Note Regarding Forward-Looking Statements

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

You should read the following discussion of our financial condition and results of operations together with the audited consolidated financial statements and the notes to the audited consolidated financial statements included in this annual report.

Overview

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

Sugarcane Ethanol

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

Peru

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

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

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

Megatrends Driving the Market Opportunity

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

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

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

Plan of Operations

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

Phase I

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

· Mill and distillery acquisition, expansion and modification.

· Land sourcing.

· Field installment.

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

Mill and distillery acquisition, expansion and modification

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

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

Land Sourcing

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

· Small and medium private land lots.

· Peasant community land lots.

· State owned land lots.

The most important factors in locating land suitable for sugarcane production are
· Water supply.

· Soil composition.

· Climate.

· Distance from the Sugar Mill.

· Access to roads and other services.

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

Field Installment

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

· Channeling water to the sites from national irrigation projects.

· Field irrigation installation with back-up water supply.

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

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

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

Conducting feasibility studies and generating a business plan for Phase II

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

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

Phase II

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

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

Stage One

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

Stage Two

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

Trends and Uncertainties

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

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

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

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

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

Results of Operations

For the year ended December 31, 2008 vs. the period February 27, 2007 (date of inception) to December 31, 2007

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

                                                                          For the
                                                                          period
                                                                       February 27,
                                                                           2007
                                                                         (date of
                                                      Year Ended        inception)
                                                                        To December
                                                     December 31,           31,            Increase
                                                         2008              2007           (Decrease)
Income (expense)
Consulting fees                                      $  (1,330,250 )   $    (144,784 )   $ (1,185,466 )
General and administrative                           $  (2,938,167 )   $    (520,779 )   $ (2,417,388 )
Professional fees                                    $  (2,497,437 )   $    (100,611 )   $ (2,396,826 )
Wages                                                $  (2,492,843 )   $    (210,928 )   $ (2,281,915 )
Amortization of debt discounts
and debt issuance costs                              $  (3,171,049 )   $    (609,317 )   $ (2,561,732 )
Interest and financing costs                         $  (1,317,300 )   $    (721,462 )   $   (595,838 )
Change in value of beneficial
conversion liability                                 $     511,926     $     624,052     $   (112,126 )
Change in value of warrant liability                 $   1,410,799     $      95,972     $  1,314,827

On November 14, 2007, we completed a share exchange agreement with Stratos Peru. As a result of the Share Exchange, we abandoned our previous cabinetry and furniture business and commenced the business of producing, processing and distributing sugarcane ethanol. Because we are the successor business to Stratos Peru and because the operations and assets of Stratos Peru represent our entire business and operations, our results of operations for the period February 27, 2007 (date of inception) to December 31, 2007 are from November 14, 2007 (Share Exchange date) to December 31, 2007. Therefore, the changes in the expenses presented in the table above are primarily due to the number of months included in each reporting period, except as otherwise indicated below, and percentage variation numbers are omitted as not relevant.

Consulting fees were $1,330,250 for the year ended December 31, 2008 compared to $144,784 for the period from November 14, 2007 to December 31, 2007. We incurred and continue to incur significant costs outsourcing certain functions to third party consultants to assist in advising on agricultural landscapes, other sugarcane development methods, and advising on dismantling and rebuilding the Sugar Mill.

General and administrative costs were $2,938,167 for the year ended December 31, 2008 compared to $520,779 for the period from November 14, 2007 to December 31, 2007. The significant general and administrative expenses for the year ended December 31, 2008 were travel expenses of $905,152, investor relations fees of $622,093, office leases of $226,779, and insurance of $148,381. These expenses represent 30.8%, 22.2%, 7.7% and 5.0% of total general and administrative expenses, respectively. Travel expenses were for both national and international travel. Travel and investor relations expenses are related to the Company's efforts to secure financing. The remaining general and administrative expenses were to develop the Company's infrastructure as it continues to grow. The Company expects general and administrative expenses to increase by a nominal margin in 2009 as the Company continues to grow and add infrastructure.

Professional fees were $2,497,437 for the year ended December 31, 2008 compared to $100,611 for the period from November 14, 2007 to December 31, 2007. Legal fees were $1,553,584, or 62.2%, of professional fees, and were for costs incurred related to the Company obtaining financings and conforming to SEC regulations. The Company incurred $474,793, or 19.0%, of professional fees related to hiring of temporary personnel to provide a variety of services. The accounting and auditing fees were $218,551, or 8.8%, of professional fees.

Wages were $2,492,843 for the year ended December 31, 2008 compared to $210,928 for the period from November 14, 2007 to December 31, 2007. Wages are expected to increase during 2009 as the Company continues to increase personnel to meet the needs of increased operations.

Amortization of debt discounts and debt issuance costs were $3,171,049 for the year ended December 31, 2008 compared to $609,317 for the period from November 14, 2007 to December 31, 2007. These costs represent the fair value of the warrants and beneficial conversion features that are recorded as debt discounts and amortized over the terms of the debt. Included in this amount are costs associated with issuing debt which is then amortized over the terms of the debt. These costs will continue to increase during 2009 as the Company continues to issue debt, in exchange for cash, in order to complete Phase I and Phase II.

Interest expense was $1,317,300 for the year ended December 31, 2008 compared to $721,462 for the period from November 14, 2007 to December 31, 2007. These costs consist of the interest expense and the interest premium associated with the convertible notes. These expenses are expected to increase substantially during 2009 as the Company issues more debt.

The change in value of the beneficial conversion liability resulted in a gain of $511,926 and $624,052 for the year ended December 31, 2008 and for the period from November 14, 2007 to December 31, 2007, respectively. The gain is due to the decrease in share price which causes the fair value of the beneficial conversion option to decrease thereby reducing the liability with a corresponding gain recorded in the consolidated statement of operations.

The change in value of warrant liability resulted in a gain of $1,410,799 and $95,972 for the year ended December 31, 2008 and for the period from November 14, 2007 to December 31, 2007, respectively. The gain is due to the decrease in share price and a decrease in the expected life through the passage of time, which causes the fair value of the warrants to decrease thereby reducing the liability with a corresponding gain being recorded in the consolidated statement of operations.

Liquidity and Capital Resources

At December 31, 2008, our cash and cash equivalents totaled approximately $761,000, compared to approximately $3,357,000 as of December 31, 2007. Currently, our operations are funded by financing activities. Our existing capital resources are not sufficient to fund our operations for the next twelve months, and therefore, we will need additional financing to fund future operations through offerings of equity or debt securities. We can offer no assurances that we will be able to obtain additional funds on acceptable terms, if at all.

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

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

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

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

Cash Used in Operating Activities

Our net cash used in operating activities for the year ended December 31, 2008 was $8,501,914. During the year ended December 31, 2008, the cash used in operating activities was comprised primarily of our net loss of $11,915,570 and increased by the change in warrant liability value of $1,410,799 offset primarily by the amortization of debt discounts and debt issuance costs of $3,171,049 and the increase of our accounts payable and other payables of $1,451,799, collectively.

Cash Used in Investing Activities

During the year ended December 31, 2008, we purchased additional plant and equipment of approximately $925,000. In 2008, we paid approximately $323,000 as a deposit for land acquisition.

Cash Flows from Financing Activities

Historically, we have met our immediate and long-term financial requirements
primarily through the sale of common stock and other convertible equity
securities and through the issuance of convertible promissory notes.

The following table summarizes the issuance of our common stock from November
14, 2007 (Share Exchange date) to December 31, 2008:

                      Shares           Gross         Warrants
Date                  Issued         Proceeds         Issued
November 14, 2007     2,666,794     $ 1,867,090       1,333,396
March 2, 2008         2,267,782       1,587,447       1,133,888
June 26, 2008           142,857         100,000          71,428
                      5,077,433     $ 3,554,537       2,538,712

The warrants have a five year term, vest on the grant date, and are exercisable at $0.75 per share.

The following table summarizes the issuance of our preferred stock from November 14, 2007 (Share Exchange date) to December 31, 2008:

                                                                    Convertible
. . .