
                                                                                                                                                         quality;
                                                                                                                                                         increase
                                                                                                                                                         marketability;
                                                                                                                                                         increase
                                                                                                                                                         price.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● |  | Pipeline
                                                                                                                                                                                                                 Operators:
                                                                                                                                                                                                                 Decrease
                                                                                                                                                                                                                 viscosity
                                                                                                                                                                                                                 and
                                                                                                                                                                                                                 need
                                                                                                                                                                                                                 for
                                                                                                                                                                                                                 diluent
                                                                                                                                                                                                                 resulting
                                                                                                                                                                                                                 in
                                                                                                                                                                                                                 increased
                                                                                                                                                                                                                 throughput.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● |  | Storage
                                                                                                                                                                                                                 &
                                                                                                                                                                                                                 Blending
                                                                                                                                                                                                                 Operators:
                                                                                                                                                                                                                 Increase
                                                                                                                                                                                                                 yield
                                                                                                                                                                                                                 and
                                                                                                                                                                                                                 quality.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● |  | Refiners:
                                                                                                                                                                                                                 Increase
                                                                                                                                                                                                                 yield
                                                                                                                                                                                                                 and
                                                                                                                                                                                                                 quality.
                                                                                                                                                                                                                 Rapid
                                                                                                                                                                                                                 de-asphalting
                                                                                                                                                                                                                 with
                                                                                                                                                                                                                 less
                                                                                                                                                                                                                 diluent
                                                                                                                                                                                                                 and
                                                                                                                                                                                                                 less
                                                                                                                                                                                                                 cost.
                                                                                                                                                                                                                 De-bottleneck
                                                                                                                                                                                                                 refinery.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Customers



Our
target customers are heavy oil producers, industrial groups that consume fuel oil and refineries that refine heavy oil. In addition,
our potential customers consist of heavy oil trading companies and, assuming the development of our business to sell asphaltenes,
asphalt producers and consumers of asphalt products such as construction companies that require asphaltenes as raw material for
production of asphalt. In April 2013 we entered into a Master Toll Services Agreement with IDK Petrol Albania Sila (“IDK”).
Pursuant to the agreement, which has a term of one year but may be renewed, IDK will provide Petrosonic with feedstock for processing.
There is no minimum amount of feedstock that IDK is required to provide. The charge for processing will be determined on a transaction-by-transaction
basis.



16







Employees



We
have currently 3 full-time employees and 4 part-time employees. From time to time we also retain the services of independent consultants.
The consultants provide general business services to us, such as assistance with regulatory matters and engineering services,
as well as providing expertise in areas including legal services, investor relations services and business development services.



Environmental
Laws and Regulations



The
Company will be subject to the Law of Environmental Protection, the primary environmental law of Albania, the location of its
processing facility. In accordance with this law, all companies that store and process hydrocarbons must apply for and receive
an environmental permit issued by the Ministry of the Environment and the local government where the plant is located, in this
case, the Fier Environmental Regional Office. The Company has applied to both entities and expects the permit to be received by
the end of July 2013. Since the Company’s processes do not require any extensive use of water or energy or generate any
emissions, it does not fall under more complicated and lengthy environmental permit requirements typical for refineries or upgraders.
Albania also requires the Company to obtain a fire safety permit from the Fier Environmental Regional Office as part of the permit
application. The Company has installed all of the necessary equipment required for anti-fire measures and regulations in the country
and in May 2013 we were certified by the inspection authority.



Procurement
of Equipment



The
Company will rely on a third party contractor to manufacture the sonicators and other related equipment according to its design
and specifications. The Company has received quotes from the third party manufacturer and expects that it will be able to obtain
all the necessary equipment to grow its processing capacity in the future. The manufacturer has the production and financial capability
and capacity to fulfill our orders in the future. In addition, the Company has access to several local and international fabricators
and engineering firms to carry out the necessary assembly of the equipment and increase capacity of its processing plant in the
future.



ITEM 1A.     RISK
FACTORS



You
should carefully consider the risks described below together with all of the other information included in this Form 10-K before
making an investment decision with regard to our securities. The statements contained in or incorporated into this Form 10-K that
are not statements of historic or present facts are forward-looking statements that are subject to risks and uncertainties that
could cause actual results to differ materially from those set forth in or implied by forward-looking statements. If any of the
following events described in these risk factors actually occurs, our business, financial condition or results of operations could
be harmed. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.



Risks
Related to our Business and the Ownership of our Securities



We
have incurred losses in prior periods and may incur losses in the future.



Since
our inception on May 24, 2010 (date of inception of our Predecessor) through December 31, 2012, we have sustained recurring net
losses resulting in an accumulated deficit $596,731 as of December 31, 2012. We cannot be assured that we can achieve or sustain
profitability on a quarterly or annual basis in the future. Our operations are subject to the risks and uncertainties inherent
in the establishment of a business enterprise including, but not limited to, lack of operating capital, lack of skilled personnel
and lack of demand for our process. There can be no assurance that we can execute our business plan, which involves implementing
our process of converting heavy sour oil and bitumen to a value-added synthetic crude oil. Even if we are successful in implementing
our business plan, there is no assurance that our future operations will be profitable. We may not achieve our business objectives
and the failure to achieve such goals would have an adverse impact on us.



17







Our
future is dependent upon our ability to obtain financing. If we do not obtain such financing, we may have to cease our activities
and investors could lose their entire investment.



There
is no assurance that we will operate profitably or generate positive cash flow in the future. Until our process is proven and
we begin generating enough revenue to sustain our operations, we expect to require additional financing. Since July 27, 2012,
the date we acquired the SonoprocessTM technology from Sonoro Energy Ltd., we have raised $3.1 million through the sale of
our common stock, which we intend to use over the next 12 months to sustain our business operations, pay the fees and expenses
of operating as a public company, continue construction of the facility in Albania, and hire additional employees. In the future,
we may not be able to obtain financing on commercially reasonable terms or terms that are acceptable to us when financing is required.



On
April 3, 2013 the Alberta Securities Commission issued a cease trade order against us because we failed to file an annual information
form (“AIF”) for the year ended December 31, 2012. We filed the AIF on May 3, 2013. Thereafter, we made an application
to the Alberta Securities Commission to revoke the cease trade order. The Alberta Securities Commission advised that they would
not be in a position to revoke the cease trade order on the basis that we are the subject of an ongoing investigation by the Enforcement
Department of the Alberta Securities Commission. The investigation concerns trading and promotional activity related to our securities.
The cease trade order requires that trading or purchasing cease in respect of any of our securities until the order has been revoked
or varied. We are cooperating with the Alberta Securities Commission in the investigation. If the cease trade order is not revoked
by the time we need to raise additional capital, we may be unable to engage in sales of our securities to raise money. In that
case, unless we are able to find other methods of financing such as, for example, finding a partner with the financial means to
pay for some or all of the construction, we may not have the resources to complete the facility in Albania or to implement other
parts of our business plan, such as expanding our operations into other countries.



Because
we may never earn revenues from our operations, our business may fail and investors may lose all of their investment in our Company.



The
Company was formed on June 11, 2008. We have no history of revenues from operations. We have yet to generate positive earnings
and there can be no assurance that we will ever operate profitably. Our company has a limited operating history. If our business
plan is not successful and we are not able to operate profitably, then our stock may become worthless and investors may lose all
of their investment in our company.



We
have reported a net loss of $272,812 for the period from August 1, 2012 through December 31, 2012. If we are unable to generate
significant revenues from our processing facility in the future, we will not be able to earn profits or continue operations. There
is no history upon which to base any assumption as to the likelihood that we will prove successful, and we can provide no assurance
that we will generate any revenues or ever achieve profitability. If we are unsuccessful in addressing these risks, our business
will fail and investors may lose all of their investment in our company.



Our
auditors have indicated that our recurring losses raise substantial doubt as to our ability to continue as a going concern.



Our
audited financial statements for the year ended December 31, 2012 were prepared on a going concern basis. However, we have suffered
recurring losses since inception and our auditors have indicated that there is substantial doubt as to our ability to continue
as a going concern. Until we earn revenues that are adequate to support our operations, which may never happen, our ability to
maintain our status as an operating company is entirely dependent upon obtaining adequate cash to finance our overhead and implement
our business plan. In order to meet our operating expenses, we have sold debt and equity securities and we expect to continue
selling our securities to raise money in the future. There is considerable uncertainty as to whether we will be able to obtain
financing on terms acceptable to us. There is no assurance that we will be able to implement our business plan or continue our
operations.



18







We
may not have sufficient crude oil to be able to run our Albania facility at full capacity.



Our
Albanian facility will process crude oil from the local regions around the facility. To the extent sufficient local crude oil
cannot be contracted to process and we are unable to contract sufficient crude oil from non-local sources to supply the Albanian
facility, we may not have sufficient crude oil to run the Albanian facility at full capacity, which could have a material adverse
impact on our business, financial condition, and results of operations.



Management
of our Company is within the control of the board of directors and the officers. You should not purchase our common stock unless
you are willing to entrust management of our Company to these individuals.



All
decisions with respect to the management of the Company will be made by our board of directors and our officers. Art Agolli, our
Chief Executive Officer and a director, beneficially owns approximately 26.4% of our common stock, as calculated in accordance
with Rule 13d-3 promulgated under the Securities Exchange Act of 1934. Therefore, management, and in particular Mr. Agolli, will
have significant influence in electing a majority of the board of directors who shall, in turn, have the power to appoint the
officers of the Company and to determine, in accordance with their fiduciary duties and the business judgment rule, the direction,
objectives and policies of the Company including, without limitation, the purchase of businesses or assets; the sale of all or
a substantial portion of the assets of the Company; the merger or consolidation of the Company with another corporation; raising
additional capital through financing and/or equity sources; the retention of cash reserves for future product development; expansion
of our business and/or acquisitions; the filing of registration statements with the Securities and Exchange Commission for offerings
of our capital stock; and transactions which may cause or prevent a change in control of the Company or its winding up and dissolution.
You should not purchase our common stock unless you are willing to entrust management of our Company to these individuals.



Because
we are a small, unproven company, stockholders may find it difficult to sell their common stock in the public markets.



Our
common shares are currently traded on the OTCQB under the symbol “PSON”. The number of persons interested in purchasing
our common shares at or near bid prices at any given time may be relatively small or non-existent. This situation is attributable
to a number of factors, including the fact that we are a small company which is still relatively unknown to stock analysts, stock
brokers, institutional investors, and others in the investment community that generate or influence sales volume, and that even
if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company
such as ours or purchase or recommend the purchase of our shares until such time as we became more viable. Additionally, many
brokerage firms may not be willing to effect transactions in the securities. As a consequence, there may be periods of several
days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large
and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We
cannot give you any assurance that an active public trading market for our common stock will develop or be sustained, or that
trading levels will be sustained.



Stockholders
should be aware that, according to SEC Release No. 34-29093, the market for “penny stocks” has suffered in recent
years from patterns of fraud and abuse. Such patterns include (1) control of the market for the security by one or a few broker-dealers
that are often related to the promoter or issuer; (2) manipulation of prices through prearranged matching of purchases and sales
and false and misleading press releases; (3) boiler room practices involving high-pressure sales tactics and unrealistic price
projections by inexperienced sales persons; (4) excessive and undisclosed bid-ask differential and markups by selling broker-dealers;
and (5) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired
level, along with the resulting inevitable collapse of those prices and with consequent investor losses. Our management is aware
of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate
the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical
limitations to prevent the described patterns from being established with respect to our securities. The occurrence of these patterns
or practices could increase the future volatility of our share price.



Furthermore,
on April 3, 2013 the Alberta Securities Commission issued a cease trade order which prohibits the trading or purchasing of our
securities until the order has been revoked or varied. For a more detailed discussion of the cease trade order, please see the
risk factor titled “Our future is dependent upon our ability to obtain financing. If we do not obtain such financing, we
may have to cease our activities and investors could lose their entire investment.”



19







If
we issue additional shares in the future, it will result in the dilution of our existing stockholders.



Our
Articles of Incorporation authorize the issuance of up to 843,750,000 shares of common stock with a par value of $0.001 per
share. Our board of directors may choose to issue some or all of such shares for many different reasons, including to acquire
one or more companies or properties and to fund our overhead and general operating requirements. We have agreed to pay for
the services of four consultants with shares of our common stock and we may make similar arrangements with other consultants
in the future. The issuance of any such shares may reduce the book value per share and may contribute to a reduction in the
market price of the outstanding shares of our common stock. If we issue any such additional shares, such issuance will reduce
the proportionate ownership and voting power of all current stockholders. Further, such issuance may result in a change of
control of our corporation.



We
may not be fully indemnified against financial losses in all circumstances where damage to or loss of property, personal injury,
death or environmental harm occur.



As
is customary in our industry, our contracts will typically provide that our customers indemnify us for claims arising from the
injury or death of their employees, the loss or damage of their equipment, damage to the reservoir and pollution emanating from
the customer’s equipment or from the reservoir (including uncontained oil flow from a reservoir). Conversely, we will typically
indemnify our customers for claims arising from the injury or death of our employees, the loss or damage of our equipment, or
pollution emanating from our equipment. Our contracts will typically provide that our customer will indemnify us for claims arising
from catastrophic events, such as a well blowout, fire or explosion.



Our
indemnification arrangements may not protect us in every case. For example, from time to time we may enter into contracts with
less favorable indemnities or perform work without a contract that protects us; our indemnity arrangements may be held unenforceable
in some courts and jurisdictions; or we may be subject to other claims brought by third parties or government agencies. Furthermore,
the parties from which we seek indemnity may not be solvent, may become bankrupt, may lack resources or insurance to honor their
indemnities, or may not otherwise be able to satisfy their indemnity obligations to us. The lack of enforceable indemnification
could expose us to significant potential losses.



Further,
our assets generally are not insured against loss from political violence such as war, terrorism or civil commotion. If any of
our assets are damaged or destroyed as a result of an uninsured cause, we could recognize a loss of those assets.



Our
operations are subject to environmental and other laws and regulations that may expose us to significant liabilities and could
reduce our business opportunities and revenues.



We
expect to be subject to various environmental laws and regulations in the countries in which we operate. The government of Albania
requires us to obtain an environmental permit for our facility and a fire safety permit. We prepared all the necessary paperwork
and applied for the environmental permit, but it has not been issued yet. Since our operations do not require any use of water,
extensive energy or generate any emissions we do not anticipate that we will be subject to the more complicated and lengthy environmental
permit requirements typical for refineries or upgraders. We installed the necessary equipment required for anti-fire measures
and regulations in the country and in May 2013 we were certified by the inspection authority. If we fail to comply with the environmental
laws to which we are subject, we may incur significant liabilities and our business opportunities could be reduced.



20







We
are subject to significant foreign exchange and currency risks that could adversely affect our operations and our ability to reinvest
earnings from operations, as well as mitigate our foreign exchange risk through hedging transactions, may be limited.



Since
we currently conduct a significant portion our operations outside the United States, our business is subject to foreign currency
risks, including currency exchange rates fluctuations and difficulties in converting local currencies into U.S. dollars. The exchange
rates between the Albanian Lek, the Canadian dollar, the Euro and the U.S. dollar and other foreign currencies is affected by,
among other things, changes in local political and economic conditions. Such currency fluctuations may materially affect the Company’s
financial position and results of operations and a material change in currency rates in our markets could affect our future results
as well as affect the carrying values of our assets.



We
generally attempt to denominate our contracts in U.S. dollars or in the currencies of our costs. However, we may enter into contracts
that subject us to currency risk exposure, primarily when our contract revenue is denominated in a currency different than the
contract costs. We anticipate that a significant portion of our consolidated revenue and consolidated operating expenses will
be in foreign currencies. As a result, we will be subject to risks resulting from changes in foreign exchange rates and limitations
on our ability to reinvest earnings from operations in one country to fund the financing requirements of our operations in other
countries.



Customer
credit risks could result in losses.



The
concentration of our future customers in the energy industry may impact our overall exposure to credit risk as customers may be
similarly affected by prolonged changes in economic and industry conditions. Those countries that rely heavily upon income from
hydrocarbon exports would be hit particularly hard by a drop in oil prices. Further, laws in some jurisdictions in which we may
operate could make collection difficult or time consuming. We intend to perform ongoing credit evaluations of our customers and
generally do not plan to require collateral in support of our trade receivables. While we may maintain reserves for potential
credit losses, we cannot assure such reserves will be sufficient to meet write-offs of uncollectible receivables or that our losses
from such receivables will be consistent with our expectations.



Global
political, economic and market conditions could affect projected results.



Our
operating results are based on our current assumptions about oil supply and demand, oil prices, rig count and other market trends.
Our assumptions on these matters are in turn based on currently available information, which is subject to change. The oil industry
is extremely volatile and subject to change based on political and economic factors outside our control. A weakened global economic
climate generally results in lower demand and lower prices for oil, which reduces drilling, processing and production activity,
which in turn results in lower revenues and income for us. Worldwide drilling activity and global demand for oil may also be affected
by changes in governmental policies and sovereign debt, laws and regulations related to environmental or energy security matters,
including those addressing alternative energy sources and the risks of global climate change.



Worldwide
economic conditions, and the related demand for oil, may in future periods be significantly weaker than we have assumed.



We
may be unable to recognize expected revenue from future contracts.



Our
potential customers, some of whom may be national oil companies, could have significant bargaining leverage over us and may elect
to cancel or revoke contracts, not renew contracts, modify the scope of contracts or delay contracts, in some cases preventing
us from realizing expected revenue and/or profit.



Increases
in the prices and availability of our raw materials could affect our results of operations.



We
expect to use significant amounts of raw materials (including steel and other metals, chemicals, plastics, polymers and energy
inputs) for producing our products and maintaining our facilities and some of our fixed assets. The price of these raw materials
has a significant impact on our cost of producing products for sale or constructing fixed assets used in our business. There can
be no assurance that the prices of raw materials will remain within a manageable range and will be readily available. If we are
unable to obtain necessary raw materials or if we are unable to minimize the impact of increased raw material costs or to realize
the benefit of cost decreases in a timely fashion through our supply chain initiatives or pricing, our margins and results of
operations could be adversely affected.



21







Our
long-term growth depends upon technological innovation and commercialization.



Our
ability to deliver our long-term growth strategy depends in part on the commercialization of new technology. A central aspect
of our growth strategy is to improve our products and services through innovation, to obtain technologically advanced products
through internal research and development and/or acquisitions, to protect proprietary technology from unauthorized use and to
expand the markets for new technology by leveraging our infrastructure. Our success will depend on our ability to commercialize
the technology that we have acquired and demonstrate the enhanced value our technology brings to our customers’ operations.
Our major technological advances include, but are not limited to, those related to the design of enhanced mass transfer energy
processes and reactors. We cannot be assured of the successful commercialization of, and above-average growth from, our new products
and services, as well as legal protection of our intellectual property rights. Any failure in the commercialization of our technology
could adversely affect our business and results of operations.



If
we are unable to enforce our intellectual property rights or if our intellectual property rights become obsolete, our competitive
position could be adversely impacted.



We
utilize a variety of intellectual property rights in our services. We view our portfolio of process and design technologies as
one of our competitive strengths and we use it as part of our efforts to differentiate our service offerings. We may not be able
to successfully preserve these intellectual property rights in the future and these rights could be invalidated, circumvented,
challenged or infringed upon. In addition, the laws of some foreign countries in which our services may be sold may not provide
adequate protection of our intellectual property rights. If we are unable to protect and maintain our intellectual property rights,
or if there are any successful intellectual property challenges or infringement proceedings against us, our ability to differentiate
our service offerings could diminish. In addition, if our intellectual property rights or work processes become obsolete, we may
not be able to differentiate our service offerings and some of our competitors may be able to offer more attractive services to
our customers. As a result, our business and financial performance could be materially and adversely affected.



International
and political events may adversely affect our operations.



A
significant portion of our revenue will be derived from foreign operations, which exposes us to risks inherent in doing business
in each of the countries where we transact business. The occurrence of any of the risks described below could have a material
adverse effect on our business operations and financial performance. With respect to any particular country, these risks may include:



| | ● | expropriation
    and nationalization of our assets in that country;
| | - | --------------------------------------------------------------------



| | ● | political
    and economic instability;
| | - | ---------------------------------------



| | ● | civil
    unrest, acts of terrorism, force majeure, war, or other armed conflict;
| | - | ---------------------------------------------------------------------------------



| | ● | currency
    fluctuations, devaluations, and conversion restrictions;
| | - | ---------------------------------------------------------------------



| | ● | confiscatory
    taxation or other adverse tax policies;
| | - | --------------------------------------------------------



| | ● | governmental
    activities that limit or disrupt markets, restrict payments, or limit the movement of funds;
| | - | -------------------------------------------------------------------------------------------------------------



| | ● | governmental
    activities that may result in the deprivation of contract rights; and
| | - | --------------------------------------------------------------------------------------



| | ● | governmental
    activities that may result in the inability to obtain or retain licenses required for operation.
| | - | -----------------------------------------------------------------------------------------------------------------



Due
to the unsettled political conditions in many oil-producing countries, our financial performance may be subject to the adverse
consequences of war, the effects of terrorism, civil unrest, strikes, currency controls, and governmental actions. We expect that
some of our potential customers’ operations will be conducted in areas that have significant amounts of political risk.
In addition, military action or continued unrest in the Middle East could impact the supply and price of oil, disrupt our customer’s
operations in the region and elsewhere, and increase our costs related to security worldwide.



22







Economic
and political developments in Albania may adversely affect our business.



A
significant portion of our operations and assets are currently located in Albania. As a result, our financial condition, results
of operations and business may be affected by and are subject to the general condition of the Albanian economy, the devaluation
of the Albania Lek as compared to the U.S. Dollar, Albanian inflation, interest rates, regulation, taxation, social instability
and other political, social and economic developments in or affecting Albania, including changes in the laws and policies that
govern foreign investment, as well as changes in United States laws and regulations relating to foreign trade and investment,
over which we have no control. There can be no assurance as to the future effect of any such changes on our results of operations,
financial condition, or cash flows.



The
dangers inherent in our operations could cause disruptions and could expose us to potentially significant losses, costs, or liabilities.
Any significant interruptions in the operations of any of our facilities could materially and adversely affect our business, financial
condition, and results of operations.



Our
operations are subject to significant hazards and risks inherent in refining operations and in transporting and storing crude
oil. These hazards and risks include, but are not limited to, the following:



| | ● | natural
    disasters;
| | - | ----------------------



| | ● | weather-related
    disruptions;
| | - | --------------------------------



| | ● | fires;
| | - | ------



| | ● | explosions;
| | - | -----------



| | ● | pipeline
    ruptures and spills;
| | - | ---------------------------------



| | ● | third-party
    interference;
| | - | -----------------------------



| | ● | disruption
    of natural gas deliveries;
| | - | -----------------------------------------



| | ● | disruptions
    of electricity deliveries; and
| | - | ----------------------------------------------



| | ● | mechanical
    failure of equipment at our refineries or third-party facilities.
| | - | --------------------------------------------------------------------------------



Any
of the foregoing could result in production and distribution difficulties and disruptions, environmental pollution, personal injury
or wrongful death claims, and other damage to our properties and the properties of others. There is also risk of mechanical failure
and equipment shutdowns both in general and following unforeseen events.



Our
activities will initially be conducted at our facility in Albania. This facility constitutes a significant portion of our operating
assets. Because of the significance to us of this operation, the occurrence of any of the events described above could significantly
disrupt our processing of crude oil, and any sustained disruption could have a material adverse effect on our business, financial
condition, and results of operations.



We
may incur significant costs to comply with environmental and health and safety laws and regulations.



Our
operations and properties are subject to national and local Albanian environmental, health, and safety regulations governing,
among other things, the generation, storage, handling, use, and transportation of petroleum and hazardous substances, the emission
and discharge of materials into the environment, waste management, and the monitoring, reporting, and control of greenhouse gas
emissions. If we fail to comply with these regulations, we may be subject to administrative, civil, and criminal proceedings by
governmental authorities, as well as civil proceedings by environmental groups and other entities and individuals. A failure to
comply, and any related proceedings, including lawsuits, could result in significant costs and liabilities, penalties, judgments
against us, or governmental or court orders that could alter, limit, or stop our operations.



23







In
addition, new environmental laws and regulations, including new regulations relating to alternative energy sources, new regulations
relating to fuel quality, and the risk of global climate change regulation, as well as new interpretations of existing laws and
regulations, increased governmental enforcement, or other developments could require us to make additional unforeseen expenditures.
Many of these laws and regulations are becoming increasingly stringent, and the cost of compliance with these requirements can
be expected to increase over time. We are not able to predict the impact of new or changed laws or regulations or changes in the
ways that such laws or regulations are administered, interpreted, or enforced. The requirements to be met, as well as the technology
and length of time available to meet those requirements, continue to develop and change. To the extent that the costs associated
with meeting any or all of these requirements are substantial and not adequately provided for, there could be a material adverse
effect on our business, financial condition, and results of operations.



We
could incur substantial costs or disruptions in our business if we cannot obtain or maintain necessary permits and authorizations.



Our
operations require permits and authorizations under various laws and regulations of Albania, including environmental and health
and safety laws and regulations. These authorizations and permits are subject to revocation, renewal, or modification and can
require operational changes, which may involve significant costs, to limit impacts or potential impacts on the environment and/or
health and safety. A violation of these authorization or permit conditions or other legal or regulatory requirements could result
in substantial fines, criminal sanctions, permit revocations, injunctions and/or a shutdown of our facility. In addition, major
modifications of our operations could require modifications to our existing permits which could have a material adverse effect
on our business, financial condition, or results of operations.



We
will be required to incur significant costs and require significant management resources to evaluate our internal control over
financial reporting as required under Section 404 of the Sarbanes-Oxley Act, and any failure to comply or any adverse result from
such evaluation may have an adverse effect on our stock price.



As
a smaller reporting company as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, we are required to
evaluate our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”).
Section 404 requires us to include an internal control report with the Annual Report on Form 10-K. This report must include management’s
assessment of the effectiveness of our internal control over financial reporting as of the end of the fiscal year. This report
must also include disclosure of any material weaknesses in internal control over financial reporting that we have identified.
Failure to comply, or any adverse results from such evaluation could result in a loss of investor confidence in our financial
reports and have an adverse effect on the trading price of our equity securities. Management believes that its internal controls
and procedures are currently not effective to detect the inappropriate application of U.S. GAAP rules. Management realizes there
are deficiencies in the design or operation of our internal control that adversely affect our internal controls which management
considers to be material weaknesses including those described below:



| | i)  | The
    Company’s management is relying on external consultants for purposes of preparing its financial reporting package and
    may not be able to identify errors and irregularities in the financial reporting package before its release as a continuous
    disclosure document.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                       
| | ii) | As
    the Company is governed by one officer who is also a director, there is an inherent lack of segregation of duties and lack
    of independent governing board.                                                                                                                 



Achieving
continued compliance with Section 404 may require us to incur significant costs and expend significant time and management resources.
We cannot assure you that we will be able to fully comply with Section 404 or that we and our independent registered public accounting
firm would be able to conclude that our internal control over financial reporting is effective at fiscal year end. As a result,
investors could lose confidence in our reported financial information, which could have an adverse effect on the trading price
of our securities, as well as subject us to civil or criminal investigations and penalties. In addition, our independent registered
public accounting firm may not agree with our management’s assessment or conclude that our internal control over financial
reporting is operating effectively.



24







All
of our assets, and our Chief Executive Officer, who is also a director, are located outside the United States, with the result
that it may be difficult for investors to enforce within the United States any judgments obtained against us or this individual.



All
of our assets are located outside the United States. In addition, our Chief Executive Officer, who is also a director, is a national
and resident of a country other than the United States, and all or a substantial portion of his assets are located outside the
United States. As a result, it may be difficult for investors to enforce within the United States any judgments obtained against
us or this individual, including judgments predicated upon the civil liability provisions of the securities laws of the United
States or any state thereof. Consequently, you may be effectively prevented from pursuing remedies under United States federal
and state securities laws against us or this individual.



Our
business is dependent on a key executive and the loss of this key executive could adversely affect our business, future operations
and financial condition.



We
are dependent on the services of our Chief Executive Officer, Art Agolli. Mr. Agolli has many years of experience and an extensive
background in the oil industry in general. We may not be able to replace that experience and knowledge with other individuals.
We do not have a “Key-Man” life insurance policy on Mr. Agolli. The loss of our key executive or our inability to
attract and retain additional highly skilled employees may adversely affect our business, future operations, and financial condition.



The
elimination of monetary liability against our directors, officers and employees under Nevada law and the existence of indemnification
rights to our directors, officers and employees may result in substantial expenditures by our company and may discourage lawsuits
against our directors, officers and employees.



Our
Articles of Incorporation contain a provision permitting us to eliminate the personal liability of our directors to our company
and shareholders for damages for breach of fiduciary duty as a director or officer to the extent provided by Nevada law. The foregoing
indemnification obligations could result in the Company incurring substantial expenditures to cover the cost of settlement or
damage awards against directors and officers, which we may be unable to recoup. These provisions and resultant costs may also
discourage our company from bringing a lawsuit against directors and officers for breaches of their fiduciary duties, and may
similarly discourage the filing of derivative litigation by our shareholders against our directors and officers even though such
actions, if successful, might otherwise benefit our company and shareholders.



Our
stock is categorized as a penny stock. Trading of our stock may be restricted by the SEC’s penny stock regulations which
may limit a shareholder’s ability to buy and sell our stock.



Our
stock is categorized as a penny stock. The SEC has adopted Rule 15g-9 which generally defines “penny stock” to be
any equity security that has a market price (as defined) less than US$ 5.00 per share or an exercise price of less than US$ 5.00
per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice
requirements on broker-dealers who sell to persons other than established customers and accredited investors. The penny stock
rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized
risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level
of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for
the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing
the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer
and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction
and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules
require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special
written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written
agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the
secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the
ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit
the marketability of our common stock.



25







FINRA
sales practice requirements may also limit a shareholder’s ability to buy and sell our stock.



In
addition to the “penny stock” rules described above, FINRA has adopted rules that require that in recommending an
investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that
customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make
reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other
information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced
securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers
to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse
effect on the market for our shares.



To
date, we have not paid any cash dividends and no cash dividends will be paid in the foreseeable future.



We
do not anticipate paying cash dividends on our common stock in the foreseeable future and we may not have sufficient funds legally
available to pay dividends. Even if the funds are legally available for distribution, we may nevertheless decide not to pay any
dividends. We presently intend to retain all earnings for our operations.



A
limited public trading market exists for our common stock, which makes it more difficult for our stockholders to sell their common
stock in the public markets.



Our
common shares are currently traded under the symbol “PSON,” and have in the past traded with low or no volume, based
on quotations in the Over-the-Counter Market meaning that the number of persons interested in purchasing our common shares at
or near bid prices at any given time may be relatively small or non-existent. This situation is attributable to a number of factors,
including the fact that we are a small company which is still relatively unknown to stock analysts, stock brokers, institutional
investors, and others in the investment community that generate or influence sales volume, and that even if we came to the attention
of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or
recommend the purchase of our shares until such time as we became more viable. Additionally, many brokerage firms may not be willing
to effect transactions in the securities. As a consequence, there may be periods of several days or more when trading activity
in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity
that will generally support continuous sales without an adverse effect on share price. We cannot give you any assurance that a
broader or more active public trading market for our common stock will develop or be sustained, or that trading levels will be
sustained.



Shareholders
should be aware that, according to SEC Release No. 34-29093, the market for “penny stocks” has suffered in recent
years from patterns of fraud and abuse. Such patterns include (1) control of the market for the security by one or a few broker-dealers
that are often related to the promoter or issuer; (2) manipulation of prices through prearranged matching of purchases and sales
and false and misleading press releases; (3) boiler room practices involving high-pressure sales tactics and unrealistic price
projections by inexperienced sales persons; (4) excessive and undisclosed bid-ask differential and markups by selling broker-dealers;
and (5) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired
level, along with the resulting inevitable collapse of those prices and with consequent investor losses. Our management is aware
of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate
the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical
limitations to prevent the described patterns from being established with respect to our securities. The occurrence of these patterns
or practices could increase the future volatility of our share price.



If
we issue additional shares in the future, it will result in the dilution of our existing shareholders.



Our
Articles of Incorporation authorize the issuance of up to 843,750,000 shares of common stock with a par value of $0.001 per share.
Our Board of Directors may choose to issue some or all of such shares to acquire one or more companies or properties and to fund
our overhead and general operating requirements. The issuance of any such shares may reduce the book value per share and may contribute
to a reduction in the market price of the outstanding shares of our common stock. If we issue any such additional shares, such
issuance will reduce the proportionate ownership and voting power of all current shareholders. Further, such issuance may result
in a change of control of our corporation.



26







ITEM
2.     PROPERTIES



Our
head office is located at Suite 204, 205 – 9th Avenue SE, Calgary, AB, Canada, T2G 0R3. Art Agolli, our Chief
Executive Officer and a director, is providing the office free of charge, although he is under no obligation to do so. Our main
telephone number is (403) 708-7869.



Our
processing facility is located in Fier, Albania. Albania’s heavy oil upstream and downstream industries are located in Fier
and the facility is only a few miles away from the heavy oil producing fields. It is also located 35 kilometers away from Albania’s
only deep sea port and export facility, the PIR Vlora terminal. Our processing facility is still under construction. The facility
will be used for both emulsifying heavy oil and de-asphalting heavy oil and bitumen by sonication. We expect the construction
related to our operations to be complete during 2013. Once complete, we expect the facility to be adequate for our operations
for the foreseeable future.



ITEM
3.     LEGAL PROCEEDINGS



None.



PART
II



ITEM
5.     MARKET FOR REGISTANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES



Market
Information



Our
common stock is presently quoted on the Financial Industry Regulatory Authority’s (“FINRA”) Over-the-Counter
marketplace under the name “Petrosonic Energy, Inc.” and under the symbol “PSON”. Our common stock par
value is $0.001 per share.



There
is no established trading market for shares of our common stock and there has been a limited number of trades of our common stock
on the OTCBB during the last two fiscal years. We cannot provide assurance that any established trading market for our common
stock will develop or be maintained.



The
following table sets forth, for the fiscal quarters indicated, the high and low bid price for our common stock, as reported on
the OTCBB. The quotations below reflect inter-dealer prices, without retail mark-up, markdown or commissions and may not represent
actual transactions.



|Fiscal Year
    Ended              |  | High
    Bid |      |  | Low
    Bid |  
|---------------------------------- |  | ------------ | ---- |  | ----------- | -
|December 31, 2012                  |  |              |      |  |             |  
|                                   |  |              |      |  |             |  
|Fourth Quarter 10-1-12 to 12-31-12 |  | $            | 0.84 |  |             | $
|Third Quarter 7-1-12 to 9-30-12    |  | $            | 0.67 |  |             | $
|Second Quarter 4-1-12 to 6-30-12   |  | $            | 2.50 |  |             | $
|First Quarter 1-1-12 to 3-31-12    |  | $            | 1.25 |  |             | $



|                                           | High
    Bid    |  | Low
    Bid    
|------------------------------------------ | --------------- |  | ---------------
|                                           |                 |  |                
|Transition
    Period 11-01-11 to 12-01-11 | No
    activity |  | No
    activity



|Fiscal Year
    Ended             |  | High
    Bid |      |  | Low
    Bid | 
|--------------------------------- |  | ------------ | ---- |  | ----------- | 
|October 31, 2011                  |  |              |      |  |             | 
|                                  |  |              |      |  |             | 
|Fourth Quarter 8-1-11 to 10-31-11 |  |              | 1.05 |  |             | 
|Third Quarter 5-1-11 to 7-31-11   |  |              | 1.75 |  |             | 
|Second Quarter 2-1-11 to 4-30-11  |  |              | 0.85 |  |             | 
|First Quarter 11-1-10 to 1-31-11  |  |              | 0.90 |  |             | 





27







Shareholders



As
of April 30, 2013 there were 92 shareholders of record of our common stock based upon the shareholders’ listing provided
by our transfer agent. Our transfer agent is Signature Stock Transfer, Inc. The transfer agent’s address is 2632 Coachlight
Court, Plano, Texas 75093 and its phone number is (972) 612-4120.



Dividends



We
have never paid cash dividends on our common stock. We intend to keep future earnings, if any, to finance the expansion of our
business, and we do not anticipate that any cash dividends will be paid in the foreseeable future. Our future payment of dividends
will depend on our earnings, capital requirements, expansion plans, financial condition and other relevant factors that our Board
of Directors may deem relevant. Our accumulated deficit, which at December 31, 2012 was $596,731, currently limits our ability
to pay dividends.



Securities
Authorized For Issuance Under Equity Compensation Plans



|Plan category                                             |  | Number of securities
    to be issued upon exercise of outstanding options, warrants and rights  (a) |         |  | Weighted-average
    exercise price of outstanding options, warrants and rights  (b) |   |      | Number of securities
    remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) 
    (c) | 
|--------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------- | ------- |  | ------------------------------------------------------------------------------------ | - | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|Equity compensation plan not approved by security holders |  |                                                                                                      | 250,000 |  |                                                                                      | $ | 0.83 |                                                                                                                                                          | 
|Equity compensation plan not approved by security holders |  |                                                                                                      | 250,000 |  |                                                                                      | $ | 0.75 |                                                                                                                                                          | 



In
conjunction with their agreement to join our Board of Directors, we issued options to two of our directors. Each option grant
permitted the director to purchase 250,000 shares of our common stock. The exercise price for the option granted to Richard Rutkowski
on March 18, 2013 is $0.83 per share while the exercise price for the option granted to Alfred Fischer on March 27, 2013 was $0.75
per share. We currently have no other equity compensation plans, although during 2013 we expect to formally adopt an equity compensation
plan which will permit us to grant awards of common stock, options to purchase common stock or other equity securities to officers,
directors, employees, consultants and agents who provide bona fide services to us not in conjunction with a capital raising transaction
or stock promotional activities. As of the report date the terms of the options is yet to be determined.



Recent
Sale of Unregistered Securities



We
did not sell any equity securities during the quarter ended December 31, 2012 that were not previously disclosed in a quarterly
report on Form 10-Q or in a current report on Form 8-K.



Alberta
Securities Commission Cease Trade Order



On
April 3, 2013 the Alberta Securities Commission issued a cease trade order against us because we failed to file an annual information
form (“AIF”) for the year ended December 31, 2012. We filed the AIF on May 3, 2013. Thereafter, we made an application
to the Alberta Securities Commission to revoke the cease trade order. The Alberta Securities Commission advised that they would
not be in a position to revoke the cease trade order on the basis that we are the subject of an ongoing investigation by the Enforcement
Department of the Alberta Securities Commission. The investigation concerns trading and promotional activity related to our securities.
The cease trade order requires that trading or purchasing cease in respect to any of our securities until the order has been revoked
or varied. We are cooperating with the Alberta Securities Commission in the investigation. The cease trade order does not prohibit
the purchase and sale of our securities among our stockholders in markets outside of Alberta, Canada.



ITEM
6.     SELECTED FINANCIAL DATA



Pursuant
to Item 301(c) of Regulation S-K, the Company, as a smaller reporting company, is not required to provide the information required
by this item.





28









ITEM
7.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



The
following discussion and analysis of our results of operations and financial condition should be read in conjunction with our
financial statements and the notes to those financial statements that are included elsewhere in this Form 10-K. Our discussion
includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives,
expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking
statements as a result of a number of factors, including those set forth under the Risk Factors, Cautionary Notice Regarding Forward-Looking
Statements and Business sections in this Form 10-K. We use words such as “anticipate,” “estimate,” “plan,”
“project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,”
“may,” “will,” “should,” “could,” and similar expressions to identify forward-looking
statements.



The
following discussion and analysis of our financial condition and results of operations should be read in conjunction with the
audited financial statements and accompanying notes of Petrosonic Energy, Inc. for the years ended December 31, 2012 and 2011.



Overview



We were
a shell corporation prior to July 27, 2012, when we acquired from Sonoro Energy Ltd. technology relating to the treatment and
upgrading of heavy oil by sonicated solvent de-asphalting, two sonic reactors, a solvent recovery system and 60,000 shares of
Petrosonic Albania sh.a. Since the acquisition of these assets, w e are a development stage company. Our business plan includes
treating and upgrading heavy oil by sonicated solvent de-asphalting with the technology we acquired from Sonoro and using the
technology we acquired from Quadrise Canada Corporation to emulsify heavy oil to make it less viscous, so that it can be used
as fuel oil. We are in the process of bringing online our first facility located in Albania, which is expected to be able to process
and de-asphalt up to 1,000 barrels per day of heavy oil and to emulsify 3,000 barrels of oil per day. One of our two sonic reactors
is installed in this facility. We have not generated any revenue since inception. We expect to begin revenue generating operations
when the construction of our Albanian facility, including the installation of all equipment required for our operations and the
acquisition of a permit to operate, is complete. We expect, although we cannot guarantee, that the facility will be complete and
ready for operations by the end of 2013. Aside from the revenue we expect to generate from operating this facility, we plan to
generate revenue from the technology by integrating it into oil producer treatment facilities. As described below, we have funded
our operations to date through the issuance of convertible debentures and sales of shares of our common stock.



We
have borrowed money and sold shares of our common stock to raise the funds necessary to begin the implementation of our business
plan. These transactions included the following:



| | ● |  | Between
                                                                                          March 23, 2012 and June 21, 2012 we
                                                                                          issued CDN$250,000 and $115,000 in convertible
                                                                                          promissory notes. In March 2013, three
                                                                                          notes totaling $115,000 plus accrued
                                                                                          interest and one note totaling CDN$50,000
                                                                                          plus accrued interest were converted
                                                                                          into 707,405 shares of our common stock.
                                                                                          The notes totaling $115,000 were due
                                                                                          to be repaid on March 26, 2013 ($50,000),
                                                                                          April 18, 2013 ($25,000) and June 21,
                                                                                          2013 ($40,000). The note totaling CDN$50,000
                                                                                          is due to be repaid on June 6, 2013.
                                                                                          The convertible promissory note in the
                                                                                          amount of CDN$200,000 was issued to
                                                                                          our Chief Executive Officer and director,
                                                                                          Art Agolli. Repayment of the note issued
                                                                                          to Mr. Agolli is scheduled for June
                                                                                          6, 2013.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● |  | On July
                                                                                          27, 2012, we completed the acquisition
                                                                                          of certain assets from Sonoro Energy
                                                                                          Ltd. in exchange for (i) CDN$250,000,
                                                                                          which was paid in June 2012, (ii) a
                                                                                          convertible debenture in the principal
                                                                                          amount of CDN$250,000, which was issued
                                                                                          in July 2012 and (iii) a 10% royalty
                                                                                          interest in our realized net revenues
                                                                                          for a period of 10 years from the time
                                                                                          we commence commercial operations, which
                                                                                          will begin when we process an average
                                                                                          of 50 barrels of feed stock per day
                                                                                          over a period of 30 consecutive days
                                                                                          utilizing the technology acquired.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● |  | On January
                                                                                          16, 2013, we closed a private placement
                                                                                          with certain accredited investors whereby
                                                                                          we sold an aggregate of 12,610,000 shares
                                                                                          of our common stock at a price of $0.25
                                                                                          per share for net proceeds (after the
                                                                                          payment of placement agent fees) of
                                                                                          $3,077,500. Investors who invested $500,000
                                                                                          or more were also issued warrants. We
                                                                                          had two investors who invested $500,000
                                                                                          and each received a five-year warrant
                                                                                          for the purchase of 100,000 shares of
                                                                                          our common stock at an exercise price
                                                                                          of $0.50 per share. Placement agent
                                                                                          fees were paid to Colorado Financial
                                                                                          Services and Frank Seifert. We paid
                                                                                          commissions of $75,000 in cash, and
                                                                                          issued an aggregate of 75.000 common
                                                                                          stock warrants, exercisable at a price
                                                                                          of $0.50 per share, and with a term
                                                                                          of two years from the issue date. We
                                                                                          paid the debenture we issued to Sonoro
                                                                                          from the proceeds of this offering.
                                                                                          We believe that the proceeds from this
                                                                                          offering will be sufficient to support
                                                                                          our operations through the end of the
                                                                                          year.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



29







In
addition to the shares of common stock issued in payment of the promissory notes and the private placement discussed above, during
the period ended June 30, 2013, we engaged in the following securities transactions to purchase services or provide funding for
our operations:



| | ● |  | On January
                                                                                          1, 2013, we entered into a one year
                                                                                          agreement with Loma Management Partners
                                                                                          Inc., a firm that provides strategic
                                                                                          investor relations services. In connection
                                                                                          with the agreement, we agreed to issue
                                                                                          270,000 shares of common stock to the
                                                                                          firm. In the event that the agreement
                                                                                          is cancelled, we may repurchase for
                                                                                          the sum of $1.00 all of the remaining
                                                                                          shares that would have otherwise been
                                                                                          earned by the firm during the remainder
                                                                                          of the term. The common stock is to
                                                                                          be issued in equal monthly installments
                                                                                          of 22,500 shares each beginning in January
                                                                                          2013.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● |  | On January
                                                                                          11, 2013, we entered into a one year
                                                                                          agreement with Richardson & Patel
                                                                                          LLP, a firm that provides legal services.
                                                                                          In connection with the agreement, we
                                                                                          agreed to issue 400,000 shares of common
                                                                                          stock to the firm. The shares of common
                                                                                          stock are to be issued in quarterly
                                                                                          installments beginning in April 2013.
                                                                                          Under certain circumstances as described
                                                                                          in the agreement, the number of shares
                                                                                          may be adjusted based on the type and
                                                                                          amount of services provided by the firm.
                                                                                          We also agreed to issue up to 500,000
                                                                                          additional shares for work related to
                                                                                          the preparation of a registration statement.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● |  | On January
                                                                                          15, 2013, we entered into a one year
                                                                                          consulting agreement with Benjamin L.
                                                                                          Padnos for the purpose of providing
                                                                                          financial and investor relations services
                                                                                          to us. In connection with the agreement,
                                                                                          we agreed to issue 100,000 shares of
                                                                                          common stock to Mr. Padnos. The shares
                                                                                          are to be issued in four quarterly installments
                                                                                          beginning in April 2013.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● |  | On April
                                                                                          26, 2013 we entered into a consulting
                                                                                          agreement, dated April 24, 2013, with
                                                                                          StoryCorp Consulting, Inc., a firm that
                                                                                          provides financial, accounting and management
                                                                                          services. The agreement does not have
                                                                                          a fixed term and can be terminated by
                                                                                          us upon 30 days notice. Upon execution
                                                                                          of the agreement, StoryCorp was to be
                                                                                          paid $10,000. According to the agreement,
                                                                                          we could pay the compensation in cash
                                                                                          or we could pay $7,500 in cash and $2,500
                                                                                          in restricted common stock. We agreed
                                                                                          to a per share price of 80% of the volume
                                                                                          weighted average price of our common
                                                                                          stock for the prior month, with a $0.01
                                                                                          minimum price. We chose to pay the $10,000
                                                                                          in cash. Beginning June 1, 2013, StoryCorp
                                                                                          is to be compensated on a monthly basis
                                                                                          with a fee of $7,500 per month. At our
                                                                                          election, the monthly fee can be paid
                                                                                          in cash or we can pay $5,000 in cash
                                                                                          and $2,500 in restricted common stock,
                                                                                          with the number of shares computed in
                                                                                          the manner described above. In addition,
                                                                                          at our discretion, we may pay StoryCorp
                                                                                          quarterly bonuses payable in cash or
                                                                                          restricted stock. For services outside
                                                                                          of those described in the agreement,
                                                                                          StoryCorp will charge us at the rate
                                                                                          of $250 per hour, payable 50% in cash
                                                                                          and 50% in restricted common stock,
                                                                                          with the number of shares computed in
                                                                                          the manner described above.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



During
the 2013 year, we expect to generate revenue from emulsification processing and to complete the construction and permitting of
our heavy oil de-asphalting facility in Albania. We anticipate that the cost to complete the construction of our facility in Albania
will be approximately $1.7 million. We do not have any commitments for financing, either now or in the future. Once this milestone
is achieved, we intend to seek a reputable processor of heavy oil as a joint venture partner and to start building another facility
located in Alberta, Canada or another jurisdiction with large heavy oil production and reserves. Our goals in 2013 and 2014 are
to complete construction of the de-asphalting facility in Albania, to begin to generate revenue from the emulsification process
and the de-asphalting sonication process and to begin to expand our operations into other countries. Ultimately, we expect to
generate revenue by licensing our technology to third parties, forming joint ventures to build more processing facilities and
through our own stand alone toll processing facilities. We cannot guarantee that our operations will generate significant revenue.



30







Results of Operations



Year ended December 31, 2012 as compared to the year
ended December 31, 2011



Revenue.
We did not generate any revenue during the years ended December 31, 2012 and 2011.



Our
operations for the year ended December 31, 2012 include the operations for Petrosonic Energy, Inc. and subsidiary for the five
month period ended December 31, 2012 plus the operations for our Predecessor company, Petrosonic Albania sh.a, for the seven months
ended July 31, 2012. For the five months ended December 31, 2012, we had a net loss attributable to Petrosonic Energy, Inc. consolidated
operations of $262,914 and for the seven months ended July 31, 2012, our Predecessor company had a net loss of $8,544 for a combined
net loss for the year of $271,458 as compared to a net loss for our Predecessor company of $15,322 for the year ended December
31, 2011. The net loss for the year ended December 31, 2011 reflected only the net loss from our Predecessor company for that
period.



Operating
Expenses:Operating expenses increased by $236,225 to $251,547 for the year ended December 31, 2012 compared to $15,322
for the year ended December 31, 2011. The increase in operating expenses resulted primarily from increases in legal, advertising
and promotion, accounting, and other administrative costs incurred by us in connection with developing and beginning the implementation
of our operating plan and costs related to public company compliance matters. Legal fees for the period totaled $62,054, or approximately
25% of our operating expenses, advertising and promotion fees for the period totaled $49,059, or approximately 20% of our operating
expenses, accounting fees for the period totaled $43,076, or approximately 17% of our operating expenses, and shipping expense
totaled $36,684, or approximately 15% of our operating expenses. In addition, we recognized depreciation expense of $12,194 in
the year ended December 31, 2012 compared to depreciation expense of $-0- in the prior year by our Predecessor company.



Loss
from operations. Due to the increase in operating expenses, our loss from operations increased for the year ended December 31,
2012, by $236,225 to $251,547 compared to a net loss of $15,322 incurred by our Predecessor for the year ended December 31, 2011.



Interest
expense. Our interest expense increased by $37,582 to $37,582 during the year ended December 31, 2012 compared to $0 for the year
ended December 31, 2011. The increase resulted from interest expense on the convertible debentures issued by us to fund our operations
and the interest expense associated with the convertible debenture issued to Sonoro in connection with the purchase of the Assets
from Sonoro during the year.



Bargain
Purchase Gain. The purchase price we paid for the Assets in the transaction with Sonoro was less than the fair value of the net
assets acquired. Accordingly, we recorded the net benefit of $7,741 as a bargain purchase gain.



Net
loss attributable to non-controlling interests. We acquired a 60% ownership interest in Petrosonic Albania sh.a. The net loss
attributable to non-controlling interest of $9,898 reflects the portion of the net loss of Petrosonic Albania sh.a for the five
month period ended December 31, 2012 attributable to the non-controlling shareholder who continues to own the remaining 40% ownership
interest in our subsidiary, Petrosonic Albania sh.a.



Net
loss attributable to Petrosonic Energy, Inc. The net loss attributable to Petrosonic Energy, Inc. for the five months ended December
31, 2012 of $262,914 reflects the net loss of the consolidated operations of Petrosonic Energy, Inc. and Subsidiary for that period
after reducing the net loss by the loss attributable to the non-controlling interest described above. The net loss of $8,544 for
the seven months ended July 31, 2012 for our Predecessor reflects the net loss for Petrosonic Albania, sh.a for that period, which
loss was attributable in full to the shareholders of Petrosonic Albania, sh.a during that period. Similarly, during the year ended
December 31, 2011, the entire net loss of Petrosonic Albania sh.a of $13,784 was attributable to the shareholders of that company.



31







Liquidity and Capital Resources



At
December 31, 2012, we had cash of $1,200,676 compared with $1,655 at December 31, 2011. At December 31, 2012, we had total current
assets of $1,315,271 and total current liabilities of $515,943, resulting in a working capital balance of $799,328 on that date.
We have incurred an accumulated deficit during the development stage of $596,731.



Operating
activities for the year ended December 31, 2012 resulted in a net increase in the use of cash of $480,523 to $374,080 compared
with cash provided by operations for the year ended December 31, 2011 by our Predecessor of $106,443. The increase in the use
of cash was attributable primarily to the increase in operating costs and increased interest expense during the year ended December
31, 2012 combined with a use of cash used in the reduction of the level of accounts payable from 2012 compared with cash provided
by an increase in accounts payable in the prior year by the Predecessor company.



Investing
activities for the year ended December 31, 2012 reflected a reduction in the use of cash of $341,859 to a use of cash of $96,974
during the year ended December 31, 2012 compared with a use of cash of $438,833 during the year ended December 31, 2011. The reduction
resulted from a lower level of investment in property and equipment during the year ended December 31, 2012 compared to that of
the year ended December 31, 2011 by our Predecessor.



Financing
activities for the year ended December 31, 2012 resulted in an increase in cash of $1,231,250 to $1,558,828 from $327,578 in the
year ended December 31, 2011. The increase reflects the total of the proceeds from the sales of common stock of $1,389,500 and
the contribution to capital made to our Predecessor of $169,328 over the capital contribution of $327,578 made in the year ended
December 31, 2011 in our Predecessor.



Effects
of foreign exchange on cash. The effects of foreign exchange resulted in cash of $115,559 being provided during the year ended
December 31, 2012 compared with cash of $6,321 being provided during the year ended December 31, 2011 by our Predecessor. The
change reflects the effects of the variability in the rates of exchange of the various currencies in which the Company transacted
business during the periods presented.



We will need
to raise additional funds in order to continue operations and continue to execute on our business plan. Our cash needs are primarily
for working capital to fund our operations , including the anticipated cost to complete the construction of our facility in
Albania, which we estimate will be approximately $1.7 million, and for capital equipment used in the construction of our processing
capabilities. We have financed our operations through a variety of debt and equity financings. We presently operate with a level
of overhead consistent with the Company’s present needs but need to raise additional capital to fund our planned future
operations, which will include increasing overhead to support planned increases in the level of operations We do not have any
committed current or future sources of financing. Our management is exploring a variety of options to meet our future cash requirements
and capital requirements, including the possibility of debt financings, equity financings, and business combinations. If we fail
to obtain the financing necessary to continue to execute on our business plan, we may be forced to reduce operations or possibly
to cease operations.



Going Concern Uncertainties



As
of the date of this annual report, there is doubt regarding our ability to continue as a going concern as we have not generated
sufficient cash flow to fund our business operations and loan commitments. The financial statements included in this annual report
have been prepared on the going concern basis, which assumes that adequate sources of financing will be obtained as required and
that our assets will be realized and liabilities settled in the ordinary course of business. If we are not to continue as a going
concern, we would likely not be able to realize our assets at values comparable to the carrying value or the fair value estimates
reflected in the balances set out in the preparation of the financial statements.



Our
future success and viability, therefore, are dependent upon our ability to generate capital financing. The failure to generate
sufficient revenues or to raise additional capital may have a material and adverse effect upon us and our shareholders.





32







Because
we have not generated any revenues, and have incurred losses from operations since inception, in their report on our audited financial
statements for the latest fiscal year, our independent auditors included an explanatory paragraph regarding substantial doubt
about our ability to continue as a going concern.



On
April 3, 2013 the Alberta Securities Commission issued a cease trade order against us because we failed to file an annual information
form (“AIF”) for the year ended December 31, 2012. We filed the AIF on May 3, 2013. Thereafter, we made an application
to the Alberta Securities Commission to revoke the cease trade order. The Alberta Securities Commission advised that they would
not be in a position to revoke the cease trade order on the basis that we are the subject of an ongoing investigation by the Alberta
Securities Commission Enforcement department. The investigation concerns the trading and promotional activity related to our securities.
The cease trade order requires that trading or purchasing cease in respect of any of our securities until the order has been revoked
or varied. We are cooperating with the Alberta Securities Commission in the investigation. If the cease trade order is not revoked
by the time we need to raise additional capital, we may be unable to do so.



Our
future is dependent upon our ability to obtain financing. We do not have any committed current or future sources of financing.
If we do not obtain financing when we need it, we may be required to severely curtail, or even to cease, our operations.



Critical Accounting Policies



Property and equipment, net



Property
and equipment are carried at the cost of acquisition or construction and depreciated over the estimated useful lives of the assets.
Costs associated with repair and maintenance are expensed as incurred. Costs associated with improvements which extend the life,
increase the capacity or improve the efficiency of our property and equipment are capitalized and depreciated over the remaining
life of the related asset. Gains and losses on dispositions of equipment are reflected in operations. Depreciation is provided
using the straight-line method over the estimated useful lives of the assets, which are 3 to 5 years for machinery and equipment
and 10 years for buildings. We have not recognized depreciation on machinery and equipment since we have not yet completed our
production line.



Impairment of Long-Lived Assets



The
carrying value of property and equipment is reviewed for impairment whenever events or changes in circumstances indicate that
the carrying amount of the assets may not be recoverable. If the sum of the estimated future cash flows (undiscounted) expected
to result from the use and eventual disposition of the asset group is less than the carrying amount of the asset group, an impairment
loss is recognized which is measured based on the fair value of the asset. Construction in process is impaired when projects are
abandoned or terminated. Long-lived assets were not impaired as of December 31, 2012 or 2011.



Research and development



Costs
incurred in connection with the development of new products and manufacturing methods are charged to selling, general and administrative
expenses as incurred.



Recently Issued Accounting Pronouncements



The
Company does not expect the adoption of any recently issued accounting pronouncements to have a significant effect on its financial
position or results of operations.



Contractual Obligations and Off-Balance Sheet Arrangements



As
of December 31, 2012, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.



ITEM 7A.     QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.



Pursuant
to Item 305(e) of Regulation S-K, the Company, as a smaller reporting company, is not required to provide the information required
by this item.



33







ITEM
8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



ITEM 9A.     CONTROLS
AND PROCEDURES



Evaluation of Disclosure Controls and Procedures



Under
the supervision and with the participation of our management, including our principal executive officer who is also our principal
financial officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule
13a-15(b) as of the end of the period covered by this report. Based on that evaluation, our principal executive officer/principal
financial officer has concluded that our disclosure controls and procedures are not effective, due to the deficiencies in our
internal controls over financial reporting described below.



Management’s Report on Internal Control over Financial
Reporting



Our
management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is
defined in Exchange Act Rule 13a-15(f). The Company’s internal control over financial reporting is a process designed to
provide reasonable assurance to our management and Board of Directors regarding the reliability of financial reporting and the
preparation of the financial statements for external purposes in accordance with accounting principles generally accepted in the
United States of America.



Our
internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii)
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company
are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets
that could have a material effect on the financial statements.



Because
of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. All internal
control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention
of overriding controls. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance
with respect to financial statement preparation. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies
or procedures may deteriorate.



Our
management assessed the effectiveness of our internal control over financial reporting as of December 31, 2012. In making this
assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework. Based on our assessment, as of December 31, 2012, management has concluded that the Company’s
internal controls over financial reporting were not operating effectively. This was due to deficiencies that existed in the design
or operation of our internal controls over financial reporting that adversely affected our internal control and is considered
to be material weaknesses.



| | 1. |  | We
                                                                                                                                                    do
                                                                                                                                                    not
                                                                                                                                                    have
                                                                                                                                                    an
                                                                                                                                                    Audit
                                                                                                                                                    Committee
                                                                                                                                                    –
                                                                                                                                                    While
                                                                                                                                                    not
                                                                                                                                                    being
                                                                                                                                                    legally
                                                                                                                                                    obligated
                                                                                                                                                    to
                                                                                                                                                    have
                                                                                                                                                    an
                                                                                                                                                    audit
                                                                                                                                                    committee,
                                                                                                                                                    it
                                                                                                                                                    is
                                                                                                                                                    the
                                                                                                                                                    management’s
                                                                                                                                                    view
                                                                                                                                                    that
                                                                                                                                                    such
                                                                                                                                                    a
                                                                                                                                                    committee,
                                                                                                                                                    including
                                                                                                                                                    a
                                                                                                                                                    financial
                                                                                                                                                    expert
                                                                                                                                                    member,
                                                                                                                                                    is
                                                                                                                                                    an
                                                                                                                                                    utmost
                                                                                                                                                    important
                                                                                                                                                    entity
                                                                                                                                                    level
                                                                                                                                                    control
                                                                                                                                                    over
                                                                                                                                                    our
                                                                                                                                                    financial
                                                                                                                                                    statements.
                                                                                                                                                     To
                                                                                                                                                    date
                                                                                                                                                    we
                                                                                                                                                    have
                                                                                                                                                    not
                                                                                                                                                    established
                                                                                                                                                    an
                                                                                                                                                    audit
                                                                                                                                                    committee.
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. |  | Insufficient
                                                                                                                                                    documentation
                                                                                                                                                    of
                                                                                                                                                    financial
                                                                                                                                                    statement
                                                                                                                                                    preparation
                                                                                                                                                    and
                                                                                                                                                    review
                                                                                                                                                    procedures
                                                                                                                                                    -
                                                                                                                                                    We
                                                                                                                                                    employ
                                                                                                                                                    policies
                                                                                                                                                    and
                                                                                                                                                    procedures
                                                                                                                                                    in
                                                                                                                                                    reconciliation
                                                                                                                                                    of
                                                                                                                                                    the
                                                                                                                                                    financial
                                                                                                                                                    statements
                                                                                                                                                    and
                                                                                                                                                    the
                                                                                                                                                    financial
                                                                                                                                                    information
                                                                                                                                                    based
                                                                                                                                                    on
                                                                                                                                                    which
                                                                                                                                                    the
                                                                                                                                                    financial
                                                                                                                                                    statements
                                                                                                                                                    are
                                                                                                                                                    prepared,
                                                                                                                                                    however,
                                                                                                                                                    the
                                                                                                                                                    controls
                                                                                                                                                    and
                                                                                                                                                    policies
                                                                                                                                                    we
                                                                                                                                                    employ
                                                                                                                                                    are
                                                                                                                                                    not
                                                                                                                                                    sufficiently
                                                                                                                                                    documented.
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



34







| | 3. |  | We
                                                                                                                                                    did
                                                                                                                                                    not
                                                                                                                                                    maintain
                                                                                                                                                    proper
                                                                                                                                                    segregation
                                                                                                                                                    of
                                                                                                                                                    duties
                                                                                                                                                    for
                                                                                                                                                    the
                                                                                                                                                    preparation
                                                                                                                                                    of
                                                                                                                                                    our
                                                                                                                                                    financial
                                                                                                                                                    statements
                                                                                                                                                    –
                                                                                                                                                    As
                                                                                                                                                    of
                                                                                                                                                    December
                                                                                                                                                    31,
                                                                                                                                                    2012
                                                                                                                                                    the
                                                                                                                                                    majority
                                                                                                                                                    of
                                                                                                                                                    the
                                                                                                                                                    preparation
                                                                                                                                                    of
                                                                                                                                                    financial
                                                                                                                                                    statements
                                                                                                                                                    was
                                                                                                                                                    carried
                                                                                                                                                    out
                                                                                                                                                    by
                                                                                                                                                    one
                                                                                                                                                    person.
                                                                                                                                                     This
                                                                                                                                                    has
                                                                                                                                                    resulted
                                                                                                                                                    in
                                                                                                                                                    several
                                                                                                                                                    deficiencies
                                                                                                                                                    including:
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | Significant,
                                                                                                                                                    non-standard
                                                                                                                                                    journal
                                                                                                                                                    entries
                                                                                                                                                    were
                                                                                                                                                    prepared
                                                                                                                                                    and
                                                                                                                                                    approved
                                                                                                                                                    by
                                                                                                                                                    the
                                                                                                                                                    same
                                                                                                                                                    person,
                                                                                                                                                    without
                                                                                                                                                    being
                                                                                                                                                    checked
                                                                                                                                                    or
                                                                                                                                                    approved
                                                                                                                                                    by
                                                                                                                                                    any
                                                                                                                                                    other
                                                                                                                                                    personnel.
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | b. |  | Lack
                                                                                                                                                    of
                                                                                                                                                    control
                                                                                                                                                    over
                                                                                                                                                    preparation
                                                                                                                                                    of
                                                                                                                                                    financial
                                                                                                                                                    statements,
                                                                                                                                                    and
                                                                                                                                                    proper
                                                                                                                                                    application
                                                                                                                                                    of
                                                                                                                                                    accounting
                                                                                                                                                    policies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      



| | 4. |  | We
                                                                                                                                                    lack
                                                                                                                                                    sufficient
                                                                                                                                                    information
                                                                                                                                                    technology
                                                                                                                                                    controls
                                                                                                                                                    and
                                                                                                                                                    procedures
                                                                                                                                                    –
                                                                                                                                                    As
                                                                                                                                                    of
                                                                                                                                                    December
                                                                                                                                                    31,
                                                                                                                                                    2012,
                                                                                                                                                    we
                                                                                                                                                    lacked
                                                                                                                                                    a
                                                                                                                                                    proper
                                                                                                                                                    data
                                                                                                                                                    back-up
                                                                                                                                                    procedure,
                                                                                                                                                    and
                                                                                                                                                    while
                                                                                                                                                    backup
                                                                                                                                                    did
                                                                                                                                                    take
                                                                                                                                                    place
                                                                                                                                                    in
                                                                                                                                                    actuality,
                                                                                                                                                    we
                                                                                                                                                    believe
                                                                                                                                                    that
                                                                                                                                                    it
                                                                                                                                                    was
                                                                                                                                                    not
                                                                                                                                                    regulated
                                                                                                                                                    by
                                                                                                                                                    methodical
                                                                                                                                                    and
                                                                                                                                                    consistent
                                                                                                                                                    activities
                                                                                                                                                    and
                                                                                                                                                    monitoring.
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 5. |  | Lack
                                                                                                                                                    of
                                                                                                                                                    formal
                                                                                                                                                    review
                                                                                                                                                    process
                                                                                                                                                    that
                                                                                                                                                    includes
                                                                                                                                                    multiple
                                                                                                                                                    levels
                                                                                                                                                    of
                                                                                                                                                    review,
                                                                                                                                                    resulting
                                                                                                                                                    in
                                                                                                                                                    several
                                                                                                                                                    audit
                                                                                                                                                    adjustments
                                                                                                                                                    related
                                                                                                                                                    to
                                                                                                                                                    consolidation,
                                                                                                                                                    purchase
                                                                                                                                                    price
                                                                                                                                                    allocation,
                                                                                                                                                    and
                                                                                                                                                    accounting
                                                                                                                                                    of
                                                                                                                                                    the
                                                                                                                                                    Company’s
                                                                                                                                                    convertible
                                                                                                                                                    debt
                                                                                                                                                    and
                                                                                                                                                    equity
                                                                                                                                                    transactions.
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Management
believes that the aforementioned material weaknesses did not impact our financial reporting or result in a material misstatement
of our financial statements.



This
annual report does not include an attestation report of our registered public accounting firm regarding internal control over
financial reporting. We are not required to provide an attestation report by our registered public accounting firm pursuant to
the rules of the Securities and Exchange Commission.



We
have begun to take action to correct the material weaknesses identified in our internal control over financial reporting. In March
2013 we added two independent directors to our Board of Directors. These independent directors have experience in reading and
understanding financial statements. We expect to form an audit committee during the 2013 year. During 2013, we will also try to
implement the following remediation measures:



| | 1. |  | We
                                                                                                                                                    intend
                                                                                                                                                    to
                                                                                                                                                    appoint
                                                                                                                                                    additional
                                                                                                                                                    personnel
                                                                                                                                                    to
                                                                                                                                                    assist
                                                                                                                                                    with
                                                                                                                                                    the
                                                                                                                                                    preparation
                                                                                                                                                    of
                                                                                                                                                    our
                                                                                                                                                    financial
                                                                                                                                                    statements,
                                                                                                                                                    which
                                                                                                                                                    will
                                                                                                                                                    allow
                                                                                                                                                    for
                                                                                                                                                    proper
                                                                                                                                                    segregation
                                                                                                                                                    of
                                                                                                                                                    duties
                                                                                                                                                    as
                                                                                                                                                    well
                                                                                                                                                    as
                                                                                                                                                    additional
                                                                                                                                                    manpower
                                                                                                                                                    for
                                                                                                                                                    proper
                                                                                                                                                    documentation.
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. |  | We
                                                                                                                                                    intend
                                                                                                                                                    to
                                                                                                                                                    engage
                                                                                                                                                    in
                                                                                                                                                    a
                                                                                                                                                    thorough
                                                                                                                                                    review
                                                                                                                                                    and
                                                                                                                                                    restatement
                                                                                                                                                    of
                                                                                                                                                    our
                                                                                                                                                    information
                                                                                                                                                    technology control
                                                                                                                                                    procedures,
                                                                                                                                                    in
                                                                                                                                                    addition
                                                                                                                                                    to
                                                                                                                                                    procurement
                                                                                                                                                    of
                                                                                                                                                    all
                                                                                                                                                    hardware
                                                                                                                                                    and
                                                                                                                                                    software
                                                                                                                                                    that
                                                                                                                                                    will
                                                                                                                                                    enable
                                                                                                                                                    us
                                                                                                                                                    to
                                                                                                                                                    maintain
                                                                                                                                                    proper
                                                                                                                                                    backups,
                                                                                                                                                    access,
                                                                                                                                                    control
                                                                                                                                                    etc.
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Changes in Internal Control over Financial Reporting



There
were no changes in our internal control over financial reporting during the fiscal year ended December 31, 2012 that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.



ITEM 9B.     OTHER
INFORMATION



On
May 1, 2013, the Company entered into an amended and restated employment agreement with Art Agolli, the Company’s Chief
Executive Officer. The effective date of the agreement is January 1, 2013 and continues for an initial period of two years. Under
the terms of the agreement, Mr. Agolli is to be paid an annual base salary of $150,000, is entitled to an annual cash bonus in
an amount to be agreed upon each year by Mr. Agolli and the Board of Directors and is entitled to other employee benefits. Within
30 days following each one-year anniversary of the effective date of the agreement, Mr. Agolli is entitled to receive an option
to purchase shares of the Company’s common stock in an amount to be determined by the Board of Directors or its committee
responsible for compensation matters as then constituted. The agreement may be terminated for cause by the Company or by election
by either party. If Mr. Agolli’s employment is terminated without cause by the Company, Mr. Agolli will be entitled to certain
severance payments as described in the agreement.



35







PART
III



ITEM 10.     DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE



The
following table sets forth certain information for each executive office and each director of the Company.



|Name                  |  | Age |  | Title                                                                           
|--------------------- |  | --- |  | --------------------------------------------------------------------------------
|                      |  |     |  |                                                                                 
|Art
    Agolli        |  | 41  |  | President,
    Chief Executive Officer, Principal Financial Officer and Director
|                      |  |     |  |                                                                                 
|Richard
    Rutkowski |  | 57  |  | Director                                                                        
|                      |  |     |  |                                                                                 
|Alfred
    Fischer    |  | 66  |  | Director                                                                        



Art Agolli – President, Chief Executive Officer,
Principal Financial Officer, Director (appointed March 2012)



Mr.
Agolli has more than 16 years of successful experience in developing heavy oil projects and, prior to July 2012, provided consulting
services to various oil companies. These services consisted of negotiating oil and gas leases, advising on marketing, advising
on business development, and assisting with financing. Since February 2009 he has been the CEO of BA Capital, a Calgary based
merchant bank serving the energy, mining and technology sectors, which he founded. Mr. Agolli provides at least 140 hours a month
in services to Petrosonic. He also provides services to BA Capital. Services provided to BA Capital average approximately 20 hours
a month.



Mr.
Agolli provided services to Stream Oil & Gas Ltd. as a consultant for business development from September 2008 until March
2009 and as its Executive Vice President from March 20, 2009 until July 2010.



Mr.
Agolli was a co-founder and former Vice President of Bankers Petroleum Ltd., a Toronto and London Stock Exchange listed oil and
gas company. As its Vice President, Mr. Agolli assisted in building Bankers Petroleum from a start up in April 2004 to a company
with a $2.3 billion market capitalization when he left in August 2008. Bankers Petroleum has a 100% working interest and is the
operator of the largest onshore heavy oil field in Europe (Albania). As a consultant to BNK Petroleum, a Toronto Stock Exchange
listed company that was spun off from Bankers Petroleum in 2008, Mr. Agolli assisted in the negotiations which permitted that
company to begin shale gas extraction operations in Poland. BNK Petroleum now has one of the largest shale gas land positions
in the country and in Europe. BNK Petroleum grew from a start-up to a company with a $700 million market capitalization.



Mr. Agolli
was also one of the founders of Sonoro Energy Ltd., a TSX listed company and, through 2011, provided business development
consulting services to Sonoro. Sonoro has exclusive rights to development of all heavy oil in Salah ad Din Province in Iraq. From
1998-2001, Mr. Agolli was an international business and corporate development executive with Koch Industries Inc., the largest
privately held company in North America. From March 2001 to December 2003 he was CEO of AnonimaPetroliItaliana (Albania), a subsidiary
company of Api Spa, one of the largest refining and trading oil companies in Italy. Mr. Agolli owns approximately 1.5% of Sonoro’s
issued and outstanding shares of common stock (based on the number of shares of common stock reported by Sonoro to be outstanding
on December 31, 2012, which is the most recent report currently available).



Mr.
Agolli started his career as a consultant for the World Bank in Washington DC in 1997. Mr. Agolli holds a Masters Degree in Management
from Grand Valley State University in Michigan and an International Relations and Business Degree from the same university. He
is a member of the Association of International Petroleum Negotiators, headquartered in Houston, Texas.



Mr.
Agolli’s knowledge of the energy market and his entrepreneurial experience led us to the conclusion that he should be appointed
as a director.





36







Richard Rutkowski, Director (appointed March 2013)



Mr.
Rutkowski has been a director of ClearSign Combustion Corporation, a publicly traded company, since January 2008 and was appointed
as Chairman and Chief Executive Officer of ClearSign Combustion Corporation in February 2008. Prior to joining ClearSign Combustion
Corporation, Mr. Rutkowski was a co-founder of Microvision, Inc., a leader in optical beam-scanning display and imaging systems
and served as the company’s Chief Executive Officer and Director from September 1995 until January 2006. In January 2000,
Mr. Rutkowski co-founded Lumera Corporation, a leading developer of a broad range of devices used in optical communications, biomedical
analysis and broadband imaging that are based on the company’s proprietary nano-materials and electro-optic polymers. Mr.
Rutkowski served as Vice-Chairman of the Lumera’s board from January 2000 until May 2006. From May 2006 to February 2008,
Mr. Rutkowski conducted management, finance, and marketing consultancy doing business under the name of Ormont and in 2012 he
formed Ormont LLC. From November 1992 to May 1994, Mr. Rutkowski served as Executive Vice President of Medialink Technologies
Corporation (formerly Lone Wolf Corporation), a developer of high-speed digital networking technology for multimedia applications
in audio-video computing, consumer electronics, and telecommunications. From February 1990 to April 1995, Mr. Rutkowski was a
principal of Rutkowski, Erickson, Scott, a business development consulting firm. He has served as a director of Ideal Power Converters,
Inc. since 2012. Mr. Rutkowski has frequently been featured as a speaker or panelist at technology and business conferences, and
has appeared on local and national television. He was honored as a Technology Pioneer at the World Economic Forum in 2002 and
has been acknowledged by the University of Washington for his support of the University’s research efforts. Mr. Rutkowski
attended the University of Chicago and has extensive experience in starting and building technology businesses. Mr. Rutkowski’s
experience as a member of the board of directors and as an executive officer of publicly traded companies led us to the conclusion
that he should be appointed as a director.



Alfred Fischer, Director (appointed March 2013)



Since
2003 Mr. Fischer has been the Chief Executive Officer of Quadrise Canada Corporation and Optimal Resources Inc., companies which
he helped to found. Mr. Fischer has over 38 years of experience in the oil and gas industry in Canada and internationally. Mr.
Fischer first entered the industry with Gulf Canada Resources Limited as an Exploration Geologist. Over the next 22 years he assumed
increasing levels of management responsibility in Gulf Canada. From 1988 to 1991, Mr. Fischer served as Manager, International
Development, responsible for exploitation and production in Indonesia, Egypt, and Australia offshore. In 1995 Mr. Fischer became
Director, Mergers and Acquisitions and was involved in over $2.2 billion of North American corporate and property acquisitions.
In late 1996 Mr. Fischer formed his own consulting firm to continue mergers and acquisitions activities, and specialized in providing
senior management and operating services to the petroleum industry. Mr. Fischer’s extensive knowledge of, and experience
in, the heavy oil industry led us to the conclusion that he should be appointed as a director.



Terms of Office



In
accordance with our bylaws and the provisions of the Nevada Revised Statutes, our directors are appointed to hold office
until the next annual meeting of the Company’s stockholders, when their successors are elected, or until their resignation
or removal from office.



Our
officers are appointed by the Board of Directors and hold office until removed by the Board.



Involvement in Certain Legal Proceedings



During
the past ten years, no director or executive officer was involved in any legal proceedings described in subparagraph (f) of Item
401 of Regulation S-K.



Family Relationships



There
are no family relationships between or among the directors and executive officer.



37







Committees of the Board and Financial Expert



During
the year ended December 31, 2012 we had only one director, therefore, all proceedings of the Board of Directors were conducted
by resolutions consented to in writing, as permitted by the Nevada Revised Statutes and our bylaws. We do not presently have a
policy regarding director attendance at meetings.



In
March 2013 we added two independent directors, Messrs. Rutkowski and Fischer, and we intend to add at least one additional independent
member to the Board. Although we do not yet have standing audit, nominating or compensation committees, or committees performing
similar functions, it is our intention to form those committees during 2013. Until the committees are formed, we currently have
a majority of independent directors who will be able to perform the functions of such committees.



We
do not presently have among our directors a person meeting all of the qualifications of an audit committee financial expert. It
is our intention to appoint a director who meets the qualifications of an audit committee financial expert to the Board of Directors
during the 2013 fiscal year.



Nominations to the Board of Directors



Our
directors take a critical role in guiding our strategic direction and overseeing the management of the Company. Board candidates
are considered based upon various criteria, such as their broad-based business and professional skills and experiences, a global
business and social perspective, concern for the long-term interests of our shareholders, diversity, and personal integrity and
judgment.



In
addition, directors must have time available to devote to Board activities and to enhance their knowledge in the growing business.



In
carrying out its responsibilities, the Board will consider candidates suggested by shareholders. We have not adopted any procedures
by which our shareholders may recommend nominees to our Board of Directors and that has not changed during the last fiscal year.



Compensation Committee Interlocks
and Insider Participation



No
interlocking relationship exists between our Board of Directors and the board of directors or compensation committee of any other
company, nor has any interlocking relationship existed in the past.



Section 16(a) Beneficial Ownership
Reporting Compliance



Based
solely upon a review of Forms 3, 4 and 5 delivered to us as filed with the Securities Exchange Commission, our executive officers
and directors, and persons who own more than 10% of our common stock timely filed all required reports pursuant to Section 16(a)
of the Securities Exchange Act.



Code of Ethics



We
have adopted a code of ethics that applies to our executive officers, including our principal executive officer, who is also our
principal financial officer. Our code of ethics is included as an exhibit to our annual report on Form 10-K for the year ended
October 31, 2009. Our code of ethics is hereby incorporated by reference.



ITEM 11.     EXECUTIVE
COMPENSATION



Executive Compensation - Executive
Officers



The
following summary compensation table covers all compensation awarded to, earned by or paid to our principal executive officer
and each of the other two highest paid executive officers, if any, whose total compensation exceeded $100,000 during the year
ended December 31, 2012, the two months ended December 31, 2011 and the fiscal year ended October 31, 2011.





38







Summary Compensation
Table



|Name and Principal Position                                                  |  | Year |            |  | Salary |   |   | Bonus |  |   | Stock Awards |  |  | Option Awards |   |  | Non-Equity Incentive
    Plan Compensation |   |   | All Other Compensation |  |   | Total | 
|---------------------------------------------------------------------------- |  | ---- | ---------- |  | ------ | - | - | ----- |  | - | ------------ |  |  | ------------- | - |  | ------------------------------------------ | - | - | ---------------------- |  | - | ----- | 
|                                                                             |  |      |            |  |        |   |   |       |  |   |              |  |  |               |   |  |                                            |   |   |                        |  |   |       | 
|Art Agolli                                                                   |  |      | 12/31/2012 |  |        | $ | 0 |       |  | $ | 0            |  |  | $             | 0 |  |                                            | $ | 0 |                        |  | $ | 0     | 
|Chief Executive Officer, Chief Financial Officer, (appointed March
    2012) |  |      | 12/31/2011 |  |        | $ | 0 |       |  | $ | 0            |  |  | $             | 0 |  |                                            | $ | 0 |                        |  | $ | 0     | 
|                                                                             |  |      |            |  |        |   |   |       |  |   |              |  |  |               |   |  |                                            |   |   |                        |  |   |       | 
|Gerhard Schlombs, Principal Executive Officer (resigned March 2012)          |  |      | 12/31/2012 |  |        | $ | 0 |       |  | $ | 0            |  |  | $             | 0 |  |                                            | $ | 0 |                        |  | $ | 0     | 
|                                                                             |  |      | 12/31/2011 |  |        | $ | 0 |       |  | $ | 0            |  |  | $             | 0 |  |                                            | $ | 0 |                        |  | $ | 0     | 



Compensation of Directors



We
have no standard arrangement to compensate directors for their services in their capacity as directors and during the 2012 year
no compensation was paid to our sole director. Directors are not paid for meetings attended. However, in March 2013 we elected
two independent directors. We granted an option to purchase 250,000 shares of our common stock to each director. The first option
granted has an exercise price of $0.83 per share while the second option granted has an exercise price of $0.75 per share. We
intend to review and consider future proposals regarding Board compensation. All travel and lodging expenses associated with corporate
matters will be reimbursed by us, if and when incurred



Employment Agreements



On
May 1, 2013, our Board of Directors approved an amended and restated employment agreement with Art Agolli. The effective date
of the agreement is January 1, 2013 and the agreement will terminate on January 1, 2015, unless earlier terminated or extended
by its terms. Following the initial term, we and Mr. Agolli may renew the agreement for successive periods of two years.



Mr.
Agolli’s annual base salary during the term will be $150,000 and will be subject to annual cost of living increases on January
1st of each year. Mr. Agolli is also entitled to participate in any employee benefit programs adopted by us, and
at our expense will be provided with medical and dental benefits. Within 30 days following each one-year anniversary of the effective
date of the agreement, Mr. Agolli shall receive an option to purchase shares of our common stock in an amount to be determined
by our board of directors and its committee responsible for compensation matters as constituted. The agreement may be terminated
for cause by us, or without cause in the case of death, disability (with thirty days’ prior notice), or election by either
party (with thirty days’ prior notice). If Mr. Agolli’s employment is terminated without cause, Mr. Agolli will receive
accrued but unpaid salary plus the value of accrued but unused vacation, accrued but unpaid bonuses, and applicable reimbursement
of business expenses, except that in the event of a termination without cause by us, he shall also receive the foregoing plus
a severance equal to the greater of (i) the salary that would be due if employment had not been terminated and (ii) 24 months
of annual base salary, in addition to twelve months of employee benefits coverage. If Mr. Agolli’s employment is terminated
as a result of a change of control, he will be entitled to receive his accrued but unpaid salary and the value of accrued but
unused vacation pay through the effective date of the termination, his accrued but unpaid annual bonus, if any, business expenses
incurred prior to the effective date of termination and an amount equal to the annual salary due to him for the balance of the
term, in a lump sum and without discount to present value, but in no event shall such payment total less than 24 months of salary.



Securities Authorized for Issuance Under Compensatory
Plans



Please
see Item 5 of this report.



Potential Payments Upon Termination or Change-in-Control



Please
see the discussion of Mr. Agolli’s employment agreement.



39







ITEM 12.     SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS



Security Ownership



The
Company has only one class of stock outstanding, its common stock. The following table sets forth certain information as of April
30, 2013, with respect to the beneficial ownership of our common stock for (i) each director and officer, (ii) all of our directors
and officers as a group, and (iii) each person known to us to own beneficially 5% or more of the outstanding shares of our common
stock. As of April 30, 2013, there were 79,166,405 shares of common stock outstanding.



To
our knowledge, except as indicated in the footnotes to this table or pursuant to applicable community property laws, the persons
named in the table have sole voting and investment power with respect to the shares of common stock indicated.



|Name and Address of
    Beneficial Owner (1)(2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  | Shares Beneficially
    Owned |            |     | Percentage
    Beneficially
    Owned | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------- | ---------- | --- | ------------------------------------- | 
|Directors and Executive Officers                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                               |            |     |                                       | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                               |            |     |                                       | 
|Art Agolli  Chief Executive Officer, President
    and Director                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |                               | 20,855,911 | (6) |                                       | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                               |            |     |                                       | 
|Richard Rutkowski, Director                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                               | 0          | (3) |                                       | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                               |            |     |                                       | 
|Alfred Fischer, Director                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                               | 0          | (3) |                                       | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                               |            |     |                                       | 
|Richard Raisig, Former Chief Financial Officer (4)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                               | 0          |     |                                       | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                               |            |     |                                       | 
|All Officers and Directors as a Group (4 persons)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |                               | 20,855,911 |     |                                       | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                               |            |     |                                       | 
|Principal Stockholders                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                               |            |     |                                       | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                               |            |     |                                       | 
|Gerhard Schlombs  (Former officer and former director) 
    92 Wishing Well Drive  Toronto, ON M1T 1J9                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                               | 14,625,000 |     |                                       | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                               |            |     |                                       | 
|SGP
                                                             Group Inc. (5) 2nd Terrace
                                                                                    W. Centreville P.O.
                                                                                                                                                                              Box
                                                                                                                                                                              10567 Nassau,
                                                                                                                                                                                                                                                                                             Bahamas |  |                               | 4,276,284  |     |                                       | 



|(1) |  | Beneficial
                                                                                       ownership has been determined in accordance
                                                                                       with Rule 13d-3 under the Exchange Act.
                                                                                       Pursuant to the rules of the SEC, shares
                                                                                       of common stock which an individual or
                                                                                       group has a right to acquire within 60
                                                                                       days pursuant to the exercise of options
                                                                                       or warrants are deemed to be outstanding
                                                                                       for the purpose of computing the percentage
                                                                                       ownership of such individual or group,
                                                                                       but are not deemed to be beneficially owned
                                                                                       and outstanding for the purpose of computing
                                                                                       the percentage ownership of any other person
                                                                                       shown in the table.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) |  | The address
                                                                                       for each of our officers and directors
                                                                                       is Suite 300, 714 1st Street,
                                                                                       SE, Calgary, Alberta, Canada T2G 2G8
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) |  | Mr. Rutkowski
                                                                                       and Mr. Fischer were each granted an option
                                                                                       to purchase 250,000 shares of our common
                                                                                       stock. The exercise price of Mr. Rutkowski’s
                                                                                       option is $0.83 and the exercise price
                                                                                       of Mr. Fischer’s option is $0.75.
                                                                                       The exercise prices represent the closing
                                                                                       price of our common stock on the date that
                                                                                       each Board member was elected. The Board
                                                                                       has not yet determined the term of these
                                                                                       options or the vesting of the right to
                                                                                       purchase the common stock, therefore, we
                                                                                       have not reported the option shares as
                                                                                       being owned by either individual.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) |  | Richard
                                                                                       Raisig resigned as our Chief Financial
                                                                                       Officer on April 14, 2013.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) |  | This information
                                                                                       is derived from a public filing and has
                                                                                       not been independently verified.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) |  | Includes
                                                                                       855,908 shares of common stock that Mr.
                                                                                       Agolli could acquire upon conversion of
                                                                                       a promissory note in the principal amount
                                                                                       of CDN$200,000.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



40







ITEM 13.     CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE



Certain Relationships and Transactions



At
December 31, 2011, our former President; Gerhard Schlombs had advanced $42,000 to us towards working capital, which amount has
subsequently been repaid in full.



The
office in which Petrosonic Albania Sh.a. is headquartered is provided to it by Albnafta free of charge, although Albnafta is not
required to do so. Albnafta is wholly-owned by Art Agolli, our Chief Executive Officer, Principal Financial Officer and a director.
The office in which the Company is headquartered is provided to it by Art Agolli, although he is not required to do so.



During
2010, Albnafta and Sonoro contributed $207,472 to Petrosonic Albania, sh.a for the purchase of machinery. During 2011, Albnafta
and Sonoro contributed $327,578 to Petrosonic Albania, sh.a. primarily for construction of a building in Albania.



On
April 17, 2012 the Company entered into an assignment agreement with Art Agolli, our sole executive officer and director, pursuant
to which Mr. Agolli agreed to convey to the Company all of his right title and interest in a letter of intent with Sonoro, the
holder of all of the legal and equitable rights and entitlements to a sonic reactor and technology that Sonoro developed for the
treatment and upgrading of heavy oil by sonicated solvent de-asphalting (the “Assets and Technology”), in exchange
for 20,000,003 (post-split) shares of our common stock having a value of $160,000. Thereafter, on July 27, 2012, we entered into
an Asset Purchase and Sale Agreement with Sonoro in order to acquire a 60% ownership interest in Petrosonic Albania, sh.a. In
exchange for the acquisition, we paid to Sonoro the following consideration: (i) CDN$250,000, (ii) a convertible debenture in
the principal amount of CDN$250,000 (the “Debenture”) and (iii) a 10% royalty interest in our realized net revenues
for a period of 10 years from the time we commence commercial operations, which is defined as the date upon which we process an
average of 50 barrels of feed stock per day over a period of 30 consecutive days utilizing the technology acquired.



On
September 15, 2012 we entered into a Memorandum of Understanding with Quadrise Canada Corporation, a private emulsion technology
company for the upstream and downstream oil industry that has an exclusive license in a heavy crude and asphaltene emulsification
patented technology. According to the agreement, Quadrise delivered to our plant in Albania a manufacturing unit capable of delivering
120 bbl/hour of feedstock. Our director, Alfred Fischer, is a co-founder and an executive officer of Quadrise.



On
June 6, 2012 Art Agolli loaned us CDN$200,000 pursuant to a Convertible Debenture. The unpaid principal amount of the Convertible
Debenture accrues interest at the rate of 10% per year. The Convertible Debenture is due and payable on June 6, 2013. Mr. Agolli
may convert the principal amount of the Convertible Debenture into shares of our common stock at the rate of $0.25 per share.
The Convertible Debenture is secured with our personal property and the proceeds and products therefrom. On April 12, 2013, CDN$16,986
in interest was accrued on the principal amount. During the year ended December 31, 2012, CDN$200,000 was the highest principal
amount owed.



On
March 18, 2013, in conjunction with being elected to our Board of Directors, we granted an option to purchase 250,000 shares of
our common stock to Richard Rutkowski. The exercise price is $0.83 per share. The option term and the conditions under which the
right to purchase the common stock will vest have not yet been determined.



On
March 27, 2013, in conjunction with being elected to our Board of Directors, we granted an option to purchase 250,000 shares of
our common stock to Alfred Fischer. The exercise price is $0.75 per share. The option term and the conditions under which the
right to purchase the common stock will vest have not yet been determined.



41







Review, Approval or Ratification of Transactions with
Related Persons



We
currently have no policies or procedures in place regarding the review and approval of related party transactions. Until March
2013 we had only one director, therefore independent review of related party transactions could not be made by our Board of Directors.
We have increased our Board by an additional two members, both of whom are independent directors. We believe that the addition
of these two directors will permit appropriate scrutiny of related party transactions.



Director Independence



During
the year ended December 31, 2012, we had no independent directors. Our former sole director, Art Agolli, is not independent. We
evaluate independence by the standards for director independence established by applicable laws, rules, and listing standards
including, without limitation, the standards for independent directors established by The Nasdaq Stock Market, and the Securities
and Exchange Commission. In March 2013 we added Richard Rutkowski and Alfred Fischer, two independent directors, to our Board
of Directors.



ITEM 14.     PRINCIPAL
ACCOUNTING FEES AND SERVICES



(1) Audit Fees



The
aggregate fees billed for each of the last two fiscal years for professional services rendered by MaloneBailey LLP; certified
accountant for our audit of annual financial statements and review of financial statements included in our Form 10-Qs or services
that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal
years was:



|2012 |  |  | $ | 55,000 | 
|---- |  |  | - | ------ | 
|2011 |  |  | $ | 8,400  | 



(2) Audit-Related Fees



The
aggregate fees billed in each of the last two fiscal years for assurance and related services by MaloneBailey LLP; certified accountants
that are reasonably related to the performance of the audit or review of our financial statements and are not reported in the
preceding paragraph:



|2011 |  |  | $ | - | 
|---- |  |  | - | - | 
|2010 |  |  | $ | - | 



(3) Tax Fees



The
aggregate fees billed in each of the last two fiscal years for professional services rendered by MaloneBailey LLP; certified accountant
for tax compliance, tax advice, and tax planning was:



|2012 |  |  | $ | - | 
|---- |  |  | - | - | 
|2011 |  |  | $ | - | 



(4) All Other Fees



The
aggregate fees billed in each of the last two fiscal years for the products and services provided by the principal accountant,
other than the services reported in paragraphs (1), (2), and (3) was:



|2012 |  |  | $ | - | 
|---- |  |  | - | - | 
|2011 |  |  | $ | - | 



42







PART IV



ITEM 15.     EXHIBITS,
FINANCIAL STATEMENT SCHEDULES



|2.1    | Asset
    Purchase and Sale Agreement dated July 27, 2012(1)                                                                                                                                                
|------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                             
|3.1(a) | Articles
    of Incorporation(2)                                                                                                                                                                            
|       |                                                                                                                                                                                                             
|3.1(b) | Amendments
    to Articles of Incorporation(3)                                                                                                                                                              
|       |                                                                                                                                                                                                             
|3.2    | Bylaws(2)                                                                                                                                                                                                   
|       |                                                                                                                                                                                                             
|4      | Specimen
    stock certificate(2)                                                                                                                                                                           
|       |                                                                                                                                                                                                             
|10.1   | Declaration
    of Trust of Gerhard Schlombs(2)                                                                                                                                                             
|       |                                                                                                                                                                                                             
|10.2   | Convertible
    Debenture issued on March 23, 2012 to Sierra Growth, Inc.**                                                                                                                                 
|       |                                                                                                                                                                                                             
|10.3   | Convertible
    Debenture issued on April 18, 2012 to Sierra Growth, Inc.**                                                                                                                                 
|       |                                                                                                                                                                                                             
|10.4   | Convertible
    Debenture issued June 6, 2012 to Westlake Advisors Corp.* *                                                                                                                                 
|       |                                                                                                                                                                                                             
|10.5   | Convertible
    Debenture issued June 21, 2012 to Jackson Bennett LLC**                                                                                                                                     
|       |                                                                                                                                                                                                             
|10.6   | Convertible
    Debenture dated June 6, 2012 issued to Artan Agolli**+                                                                                                                                      
|       |                                                                                                                                                                                                             
|10.7   | Form
    of Convertible Debenture dated July 27, 2012 issued to Sonoro Energy Ltd.(1)                                                                                                                       
|       |                                                                                                                                                                                                             
|10.8   | Assignment
    of Shares of Common Stock dated April 17, 2012 from Art Agolli in favor of Bearing Mineral Exploration Inc.(6)                                                                               
|       |                                                                                                                                                                                                             
|10.9   | Non-Compete
    and Non-Solicitation Agreement dated July 27, 2012 between the registrant and Sonoro Energy Ltd.(1)                                                                                         
|       |                                                                                                                                                                                                             
|10.10  | Consulting
    Agreement dated July 27, 2012 between the registrant and Sonoro Energy Ltd.(1)                                                                                                               
|       |                                                                                                                                                                                                             
|10.11  | Share
    Sale Contract dated July 27, 2012 between the registrant and Sonoro Energy Ltd.(1)                                                                                                                
|       |                                                                                                                                                                                                             
|10.12  | Form
    of Iraq License Agreement dated July 27, 2012 between the registrant and Sonoro Energy Ltd.(1)                                                                                                     
|       |                                                                                                                                                                                                             
|10.13  | Amended
    and Restated Employment Agreement dated January 1, 2013 between the registrant and Art Agolli**                                                                                                 
|       |                                                                                                                                                                                                             
|10.14  | Consulting
    Agreement dated April 26, 2013 between the registrant and StoryCorp Consulting, Inc.(8)                                                                                                      
|       |                                                                                                                                                                                                             
|10.15  | Consulting
    Agreement dated January 1, 2013 between the registrant and Benjamin L. Padnos**                                                                                                              
|       |                                                                                                                                                                                                             
|10.16  | Consulting
    Agreement with Ormont Investor Relations and Strategic Communications, LLC and assignment to Loma Management Partners Inc.(8)                                                                
|       |                                                                                                                                                                                                             
|10.17  | Memorandum
    of Understanding dated September 15, 2012 between the registrant and Quadrise Canada Corporation**                                                                                           
|       |                                                                                                                                                                                                             
|10.18  | Form
    of Securities Purchase Agreement dated January 16, 2013(7)                                                                                                                                         
|       |                                                                                                                                                                                                             
|10.19  | Form
    of Registration Rights Agreement dated January 16, 2013(7)                                                                                                                                         
|       |                                                                                                                                                                                                             
|10.20  | Form
    of Warrant dated January 16, 2013(7)                                                                                                                                                               
|       |                                                                                                                                                                                                             
|10.21  | Enterprise
    Agreement between Petrosonic Albania sh.a and Pavli Vallja Company dated September 7, 2012**                                                                                                 
|       |                                                                                                                                                                                                             
|10.22  | Warrant
    dated September 5, 2012 for the purchase of 140,000 shares of common stock issued to Jackson Bennett LLC**                                                                                      
|       |                                                                                                                                                                                                             
|10.23  | Warrant
    dated September 24, 2012 for the purchase of 200,000 shares of common stock issued to Jackson Bennett LLC**                                                                                     
|       |                                                                                                                                                                                                             
|14     | Code
    of Ethics(5)                                                                                                                                                                                       
|       |                                                                                                                                                                                                             
|21     | List
    of Subsidiaries**                                                                                                                                                                                  
|       |                                                                                                                                                                                                             
|31.1   | Certification
    of Principal Executive Officer pursuant to 15d-15(e), promulgated under the Securities Exchange Act of 1934*                                                                              
|       |                                                                                                                                                                                                             
|31.2   | Certification
    of Principal Financial Officer pursuant to 15d-15(e) promulgated under the Securities Exchange Act of 1934*                                                                               
|       |                                                                                                                                                                                                             
|32.1   | Certification
    pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Principal Executive
    Officer and Principal Financial and Accounting Officer)*



|*   |  | Filed herewith.                                                                                                                                                                    
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|**  |  | Previously filed                                                                                                                                                                   
|+   |  | Indicates a contract with management.                                                                                                                                              
|(1) |  | Incorporated by reference to the registrant’s Current Report on Form 8-K filed
with the Securities and Exchange Commission on July 31, 2012.                                       
|(2) |  | Incorporated by reference to the registrant’s Registration Statement on Form
S-1 filed with the Securities and Exchange Commission on December 19, 2008.                           
|(3) |  | Incorporated by reference to the registrant’s Current Report on Form 8-K filed
with the Securities and Exchange Commission on May 18, 2012.                                        
|(4) |  | Incorporated by reference to the registrant’s Registration Statement on Form
S-1 filed with the Securities and Exchange Commission on February 11, 2013.                           
|(5) |  | Incorporated by reference to the registrant’s Annual Report on Form 10-K for
the year ended October 31, 2009 filed with the Securities and Exchange Commission on January 27, 2010.
|(6) |  | Incorporated by reference to the registrant’s Current Report on Form 8-K filed
with the Securities and Exchange Commission on April 20, 2012.                                      
|(7) |  | Incorporated by reference to the registrant’s Current Report on Form 8-K filed
with the Securities and Exchange Commission on January 23, 2013.                                    
|(8) |  | Incorporated by reference to the registrant’s Registration Statement on Form
S-1/A filed with the Securities and Exchange Commission on September 27, 2013.                        



43







SIGNATURES



In accordance
with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on behalf by the undersigned, thereto
duly authorized on this 21st  day of October 2013.



| | PETROSONIC
    ENERGY, INC.
| | ---------------------------
| |                            
| | By:                        
| |                            
| |                            



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



|Dated:
    October 21 , 2013 | /s/
    Art Agolli                                                                   
|---------------------------- | -------------------------------------------------------------------------------------
|                             | Art
    Agolli, Chief Executive Officer, President,                                  
|                             | Principal
    Executive Officer, Principal Financial and Account Officer and Director
|                             |                                                                                      
|Dated:
    October 21 , 2013 | /s/
    Alfred Fischer                                                               
|                             | Alfred
    Fischer, Director                                                         



44







EXHIBIT INDEX



|Ex.
    No. |  | Description                                                                                                                                                                                                 
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            |  |                                                                                                                                                                                                             
|2.1         |  | Asset
    Purchase and Sale Agreement dated July 27, 2012(1)                                                                                                                                                
|            |  |                                                                                                                                                                                                             
|3.1(a)      |  | Articles
    of Incorporation(2)                                                                                                                                                                            
|            |  |                                                                                                                                                                                                             
|3.1(b)      |  | Amendments
    to Articles of Incorporation(3)                                                                                                                                                              
|            |  |                                                                                                                                                                                                             
|3.2         |  | Bylaws(2)                                                                                                                                                                                                   
|            |  |                                                                                                                                                                                                             
|4           |  | Specimen
    stock certificate(2)                                                                                                                                                                           
|            |  |                                                                                                                                                                                                             
|10.1        |  | Declaration
    of Trust of Gerhard Schlombs(2)                                                                                                                                                             
|            |  |                                                                                                                                                                                                             
|10.2        |  | Convertible
    Debenture issued on March 23, 2012 to Sierra Growth, Inc.**                                                                                                                                 
|            |  |                                                                                                                                                                                                             
|10.3        |  | Convertible
    Debenture issued on April 18, 2012 to Sierra Growth, Inc.**                                                                                                                                 
|            |  |                                                                                                                                                                                                             
|10.4        |  | Convertible
    Debenture issued June 6, 2012 to Westlake Advisors Corp.* *                                                                                                                                 
|            |  |                                                                                                                                                                                                             
|10.5        |  | Convertible
    Debenture issued June 21, 2012 to Jackson Bennett LLC**                                                                                                                                     
|            |  |                                                                                                                                                                                                             
|10.6        |  | Convertible
    Debenture dated June 6, 2012 issued to Artan Agolli**+                                                                                                                                      
|            |  |                                                                                                                                                                                                             
|10.7        |  | Form
    of Convertible Debenture dated July 27, 2012 issued to Sonoro Energy Ltd.(1)                                                                                                                       
|            |  |                                                                                                                                                                                                             
|10.8        |  | Assignment
    of Shares of Common Stock dated April 17, 2012 from Art Agolli in favor of Bearing Mineral Exploration Inc.(6)                                                                               
|            |  |                                                                                                                                                                                                             
|10.9        |  | Non-Compete
    and Non-Solicitation Agreement dated July 27, 2012 between the registrant and Sonoro Energy Ltd.(1)                                                                                         
|            |  |                                                                                                                                                                                                             
|10.10       |  | Consulting
    Agreement dated July 27, 2012 between the registrant and Sonoro Energy Ltd.(1)                                                                                                               
|            |  |                                                                                                                                                                                                             
|10.11       |  | Share
    Sale Contract dated July 27, 2012 between the registrant and Sonoro Energy Ltd.(1)                                                                                                                
|            |  |                                                                                                                                                                                                             
|10.12       |  | Form
    of Iraq License Agreement dated July 27, 2012 between the registrant and Sonoro Energy Ltd.(1)                                                                                                     
|            |  |                                                                                                                                                                                                             
|10.13       |  | Amended
    and Restated Employment Agreement dated January 1, 2013 between the registrant and Art Agolli**                                                                                                 
|            |  |                                                                                                                                                                                                             
|10.14       |  | Consulting
    Agreement dated April 26, 2013 between the registrant and StoryCorp Consulting, Inc.(8)                                                                                                      
|            |  |                                                                                                                                                                                                             
|10.15       |  | Consulting
    Agreement dated January 1, 2013 between the registrant and Benjamin L. Padnos**                                                                                                              
|            |  |                                                                                                                                                                                                             
|10.16       |  | Consulting
    Agreement with Ormont Investor Relations and Strategic Communications, LLC and assignment to Loma Management Partners Inc.(8)                                                                
|            |  |                                                                                                                                                                                                             
|10.17       |  | Memorandum
    of Understanding dated September 15, 2012 between the registrant and Quadrise Canada Corporation**                                                                                           
|            |  |                                                                                                                                                                                                             
|10.18       |  | Form
    of Securities Purchase Agreement dated January 16, 2013(7)                                                                                                                                         
|            |  |                                                                                                                                                                                                             
|10.19       |  | Form
    of Registration Rights Agreement dated January 16, 2013(7)                                                                                                                                         
|            |  |                                                                                                                                                                                                             
|10.20       |  | Form
    of Warrant dated January 16, 2013(7)                                                                                                                                                               
|            |  |                                                                                                                                                                                                             
|10.21       |  | Enterprise
    Agreement between Petrosonic Albania sh.a and Pavli Vallja Company dated September 7, 2012**                                                                                                 
|            |  |                                                                                                                                                                                                             
|10.22       |  | Warrant
    dated September 5, 2012 for the purchase of 140,000 shares of common stock issued to Jackson Bennett LLC**                                                                                      
|            |  |                                                                                                                                                                                                             
|10.23       |  | Warrant
    dated September 24, 2012 for the purchase of 200,000 shares of common stock issued to Jackson Bennett LLC**                                                                                     
|            |  |                                                                                                                                                                                                             
|14          |  | Code
    of Ethics(5)                                                                                                                                                                                       
|            |  |                                                                                                                                                                                                             
|21          |  | List
    of Subsidiaries**                                                                                                                                                                                  
|            |  |                                                                                                                                                                                                             
|31.1        |  | Certification
    of Principal Executive Officer pursuant to 15d-15(e), promulgated under the Securities Exchange Act of 1934*                                                                              
|            |  |                                                                                                                                                                                                             
|31.2        |  | Certification
    of Principal Financial Officer pursuant to 15d-15(e) promulgated under the Securities Exchange Act of 1934*                                                                               
|            |  |                                                                                                                                                                                                             
|32.1        |  | Certification
    pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Principal Executive
    Officer and Principal Financial and Accounting Officer)*





|*   |  | Filed herewith.                                                                                                                                                                    
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|**  |  | Previously filed                                                                                                                                                                   
|+   |  | Indicates a contract with management.                                                                                                                                              
|(1) |  | Incorporated by reference to the registrant’s Current Report on Form 8-K filed
with the Securities and Exchange Commission on July 31, 2012.                                       
|(2) |  | Incorporated by reference to the registrant’s Registration Statement on Form
S-1 filed with the Securities and Exchange Commission on December 19, 2008.                           
|(3) |  | Incorporated by reference to the registrant’s Current Report on Form 8-K filed
with the Securities and Exchange Commission on May 18, 2012.                                        
|(4) |  | Incorporated by reference to the registrant’s Registration Statement on Form
S-1 filed with the Securities and Exchange Commission on February 11, 2013.                           
|(5) |  | Incorporated by reference to the registrant’s Annual Report on Form 10-K for
the year ended October 31, 2009 filed with the Securities and Exchange Commission on January 27, 2010.
|(6) |  | Incorporated by reference to the registrant’s Current Report on Form 8-K filed
with the Securities and Exchange Commission on April 20, 2012.                                      
|(7) |  | Incorporated by reference to the registrant’s Current Report on Form 8-K filed
with the Securities and Exchange Commission on January 23, 2013.                                    
|(8) |  | Incorporated by reference to the registrant’s Registration Statement on Form
S-1/A filed with the Securities and Exchange Commission on September 27, 2013.                        





45







ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



Petrosonic Energy, Inc.



INDEX TO FINANCIAL STATEMENTS



ANNUAL FINANCIAL INFORMATION



|Report
    of Independent Registered Public Accounting Firm               |  | F-1
|------------------------------------------------------------------------- |  | ---
|Consolidated
    Balance Sheets                                           |  | F-2
|Consolidated
    Statements of Operations and Comprehensive Income (Loss) |  | F-3
|Consolidated
    Statement of Stockholders’ Equity (Deficit)              |  | F-4
|Consolidated
    Statements of Cash Flows                                 |  | F-5
|Notes
    to Consolidated Financial Statements                            |  | F-6



46







REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors

Petrosonic Energy, Inc. and Subsidiary

(a Development Stage Company)

Calgary, Canada



We have audited the accompanying consolidated
balance sheet of Petrosonic Energy, Inc. and Subsidiary (collectively, “the Company” or “Successor”) as
of December 31, 2012 and the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’
equity (deficit), and cash flows for the period from August 1, 2012 through December 31, 2012. We have also audited the accompanying
consolidated balance sheet of Petrosonic Albania, sh.a (“Predecessor”) as of December 31, 2011 and the related consolidated
statements of operations and comprehensive income (loss), changes in stockholders’ equity (deficit), and cash flows for
the period from January 1, 2012 through July 31, 2012, for the year ended December 31, 2011 and for the period from May 24, 2010
(inception) through July 31, 2012. These financial statements are the responsibility of the Company’s and Predecessor’s
management. Our responsibility is to express an opinion on these 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 an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The
Company and Predecessor are not required to have, nor were we engaged to perform, an audit of their internal control over financial
reporting. Our audits 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
or Predecessor’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 financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the Successor financial
statements referred to above present fairly, in all material respects, the financial position of Petrosonic Energy, Inc. and Subsidiary
as of December 31, 2012 and the results of their operations and their cash flows for the period from August 1, 2012 through December
31, 2012, in conformity with accounting principles generally accepted in the United States of America. Further, in our opinion,
the Predecessor financial statements referred to above present fairly, in all material respects, the financial position of Petrosonic
Albania, SHA. as of December 31, 2011 and the results of its operations and its cash flows for the period from January 1, 2012
through July 31, 2012, for the year ended December 31, 2011 and for the period from May 24, 2010 (inception) through July 31,
2012, in conformity with accounting principles generally accepted in the United States of America.



The accompanying financial statements
have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements,
the Company suffered recurring losses since inception, which raises substantial doubt about its ability to continue as a going
concern. Management’s plans regarding those matters also are described in Note 2. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.



As discussed in Note 1 to the consolidated
financial statements, the accompanying financial statements of the Predecessor have been restated to correct for the presentation
and accounting for common shares issued to founders.



|/s/ MaloneBailey, LLP | 
|--------------------- | 





www.malonebailey.com

Houston, Texas



May 2, 2013, except for the Correction of Prior Year Information
disclosed in Note 1, as to which the date is September 24, 2013



F-1







PETROSONIC ENERGY, INC.

(a Development Stage Company)

CONSOLIDATED
BALANCE SHEETS



|                                                                                                                                                                                                  |  | December
    31, 2012 |           |   | December
    31, 2011 |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------- | --------- | - | --------------------- | -
|                                                                                                                                                                                                  |  | Successor             |           |   | Predecessor           |  
|                                                                                                                                                                                                  |  |                       |           |   | (Restated)            |  
|ASSETS                                                                                                                                                                                            |  |                       |           |   |                       |  
|Current assets:                                                                                                                                                                                   |  |                       |           |   |                       |  
|Cash                                                                                                                                                                                              |  | $                     | 1,200,676 |   |                       | $
|Receivables                                                                                                                                                                                       |  |                       | 106,666   |   |                       |  
|Prepaid expenses                                                                                                                                                                                  |  |                       | 7,929     |   |                       |  
|Total current assets                                                                                                                                                                              |  |                       | 1,315,271 |   |                       |  
|                                                                                                                                                                                                  |  |                       |           |   |                       |  
|Property and equipment, net  of accumulated
    depreciation of $12,194 and $-0-, respectively                                                                                                    |  |                       | 735,220   |   |                       |  
|TOTAL ASSETS                                                                                                                                                                                      |  | $                     | 2,050,491 |   |                       | $
|                                                                                                                                                                                                  |  |                       |           |   |                       |  
|LIABILITIES AND STOCKHOLDERS’
    EQUITY                                                                                                                                                          |  |                       |           |   |                       |  
|Current liabilities:                                                                                                                                                                              |  |                       |           |   |                       |  
|Accounts payable                                                                                                                                                                                  |  | $                     | 21,099    |   |                       | $
|Accounts payable to related parties                                                                                                                                                               |  |                       | 6,782     |   |                       |  
|Accrued liabilities                                                                                                                                                                               |  |                       | 112,909   |   |                       |  
|Short-term debt, net of unamortized discounts
    of $239,847                                                                                                                                     |  |                       | 175,153   |   |                       |  
|Short-term debt to related parties                                                                                                                                                                |  |                       | 200,000   |   |                       |  
|Total current liabilities                                                                                                                                                                         |  |                       | 515,943   |   |                       |  
|                                                                                                                                                                                                  |  |                       |           |   |                       |  
|Stockholders’ equity:                                                                                                                                                                             |  |                       |           |   |                       |  
|Common stock, 843,750,000 and 100,000 shares
    authorized, $0.001 and $25.64 par value, 70,299,003 and 100,000 shares issued and outstanding as of December 31, 2012 and
    2011, respectively |  |                       | 70,299    |   |                       |  
|Additional paid-in capital                                                                                                                                                                        |  |                       | 1,734,170 |   |                       |  
|Deficit accumulated during the development
    stage                                                                                                                                              |  |                       | (596,731  | ) |                       |  
|Accumulated other comprehensive income                                                                                                                                                            |  |                       | 28,312    |   |                       |  
|Total Petrosonic Energy, Inc. stockholders’
    equity                                                                                                                                            |  |                       | 1,236,050 |   |                       |  
|Non-controlling interest                                                                                                                                                                          |  |                       | 298,498   |   |                       |  
|Total stockholders’
    equity                                                                                                                                                                    |  |                       | 1,534,548 |   |                       |  
|TOTAL LIABILITIES AND
    STOCKHOLDERS’ EQUITY                                                                                                                                                    |  | $                     | 2,050,491 |   |                       | $



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



F-2







PETROSONIC ENERGY, INC.

(A Development Stage Company)

CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)



|                                                                         |  |                   |            |   |                   |   |           |                   |  |   | May 24, 2010      |  
|------------------------------------------------------------------------ |  | ----------------- | ---------- | - | ----------------- | - | --------- | ----------------- |  | - | ----------------- | -
|                                                                         |  | August 1, 2012    |            |   | January 1, 2012   |   |           |                   |  |   | (Inception)       |  
|                                                                         |  | Through           |            |   | Through           |   |           | Year Ended        |  |   | Through           |  
|                                                                         |  | December 31, 2012 |            |   | July
    31, 2012 |   |           | December 31, 2011 |  |   | July
    31, 2012 |  
|                                                                         |  | Successor         |            |   | Predecessor       |   |           | Predecessor       |  |   | Predecessor       |  
|                                                                         |  |                   |            |   |                   |   |           |                   |  |   |                   |  
|Operating Expenses:                                                      |  |                   |            |   |                   |   |           |                   |  |   |                   |  
|General and administrative expenses                                      |  | $                 | 235,872    |   |                   | $ | 3,481     |                   |  | $ | 15,322            |  
|Depreciation                                                             |  |                   | 7,113      |   |                   |   | 5,081     |                   |  |   | -                 |  
|Total operating expenses                                                 |  |                   | 242,985    |   |                   |   | 8,562     |                   |  |   | 15,322            |  
|                                                                         |  |                   |            |   |                   |   |           |                   |  |   |                   |  
|Loss from operations                                                     |  |                   | (242,985   | ) |                   |   | (8,562    | )                 |  |   | (15,322           | )
|                                                                         |  |                   |            |   |                   |   |           |                   |  |   |                   |  
|Other Income (Expenses):                                                 |  |                   |            |   |                   |   |           |                   |  |   |                   |  
|Interest income                                                          |  |                   | 14         |   |                   |   | 18        |                   |  |   | -                 |  
|Interest expense                                                         |  |                   | (37,582    | ) |                   |   | -         |                   |  |   | -                 |  
|Bargain purchase gain                                                    |  |                   | 7,741      |   |                   |   | -         |                   |  |   | -                 |  
|Total other income (expenses)                                            |  |                   | (29,827    | ) |                   |   | 18        |                   |  |   | -                 |  
|                                                                         |  |                   |            |   |                   |   |           |                   |  |   |                   |  
|Net loss                                                                 |  |                   | (272,812   | ) |                   |   | (8,544    | )                 |  |   | (15,322           | )
|                                                                         |  |                   |            |   |                   |   |           |                   |  |   |                   |  
|Losses attributable to non-controlling interest                          |  |                   | 9,898      |   |                   |   | -         |                   |  |   | -                 |  
|                                                                         |  |                   |            |   |                   |   |           |                   |  |   |                   |  
|Net loss attributable to Petrosonic Energy,
    Inc.                     |  | $                 | (262,914   | ) |                   | $ | (8,544    | )                 |  | $ | (15,322           | )
|                                                                         |  |                   |            |   |                   |   |           |                   |  |   |                   |  
|Basic and diluted net loss per common share                              |  | $                 | (0.00      | ) |                   | $ | (0.00     | )                 |  | $ | (0.01             | )
|                                                                         |  |                   |            |   |                   |   |           |                   |  |   |                   |  
|Basic and diluted weighted average common shares
    outstanding         |  |                   | 65,692,292 |   |                   |   | 2,564,000 |                   |  |   | 2,564,000         |  
|                                                                         |  |                   |            |   |                   |   |           |                   |  |   |                   |  
|Other Comprehensive Income:                                              |  |                   |            |   |                   |   |           |                   |  |   |                   |  
|Net loss                                                                 |  | $                 | (272,812   | ) |                   | $ | (8,544    | )                 |  | $ | (15,322           | )
|Foreign currency translation adjustment                                  |  |                   | 28,312     |   |                   |   | 108,666   |                   |  |   | 1,538             |  
|Comprehensive income (loss)                                              |  |                   | (244,500   | ) |                   |   | 100,122   |                   |  |   | (13,784           | )
|Comprehensive income (loss) attributable
    to non-controlling interest |  |                   | 9,898      |   |                   |   | -         |                   |  |   | -                 |  
|Comprehensive income (loss) attributable
    to  Petrosonic Energy, Inc. |  | $                 | (234,602   | ) |                   | $ | 100,122   |                   |  | $ | (13,784           | )



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



F-3







PETROSONIC ENERGY, INC.

(A Development Stage Company)

CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

May 24, 2010 (Inception) Through
December 31, 2012



|                                                 |  | Petrosonic
    Energy, Inc. |            |  |         |   |           |               | 
|------------------------------------------------ |  | --------------------------- | ---------- |  | ------- | - | --------- | ------------- | 
|                                                 |  |                             |            |  |         |   |           |               | 
|                                                 |  |                             |            |  |         |   |           |               | 
|                                                 |  |                             |            |  |         |   |           | Additional    | 
|                                                 |  | Common
    Stock            |            |  | Paid-in |   |           | Comprehensive | 
|                                                 |  | Shares                      |            |  | Amount  |   |           | Capital       | 
|                                                 |  |                             |            |  |         |   |           |               | 
|Predecessor – Petrosonic
    Albania, SHA.       |  |                             |            |  |         |   |           |               | 
|Balances at May 24, 2010                         |  |                             | -          |  |         | $ | -         |               | 
|Founder
    shares                               |  |                             | 40,000     |  |         |   | 1,025,600 |               | 
|Common
    stock issued to founder for license   |  |                             | 60,000     |  |         |   | 1,538,400 |               | 
|Contributed
    capital                          |  |                             | -          |  |         |   | -         |               | 
|Foreign
    currency translation                 |  |                             | -          |  |         |   | -         |               | 
|Net
    loss                                     |  |                             | -          |  |         |   | -         |               | 
|Balances at December 31, 2010
    (Restated)     |  |                             | 100,000    |  |         |   | 2,564,000 |               | 
|Contributed
    capital                          |  |                             | -          |  |         |   | -         |               | 
|Foreign
    currency translation                 |  |                             | -          |  |         |   | -         |               | 
|Net
    loss                                     |  |                             | -          |  |         |   | -         |               | 
|Balances at December 31, 2011
    (Restated)     |  |                             | 100,000    |  |         |   | 2,564,000 |               | 
|Contributed
    capital                          |  |                             | -          |  |         |   | -         |               | 
|Foreign
    currency translation                 |  |                             | -          |  |         |   | -         |               | 
|Net
    loss                                     |  |                             | -          |  |         |   | -         |               | 
|Balances at July 31,
    2012 (Restated)         |  |                             | 100,000    |  |         | $ | 2,564,000 |               | 
|                                                 |  |                             |            |  |         |   |           |               | 
|Successor
    – consolidated                     |  |                             |            |  |         |   |           |               | 
|Balances at August 1, 2012                       |  |                             | 64,649,003 |  |         | $ | 64,649    |               | 
|Common
    stock and warrants sold for cash, net |  |                             | 5,650,000  |  |         |   | 5,650     |               | 
|Beneficial
    conversion feature                |  |                             | -          |  |         |   | -         |               | 
|Foreign
    currency translation                 |  |                             | -          |  |         |   | -         |               | 
|Noncontrolling
    interest                      |  |                             | -          |  |         |   | -         |               | 
|Net
    loss                                     |  |                             | -          |  |         |   | -         |               | 
|Balances at December
    31, 2012                |  |                             | 70,299,003 |  |         | $ | 70,299    |               | 



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



F-4







PETROSONIC ENERGY, INC.

(A Development Stage Company)

CONSOLIDATED
STATEMENTS OF CASH FLOWS



|                                                                               |  |                   |           |   |                   |   |          |                   |  |   | May 24, 2010      |  
|------------------------------------------------------------------------------ |  | ----------------- | --------- | - | ----------------- | - | -------- | ----------------- |  | - | ----------------- | -
|                                                                               |  | August 1, 2012    |           |   | January 1, 2012   |   |          |                   |  |   | (Inception)       |  
|                                                                               |  | Through           |           |   | Through           |   |          | Year Ended        |  |   | Through           |  
|                                                                               |  | December 31, 2012 |           |   | July
    31, 2012 |   |          | December 31, 2011 |  |   | July
    31, 2012 |  
|                                                                               |  | Successor         |           |   | Predecessor       |   |          | Predecessor       |  |   | Predecessor       |  
|Cash flows from operating activities:                                          |  |                   |           |   |                   |   |          |                   |  |   |                   |  
|Net loss                                                                       |  | $                 | (272,812  | ) |                   | $ | (8,544   | )                 |  | $ | (15,322           | )
|Adjustments to reconcile net loss to net cash
    used in operating activities |  |                   |           |   |                   |   |          |                   |  |   |                   |  
|Depreciation                                                                   |  |                   | 7,113     |   |                   |   | 5,081    |                   |  |   | -                 |  
|Amortization of debt discounts                                                 |  |                   | 19,608    |   |                   |   | -        |                   |  |   | -                 |  
|Bargain purchase gain                                                          |  |                   | (7,741    | ) |                   |   | -        |                   |  |   | -                 |  
|Changes in operating assets and liabilities:                                   |  |                   |           |   |                   |   |          |                   |  |   |                   |  
|Accounts receivable                                                            |  |                   | (64,656   | ) |                   |   | 44,126   |                   |  |   | (82,411           | )
|Prepaid expenses                                                               |  |                   | (7,929    | ) |                   |   | -        |                   |  |   | -                 |  
|Accounts payable to related parties                                            |  |                   | 6,782     |   |                   |   | -        |                   |  |   | -                 |  
|Accounts payable and accrued expenses                                          |  |                   | 104,126   |   |                   |   | (199,234 | )                 |  |   | 204,176           |  
|Net cash used in operating activities                                          |  |                   | (215,509  | ) |                   |   | (158,571 | )                 |  |   | 106,443           |  
|                                                                               |  |                   |           |   |                   |   |          |                   |  |   |                   |  
|Cash flows from investing activities:                                          |  |                   |           |   |                   |   |          |                   |  |   |                   |  
|Net cash acquired in acquisition                                               |  |                   | 11,448    |   |                   |   | -        |                   |  |   | -                 |  
|Cash paid for purchase of property and
    equipment                           |  |                   | -         |   |                   |   | (108,422 | )                 |  |   | (438,833          | )
|Net cash provided by (used in) investing activities                            |  |                   | 11,448    |   |                   |   | (108,422 | )                 |  |   | (438,833          | )
|                                                                               |  |                   |           |   |                   |   |          |                   |  |   |                   |  
|Cash flows from financing activities:                                          |  |                   |           |   |                   |   |          |                   |  |   |                   |  
|Net proceeds from issuance of common stock                                     |  |                   | 1,389,500 |   |                   |   | -        |                   |  |   | -                 |  
|Capital contributions                                                          |  |                   | -         |   |                   |   | 169,328  |                   |  |   | 327,578           |  
|Net cash provided by financing activities                                      |  |                   | 1,389,500 |   |                   |   | 169,328  |                   |  |   | 327,578           |  
|                                                                               |  |                   |           |   |                   |   |          |                   |  |   |                   |  
|Effects of foreign exchange on cash                                            |  |                   | 8,101     |   |                   |   | 107,458  |                   |  |   | 6,321             |  
|                                                                               |  |                   |           |   |                   |   |          |                   |  |   |                   |  
|Net increase in cash                                                           |  |                   | 1,193,540 |   |                   |   | 9,793    |                   |  |   | 1,509             |  
|Cash, beginning or period                                                      |  |                   | 7,136     |   |                   |   | 1,655    |                   |  |   | 146               |  
|Cash, end of period                                                            |  | $                 | 1,200,676 |   |                   | $ | 11,448   |                   |  | $ | 1,655             |  
|                                                                               |  |                   |           |   |                   |   |          |                   |  |   |                   |  
|Supplemental disclosures of cash flow information:                             |  |                   |           |   |                   |   |          |                   |  |   |                   |  
|Cash paid for interest                                                         |  | $                 | -         |   |                   | $ | -        |                   |  | $ | -                 |  
|Cash paid for income taxes                                                     |  |                   | -         |   |                   |   | -        |                   |  |   | -                 |  
|Non cash investing and financing activities:                                   |  |                   |           |   |                   |   |          |                   |  |   |                   |  
|Deposit used for acquisition                                                   |  | $                 | 250,000   |   |                   | $ | -        |                   |  | $ | -                 |  
|Convertible note issued for acquisition, net
    of discount                   |  |                   | 204,852   |   |                   |   | -        |                   |  |   | -                 |  
|Beneficial conversion feature                                                  |  |                   | 213,956   |   |                   |   | -        |                   |  |   | -                 |  



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



F-5







Petrosonic Energy, Inc.

(A Development Stage Company)

Notes to Consolidated
Financial Statements



NOTE 1 - Nature of Business and Significant Accounting
Policies



Nature of Business



Petrosonic Energy, Inc. (“we”,
“our” or the “Company”) was incorporated in the state of Nevada on June 11, 2008. The Company is a Development
Stage Company, as defined by ASC 915 “Development Stage Entities.”



On May 16, 2012 the Company changed
its name to Petrosonic Energy, Inc. to better reflect the Company’s new business direction in anticipation of the purchase
of certain rights in technology and assets through the acquisition of a 60% ownership interest in Petrosonic Albania, SHA. from
Sonoro Energy Ltd. On July 27, 2012. Concurrent with the name change the Company effected a forward stock split on the basis of
11.25:1, whereby each shareholder would hold 11.25 common shares for every one share previously held. The Company’s share
transactions disclosed in the financial statements have been restated retroactively to reflect the forward stock split for all
periods presented. From and after the consummation of our purchase of July 27, 2012 (see Note 3), our primary operations consist
of developing the business of the processing of heavy oil.



The financial statements included herein
for the period from May 24, 2010 through July 31, 2012 are the financial statements of Petrosonic Albania, SHA. (“Predecessor”).
The consolidated financial statements included herein for the period from August 1, 2012 through December 31, 2012 are the consolidated
financial statements of Petrosonic Energy, Inc. and its 60% owned subsidiary, Petrosonic Albania, SHA. (collectively “Successor”).



Basis of Presentation and Principles of Consolidation



The consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include
the Company and its 60% owned subsidiary, Petrosonic Albania, SHA. All significant intercompany accounts and transactions have
been eliminated in consolidation.



Correction of Prior Year Information



During the audit of the Company’s
consolidated financial statements for the year ended December 31, 2012, the Company identified an error in the accounting and
presentation of the 40,000 common shares issued to the founders of the Predecessor entity, Petrosonic Albania, SHA, at inception.
The 40,000 should have been shown as issued and outstanding at inception. In the previously presented financial statements of
the Predecessor for the year ended December 31, 2011, 17 and 178 of these founder’s shares were presented as issued and
outstanding during the years ended December 31, 2010 and 2011, respectively. This resulted in an adjustment to the previously
reported amounts in the financial statements of the Predecessor for the year ended December 31, 2011. In accordance with the SEC’s
Staff Accounting Bulletin Nos. 99 and 108 (SAB 99 and SAB 108), the Company evaluated this error and, based on an analysis of
quantitative and qualitative factors, determined that the error was immaterial to the prior reporting period affected. However,
if the adjustments to correct the cumulative effect of the above error had been recorded in the year ended December 31, 2012,
the Company believes the impact would have been significant and would impact comparisons to prior periods. Therefore, as permitted
by SAB 108, the Company corrected, in the current filing, previously reported results for of the Predecessor for the year ended
December 31, 2011.



The following table presents the effect
of the correction of prior year information and the impact on the Predecessor’s balance sheet for the year ended December
31, 2011:



|                                                           |  | As
    of December 31, 2011 |           
|---------------------------------------------------------- |  | --------------------------- | ----------
|                                                           |  | As Previously               |           
|                                                           |  | Reported                    |           
|                                                           |  |                             |           
|Stockholders’ equity:                                      |  |                             |           
|Common stock - number of shares issued
    and outstanding |  |                             | 60,195    
|                                                           |  |                             |           
|Common stock                                               |  | $                           | 1,543,406 
|Additional paid-in capital                                 |  | $                           | (1,008,356



The correction of the prior year information did not have
any impact on the Predecessor’s statements of operations or cash flows for the year ended December 31, 2011.



F-6







Foreign Currency Translation



Assets and liabilities of foreign operations are translated
from Albanian Leks into United States dollar equivalents using the exchange rates in effect at the balance sheet date. Revenues
and expenses are translated using the average exchange rates during each period. Adjustments resulting from the process of translating
foreign functional currency financial statements into U.S. dollars are included in accumulated other comprehensive income in common
shareholders’ equity. Foreign currency transaction gains and losses are included in current earnings.



Use of Estimate



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 at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to deferred income tax
asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various
other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other
sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates.
To the extent there are material differences between the estimates and the actual results, future results of operations will be
affected.



Cash and Cash Equivalents



The Company considers all highly liquid
instruments with maturity of three months or less at the time of issuance to be cash equivalents. The Company maintains its cash
in bank deposit accounts, which, at times, may exceed federally insured limits.  Management does not believe the Company
is exposed to significant credit risk. Management, as well, does not believe the Company is exposed to significant interest rate
and foreign currency fluctuation risks during the period presented in these financial statements.



Accounts Receivable



Accounts receivables as of December
31, 2012 and 2011 consisted of a value-added tax receivable from the tax authorities of Albania of $46,666 and $86,136, respectively.
The Company files for and receives a refund of this amount annually. Accounts receivables as of December 31, 2012 also includes
a $60,000 payment made under a service contract that was subsequently cancelled. The $60,000 was returned to the Company after
December 31, 2012.



Property and Equipment



Property and equipment are carried
at the cost of acquisition or construction and depreciated over the estimated useful lives of the assets. Costs associated with
repair and maintenance are expenses as incurred. Costs associated with improvements that extend the life, increase the capacity
or improve the efficiency of our property and equipment are capitalized and depreciated over the remaining life of the related
asset. Gains and losses on dispositions of equipment are reflected in operations. Depreciation is calculated using the straight-line
method over the estimated useful lives of the assets, which are generally 3 to 5 years for machinery and equipment and 10 years
for buildings. The Company has not recognized depreciation on machinery and equipment since the Company’s production line
is under construction and is not ready to be placed in service. Depreciation of the Company’s buildings began in 2012 as
their construction was completed during 2012.



F-7







Impairment of Long-Lived Assets



The carrying value of property and
equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets
may not be recoverable. If the sum of the estimated future cash flows (undiscounted) expected to result from the use and eventual
disposition of the asset group is less than the carrying amount of the asset group, an impairment loss is recognized which is
measured based on the fair value of the asset. Construction in process is impaired when projects are abandoned or terminated.
Long-lived assets were not impaired as of December 31, 2012 or 2011.



Income Taxes



The Company accounts for income taxes
using the asset and liability method in accordance with ASC 740, “Accounting for Income Taxes”. The asset and liability
method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary
differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the
differences are expected to reverse. The Company records a valuation allowance to reduced deferred tax assets to the amount that
is believed more likely than not to be realized.



Stock-Based Compensation



The Company accounts for stock-based
compensation to employees in accordance with ASC 718. Stock-based compensation to employees is measured at the grant date, based
on the fair value of the award, and is recognized as expense over the requisite employee service period. The Company accounts
for stock-based compensation to other than employees in accordance with ASC 505-50. Equity instruments issued to other than employees
are valued at the earlier of a commitment date or upon completion of the services, based on the fair value of the equity instruments
and is recognized as expense over the service period. The Company estimates the fair value of stock-based payments using the Black-Scholes
option-pricing model for common stock options and warrants and the closing price of the Company’s common stock for common
share issuances. There was no stock-based compensation during 2012 or 2011.



Loss Per Share



The Company computes loss per share
in accordance with ASC 260, “Earnings per Share” which requires presentation of both basic and diluted earnings per
share on the face of the statement of operations. Basic loss per share is computed by dividing net loss available to common shareholders
by the weighted average number of outstanding common shares during the period. Diluted loss per share gives effect to all dilutive
potential common shares outstanding during the period. Dilutive loss per share excludes all potential common shares if their effect
is anti-dilutive.



Recent Accounting Pronouncements



Company management does not expect
the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s results of operations,
financial position or cash flow.



NOTE 2 – Going Concern



The accompanying financial statements
have been prepared assuming that the Company will continue as a going concern. The company has generated recurring losses since
inceptions, has an accumulated deficit at December 31, 2012 and does not have sufficient working capital for its planned activities.
These conditions raise substantial doubt as to the Company’s ability to continue as a going concern. These financial statements
do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities
that might be necessary should the Company be unable to continue as a going concern.



Continuation of the Company as a going
concern is dependent upon obtaining additional working capital. The management of the Company has developed a strategy, which
it believes will accomplish this objective through short-term loans from related parties and additional equity investments, which
will enable the Company to continue operations for the coming year. The continuation of the Company as a going concern is dependent
upon the continued financial support from its shareholders, the ability of the Company to obtain necessary equity financing to
continue operations, and the attainment of profitable operations.



F-8







NOTE 3 - Acquisition



On July 27, 2012, the Company
acquired 60,000 shares in Petrosonic Albania SHA., representing a 60% ownership interest in that company from Sonoro Energy Ltd.
As consideration for the purchase, the Company paid to Sonoro the following: (i) cash in the amount of CAD$250,000, (ii) a convertible
debenture in the principal amount of CAD$250,000, and (iii) a 10% royalty interest in our realized net revenues for a period of
10 years from the time we commence commercial operations, which is defined as the date upon which we process an average of 50
barrels of feed stock per day for a period of 30 consecutive days utilizing the technology acquired in this asset purchase. The
fair value of the 10% royalty interest was determined to be nominal. The convertible debenture is unsecured, non-interest bearing,
has a maturity date of two years from the issue date, is convertible into common stock of the Company at any time following financing
by the Company of at least $500,000. The note will be convertible at the sales price of the financing of at least $500,000. The
fair value of the convertible note was determined to be $204,852 resulting in an initial discount of $45,148. Effective July
27, 2012, the Company’s primary operations consist of using the assets to develop a business relating to the treatment
and upgrading of heavy oil by sonicating solvent de-asphalting and operating the business of Petrosonic Albania SHA. Both parties
agreed, for the convenience of month end closing procedures, to account for the acquisition as if it occurred on July 31, 2012.
The results of operations and cash flows obtained through the use of July 31, 2012, rather than July 27, 2012, are not considered
to be materially different.



The acquisition of Petrosonic Albania,
SHA. from Sonoro is accounted for using the purchase method. As a result of the transaction, Petrosonic Albania, SHA. became a
majority owned subsidiary of the Company and the assets and liabilities of the acquired entity have been brought forward at their
fair value on the date of the acquisition. Immediately before the transaction, Sonoro Energy Ltd.’s ownership interest in
Petrosonic Albania, SHA was 60%. Accordingly, in the fair value allocation, a non-controlling interest of $308,396 has been recorded,
which amount reprsesents the value of the 40% non-controlling interest on the date of the transaction. The 40% non-controlling
interest is held by Albnafta, an Albanian registered company that is held 100% by Art Agolli, the Company’s President and
CEO.



The allocation of the purchase price
and the estimated fair market values of the assets acquired and liabilities assumed are shown below:



|Purchase Price                               |  |   |         
|-------------------------------------------- |  | - | --------
|Cash at closing                              |  | $ | 250,000 
|Convertible note, net of discount            |  |   | 204,852 
|Total Purchase Price                         |  | $ | 454,852 
|                                             |  |   |         
|Assets Acquired and Liabilities
    Assumed: |  |   |         
|Cash                                         |  | $ | 11,448  
|Accounts receivable                          |  |   | 42,010  
|Property and equipment                       |  |   | 722,473 
|Accounts payable and accruals                |  |   | (4,942  
|Non-controlling interest                     |  |   | (308,396
|                                             |  |   | 462,593 
|Bargain Purchase Gain                        |  |   | (7,741  
|Total Purchase Price                         |  | $ | 454,852 



F-9







NOTE 4 – Property and Equipment, Net



Property and equipment consisted of
the following as of December 31, 2012 and 2011:



|                                                       |  | Successor             |         |   | Predecessor           |  
|------------------------------------------------------ |  | --------------------- | ------- | - | --------------------- | -
|                                                       |  | December
    31, 2012 |         |   | December
    31, 2011 |  
|Construction in progress - machinery and
    equipment |  | $                     | 625,475 |   |                       | $
|Construction in progress - buildings                   |  |                       | -       |   |                       |  
|Buildings (10 year useful life)                        |  |                       | 121,939 |   |                       |  
|less: accumulated depreciation                         |  |                       | (12,194 | ) |                       |  
|Total                                                  |  | $                     | 735,220 |   |                       | $



The Company is constructing a production
line using its proprietary Sonoprocess technology for the upgrading of heavy oil to higher standards for sale in commercial markets.
The total cost of the full production line is currently estimated to be approximately $2,500,000, of which $637,669 has been incurred
through December 31, 2012. Management expects that the production line will be complete and ready for use by the end of the third
quarter of 2013.



Depreciation of the buildings began
in 2012 upon their completion. There was no depreciation expense during 2011 as the assets were still under construction. Depreciation
expense was $7,113 and $5,081 for the period from August 1, 2012 through December 31, 2012 and for the period from January 1,
2012 through July 31, 2012, respectively.



NOTE 5 - Related Party Transactions



As of December 31, 2012, the Company
had an outstanding payable to its President of $6,782. The payable is unsecured, non-interest bearing and due on demand.



On June 11, 2012, we borrowed $200,000
from our President under a convertible debenture. The convertible debenture is unsecured, matures June 11, 2013 and bears interest
at 10%. At any time prior to the Maturity Date, if we complete an equity or convertible debenture financing yielding aggregate
proceeds of at least $500,000, our President may elect to convert the debenture in whole or in part into common shares at the
same price any shares are sold, or in the case of a convertible debenture, the price of the shares issuable upon conversion.



NOTE
6 - Convertible Notes Payable



Between March and July 2012, the Company
borrowed an aggregate of $165,000 under convertible notes. The debentures are unsecured, bear interest at 10% per annum and mature
one year from the issuance date. Until the maturity date, the holders may elect to convert the debenture in whole or in part into
common shares at the price of any aggregate financing exceeding $500,000 less a discount of 25% per share.



On July 27, 2012, the Company issued
a convertible note of $250,000 for the acquisition of Petrosonic Albania, SHA. (see Note 3).



On June 11, 2012, the Company borrowed
$200,000 from its President under a convertible note (see Note 5).



The Company evaluated these convertible
notes for derivatives and determined that they do not qualify for derivative treatment. The Company then evaluated the notes for
beneficial conversion features and determined that some do contain beneficial conversion features. The aggregate intrinsic value
of the beneficial conversion features was determined to be $213,956. This amount was recorded as a debt discount on December 11,
2012 (the date the company completed a capital raise in excess of $500,000) that is being amortized over the life of the notes.
Total debt discount amortization during the period from August 1, 2012 through December 31, 2012 was $19,608 consisting of amortization
of $10,721 on the beneficial conversion feature discounts and amortization of $8,887 on the initial discount recorded against
the $250,000 convertible note issued for the acquisition (see Note 3).





F-10







NOTE 7 -Stockholders’ Equity



At inception, Sonoro Energy Ltd. was
issued 60,000 common shares of the Predecessor, representing a 60% ownership, in exchange for Sonoro’s heavy oil technology
license. The fair value of the shares at inception was determined to be nominal and Company recorded the acquisition cost of the
license at $-0-, which reflected Sonoro Energy Ltd.’s basis in the license.



At inception, AlbnaftaShpk was issued
40,000 common shares of the Predecessor, representing a 40% ownership. The shares were valued at $0 as their fair value at inception
was determined to be nominal. From inception through July 31, 2012, AlbnaftaShpk contributed an aggregate of $704,378. AlbnaftaShpk
is owned 100% by Art Agolli.



During the period from August 1, 2012
through December 31, 2012, the Company sold an aggregate of 5,650,000 common shares
for net cash proceeds of $1,389,500. In connection with the sales, the company paid stock issuance costs of $23,000 and issued
an aggregate of 363,000 common stock warrants as payment for stock issuance costs. The warrants are exercisable at $0.50 per share,
vest immediately and have terms ranging from 1 to 2 years.



There was no warrant activity prior
to August 1, 2012. A summary of the Company’s warrant activity between August 1, 2012 and December 31, 2012 is as follows:



|                                     |  | Number of |         |  | Weighted Average   |  
|------------------------------------ |  | --------- | ------- |  | ------------------ | -
|                                     |  | Warrants  |         |  | Exercise
    Price |  
|Outstanding
    at August 1, 2012    |  |           | -       |  |                    | $
|Granted                              |  |           | 363,000 |  |                    |  
|Exercised                            |  |           | -       |  |                    |  
|Forfeited/expired                    |  |           | -       |  |                    |  
|Outstanding
    at December 31, 2012 |  |           | 363,000 |  |                    | $



The following table summarizes the
exercise price, number of warrants, weighted average exercise price and the weighted average remaining life (in years) of all
warrants outstanding as of December 31, 2012:



|         |      |  |           |  |         |                    |  |   | Weighted Average | 
|-------- | ---- |  | --------- |  | ------- | ------------------ |  | - | ---------------- | 
|Exercise |      |  | Number of |  |         | Weighted Average   |  |   | Remaining Life   | 
|Price    |      |  | Warrants  |  |         | Exercise
    Price |  |   | (years)          | 
|$        | 0.50 |  |           |  | 363,000 |                    |  | $ | 0.50             | 



NOTE 8 - Income Taxes



The Company had an accumulated net
operating loss of approximately $597,000 as of December 31, 2012 which begins to expire in 2023. The Company has established a
valuation allowance equal to the tax effect of the loss carry forwards and, therefore, no deferred tax asset has been recognized
for the loss carryforwards because the Company cannot be assured it is more likely than not it will utilize the net operating
losses carried forward in future years.



Deferred tax assets consisted of the
following as of December 31, 2012 and 2011:



|                        |  | Successor             |          |   | Predecessor           |  
|----------------------- |  | --------------------- | -------- | - | --------------------- | -
|                        |  | December
    31, 2012 |          |   | December
    31, 2011 |  
|Net operating losses    |  | $                     | 208,856  |   |                       | $
|Valuation allowance     |  |                       | (208,856 | ) |                       |  
|Net deferred tax assets |  | $                     | -        |   |                       | $



F-11







NOTE 9- Subsequent Events



On January 1, 2013, the Company entered
into a one year agreement with a firm that provides strategic investor relations services. In connection with the agreement, the
Company agreed to issue 270,000 shares of common stock to the firm. In the event that the agreement is cancelled during its term
with required notice, the Company may cancel the remaining shares that would have otherwise been earned by the firm during the
remainder of the term. The shares are to be issued in equal monthly installments of 22,500 each beginning in January 1, 2013.
On February 26, 2013, the agreement was assigned to another entity affiliated with the original firm.



On January 11, 2013, the Company entered
into a one year agreement from December 15, 2012 with a firm that provides legal services. In connections with the agreement,
the Company agreed to issue 900,000 shares of common stock to the firm. The shares of common stock are to be issued in quarterly
installments beginning in April 2013. Under certain circumstances as described in the agreement, the number of shares may be adjusted
based on the type and amount of services provided by the firm.



On January 15, 2013, the Company entered
into a one year consulting agreement with an individual for the purpose of providing financial and investor relations services
to the Company. In connection with the agreement, the Company agreed to issue 100,000 shares of common stock to the individual.
The shares are to be issued in four quarterly installments beginning in April 2013.



During January 2013, the Company sold
7,640,000 shares of common stock in a private placement with certain accredited investors for aggregate net cash proceeds of $1,718,000
and a note receivable for $140,000. The note bears interest at a rate of 5%, is due on March 15, 2013, and is secured by 600,000
shares of Company common stock previously issued to the investor. The Company paid cash commissions of $52,000 and issued an aggregate
of 52,000 common stock warrants as payment of commissions. The warrants are exercisable at a price of $0.50 per share and have
a term of two years from the issue date.



On March 1, 2013 and March 25, 2013,
four convertible debentures together with accrued interest were converted into shares of common stock of the Company pursuant
to the right of conversion of each of the convertible debentures. In connection with the conversions, the Company issued an aggregate
of 707,405 shares of common stock of the Company.



On March 15, 2013, the Company repaid
the convertible debenture due to Sonoro in the amount of CDN$250,000. The repayment was pursuant to the exercise of Sonoro’s
right to early repayment following the completion of a financing by the Company meeting certain criteria as described in the convertible
debenture.



On March 18, 2013, in conjunction with
being elected to our Board of Directors, we granted an option to purchase 250,000 shares of our common stock to Richard Rutkowski.
The exercise price is $0.83 per share. The option term and the conditions under which the right to purchase the common stock will
vest have not yet been determined.



On March 27, 2013, in conjunction with
being elected to our Board of Directors, we granted an option to purchase 250,000 shares of our common stock to Alfred Fischer.
The exercise price is $0.75 per share. The option term and the conditions under which the right to purchase the common stock will
vest have not yet been determined



On April 19, 2013, the Company entered
into a 1 year investment banking services agreement. As compensation, upon execution of the agreement, the Company issued 150,000
common shares and 150,000 warrants exercisable at $0.75 per share with a term of 5 years. The consultant is entitled to a cash
commission of 8% of the gross proceeds of any financing transaction the consultant brings to the company plus commissions paid
in warrants equal to 10% of the gross proceeds. The warrants will be exercisable at $0.75 per share and have a term of 5 years.





F-12







On April 26, 2013, the Company entered
into a consulting agreement with a firm that provides finance, accounting and management services, with specific services described
in the agreement. The agreement does not have a fixed term but can be terminated by the Company upon 30 day notice. As compensation,
upon execution of the agreement, the consultant is to be paid $10,000, including $7,500 of in cash and $2,500 in restricted common
stock with the number of shares calculated based on a price of 80% of the average price of the Company’s stock for the prior
month, with a $0.01 minimum price. Subsequently, the consultant is to be compensated on a quarterly basis beginning June 1, 2013
with a fee of $7,500 per month. At the Company’s election, the quarterly fee can be paid all in cash or a combination of
$5,000 in cash and $2,500 in restricted common stock of the Company. The number of shares to be issued is calculated based on
a share price of 80% of the average price of the Company’s common stock for the prior month, with a $0.01 minimum price.
In addition, the consultant will be entitled to quarterly bonuses payable in cash or restricted stock at the sole discretion of
the Company. For services outside of those described in the agreement, the consultant will charge the Company at the rate of $250
per hour, payable 50% in cash and 50% in restricted common stock, using the same computation of shares as used for the quarterly
payments.



On May 1, 2013, the Company entered
into an amended and restated employment agreement with Art Agolli, the Company’s Chief Executive Officer. The effective
date of the agreement is January 1, 2013 and continues for an initial period of two years. Under the terms of the agreement, Mr.
Agolli is to be paid an annual base salary of $150,000, is entitled to an annual cash bonus in an amount to be agreed upon each
year by Mr. Agolli and the Board of Directors and is entitled to other employee benefits. Within 30 days following each one-year
anniversary of the effective date of the agreement, Mr. Agolli is entitled to receive an option to purchase shares of the Company’s
common stock in an amount to be determined by the Board of Directors or its committee responsible for compensation matters as
then constituted. The agreement may be terminated for cause by the Company or by election by either party. If Mr. Agolli’s
employment is terminated without cause by the Company, Mr. Agolli will be entitled to certain severance payments as described
in the agreement.



F-13