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 June 30, 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 August 6, 2003, 19,128,462 shares of the Registrant’s common stock were outstanding.

Part I – Financial Information

Item 1. – Financial Statements

STRATUS SERVICES GROUP, INC.

Condensed Balance Sheets

	June 30, 2003			September 30, 2002
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	374,973		$	162,646
Accounts receivable – less allowance for doubtful accounts of $1,980,000 and $1,742,000	12,053,408			9,179,543
Unbilled receivables	2,610,814			2,065,972
Other receivables	—			250,000
Prepaid insurance	3,173,585			2,709,331
Prepaid expenses and other current assets	299,461			333,601
	18,512,241			14,701,093

Property and equipment, net of accumulated depreciation	1,169,008			1,281,817

Intangible assets, net of accumulated amortization	1,707,920			802,145
Goodwill	7,085,582			7,085,582
Deferred financing costs, net of accumulated amortization	4,562			5,768
Other assets	245,729			154,991
	$	28,725,042		$	24,031,396
Liabilities and Stockholders’ Equity
Current liabilities
Loans payable (current portion)	$	1,043,917		$	464,830
Loans payable – related parties	457,337			116,000
Notes payable – acquisitions (current portion)	645,453			578,040
Line of credit	9,508,071			7,739,117
Cash overdraft	1,652,252			731,501
Insurance obligation payable	168,604			128,075
Accounts payable and accrued expenses	8,108,535			5,472,696
Accrued payroll and taxes	2,462,760			1,828,629
Payroll taxes payable	1,922,572			929,328
	25,969,501			17,988,216

Loans payable (net of current portion)	105,460			217,965
Notes payable – acquisitions (net of current portion)	2,228,636			1,919,532
Convertible debt	40,000			40,000
	28,343,597			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 $575,158 and $345,376)	3,679,158			3,293,376

Series E non-voting convertible preferred stock, $.01 par value, 17,031 and 16,683 shares issued and outstanding, liquidation preference of $1,703,100 (including unpaid dividends of $94,040 and $20,000)	1,797,140			1,485,947

Series F voting convertible preferred stock, $.01 par value, 8,000 and 10,000 shares issued and outstanding, liquidation preference of $800,000 (including unpaid dividends of $14,000 and $-0-)	814,000			1,000,000

Series H non-voting convertible preferred stock, $.01 par value, 5,000 shares issued and outstanding, liquidation preference of $500,000 (including unpaid dividends of $7,500 and $-0-)	507,500			500,000

Common stock, $.01 par value, 100,000,000 shares authorized; 19,001,478 and 11,522,567 shares issued and outstanding	190,015			115,226
Additional paid-in capital	12,356,712			12,626,733
Accumulated deficit	(19,786,080		)	(15,978,599		)
Total stockholders’ equity (deficiency)	(441,555		)	3,042,683
	$	28,725,042		$	24,031,396

See notes to condensed financial statements.

STRATUS SERVICES GROUP, INC.

Condensed Statements of Operations

(Unaudited)

	Three Months Ended June 30,						Nine Months Ended June 30,
	2003			2002			2003			2002
Revenues	$	26,951,354		$	19,269,395		$	74,706,176		$	51,568,047
Cost of revenues	23,335,202			16,387,222			64,489,693			43,343,294
Gross Profit	3,616,152			2,882,173			10,216,483			8,224,753
Selling, general and administrative expenses	4,551,259			4,337,929			12,130,911			10,535,246
Loss on impairment of goodwill	¾			100,000			¾			100,000
Other charges	¾			103,226			523,000			103,226

Operating (loss) from continuing operations	(935,107		)	(1,658,982		)	(2,437,428		)	(2,513,719		)

Other income (expenses)
Interest and financing costs	(395,739		)	(573,799		)	(1,441,458		)	(1,537,406		)
(Loss) on sale of investment