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

FORM 10-Q

x
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
For the quarterly period ended March 31, 2005
   
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 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

The number of shares of Common Stock, $.04 par value, outstanding as of May 9, 2005 was 17,072,856.


  
     
 

STRATUS SERVICES GROUP, INC.
Condensed Consolidated Balance Sheets

   
March 31, 
    
September 30,
  
Assets
    
2005
    
2004
  
   
(Unaudited) 
        
Current assets
              
Cash
  
$
169,803
  
$
735,726
  
Accounts receivable-less allowance for doubtful accounts of $2,337,000
              
and $2,038,000
    
13,824,631
    
14,618,155
  
Unbilled receivables
    
2,045,670
    
2,119,836
  
Notes receivable (current portion)
    
41,518
    
32,683
  
Prepaid insurance
    
1,196,542
    
1,929,056
  
Prepaid expenses and other current assets
    
577,538
    
589,421
  
     
17,855,702
    
20,024,877
  
               
Notes receivable (net of current portion)
    
58,765
    
74,269
  
Note receivable - related party
    
122,849
    
122,849
  
Property and equipment, net of accumulated depreciation
    
580,548
    
597,416
  
Intangible assets, net of accumulated amortization
    
1,189,325
    
1,081,936
  
Goodwill
    
5,816,353
    
5,816,353
  
Other assets
    
166,412
    
189,475
  
   
$
25,789,954
  
$
27,907,175
  
               
Liabilities and Stockholders’ Equity (Deficiency)
              
Current liabilities
              
Loans payable (current portion)
  
$
135,308
  
$
149,091
  
Loans payable - related parties (current portion)
    
244,702
    
196,646
  
Notes payable - acquisitions (current portion)
    
680,872
    
955,105
  
Line of credit
    
10,311,321
    
11,029,070
  
Cash overdraft
    
—
    
24,492
  
Insurance obligation payable
    
—
    
134,975
  
Accounts payable and accrued expenses
    
6,082,591
    
5,574,852
  
Accounts payable - related parties
    
4,090,575
    
3,512,073
  
Accrued payroll and taxes
    
324,576
    
1,155,426
  
Payroll taxes payable
    
3,910,735
    
5,153,146
  
Series A redemption payable
    
300,000
    
250,000
  
Put options liability
    
650,000
    
673,000
  
Series I convertible preferred stock (including unpaid dividends of
              
$170,321 and $40,806)
    
2,347,821
    
2,218,306
  
     
29,078,501
    
31,026,182
  
               
Loans payable (net of current portion)
    
15,419
    
—
  
Loans payable - related parties (net of current portion)
    
10,112
    
42,929
  
Notes payable - acquisitions (net of current portion)
    
1,290,253
    
1,305,285
  
Payroll taxes payable
    
824,046
    
—
  
Convertible debt
    
40,000
    
40,000
  
Accrued expenses
    
27,000
    
—
  
     
31,285,331
    
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 $78,000 and $72,000)
    
678,000
    
672,000
  
Common stock, $.04 par value, 100,000,000 shares authorized; 16,867,854
             
and 16,822,854 shares issued and outstanding
    
674,714
    
672,914
  
Additional paid-in capital
    
16,924,531
    
16,930,831
  
Accumulated deficit
    
(23,797,322
)
  
(22,841,666
)
Total stockholders’ equity (deficiency)
    
(5,495,377
)
  
(4,507,221
)
   
$
25,789,954
  
$
27,907,175
  


See notes to condensed consolidated financial statements

   
  2  
 

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



 
  
Three Months Ended 
Six Months Ended
 
March 31, 
March 31,
     
2005
2004
2005
2004
  
                           
                           
Revenues
 
$
29,785,725
  
$
23,513,725
  
$
62,913,776
  
$
47,399,789
  
                           
Cost of revenues
   
25,608,304
    
20,740,440
    
54,002,262
    
41,094,382
  
                           
Gross Profit
    
4,177,421
    
2,773,285
    
8,911,514
    
6,305,407
  
                           
Selling, general and administrative expenses
    
4,526,622
    
3,175,291
    
8,757,841
    
6,182,240
  
                           
Other charges
    
173,261
    
—
    
173,261
    
—
  
                           
Operating income (loss)
    
(522,462
)
  
(402,006
)
  
(19,588
)
  
123,167
  
                           
Interest expense
    
(473,426
)
  
(563,480
)
  
(913,241
)
  
(1,016,674
)
Other income (expense)
   
26,488
    
(21,148
)
  
(22,827
)
  
(11,584