**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 June 30,
                2007**





**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.)**149
                Avenue at the Common, Shrewsbury, New Jersey
                07702**(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 o  No ý*





*Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer or a non-accelerated filer.  See definition of
“accelerated filer” and large accelerated filer in Rule 12b-2 of the Exchange
      Act.  (Check One)*





Large
                Accelerated Filer  o
            Accelerated
                Filer  o
            Non-Accelerated
                Filer  T





*Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).  Yes o  No x*





*The
      number of shares of Common Stock, $.04 par value, outstanding as of August
      9,
      2007 was 69,568,617.*





**STRATUS
      SERVICES GROUP, INC.**


Condensed
      Consolidated Balance Sheets


(Unaudited)





**June
                30,**
            
            
            **September
                30,**Assets
            
            **2007**
            
            
            **2006**Current
                assetsCash
            
            $
            59,152
            
            
            $
            84,881Accounts
                receivable–less allowance for doubtful accounts
                of  $75,000and
                $75,000
            
            
            921,407
            
            
            
            815,463Unbilled
                receivables
            
            
            306,959
            
            
            
            126,191Notes
                receivable
            
            
            -
            
            
            
            80,000Due
                from related party
            
            
            -
            
            
            
            499,264Prepaid
                insurance
            
            
            31,042
            
            
            
            12,244Prepaid
                expenses and other current assets
            
            
            297,394
            
            
            
            244,6621,615,954
            
            
            
            1,862,705Property
                and equipment, net of accumulated depreciation
            
            
            172,545
            
            
            
            145,727Other
                assets
            
            
            6,350
            
            
            
            6,350$
            1,794,849
            
            
            $
            2,014,782Liabilities
                and Stockholders’ Equity (Deficiency)Current
                liabilitiesLoans
                payable (current portion)
            
            $
            128,880
            
            
            $
            72,477Loans
                payable – related parties
            
            
            101,721
            
            
            
            87,721Notes
                payable – acquisitions (current portion)
            
            
            272,230
            
            
            
            203,663Note
                payable – related party (current portion)
            
            
            464,752
            
            
            
            265,308Line
                of credit
            
            
            664,491
            
            
            
            596,950Insurance
                obligation payable
            
            
            1,919
            
            
            
            7,348Accounts
                payable and accrued expenses
            
            
            3,797,471
            
            
            
            3,737,712Accrued
                payroll and taxes
            
            
            302,363
            
            
            
            107,204Payroll
                taxes payable
            
            
            3,218,418
            
            
            
            3,823,710Series
                A redemption payable
            
            
            300,000
            
            
            
            300,0009,252,245
            
            
            
            9,202,093Loans
                payable (net of current portion)
            
            
            39,866
            
            
            
            -Notes
                payable – acquisitions (net of current portion)
            
            
            338,469
            
            
            
            476,017Note
                payable – related party (net of current portion)
            
            
            152,098
            
            
            
            351,542Convertible
                debt
            
            
            40,000
            
            
            
            40,0009,822,678
            
            
            
            10,069,652Commitments
                and contingenciesStockholders’
                equity (deficiency)Preferred
                stock, $.01 par value, 5,000,000 shares authorized





See
      notes
      to condensed consolidated financial statements


2





Series
                F voting convertible preferred stock, $.01 par value, 6,000shares
                issued
                and outstanding, liquidation preference of $600,000 (including unpaid
                dividends of $122,500 and $91,000)
            
            
            722,500
            
            
            
            691,000Common
                stock, $.04 par value, 500,000,000 shares authorized; 67,568,617
                and
                65,479,756 shares issued and outstanding
            
            
            2,702,745
            
            
            
            2,619,190Additional
                paid-in capital
            
            
            9,332,715
            
            
            
            9,407,238Accumulated
                deficit
            
            
            (20,785,789
            )
            
            
            (20,772,298
            )Total
                stockholders’ equity (deficiency)
            
            
            (8,027,829
            )
            
            
            (8,054,870
            )$
            1,794,249
            
            
            $
            2,014,782








See
      notes
      to condensed consolidated financial statements





3


**STRATUS
      SERVICES GROUP, INC.**


Condensed
      Consolidated Statements of Operations


(Unaudited)





**Three
                Months Ended**
            
            
            **Nine
                Months Ended****June
                30,**
            
            
            **June
                30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Revenues
            
            $
            2,079,589
            
            
            $
            1,282,074
            
            
            $
            5,753,148
            
            
            $
            3,706,018Cost
                of revenues ($-0-, $0-, $-0-and $479,873 to related
                parties
            
            
            1,480,205
            
            
            
            910,576
            
            
            
            4,005,109
            
            
            
            2,604,400Gross
                profit
            
            
            599,384
            
            
            
            371,498
            
            
            
            1,748,039
            
            
            
            1,101,618Selling,
                general and administrative expenses
            
            
            673,542
            
            
            
            527,365
            
            
            
            2,048,103
            
            
            
            2,534,869Operating
                (loss) from continuing operations
            
            
            (74,158
            )
            
            
            (155,867
            )
            
            
            (300,064
            )
            
            
            (1,433,251
            )Interest
                expense
            
            
            (58,555
            )
            
            
            (47,179
            )
            
            
            (177,227
            )
            
            
            (430,987
            )Other
                income (expense)
            
            
            (10,925
            )
            
            
            7,108
            
            
            
            3,653
            
            
            
            (11,629
            )Earnings
                (loss) from continuing operations
            
            
            (143,638
            )
            
            
            (195,938
            )
            
            
            (473,638
            )
            
            
            (1,873,732
            )Discontinued
                operations – income (loss) from discontinued operations
            
            
            -
            
            
            
            
            
            
            
            -
            
            
            
            (307,044
            )Gain
                on sale of discontinued operations (net)
            
            
            183,653
            
            
            
            215,425
            
            
            
            460,147
            
            
            
            3,592,151Net
                earnings
            
            
            40,015
            
            
            
            19,487
            
            
            
            (13,491
            )
            
            
            1,411,375Dividends
                on preferred stock
            
            
            (10,500
            )
            
            
            (10,500
            )
            
            
            (31,500
            )
            
            
            (31,500
            )Net
                earnings (loss) attributable to common stockholders
            
            $
            29,515
            
            
            $
            8,987
            
            
            $
            (44,991
            )
            
            $
            1,379,875Net
                earnings (loss) per share attributable to common
                stockholdersBasic:(Loss)
                from continuing operations
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            (.05
            )Earnings
                (loss) from discontinued operations
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            .09Net
                earnings (loss)
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            .045Diluted:(Loss)
                from continuing operations
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            (.05
            )Earnings
                (loss) from discontinued operations
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            .08Net
                earnings (loss)
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            .03Weighted
                average shares outstanding per common shareBasic
            
            
            69,568,615
            
            
            
            52,849,291
            
            
            
            66,874,118
            
            
            
            36,388,673Diluted
            
            
            85,516,115
            
            
            
            71,933,849
            
            
            
            66,874,118
            
            
            
            43,104,426








See
      notes
      to condensed consolidated financial statements





4


**STRATUS
      SERVICES GROUP, INC.**


Condensed
      Consolidated Statements of Cash Flows


(Unaudited)







**Nine
                Months Ended****June
                30,****2007**
            
            
            **2006**Cash
                flows from (used in) operating activitiesNet
                earnings (loss)
            
            $
            (13,491
            )
            
            $
            1,411,375Adjustments
                to reconcile net earnings to net cash used by operating
                activities
            
            
            59,119
            
            
            
            93,302Depreciation
            
            
            -
            
            
            
            41,902AmortizationGain
                on sale of discontinued operations
            
            
            (460,147
            )
            
            
            (3,592,151
            )Stock
                Compensation
            
            
            -
            
            
            
            100,400Accrued
                interest
            
            
            33,373
            
            
            
            29,326Imputed
                interest
            
            
            28,652
            
            
            
            26,782Dividends
                on preferred stock
            
            
            -
            
            
            
            163,625Gain
                on change in fair value of warrants
            
            
            -
            
            
            
            (2,135
            )Changes
                in operating assets and liabilitiesAccounts
                receivable
            
            
            (286,712
            )
            
            
            10,920,387Prepaid
                insurance
            
            
            (18,798
            )
            
            
            225,823Prepaid
                expenses and other current assets
            
            
            (16,693
            )
            
            
            182,935Other
                assets
            
            
            -
            
            
            
            21,886Insurance
                obligation payable
            
            
            (5,429
            )
            
            
            (102,925
            )Accrued
                payroll and taxes
            
            
            195,159
            
            
            
            (102,891
            )Payroll
                taxes payable
            
            
            (605,292
            )
            
            
            (661,804
            )Accounts
                payable and accrued expenses
            
            
            16,543
            
            
            
            (1,631,500
            )Total
                adjustments
            
            
            (1,060,225
            )
            
            
            5,727,636(1,073,716
            )
            
            
            7,139,011Cash
                flows from investing activitiesPurchase
                of property and equipment
            
            
            (31,297
            )
            
            
            (32,782
            )Cash
                received in connection with sale of discontinued operations (including
                $499,264 and $628,236 from a related party) (net of $10,000 in costs
                in
                2006)
            
            
            953,772
            
            
            
            1,024,587Collection
                of notes receivable
            
            
            -
            
            
            
            6,609922,475
            
            
            
            998,414Cash
                flows from (used in) financing activitiesProceeds
                from loans payable
            
            
            50,000
            
            
            
            -Payments
                of loans payable
            
            
            (8,371
            )
            
            
            -Proceeds
                from loans payable – related parties
            
            
            120,000
            
            
            
            -Payments
                of loans payable – related parties
            
            
            (106,000
            )
            
            
            (24,202
            )Payments
                of notes payable – acquisitions
            
            
            (7,033
            )
            
            
            (63,999
            )Net
                proceeds from (repayment of) line of credit
            
            
            67,541
            
            
            
            (6,481,611
            )Proceeds
                from exercise of warrants
            
            
            9,375
            
            
            
            -Cash
                overdraft
            
            
            -
            
            
            
            (14,731
            )125,512
            
            
            
            (8,074,343
            )Net
                change in cash
            
            
            (25,729
            )
            
            
            63,082Cash
                – beginning
            
            
            84,881
            
            
            
            40,784Cash
                – ending
            
            $
            59,152
            
            
            $
            103,866





See
      notes
      to condensed consolidated financial statements


5





Supplemental
                disclosure of cash paidInterest
            
            $
            255,354
            
            
            $
            381,418Schedule
                of noncash investing and financing activitiesSale
                of discontinued operations:Gain
                on sale
            
            $
            460,147
            
            
            $
            3,592,151Net
                assets sold
            
            
            -
            
            
            
            1,683,783Due
                from related party
            
            
            499,264
            
            
            
            (621,764
            )Accrued
                earn-out
            
            
            (5,639
            )
            
            
            (138,219
            )Cancellation
                of accounts payable – related parties (net)
            
            
            -
            
            
            
            (3,541,364
            )Cancellation
                of amounts due from related party
            
            
            -
            
            
            
            50,000Accrued
                expenses
            
            
            -
            
            
            
            -Net
                cash received
            
            $
            953,772
            
            
            $
            1,024,587Issuance
                of common stock upon conversion of convertible preferred
                stock
            
            $
            -
            
            
            $
            24,366Cumulative
                dividends on preferred stock
            
            $
            31,500
            
            
            $
            31,500Assignment
                of note receivable in exchange for notes payable -
                acquisitions
            
            $
            80,000
            
            
            $
            -





See
      notes
      to condensed consolidated financial statements


6


**STRATUS
      SERVICES GROUP, INC.**


Notes
      to
      Condensed Consolidated Financial Statements


(Unaudited)





**NOTE
      1 – BASIS OF PRESENTATION**





The
      accompanying condensed consolidated financial statements have been prepared
      by
      the Company, without audit, pursuant to the rules and regulations of the
      Securities and Exchange Commission.  Certain information and
      disclosures normally included in financial statements prepared in accordance
      with accounting principles generally accepted in the United States have been
      condensed or omitted pursuant to such rules and regulations.  These
      condensed financial statements reflect all adjustments (consisting only of
      normal recurring adjustments) that, in the opinion of management, are necessary
      to present fairly the financial position, the results of operations and cash
      flows of the Company for the periods presented.  It is suggested that
      these condensed financial statements be read in conjunction with the
      consolidated financial statements and the notes thereto included in the
      Company’s Annual Report on Form 10-K.





The
      results of operations for the interim periods presented are not necessarily
      indicative of the results to be expected for the full year.





Until
      December 2005, Stratus Services Group, Inc. together with its 51%-owned
      consolidated joint venture, (the “Company”) was a national provider of staffing
      and productivity consulting services.  Prior to December 2005, the
      Company operated a network of 29 offices in 7 states.  In December
      2005, the Company completed a series of asset sales transactions pursuant to
      which it sold substantially all of the assets that it used to conduct its
      staffing services business (see Note 5).  Since that time the Company
      has been focused on expanding its information technology staffing solutions
      business, which is conducted through its 51% owned consolidated joint venture,
      Stratus Technology Services, LLC (“STS”) (see Note 10).





**NOTE
      2 – LIQUIDITY**





At
      June
      30, 2007, the Company had limited liquid resources.  Current
      liabilities were $9,252,245 and current assets were $1,615,954.  The
      difference of $7,636,291 is a working capital deficit, which is primarily the
      result of losses incurred during the last several years.  These
      factors, among others, indicate that the Company may be unable to continue
      as a
      going concern.  The financial statements do not include any
      adjustments relating to the recoverability and classification of liabilities
      that might be necessary should the Company be unable to continue as a going
      concern.





Management
      recognizes that the Company’s continuation as a going concern is dependent upon
      its ability to generate sufficient cash flow to allow it to satisfy its
      obligations on a timely basis, to fund the operation and capital needs, and
      to
      obtain additional financing as may be necessary.





Management
      of the Company has taken steps to revise and reduce its operating requirements,
      which it believes will be sufficient to assure continued operations and
      implementation of the Company’s plans.  The steps include closing
      branches that are not profitable, consolidating branches and reductions in
      staffing and other selling, general and administrative expense, and most
      significantly, the asset sales transactions that were completed in December
      2005
      (see Notes 5 and 12).





The
      Company continues to pursue other sources of equity or long-term debt
      financings.  The Company also continues to negotiate payment plans and
      other accommodations with its creditors.





**NOTE
      3 – NEW ACCOUNTING PRONOUNCEMENTS**





In
      July
      2006, the Financial Accounting Standards Board issued FASB Interpretation No.
      48
      (FIN 48), “Accounting for Uncertainty in Income Taxes – an interpretation of
      FASB Statement No. 109”.  FIN 48 provides guidance for the
      recognition, measurement, classification and disclosure of the financial
      statement effects of a position taken or expected to be taken in a tax return
      (“tax position”).  The financial statement effects of a tax position
      must be recognized when there is a likelihood of more than 50 percent that
      based
      on the technical merits, the position will be sustained upon examination and
      resolution of the related appeals or litigation processes, if any.  A
      tax position that meets the recognition threshold must be measured initially
      and
      subsequently as the largest amount of tax benefit that is greater than 50
      percent likely of being realized upon ultimate settlement with a taxing
      authority.  The interpretation is effective for fiscal years beginning
      after December 15, 2006.  The Company does not expect its adoption of
      FIN 48 to have a material impact on its consolidated financial portion, results
      of operations or cash flows.


7


In
      September 2006, the Financial Accounting Standards Board issued Statement of
      Financial Accounting Standards No. 157 (“SFAS No. 157”), “Fair Value
      Measurements”.  This Statement defines fair value, establishes a
      framework for


measuring
      fair value in generally accepted accounting principles (GAAP), and expands
      disclosures about fair value measurements.  The Statement applies
      under other accounting pronouncements that require or permit fair value
      measurements.  SFAS No. 157 is effective for fiscal years beginning
      after November 15, 2007, or the Company’s fiscal year ending September 30,
      2009.  The Company does not expect the adoption of this new standard
      to have a material impact on its consolidated financial position, results of
      operations or cash flow.





In
      September 2006, the Financial Accounting Standards Board issued Statement of
      Financial Accounting Standards No. 158, “Employers’ Accounting for Defined
      Benefit Pension and Other Postretirement Plans”.  This Statement
      improves financial reporting by requiring an employer to recognize the
      overfunded or underfunded status of a defined benefit postretirement plan as
      an
      asset or liability in its statement of financial position and to recognize
      changes in that funded status in the year in which the changes occur through
      comprehensive income.  This Statement also improves financial
      reporting by requiring an employer to measure the funded status of a plan as
      of
      the date of its year-end statement of financial position, with limited
      exceptions.  The effective date to initially recognize the funded
      status and to provide the required disclosures is for fiscal years ending after
      December 15, 2006, or the Company’s fiscal year ending September 30,
      2007.  The requirement to measure plan assets and benefit obligations
      is effective for fiscal years ending after December 15, 2008, or the Company’s
      fiscal year ending September 30, 2009.  The Company does not expect
      the adoption of this new standard to have a material impact on its consolidated
      financial position, results of operations or cash flows.





In
      February 2007, the Financial Accounting Standards Board issued Statement of
      Financial Accounting Standards No. 159, “The Fair Value Option for Financial
      Assets and Financial Liabilities” and is effective for fiscal years beginning
      after November 15, 2007.  This Statement permits entities to choose to
      measure many financial instruments and certain other items at fair
      value.  The objective is to improve financial reporting by providing
      entities with the opportunity to mitigate volatility in reported earnings caused
      by measuring related assets and liabilities differently without having to apply
      complex hedge accounting provisions.  The Company is currently
      assessing the impact the adoption of this pronouncement will have on the
      financial statements.





**NOTE
      4 – EARNINGS/LOSS PER SHARE**





Basic
      “Earnings Per Share” (“EPS”) excludes dilution and is computed by dividing
      earnings available to common stockholders by the weighted-average number of
      common shares outstanding during the period.  Diluted EPS assumes
      conversion of dilutive options and warrants, and the issuance of common stock
      for all other potentially dilutive equivalent shares
      outstanding.  There were 15,947,500 and 19,084,558 dilutive shares for
      the three months ended June 30, 2007 and 2006, respectively.  There
      were -0- and 6,715,753 dilutive shares for the nine months ended June 30, 2007
      and 2006, respectively.  Outstanding common stock options and warrants
      not included in the computation of earnings per share for the three and nine
      months ended June 30, 2007 and 2006, totaled 17,213,653 and 20,326,787
      respectively.  These options and warrants were excluded because their
      inclusion would have an anti-dilutive effect on earnings per share.





**NOTE
      5 – DISCONTINUED OPERATIONS**





In
      December 2005, the Company completed the following series of transactions
      pursuant to which it sold substantially all of the assets used to conduct its
      staffing services business, other then the IT staffing solutions business that
      is conducted through the Company’s 51% owned joint venture, STS.





(i)
            On
                December 2, 2005, the Company completed the sale, effective as of
                November
                21, 2005, of substantially all of the tangible and intangible assets,
                excluding accounts receivable, of several of its offices located
                in the
                Western half of the United States (the “ALS Purchased Assets”) to ALS, LLC
                (“ALS”), a related party (see Note 11).  The offices sold were
                the following:  Chino, California; Colton, California; Los
                Nietos, California; Ontario, California; Santa Fe Springs, California
                and
                the Phoenix, Arizona branches and the Dallas Morning News Account
                (the
                “Western Offices”).  Pursuant to the terms of an Asset Purchase
                Agreement between the Company and ALS dated December 2, 2005 (the
“ALS
                Asset Purchase Agreement”), the purchase price for the ALS Purchased
                Assets was payable as follows:





•
            $250,000
                was payable over the 60 days following December 2, 2005, at a rate
                no
                faster than $125,000 per 30 days;




•
            $1,000,000
                payable by ALS was paid directly to certain taxing authorities to
                reduce
                the Company’s tax obligations; and




•
            $3,537,000
                which was paid by means of the cancellation of all net indebtedness
                owed
                by the Company to ALS outstanding as of the close of business on
                December
                2, 2005.




In
      addition to the foregoing amounts, ALS also assumed the Company’s obligation to
      pay $798,626 due under a certain promissory note issued by the Company in
      connection with an acquisition to Provisional Employment


Solutions,
      Inc.  As a result of the sale of the ALS Purchased Assets to ALS, all
      sums due and owing to ALS by the Company were deemed paid in full and no further
      obligations remain.





(ii)
            On
                December 5, 2005, the Company completed the sale, effective as of
                November
                28, 2005 (the “AI Effective Date”), of substantially all of the tangible
                and intangible assets, excluding accounts receivable and other certain
                items, as described below, of three of its California offices (the
“AI
                Purchased Assets”) to Accountabilities, Inc. (AI”).  The offices
                sold were the following:  Culver City, California; Lawndale,
                California and Orange, California (the “Other California
                Offices”).  Pursuant to the terms of an Asset Purchase Agreement
                between the Company and AI dated December 5, 2005 (the “AI Asset Purchase
                Agreement”), AI has agreed to pay to the Company an earnout amount equal
                to two percent of the sales of the Other California Offices for the
                first
                twelve month period after the AI Effective Date; one percent of the
                sales
                of the Other California Offices for the second twelve month period
                after
                the AI Effective Date; and one percent of the sales of the Other
                California Offices for the third twelve month period from the AI
                Effective
                Date.  In addition, a Demand Subordinated Promissory Note
                between the Company and AI dated September 15, 2005, which had an
                outstanding principal balance of $125,000 at the time of closing
                was
                deemed paid and marked canceled.





Certain
      assets held by the other California Offices were excluded from the sale,
      including cash and cash equivalents, accounts receivable and the Company’s
      rights to receive payments from any source.





(iii)
            On
                December 7, 2005, the Company completed the sale, effective as of
                November
                28, 2005 (the “SOP Effective Date”), of substantially all of the tangible
                and intangible assets, excluding accounts receivable and other assets
                as
                described below, of several of its Northeastern offices (the “SOP
                Purchased Assets”) to Source One Personnel, Inc. (“SOP”).  The
                offices sold were the following:  Cherry Hill, New Jersey; New
                Brunswick, New Jersey; Mount Royal/Paulsboro, New Jersey (soon to
                be
                Woodbury Heights, New Jersey); Pennsauken, New Jersey; Norristown,
                Pennsylvania; Fairless Hills, Pennsylvania; New Castle, Delaware
                and the
                former Freehold, New Jersey profit center (the “NJ/PA/DE
                Offices”).  The assets of Deer Park, New York, Leominster,
                Massachusetts, Lowell, Massachusetts and Athol, Massachusetts (the
“Earn
                Out Offices”) were also purchased (collectively the “NJ/PA/DE Offices” and
                the “Earn Out Offices” shall be referred to as the “Purchased
                Offices”).  In addition to the foregoing, the SOP Purchased
                Assets also included substantially all of the tangible and intangible
                assets, excluding accounts receivable and other assets as described
                below,
                used by the Company in the operation of its business at certain facilities
                of certain customers including the following:  the Setco
                facility in Cranbury, New Jersey, the Record facility in Hackensack,
                New
                Jersey, the UPS-MI (formerly RMX) facility in Long Island, New York,
                the
                UPS-MI (formerly RMX) facility in the State of Connecticut, the UPS-MI
                (formerly RMX) facility in the State of Ohio, the APX facility in
                Clifton,
                New Jersey (the “Earn Out On-Site Business”) and the Burlington Coat
                Factory in Burlington, New Jersey, the Burlington Coat Factory facility
                in
                Edgewater Park, New Jersey and the UPS-MI (formerly RMX) facility
                in
                Paulsboro, New Jersey (the foregoing business and the “Earn Out On-Site
                Businesses” shall be referred to herein collectively as the “On-Site
                Businesses”).  Pursuant to the SOP Asset Purchase Agreement
                between the Company and SOP dated December 7, 2005 (the “SOP Asset
                Purchase Agreement:), the purchase price for the SOP Purchased Assets
                was
                payable as follows (the “SOP Purchase
                Price”):





•
            An
                aggregate of $974,031 of indebtedness owed by the Company to SOP
                (i) under
                certain promissory notes previously issued by the Company to SOP
                and (ii)
                in connection with a put right previously exercised by SOP with respect
                to
                400,000 shares of our common stock was
                cancelled.




•
            SOP
                is required to make the following earn out payments to the Company
                during
                the three year period commencing on the SOP Effective Date (the “Earn Out
                Period”):




•
            Two
                percent of sales (excluding taxes on sales) from the Earn Out Offices
                and
                the Earn Out On-Site Businesses for the initial twelve months of
                the Earn
                Out Period.




•
            One
                percent of sales (excluding taxes on sales) from the Earn Out Offices
                and
                the Earn Out On-Site Businesses for the second twelve months of the
                Earn
                Out Period.




•
            One
                percent of sales (excluding taxes on sales) from the Earn Out Offices
                and
                the Earn Out On-Site Businesses for the third twelve months of the
                Earn
                Out Period.




In
      June
      2007, the Company agreed to accept a $90,000 lump sum payment as payment in
      full
      of any remaining SOP obligation under the SOP Asset Purchase
      Agreement.




Certain
      assets held by the Purchased Businesses were excluded from the sale, including
      cash and cash equivalents, accounts receivable, and the Company’s rights to
      receive payments from any source.


8


(iv)
            On
                December 7, 2005 (the “Closing Date”), the Company completed the sale of
                substantially all of the tangible and intangible assets, excluding
                cash
                and cash equivalents, of two of its California branch offices (the
“TES
                Purchased Assets”) to Tri-State Employment Service, Inc.
                (“TES”).  The offices sold were the
                following:  Bellflower, California and West Covina, California
                (the “California Branch Offices”).  Pursuant to the terms of an
                Asset Purchase Agreement between the Company and TES dated December
                7,
                2005 (the “TES Asset Purchase Agreement”), TES has agreed to pay to the
                Company an earnout amount as
                follows:





•
            two
                percent of sales of the California Branch Offices to existing clients
                for
                the first twelve month period after the Closing
                Date;




•
            one
                percent of sales of the California Branch Offices to existing clients
                for
                the second twelve month period after the Closing Date;
                and




•
            one
                percent of sales of the California Branch Offices to existing clients
                for
                the third twelve month period after the Closing
                Date.




For
      purposes of calculating the amount owed by TES to the Company, in no event
      shall
      the aggregate annual sales to such clients exceed $25,000,000.





On
      the
      Closing Date, TES made a payment of $1,972,521 to the Company’s lender (see Note
      6) and acquired the lender’s rights to certain of the Company’s accounts
      receivable that collateralize its obligation to the lender.  As a
      result of this transaction, the Company’s obligations to the lender were reduced
      by $1,972,521.





The
      operating results of discontinued operations are summarized as
      follows:





**Three
                Months Ended**
            
            
            **Nine
                Months Ended****June
                30,**
            
            
            **June
                30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Revenues
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            18,265,587Cost
                of revenues
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            16,215,630Gross
                profit
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            2,046,957Selling,
                general and administrative expenses
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,950,622Operating
                income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            96,335Interest
                expense
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (205,056
            )Other
                income (expense)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (198,323
            )Net
                (loss)
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            (307,044
            )





The
      gain
      on sale of discontinued operations is summarized as follows:





**Three
                Months Ended**
            
            
            **Nine
                Months Ended****June
                30,**
            
            
            **June
                30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Sold
                to:ALS
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            4,340,459AI
            
            
            34,585
            
            
            
            99,704
            
            
            
            147,199
            
            
            
            (104,897
            )SOP
            
            
            110,911
            
            
            
            50,594
            
            
            
            183,224
            
            
            
            (233,990
            )TES
            
            
            38,157
            
            
            
            65,127
            
            
            
            129,724
            
            
            
            (349,421
            )183,653
            
            
            
            215,425
            
            
            
            460,147
            
            
            
            3,652,151Other
                costs of sales
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (60,000
            )Gain
                on sale of discontinued operations
            
            $
            183,653
            
            
            $
            215,425
            
            
            $
            460,147
            
            
            $
            3,592,151





The
      above
      gain is comprised of earnout payments in the three and nine months ended June
      30, 2007 (including a $90,000 lump sum payment from SOP) and three months ended
      June 30, 2006, and includes earnout payments of $509,570 in the nine months
      ended June 30, 2006.





**NOTE
      6 – LINE OF CREDIT**





The
      Company had a loan and security agreement (the “Loan Agreement”) with Capital
      Temp Funds, Inc. (the “Lender”)  which provided for a line of credit
      up to 85% of eligible accounts receivable, as defined, not to exceed
      $12,000,000.  The Loan Agreement restricted the Company’s ability to
      incur other indebtedness, pay dividends and repurchase stock.


9


Borrowings
      under the Loan Agreement bore interest at 3% above the prime
      rate.  Borrowings under the Loan Agreement were collateralized by
      substantially all of the Company’s assets.





On
      January 15, 2005, the Company entered into a Forbearance Agreement (the
“Forbearance Agreement”) pursuant to which Lender agreed to forebear from
      accelerating obligations and/or enforcing existing defaults.




The
      Forbearance Agreement amended the Loan Agreement to reduce the maximum credit
      line to $12,000,000, which, after March 1, 2005 was further reduced by $250,000
      per month.




On
      August
      11, 2005, the Company and the Lender entered into an Amended and Restated
      Forbearance Agreement (the “Amended Forbearance Agreement”) whereby the Lender
      had again agreed to forbear from accelerating obligations and/or enforcing
      existing defaults until the earlier to occur of (a) August 26, 2005 or (b)
      the
      date of any Forbearance Default, as defined (the “Forbearance
      Period”).




The
      Amended Forbearance Agreement provided that during the Forbearance Period,
      the
      maximum credit line would be $10,500,000.




Between
      August 25, 2005 and December 21, 2005, the Lender granted the Company a series
      of extensions of the Amended Forbearance Agreement.  An extension
      granted in November 2005 was conditioned upon, among other things, the Company
      and ALS entering into a binding agreement providing for a sale to ALS of certain
      assets of the Company.  The Company and ALS entered into such an
      agreement on November 3, 2005. As a condition to obtaining an extension granted
      in December 2005, the Company was required to represent that it had closed
      the
      sale of assets to ALS and to acknowledge and agree that any loans and advances
      made by the Lender during the extension period would be the last requested
      advances under the Loan Agreement.  The final extension of the Amended
      Forbearance Agreement expired on December 21, 2005.  As of January 31,
      2006, the Company repaid all of the indebtedness under the Loan
      Agreement.




The
      Lender charged the Company $350,000 of fees in connection with the Forbearance
      Agreement, the Amended Forbearance Agreement and the various extensions thereof
      during the three months ended December 31, 2005.




In
      connection with the Company and the Lender entering into the Amended Forbearance
      Agreement, the Company, the Lender and ALS also entered into the ALS
      Forbearance, whereby ALS agreed to forbear, through August 25, 2005, from
      enforcing payment defaults under the Company’s Outsourcing Agreement (see Note
      10).  All of the Company’s obligations under the Company’s Outsourcing
      Agreement with ALS were satisfied in connection with the sale of assets to
      ALS
      which occurred in December 2005 (see Note 5).




On
      January 3, 2006, the Company’s consolidated 50% owned joint venture, STS (see
      Notes 1 and 10), entered into a factoring and security agreement (the “Factoring
      Agreement”) with Action Capital Corporation (“Action”).  The Factoring
      Agreement provides for the sale of up to $1,500,000 of acceptable accounts
      receivable of STS to Action.  Action reserves and withholds an amount
      in a reserve account equal to 10% of the face amount of accounts receivable
      purchased under the Factoring Agreement.  Action has full recourse
      against STS including, without limitation, the right to charge-back or sell
      back
      any accounts receivable, if not paid within 90 days of the date of
      purchase.  The Factoring Agreement provides for STS to pay interest of
      prime plus 1% plus a monthly fee of .6% on the daily average of unpaid
      advances.




The
      prime
      rate at June 30, 2007 was 8.25%.




**NOTE
      7 – PAYROLL TAX LIABILITIES**





During
      fiscal 2003, the Company was notified by both the New Jersey Department of
      Labor
      and the California Employment Development Department (the “EDD”) that, if
      certain payroll delinquencies were not cured, judgment would be entered against
      the Company.  As of June 30, 2007, there was still an aggregate of
      $3.2 million in delinquent payroll taxes outstanding which are included in
      “Payroll taxes payable” on the balance sheet.  Judgment has not been
      entered against the Company in California.  While judgment has been
      entered against the Company in New Jersey, no actions have been taken to enforce
      same.





On
      January 7, 2005, the Company entered into a payment plan agreement with the
      EDD
      with regard to the Company’s past due and unpaid unemployment
      taxes.  The Company is to continue to pay $12,500 per week to be first
      applied to its unpaid employment tax liability of $284,046 (as of December
      31,
      2006) for periods prior to the second quarter 2004; then to second quarter
      2004
      and third quarter 2004 employment taxes to the extent not already paid, then
      to
      interest and then to penalties.  The weekly payment of $12,500 is to
      increase for a three month period following any quarter in which the Company’s
      reported income is above $200,000 based on a percentage increase tied to the
      amount in excess of $200,000.


10


The
      Company believes that consistent with the parties’ intentions when entering into
      the Plan, the gain on sale of discontinued operations, which resulted in no
      cash
      to the Company, would be excluded from reported income.





**NOTE
      8 – INCOME TAXES**





No
      income
      tax expense was recorded in the three months ended June 30, 2007 and 2006,
      and
      the nine months ended June 30, 2006, because the Company recognized a deferred
      tax benefit resulting from the utilization of the Company’s net operating loss
      carryforwards.





**NOTE
      9 – PREFERRED STOCK**





**a.**
            **Series
                F**





In
      July
      2002, the Company’s Chief Executive Officer invested $1,000,000 in the Company
      in exchange for 10,000 shares of newly created Series F Convertible Preferred
      Stock (the “Series F Preferred Stock”), which has a stated value of $100 per
      share.





The
      holder of the Series F Preferred Stock is entitled to receive, from assets
      legally available therefore, cumulative dividends at a rate of 7% per year,
      accrued daily, payable monthly, in preference and priority to any payment of
      any
      dividend on the Common Stock and on the Series F Preferred
      Stock.  Dividends may be paid, at the Company’s option, either in cash
      or in shares of Common Stock, valued at the Series F Conversion Price (as
      defined below).  Holders of Series F Preferred Stock are entitled to a
      liquidation preference of $100 per share, plus accrued and unpaid
      dividends.





The
      Series F Preferred Stock is convertible into Common Stock at a conversion price
      equal to $.40 per share.  The number of shares issuable upon
      conversion is determined by multiplying the number of shares of Series F
      Preferred Stock to be converted by $100, and dividing the result by the Series
      F
      Conversion Price.





Except
      as
      otherwise required by law, holders of Series F Preferred Stock and holders
      of
      Common Stock shall vote together as a single class on each matter submitted
      to a
      vote of stockholders.  Each outstanding share of Series F Preferred
      Stock shall be entitled to the number of votes equal to the number of full
      shares of Common Stock into which each such share of Series F Preferred Stock
      is
      then convertible on the date for determination of stockholders entitled to
      vote
      at the meeting.  Holders of the Series F Preferred Stock are entitled
      to vote as a separate class on any proposed amendment to the terms of the Series
      F Preferred Stock which would increase or decrease the number of authorized
      shares of Series F Preferred Stock or have an adverse impact on the Series
      F
      Preferred Stock and on any proposal to create a new class of shares having
      rights or preferences equal to or having priority to the Series F Preferred
      Stock.





The
      Company may redeem the shares of the Series F Preferred Stock at any time prior
      to conversion at a redemption price of 115% of the purchase price paid for
      the
      Series F Preferred Shares plus any accrued but unpaid dividends.





**b.**
            **Series
                I**





The
      Company was required to redeem each share of the Series I Preferred Stock for
      an
      amount equal to the stated value of $100 per share plus all accrued and unpaid
      dividends on August 5, 2005, the one year anniversary date of the issuance
      of
      the Series I Preferred Stock to the extent permitted by applicable law;
      provided, however, that the Company had the right to extend the required
      redemption date for an additional one year, in which case the Company was
      required to pay all dividends accrued through the first year of issuance in
      cash
      and issue to each holder of Series I Preferred Stock a number of shares of
      its
      common stock which then have a value equal to 10% of the stated value of the
      Series I Preferred Stock held.  In addition, because the Company
      extended the redemption date, it was required to pay dividends quarterly and
      pay
      an advisory fee to an advisor designated by the holders of the Series I
      Preferred Stock in an amount equal to 10% of the aggregate stated value of
      the
      outstanding shares of Series I Preferred Stock, 80% of which was payable in
      cash
      and 20% of which will be paid in shares of the Company’s common stock, valued at
      the then current market value.  If the Company did not redeem the
      Series I Preferred Stock by the extended redemption date, the dividend rate
      of
      the Series I Preferred Stock would have increased to 24% per year and the Series
      I Preferred Stock would have been convertible, at the option of the holder,
      into
      either common stock at a conversion price equal to 80% of the average closing
      bid price of the common stock during the five trading days preceding the
      conversion or common stock and warrants at a rate of 125 shares of common stock
      and 250 warrants for each $100 of stated value and accrued and unpaid dividends
      represented by the Series I Preferred Stock.  Holders of Series I
      Preferred Stock had no voting rights, except as provided by law and with respect
      to certain limited matters.





Pinnacle
      Investment Partners, LP (“Pinnacle”), the holder of the shares of the Company’s
      Series I Preferred Stock (see Note 11) notified the Company that the Company
      was
      in default of its obligations to pay $30,000 of the $174,200 cash portion
      of


11


the
      advisory fee which was required to be paid in connection with the Company’s
      election to extend the date by which it was required to redeem the Series I
      Preferred Stock to August 5, 2006.  The Company was also in default
      for non-payment of $40,091 of dividends on the Series I Preferred Stock that
      were due on September 30, 2005.





The
      Company permitted Pinnacle to convert 41 shares of Series I Preferred Stock
      into
      840,000 shares of common stock in October 2005 as a result of the payment
      defaults.





In
      December 2005, the Company permitted Pinnacle to convert an aggregate of 203
      shares of Series I Preferred Stock into 3,000,000 shares of Common Stock and
      agreed to pay to Pinnacle a default fee of $100,000.





On
      January 13, 2006, the Company entered into an agreement with Pinnacle, pursuant
      to which the Company issued to Pinnacle, effective December 28, 2005, a secured
      convertible promissory note (the “Convertible Note”) in the aggregate principal
      amount of $2,356,850 in exchange for 21,531 shares of the Company’s Series I
      Preferred Stock held by Pinnacle.  As a result of the exchange, there
      are no longer any shares of Series I Preferred Stock outstanding, and the
      Company no longer has any obligation to pay to Pinnacle any amounts owed to
      it
      under the terms of the Series I Preferred Stock, including $103,716 of unpaid
      dividends which had accrued through December 28, 2005.  The
      Convertible Note, which is secured by substantially all of the Company’s assets,
      was or becomes due as follows:





•
            $1,800,000
                was due and payable in cash upon the earlier of the Company’s receipt of
                $1,800,000 of accounts receivable or March 15, 2006.  During the
                year ended September 30, 2006, the Company issued 5,000,000 shares
                of its
                common stock, valued at the then market value, to Pinnacle as payment
                of
                $45,000 against this portion of the Convertible Note.  At March
                31, 2007, $210,000 remains unpaid.





•
            $331,850
                and accrued interest at a rate of 12% per annum is payable in 24
                equal
                installments of principal and interest during the period commencing
                June
                28, 2007 and ending on May 28,
                2009.





•
            $225,000
                and accrued interest thereon at the rate of 6% per annum becomes
                due and
                payable on December 28, 2007; provided, however, that the Company
                has the
                right to pay such amount in cash or shares of its common stock (valued
                at
                $0.0072 per share).





Pinnacle
      has the right to convert the principal amount of and interest accrued under
      the
      Convertible Note at any time as follows:





•
            $331,850
                of the principal amount and unpaid interest accrued thereon is convertible
                into the Company’s common stock at a conversion price of $.06 per
                share.





•
            $225,000
                of the principal amount and unpaid accrued interest thereon is convertible
                into the Company’s common stock at a conversion price of
                $0.0072.  During the year ended September 30, 2006, $150,000 was
                converted into 20,833,331 shares of the Company’s Common
                Stock.





Pinnacle
      may not convert the Convertible Note to the extent that the conversion would
      result in Pinnacle owning in excess of 9.999% of the then issued and outstanding
      shares of common stock of the Company.  Pinnacle may waive this
      conversion restriction upon not less than 60 days prior notice to the
      Company.





**NOTE
      10 – RELATED PARTY TRANSACTIONS**





***Consulting
      Fees***


An
      entity
      which employs the son of the Chief Executive Officer of the Company (the “CEO”)
      provided consulting services to the Company.  Consulting expense was
      $-0- and $44,000 for the nine months ended June 30, 2007 and 2006,
      respectively.  Included in the $44,000 is a charge of $16,000 in
      connection with the issuance of 2,000,000 shares of the Company’s common stock
      to the entity.





***Joint
      Venture***


The
      Company provides information technology staffing services through a joint
      venture, STS (see Note 1), in which the Company has a 51%
      interest.  Prior to February 13, 2007, the Company had a 50%
      interest.  On February 13, 2007, the Company acquired from Fusion
      Business Services, LLC (“Fusion”) an additional 1% interest in STS in exchange
      for the issuance to the members of Fusion of 70,111 shares of the Company’s
      common stock.  As a result of the transfer, which was effective as of
      January 1, 2007, the Company owns a 51% interest in STS and Fusion owns 49%
      interest.  Fusion has a right to re-acquire the 1% interest
      transferred to the Company upon the occurrence of certain events, including
      the
      institution of bankruptcy or insolvency proceedings against the Company, a
      sale
      of all or substantially all of the Company’s assets, a merger or consolidation
      of the Company with another entity, or the liquidation or dissolution of the
      Company.


12


The
      purchase price payable by Fusion in connection with any such re-acquisition
      shall be a return of the shares issued to it for the 1% interest or a cash
      payment of $1,262.  A son of the CEO of the Company has a majority
      interest in Fusion.





***Payroll
      Outsourcing***


The
      Company was a party to an Outsourcing Agreement with ALS pursuant to which
      ALS
      and its affiliate, Advantage Services Group, LLC (“Advantage”), were to provide
      payroll outsourcing services for all of the Company’s in-house staff, except for
      its corporate employees, and customer staffing requirements.  As a
      result of this arrangement, all of the Company’s field personnel were employees
      of ALS.  The Company paid agreed upon pay rates, plus burden (payroll
      taxes and workers’ compensation insurance) plus a fee ranging between 2% and 3%
      (0% - 1 1⁄2% effective June 10, 2005) of pay rates.  On June 10, 2005,
      the Company entered into a Second Addendum to Outsourcing Agreement with ALS,
      which,


among
      other things, reduced certain rates charged by ALS to the
      Company.  The total amount charged by ALS under this agreement and
      similar agreements previously in effect between the parties was $17,326,000
      in
      the nine months ended June 30, 2006.





The
      Company terminated the Outsourcing Agreement effective February 3,
      2006.





***Due
      from Related Party***


The
      amount due from related party in the condensed consolidated balance sheet is
      the
      remaining balance due from ALS in connection with the sale of the ALS Purchased
      Assets (see Note 5).





***Loans
      Payable***


During
      the nine months ended June 30, 2007, the CEO loaned $100,000 to the Company
      which was repaid in January 2007.  In addition, during the nine months
      ended March 31, 2007, a significant shareholder loaned $20,000 to the Company,
      of which $4,000 was repaid through June 30, 2007.





***Other***


An
      entity
      through which the son of the CEO is employed is a consultant to AI (see Note
      5).





The
      nephew of the CEO of the Company is affiliated with Pinnacle Investment
      Partners, LP, the holder of the shares of the convertible note issued in
      exchange for shares of the Company’s Series I Preferred Stock (see Note
      9).  The Company believes that PIP Management Inc., which has been
      designated as the advisor to the Series I holders (see Note 9), is also
      affiliated with Pinnacle Investment Partners, LP.




**NOTE
        11 – DERIVATIVE INSTRUMENTS**


The
      Company evaluated the application of SFAS No. 133 and EITF 00-19 for its
      financial instruments and determined that certain warrants to purchase the
      Company’s Common Stock are derivatives that are required to be accounted for as
      free-standing liability instruments in the Company’s financial
      statement.  As a result, the Company reports the value of those
      warrants as current liabilities on its balance sheet and reports changes in
      the
      value of these warrants as non-operating gains or losses on its statements
      of
      operations.  The value of the warrants is required to be remeasured on
      a quarterly basis, and is based on the Black Scholes Pricing Model.





Variables
      used in the Black Scholes option pricing model include (1) 4% risk-free interest
      rate, (2) expected warrant life is the actual remaining life of the warrants
      as
      of each period end, (3) expected volatility is 100%, and (4) zero expected
      dividends.





Due
      to
      the nature of the required calculations and the large number of shares of the
      Company’s common stock involved in such calculations, changes in the Company’s
      common stock price may result in significant changes in the value of the
      warrants and resulting non-cash gains and losses on the Company’s statement of
      operations.




**NOTE
        12 – SUBSEQUENT EVENTS**


(a)
            On
                August 1, 2007, Transworld Assets, LLC (“Transworld”), a newly formed 51%
                owned subsidiary of the Company, entered into an Asset Purchase Agreement
                (the “Asset Purchase Agreement”) with Green-Tech Assets, Inc.
                (“Green-Tech”), CC Laurel, Inc. (“CCL” and collectively with Green-Tech,
                the “Sellers”), pursuant to which Transworld agreed to purchase
                substantially all of the assets of the Sellers for a purchase price
                consisting of:


13





(i)
            $600,000
                in cash;(ii)
            a
                promissory note (the “Note”) in the principal amount of $166,828 bearing
                interest at a rate of 5% a year and payable in equal monthly installments
                of $5,000 each over a 36 month period;(iii)
            2,000,000
                shares of the Company’s common
                stock.





Transworld
      also agreed to assume approximately $702,479 of specified liabilities in
      connection with the transaction.





The
      Company owns the entire Class C membership interest in Transworld which
      represents a 51% ownership interest in Transworld.  Third party
      investors own all of the outstanding units representing Class A membership
      interests (the “Class A LLC Units”) in Transworld which collectively represent a
      40% ownership interest in Transworld.  Members of Transworld’s
      management team and consultants will be issued units representing Class B
      membership interests in Transworld which will collectively represent a 9%
      ownership interest.  As of the date of this Report, investors had
      contributed an aggregate of $1,000,000 to Transworld pursuant to a private
      placement (the “Private Placement”) of units consisting of 6% notes and Class A
      LLC Units conducted by Transworld.  The aggregate principal amount of
      6% notes issued by Transworld in connection with the Private Placement was
      $500,000 as of August 6, 2007.





On
      August
      2, 2007, the acquisition of substantially all of the assets of the Sellers
      by
      Transworld (the “Acquisition Transaction”) was completed.  The assets
      acquired consisted of among others, fixed assets, customer lists and records,
      contracts and agreements, trade names, computers, computer programs, databases,
      accounts receivable, inventories and the names “Green-Tech Assets, Inc.” and “CC
      Laurel, Inc.”  The cash portion of the purchase price paid to the
      Sellers and $423,652 of liabilities satisfied by Transworld at the time of
      the
      closing were funded by the proceeds of the Transworld Private Placement and
      a
      $100,000 loan made to Transworld which is due on September 30, 2007 and bears
      interest at a rate of 12% a year.  The Company has guaranteed the
      obligations of Transworld under the Note.  The Sellers, as well as the
      principal shareholders of the Sellers, have entered into non-competition
      agreements pursuant to which they agree not to compete with Transworld for
      a
      three year period.





As
      a
      result of the Acquisition Transaction, Transworld will succeed to the business
      previously conducted by the Sellers, which consists of the disposal and
      recycling of electronic and technology assets, software license reclamation,
      asset auditing and tracking and technology risk management
      services.  On August 6, 2007, Transworld changed its name to
      Green-Tech Assets, LLC.





(b)
            The
                 Company contributed (or was deemed to have contributed) a total
                of
                5,000,000 shares of its common stock to Transworld.  Of the
                shares deemed contributed, 2,000,000 shares were issued to Green-Tech
                in
                connection with the Acquisition Transaction, 500,000 shares are being
                issued to holders of the Class A membership interests and 1,000,000
                shares
                were issued to holders of the units representing Class B membership
                interests.  The remaining shares will be retained by Transworld,
                except for up to 500,000 shares which may be issued to future investors
                in
                Transworld.








14


**Item
      2 -****MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
      CONDITION**


**AND
      RESULTS OF OPERATIONS**





This
      Form
      10-Q contains “forward-looking statements” within the meaning of Section 27A of
      the Securities Act of 1933, as amended and Section 21E of the Securities
      Exchange Act of 1934, as amended.  These statements relate to future
      economic performance, plans and objectives of management for future operations
      and projections of revenue and other financial items that are based on the
      beliefs of our management, as well as assumptions made by, and information
      currently available to, our management.  The words “expect”,
“estimate”, “anticipate”, “believe”, “intend”, and similar expressions are
      intended to identify forward-looking statements.  Such statements
      involve assumptions, uncertainties and risks.  If one or more of these
      risks or uncertainties materialize or underlying assumptions prove incorrect,
      actual outcomes may vary materially from those anticipated, estimated or
      expected.  Among the key factors that may have a direct bearing on our
      expected operating results, performance or financial condition are our ability
      to manage the technology and electronic asset disposition business that we
      acquired in August 2007; economic conditions facing the staffing and technology
      and electronic disposition industries generally; uncertainties related to the
      job market and our ability to attract qualified candidates; our ability to
      raise
      additional capital; the continued cooperation of our creditors; our ability
      to
      achieve and manage growth; our ability to attract and retain qualified
      personnel; our ability to develop new services; our ability to enhance and
      expand existing offices; our ability to open new offices; general economic
      conditions; and other factors discussed from time to time in our filings with
      the Securities and Exchange Commission.  These factors are not
      intended to represent a complete list of all risks and uncertainties inherent
      in
      our business.  The following discussion and analysis should be read in
      conjunction with the Condensed Consolidated Financial Statements and notes
      appearing elsewhere in this report.





Our
      critical accounting policies and estimates are described in our Annual Report
      on
      Form 10-K for the fiscal year ended September 30, 2006.





**Introduction**





Through
      December 2005, we provided a wide range of staffing services and productivity
      consulting services associated with such staffing services nationally through
      a
      network of offices located throughout the United States.  Regardless
      of the type of temporary service offering we provided, we recognized revenues
      based on hours worked by assigned personnel.  Generally, we billed our
      customers a pre-negotiated, fixed rate per hour for the hours worked by our
      temporary employees.  Therefore, we did not separate our various
      service offerings into separate offering segments.  We did not
      routinely provide discrete financial information about any particular service
      offering.  We also did not conduct any regular reviews of, nor make
      decisions about, allocating any particular resources to a particular service
      offering to assess its performance.  As set forth below, certain of
      our service offerings targeted specific markets, but we did not necessarily
      conduct separate marketing campaigns for such services.  Pursuant to
      the Outsourcing Agreement that was in place with ALS, ALS was responsible for
      paying wages, workers’ compensation, unemployment compensation insurance,
      Medicare and Social Security taxes and other general payroll related expenses
      for all of the temporary employees we placed, and we were billed for such
      expenses plus a fee by ALS.  These expenses are included in the cost
      of revenue.  Because we paid our temporary employees only for the
      hours they actually worked, wages for our temporary personnel were a variable
      cost that increased or decreased in proportion to revenues.  Gross
      profit margin varied depending on the type of services offered.  In
      some instances, temporary employees placed by us may have decided to accept
      an
      offer of permanent employment from the customer and thereby “convert” the
      temporary position to a permanent position.  Fees received from such
      conversions were included in our revenues.  Selling, general and
      administrative expenses include payroll for management and administrative
      employees, office occupancy costs, sales and marketing expenses and other
      general and administrative costs.





In
      December 2005, we completed a series of asset sale transactions pursuant to
      which we sold our staffing operations.  As a result of such sales, we
      no longer actively conduct any staffing services business, other than IT
      staffing solutions services conducted through our 51% owned joint venture,
      STS.  **Results of Operations**


**Discontinued
      Operations/Acquisition or Disposition of Assets**





In
      December 2005, we completed the following series of transactions pursuant to
      which we sold substantially all of our assets used to conduct our staffing
      services business, other than the IT staffing solutions business that is
      conducted through our 50% owned joint venture, Stratus Technology Services,
      LLC:





(a)
            On
                December 2, 2005, we completed the sale, effective as of November
                21,
                2005, of substantially all of the tangible and intangible assets,
                excluding accounts receivable, of several of our offices located
                in the
                Western half of the United States (the “ALS Purchased Assets”) to ALS, LLC
                (“ALS”).  The offices sold were the following:  Chino,
                California; Colton, California; Los Angeles, California; Los Nietos,
                California; Ontario, California; Santa Fe Springs, California and
                the
                Phoenix, Arizona branches and the Dallas Morning News Account (the
                “Western Offices”).  Pursuant to the terms of an Asset Purchase
                Agreement between us and ALS dated December 2, 2005 (the “ALS Asset
                Purchase Agreement”), the purchase price for the ALS Purchased Assets was
                paid as follows:





•
            $250,000
                was paid over the 60 days following December 2, 2005, for our documented
                cash flow requirements, all of which is payable at a rate no faster
                than
                $125,000 per 30 days;





•
            $1,000,000
                payable by ALS was paid directly to certain taxing authorities to
                reduce
                our tax obligations; and





•
            $3,537,000
                was paid by means of the cancellation of all net indebtedness owed
                by us
                to ALS outstanding as of the close of business on December 2,
                2005.





In
      addition to the foregoing amounts, ALS also assumed our obligation to pay
      $798,626 due under a certain promissory note issued by us to Provisional
      Employment Solutions, Inc.  As a result of the sale of the ALS
      Purchased Assets to ALS, all sums due and owing to ALS by Stratus were deemed
      paid in full and no further obligations remain.





In
      connection with the transaction, we entered into Non-Compete and
      Non-Solicitation Agreements with ALS pursuant to which we agreed not to compete
      with ALS with the customers of and in the geographic area of the Western
      Offices, and ALS agreed not to compete with us with respect to certain customers
      and accounts, including, accounts serviced by our remaining offices, for a
      period of two years.




(b)
            On
                December 5, 2005, we completed the sale, effective as of November
                28, 2005
                (the “AI Effective Date”), of substantially all of the tangible and
                intangible assets, excluding accounts receivable and other certain
                items,
                as described below, of three of our California offices (the “AI Purchased
                Assets”) to Accountabilities, Inc. (“AI”)  The offices sold were
                the following:  Culver City, California; Lawndale, California
                and Orange, California (the “Other California
                Offices”).  Pursuant to the terms of an Asset Purchase Agreement
                between the Company and AI dated December 5, 2005 (the “AI Asset Purchase
                Agreement”), AI has agreed to pay to us an earnout amount equal to two
                percent of the sales of the Other California Offices for the first
                twelve
                month period after the AI Effective Date; one percent of the sales
                of the
                Other California Offices for the second twelve month period after
                the AI
                Effective Date; and one percent of the sales of the Other California
                Offices for the third twelve month period from the AI Effective
                Date.  In addition, a Demand Subordinated Promissory Note
                between us and AI dated September 15, 2005 which had an outstanding
                principal balance of $125,000 at the time of closing was deemed paid
                and
                marked canceled.




Certain
      assets held by the Other California Offices were excluded from the sale,
      including cash and cash equivalents, accounts receivable, and our rights to
      receive payments from any source.




In
      connection with the AI transaction, we entered into Non-Compete and
      Non-Solicitation Agreements with AI pursuant to which we agreed not to compete
      with AI with the customers of and in the geographic area of the Other California
      Offices, and AI agreed not to compete with us with respect to certain customers
      and accounts, including, accounts serviced by our remaining offices, for a
      period of three years.




(c)
            On
                December 7, 2005, we completed the sale, effective as of November
                28, 2005
                (the “SOP Effective Date”), of substantially all of the tangible and
                intangible assets, excluding accounts receivable and other assets
                as
                described below, of several of our Northeastern offices (the “SOP
                Purchased Assets”) to Source One Personnel, Inc. (“SOP”).  The
                offices sold were the following:  Cherry Hill, New Jersey; New
                Brunswick, New Jersey; Mount Royal/Paulsboro, New Jersey (soon to
                be
                Woodbury Heights, New Jersey); Pennsauken, New Jersey;
                Norristown,




15


Pennsylvania;
      Fairless Hills, Pennsylvania; New Castle Delaware and the former Freehold,
      New
      Jersey profit center (the “NJ/PA/DE Offices”).  The assets of Deer
      Park, New York, Leominster, Massachusetts, Lowell, Massachusetts and Athol,
      Massachusetts (the “Earn Out Offices”) were also purchased (collectively the
“NJ/PA/DE Offices” and the “Earn Out Offices” shall be referred to as the
“Purchased Offices”).  In addition to the foregoing, the SOP Purchased
      Assets also included substantially all of the tangible and intangible assets,
      excluding accounts receivable and other assets as described below, used by
      us in
      the operation of our business at certain facilities of certain customers
      including the following:  the Setco facility in Cranbury New Jersey,
      the Record facility in Hackensack, New Jersey, the UPS-MI (formerly RMX)
      facility in Long Island, New York, the UPS-MI (formerly RMX) facility in the
      State of Connecticut, the UPS-MI (formerly RMX) facility in the State of Ohio,
      the APX facility in Clifton, New Jersey (the “Earn Out On-Site Business”) and
      the Burlington Coat Factory in Burlington, New Jersey, the Burlington Coat
      Factory facility in Edgewater Park, New Jersey and the UPS-MI (formerly RMX)
      facility in Paulsboro, New Jersey (the foregoing business and the “Earn-Out
      On-Site Businesses” shall be referred to herein collectively as
      the  “On-Site Businesses”).  Pursuant to the SOP Asset
      Purchase Agreement between us and SOP dated December 7, 2005 (the “SOP Asset
      Purchase Agreement”), the purchase price for the SOP Purchased Assets was
      payable as follows (the “SOP Purchase Price”):




•
            An
                aggregate of $974,031 of indebtedness owed by us to SOP (i) under
                certain
                promissory notes previously issued by us to SOP and (ii) in connection
                with a put right previously exercised by SOP with respect to 400,000
                shares of our common stock was
                cancelled.




•
            SOP
                is required to make the following earn out payments to us during
                the three
                year period commencing on the SOP Effective Date (the “Earn Out
                Period”):




•
            Two
                percent of sales (excluding taxes on sales) from the Earn Out Offices
                and
                the Earn Out On-Site Businesses for the initial twelve months of
                the Earn
                Out Period.




•
            One
                percent of sales (excluding taxes on sales) from the Earn Out Offices
                and
                the Earn Out On-Site Businesses for the second twelve months of the
                Earn
                Out Period.




•
            One
                percent of sales (excluding taxes on sales) from the Earn Out Offices
                and
                the Earn Out On-Site Businesses for the third twelve months of the
                Earn
                Out Period.




In
      June
      2007, we agreed to accept a $90,000 lump sum payment as payment in full of
      any
      remaining SOP obligation under the SOP Asset Purchase Agreement.




Certain
      assets held by the Purchased Offices were excluded from the sale, including
      cash
      and cash equivalents, accounts receivable, our rights to receive payments from
      any source.




In
      connection with the SOP transaction, we entered into Non-Compete and
      Non-Solicitation Agreements with SOP pursuant to which we agreed not to compete
      with SOP with respect to the business acquired from us by SOP for a period
      of
      two years.




(d)
            On
                December 7, 2005 (the “Closing Date”), we completed the sale of
                substantially all of the tangible and intangible assets, excluding
                cash
                and cash equivalents, of two of our California branch offices (the
“TES
                Purchased Assets”) to Tri-State Employment Service, Inc.
                (“TES”).  The offices sold were the
                following:  Bellflower, California and West Covina, California
                (the “California Branch Offices”).   Pursuant to the terms
                of an Asset Purchase Agreement between the Registrant and TES dated
                December 7, 2005 (the “TES Asset Purchase Agreement”), TES has agreed to
                pay to us as follows:




•
            two
                percent of sales of the California Branch Offices to existing clients
                for
                the first twelve month period after the Closing
                Date;




•
            one
                percent of sales of the California Branch Offices to existing clients
                for
                the second twelve month period after  the Closing Date;
                and




•
            one
                percent of sales of the California Branch Offices to existing clients
                for
                the third twelve month period after the Closing
                Date.




For
      purposes of calculating the amount owed by TES to us, in no event shall the
      aggregate annual sales to such clients exceed $25,000,000.




16


On
      the
      Closing Date, TES made a payment of $1,972,521 to our lender and acquired the
      lender’s rights to certain of our accounts receivable that collateralize our
      obligation to the lender.  As a result of this transaction, our
      obligations to the lender were reduced by $1,972,521.




In
      connection with the TES transaction, we entered in Non-Compete and
      Non-Solicitation Agreements pursuant to which we agreed not to compete with
      TES
      with the customers of and in the geographic area of the California Branch
      Offices, and TES agreed not to compete with Stratus with respect to certain
      customers and accounts, including, accounts serviced by Stratus’ remaining
      offices, for a period of three years.




The
      foregoing transactions resulted in a net gain on sale of discontinued operations
      which is summarized as follows:




**Three
                Months Ended**
            
            
            **Nine
                Months Ended****June
                30,**
            
            
            **June
                30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**Sold
                to:ALS
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            4,340,459AI
            
            
            34,585
            
            
            
            99,704
            
            
            
            147,199
            
            
            
            (104,897
            )SOP
            
            
            110,911
            
            
            
            50,594
            
            
            
            183,224
            
            
            
            (233,990
            )TES
            
            
            38,157
            
            
            
            65,127
            
            
            
            129,724
            
            
            
            (349,421
            )183,653
            
            
            
            215,425
            
            
            
            460,147
            
            
            
            3,652,151Other
                costs of sales
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (60,000
            )Gain
                on sale of discontinued operations
            
            $
            183,653
            
            
            $
            215,425
            
            
            $
            460,147
            
            
            $
            3,592,151





The
      above
      gain is comprised of earnout payments in the three and nine months ended June
      30, 2007 (including a $90,000 lump sum payment from SOP) and three months ended
      June 30, 2006, and includes earnout payments of $509,570 in the nine months
      ended June 30, 2006.




On
      August
      1, 2007, Transworld Assets, LLC (“Transworld”), a newly formed 51% owned
      subsidiary of ours, entered into an Asset Purchase Agreement (the “Asset
      Purchase Agreement”) with Green-Tech Assets, Inc. (“Green-Tech”), CC Laurel,
      Inc. (“CCL” and collectively with Green-Tech, the “Sellers”), pursuant to which
      Transworld agreed to purchase substantially all of the assets of the Sellers
      for
      a purchase price consisting of:





(i)
            $600,000
                in cash;(ii)
            a
                promissory note (the “Note”) in the principal amount of $166,828 bearing
                interest at a rate of 5% a year and payable in equal monthly installments
                of $5,000 each over a 36 month period;(iii)
            2,000,000
                shares of our common stock.





Transworld
      also agreed to assume approximately $702,479 of specified liabilities in
      connection with the transaction.





We
      own
      the entire Class C membership interest in Transworld which represents a 51%
      ownership interest in Transworld.  Third party investors own all of
      the outstanding units representing Class A membership interests (the “Class A
      LLC Units”) in Transworld which collectively represent a 40% ownership interest
      in Transworld.  Members of Transworld’s management team and
      consultants will be issued units representing Class B membership interests
      in
      Transworld which will collectively represent a 9% ownership
      interest.  As of the date of this Report, investors had contributed an
      aggregate of $1,000,000 to Transworld pursuant to a private placement (the
      “Private Placement”) of units consisting of 6% notes and Class A LLC Units
      conducted by Transworld.  The aggregate principal amount of 6% notes
      issued by Transworld in connection with the Private Placement was $500,000
      as of
      August 6, 2007.





On
      August
      2, 2007, the acquisition of substantially all of the assets of the Sellers
      by
      Transworld (the “Acquisition Transaction”) was completed.  The assets
      acquired consisted of among others, fixed assets, customer lists and records,
      contracts and agreements, trade names, computers, computer programs, databases,
      accounts receivable, inventories and the names “Green-Tech Assets, Inc.” and “CC
      Laurel, Inc.”  The cash portion of the purchase price paid to the
      Sellers and $423,652 of liabilities satisfied by Transworld at the time of
      the
      closing were funded by the proceeds of the Transworld Private Placement and
      a
      $100,000 loan made to Transworld which is due on September 30, 2007 and bears
      interest at a rate of 12% a year.  We have guaranteed the obligations
      of Transworld under the Note.  The Sellers, as well as the principal
      shareholders of the Sellers, have entered into non-competition agreements
      pursuant to which they agree not to compete with Transworld for a three year
      period.


17


As
      a
      result of the Acquisition Transaction, Transworld will succeed to the business
      previously conducted by the Sellers, which consists of the disposal and
      recycling of electronic and technology assets, software license reclamation,
      asset auditing and tracking and technology risk management
      services.  On August 6, 2007, Transworld changed its name to
      Green-Tech Assets, LLC.





We
      contributed (or was deemed to have contributed) a total of 5,000,000 shares
      of
      its common stock to Transworld.  Of the shares deemed contributed,
      2,000,000 shares were issued to Green-Tech in connection with the Acquisition
      Transaction, 500,000 shares are being issued to holders of the Class A
      membership interests and 1,000,000 shares were issued to holders of the units
      representing Class B membership interests.  The remaining shares will
      be retained by Transworld, except for up to 500,000 shares which may be issued
      to future investors in Transworld.











18





**Continuing
      Operations**


**Three
      Months Ended June 30, 2007 Compared to Three Months Ended June 30,
      2006**





***Revenues.***  Revenues
      increased 62.2% to $2,079,589 for the three months ended June 30, 2007 from
      $1,282,074 for the three months ended June 30, 2006.  This increase
      was primarily a result of an increase in billable hours and permanent placements
      and expansion of our customer base.





***Gross
      Profit.***  Gross profit increased 61.3% to $599,384 for
      the three months ended June 30, 2007 from $371,498 for the three months ended
      June 30, 2006, primarily as a result of increased revenues.  Gross
      profit as a percentage of revenues decreased slightly to 28.8% for the three
      months ended June 30, 2007 from 29.0% for the three months ended June 30,
      2006.  This increase was a result of increased permanent
      placements.





***Selling,
      General and Administrative Expenses.*****Selling,
      general and administrative expenses (“SG&A”) increased 27.7% to $673,542 for
      the three months ended June 30, 2007 from $527,365 for the three months ended
      June 30, 2006, primarily due to additional personnel that have been added to
      support the increase in revenues.  Selling, general and administrative
      expenses as a percentage of revenues decreased to 32.4% for the three months
      ended June 30, 2007 from 41.1% for the three months ended June 30,
      2006.





***Interest
      Expense.***  Interest expense increased 24.1% to $58,555
      for the three months ended June 30, 2007 from**$47,179 for the
      three months ended June 30, 2006.  Interest expense as a percentage of
      revenues decreased to 2.8% for the three months ended June 30, 2007 from 3.7%
      for the three months ended June 30. 2006.





***Net
      Loss Attributable to Common Stockholders.*****As a
      result of the foregoing, we had net earnings attributable to common stockholders
      of $29,515, for the three months ended June 30, 2007 compared to net earnings
      attributable to common stockholders of $8,987 for the three months ended June
      30, 2006.





**Nine
      Months Ended June 30, 2007 Compared to Nine Months Ended June 30,
      2006**





***Revenues.***  Revenues
      increased 55.2% to $5,753,148 for the nine months ended June 30, 2007 from
      $3,706,018 for the nine months ended June 30, 2006.  This increase was
      primarily a result of an increase in billable hours and permanent placements
      and
      expansion of our customer base.





***Gross
      Profit.***  Gross profit increased 58.7% to $1,748,039 for
      the nine months ended June 30, 2007 from $1,101,618 for the nine months ended
      June 30, 2006, primarily as a result of increased revenues.  Gross
      profit as a percentage of revenues


increased
      to 30.4% for the six months ended June 30, 2007 from 29.7% for the nine months
      ended June 30, 2006.  This increase was a result of increased
      permanent placements.





***Selling,
      General and Administrative Expenses.*****SG&A
      decreased 19.2% to $2,048,103 for the nine months ended June 30, 2007 from
      $2,534,869 for the nine months ended June 30, 2006.  Selling, general
      and administrative expenses as a


percentage
      of revenues decreased to 35.6% for the nine months ended June 30, 2007 from
      68.4% for the nine months ended June 30, 2006.





As
      a
      result of the asset sales transactions completed in December 2005, the Company
      began reducing its corporate overhead structure to be more in line with the
      remaining revenues.  These reductions were completed in February
      2006.





***Interest
      Expense.***  Interest expense decreased 58.9% to $177,227
      for the nine months ended June 30, 2007 from**$430,987 for the nine
      months ended June 30, 2006.  Interest expense as a percentage of
      revenues decreased to 3.1% for the nine months ended June 30, 2007 from 11.6%
      for the nine months ended June 30, 2006.  The decrease was a result of
      the decrease in outstanding debt.  Interest expense in the nine months
      ended June 30, 2006 includes $100,000 of the principal amount of the Convertible
      Note issued in exchange for our Series I Preferred Stock that was attributable
      to the settlement of our obligation to pay certain advisory fees and dividend
      payments under the terms of the Series I Preferred Stock.  (see Note 9
      to the Condensed Consolidated Financial Statements).





***Net
      Earnings (Loss) Attributable to Common
      Stockholders.*****As a result of the foregoing, we had a
      net (loss) attributable to common stockholders of $(44,991) for the nine months
      ended June 30, 2007 compared to net earnings attributable to common stockholders
      of $1,379,875 for the nine months ended June 30, 2006.


19


**Liquidity
      and Capital Resources**





Cash
      flows have not been segregated between continuing operations and discontinued
      operations in the accompanying condensed consolidated statements of cash
      flows.  Cash provided to us from discontinued operations (included in
      the consolidated cash flow discussions below) during the nine months ended
      June
      30, 2007 and 2006 was comprised of the following:





**Nine
                Months Ended****March
                31,****2007**
            
            
            **2006**Cash
                provided by (used in) operating activities
            
            $
            (700,184
            )
            
            $
            8,400,417Cash
                provided by investing activities
            
            
            946,543
            
            
            
            1,011,541Cash
                used in financing activities
            
            
            -
            
            
            
            (7,930,389
            )Net
            
            $
            246,359
            
            
            $
            1,481,569





Although
      there is no assurance we will continue to receive earnout payments in connection
      with discontinued operations, we estimate that we will receive approximately
      $22,000 per month, through November 2008.





At
      June
      30, 2007, we had limited liquid resources.  Current liabilities were
      $9,252,245 and current assets were $1,615,954.  The difference of
      $7,636,291 is a working capital deficit, which is primarily the result of losses
      incurred during the last several years.  This condition raises
      substantial doubts about our ability to continue as a going
      concern.  The financial statements do not include any adjustments to
      reflect the possible future effect on the recoverability and classification
      of
      assets or the amounts and classification of liabilities that may result from
      the
      outcome of this uncertainty.





Our
      continuation of existence is dependent upon our ability to generate sufficient
      cash flow to meet our continuing obligations on a timely basis, to fund the
      operating and capital needs, and to obtain additional financing as may be
      necessary.





We
      have
      taken steps to revise and reduce our operating requirements, which we believe
      will be sufficient to assure continued operations and implementation of our
      plans.  The steps include closing branches that are not profitable,
      reductions in staffing, and other selling, general and administrative expenses,
      and most significantly, the asset sales transactions that were completed in
      December 2005 and our acquisition of the businesses of Green-Tech and CC Laurel
      in August 2007.  We continue to pursue other sources of equity or
      long-term debt financings.  We also continue to negotiate payments
      plans and other accommodations with our creditors.  We believe that
      the collection of receivables that we retained after completion of the asset
      sale transactions and earnout payments to which we are entitled in connection
      with the Asset Sales, as well as revenues generated by the technology and
      electronic asset disposition businesses acquired from Green-Tech and CC Laurel
      by Transworld, a 51% owned subsidiary, will provide us with sufficient cash
      flow
      to support our operations in the next twelve months.





Net
      cash
      provided by (used in) operating activities was $(1,073,716) and $7,139,011
      in
      the nine months ended June 30, 2007 and 2006, respectively.





Net
      cash
      provided by investing activities was $922,475 and $998,414 in the nine months
      ended June 30, 2007 and 2006, respectively.  Net cash received in
      connection with the sale of discontinued operations was $953,772 (comprised
      of
      earnout payments) and $1,024,587 (including earnout payments of $371,351),
      in
      the nine months ended June 30, 2007 and 2006, respectively.  Cash used
      for capital expenditures was $31,297 and $32,782 in the nine months ended June
      30, 2007 and 2006, respectively.





Net
      cash
      provided by (used in) financing activities was $125,512 and $(8,074,343) in
      the
      nine months ended June 30, 2007 and 2006, respectively.  We had net
      borrowings (repayments) of $67,541 and $(6,481,611) under our line of credit
      in
      the nine months ended June 30, 2007 and 2006, respectively.  Net
      short-term borrowings (repayments) were $55,629 and $(24,002) in the nine months
      ended June 30, 2007 and 2006, respectively.  Net short-term borrowings
      in the nine months ended June 30, 2007, includes $100,000 loaned to us by our
      Chief Executive Officer, which was repaid in January 2007 and $20,000 which
      was
      loaned to us by a significant shareholder of which $4,000 was repaid through
      June 30, 2007.  Payments of notes payable – acquisitions was $7,033
      and $63,999 in the nine months ended June 30, 2007 and 2006,
      respectively.  We paid $1,490,000 in the nine months ended June 30,
      2006, against a note payable to Pinnacle Investment Partners, L.P., a related
      party.


20


Our
      principal uses of cash are to fund temporary employee payroll expense and
      employer related payroll taxes, investment in capital equipment, expansion
      of
      services offered, workers’ compensation, general liability and other insurance
      coverages, and debt service.





In
      January 2006, STS entered into a Factoring and Security Agreement (the
“Factoring Agreement”) with Action Capital Corporation (“Action”) which provides
      for the sale of up to $1,500,000 of accounts receivable of STS to
      Action.  Action reserves and withholds in a reserve account, an amount
      equal to 10% of the face amount of accounts receivable purchased under the
      Factoring Agreement.  Action has full recourse against STS, including
      the right to charge-back or sell back any accounts receivable if not paid within
      90 days of the date of purchase.  The Factoring Agreement provides for
      interest at an annual rate of prime plus 1% plus a monthly fee of .6% on the
      daily average of unpaid balances.




During
      fiscal 2003, we were notified by both the New Jersey Department of Labor and
      the
      California Employment Development Department (the “EDD”) that, if certain
      payroll delinquencies were not cured, judgment would be entered against
      us.  As of June 30, 2007, there was still an aggregate of $3.2 million
      in delinquent payroll taxes outstanding, including interest and penalties,
      which
      are included in “Payroll taxes payable” on the balance sheet as of June 30,
      2007.  Judgment has not been entered against us in
      California.  While judgment has been entered against us in New Jersey,
      no actions have been taken to enforce same.  On January 7, 2005, we
      entered into a payment plan agreement with the EDD, which requires us to pay
      $12,500 per week to the EDD.  The $12,500 weekly payment is subject to
      increase for a three month period following any quarter in which our reported
      income exceeds $200,000, based upon a percentage related to the amount of
      increase above $200,000.




In
      July
      2003, we entered into an agreement with the holder of our Series A Preferred
      Stock pursuant to which we agreed to redeem the aggregate 1,458,933 shares
      of
      Series A Preferred Stock then outstanding.  The agreement, as amended
      in March 2004, provided that our obligation to redeem the Series A Preferred
      Stock was contingent upon the sale of not less than $1,000,000 units in our
      “best efforts” public offering of units.  This condition was satisfied
      in July 2004.  As a result, we paid $500,000 and issued 1,750,000
      shares of common stock to the Series A holder and redeemed all of the Series
      A
      Preferred Stock following the initial closing of the offering.  We
      were obliged to pay the Series A holder an additional $250,000 by January 31,
      2005, at our option, issue to the Series A holder shares of common stock having
      an aggregate market value of $250,000, based upon the average closing bid prices
      of the common stock for the 30 days preceding January 31, 2005.  We
      failed to make the $250,000 payment in cash or stock.  Accordingly, we
      are required to pay $300,000 in cash, plus accrued interest at the rate of
      18%
      per year from the date of default until the date the default is cured, to the
      former holder of the Series A Preferred Stock.  The former holder of
      the Series A Preferred Stock has threatened to institute litigation against
      us
      related to this matter and the Asset Sales.  We are currently in
      discussions with the former holder of the Series A Preferred Stock to try to
      resolve all issues.





In
      January 2006 we entered into an agreement with the holder of all of the
      outstanding shares of our Series I Preferred Stock pursuant to which we issued
      to the holder, effective as of December 28, 2005, a secured convertible
      promissory note in the aggregate principal amount of $2,356,750 (the
“Convertible Note”) in exchange for all of such shares of Series I Preferred
      Stock.  (See Note 9 to the Condensed Consolidated Financial
      Statements).





As
      of
      June 30, 2007, there were no off-balance sheet arrangements, unconsolidated
      subsidiaries, commitments or guarantees of other parties, except as disclosed
      in
      the notes to financial statements.  Stockholders’ (deficiency) at that
      date was $8,072,829.





We
      engaged in various transactions with related parties during the nine months
      ended June 30, 2007 including the following:





•
            At
                June 30, 2007, we owed:  $41,000 under a demand note bearing
                interest at 10% per annum to a corporation owned by the son of Joseph
                J.
                Raymond, our Chairman, President and CEO; $3,123 to a trust formed
                for the
                benefit of a family member of a former member of our Board of Directors
                under a promissory note bearing interest at 12% per annum which became
                due
                in full in August 2005; $41,598 to a former member of our Board of
                Directors under a promissory note bearing interest at 12% per annum
                which
                becomes due in full in May 2006.  We borrowed $100,000 from
                Joseph J. Raymond in December 2006 and repaid it in January
                2007.  We also borrowed $20,000 from a significant shareholder
                in January 2007, of which $16,000 is still outstanding at June 30,
                2007.




•
            The
                nephew of our Chairman, President and CEO is affiliated with Pinnacle
                Investment Partners, LP (“Pinnacle”), which is the holder of the
                Convertible Note issued in exchange for our Series I Preferred
                Stock.  As of June 30, 2007, $616,850 was outstanding on the
                Convertible Note.




21


•
            On
                February 13, 2007, we acquired from Fusion Business Services, LLC
                (“Fusion”) an additional 1% interest in STS in exchange for the issuance
                to the members of Fusion of 70,111 shares of our common
                stock.  As a result of the transfer, which was effective as of
                January 1, 2007, we own a 51% interest in STS and Fusion owns a 49%
                interest.  Fusion has a right to re-acquire the 1% interest
                transferred to the Company upon the occurrence of certain events,
                including the institution of bankruptcy or insolvency proceedings
                against
                us, a sale of all or substantially all of our assets, a merger or
                consolidation of us with another entity, or the liquidation or dissolution
                of us.  The purchase price payable by Fusion in connection with
                any such re-acquisition shall be a return of the shares issued to
                it for
                the 1% interest or a cash payment of $1,262.  A son of our CEO
                has a majority interest in Fusion.




**Contractual
      Obligations**





Our
      aggregate contractual obligations are as follows:





**Payments
                Due by Fiscal Period (in Thousands)******
            **2009
                -**
            
            
            ****
            **2011
                -****Total**
            
            
            **2008**
            
            
            **2010**
            
            
            **2012**
            
            
            **Thereafter**Contractual
                Obligations:Long-term
                debt obligations
            
            $
            1,498
            
            
            $
            968
            
            
            $
            396
            
            
            $
            134
            
            
            $
            -Operating
                lease obligations
            
            
            204
            
            
            
            60
            
            
            
            119
            
            
            
            25
            
            
            
            -Series
                A redemption payable
            
            
            300
            
            
            
            300
            
            
            
            
            
            
            
            
            
            
            
            -Workers’
                compensation insurance liability (b)
            
            $
            273
            
            
            $
            59
            
            
            $
            144
            
            
            $
            70
            
            
            
            -TOTAL
            
            $
            2,275
            
            
            $
            1,387
            
            
            $
            659
            
            
            $
            229
            
            
            $
            -





(a)
            In
                December 2006, we entered into an agreement with the California
                Compensation Insurance Fund (“the Fund”) whereby the Fund agreed to reduce
                our then liability of $2,023,000 to $300,000 provided that we make
                certain
                monthly payments aggregating $300,000 over 56 months.  At June
                30, 2007, $1,996,000 is included in accounts payable and accrued
                expenses
                on the attached condensed consolidated balance sheet.  The
                difference of $1,723,000 has not been recognized in earnings at this
                time
                since it is contingent upon our paying the $300,000 in accordance
                with the
                terms of the agreement.





**Impact
      of Inflation**





We
      believe that since our inception, inflation has not had a significant impact
      on
      our results of operations.





**Impact
      of Recent Accounting Pronouncements**





In
      July
      2006, the Financial Accounting Standards Board issued FASB Interpretation No.
      48
      (FIN 48), “Accounting for Uncertainty in Income Taxes – an interpretation of
      FASB Statement No. 109”.  FIN 48 provides guidance for the
      recognition, measurement, classification and disclosure of the financial
      statement effects of a position taken or expected to be taken in a tax return
      (“tax position”).  The financial statement effects of a tax position
      must be recognized when there is a likelihood of more than 50 percent that
      based
      on the technical merits, the position will be sustained upon examination and
      resolution of the related appeals or litigation processes, if any.  A
      tax position that meets the recognition threshold must be measured initially
      and
      subsequently as the largest amount of tax benefit that is greater than 50
      percent likely of being


realized
      upon ultimate settlement with a taxing authority.  The interpretation
      is effective for fiscal years beginning after December 15, 2006.  The
      Company does not expect its adoption of FIN 48 to have a material impact on
      its
      consolidated financial portion, results of operations or cash
      flows.





In
      September 2006, the Financial Accounting Standards Board issued Statement of
      Financial Accounting Standards No. 157 (“SFAS”) No. 157, “Fair Value
      Measurements”.  This Statement defines fair value, establishes a
      framework for measuring fair value in generally accepted accounting principles
      (GAAP), and expands disclosures about fair value measurements.  The
      Statement applies under other accounting pronouncements that require or permit
      fair value measurements.  SFAS No. 157 is effective for fiscal years
      beginning after November 15, 2007, or the Company’s fiscal year ending September
      30, 2009.  The Company does not expect the adoption of this new
      standard to have a material impact on its consolidated financial position,
      results of operations or cash flow.





In
      September 2006, the Financial Accounting Standards Board issued Statement of
      Financial Accounting Standards No. 158, “Employers’ Accounting for Defined
      Benefit Pension and Other Postretirement Plans”.  This Statement
      improves financial reporting by requiring an employer to recognize the
      overfunded or underfunded status of a defined benefit postretirement plan as
      an
      asset or liability in its statement of financial position and to recognize
      changes in that funded status in the year in which the changes occur through
      comprehensive income.  This Statement also improves
      financial


22


reporting
      by requiring an employer to measure the funded status of a plan as of the date
      of its year-end statement of financial position, with limited
      exceptions.  The effective date to initially recognize the funded
      status and to provide the required disclosures is for fiscal years ending after
      December 15, 2006, or the Company’s fiscal year ending September 30,
      2007.  The requirement to measure plan assets and benefit obligations
      is effective for fiscal years ending after December 15, 2008, or the Company’s
      fiscal year ending September 30, 2009.  The Company does not expect
      the adoption of this new standard to have a material impact on its consolidated
      financial position, results of operations or cash flows.





In
      February 2007, the Financial Accounting Standards Board issued Statement of
      Financial Accounting Standards No. 159, “The Fair Value Option for Financial
      Assets and Financial Liabilities” and is effective for fiscal years beginning
      after November 15, 2007.  This Statement permits entities to choose to
      measure many financial instruments and certain other items at fair
      value.  The objective is to improve financial reporting by providing
      entities with the opportunity to mitigate volatility in reported earnings caused
      by measuring related assets and liabilities differently without having to apply
      complex hedge accounting provisions.  We are currently assessing the
      impact the adoption of this pronouncement will have on our financial
      statements.





**Sensitive
      Accounting Estimates**





The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect the amounts reported in the financial statements and
      notes.  Significant estimates include management’s estimate of the
      carrying value of accounts receivable, the impairment of goodwill and the
      establishment of valuation reserves offsetting deferred tax
      assets.  Actual results could differ from those
      estimates.  The Company’s critical accounting policies relating to
      these items are described in the Company’s Annual Report on Form 10-K for the
      year ended September 30, 2006.  As of June 30, 2007, there have been
      no material changes to any of the critical accounting policies contained
      therein.





**Item
                3.**
            **QUANTITATIVE
                AND QUALITATIVE DISCLOSURE ABOUT MARKET
                RISKS**





We
      are
      subject to the risk of fluctuating interest rates in the ordinary course of
      business for borrowings under our Factoring Agreement, which provides for the
      sale of up to $1,500,000 of accounts receivable to Action
      Capital.  Advances under this agreement bear interest at an annual
      rate of prime plus 1%, plus a monthly management fee of .6% on the daily average
      of unpaid balances.





We
      believe that our business operations are not exposed to market risk relating
      to
      foreign currency exchange risk or commodity price risk.





**Item
                4.**
            **CONTROLS
                AND PROCEDURES**





Under
      the
      supervision and with the participation of management, including our Chief
      Executive Officer and our Chief Financial Officer, we have evaluated the
      effectiveness of the design and operation of our disclosure controls and
      procedures.  Disclosure controls and procedures are controls and
      procedures that are designed to ensure that information required to be disclosed
      in our reports filed or submitted under the 1934 Act is recorded, processed,
      summarized and reported within the time periods specified in the SEC’s rules and
      forms.  Based on this evaluation, our Chief Executive Officer and
      Chief Financial Officer have concluded that our internal control over financial
      reporting discussed below, our disclosure controls and procedures were effective
      as of the end of the period covered by this report.





In
      March
      2006, the Securities and Exchange Commission requested that we amend our Annual
      Report on Form 10-K for the fiscal year ended September 30, 2005 to remove
      the
      audit report issued by Amper Politziner & Mattia, P.C., our predecessor
      auditor, on our financial statements as of and for the years ended September
      30,
      2004 and 2003, inasmuch as we had not obtained permission from the predecessor
      auditor to include such report in the filing as contemplated by Public Company
      Accounting Oversight Board Statements of Auditing Standards Section
      508.  Our Chief Executive Officer and Chief Financial Officer have
      concluded that the inclusion of the predecessor auditor report in our Form
      10-K
      for the fiscal year ended September 30, 2005, represents a material weakness
      in
      our review of applicable financial reporting regulatory requirements when
      preparing our financial statements.  A “material weakness” is a
      reportable condition in which the design or operation of one or more of the
      specific control components has a defect or defects that could have a material
      adverse effect on our ability to record, process, summarize and report financial
      data in the financial statements in a timely manner.  We addressed the
      weakness in our review of the application of applicable financial reporting
      regulatory requirements by improving the training of our personnel and
      researching, identifying, analyzing, documenting and reviewing applicable
      regulatory requirements.


23


In
      connection with its audit of, and in the issuance of its report on our financial
      statements for the year ended September 30, 2004, Amper Politziner & Mattia,
      P.C. delivered a letter to the Audit Committee of our Board of Directors and
      our
      management that identified three items that it considered to be material
      weaknesses in the effectiveness of our internal controls pursuant to standards
      established by the American Institute of Certified Public
      Accountants.  A “material weakness” is a reportable condition in which
      the design or operation of one or more of the specific control components has
      a
      defect or defects that could have a material adverse effect on our ability
      to
      record, process, summarize and report financial data in the financial statements
      in a timely manner.  Those material weaknesses arose due to (1)
      limited resources and manpower in the finance department; (2) inadequacy of
      the
      financial review process; and (3) inadequate documentation of certain financial
      procedures.  While we believe that we have adequate policies, we
      agreed with our independent auditors that our implementation of those policies
      should be improved.  As a result, although we were unable to expand
      the number of personnel in the accounting function due to financial constraints,
      we did provide additional training to existing staff which allowed us to
      increase redundancies in our system and improve our segregation of
      duties.





In
      addition, we identified deficiencies in our internal controls and disclosure
      controls related to the accounting for certain warrants, primarily with respect
      to accounting for derivative liabilities in accordance with EITF 00-19 and
      SFAS
      133.  We restated our consolidated financial statements for the years
      ended September 30, 2004 and 2005, in order to correct the accounting in such
      financial statements with respect to derivative liabilities in accordance with
      EITF 00-19 and SFAS 133.  Since July 2006, we have undertaken
      improvements to our internal controls in an effort to remediate those
      deficiencies by training our accounting staff to understand and implement the
      requirements of EITF 00-19 and SFAS 133.





Our
      management, including the Chief Executive Officer and Chief Financial Officer
      does not expect that our disclosure controls and procedures or our internal
      control over financial reporting will prevent all error and all
      fraud.  A control system, no matter how well designed and operated,
      can provide only reasonable, not absolute, assurance that the objectives of
      the
      control system are met.  Because of the inherent limitations in all
      control systems, no evaluation of controls can provide absolute assurance that
      all control issues and instances of fraud, if any, within the company have
      been
      detected.





Other
      than the continued implementation of the improvements in our internal controls
      described above, there were no significant changes in our internal controls
      during the quarter ended June 30, 2007, that have materially affected, or are
      reasonably likely to have materially affected, our internal controls subsequent
      to the date we carried out our evaluation.


24


**Part
                II**
            **Other
                Information**


**Item
                1.**
            **Legal
                Proceedings**





We
      are
      involved, from time to time, in routine litigation arising in the ordinary
      course of business.  We do not believe that any currently pending
      litigation will have a material adverse effect on our financial position or
      results of operations.





**Item
                1A.**
            **Risk
                Factors**





There
      have been no material changes with respect to the risk factors disclosed in
      our
      Report on Form 10-K for the fiscal year ended September 30, 2006 except that
      as
      a result of the acquisition by Transworld of the technology and electronic
      asset
      disposition businesses from Green-Tech and CC Laurel, we will be exposed to
      risks faced by similar businesses, including risks related to compliance with
      applicable environmental laws.  In addition, no assurance can be given
      that we will be able to effectively operate the acquired
      businesses.





**Item
                3.**
            **Defaults
                Upon Senior Securities**





Dividends
      on our Series F Preferred Stock accrue at a rate of 7% per annum, payable
      monthly.  As of the date of the filing of this report, $127,678 is in
      arrears on the Series F Preferred Stock.





**Item
                4.**
            **Submission
                of Matters to a Vote of Security
                Holders**





There
      were no matters submitted to a vote of our security holders during the three
      months ended June 30, 2007.





**Item
                5.**
            **Other
                Information**





Not
      applicable.





**Item
                6**
            **Exhibits**





**Number**
            **Description**10.73
            Operating
                Agreement of Transworld Assets, LLC31.1
            Certification
                of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley
                Act
                of 200231.2
            Certification
                of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley
                Act
                of 200232.1
            Certification
                of Chief Executive Officer pursuant to Section 906 of Sarbanes-Oxley
                Act
                of 200232.2
            Certification
                of Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley
                Act
                of 2002





25


**SIGNATURES**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned thereunto
      duly authorized.






STRATUS
                SERVICES GROUP, INC.Date:
                August 13,
                2007
            By:
            /s/ Joseph
              J. RaymondName: Joseph
              J.
              RaymondTitle:
 Chairman
              of the
              Board of Directors,President
              and Chief
              Executive Officer





Date:
                August 13, 2007
            By:
            /s/ Michael
              A. MaltzmanName:
              Michael A. MaltzmanTitle:
              Vice President and Chief Financial OfficerPrincipal
              Financial and Accounting Officer











26