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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

þ
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
For the quarterly period ended December 31, 2004
   
o
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-15789

STRATUS SERVICES GROUP, INC.
(Exact name of Registrant as specified in its charter)

Delaware
  
22-3499261
(State or other jurisdiction of incorporation or organization)
  
(I.R.S. Employer Identification No.)
     
500 Craig Road, Suite 201, Manalapan, New Jersey 07726
(Address of principal executive offices)
     
(732) 866-0300
(Registrant’s telephone number, including area code)
     
Securities registered under Section 12(b) of the Exchange Act:   Not Applicable
     
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.04 par value
(Title of class)

Indicate by check mark whether the registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
Yes o No þ

The number of shares of Common Stock, $.04 par value, outstanding as of February 11, 2005 was 16,865,356.


  
     
 

STRATUS SERVICES GROUP, INC.
Condensed Consolidated Balance Sheets

   
December 31, 
    
September 30,
Assets
    
2004
2004
  
   
(Unaudited) 
        
Current assets
              
Cash
  
$
2,205
  
$
735,726
  
Accounts receivable-less allowance for doubtful accounts of $2,063,000
              
and $2,038,000
    
13,356,906
    
14,618,155
  
Unbilled receivables
    
1,821,812
    
2,119,836
  
Notes receivable (current portion)
    
32,849
    
32,683
  
Prepaid insurance
    
2,044,496
    
1,929,056
  
Prepaid expenses and other current assets
    
573,795
    
589,421
  
     
17,832,063
    
20,024,877
  
               
Notes receivable (net of current portion)
    
67,434
    
74,269
  
Note receivable - related party
    
122,849
    
122,849
  
Property and equipment, net of accumulated depreciation
    
598,927
    
597,416
  
Intangible assets, net of accumulated amortization
    
957,314
    
1,081,936
  
Goodwill
    
5,816,353
    
5,816,353
  
Other assets
    
156,097
    
189,475
  
   
$
25,551,037
  
$
27,907,175
  
               
Liabilities and Stockholders’ Equity (Deficiency)
              
Current liabilities
              
Loans payable (current portion)
  
$
138,048
  
$
149,091
  
Loans payable - related parties (current portion)
    
566,425
    
196,646
  
Notes payable - acquisitions (current portion)
    
747,102
    
955,105
  
Line of credit
    
9,946,860
    
11,029,070
  
Cash overdraft
    
492,946
    
24,492
  
Insurance obligation payable
    
34,080
    
134,975
  
Accounts payable and accrued expenses
    
5,351,034
    
5,574,852
  
Accounts payable - related parties
    
2,559,230
    
3,512,073
  
Accrued payroll and taxes
    
644,483
    
1,155,426
  
Payroll taxes payable
    
4,022,286
    
5,153,146
  
Series A redemption payable
    
250,000
    
250,000
  
Put options liability
    
650,000
    
673,000
  
Series I convertible preferred stock (including unpaid dividends of
              
$105,890 and $40,806)
    
2,283,390
    
2,218,306
  
     
27,685,884
    
31,026,182
  
               
Loans payable (net of current portion)
    
34,565
    
—
  
Loans payable - related parties (net of current portion)
    
30,440
    
42,929
  
Notes payable - acquisitions (net of current portion)
    
1,257,079
    
1,305,285
  
Payroll taxes payable
    
986,546
    
—
  
Convertible debt
    
40,000
    
40,000
  
Accrued expenses
    
54,000
    
—
  
     
30,088,514
    
32,414,396
  
Commitments and contingencies
              
               
Stockholders’ equity (deficiency)
              
Preferred stock, $.01 par value, 5,000,000 shares authorized
              
               
Series E non-voting convertible preferred stock, $.01 par value,
              
247 and 572 shares issued and outstanding, liquidation preference
              
of $24,700 (including unpaid dividends of $-0- and $1,500)
    
24,700
    
58,700
  


 See notes to condensed consolidated financial statements

  1  
 


               
Series F voting convertible preferred stock, $.01 par value, 6,000
             
shares issued and outstanding, liquidation preference of $600,000
              
(including unpaid dividends of $72,500 and $72,000)
    
672,500
    
672,000
  
Common stock, $.04 par value, 100,000,000 shares authorized; 16,817,854
             
and 16,822,854 shares issued and outstanding
    
672,714
    
672,914
  
Additional paid-in capital
    
16,920,531
    
16,930,831
  
Accumulated deficit
    
(22,827,922
)
  
(22,841,666
)
Total stockholders’ equity (deficiency)
    
(4,537,477
)
  
(4,507,221
)
   
$
25,551,037
  
$
27,907,175
  



  See notes to condensed consolidated financial statements

  2  
 

STRATUS SERVICES GROUP, INC.
Condensed Consolidated Statements of Operations
(Unaudited)



 
  
Three Months Ended 
 
  
December 31, 
     
2004
    
2003
  
               
               
Revenues
 
$
33,128,051
  
$
23,886,064
  
               
Cost of revenues ($22,421,240 and $1,663,879 to related parties)
    
28,393,958
    
20,353,942
  
               
Gross profit
    
4,734,093
    
3,532,122
  
               
Selling, general and administrative expenses
    
4,231,219
    
3,006,949
  
               
Operating income
    
502,874
    
525,173
  
               
Interest expense
    
(439,815
)
  
(453,194
)
Other income (expense)
    
(49,315
)
  
9,564
  
               
Net earnings
    
13,744
    
81,543
  
Dividends on preferred stock
    
(10,500
)
  
(72,641
)
               
Net earnings attributable to common stockholders
  
$
3,244
  
$
8,902
  
               
Net earnings per share attributable to common stockholders
              
Basic
    $ —   $ —  
Diluted
    
—
    
—
  
               
Weighted average shares outstanding per common share
              
Basic
    
16,820,354
    
5,272,316
  
Diluted
    
17,092,534
    
5,286,048