FORM 10-Q

(Mark One)

ý		QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2003

o		TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from to

Commission file number 001-15789

STRATUS SERVICES GROUP, INC.

(Exact name of Registrant as specified in its charter)

Delaware		22-3499261
(State of 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
(Issuer’s telephone number)

(Former name, former address and former fiscal year, if changed since last report)

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 ý No o

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

As of May 16, 2003, 18,901,478 shares of the Registrant’s common stock were outstanding.

Part I – Financial Information

Item 1. – Financial Statements

STRATUS SERVICES GROUP, INC.

Condensed Balance Sheets

	March 31, 2003			September 30, 2002
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	234,803		$	162,646
Accounts receivable – less allowance for doubtful accounts of $1,555,000 and $1,742,000	12,418,719			9,179,543
Unbilled receivables	2,716,342			2,065,972
Other receivables	—			250,000
Prepaid insurance	2,474,746			2,709,331
Prepaid expenses and other current assets	320,068			333,601
	18,164,678			14,701,093

Property and equipment, net of accumulated depreciation	1,272,098			1,281,817
Intangible assets, net of accumulated amortization	1,568,607			802,145
Goodwill	7,085,582			7,085,582
Deferred financing costs, net of accumulated amortization	4,964			5,768
Other assets	180,899			154,991
	$	28,276,828		$	24,031,396
Liabilities and Stockholders’ Equity
Current liabilities
Loans payable (current portion)	$	750,695		$	464,830
Loans payable – related parties	341,000			116,000
Notes payable – acquisitions (current portion)	624,887			578,040
Line of credit	10,359,108			7,739,117
Cash overdraft	1,044,629			731,501
Insurance obligation payable	—			128,075
Accounts payable and accrued expenses	6,938,700			5,472,696
Accrued payroll and taxes	2,475,733			1,828,629
Payroll taxes payable	1,585,145			929,328
	24,119,897			17,988,216

Loans payable (net of current portion)	105,287			217,965
Notes payable – acquisitions (net of current portion)	2,388,818			1,919,532
Convertible debt	40,000			40,000
	26,654,002			20,165,713

Temporary equity – put options	823,000			823,000
Commitments and contingencies

Stockholders’ equity
Preferred stock, $.01 par value, 5,000,000 shares authorized

Series A voting redeemable convertible preferred stock, $.01 par value, 1,458,933 shares issued and outstanding, liquidation preference of $4,376,799 (including unpaid dividends of $498,564 and $345,376)	3,549,564			3,293,376

Series E non-voting convertible preferred stock, $.01 par value, 18,046 and 16,683 shares issued and outstanding, liquidation preference of $1,804,600 (including unpaid dividends of $64,059 and $20,000)	1,868,659			1,485,947

Series F voting convertible preferred stock, $.01 par value, 8,000 shares issued and outstanding, liquidation preference of $800,000	800,000			1,000,000

Series H non-voting convertible preferred stock, $.01 par value, 5,000 shares issued and outstanding, liquidation preference of $500,000	500,000			500,000

Common stock, $.01 par value, 100,000,000 shares authorized; 18,491,478 and 11,522,567 shares issued and outstanding	184,915			115,226
Additional paid-in capital	12,394,387			12,626,733
Accumulated deficit	(18,497,699		)	(15,978,599		)
Total stockholders’ equity	799,826			3,042,683
	$	28,276,828		$	24,031,396

See notes to condensed financial statements.

STRATUS SERVICES GROUP, INC.

Condensed Statements of Operations

(Unaudited)

	Three Months Ended March 31,				Six Months Ended March 31,
	2003		2002		2003		2002

Revenues	$	25,607,094	$	17,505,428	$	47,754,822	$	32,298,652

Cost of revenues	22,365,491		14,836,750		41,154,491		26,956,072

Gross Profit	3,241,603		2,668,678		6,600,331		5,342,580

Selling, general and administrative expenses	4,023,143		3,305,380		7,579,652		6,206,867

Other charges	523,000