**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**Washington,      D.C. 20549**

**FORM      10-K/A**

**(Amendment      No. 2)**

| **ý**                                                      | **ANNUAL                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF                1934**     |
|-----------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------|
|                                                            |                                                                                                                 |
| **For                the fiscal year ended September 30, 2005** |
|                                                            |                                                                                                                 |
| **o**                                                           | **TRANSITION                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF                1934** |

**Commission      file number 001-15789**

**STRATUS      SERVICES GROUP, INC.**

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

| Large                accelerated filer  ̈  | Accelerated                filer  ̈  | Non-accelerated                filer ý  |
|-----------------------------------------------------|-----------------------------------------------|---------------------------------------------------|

**1**

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**Explanatory      Note**

**This      Amendment on Form 10-K/A ("Amendment No. 2") amends      and restates in its entirety our Annual Report on Form 10-K for the fiscal      year      ended September 30, 2005 (the "2005 10-K") as initially filed with the      Securities and Exchange Commission (the "SEC") on February 3, 2006, and as      previously amended by the Form 10-K/A filed with the SEC on March 31, 2006      ("Amendment No. 1").**

**Amendment      No. 1 was filed to (i) delete the report of Amper      Politziner & Mattia, P.C., our former auditor, on our financial statements      as of and for the years ended September 30, 2004 and 2003 and to designate      such      financial statements as unaudited, and (ii) amend Item 6 - Selected      Financial Data, Item 7 - Management's Discussion and Analysis of financial      Condition and Results of Operations and Item 9A - Disclosure Controls and      Procedures to reflect certain revisions made in connection with the deletion      of      the 2003-2004 audit report and the designation of the fiscal 2003 and 2004      financial statements as unaudited.**

**This      Amendment No. 2 is being filed to (i) include a report      of E. Randall Gruber, CPA, P.C. on our financial statements as of September      30,      2005 and 2004 and the fiscal years ended September 30, 2005, 2004 and 2003      and      (ii) eliminate references added by Amendment No. 1 that indicated that the      financial statements as of and for the fiscal years ended September 30, 2004      and      2003 were unaudited.  In addition, in August 2006, we determined that      certain warrants issued in connection with the exchange offer and public      offering of securities completed in August 2004 should have been recorded as      derivative liabilities at the time they were issued.  As a result, we have      restated our financial statements as of and for the fiscal years ended September      30, 2005 and 2004 and added Notes 23 and 24 thereto to disclose certain      information related to the warrants and the restatement.  Information with      respect to the warrants and the restatement has also been added in "Management's      Discussion and Analysis of Financial Condition and Results of      Operations."**

**This      Amendment speaks as of the end of our fiscal year ended      September 30, 2005 as required by Form 10-K or as of the date of the filing      of      the original 2005 10-K.  Except for the revisions as described above, it      does not update any of the statements contained in the original 2005 10-K. This Amendment contains forward-looking statements that were made at the time      the original 2005 10-K was filed on February 3, 2006.  It must be      considered in light of any subsequent statements, including forward-looking      statements, in any reports made by us subsequent to the filing of the original      2005 10-K, including statements made in filings on Form 8-K or our Quarterly      Reports on Form 10-Q for the fiscal quarters ended December 31, 2005 and March      31, 2006.**

**This      Annual Report on Form 10-K 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 economic conditions facing      the      information technology staffing industry generally; uncertainties related to      the      job market and our ability to attract qualified candidates; uncertainties      associated with our brief operating history; our ability to raise additional      capital; our ability to achieve and manage growth; our ability to attract and      retain qualified personnel; our ability to develop new services; our ability      to      open new offices; general economic conditions; the continued cooperation of      our      creditors; and other factors discussed in Item 1 of this Annual Report under      the      caption “Risk Factors” and 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 Financial      Statements and notes appearing elsewhere in this Annual      Report.**

**In      this Annual Report on Form 10-K, references to “Stratus”, “the Company”, “we”,“us” and “our” refer to Stratus Services Group, Inc. and, unless the context      otherwise requires, Stratus Technology Services, LLC, a 50% owned joint venture      of Stratus Services Group, Inc.**

**2**

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**FORM      10-K**

**STRATUS      SERVICES GROUP, INC.**

**Form      10-K for the Fiscal Year Ended September 30, 2005**

**Table      of Contents**

| **PART                I**                    |                                                                                                                                            | **PAGE                #** |
|----------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------|
| ITEM                1.                       | BUSINESS                                                                                                                                        | **4**                     |
| ITEM                1A.                      | RISK                FACTORS                                                                                                                     | **7**                     |
| ITEM                2.                       | PROPERTIES                                                                                                                                      | **10**                    |
| ITEM                3.                       | LEGAL                PROCEEDINGS                                                                                                                | **10**                    |
| ITEM                4.                       | SUBMISSION                OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                              | **10**                    |
|                                         |                                                                                                                                            |                      |
| **PART                II**                   |                                                                                                                                            |                      |
| ITEM                5.                       | MARKET                FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                                                                         | **11**                    |
| ITEM                6.                       | SELECTED                FINANCIAL DATA                                                                                                          | **12**                    |
| ITEM                7.                       | MANAGEMENT’S                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF                OPERATIONS                       | **13**                    |
| ITEM                7A.                      | QUANTITATIVE                AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                                                                        |  **24**              |
| ITEM                8.                       | FINANCIAL                STATEMENTS AND SUPPLEMENTARY DATA                                                                                      |  **24**              |
| ITEM                9.                       | CHANGES                IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL                DISCLOSURE                               |  **25**              |
| ITEM                9A.                      | CONTROLS                AND PROCEDURES                                                                                                          |  **25**              |
|                                         |                                                                                                                                            |                      |
| **PART                III**                  |                                                                                                                                            |                      |
| ITEM                10.                      | DIRECTORS,                EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH                SECTIONS 16(c) OF THE EXCHANGE ACT. |  **26**              |
| ITEM                11.                      | EXECUTIVE                COMPENSATION                                                                                                           |  **28**              |
| ITEM                12.                      | SECURITIES                  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND                  MANAGEMENT                                              |  **31**              |
| ITEM                13.                      | CERTAIN                  RELATIONSHIPS AND RELATED TRANSACTIONS                                                                                 |  **31**              |
| ITEM                14.                      | PRINCIPAL                  ACCOUNTING FEES AND SERVICES                                                                                         |  **33**              |
|                                         |                                                                                                                                            |  **34**              |
| **PART                IV**                   |                                                                                                                                            |                      |
| ITEM                15.                      | EXHIBITS,                FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K                                                                  |  **35**              |
|                                         |                                                                                                                                            |                      |
| INDEX                TO FINANCIAL STATEMENTS | **F-1**                                                                                                                                         |

**3**

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**PART      I**

| **ITEM                1.** | **BUSINESS** |
|----------------------------|--------------|

***General***

***Financial      Information About Industry Segments***

***Principal      Services & Markets***

**Staffing      Services**

**4**

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**SMARTSolutions(TM).      **

**Stratus      Technology Services, LLC. **
** **

***Competitive      Business Conditions***

**5**

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***Customers***

***Governmental      Regulation***

***Trademarks***

***Employees***

** **

**6**

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| **ITEM                  1A.** | **RISK                  FACTORS** |
|-------------------------------|-----------------------------------|

***We      have disposed of a substantial portion of our assets and significantly reduced      the scope of our operations.***

***The      sale of our staffing operations may subject us to claims of third      parties.***

***We      have limited liquid resources and a history of net      losses***
*.*

***Fluctuations      in the general economy could have an adverse impact on our      business***
*.*

***We      may be unable to achieve and manage our growth***
*.*

***We      rely heavily on executive management and could be adversely affected if our      executive management team was not available.***

**7**

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***We      rely heavily on our management information systems and our business would suffer      if our systems fail or cannot be upgraded or replaced on a timely      basis.***

***Our      financial results will suffer if we lose any of our significant      customers***
*.*

***We      have experienced significant fluctuations in our operating results and      anticipate that these fluctuations may continue.***

***We      compete in a highly competitive market with limited barriers to entry and      significant pricing pressures and we may not be able to continue to successfully      compete.***

***Our      profitability will suffer if we are not able to maintain current levels of      billable hours and bill rates and control our costs.***

| Ÿ | our                clients’ perception of our ability to add value through our                services; |
|--------|---------------------------------------------------------------------------------------------------------------|

**8**

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| Ÿ | competition,                including pricing policies of our competitors;                and |
|--------|-----------------------------------------------------------------------------------------------|

| Ÿ | general                economic conditions. |
|--------|---------------------------------------------|

| Ÿ | the                demand for IT staffing services; |
|--------|-----------------------------------------------------|

| Ÿ | the                quality and scope of our services; |
|--------|-------------------------------------------------------|

| Ÿ | seasonal                trends, primarily as a result of holidays, vacations and inclement                weather; |
|--------|--------------------------------------------------------------------------------------------------------------------|

| Ÿ | the                number of billing days in any                period; |
|--------|-------------------------------------------------------------------------|

| Ÿ | our                ability to transition consultants from completed assignments to new                engagements; |
|--------|--------------------------------------------------------------------------------------------------------------------|

| Ÿ | our                ability to forecast demand for our services and thereby maintain                an                appropriately balanced and sized workforce;                and |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Ÿ | our                ability to manage consultant                turnover. |
|--------|--------------------------------------------------------------------------|

***We      may be unable to attract and retain qualified billable consultants, which could      have an adverse effect on our business, financial condition and results of      operations.***

***We      may be subject to claims as a result of actions taken by our temporary staffing      personnel.***

***Short      sales of our common stock could place downward pressure on the price of our      common stock.***

***Regulatory      and legal uncertainties could harm our business.***

**9**

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| **ITEM                2.** | **PROPERTIES** |
|----------------------------|----------------|

| **ITEM                3.** | **  LEGAL                PROCEEDINGS** |
|----------------------------|--------------------------------------------------|

| **ITEM                4.** | **SUBMISSION                OF MATTERS TO A VOTE OF SECURITY                HOLDERS** |
|----------------------------|---------------------------------------------------------------------------------------|

**10**

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**PART      II**

| **ITEM                5.** | **MARKET                FOR COMMON EQUITY AND RELATED STOCKHOLDER                MATTERS.** |
|----------------------------|---------------------------------------------------------------------------------------------|

| **Fiscal                Year 2004**             |   |   | **High** |   |   | **Low** |   |
|-------------------------------------------------|--------|--------|----------|--------|--------|---------|--------|
| Quarter                Ended December 31, 2003  |   |   | 1.32     |   |   | 0.66    |   |
| Quarter                Ended March 31, 2004     |   |   | 1.36     |   |   | 0.76    |   |
| Quarter                Ended June 30, 2004      |   |   | 1.12     |   |   | 0.76    |   |
| Quarter                Ended September 30, 2004 |   |   | 1.00     |   |   | 0.39    |   |

| **Fiscal                Year 2005**             |   |   | **High** |   |   | **Low** |   |
|-------------------------------------------------|--------|--------|----------|--------|--------|---------|--------|
| Quarter                Ended December 31, 2004  |   |   | 0.84     |   |   | 0.32    |   |
| Quarter                Ended March 31, 2005     |   |   | 0.52     |   |   | 0.27    |   |
| Quarter                Ended June 30, 2005      |   |   | 0.30     |   |   | 0.11    |   |
| Quarter                Ended September 30, 2005 |   |   | 0.15     |   |   | 0.05    |   |

**11**

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| **ITEM                6.** | **SELECTED                FINANCIAL DATA.****(In                thousands except per                share)** |
|----------------------------|--------------------------------------------------------------------------------------------------------------|

| **Year                Ended September 30,**                                                                                      |   |   |
|----------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|                                                                                                                             |   |   | **2005** |   |   | **2004** |   |   | **2003** |   |   | **2002** |   |   | **2001** |   |
|                                                                                                                             |   |   | (Restated) |   |   | (Restated) |   |   |   |   |   |   |   |   |   |   |
| Income                statement data:                                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenues                                                                                                                         |   | $      | 112,446 |   | $ | 102,028 |   | $ | 74,892 |   | $ | 45,860 |   | $ | 29,274 |   |
| Gross                profit                                                                                                      |   |   |   |   |   | 12,360 |   |   | 11,157 |   |   | 8,235 |   |   | 7,152 |   |
| Operating                (loss) from continuing operations                                                                       |   |   | (5,477 | ) |   | (937 | ) |   | (2,642 | ) |   | (3,320 | ) |   | (3,790 | ) |
| Net                (loss) from continuing operations                                                                             |   |   | (2,985 | ) |   | (304 | ) |   | (4,406 | ) |   | (7,086 | ) |   | (5,601 | ) |
| Net                (loss) from continuing operations attributable to common                stockholders                          |   |   | (3,027 | ) |   | (5,617 | ) |   | (6,036 | ) |   | (8,127 | ) |   | (6,004 | ) |
|                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Per                share data:                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                (loss) from continuing operations attributable to common stockholders                -                basic   |   | $      | (.17 | ) | $ | (.74 | ) | $ | (1.38 | ) | $ | (3.08 | ) | $ | (3.96 | ) |
| Net                (loss) from continuing operations attributable to common stockholders                -                diluted |   | $      | (.17 | ) | $ | (.74 | ) | $ | (1.38 | ) | $ | (3.08 | ) | $ | (3.96 | ) |
| Cash                dividends declared                                                                                           |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |

| **Year                Ended September 30,**                     |   |   |
|-----------------------------------------------------------------|--------|--------|
|                                                            |   |   | **2005** |   |   | **2004** |   |   | **2003** |   |   | **2002** |   |   | **2001** |   |
|                                                            |   |   | (Restated)  |   |   | (Restated) |   |   |   |   |   |   |   |   |   |   |
| Balance                sheet data:                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                working capital (deficiency)                 |   | $      | (12,098 | ) | $ | (16,267 | ) | $ | (7,979 | ) | $ | (3,287 | ) | $ | (1,546 | ) |
| Long-term                obligations, including current portion |   |   | 1,920 |   |   | 2,649 |   |   | 4,001 |   |   | 3,296 |   |   | 3,153 |   |
| Convertible                debt                                 |   |   | 40 |   |   | 40 |   |   | 40 |   |   | 40 |   |   | 1,125 |   |
| Put                option liability                             |   |   | 650 |   |   | 673 |   |   | 823 |   |   | 823 |   |   | 869 |   |
| Warrant              liability                                  |   |   |  2 |   |   |  5,266 |   |   |  - |   |   |  - |   |   |  - |   |
| Redeemable                convertible preferred stock           |   |   | 2,218 |   |   | 2,218 |   |   | 3,810 |   |   | 3,293 |   |   | 2,792 |   |
| Stockholders’                equity (deficiency)          |   |   | (9,876 | ) |   | (9,773 | ) |   | (4,915 | ) |   | 3,043 |   |   | 1,283 |   |
| Total                assets                                     |   |   | 18,798 |   |   | 27,907 |   |   | 25,151 |   |   | 24,031 |   |   | 22,268 |   |

**12**

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| **ITEM                7.** | **MANAGEMENT’S                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF                OPERATIONS.** |
|----------------------------|--------------------------------------------------------------------------------------------------------------------------------|

**Introduction**

**Restatement**

**Critical        Accounting Policies and Estimates**

**Revenue      Recognition**

**Allowance      for Doubtful Accounts Receivable**

**Goodwill      and Intangible Assets**

**13**

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**Valuation      Allowance Against Deferred Income Tax Assets**

**Results      of Operations**

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

**14**

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|                                                                            |   |   |      |
|---------------------------------------------------------------------------------|--------|--------|-----------|
| Sales                price - cancellation of accounts payable - related parties |   | $      | 3,315,719 |   |
|                                                                            |   |   |      |   |
| Less                costs of sale:                                              |   |   |      |   |
| Write-off                of amounts due from ALS                                |   |   | (376,394  | ) |
| Other                costs (including $75,000 to a related party)               |   |   | (322,952  | ) |
|                                                                            |   |   |      |   |
| Balance                                                                         |   |   | 2,616,373 |   |
| Net                assets sold                                                  |   |   | 377,265   |   |
| Gain                                                                            |   | $      | 2,239,108 |   |

| · | $250,000                is payable 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 will be paid directly to certain taxing authorities                to                reduce our tax obligations; and |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | $3,537,000                which 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. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**15**

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| · | 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. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**16**

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| · | 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. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Continuing      Operations**

**Year      Ended September 30, 2005 Compared to the Year Ended September 30,      2004**

***Revenues***

***Gross      Profit***

***Selling,      General and Administrative Expenses***

**17**

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***Interest      Expense***

***Other      Charges***

***Gain      on Change in Fair Value of      Warrants***

***Net      (Loss) Attributable to Common Stockholders***

**Year      Ended September 30, 2004 Compared to the Year Ended September 30,      2003**

***Revenues.***

***Gross      Profit.***

***Selling,      General and Administrative Expenses.***

***Other      Charges.***

***Interest      Expense.***

**18**

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***Preferred      Stock Redemptions and Exchanges.***

***Gain      on Change in Fair Value of      W***
***arrants***

***Net      (Loss) Attributable to Common Stockholders.***

**Liquidity      and Capital Resources**

**19**

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| (i)    | Failing                to meet the tangible net worth requirement;                                 |
|--------|----------------------------------------------------------------------------------------------------|
|   |                                                                                               |
| (ii)   | Our                common stock being delisted from the Nasdaq SmallCap Market;                and |
|   |                                                                                               |
| (iii)  | Our                having delinquent state, local and federal                taxes                 |

**20**

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| •  | We                paid $186,151 to an entity, which employs Jeffrey J. Raymond, the                son of                Joseph J. Raymond, our Chairman, President and Chief Executive Officer,                for consulting services. We also paid $50,000 to an entity owned                by Joseph                J. Raymond, Jr., who also is the son of Joseph J. Raymond, for consulting                services. These amounts were included in selling, general and                administrative expense. The services provided included the identification                of acquisition candidates, acquisition advisory services, due diligence,                post-acquisition transition services, customer relations, accounts                receivable collection and strategic planning advice.                                                                                                                                                                                                                                             |
|---------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | We                paid fees of $75,000 and $116,000 in connection with the sale of                our                Northern California offices and an acquisition, respectively, to                an entity                with whom Jeffrey J. Raymond is affiliated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| •  | Joseph                J. Raymond, Jr. is a 50% member in ALS, which is the holding company                for                Advantage Services Group, LLC (“Advantage”). We were a party to an                Outsourcing Agreement with ALS and pursuant to which ALS provided                payroll                outsourcing services for all of our in-house staff, except for its                corporate employees, and customer staffing requirements. As a result                of                this arrangement, all of our field personnel were employed by ALS                until                December 2005. We 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 to ALS. The total amount                charged by ALS under this agreement was $102,825,000 during the year                ended                September 30, 2005.  |
| •  | At                September 30, 2005, we owed: $41,000 under a demand note bearing                interest                at 10% a year to a corporation owned by the son of Joseph J. Raymond;                $14,125 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% a year which became due in full in August 2005 and $41,598                to a                member of our Board of Directors under a promissory note bearing                interest                at 12% a year which becomes due in full in May 2006.                                                                                                                                                                                                                                                                                                                                                                    |
| •  | Accounts                payable and accrued expenses - related parties in the attached condensed                consolidated balance sheets at September 30, 2005 and 2004, represents                amounts due to ALS and Advantage.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| •  | The                nephew of our Chairman, President and CEO is affiliated with Pinnacle                Investment Partners, LP, which held 21,163 shares of our Series I                Preferred Stock as of September 30, 2005. The Company also believes                that                PIP Management Inc., which was designated as the advisor to the Series                I                holders, is also affiliated with Pinnacle Investment Partners, LP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| •  | During                the year ended September 30, 2005, Joseph J. Raymond loaned an aggregate                of $665,000 to us, of which $650,000 was repaid during the year ended                September 30, 2005. Of this amount, $250,000 bore interest at 12%                a year                and the balance was non-interest bearing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| •  | In                June 2005, we sold substantially all of the assets, excluding accounts                receivable, of six of our northern California offices to ALS. In                December                2005, we sold substantially all of the assets, excluding accounts                receivable, of certain other offices located in California and Arizona                to                ALS. See “Management’s Discussion and Analysis of Financial Condition and                Results of Operations-Discontinued Operations/Acquisition or Disposition                of Assets.”                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| •  | In                December 2005, we sold substantially all of the assets, excluding                accounts                receivable and certain other items of three of our California offices                to                AI. The son of Joseph J. Raymond, our Chairman, President and Chief                Executive Officer, is employed by an entity which serves as a consultant                to Accountabilities, Inc. See “Management’s Discussion and Analysis of                Financial Condition and Results of Operations/Acquisition or Disposition                of Assets” and Note 22 to the Consolidated Financial                Statements.                                                                                                                                                                                                                                                                                                                                                                       |

**21**

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**Contractual      Obligations**

|                                                |   |   |            |   | **Payments                Due by Fiscal Period (in Thousands)** |
|------------------------------------------------|--------|--------|-----------------|--------|-----------------------------------------------------------------|
|                                           |   |   |            |   |                                                            |   |   |   | **2007                -** |   |   | **2009                -** |   |   |   |   |
|                                                |   |   | **Total**  |   |                                                            | **2006** |   |   | **2008** |   |   | **2010** |   |   | **Thereafter** |   |
|                                           |   |   |            |   |                                                            |   |   |   |   |   |   |   |   |   |   |   |
| Contractual                Obligations:        |   |   |            |   |                                                            |   |   |   |   |   |   |   |   |   |   |   |
| Long-term                debt obligations(a)   |   | $      | 983             |   | $                                                               | 492 |   | $ | 284 |   | $ | 207 |   | $ | - |   |
| Operating                lease obligations     |   |   | 196             |   |                                                            | 196 |   |   | - |   |   | - |   |   | - |   |
| Series                A redemption payable     |   |   | 300             |   |                                                            | 300 |   |   |   |   |   |   |   |   |   |   |
| Series                I Preferred Stock (b)(d) |   |   | 2,435           |   |                                                            | 2,435 |   |   |   |   |   |   |   |   |   |   |
| Payroll                tax liability (c)       |   |   | 1,180           |   |                                                            | 681 |   |   | 499 |   |   |   |   |   |   |   |
| TOTAL                                          |   | $      | 5,094           |   | $                                                               | 4,104 |   | $ | 783 |   | $ | 207 |   | $ | - |   |
|                                           |   |   |            |   |                                                            |   |   |   |   |   |   |   |   |   |   |   |

| (a)    | Excludes                contractual obligations eliminated as a result of the asset sales                subsequent to September 30, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b)    | Includes                $217,000 of dividends accruing through required redemption                date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| (c)    | Exclusive                of interest and penalties. Payments may be accelerated based upon                future                operating result benchmarks.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| (d)    | As                of September 30, 2005, there were 21,531 shares of Series I Preferred                Stock outstanding. In June 2005, we notified the holders of the Series                I                Preferred Stock of our election to extend (the “Extension”) the date by                which we were required to redeem the Series I Preferred Stock to                the 2                year anniversary date (i.e., August 5, 2006) of its original issuance                (i.e., August 5, 2004). In connection with the Extension, we paid                all                dividends accrued on the Series I through the one year anniversary                of the                date of issuance (the “Initial Redemption Date”), which equaled, in the                aggregate, $261,239 as of August 5, 2006. As a result of the Extension,                we                were required to pay:                                                                                                                                  |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | All                dividends accruing on the Series I Preferred Stock after the Initial                Redemption Date in cash on the last date of each calendar quarter                (March                31, June 30, September 30 and December 31); |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | An                additional $217,750 to the holders of the Series I Preferred Stock                in the                form of Common Stock, within 30 days after the Initial Redemption                Date,                i.e. by September 4, 2005; such shares to be valued at the Market                Price                (as defined in the Certificate of Designation which created the Series                I                Preferred Stock) of our Common Stock on the Initial Redemption Date;                and |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | An                advisory fee to an advisor of the holders of the Series I Preferred                Stock,                PIP Management, Inc., in an amount equal to $217,570, $174,200 of                such                amount to be paid in cash and the remaining $43,550 to be paid in                shares                of our Common Stock valued at the Market Price of the Common Stock                on the                Initial Redemption Date by no later than September 4, 2005.  |
|   | On                or about August 4, 2005, we paid the holders of the Series I Preferred                Stock all dividends accrued on the Series I Preferred Stock through                the                Initial Redemption Date in the amount of $218,972. On or about September                7, 2005, we issued to the holders of Series I Preferred Stock, 2,073,808                shares of our Common Stock. On or about September 7, 2005, we also                issued                to PIP Management, Inc., the advisor designated by the Series I holders,                417,761 shares of our Common Stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | As                of September 30, 2005, we owed the Series I holders the $40,091 in                dividends accrued from the Initial Redemption Date through September                30,                2005. As of September 30, 2005, we had paid $144,200 of the $174,200                advisory fee due to the advisor to the holders of the Series I Preferred                Stock, but still owed $30,000 of such fee. In October and December                2005,                we permitted the holders of Series I Preferred Stock to convert an                aggregate of 244 shares of Series I Preferred Stock into 3,840,000                shares                of Common Stock.                                                                                                                                                                                                                                                                                                                                                                                  |
|   | On                January 13, 2006, we entered into an agreement with Pinnacle Investment                Partners, L.P. (“Pinnacle”) pursuant to which we 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 our 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 we no longer have 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 our assets, becomes due as                follows: |

**22**

----

|   | ·                                                                                                                                                                                                                                                                                                                                                                            | $1,800,000                becomes due and payable in cash upon the earlier of our receipt of                $1,800,000 of accounts receivable or March 15, 2006.                                                                                                                                                                                                    |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ·                                                                                                                                                                                                                                                                                                                                                                            | $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                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 our common stock. Pinnacle may waive this conversion                restriction upon not less than 60 days prior notice to us.  |
|   | 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.                                                                                                                                                     |
|   | ·                                                                                                                                                                                                                                                                                                                                                                            | $275,000                of the principal amount and unpaid accrued interest thereon is convertible                into our common stock at a conversion price of                $0.0072.                                                                                                                                                                                 |

**Impact      of Inflation**

**Impact      of Recent Accounting Pronouncements**

*Accounting      Changes and Error Corrections - a replacement of APB No. 20 and FAS No.      3*

*Share-Based      Payments*

**23**

----

*Exchanges      of Nonmonetary Assets - An Amendment of APB Opinion No. 29, Accounting for      Nonmonetary Transactions*
*Accounting      for Nonmonetary Transactions*

*Accounting      and Disclosure Guidance for the Foreign Earnings Repatriation Provision within      the American Jobs Creation Act of 2004*
*Accounting      for Income Taxes*

*Determining      the Amortization Period of Leasehold Improvements or Acquired in a Business      Combination*

| **ITEM                7A.** | **QUANTITATIVE                AND QUALITATIVE DISCLOSURE ABOUT MARKET                RISKS** |
|-----------------------------|----------------------------------------------------------------------------------------------|

| **ITEM                8.** | **FINANCIAL                STATEMENTS AND SUPPLEMENTARY                DATA.** |
|----------------------------|--------------------------------------------------------------------------------|

**24**

----

| **ITEM                9.** | **CHANGES                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL                DISCLOSURE.** |
|----------------------------|-------------------------------------------------------------------------------------------------------------------------|

| **ITEM                9A.** | **CONTROLS                AND PROCEDURES** |
|-----------------------------|--------------------------------------------|

**25**

----

**PART      III**

| **ITEM                10.** | **DIRECTORS                AND EXECUTIVE OFFICERS OF THE                REGISTRANT.** |
|-----------------------------|---------------------------------------------------------------------------------------|

**The      Board of Directors and Officers**

| **Name**                           | **Age** | **Position**                                                                              |
|------------------------------------|---------|-------------------------------------------------------------------------------------------|
|                               |    |                                                                                      |
| Joseph                J. Raymond   | 70      | Chairman                of the Board, President andChief                Executive Officer |
|                               |    |                                                                                      |
| Norman                Goldstein    | 64      | Director                                                                                  |
|                               |    |                                                                                      |
| Michael                A. Maltzman | 58      | Chief                Financial Officer & Treasurer                                    |
|                               |    |                                                                                      |
| Jamie                Raymond       | 38      | President                of STS                                                           |
|                               |    |                                                                                      |
| J.                Todd Raymond     | 37      | Corporate                Secretary                                                        |

**Joseph      J. Raymond**

**Norman      Goldstein**

**Michael      A. Maltzman**

**Jamie      Raymond**

**J.      Todd Raymond**

**Code      of Ethics and Business Conduct**

**26**

----

**Audit      Committee Financial Expert**

**Compliance      with Section 16(a) of the Exchange Act**

**27**

----

| **ITEM                11.** | **EXECUTIVE                COMPENSATION** |
|-----------------------------|-------------------------------------------|

|                                           |                                   |                                |                         | **Long                Term**        |
|------------------------------------------------|----------------------------------------|-------------------------------------|------------------------------|-------------------------------------|
|                                           |                                   |                                |                         | **Compensation**                    |
|                                           |                                   |                                |                         | **Awards**                          |
|                                           |                                   |                                |                         | **Number                of Shares** |
|                                           | **Annual                Compensation** | **Underlying                Stock** |
| **Name                and Principal Position** | **Fiscal                Year**         | **Salary($)**                       | **Bonus                ($)** | **Options                (#)**      |
|                                           |                                   |                                |                         |                                |
| Joseph                J. Raymond               | 2005                                   | 160,385                             | 10,000                       | -                                   |
| Chairman                and Chief Executive    | 2004                                   | 54,167                              | -                            | -                                   |
| Officer                                        | 2003                                   | 94,231                              | -                            | 1,102,115                           |
|                                           |                                   |                                |                         |                                |
| Michael                A. Maltzman             | 2005                                   | 172,308                             | 27,450                       | 750,000                             |
| Treasurer                and Chief Financial   | 2004                                   | 165,000                             | -                            | -                                   |
| Officer                                        | 2003                                   | 165,000                             | -                            | 385,448                             |
|                                           |                                   |                                |                         |                                |
| Jamie                Raymond                   | 2005                                   | 126,760                             | -                            | -                                   |
| President                of STS (1)            | 2004                                   | -                                   | -                            | -                                   |
|                                           | 2003                                   | -                                   | -                            | -                                   |

| (1)                Jamie Raymond was not considered an Executive Officer until December                2005   |
|-------------------------------------------------------------------------------------------------------------------------|

**Directors’      Compensation**

**Employment      Agreements**

| • | willfully                or repeatedly fails in any material respect to perform his obligations                under the Raymond Agreement, subject to certain opportunities to                cure such                failure;                   |
|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | is                convicted of a crime which constitutes a felony or misdemeanor or                has                entered a plea of guilty or no contest with respect to a felony or                misdemeanor during his term of employment; |
| • | has                committed any act which constitutes fraud or gross                negligence;                                                                                                                                                   |
| • | is                determined by the Board of Directors to be dependent upon alcohol                or                drugs; or                                                                                                                     |
| • | breaches                confidentiality or non-competition provisions of the Raymond                Agreement.                                                                                                                                     |

**28**

----

| • | the                assignment to him of any duties inconsistent in any material respect                with                his position or any action which results in a significant diminution                in                his position, authority, duties or responsibilities;                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | a                reduction in his base salary unless his base salary is, at the time                of the                reduction, in excess of $200,000 and the percentage reduction does                not                exceed the percentage reduction of our gross sales over the prior                twelve                month period;                                                                                                                                                                                                                                                                                                                                                                           |
| • | We                require Mr. Raymond to be based at any location other than within                50 miles                of our current executive office location; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| • | a                Change in Control of our Company, which includes the acquisition                by any                person or persons acting as a group of beneficial ownership of more                than                20% of our outstanding voting stock, mergers or consolidations of                our                company which result in the holders of Stratus’ voting stock immediately                before the transaction holding less than 80% of the voting stock                of the                surviving or resulting corporation, the sale of all or substantially                all                of our assets, and certain changes in the our Board of                Directors. |

**29**

----

**Option      Grants**

|                               |                           | **Percent                of** |   |   |                           |           |    |                                                  |   |    |
|------------------------------------|--------------------------------|-------------------------------|--------|--------|--------------------------------|----------------|---------|-------------------------------------------------------|--------|---------|
|                               |                           | **Total**                     |   |   |                           |           |    |                                                  |   |    |
|                               | **Number                of**   | **Options**                   |   |   |                           |           |    |                                                  |   |    |
|                               | **Securities**                 | **Granted                to** |   |   |                           |           |    | **Potential                Realizable Value at**      |
|                               | **Underlying**                 | **Employees**                 |   |   | **Exercise                or** |           |    | **Assumed                Annual Rates of Stock**      |
|                               | **Options**                    | **In                Fiscal**  |   |   | **Base                Price**  | **Expiration** |    | **Price                Appreciation for Option Term** |
|                               | **Granted                (#)** | **Year**                      |   |   | **($/Sh)**                     | **Date**       |    | **5%**                                                |   | **10%** |
| Joseph                J. Raymond   | -                              | -                             |   |   | -                              | -              |    | -                                                     |   | -       |
|                               |                           |                          |   |   |                           |           |    |
| Michael                A. Maltzman | 750,000                        | 71                            | %      | .26    | 2015                           | 122,636        | 310,772 |
|                               |                           |                          |   |   |                           |           |    |

**Option      Exercises and Fiscal Year-End Values**

|                               | **Shares**      |            | **Number                of Securities**   |              | **Value                of Unexercised** |
|------------------------------------|-----------------|-----------------|-------------------------------------------|-------------------|-----------------------------------------|
|                               | **Acquired**    |            | **Underlying                Unexercised** |              | **In                the Money Options** |
|                               | **On**          | **Value**       | **Options                at FY End (#)**  |              | **At                FY End ($)(1)**     |
|                               | **Exercise(#)** | **Realized($)** | **Exercisable**                           | **Unexercisable** |                                    | **Exercisable** |   | **Unexercisable** |
| Joseph                J. Raymond   | -               | -               | 713,029                                   | 250,000           | $                                       | 0 | $ | 0 |
|                               |            |            |                                      |              |                                    |   |
| Michael                A. Maltzman | -               | -               | 921,362                                   | 0                 | 0                                       | 0 |

| (1) | Represents                market value of shares covered by in-the-money options on September                30,                2005. The closing price of the Common Stock on such date was $.07.                Options                are in-the-money if the market value of shares covered thereby is                greater                than the option exercise price. No options held by the Names Officers                as                of September 30, 2005 were                in-the-money. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**30**

----

| **ITEM                12.** | **SECURITIES                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND                MANAGEMENT** |
|-----------------------------|----------------------------------------------------------------------------------------------------|

|                                                                                                     | **Common                Stock**                                                      |   | **Series                F****Preferred                Stock** |   |
|----------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------|--------|---------------------------------------------------------------|--------|
| **Name                of Beneficial Owner**                                                              | **Amount                and****Nature                of****Beneficial****Ownership** |   | **%                of****Class**                              |   | **Amount                and****Nature                of****Beneficial****Ownership** |   | **%                of****Class** |   |
| Joseph                J. Raymond                                                                         | 5,201,024                                                                            | (1)    | 14.0                                                          | %      | 6,000 |   | 100.0 | % |
| Pinnacle                Investment Partners, LLP                                                         | 3,878,622                                                                            | (2)    | 9.9                                                           |   | - |   | - |   |
| Michael                A. Maltzman                                                                       | 3,183,029                                                                            | (3)    | 8.9                                                           |   | - |   | - |   |
|                                                                                                     |                                                                                 |   |                                                          |   |   |   |   |   |
| Jamie                Raymond                                                                             | 2,000,000                                                                            |   | 5.7                                                           |   | - |   | - |   |
|                                                                                                     |                                                                                 |   |                                                          |   |   |   |   |   |
| Norman                Goldstein                                                                          | 2,040,275                                                                            |   | 5.8                                                           |   | - |   | - |   |
| All                Directors and Executive Officers as a Group (6 Persons) (1)(3) and                (4) | 12,542,588                                                                           |   | 32.8                                                          | %      | 6,000 |   | 100.0 | % |

| (1) | Includes                (i) 1,500,000 shares of common stock issuable as of December 12,                2005,                upon conversion of 6,000 shares of Series F Preferred Stock; (ii)                285,250                shares of common stock owned by a corporation of which Mr. Raymond                is the                sole owner, (iii) 713,029 shares of common stock subject to options                which                are currently exercisable or may become exercisable within 60 days                of                December 16, 2005 (“Currently Exercisable Options”); and (iv) 60,000                shares of common stock subject to Warrants which are currently exercisable                or may become exercisable within 60 days of December 12,                2005. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Represents                shares issuable upon conversion of Secured Convertible Note                and subject to warrants which are currently                exercisable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| (3) | Includes                921,362 shares subject to Currently Exercisable Stock                Options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| (4) | Includes                118,260 shares of common stock that are beneficially owned by J.                Todd                Raymond, our Corporate Secretary, including 92,195 shares subject                to                Currently Exercisable Options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

**31**

----

**Securities      Authorized for Issuance under Equity Compensation Plans**

| **Plan                Category**                                              |   | **Number                of securities****to                be issued upon****exercise                of****outstanding                options,****warrants                and rights****(a)** |      | **Weighted-average****exercise                price of****outstanding                options,****warrants                and rights****(b)** |   | **Number                of securities****remaining                available for****future                issuance under****equity                compensation****plans                (excluding****securities                reflected in****column                (a))****(c)** |   |
|-------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------|----------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                          |   |                                                                                                                                                                                          |      |                                                                                                                                         |   |                                                                                                                                                                                                                                                                              |   |   |   |   |
| Equity                compensation plans approved by security holders (1)     |   |                                                                                                                                                                                          | 1,293,833 |                                                                                                                                         | $      | 1.88                                                                                                                                                                                                                                                                              |   |   | 456,167 |   |
|                                                                          |   |                                                                                                                                                                                          |      |                                                                                                                                         |   |                                                                                                                                                                                                                                                                              |   |   |   |   |
| Equity                compensation plans not approved by security holders (2) |   |                                                                                                                                                                                          | 1,553,500 |                                                                                                                                         | $      | 4.18                                                                                                                                                                                                                                                                              |   |   | 0 |   |
|                                                                          |   |                                                                                                                                                                                          |      |                                                                                                                                         |   |                                                                                                                                                                                                                                                                              |   |   |   |   |
| Total                                                                         |   |                                                                                                                                                                                          | 2,847,333 |                                                                                                                                         | $      | 3.14                                                                                                                                                                                                                                                                              |   |   | 456,167 |   |

| (1)    | Our                equity incentive plans provide for the issuance of incentive awards                to                officers, directors, employees and consultants in the form of stock                options, stock appreciation rights, restricted stock and deferred                stock,                and in lieu of cash compensation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| (2)    | Represents                shares subject to options granted to certain officers pursuant to                employment agreements and individual stock option agreements, including                (a) options with respect to 250,000 shares granted to Joseph J. Raymond                which expire in January 2010 and which become exercisable only if                we                achieve earnings of $4.00 per share in a fiscal year and options                with                respect to 125,000 shares granted to Joseph J. Raymond which expire                in                March 2013, and (b) options with respect to 20,833 shares granted                to                Michael A. Maltzman which expire in March 2013, options with respect                to                551,000 shares granted to Michael A. Maltzman which expire in April                2015,                options with respect to 6,667 shares granted to J. Todd Raymond which                expire in March, 2013, options with respect to 150,000 shares granted                to                Michael J. Rutkin, which expire September 21, 2009, options with                respect                to 150,000 shares granted to Donald W. Feidt, which expire September                21,                2009, options with respect to 150,000 shares granted to Sanford I.                Feld,                which expire September 21, 2009, and options with respect to 150,000                shares granted to Suzette N. Berrios which expire in April                2015. |

**32**

----

| **ITEM                13.** | **CERTAIN                RELATIONSHIPS AND RELATED PARTY                TRANSACTIONS.** |
|-----------------------------|-----------------------------------------------------------------------------------------|

**33**

----

| **ITEM                14.** | **PRINCIPAL                ACCOUNTING FEES AND                SERVICES** |
|-----------------------------|--------------------------------------------------------------------------|

|                              |   |   | **2005** |   |   | **2004** |   |
|-----------------------------------|--------|--------|----------|--------|--------|----------|--------|
|                              |   |   |     |   |   |     |   |
| Audit                Fees         |   | $      | 268,180  |   | $      | 153,100  |   |
| Audit-Related                Fees |   |   | 30,587   |   |   | 123,502  |   |
| Tax                Fees           |   |   | 25,420   |   |   | 26,554   |   |
| All                Other Fees     |   |   | -0-      |   |   | -0-      |   |
|                              |   |   |     |   |   |     |   |

**34**

----

**PART      IV**

| **ITEM                15.** | **EXHIBITS,                FINANCIAL STATEMENT SCHEDULES** |
|-----------------------------|------------------------------------------------------------|

| (a)    | Financial                statements and financial statement schedules.                Reference is made to Index of Financial Statements and Financial                Statement                Schedules hereinafter contained. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                            |
| (b)    | Exhibits                                                                                                                                                                                                                        |

| **Number** | **Description**                                                                                                                                                                                                                                                                                                                                                                            |
|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |                                                                                                                                                                                                                                                                                                                                                                                       |
| 2.1        | Asset                Purchase Agreement, dated July 9, 1997, among the Company and Royalpar                Industries, Inc., Ewing Technical Design, Inc., LPL Technical Services,                Inc. and Mainstream Engineering Company, Inc., as amended by Amendment                No.                1 to the Asset Purchase Agreement, dated as of July 29,                1997.(1) |
|       |                                                                                                                                                                                                                                                                                                                                                                                       |
| 2.2        | Asset                Purchase Agreement, effective January 1, 1999, by and between the                Company                and B&R Employment Inc.(1)                                                                                                                                                                                                                                |
|       |                                                                                                                                                                                                                                                                                                                                                                                       |
| 2.3        | Asset                Purchase Agreement, dated June 16, 2000, by and between the Company                and                Outsource International of America, Inc.(5)                                                                                                                                                                                                                     |
|       |                                                                                                                                                                                                                                                                                                                                                                                       |
| 2.4        | Asset                Purchase Agreement, dated October 13, 2000, by and between the Company                and                Outsource International of America, Inc.(6)                                                                                                                                                                                                                  |
|       |                                                                                                                                                                                                                                                                                                                                                                                       |
| 2.5        | Asset                Purchase Agreement, dated January 2, 2001, by and between the Company                and                Cura Staffing Inc. and Professional Services, Inc.(15)                                                                                                                                                                                                        |
|       |                                                                                                                                                                                                                                                                                                                                                                                       |
| 2.6        | Asset                Purchase Agreement, dated July 27, 2001, by and between the Company                and                Source One Personnel, Inc.(8)                                                                                                                                                                                                                                   |
|       |                                                                                                                                                                                                                                                                                                                                                                                       |
| 2.7        | Asset                Purchase Agreement, dated December 27, 2001, by and between the Company                and Provisional Employment Solutions, Inc.(9)                                                                                                                                                                                                                                  |
|       |                                                                                                                                                                                                                                                                                                                                                                                       |
| 2.8        | Asset                Purchase Agreement, dated as of January 24, 2002 among the Company,                Charles Sahyoun, Sahyoun Holdings, LLC and SEA Consulting Services                Corporation. Information has been omitted from the exhibit pursuant                to an                order granting confidential treatment.(16)                                               |
|       |                                                                                                                                                                                                                                                                                                                                                                                       |
| 2.9        | Asset                Purchase Agreement dated as of March 4, 2002, by and among Wells                Fargo                Credit, Inc. and the Company.(22)                                                                                                                                                                                                                                |
|       |                                                                                                                                                                                                                                                                                                                                                                                       |
| 2.10       | Asset                Purchase Agreement dated November 19, 2002, by and between the Company                and                Elite Personnel Services, Inc.(23)                                                                                                                                                                                                                           |
|       |                                                                                                                                                                                                                                                                                                                                                                                       |
| 2.11       | Asset                Purchase Agreement dated as of September 10, 2003 between the Company                and                D/O Staffing, LLC.(28)                                                                                                                                                                                                                                        |
|       |                                                                                                                                                                                                                                                                                                                                                                                       |
| 2.12       | Asset                Purchase Agreement dated as of August 18, 2003 between the Company                and                ALS, LLC.(28)                                                                                                                                                                                                                                                    |
|       |                                                                                                                                                                                                                                                                                                                                                                                       |
| 2.13       | Asset                Purchase Agreement dated as of June 10, 2005 between Stratus Services                Group, Inc. and ALS, LLC. (33)                                                                                                                                                                                                                                                   |
|       |                                                                                                                                                                                                                                                                                                                                                                                       |
| 2.14       | Asset                Purchase Agreement dated as of October 21, 2005 between Stratus Services                Group, Inc. and Source One Financial Staffing, LLC.                (34)                                                                                                                                                                                                       |
|       |                                                                                                                                                                                                                                                                                                                                                                                       |
| 2.16       | Asset                Purchase Agreement dated as of December 2, 2005 between Stratus Services                Group, Inc. and ALS, LLC. (35)                                                                                                                                                                                                                                                |
|       |                                                                                                                                                                                                                                                                                                                                                                                       |
| 2.17       | Asset                Purchase Agreement dated as of December 5, 2005 between Stratus Services                Group, Inc. and Accountabilities, Inc. (35)                                                                                                                                                                                                                                   |
|       |                                                                                                                                                                                                                                                                                                                                                                                       |
| 2.18       | Asset                Purchase Agreement dated as of December 7, 2005 between Stratus Services                Group, Inc. and Source One Personnel, Inc (35)                                                                                                                                                                                                                                |
|       |                                                                                                                                                                                                                                                                                                                                                                                       |
| 2.19       | Asset                Purchase Agreement dated as of December 7, 2005 between Stratus Services                Group, Inc. and Tri-State Employment Service, Inc.                (35)                                                                                                                                                                                                        |

**35**

----

| 3.1    | Amended                and Restated Certificate of Incorporation of the                Company.(1)                                                                                                                                                                               |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                             |
| 3.1.1  | Certificate                of Designation, Preferences and Rights of Series A Preferred                Stock.(10)                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                             |
| 3.1.2  | Certificate                of Amendment to Certificate of Designation.(14)                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                             |
| 3.1.3  | Certificate                of Designation, Preferences and Rights of Series B Preferred                Stock.(14)                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                             |
| 3.1.4  | Certificate                of Designation, Preferences and Rights of Series E Preferred                Stock.(21)                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                             |
| 3.1.5  | Certificate                of Amendment to Certificate of Designation, Preferences and Rights                of                Series E Preferred Stock.(21)                                                                                                                     |
|   |                                                                                                                                                                                                                                                                             |
| 3.1.6  | Certificate                of Designation, Preferences and Rights of Series F Preferred                Stock.(21)                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                             |
| 3.1.7  | Certificate                of Designation, Preferences and Rights of Series H Preferred                Stock.(24)                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                             |
| 3.1.8  | Certificate                of Amendment to Certificate of Designation, Preferences and Rights                of                Series E Preferred Stock.(28)                                                                                                                     |
|   |                                                                                                                                                                                                                                                                             |
| 3.1.9  | Form                of Certificate of Designation, Preferences and Rights of Series I                Preferred Stock.(31)                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                             |
| 3.1.10 | Certificate                of Amendment to Restated Certificate of                Incorporation.(31)                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                             |
| 3.2    | By-Laws                of the Registrant.(2)                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                             |
| 4.1.1  | Specimen                Common Stock Certificate of the Company.(1)                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                             |
| 4.1.2  | Form                of 6% Convertible Debenture.(11)                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                             |
| 4.1.8  | Specimen                Series E Stock Certificate of the Company.(21)                                                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                             |
| 4.1.9  | Specimen                Series F Stock Certificate of the Company.(21)                                                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                             |
| 4.1.10 | Exchange                Agreement between Pinnacle Investment Partners, LP and the                Company.(21)                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                             |
| 4.1.11 | Exchange                Agreement between Transworld Management Services, Inc. and the                Company.(21)                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                             |
| 4.1.12 | Stock                Purchase Agreement between Joseph J. Raymond, Sr., and the Company                regarding Series F Preferred Stock. (21)                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                             |
| 4.1.13 | Specimen                Series I Stock Certificate of the Company.(32)                                                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                             |
| 4.2.1  | Warrant                for the Purchase of 10,000 Shares of Common Stock of Stratus Services                Group, Inc., dated November 30, 1998, between Alan Zelinsky and the                Company and supplemental letter thereto dated December 2,                1998.(1) |
|   |                                                                                                                                                                                                                                                                             |
| 4.2.2  | Warrant                for the Purchase of 40,000 Shares of Common Stock of Stratus Services                Group, Inc., dated November 23, 1998, between David Spearman and                the                Company.(1)                                                       |
|   |                                                                                                                                                                                                                                                                             |
| 4.2.3  | Warrant                for the Purchase of 10,000 Shares of Common Stock of Stratus Services                Group, Inc., dated November 30, 1998, between Sanford Feld and the                Company, and supplemental letter thereto dated December 2,                1998.(1) |
|   |                                                                                                                                                                                                                                                                             |
| 4.2.4  | Warrant                for the Purchase of 20,000 Shares of Common Stock of Stratus Services                Group, Inc., dated November 30, 1998, between Peter DiPasqua, Jr.                and the                Company.(1)                                                  |
|   |                                                                                                                                                                                                                                                                             |
| 4.2.5  | Warrant                for the Purchase of 20,000 Shares of Common Stock of Stratus Services                Group, Inc., dated December 2, 1998, between Shlomo Appel and the                Company.(1)                                                                         |
|   |                                                                                                                                                                                                                                                                             |
| 4.2.6  | Form                of Underwriter’s Warrant Agreement between the Company and Hornblower                & Weeks, Inc., including form of warrant                certificate.(7)                                                                                       |

**36**

----

| 4.2.7   | Warrant                for the Purchase of Common Stock dated as of December 4, 2000 issued                to                May Davis Group, Inc.(13)                                                                            |
|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                              |
| 4.2.8   | Warrant                for the Purchase of Common Stock dated as of December 4, 2000 issued                to                Hornblower & Weeks, Inc.(13)                                                                     |
|    |                                                                                                                                                                                                                              |
| 4.2.9   | Warrant                for the Purchase of Common Stock dated as of December 12, 2001 issued                to                International Capital Growth. (15)                                                                  |
|    |                                                                                                                                                                                                                              |
| 4.2.10  | Warrant                for the Purchase of Common Stock dated as of April 9, 2002 issued                to                CEOCast.(22)                                                                                            |
|    |                                                                                                                                                                                                                              |
| 4.2.11  | Warrant                for the Purchase of Common Stock dated as of October 17, 2001 issued                to                Stetson Consulting.(22)                                                                              |
|    |                                                                                                                                                                                                                              |
| 4.2.12  | Warrant                for the Purchase of Common Stock dated as of November 3, 2003 issued                to                Advantage Services Group, LLC.(28)                                                                   |
|    |                                                                                                                                                                                                                              |
| 4.2.13  | Warrant                Agreement between the Company and American Stock Transfer & Trust                Company, including form of warrant certificate for warrant comprising                part                of unit.(31) |
|    |                                                                                                                                                                                                                              |
| 4.2.14  | Secured                Convertible Promissory Note dated as of December 28, 2005 issued                to                Pinnacle Investment Partners, L.P. (36)                                                                  |
|    |                                                                                                                                                                                                                              |
| 10.1.1  | Employment                Agreement dated September 1, 1997, between the Company and Joseph                J.                Raymond.(1)*                                                                                         |
|    |                                                                                                                                                                                                                              |
| 10.1.7  | Consulting                Agreement, dated as of August 11, 1997, between the Company and Jeffrey                J.                Raymond.(1)                                                                                    |
|    |                                                                                                                                                                                                                              |
| 10.1.8  | Non-Competition                Agreement, dated June 19, 2000 between the Company and Outsource                International of America, Inc.(5)                                                                                  |
|    |                                                                                                                                                                                                                              |
| 10.1.9  | Non-Competition                Agreement, dated October 27, 2000 between the Company and Outsource                International of America, Inc.(6)                                                                               |
|    |                                                                                                                                                                                                                              |
| 10.1.10 | Option                to purchase 1,000,000 shares of the Company’s Common Stock issued to                Joseph J. Raymond.(11)                                                                                            |
|    |                                                                                                                                                                                                                              |
| 10.1.11 | Option                to purchase 500,000 shares of the Company’s Common Stock issued to Joseph                J. Raymond. (19)                                                                                             |
|    |                                                                                                                                                                                                                              |
| 10.1.12 | Option                to purchase 1,750,000 shares of the Company’s Common Stock issued to                Joseph J. Raymond.(19)                                                                                            |
|    |                                                                                                                                                                                                                              |
| 10.1.13 | Non-Competition                Agreements dated December 1, 2002 between the Company and each of                Elite                Personnel Services, Inc. and Bernard Freedman.(23)                                           |
|    |                                                                                                                                                                                                                              |
| 10.1.14 | Employment                Agreement dated December 1, 2002 between the Company and Bernard                Freedman.(23)                                                                                                           |
|    |                                                                                                                                                                                                                              |
| 10.2.1  | Lease,                effective October 1, 2002, for offices located at 500 Craig Road,                Manalapan, New Jersey 07726.(22)                                                                                           |
|    |                                                                                                                                                                                                                              |
| 10.3.1  | Loan                and Security Agreement, dated December 8, 2000, between Capital Tempfunds,                Inc. and the Company.(11)                                                                                           |
|    |                                                                                                                                                                                                                              |
| 10.3.2  | First                Amendment to Loan and Security Agreement between Capital Tempfunds,                Inc.                and the Company.(28)                                                                                  |
|    |                                                                                                                                                                                                                              |
| 10.3.3  | Second                Amendment to Loan and Security Agreement between Capital Tempfunds,                Inc.                and the Company.(28)                                                                                 |
|    |                                                                                                                                                                                                                              |
| 10.3.4  | Third                Amendment to Loan and Security Agreement between Capital Tempfunds,                Inc.                and the Company.(28)                                                                                  |
|    |                                                                                                                                                                                                                              |
| 10.3.5  | Fourth                Amendment to Loan and Security Agreement between Capital Tempfunds,                Inc.                and the Company.(28)                                                                                 |
|    |                                                                                                                                                                                                                              |
| 10.4.2  | Promissory                Note and Security Agreement in the amount of $400,000, dated as of                June                19, 2000, issued by the Company to Outsource International of America,                Inc.(5)     |
|    |                                                                                                                                                                                                                              |
| 10.4.3  | Promissory                Note in the amount of $100,000, dated as of June 19, 2000, issued                by the                Company to Outsource International of America,                Inc.(5)                            |

**37**

----

| 10.4.4 | Promissory                Note and Security Agreement in the amount of $75,000, dated as of                October                27, 2000, issued by the Company to Outsource International of America,                Inc.(6)            |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                       |
| 10.4.5 | Promissory                Note and Security Agreement in the amount of $600,000, dated as of                July                27, 2001, issued by the Company to Source One Personnel,                Inc.(8)                            |
|   |                                                                                                                                                                                                                                       |
| 10.4.6 | Promissory                Note and Security Agreement in the amount of $1.8 million, dated                as of                July 27, 2001, issued by the Company to Source One Personnel,                Inc.(8)                        |
|   |                                                                                                                                                                                                                                       |
| 10.4.7 | Promissory                Note in the amount of $1,264,000 dated as of December 1, 2002, issued                by                the Company to Elite Personnel Services, Inc.(23)                                                         |
|   |                                                                                                                                                                                                                                       |
| 10.5.1 | Registration                Rights Agreement, dated August, 1997, by and among the Company and                AGR                Financial, L.L.C.(1)                                                                                      |
|   |                                                                                                                                                                                                                                       |
| 10.5.2 | Registration                Rights Agreement, dated August 1997, by and among the Company and                Congress                Financial Corporation (Western).(1)                                                                   |
|   |                                                                                                                                                                                                                                       |
| 10.5.3 | Form                of Registration Rights Agreement, dated December 4, 2000, by and                among the                Company and purchasers of the Company’s 6% Convertible                Debenture.(11)                    |
|   |                                                                                                                                                                                                                                       |
| 10.5.4 | Registration                Rights Agreement, dated as of December 4, 2000, between the Company,                May                Davis Group, Inc., Hornblower & Weeks, Inc. and the other parties                named therein.(13) |
|   |                                                                                                                                                                                                                                       |
| 10.6.1 | Stock                Purchase and Investor Agreement, dated August 1997, by and between                the                Company and Congress Financial Corporation                (Western).(1)                                          |
|   |                                                                                                                                                                                                                                       |
| 10.6.2 | Stock                Purchase and Investor Agreement, dated August 1997, by and among                the                Company and AGR Financial, L.L.C.(1)                                                                               |
|   |                                                                                                                                                                                                                                       |
| 10.6.3 | Form                of Securities Purchase Agreement, dated December 4, 2000 by and between                the Company and purchasers of the Company’s 6% Convertible                Debenture.(11)                                  |
|   |                                                                                                                                                                                                                                       |
| 10.7.1 | 1999                Equity Incentive Plan.(1)**                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                       |
| 10.7.2 | 2000                Equity Incentive Plan.(11)**                                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                       |
| 10.7.3 | 2001                Equity Incentive Plan.(12)**                                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                       |
| 10.7.4 | 2002                Equity Incentive Plan.(19)**                                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                       |
| 10.7.5 | Form                of Option issued under 1999 Equity Incentive                Plan.(19)**                                                                                                                                                |
|   |                                                                                                                                                                                                                                       |
| 10.7.6 | Form                of Option issued under 2000 Equity Incentive                Plan.(19)**                                                                                                                                                |
|   |                                                                                                                                                                                                                                       |
| 10.7.7 | Form                of Option issued under 2001 Equity Incentive                Plan.(19)**                                                                                                                                                |
|   |                                                                                                                                                                                                                                       |
| 10.7.8 | Form                of Option issued under 2002 Equity Incentive                Plan.(19)**                                                                                                                                                |
|   |                                                                                                                                                                                                                                       |
| 10.8   | Debt                to Equity Conversion Agreement by and between the Company and B&R                Employment, Inc.(3)                                                                                                               |
|   |                                                                                                                                                                                                                                       |
| 10.8.1 | Amendment                to Debt to Equity Conversion Agreements by and between the Company                and                B&R Employment, Inc.(2)                                                                                  |
|   |                                                                                                                                                                                                                                       |
| 10.8.2 | Forbearance                Agreement dated January 24, 2002 between the Company and Source One                Personnel. (20)                                                                                                              |
|   |                                                                                                                                                                                                                                       |
| 10.8.3 | Modification                of Forbearance Agreement dated June 4, 2002 between the Company and                Source                One Personnel, together with Exhibits thereto.(21)                                                    |
|   |                                                                                                                                                                                                                                       |

**38**

----

| 10.10  | Allocation                and Indemnity Agreement dated as of January 24, 2002 among the Company,                Charles Sahyoun and Sahyoun Holdings, LLC.(20)                                                                                                                                                                                                        |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                   |
| 10.11  | Letter                Agreement dated April 15, 2002 between the Company, Sahyoun Holdings,                LLC                and Joseph J. Raymond, Sr. amending the Allocation and Indemnity                Agreement                dated April 18, 2002.(17)                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                   |
| 10.12  | Exchange                Agreement dated March 11, 2002 by and between Transworld Management                Services, Inc. and the Company.(22)                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                   |
| 10.13  | Securities                Purchase Agreement dated March 11, 2002, by and between Pinnacle                Investment Partners, LP and the Company.(22)                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                   |
| 10.14  | Operating                Agreement of Stratus Technology Services.(28)                                                                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                   |
| 10.15  | Form                of Securities Purchase Agreement between the Company and Series E                Shareholders.(27)                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                   |
| 10.16  | Compromise                Agreement between the Company and Series E Shareholders dated July                30,                2003.(27)                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                   |
| 10.17  | Redemption                Agreement dated July 31, 2003 between Artisan (UK) plc and the                Company.(29)                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                   |
| 10.18  | Agreement                to Exchange Series H Preferred Shares for Series E Preferred Shares                between the Company and Pinnacle Investment Partners,                L.P.(27)                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                   |
| 10.19  | Letter                Agreement regarding Employer Service Agreements between the Company                and                Advantage Services Group, LLC.(28)                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                   |
| 10.20  | Letter                Agreement regarding Receivables between the Company and Advantage                Services                Group, LLC. (28)                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                   |
| 10.21  | Waiver                Letter Agreement between the Company and Series E                Shareholders.(31)                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                   |
| 10.22  | Letter                Agreement between the Company and the Series A Holders extending                the time                for issuance of shares.(31)                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                   |
| 10.23  | Employer                Service Agreement dated June 21, 2004 between Advantage Services                Group,                LLC and the Company. Certain information has been omitted from this                exhibit and is subject to an order granting confidential                treatment.(31)                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                   |
| 10.24  | Employer                Service Agreement dated July 2, 2004 together with Letter Addendum                dated                July 6, 2004 between Advantage Services Group, LLC and the Company.                Certain information has been omitted from this exhibit and is subject                to                an order granting confidential treatment.(31) |
|   |                                                                                                                                                                                                                                                                                                                                                                   |
| 10.25  | Outsourcing                Agreement dated August 13, 2004 between Advantage Services Group,                LLC and                the Company. Certain information has been omitted from this exhibit                and is                subject to an order granting confidential                treatment.(31)                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                   |
| 10.26  | Forbearance                Agreement between the Company and Capital Temp Funds, Inc.                (37)                                                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                   |
| 10.27  | Payment                Plan Agreement between the Company and the California EDD.                (38)                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                   |
| 10.28  | Management                Agreement between the Company and ALS, LLC. Certain information has                been                omitted from this Agreement pursuant to an order granting confidential                treatment. (38)                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                   |
| 10.29  | Letter                Agreement between the Company and ALS, LLC terminating Management                Agreement and reinstating Outsourcing Agreement, as amended.                (39)                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                   |
| 10.30  | Fifth                Amendment to Loan and Security Agreement to Forbearance Agreement.                (39)                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                   |
| 10.31  | Employment                Agreement of Michael A. Maltzman, CFO. (39)                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                   |
| 10.32  | Second                Amendment to Outsourcing Agreement between Stratus Services Group,                Inc.                and ALS, LLC. (33)                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                   |
| 10.33  | Stratus                Services Group, Inc. Non-Competition and Non-Solicitation Agreement.                (33)                                                                                                                                                                                                                                                        |

**39**

----

| 10.34  | ALS,                LLC Non-Competition and Non-Solicitation Agreement.                (33)                                                                                                 |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                        |
| 10.35  | Amended                and Restated Forbearance Agreement between the Company and Capital                Temp                Funds, Inc. dated August 11, 2005. (40)                        |
|   |                                                                                                                                                                                        |
| 10.36  | Forbearance                Letter Agreement by and among the Company, ALS, LLC and Capital Temp                Funds, Inc. dated August 11, 2005. (40)                                      |
|   |                                                                                                                                                                                        |
| 10.37  | Letter                of Intent between the Company and Humana Trans Services Holding Corp.                dated August 15, 2005. (40)                                                      |
|   |                                                                                                                                                                                        |
| 10.38  | Letter                Agreement between the Company, ALS, LLC and Capital Temp Funds regarding                further extension of Forbearance dated August 25, 2005. (41)                  |
|   |                                                                                                                                                                                        |
| 10.39  | Letter                Agreement between the Company and Capital Temp Funds regarding further                extension of Forbearance dated September 1, 2005. (42)                          |
|   |                                                                                                                                                                                        |
| 10.40  | Letter                Agreement between the Company and Capital Temp Funds regarding further                extension of Forbearance dated September 1, 2005. (42)                          |
|   |                                                                                                                                                                                        |
| 10.41  | Letter                Agreement between the Company, ALS, LLC and Capital Temp Funds regarding                further extension of Forbearance dated September 8, 2005.                (43) |
|   |                                                                                                                                                                                        |
| 10.42  | Letter                Agreement between the Company and Capital Temp Funds regarding further                extension of Forbearance dated September 8, 2005. (43)                          |
|   |                                                                                                                                                                                        |
| 10.43  | Letter                Agreement between the Company and ALS, LLC regarding further extension                of                Forbearance dated September 15, 2005. (44)                    |
|   |                                                                                                                                                                                        |
| 10.44  | Letter                Agreement between the Company and Capital Temp Funds regarding further                extension of Forbearance dated September 15 , 2005.                (44)         |
|   |                                                                                                                                                                                        |
| 10.45  | Letter                Agreement between the Company and ALS, LLC regarding further extension                of                Forbearance dated September 29, 2005. (45)                    |
|   |                                                                                                                                                                                        |
| 10.46  | Letter                Agreement between the Company and Capital Temp Funds regarding further                extension of Forbearance dated September 29 , 2005.                (45)         |
|   |                                                                                                                                                                                        |
| 10.47  | Letter                Agreement between the Company and ALS, LLC regarding further extension                of                Forbearance dated October 6, 2005. (46)                       |
|   |                                                                                                                                                                                        |
| 10.48  | Letter                Agreement between the Company and Capital Temp Funds regarding further                extension of Forbearance dated October 6 , 2005. (46)                           |
|   |                                                                                                                                                                                        |
| 10.49  | Letter                Agreement between the Company and ALS, LLC regarding further extension                of                Forbearance dated October 12, 2005. (47)                      |
|   |                                                                                                                                                                                        |
| 10.50  | Letter                Agreement between the Company and Capital Temp Funds regarding further                extension of Forbearance dated October 12 , 2005. (47)                          |
|   |                                                                                                                                                                                        |
| 10.51  | Letter                Agreement between the Company and ALS, LLC regarding further extension                of                Forbearance dated October 20, 2005. (34)                      |
|   |                                                                                                                                                                                        |
| 10.52  | Letter                Agreement between the Company and Capital Temp Funds regarding further                extension of Forbearance dated October 20 , 2005. (34)                          |
|   |                                                                                                                                                                                        |
| 10.53  | Non-Competition                and Non-Solicitation Agreement executed by Stratus Services Group,                Inc.                for the benefit of ALS, LLC. (34)                      |
|   |                                                                                                                                                                                        |

**40**

----

| 10.54  | Letter                Agreement between the Company and ALS, LLC regarding further extension                of                Forbearance dated November 3, 2005. (48)                                                                                                              |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                |
| 10.55  | Letter                Agreement between the Company and Capital Temp Funds regarding further                extension of Forbearance dated November 3, 2005. (48)                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                |
| 10.56  | Letter                of Intent between Stratus Services Group, Inc. and ALS, LLC dated                November                1, 2005. (48)                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                |
| 10.57  | Letter                Agreement between the Company and ALS, LLC regarding further extension                of                Forbearance dated November 17, 2005. (49)                                                                                                             |
|   |                                                                                                                                                                                                                                                                                |
| 10.58  | Letter                Agreement between the Company and Capital Temp Funds regarding further                extension of Forbearance dated November 17, 2005. (49)                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                |
| 10.59  | Letter                Agreement between the Company and ALS, LLC regarding further extension                of                Forbearance dated November 23, 2005. (50)                                                                                                             |
|   |                                                                                                                                                                                                                                                                                |
| 10.60  | Letter                Agreement between the Company and Capital Temp Funds regarding further                extension of Forbearance dated November 23, 2005. (50)                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                |
| 10.61  | Non-Competition                and Non-Solicitation Agreement dated December 2, 2005 between Stratus                Services Group, Inc. and ALS, LLC binding Stratus Services Group,                Inc to                the terms thereto. (51)                                  |
|   |                                                                                                                                                                                                                                                                                |
| 10.62  | Non-Competition                and Non-Solicitation Agreement dated December 5, 2005 between Stratus                Services Group, Inc. and Accountabilities, Inc. binding Stratus Services                Group, Inc to the terms thereto. (51)                                   |
|   |                                                                                                                                                                                                                                                                                |
| 10.63  | Non-Competition                and Non-Solicitation Agreement dated December 5, 2005 between Stratus                Services Group, Inc. and Accountabilities, Inc. binding Accountabilities,                Inc to the terms thereto. (51)                                         |
|   |                                                                                                                                                                                                                                                                                |
| 10.64  | Non-Competition                and Non-Solicitation Agreement dated December 7, 2005 between Stratus                Services Group, Inc. and Source One Personnel binding Stratus Services                Group, Inc. to the terms thereto. (51)                                    |
|   |                                                                                                                                                                                                                                                                                |
| 10.65  | Non-Competition                and Non-Solicitation Agreement dated December 7, 2005 between Stratus                Services Group, Inc. and Tri-State Employment Service, Inc. binding                Stratus Services Group, Inc. to the terms thereto. (51)                      |
|   |                                                                                                                                                                                                                                                                                |
| 10.66  | Non-Competition                and Non-Solicitation Agreement dated December 7, 2005 between Stratus                Services Group, Inc. and Tri-State Employment Service, Inc. binding                Tri-State Employment Service, Inc. to the terms thereto.                (51) |
|   |                                                                                                                                                                                                                                                                                |
| 10.67  | Exchange                Agreement dated as of December 28, 2005 between Stratus Services                Group,                Inc. and Pinnacle Investment Partners, L.P. (51)                                                                                                      |
|   |                                                                                                                                                                                                                                                                                |
| 21     | Subsidiaries                of Registrant.(15)                                                                                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                |
| 23     | Consent                of E. Randall Gruber, CPA, P.C.(refiled herewith)                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                |
| 24     | Power                of Attorney (located on signature pages of Form 10-K being amended by                this Form 10-K/A).                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                |
| 31.1   | Certification                of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley                Act of 2002.(filed herewith)                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                |
| 31.2   | Certification                of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley                Act of 2002.(filed herewith)                                                                                                                                   |

**41**

----

| 32.1   | Certification                of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley                Act of 2002.(filed herewith) |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                              |
| 32.2   | Certification                of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley                Act of 2002.(filed herewith) |
|   |                                                                                                                                              |
| *      | Constitutes                a management contract required to be filed pursuant to Item 14(c)                of Form                10-K.          |
|   |                                                                                                                                              |
| **     | Constitutes                a compensation plan required to be filed pursuant to Item 14(c) of                Form                10-K.            |

| Footnote                1  | Incorporated                by reference to similarly numbered Exhibits filed with Amendment                No. 1 to                the Company’s Registration Statement on Form SB-2 (Registration Statement                No. 333-83255) as filed with the Securities and Exchange Commission                on                September 3, 1999. |
|----------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                       |                                                                                                                                                                                                                                                                                                                                                       |
| Footnote                2  | Incorporated                by reference to similarly numbered Exhibits filed with Amendment                No. 6 to                the Company’s Registration Statement on Form SB-2 (Registration Statement                No. 333-83255) as filed with the Securities and Exchange Commission                on                February 1, 2000.  |
|                       |                                                                                                                                                                                                                                                                                                                                                       |
| Footnote                3  | Incorporated                by reference to similarly numbered Exhibits filed with Amendment                No. 3 to                the Company’s Registration Statement on Form SB-2 (Registration Statement                No. 333-83255) as filed with the Securities and Exchange Commission                on                December 17, 1999. |
|                       |                                                                                                                                                                                                                                                                                                                                                       |
| Footnote                4  | Incorporated                by reference to similarly numbered Exhibits filed with Amendment                No. 7 to                the Company’s Registration Statement on Form SB-2 (Registration Statement                No. 333-83255) as filed with the Securities and Exchange Commission                on                March 17, 2000.    |
|                       |                                                                                                                                                                                                                                                                                                                                                       |
| Footnote                5  | Incorporated                by reference to the Exhibits to the Company’s Form 8-K, as filed with the                Securities and Exchange Commission on June 30, 2000.                                                                                                                                                                            |
|                       |                                                                                                                                                                                                                                                                                                                                                       |
| Footnote                6  | Incorporated                by reference to the Exhibits to the Company’s Form 8-K, as filed with the                Securities and Exchange Commission on November 3, 2000.                                                                                                                                                                         |
|                       |                                                                                                                                                                                                                                                                                                                                                       |
| Footnote                7  | Incorporated                by reference to Exhibit 1.2 filed with Amendment No. 5 to the Company’s                Registration Statement on Form SB-2 (Registration Statement No. 333-83255)                as filed with the Securities and Exchange Commission on February                11,                2000.                                |
|                       |                                                                                                                                                                                                                                                                                                                                                       |
| Footnote                8  | Incorporated                by reference to the Exhibits to the Company’s Form 8-K, as filed with the                Securities and Exchange Commission on August 9, 2001.                                                                                                                                                                           |
|                       |                                                                                                                                                                                                                                                                                                                                                       |
| Footnote                9  | Incorporated                by reference to the Exhibits to the Company’s Form 8-K, as filed with the                Securities and Exchange Commission on January 2, 2002.                                                                                                                                                                          |
|                       |                                                                                                                                                                                                                                                                                                                                                       |
| Footnote                10 | Incorporated                by reference to Exhibit 3 filed with Form 10-Q for the Quarter ended                June                30, 2001 as filed with the Securities and Exchange Commission on                August                14, 2001.                                                                                                        |
|                       |                                                                                                                                                                                                                                                                                                                                                       |
| Footnote                11 | Incorporated                by reference to similarly numbered Exhibits to the Company’s Form 10-KSB,                as filed with the Securities and Exchange Commission on December                29,                2000.                                                                                                                        |
|                       |                                                                                                                                                                                                                                                                                                                                                       |
| Footnote                12 | Incorporated                by reference to similarly numbered Exhibits filed with the Company’s                Registration Statement on Form S-1 (Registration Statement No. 333-55312)                as filed with the Securities and Exchange Commission on February                9,                2001.                                     |
|                       |                                                                                                                                                                                                                                                                                                                                                       |
| Footnote                13 | Incorporated                by reference to the Exhibits to the Company’s Form S-1/A, as filed with                the Securities and Exchange Commission on April 11,                2001.                                                                                                                                                          |
|                       |                                                                                                                                                                                                                                                                                                                                                       |
| Footnote                14 | Incorporated                by reference to the Exhibits to the Company’s Form 8-K, as filed with the                Securities and Exchange Commission on April 4, 2002.                                                                                                                                                                            |
|                       |                                                                                                                                                                                                                                                                                                                                                       |
| Footnote                15 | Incorporated                by reference to similarly numbered Exhibits filed with the Registrant’s                Form 10-K for the fiscal year ended September 30, 2001, and filed                with the                Securities and Exchange Commission on January 25,                2002.                                                   |

**42**

----

| Footnote                16 | Incorporated                by reference to similarly numbered Exhibits filed with the Registrant’s                Form 10-K/A for the fiscal year ended September 30, 2001, as filed                with                the Securities and Exchange Commission on March 5,                2002.                                                 |
|----------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                       |                                                                                                                                                                                                                                                                                                                                                   |
| Footnote                17 | Incorporated                by reference to the Exhibits to the Company’s Form 10-Q for the quarter                ended March 31, 2002, as filed with the Securities and Exchange Commission                on May 15, 2002.                                                                                                                    |
|                       |                                                                                                                                                                                                                                                                                                                                                   |
| Footnote                18 | Incorporated                by reference to the Exhibits to the Company’s Form 8-K, as filed with the                Securities and Exchange Commission on April 4, 2002.                                                                                                                                                                        |
|                       |                                                                                                                                                                                                                                                                                                                                                   |
| Footnote                19 | Incorporated                by reference to the Exhibits to the Company’s Form S-8, as filed with the                Securities and Exchange Commission on September 17,                2002.                                                                                                                                                    |
|                       |                                                                                                                                                                                                                                                                                                                                                   |
| Footnote                20 | Incorporated                by reference to the Exhibits to the Company’s Form 10-K, as filed with the                Securities and Exchange Commission on January 25, 2002, as amended                by the                Company’s Form 10-K/A, as filed with the Securities and Exchange                Commission on March 5, 2002. |
|                       |                                                                                                                                                                                                                                                                                                                                                   |
| Footnote                21 | Incorporated                by reference to the Company’s 10-Q, for the quarter ended June 30, 2002,                as filed with the Securities and Exchange Commission on August 14,                2002.                                                                                                                                      |
|                       |                                                                                                                                                                                                                                                                                                                                                   |
| Footnote                22 | Incorporated                by reference to the similarly numbered Exhibits filed with the Company’s                Registration Statement on Form S-1 (Registration Statement No. 333-100149)                as filed with the Securities and Exchange Commission on September                27,                2002.                          |
|                       |                                                                                                                                                                                                                                                                                                                                                   |
| Footnote                23 | Incorporated                by reference to Exhibits to the Company’s Form 8-K, as filed with the                Securities and Exchange Commission on November 26,                2002.                                                                                                                                                         |
|                       |                                                                                                                                                                                                                                                                                                                                                   |
| Footnote                24 | Incorporated                by reference to the similarly numbered Exhibits to the Company’s Form                10-K, as filed with the Securities and Exchange Commission on December                23,                2002.                                                                                                                  |
|                       |                                                                                                                                                                                                                                                                                                                                                   |
| Footnote                25 | Incorporated                by reference to the Exhibits to the Company’s Form S-1, as filed with the                Securities and Exchange Commission on February 2, 2003.                                                                                                                                                                     |
|                       |                                                                                                                                                                                                                                                                                                                                                   |
| Footnote                26 | Incorporated                by reference to the Exhibits to the Company’s Form S-1, as filed with the                Securities and Exchange Commission on March 20, 2003.                                                                                                                                                                       |
|                       |                                                                                                                                                                                                                                                                                                                                                   |
| Footnote                27 | Incorporated                by reference to the similarly numbered exhibits to the Company’s Form 10-Q                for the quarterly period ended June 30, 2003, as filed with the Securities                and Exchange Commission on August 13, 2003.                                                                                      |
|                       |                                                                                                                                                                                                                                                                                                                                                   |
| Footnote                28 | Incorporated                by reference to similarly numbered exhibits to the Company’s Form 10-K for                the fiscal year ended September 30, 2003 as filed with the Securities                and                Exchange Commission on December 24, 2003.                                                                          |
|                       |                                                                                                                                                                                                                                                                                                                                                   |
| Footnote                29 | Incorporated                by reference to similarly numbered exhibits to Amendment No. 2 to                the                Company’s Registration Statement on Form S-1 filed with the Securities and                Exchange Commission on March 30, 2004.                                                                                 |
|                       |                                                                                                                                                                                                                                                                                                                                                   |
| Footnote                30 | Incorporated                by reference to similarly numbered exhibits to Post-Effective Amendment                No. 1 to the Company’s Registration Statement on Form S-1 filed with the                Securities and Exchange Commission on June 14, 2004.                                                                                  |
|                       |                                                                                                                                                                                                                                                                                                                                                   |
| Footnote                31 | Incorporated                by reference to similarly numbered exhibits to the Company’s Form 10-Q for                the quarter ended June 30, 2004 as filed with the Securities and                Exchange                Commission on August 16, 2004.                                                                                     |
|                       |                                                                                                                                                                                                                                                                                                                                                   |
| Footnote                32 | Incorporated                by reference to similarly numbered exhibits to Amendment No. 1 to                the                Company’s Registration Statement on Form S-4 filed with the Securities and                Exchange Commission on March 30, 2004.                                                                                 |
|                       |                                                                                                                                                                                                                                                                                                                                                   |
| Footnote                33 | Incorporated                by reference to similarly numbered exhibits to the Company’s Form 8-K, as                filed with the Securities and Exchange Commission on June 15,                2005.                                                                                                                                          |
|                       |                                                                                                                                                                                                                                                                                                                                                   |
| Footnote                34 | Incorporated                by reference to similarly numbered exhibits to the Company’s Form 8-K, as                filed with the Securities and Exchange Commission on October 25,                2005.                                                                                                                                       |

**43**

----

| Footnote                35     | Incorporated                by reference to similarly numbered exhibits to the Company’s Form 8-K, as                filed with the Securities and Exchange Commission on December 23,                2005.                                                                                           |
|--------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                           |                                                                                                                                                                                                                                                                                                        |
| Footnote                36     | Incorporated                by reference to similarly numbered exhibits to the Company’s Form 8-K, as                filed with the Securities and Exchange Commission on January 18,                2006.                                                                                            |
|                           |                                                                                                                                                                                                                                                                                                        |
| Footnote                37     | Incorporated                by reference to similarly numbered exhibits to the Company’s Form 8-K/A,                as filed with the Securities and Exchange Commission on January 21,                2006.                                                                                          |
|                           |                                                                                                                                                                                                                                                                                                        |
| Footnote                38     | Incorporated                by reference to similarly numbered exhibits to the Company’s Report on                Form 10-Q for the quarterly period ended December 31, 2004, as filed                with                the Securities and Exchange Commission on February 14,                2005. |
|                           |                                                                                                                                                                                                                                                                                                        |
| Footnote                39     | Incorporated                by reference to similarly numbered exhibits to the Company’s Report on                Form 10-Q for the quarterly period ended March 30, 2005, as filed                with the                Securities and Exchange Commission on May 16, 2005.                        |
|                           |                                                                                                                                                                                                                                                                                                        |
| Footnote                40     | Incorporated                by reference to similarly numbered exhibits to the Company’s Report on                Form 10-Q for the quarterly period ended June 30, 2005, as filed                with the                Securities and Exchange Commission on August 17, 2005.                      |
|                           |                                                                                                                                                                                                                                                                                                        |
| Footnote                41     | Incorporated                by reference to similarly numbered exhibits to the Company’s Form 8-K, as                filed with the Securities and Exchange Commission on August 30,                2005.                                                                                             |
|                           |                                                                                                                                                                                                                                                                                                        |
| Footnote                42     | Incorporated                by reference to similarly numbered exhibits to the Company’s Form 8-K, as                filed with the Securities and Exchange Commission on September 8,                2005.                                                                                           |
|                           |                                                                                                                                                                                                                                                                                                        |
| Footnote                43     | Incorporated                by reference to similarly numbered exhibits to the Company’s Form 8-K, as                filed with the Securities and Exchange Commission on September 14,                2005.                                                                                          |
|                           |                                                                                                                                                                                                                                                                                                        |
| Footnote                44     | Incorporated                by reference to similarly numbered exhibits to the Company’s Form 8-K, as                filed with the Securities and Exchange Commission on September 21,                2005.                                                                                          |
|                           |                                                                                                                                                                                                                                                                                                        |
| Footnote                45     | Incorporated                by reference to similarly numbered exhibits to the Company’s Form 8-K, as                filed with the Securities and Exchange Commission on October 4,                2005.                                                                                             |
|                           |                                                                                                                                                                                                                                                                                                        |
| Footnote                46     | Incorporated                by reference to similarly numbered exhibits to the Company’s Form 8-K, as                filed with the Securities and Exchange Commission on October 7,                2005.                                                                                             |
|                           |                                                                                                                                                                                                                                                                                                        |
| Footnote                47     | Incorporated                by reference to similarly numbered exhibits to the Company’s Form 8-K, as                filed with the Securities and Exchange Commission on October 12,                2005.                                                                                            |
|                           |                                                                                                                                                                                                                                                                                                        |
| Footnote                48     | Incorporated                by reference to similarly numbered exhibits to the Company’s Form 8-K, as                filed with the Securities and Exchange Commission on November 7,                2005.                                                                                            |
|                           |                                                                                                                                                                                                                                                                                                        |
| Footnote                49     | Incorporated                by reference to similarly numbered exhibits to the Company’s Form 8-K, as                filed with the Securities and Exchange Commission on November 18,                2005.                                                                                           |
|                           |                                                                                                                                                                                                                                                                                                        |
| Footnote                50     | Incorporated                by reference to similarly numbered exhibits to the Company’s Form 8-K, as                filed with the Securities and Exchange Commission on November 30,                2005.                                                                                           |
|                           |                                                                                                                                                                                                                                                                                                        |
|  Footnote              51 | Incorporated              by reference to similarly numbered exhibits to the Company's Form 10-K,              as              filed with the Securities and Exchange Commission on February 3, 2006              which is being amended by this Form              10-K/A.                                  |

**44**

----

**SIGNATURES**

|                                          | **STRATUS                SERVICES GROUP, INC.** |
|-----------------------------------------------|-------------------------------------------------|
|                                          |                                            |   |
|                                          |                                            |   |
|  Date: August              15, 2006 | By:                                             |      /s/                Joseph J. Raymond |   |
|                                          |                                            | Joseph                J. Raymond |
|                                          |                                            | Chairman                of the Board of Directors,President                and Chief Executive Officer |
|                                          |                                            |   |
|                                          |                                            |

| **Signature**                                                                                              |                                                        | **Title**                                                 |                           | **Date** |   |
|------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------|-----------------------------------------------------------|--------------------------------|----------|--------|
|                                                                                                       |                                                        |                                                      |
|                                                                                                       |                                                        |                                                      |
| /s/                Joseph J. Raymond                                                                       |                                                        | Chairman,                Chief Executive Officer          | August                15, 2006 |
| Joseph                J. Raymond                                                                           | (Principal                Executive Officer)                |                                                      |
|                                                                                                       |                                                        |                                                      |
|                                                                                                       |                                                        |                                                      |
| /s/                Michael A. Maltzman                                                                     |                                                        | Vice                President and Chief Financial Officer | August                15, 2006 |
| Michael                A. Maltzman                                                                         | (Principal                Financing and Accounting Officer) |                                                      |
|                                                                                                       |                                                        |                                                      |
|                                                                                                       |                                                        |                                                      |
| /s/*                                                                                                       |                                                        | Director                                                  | August                15, 2006 |
| Norman                Goldstein                                                                            |                                                        |                                                      |
|                                                                                                       |                                                        |                                                      |
|                                                                                                       |                                                        |                                                      |
| *              By: /s/ Joseph J. Raymond            |                                                        |                                                      |
|  Joseph              J. Raymond                                                                       |                                                        |                                                      |
|  Attorney              - in - Fact                                                                    |                                                        |                                                      |
|                                                                                                       |                                                        |                                                      |

----

**STRATUS      SERVICES GROUP, INC.**

**INDEX      TO CONSOLIDATED FINANCIAL STATEMENTS**

**As      of September 30, 2005 and 2004**

**and      for the Years Ended September 30, 2005, 2004 and 2003**

| Report                of E. Randall Gruber, CPA, P.C.                                                           | F-2                         |
|-----------------------------------------------------------------------------------------------------------------|-----------------------------|
| Consolidated                Financial Statements                                                                |                        |
| Consolidated                Balance                Sheets                                                       | F-3                         |
| Consolidated                Statements                of Operations                                             | F-5                         |
| Consolidated                Statements                of Cash Flows                                             | F-6                         |
| Consolidated                Statements                of Stockholders’ Equity                (Deficiency) | F-8                         |
| Consolidated                Statements                of Comprehensive Income                (Loss)             | F-15                        |
| Notes                to Consolidated Financial Statements                                                       | F-16                to F-40 |

**F-1**

----

**E.      Randall Gruber, CPA, PC**

**REPORT      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

**F-2**

----

**STRATUS      SERVICES GROUP, INC.**

Consolidated      Balance Sheets

|                                                                                                                                                                                                                                                 |   | **September                30,** |             |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|------------------|
| Assets                                                                                                                                                                                                                                               |   | **2005**                         |             | **2004** |   |
|                                                                                                                                                                                                                                                 |   |                             | (Restated)  |   |   | (Restated) |   |
| Current                assets                                                                                                                                                                                                                        |   |                             |             |   |   |   |   |
| Cash                                                                                                                                                                                                                                                 |   | $                                | 40,784           |   | $ | 735,726 |   |
| Accounts                receivable - less allowance for doubtful accounts of $3,039,000 and                $2,038,000                                                                                                                                |   |                             | 11,591,026       |   |   | 14,618,155 |   |
| Unbilled                receivables                                                                                                                                                                                                                  |   |                             | 2,484,799        |   |   | 2,119,836 |   |
| Notes                receivable (current portion)                                                                                                                                                                                                    |   |                             | 39,016           |   |   | 32,683 |   |
| Prepaid                insurance                                                                                                                                                                                                                     |   |                             | 455,881          |   |   | 1,929,056 |   |
| Prepaid                expenses and other current assets                                                                                                                                                                                             |   |                             | 326,266          |   |   | 589,421 |   |
|                                                                                                                                                                                                                                                 |   |                             | 14,937,772       |   |   | 20,024,877 |   |
|                                                                                                                                                                                                                                                 |   |                             |             |   |   |   |   |
| Notes                receivable (net of current portion)                                                                                                                                                                                             |   |                             | 47,593           |   |   | 74,269 |   |
| Note                receivable - related party                                                                                                                                                                                                       |   |                             | -                |   |   | 122,849 |   |
| Property                and equipment, net of accumulated depreciation                                                                                                                                                                               |   |                             | 474,158          |   |   | 597,416 |   |
| Intangible                assets, net of accumulated amortization                                                                                                                                                                                    |   |                             | 689,182          |   |   | 1,081,936 |   |
| Goodwill                                                                                                                                                                                                                                             |   |                             | 2,553,081        |   |   | 5,816,353 |   |
| Other                assets                                                                                                                                                                                                                          |   |                             | 95,849           |   |   | 189,475 |   |
|                                                                                                                                                                                                                                                 |   | $                                | 18,797,635       |   | $ | 27,907,175 |   |
| Liabilities                and Stockholders’ Equity (Deficiency)                                                                                                                                                                               |   |                             |             |   |   |   |   |
| Current                liabilities                                                                                                                                                                                                                   |   |                             |             |   |   |   |   |
| Loans                payable (current portion)                                                                                                                                                                                                       |   | $                                | 198,450          |   | $ | 149,091 |   |
| Loans                payable - related parties (current portion)                                                                                                                                                                                     |   |                             | 111,723          |   |   | 196,646 |   |
| Notes                payable - acquisitions (current portion)                                                                                                                                                                                        |   |                             | 461,074          |   |   | 955,105 |   |
| Line                of credit                                                                                                                                                                                                                        |   |                             | 8,931,689        |   |   | 11,029,070 |   |
| Cash                overdraft                                                                                                                                                                                                                        |   |                             | 14,731           |   |   | 24,492 |   |
| Insurance                obligation payable                                                                                                                                                                                                          |   |                             | 113,373          |   |   | 134,975 |   |
| Accounts                payable and accrued expenses                                                                                                                                                                                                 |   |                             | 4,759,624        |   |   | 5,574,852 |   |
| Accounts                payable - related parties                                                                                                                                                                                                    |   |                             | 4,829,764        |   |   | 3,512,073 |   |
| Accrued                payroll and taxes                                                                                                                                                                                                             |   |                             | 284,834          |   |   | 1,155,426 |   |
| Payroll                taxes payable                                                                                                                                                                                                                 |   |                             | 4,160,539        |   |   | 5,153,146 |   |
| Series                A redemption payable                                                                                                                                                                                                           |   |                             | 300,000          |   |   | 250,000 |   |
| Put                options liability                                                                                                                                                                                                                 |   |                             | 650,000          |   |   | 673,000 |   |
|       Warrant              liability                                                                                                                                                                                   |   |                             |  2,135      |   |   |  5,265,989 |   |
| Series                I convertible preferred stock (including unpaid dividends of $40,091                and                $40,806)                                                                                                                |   |                             | 2,217,591        |   |   | 2,218,306 |   |
|                                                                                                                                                                                                                                                 |   |                             | 27,035,527       |   |   | 36,292,171 |   |
|                                                                                                                                                                                                                                                 |   |                             |             |   |   |   |   |
| Loans                payable - related parties (net of current portion)                                                                                                                                                                              |   |                             | -                |   |   | 42,929 |   |
| Notes                payable - acquisitions (net of current portion)                                                                                                                                                                                 |   |                             | 1,149,033        |   |   | 1,305,285 |   |
| Payroll                taxes payable                                                                                                                                                                                                                 |   |                             | 449,046          |   |   | - |   |
| Convertible                debt                                                                                                                                                                                                                      |   |                             | 40,000           |   |   | 40,000 |   |
|                                                                                                                                                                                                                                                 |   |                             | 28,673,606       |   |   | 37,680,385 |   |
|                                                                                                                                                                                                                                                 |   |                             |             |   |   |   |   |
| Commitments                and contingencies                                                                                                                                                                                                         |   |                             |             |   |   |   |   |
|                                                                                                                                                                                                                                                 |   |                             |             |   |   |   |   |
| Stockholders’                equity (deficiency)                                                                                                                                                                                               |   |                             |             |   |   |   |   |
| Preferred                stock, $.01 par value, 5,000,000 shares authorized                                                                                                                                                                          |   |                             |             |   |   |   |   |
|                                                                                                                                                                                                                                                 |   |                             |             |   |   |   |   |
| Series                E non-voting convertible preferred stock, $.01 par value, 247 and                572 and                shares issued and outstanding, liquidation preference of $24,700                (including unpaid dividends of $1,500) |   |                             | 24,700           |   |   | 58,700 |   |
|                                                                                                                                                                                                                                                 |   |                             |             |   |   |   |   |
| Series                F voting convertible preferred stock, $.01 par value, 6,000 and 6,000                shares issued and outstanding, liquidation preference of $600,000                (including unpaid dividends of $94,000 and $72,000)      |   |                             | 694,000          |   |   | 672,000 |   |

**F-3**

----

| Common                stock, $.04 par value, 100,000,000 shares authorized; 19,606,423                and                16,822,854 shares issued and outstanding |   |   | 784,257     |   |   | 672,914     |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-------------|--------|--------|-------------|--------|
| Additional                paid-in capital                                                                                                                         |   |   | 10,835,031  |   |   | 10,668,574  |   |
| Accumulated                deficit                                                                                                                                |   |   | (22,213,959 | )      |   | (21,845,398 | )      |
| Total                stockholders’ equity (deficiency)                                                                                                      |   |   | (9,875,971  | )      |   | (9,773,210  | )      |
|                                                                                                                                                              |   | $      | 18,797,635  |   | $      | 27,907,175  |   |

**F-4**

----

**STRATUS      SERVICES GROUP, INC.**

Consolidated      Statements of Operations

|                                                                                      |   | **Years                Ended September 30,** |            |
|-------------------------------------------------------------------------------------------|--------|----------------------------------------------|-----------------|
|                                                                                      |   | **2005**                                     |            | **2004** |   | **2003** |   |
|                                                                                      |   | **(Restated)**                          |            | **(Restated)** | ** ** |   |   |
|                                                                                      |   |                                         |            |   |   |   |   |   |   |   |
| Revenues                                                                                  |   | $                                            | 112,445,542     |   | $ | 102,028,066 |   | $ | 74,892,275 |   |
|                                                                                      |   |                                         |            |   |   |   |   |   |   |   |
| Cost                of revenues                                                           |   |                                         | 96,945,541      |   |   | 89,668,559 |   |   | 63,735,358 |   |
|                                                                                      |   |                                         |            |   |   |   |   |   |   |   |
| Gross                profit                                                               |   |                                         | 15,500,001      |   |   | 12,359,507 |   |   | 11,156,917 |   |
|                                                                                      |   |                                         |            |   |   |   |   |   |   |   |
| Selling,                general and administrative expenses                               |   |                                         | 16,974,613      |   |   | 13,296,137 |   |   | 13,046,355 |   |
|                                                                                      |   |                                         |            |   |   |   |   |   |   |   |
| Loss                on impairment of goodwill                                             |   |                                         | 3,263,272       |   |   | - |   |   | - |   |
|                                                                                      |   |                                         |            |   |   |   |   |   |   |   |
| Other                charges                                                              |   |                                         | 739,119         |   |   | - |   |   | 753,000 |   |
|                                                                                      |   |                                         |            |   |   |   |   |   |   |   |
| Operating                (loss) from continuing operations                                |   |                                         | (5,477,003      | ) |   | (936,630 | ) |   | (2,642,438 | ) |
|                                                                                      |   |                                         |            |   |   |   |   |   |   |   |
| Interest                expense                                                           |   |                                         | (2,726,663      | ) |   | (2,457,474 | ) |   | (1,874,301 | ) |
| Gain                on redemption of Series A redeemable preferred stock                  |   |                                         | -               |   |   | 2,087,101 |   |   | - |   |
| Other                income (expense) (net)                                               |   |                                         | (45,615         | ) |   | 7,108 |   |   | 111,062 |   |
| Gain              on change in fair value of warrants                                     |   |                                         |  5,263,854 |   |   |  996,268 |   |   |  - |   |
|                                                                                      |   |                                         |            |   |   |   |   |   |   |   |
| (Loss)                from continuing operations                                          |   |                                         | (2,985,427      | ) |   | (303,627 | ) |   | (4,405,677 | ) |
|                                                                                      |   |                                         |            |   |   |   |   |   |   |   |
| Discontinued                operations — income (loss) from discontinued operations |   |                                         | 377,758         |   |   | 213,947 |   |   | (1,350,422 | ) |
| Gain                (loss) on sale of discontinued operations                             |   |                                         | 2,239,108       |   |   | - |   |   | (21,020 | ) |
| Net                (loss)                                                                 |   |                                         | (318,561        | ) |   | (89,680 | ) |   | (5,777,119 | ) |
| (Loss)                on exchange of Series E preferred stock                             |   |                                         | -               |   |   | (3,948,285 | ) |   | - |   |
| Dividends                and accretion on preferred stock                                 |   |                                         | (42,000         | ) |   | (1,365,500 | ) |   | (1,629,874 | ) |
| Net                (loss) attributable to common stockholders                             |   | $                                            | (410,561        | ) | $ | (5,403,465 | ) | $ | (7,406,993 | ) |
|                                                                                      |   |                                         |            |   |   |   |   |   |   |   |
| Basic:                                                                                    |   |                                         |            |   |   |   |   |   |   |   |
| (Loss)                from continuing operations                                          |   | $                                            | (.17            | ) | $ | (.74 | ) | $ | (1.38 | ) |
| Earnings                (loss) from discontinued operations                               |   |                                         | .15             |   |   | .03 |   |   | (.31 | ) |
| Net                (loss)                                                                 |   | $                                            | (.02            | ) | $ | (.71 | ) | $ | (1.69 | ) |
|                                                                                      |   |                                         |            |   |   |   |   |   |   |   |
| Diluted:                                                                                  |   |                                         |            |   |   |   |   |   |   |   |
| (Loss)                from continuing operations                                          |   | $                                            | (.17            | ) | $ | (.74 | ) | $ | (1.38 | ) |
| Earnings                (loss) from discontinued operations                               |   |                                         | .15             |   |   | .03 |   |   | (.31 | ) |
| Net                (loss)                                                                 |   | $                                            | (.02            | ) | $ | (.71 | ) | $ | (1.69 | ) |
|                                                                                      |   |                                         |            |   |   |   |   |   |   |   |
| Weighted                average shares, outstanding per common share                      |   |                                         |            |   |   |   |   |   |   |   |
| Basic                                                                                     |   |                                         | 17,115,983      |   |   | 7,640,304 |   |   | 4,377,729 |   |
| Diluted                                                                                   |   |                                         | 17,115,983      |   |   | 7,640,304 |   |   | 4,377,729 |   |

**F-5**

----

**STRATUS      SERVICES GROUP, INC.**

Consolidated      Statements of Cash Flows

|                                                                                                                |   | **Years                Ended September 30,** |                 |
|---------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------|----------------------|
|                                                                                                                |   | **2005**                                     |                 | **2004** |   | **2003** |   |
|                                                                                                                |   |                                         | **(Restated)**  |   |   | **(Restated)**  |   |   |   |   |
| Cash                flows from (used in) operating activities                                                       |   |                                         |                 |   |   |   |   |   |   |   |
| Net                (loss) from continuing operations                                                                |   | $                                            | (2,985,427           | ) | $ | (303,627 | ) | $ | (4,405,677 | ) |
| Net                earnings (loss) from discontinued operations                                                     |   |                                         | 2,616,866            |   |   | 213,947 |   |   | (1,371,442 | ) |
| Adjustments                to reconcile net earnings (loss) to net cash used by operating                activities |   |                                         |                 |   |   |   |   |   |   |   |
| Depreciation                                                                                                        |   |                                         | 326,126              |   |   | 388,880 |   |   | 538,386 |   |
| Amortization                                                                                                        |   |                                         | 382,842              |   |   | 419,643 |   |   | 393,982 |   |
| Provision                for doubtful accounts                                                                      |   |                                         | 1,000,000            |   |   | 525,000 |   |   | 875,000 |   |
| Loss                on impairment of goodwill                                                                       |   |                                         | 3,263,272            |   |   | - |   |   | - |   |
| Deferred                financing costs amortization                                                                |   |                                         | 1,748                |   |   | 1,608 |   |   | 1,608 |   |
| (Gain)                loss on sales of discontinued operations                                                      |   |                                         | (2,239,108           | ) |   | - |   |   | 21,020 |   |
| Restricted                stock award expense                                                                       |   |                                         | 42,000               |   |   | - |   |   | - |   |
| Common                stock and warrants issued for fees                                                            |   |                                         | 261,300              |   |   | - |   |   | 47,000 |   |
| Imputed                interest                                                                                     |   |                                         | 73,392               |   |   | 82,167 |   |   | 66,832 |   |
| Accrued                interest                                                                                     |   |                                         | (26,853              | ) |   | (153,228 | ) |   | 80,336 |   |
|     Gain                on                change in fair value of warrants                      |   |                                         |  (5,263,854     | )  |   |  (996,268 | )  |   | - |   |
| Dividends                on preferred stock                                                                         |   |                                         | (715                 | ) |   | 468,155 |   |   | - |   |
| (Gain)                on redemption of Series A redeemable preferred stock                                          |   |                                         | -                    |   |   | (2,087,101 | ) |   | - |   |
| Loss                on sale of property and equipment                                                               |   |                                         | -                    |   |   | 11,453 |   |   | - |   |
| Changes                in operating assets and liabilities                                                          |   |                                         |                 |   |   |   |   |   |   |   |
| Accounts                receivable                                                                                  |   |                                         | 1,612,166            |   |   | (3,757,971 | ) |   | (3,134,505 | ) |
| Prepaid                insurance                                                                                    |   |                                         | 1,473,175            |   |   | 342,659 |   |   | 437,616 |   |
| Prepaid                expenses and other current assets                                                            |   |                                         | 54,610               |   |   | (16,239 | ) |   | 153,589 |   |
| Other                assets                                                                                         |   |                                         | 91,878               |   |   | (26,703 | ) |   | (5,229 | ) |
| Insurance                obligation payable                                                                         |   |                                         | (21,602              | ) |   | 37,469 |   |   | (30,569 | ) |
| Accrued                payroll and taxes                                                                            |   |                                         | (870,592             | ) |   | (1,318,170 | ) |   | 644,967 |   |
| Payroll                taxes payable                                                                                |   |                                         | (543,561             | ) |   | 131,735 |   |   | 2,560,734 |   |
| Accounts                payable and accrued expenses                                                                |   |                                         | 3,892,635            |   |   | 4,509,749 |   |   | 694,221 |   |
| Total                adjustments                                                                                    |   |                                         | 3,508,859            |   |   | (1,437,162 | ) |   | 3,344,988 |   |
|                                                                                                                |   |                                         | 3,140,298            |   |   | (1,526,842 | ) |   | (2,432,131 | ) |
| Cash                flows from (used in) investing activities                                                       |   |                                         |                 |   |   |   |   |   |   |   |
| Purchase                of property and equipment                                                                   |   |                                         | (233,721             | ) |   | (81,534 | ) |   | (243,995 | ) |
| Payments                for business acquisitions                                                                   |   |                                         | (136,000             | ) |   | - |   |   | (61,644 | ) |
| Net                proceeds from (payments in connection with) sale of discontinued                operations       |   |                                         | (322,952             | ) |   | - |   |   | 1,120,770 |   |
| Collection                of notes receivable                                                                       |   |                                         | 20,343               |   |   | 18,605 |   |   | 4,594 |   |
|                                                                                                                |   |                                         | (672,330             | ) |   | (62,929 | ) |   | 819,725 |   |
| Cash                flows from (used in) financing activities                                                       |   |                                         |                 |   |   |   |   |   |   |   |
| Payments                of registration costs                                                                       |   |                                         | -                    |   |   | - |   |   | (374,365 | ) |
| Proceeds                from issuance of common stock                                                               |   |                                         | -                    |   |   | 2,527,338 |   |   | - |   |
| Proceeds                from issuance of preferred stock                                                            |   |                                         | -                    |   |   | - |   |   | 1,442,650 |   |
| Proceeds                from loans payable                                                                          |   |                                         | 125,000              |   |   | 12,337 |   |   | 879,000 |   |
| Payments                of loans payable                                                                            |   |                                         | (115,241             | ) |   | (617,147 | ) |   | (636,391 | ) |
| Proceeds                from loans payable - related parties                                                        |   |                                         | 665,000              |   |   | - |   |   | 587,337 |   |
| Payments                of loans payable - related parties                                                          |   |                                         | (792,852             | ) |   | (263,762 | ) |   | (200,000 | ) |
| Payments                of notes payable - acquisitions                                                             |   |                                         | (883,675             | ) |   | (600,201 | ) |   | (687,775 | ) |
| Payment                of put options liability                                                                     |   |                                         |                 |   |   | (150,000 | ) |   | - |   |
| Net                proceeds from (repayment of) line of credit                                                      |   |                                         | (2,097,381           | ) |   | 2,716,795 |   |   | 573,158 |   |
| Cash                overdraft                                                                                       |   |                                         | (9,761               | ) |   | (674,565 | ) |   | (32,444 | ) |
| Redemption                of preferred stock                                                                        |   |                                         | (34,000              | ) |   | (679,000 | ) |   | - |   |
| Purchase                of fractional shares of common stock                                                        |   |                                         | -                    |   |   | (51 | ) |   | - |   |
| Dividends                paid                                                                                       |   |                                         | (20,000              | ) |   | - |   |   | (47,657 | ) |
|                                                                                                                |   |                                         | (3,162,910           | ) |   | 2,271,744 |   |   | 1,503,513 |   |
| Net                change in cash                                                                                   |   |                                         | (694,942             | ) |   | 681,973 |   |   | (108,893 | ) |

**F-6**

----

| Cash                - beginning                                                                                                        |   |   | 735,726    |   |   | 53,753    |   |   | 162,646   |   |
|----------------------------------------------------------------------------------------------------------------------------------------|--------|--------|------------|--------|--------|-----------|--------|--------|-----------|--------|
| Cash                - ending                                                                                                           |   | $      | 40,784     |   | $      | 735,726   |   | $      | 53,753    |   |
|                                                                                                                                   |   |   |       |   |   |      |   |   |      |   |
| Supplemental                disclosure of cash paid                                                                                    |   |   |       |   |   |      |   |   |      |   |
| Interest                                                                                                                               |   | $      | 2,404,231  |   | $      | 1,333,059 |   | $      | 2,042,821 |   |
|                                                                                                                                   |   |   |       |   |   |      |   |   |      |   |
|                                                                                                                                   |   |   |       |   |   |      |   |   |      |   |
| Schedule                of noncash investing and financing activities                                                                  |   |   |       |   |   |      |   |   |      |   |
| Fair                value of assets acquired                                                                                           |   | $      | 358,500    |   | $      | -         |   | $      | 1,266,519 |   |
| Less:                cash paid                                                                                                         |   |   | (136,000   | )      |   | -         |   |   | (176,644  | )      |
| Less:                common stock and put options issued                                                                               |   |   | (16,500    | )      |   | -         |   |   | -         |   |
| Liabilities                assumed                                                                                                     |   | $      | 206,000    |   | $      | -         |   | $      | 1,089,875 |   |
| Issuance                of common stock upon redemption of Series A redeemable Preferred                Stock                          |   | $      | -          |   | $      | 1,400,000 |   | $      | -         |   |
| Issuance                of common stock in exchange for Series E Preferred Stock                                                       |   | $      | -          |   | $      | 6,568,215 |   | $      | -         |   |
| Issuance                of Series I convertible preferred stock in exchange for Series E                Preferred                Stock |   | $      | -          |   | $      | 2,177,500 |   | $      | -         |   |
| Issuance                of Series E Preferred Stock in exchange for Series H Preferred                Stock                            |   | $      | -          |   | $      | -         |   | $      | 508,250   |   |
| Sale                of discontinued operations:                                                                                        |   |   |       |   |   |      |   |   |      |   |
| Gain                on sale                                                                                                            |   | $      | (2,239,108 | )      | $      | -         |   | $      | -         |   |
| Net                assets sold                                                                                                         |   |   | (377,265   | )      |   | -         |   |   | -         |   |
| Cancellation                of amounts due from related parties                                                                        |   |   | (376,394   | )      |   | -         |   |   | -         |   |
| Cancellation                of accounts payable-related parties                                                                        |   |   | 3,315,719  |   |   | -         |   |   | -         |   |
| Cash                paid                                                                                                               |   | $      | 322,952    |   | $      | -         |   | $      | -         |   |
|                                                                                                                                   |   |   |       |   |   |      |   |   |      |   |
| Issuance                of common stock in exchange for accounts payable and accrued                expenses                           |   | $      | -          |   | $      | 57,000    |   | $      | 37,500    |   |
| Issuance                of common stock for fees                                                                                       |   | $      | -          |   | $      | -         |   | $      | 27,500    |   |
| Issuance                of common stock upon conversion of convertible preferred                stock                                  |   | $      | -          |   | $      | 572,500   |   | $      | 925,000   |   |
| Issuance                of Series E Preferred Stock in exchange for penalties                                                          |   | $      | -          |   | $      | -         |   | $      | 362,792   |   |
| Issuance                of Series F Preferred Stock in exchange for accrued                dividends                                   |   | $      | -          |   | $      | -         |   | $      | 84,943    |   |
| Issuance                of warrants for fees                                                                                           |   | $      | -          |   | $      | -         |   | $      | 19,500    |   |
| Accrued                interest converted to loan payable                                                                              |   | $      | 21,600     |   | $      | -         |   | $      | -         |   |
| Put                option liability converted to loan payable                                                                          |   | $      | 18,000     |   | $      | -         |   | $      | -         |   |
| Cumulative                dividends and accretion on preferred stock                                                                   |   | $      | 42,000     |   | $      | 1,365,500 |   | $      | 1,582,217 |   |

**F-7**

----

**STRATUS      SERVICES GROUP, INC.**

**Consolidated      Statement of Stockholders’ Equity (Deficiency)**

|                                                                                                                                                     |   |      |       | **Common                Stock** |   | **Preferred                Stock** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------|------------|---------------------------------|--------|------------------------------------|--------|
|                                                                                                                                                     |   | **Total** |       | **Amount**                      |   | **Shares**                         |   | **Amount** |   | **Shares** |   |
|                                                                                                                                                     |   |      |       |                            |   |                               |   |   |   |   |   |
| Balance                - September 30, 2002                                                                                                              |   | $         | 3,042,683  |                            | $      | 115,226                            |   |   | 2,880,642 |   | $ | 6,279,323 |   |   | 1,490,616 |   |
| Net                (loss)                                                                                                                                |   |      | (5,777,119 | )                               |   | -                                  |   |   | - |   |   | - |   |   | - |   |
| Dividends                and accretion on preferred stock                                                                                                |   |      | (47,657    | )                               |   | -                                  |   |   | - |   |   | 1,582,217 |   |   | - |   |
| Beneficial                conversion feature of convertible debt and convertible preferred                stock                                          |   |      | -          |                            |   | -                                  |   |   | - |   |   | (711,000 | ) |   | - |   |
| Issuance                of common stock for fees                                                                                                         |   |      | 27,500     |                            |   | 1,000                              |   |   | 25,000 |   |   | - |   |   | - |   |
| Conversion                of Series E Preferred Stock for Common Stock                                                                                   |   |      | -          |                            |   | 59,224                             |   |   | 1,480,617 |   |   | (725,700 | ) |   | (7,352 | ) |
| Conversion                of Series F Preferred Stock for Common Stock                                                                                   |   |      | -          |                            |   | 20,000                             |   |   | 500,000 |   |   | (200,000 | ) |   | (2,000 | ) |
| Issuance                of warrants for services provided                                                                                                |   |      | 19,500     |                            |   | -                                  |   |   | - |   |   | - |   |   | - |   |
| Issuance                of Series E preferred stock in exchange for loans payable                                                                        |   |      | 100,000    |                            |   | -                                  |   |   | - |   |   | 100,000 |   |   | 1,000 |   |
| Issuance                of common stock in exchange for accounts payable and accrual                expenses                                             |   |      | 37,500     |                            |   | 2,500                              |   |   | 62,500 |   |   | - |   |   | - |   |
| Proceeds                from the issuance of Series E Preferred Stock (net of costs $543,600)                for                cash                     |   |      | 1,492,650  |                            |   | -                                  |   |   | - |   |   | 2,036,250 |   |   | 20,362 |   |
| Issuance                of Series E Preferred Stock for penalties                                                                                        |   |      | -          |                            |   | -                                  |   |   | - |   |   | 362,792 |   |   | 3,628 |   |
| Issuance                of Series E Preferred Stock for accrued penalties                                                                                |   |      | -          |                            |   | -                                  |   |   | - |   |   | - |   |   | 849 |   |
| Conversion                of Series H Preferred Stock for Series E Preferred Stock (including                $8,750                of accrued dividends) |   |      | -          |                            |   | -                                  |   |   | - |   |   | - |   |   | 87 |   |
| Reclassification                of Series A Preferred Stock to Liabilities                                                                               |   |      | (3,809,752 | )                               |   | -                                  |   |   | - |   |   | (3,809,752 | ) |   | (1,458,933 | ) |
| Balance                - September 30, 2003                                                                                                              |   | $         | (4,914,695 | )                               | $      | 197,950                            |   |   | 4,948,759 |   | $ | 4,914,130 |   |   | 48,257 |   |

**F-8**

----

**STRATUS      SERVICES GROUP, INC.**

**Consolidated      Statement of Stockholders’ Equity (Deficiency)**

|                                                                                                                                                     |   | **Additional****Paid-In****Capital** |       | **Accumulated****Deficit** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|------------|----------------------------|--------|
|                                                                                                                                                     |   |                                 |       |                       |   |
| Balance                - September 30, 2002                                                                                                              |   | $                                    | 12,626,773 |                       | $      | (15,978,599 | ) |
| Net                (loss)                                                                                                                                |   |                                 | -          |                       |   | (5,777,119 | ) |
| Dividends                and accretion on preferred stock                                                                                                |   |                                 | (1,629,874 | )                          |   | - |   |
| Beneficial                conversion feature of convertible debt and convertible preferred                stock                                          |   |                                 | 711,000    |                       |   | - |   |
| Issuance                of common stock for fees                                                                                                         |   |                                 | 26,500     |                       |   | - |   |
| Conversion                of Series E Preferred Stock for Common Stock                                                                                   |   |                                 | 666,476    |                       |   | - |   |
| Conversion                of Series F Preferred Stock for Common Stock                                                                                   |   |                                 | 180,000    |                       |   |  - |   |
| Issuance                of warrants for services provided                                                                                                |   |                                 | 19,500     |                       |   | - |   |
| Issuance                of Series E Preferred Stock in exchange for loans payable                                                                        |   |                                 | -          |                       |   | - |   |
| Issuance                of common stock in exchange for accounts payable and accrual                expenses                                             |   |                                 | 35,000     |                       |   | - |   |
| Proceeds                from the issuance of Series E Preferred Stock (net of costs $543,600)                for                cash                     |   |                                 | (543,600   | )                          |   | - |   |
| Issuance                of Series E Preferred Stock for penalties                                                                                        |   |                                 | (362,792   | )                          |   | - |   |
| Issuance                of Series E Preferred Stock for accrued dividends                                                                                |   |                                 | -          |                       |   | - |   |
| Conversion                of Series H Preferred Stock for Series F Preferred Stock (including                $8,750                of accrued dividends) |   |                                 | -          |                       |   | - |   |
| Reclassification                of Series A Preferred Stock to Liabilities                                                                               |   |                                 | -          |                       |   | - |   |
| Balance                - September 30, 2003                                                                                                              |   | $                                    | 11,728,943 |                       | $      | (21,755,718 | ) |

**F-9**

----

**STRATUS      SERVICES GROUP, INC.**

**Consolidated      Statement of Stockholders’ Equity (Deficiency)**

|                                                                                    |   |      |             | **Common                Stock** |   | **Preferred                Stock** |   |
|-----------------------------------------------------------------------------------------|--------|-----------|------------------|---------------------------------|--------|------------------------------------|--------|
|                                                                                    |   | **Total** |             | **Amount**                      |   | **Shares**                         |   | **Amount** |   | **Shares** |   |
|                                                                                    |   |      |             |                            |   |                               |   |   |   |   |   |
| Net                (loss)                                                               |   | $         | (89,680          | )                               | $      | -                                  |   |   | - |   | $ | - |   |   | - |   |
| Dividends                and accretion on preferred stock                               |   |      | -                |                            |   |                               |   |   |   |   |   | 245,915 |   |   | - |   |
| Issuance                of common stock for fees                                        |   |      | 297,000          |                            |   | 27,000                             |   |   | 675,000 |   |   | - |   |   | - |   |
| Conversion                of Series E Preferred Stock for                               |   |      |             |                            |   |                               |   |   |   |   |   |   |   |   |   |   |
| Common                Stock                                                             |   |      | -                |                            |   | 28,536                             |   |   | 713,385 |   |   | (372,500 | ) |   | (3,725 | ) |
| Conversion                of Series F Preferred Stock for                               |   |      |             |                            |   |                               |   |   |   |   |   |   |   |   |   |   |
| Common                Stock                                                             |   |      | -                |                            |   | 20,000                             |   |   | 500,000 |   |   | (200,000 | ) |   | (2,000 | ) |
| Proceeds                from the issuance of Common                                     |   |      |             |                            |   |                               |   |   |   |   |   |   |   |   |   |   |
| Stock                (net of costs) for cash                                            |   |      | 2,152,973        |                            |   | 198,441                            |   |   | 4,961,028 |   |   | - |   |   | - |   |
| Redemption                of Series E Preferred Stock                                   |   |      | (179,000         | )                               |   | -                                  |   |   | - |   |   | (179,000 | ) |   | (1,750 | ) |
| Exchange                of Series E Preferred Stock for                                 |   |      |             |                            |   |                               |   |   |   |   |   |   |   |   |   |   |
| Common                Stock and warrants or Series                                      |   |      |             |                            |   |                               |   |   |   |   |   |   |   |   |   |   |
| I                Preferred Stock                                                        |   |      | (2,177,500       | )                               |   | 130,990                            |   |   | 3,274,750 |   |   | (4,797,430 | ) |   | (45,418 | ) |
| Warrant              liability related to common stock warrants     |   |      |  (6,262,257 | )                               |   |  -                            |   |   |  - |   |   |  - |   |   |  - |   |
| Cash                paid in lieu of fractional shares                                   |   |      | (51              | )                               |   | (3                                 | )      |   | (68 | ) |   |   |   |   |   |   |
| Issuance                of Series E Preferred Stock for                                 |   |      |             |                            |   |                               |   |   |   |   |   |   |   |   |   |   |
| penalties                                                                               |   |      | -                |                            |   | -                                  |   |   | - |   |   | 1,119,585 |   |   | 11,196 |   |
| Issuance                of Series E Preferred Stock for                                 |   |      |             |                            |   |                               |   |   |   |   |   |   |   |   |   |   |
| accrued                dividends                                                        |   |      | -                |                            |   | -                                  |   |   | - |   |   | - |   |   | 12 |   |
| Redemption                of Series A Preferred Stock                                   |   |      | 1,400,000        |                            |   | 70,000                             |   |   | 1,750,000 |   |   | - |   |   | - |   |
| Balance                - September 30, 2004 (As Restated)                               |   | $         | (9,773,210       | )                               | $      | 672,914                            |   |   | 16,822,854 |   | $ | 730,700 |   |   | 6,572 |   |

**F-10**

----

**STRATUS      SERVICES GROUP, INC.**

**Consolidated      Statement of Stockholders’ Equity (Deficiency)**

|                                                                                                 |   | **Additional****Paid-In****Capital** |             | **Accumulated****Deficit** |   |
|------------------------------------------------------------------------------------------------------|--------|--------------------------------------|------------------|----------------------------|--------|
|                                                                                                 |   |                                 |             |                       |   |
| Net                (loss)                                                                            |   | $                                    | -                |                       | $      | (89,680 | ) |
| Dividends                and accretion on preferred stock                                            |   |                                 | (245,915         | )                          |   | - |   |
| Issuance                of common stock for fees                                                     |   |                                 | 270,000          |                       |   | - |   |
| Conversion                of Series E Preferred Stock for Common Stock                               |   |                                 | 343,964          |                       |   | - |   |
| Conversion                of Series F Preferred Stock for Common Stock                               |   |                                 | 180,000          |                       |   |  - |   |
| Proceeds                from the issuance of Common Stock (net of costs) for cash                    |   |                                 | 1,954,532        |                       |   |  - |   |
| Redemption                of Series E Preferred Stock                                                |   |                                 | -                |                       |   | - |   |
| Exchange                of Series E Preferred Stock for Common Stock and warrants                for |   |                                 |             |                       |   |   |   |
| Series                I Preferred Stock                                                              |   |                                 | 2,488,940        |                       |   | - |   |
| Warrant              liability related to common stock warrants                                      |   |                                 |  (6,262,257 | )                     |   |  - |   |
| Cash                paid in lieu of fractional shares                                                |   |                                 | (48              | )                          |   | - |   |
| Issuance                of Series E Preferred Stock for penalties                                    |   |                                 | (1,119,585       | )                          |   | - |   |
| Issuance                of Series E Preferred Stock for accrued dividends                            |   |                                 | -                |                       |   | - |   |
| Redemption                of Series A Preferred Stock                                                |   |                                 | 1,330,000        |                       |   | - |   |
| Balance                - September 30, 2004 (As restated)                                            |   | $                                    | 10,668,574       |                       | $      | (21,845,398 | ) |

**F-11**

----

**STRATUS      SERVICES GROUP, INC.**

**Consolidated      Statement of Stockholders’ Equity (Deficiency)**

|                                                                   |   |      |       | **Common                Stock** |   | **Preferred                Stock** |   |
|------------------------------------------------------------------------|--------|-----------|------------|---------------------------------|--------|------------------------------------|--------|
|                                                                   |   | **Total** |       | **Amount**                      |   | **Shares**                         |   | **Amount** |   | **Shares** |   |
|                                                                   |   |      |       |                            |   |                               |   |   |   |   |   |   |   |   |   |   |
| Net                (loss)                                              |   | $         | (368,561   | )                               | $      | -                                  |   |   | - |   | $ | - |   |   | - |   |
| Dividends                on preferred stock                            |   |      | (20,000    | )                               |   |                               |   |   |   |   |   | 22,000 |   |   | - |   |
| Issuance                of common stock in connection with acquisition |   |      | 16,500     |                            |   | 2,000                              |   |   | 50,000 |   |   | - |   |   | - |   |
| Exercise                of put option                                  |   |      | -          |                            |   | (200                               | )      |   | (5,000 | ) |   | - |   |   | - |   |
| Issuance                of restricted stock                            |   |      | 42,000     |                            |   | 10,000                             |   |   | 250,000 |   |   | - |   |   | - |   |
| Redemption                of Series E Preferred Stock                  |   |      | (34,000    | )                               |   | -                                  |   |   | - |   |   | (34,000 | ) |   | (325 | ) |
| Issuance                of common stock to Series I holders            |   |      | 217,750    |                            |   | 82,952                             |   |   | 2,073,808 |   |   | - |   |   | - |   |
| Issuance                of common stock for fees                       |   |      | 43,550     |                            |   | 16,591                             |   |   | 414,761 |   |   | - |   |   | - |   |
| Balance                - September 30, 2005 (As Restated)              |   | $         | (9,875,971 | )                               | $      | 784,257                            |   |   | 19,606,423 |   | $ | 718,700 |   |   | 6,247 |   |

**F-12**

----

**STRATUS      SERVICES GROUP, INC.**

**Consolidated      Statement of Stockholders’ Equity (Deficiency)**

|                                                                   |   | **Additional****Paid-In****Capital** |       | **Accumulated****Other****Comprehensive****Loss** |   | **Accumulated****Deficit** |   |
|------------------------------------------------------------------------|--------|--------------------------------------|------------|---------------------------------------------------|--------|----------------------------|--------|
|                                                                   |   |                                 |       |                                              |   |                       |   |
| Net                (loss)                                              |   | $                                    | -          |                                              | $      | -                          |   | $ | (368,561 | ) |
| Dividends                on preferred stock                            |   |                                 | (42,000    | )                                                 |   | -                          |   |   | - |   |
| Issuance                of common stock in connection with acquisition |   |                                 | 14,500     |                                              |   | -                          |   |   | - |   |
| Exercise                of put options                                 |   |                                 | 200        |                                              |   | -                          |   |   | - |   |
| Issuance                of restricted stock                            |   |                                 | 32,000     |                                              |   | -                          |   |   | - |   |
| Redemption                of Series E Preferred Stock                  |   |                                 | -          |                                              |   | -                          |   |   | - |   |
| Issuance                of common stock to Series I holders            |   |                                 | 134,798    |                                              |   | -                          |   |   | - |   |
| Issuance                of common stock for fees                       |   |                                 | 26,959     |                                              |   | -                          |   |   | - |   |
| Balance                - September 30, 2005 (As Restated)              |   | $                                    | 10,835,031 |                                              | $      | -                          |   | $ | (22,213,959 | ) |

**F-13**

----

**STRATUS      SERVICES GROUP, INC.**

**Notes      to Consolidated Financial Statements**

| **Note                1 -** | **Nature                of Operations and Summary of Significant Accounting                Policies** |
|-----------------------------|-------------------------------------------------------------------------------------------------------|

**Operations**

**Principles      of Consolidation**

**Basis      of Presentation**

**F-14**

----

**Revenue      Recognition**

|       |   | **Years                Ended September 30** |        |
|------------|--------|---------------------------------------------|-------------|
|       |   | **2005**                                    |        | **2004** |   | **2003** |   |
|       |   |                                        |        |   |   |   |   |   |   |   |
|       |   |                                        |        |   |   |   |   |   |   |   |
| Staffing   |   | $                                           | 112,402,600 |   | $ | 101,980,658 |   | $ | 74,311,569 |   |
|       |   |                                        |        |   |   |   |   |   |   |   |
| Payrolling |   | $                                           | 42,942      |   | $ | 47,408 |   |   | 580,706 |   |
|       |   | $                                           | 112,445,542 |   | $ | 102,028,066 |   | $ | 74,892,275 |   |

**Use      of Estimates**

**Concentration      of Cash**

**Earnings/Loss      Per Share**

|                                                                                           |   | **Year                Ended September 30,** |           |
|------------------------------------------------------------------------------------------------|--------|---------------------------------------------|----------------|
|                                                                                           |   | **2005**                                    |           | **2004** |   | **2003** |   |
|                                                                                           |   |                                        | **(Restated)** |   |   | **(Restated)** | ** ** | ** ** |   |   |
|                                                                                           |   |                                        |           |   |   |   |   |   |   |   |
| Numerator:                                                                                     |   |                                        |           |   |   |   |   |   |   |   |
| Basic                EPS                                                                       |   |                                        |           |   |   |   |   |   |   |   |
| Net                (loss)                                                                      |   | $                                           | (368,561       | ) | $ | (4,037,965 | ) | $ | (5,777,119 | ) |
| Dividends                and accretion on preferred stock                                      |   |                                        | (42,000        | ) |   | (1,365,500 | )  |   | 1,629,874 |   |
|                                                                                           |   |                                        |           |   |   |   |   |   |   |   |
| Net                earnings (loss) attributable to common stockholders                         |   | $                                           | (410,561       | ) | $ | (5,403,465 | ) | $ | (7,406,993 | ) |
|                                                                                           |   |                                        |           |   |   |   |   |   |   |   |
| Denominator:                                                                                   |   |                                        |           |   |   |   |   |   |   |   |
| Basic                EPS                                                                       |   |                                        |           |   |   |   |   |   |   |   |
| Weighted                average shares outstanding                                             |   |                                        | 17,115,983     |   |   | 7,640,304 |   |   | 4,377,729 |   |
| Per                share amount                                                                |   | $                                           | (.02           | ) | $ | (.71 | ) | $ | (1.69 | ) |
|                                                                                           |   |                                        |           |   |   |   |   |   |   |   |
| Effect                of stock options and warrants                                            |   |                                        | -              |   |   | - |   |   | - |   |
|                                                                                           |   |                                        |           |   |   |   |   |   |   |   |
| Dilutive                EPS                                                                    |   |                                        |           |   |   |   |   |   |   |   |
| Weighted                average shares outstanding including incremental                shares |   |                                        | 17,115,983     |   |   | 7,640,304 |   |   | 4,377,729 |   |
| Per                share amount                                                                |   | $                                           | (.02           | ) | $ | (.71 | ) | $ | (1.69 | ) |

**F-15**

----

**Property      and Equipment**

|                                  | **Method**    | **Estimated****Useful                Life** |
|---------------------------------------|---------------|---------------------------------------------|
| Furniture                and fixtures | Straight-line | 3-5                years                    |
| Office                equipment       | Straight-line | 3-5                years                    |
| Computer                equipment     | Straight-line | 5                years                      |
| Computer                software      | Straight-line | 3                years                      |
| Vans                                  | Straight-line | 5                years                      |

**Goodwill**

**Fair      Values of Financial Instruments**

**Stock      - Based Compensation**

|                                   |   | **Years                Ended September 30,** |                     |
|----------------------------------------|--------|----------------------------------------------|--------------------------|
|                                   |   | **2005**                                     |                     | **2004** |   | **2003** |   |
|                                   |   |                                         |                     |   |   |   |   |   |   |   |
|                                   |   |                                         |                     |   |   |   |   |   |   |   |
| Risk-free                interest rate |   |                                         | 4                        | % |   | 4 | % |   | 4 | % |
| Dividend                yield          |   |                                         | 0                        | % |   | 0 | % |   | 0 | % |
| Expected                life           |   |                                         | 4-7                years |   |   | 4-7                years |   |   | 4-7                years |   |
| Volatility                             |   |                                         | 100                      | % |   | 100 | % |   | 100 | % |

**F-16**

----

|                                                             |   | **Years                Ended September 30,** |           |
|------------------------------------------------------------------|--------|----------------------------------------------|----------------|
|                                                             |   | **2005**                                     |           | **2004** |   | **2003** |   |
|                                                             |   |                                         | **(Restated)** |   |   | **(Restated)**  |   |   |   |   |
|                                                             |   |                                         |           |   |   |   |   |   |   |   |
| Net                (loss) attributable to common stockholders,   |   |                                         |           |   |   |   |   |   |   |   |
| as                reported                                       |   | $                                            | (410,561       | ) | $ | (5,403,465 | ) | $ | (7,406,993 | ) |
|                                                             |   |                                         |           |   |   |   |   |   |   |   |
| Deduct:                                                          |   |                                         |           |   |   |   |   |   |   |   |
| Total                stock-based employee compensation           |   |                                         |           |   |   |   |   |   |   |   |
| expense                determined under fair value based         |   |                                         |           |   |   |   |   |   |   |   |
| method                for all awards, net of related tax effects |   |                                         | (613,097       | ) |   | (880,370 | ) |   | (1,974,862 | ) |
|                                                             |   |                                         |           |   |   |   |   |   |   |   |
| Pro                forma net (loss) attributable to common       |   |                                         |           |   |   |   |   |   |   |   |
| stockholders                                                     |   | $                                            | (1,023,568     | ) | $ | (6,283,835 | ) | $ | (9,381,855 | ) |
|                                                             |   |                                         |           |   |   |   |   |   |   |   |
| (Loss)                from continuing operations per common      |   |                                         |           |   |   |   |   |   |   |   |
| share                attributable to common stockholders:        |   |                                         |           |   |   |   |   |   |   |   |
| Basic                - as reported                               |   | $                                            | (.02           | ) | $ | (.71 | ) | $ | (1.69 | ) |
| Basic                - pro forma                                 |   | $                                            | (.06           | ) | $ | (.84 | ) | $ | (2.14 | ) |
|                                                             |   |                                         |           |   |   |   |   |   |   |   |
| Diluted                - as reported                             |   | $                                            | (.02           | ) | $ | (.71 | ) | $ | (1.69 | ) |
| Basic                - pro forma                                 |   | $                                            | (.06           | ) | $ | (.82 | ) | $ | (2.14 | ) |

**Income      Taxes**

**Advertising      Costs**

**Impairment      of Long-Lived Assets**

**New      Accounting Standards**

*Accounting      Changes and Error Corrections - a replacement of APB No. 20 and FAS No.      3”*

*“Share-Based      Payments”*

**F-17**

----

*“Exchanges      of Nonmonetary Assets - An Amendment of APB Opinion No. 29, Accounting for      Nonmonetary Transactions” *
*“Accounting      for Nonmonetary Transactions”,*

*“Accounting      and Disclosure Guidance for the Foreign Earnings Repatriation Provision within      the American Jobs Creation Act of 2004” *
*“Accounting      for Income Taxes”*

*“Determining      the Amortization Period of Leasehold Improvements or Acquired in a Business      Combination”*

**Reclassifications**

| **Note                2 -** | **Public                Offering** |
|-----------------------------|------------------------------------|

**F-18**

----

| **Note                3 -** | **Acquisitions** |
|-----------------------------|------------------|

| Property                and Equipment |   | $      | 75,000    |   |
|---------------------------------------|--------|--------|-----------|--------|
| Covenant-not-to-compete               |   |   | 19,500    |   |
| Customer                list          |   |   | 1,172,019 |   |
| Total                assets acquired  |   | $      | 1,266,519 |   |
|                                  |   |   |      |   |

**F-19**

----

|                                                                                                         |   |   | **Unaudited**                  |   |
|---------------------------------------------------------------------------------------------------------|--------|--------|--------------------------------|--------|
|                                                                                                    |   |   | **Year                Ending** |   |
|                                                                                                    |   |   | **9/30/03**               |   |
|                                                                                                    |   |   |                           |   |
| Revenues                                                                                                |   | $      | 82,170,209                     |   |
|                                                                                                    |   |   |                           |   |
| Net                (loss) from continuing operations attributable to common                stockholders |   |   | (6,003,032                     | )      |
|                                                                                                    |   |   |                           |   |
| Net                (loss) per share attributable to common stockholders                                 |   |   |                           |   |
| Basic                                                                                                   |   | $      | (1.37                          | )      |
| Diluted                                                                                                 |   | $      | (1.37                          | )      |

| **Year                Ending September 30** |   |   |      |   |
|---------------------------------------------|--------|--------|-----------|--------|
| 2006                                        |   | $      | 461,074   |   |
| 2007                                        |   | $      | 266,190   |   |
| 2008                                        |   | $      | 244,355   |   |
| 2009                                        |   | $      | 266,282   |   |
| 2010                                        |   | $      | 196,349   |   |
| thereafter                through 2012      |   | $      | 175,857   |   |
|                                        |   | $      | 1,610,107 |   |

| **Note                4 -** | **Discontinued                Operations** |
|-----------------------------|--------------------------------------------|

**Year      Ended September 30, 2005**

**F-20**

----

| Sales                price - cancellation of accounts payable - related parties |   | $      | 3,315,719 |   |
|---------------------------------------------------------------------------------|--------|--------|-----------|--------|
|                                                                            |   |   |      |   |
| Less                costs of sale:                                              |   |   |      |   |
| Cancellation                of amounts due from ALS                             |   |   | (376,394  | )      |
| Other                costs (including $75,000 to a related party (see Note 10)) |   |   | (322,952  | )      |
|                                                                            |   |   |      |   |
| Balance                                                                         |   |   | 2,616,373 |   |
| Net                assets sold                                                  |   |   | 377,265   |   |
| Gain                                                                            |   | $      | 2,239,108 |   |

|                                                        |   | **Years                Ended September 30,** |      |
|-------------------------------------------------------------|--------|----------------------------------------------|-----------|
|                                                        |   | **2005**                                     |      | **2004** |   | **2003** |   |
|                                                        |   |                                         |      |   |   |   |   |   |   |   |
|                                                        |   |                                         |      |   |   |   |   |   |   |   |
| Revenues                                                    |   | $                                            | 1,699,934 |   | $ | 8,471,385 |   | $ | 10,087,390 |   |
| Cost                of revenues                             |   |                                         | 1,451,073 |   |   | 7,465,466 |   |   | 8,518,230 |   |
| Gross                profit                                 |   |                                         | 248,861   |   |   | 1,005,919 |   |   | 1,569,160 |   |
| Selling,                general and administrative expenses |   |                                         | 262,717   |   |   | 724,201 |   |   | 1,110,704 |   |
| Operating                income (loss)                      |   |                                         | (13,856   | ) |   | 281,718 |   |   | 458,456 |   |
| Interest                expense                             |   |                                         | (13,599   | ) |   | (67,771 | ) |   | (80,698 | ) |
| Net                earnings (loss)                          |   | $                                            | (27,455   | ) | $ | 213,947 |   | $ | 377,758 |   |
|                                                        |   |                                         |      |   |   |   |   |   |   |   |

**Year      Ended September 30, 2003**

**F-21**

----

| (i)    | $1,150,000                payable in certified funds at the closing; and                                                                                                                                                                                                                 |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                     |
| (ii)   | $100,000                payable in certified funds into escrow at the closing to be held                in escrow                by attorneys for the Buyer pursuant to the terms of an escrow agreement,                to account for certain post-closing                adjustments. |

| Sales                price:        |   |   |      |   |
|------------------------------------|--------|--------|-----------|--------|
| Cash                               |   | $      | 1,150,000 |   |
| Promissory                notes    |   |   | 253,000   |   |
| Escrow                receivable   |   |   | 100,000   |   |
|                               |   | $      | 1,503,000 |   |
| Less                costs of sales |   |   | (29,229   | )      |
| Balance                            |   |   | 1,473,771 |   |
| Net                assets sold     |   |   | 1,494,791 |   |
| (Loss)                             |   | $      | (21,020   | )      |

| **Note                5 -** | **Line                of Credit** |
|-----------------------------|-----------------------------------|

**F-22**

----

| (i)    | Failing                to meet the tangible net worth requirement;                                                 |
|--------|--------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                               |
| (ii)   | The                Company’s common stock being delisted from the Nasdaq SmallCap Market;                and |
|   |                                                                                                               |
| (iii)  | The                Company having delinquent state, local and federal                taxes                         |

| **Note                6 -** | **Property                and Equipment** |
|-----------------------------|-------------------------------------------|

|                                      |   |   | **2005**   |   |   | **2004**   |   |
|-------------------------------------------|--------|--------|------------|--------|--------|------------|--------|
|                                      |   |   |       |   |   |       |   |
|                                      |   |   |       |   |   |       |   |
| Furniture                and fixtures     |   | $      | 606,122    |   | $      | 717,917    |   |
| Office                equipment           |   |   | 90,526     |   |   | 136,011    |   |
| Computer                equipment         |   |   | 970,052    |   |   | 1,225,040  |   |
| Computer                software          |   |   | 46,196     |   |   | 216,153    |   |
| Vans                                      |   |   | 113,697    |   |   | 113,697    |   |
|                                      |   |   | 1,826,593  |   |   | 2,408,818  |   |
| Accumulated                depreciation   |   |   | (1,352,435 | )      |   | (1,811,402 | )      |
| Net                property and equipment |   | $      | 474,158    |   | $      | 597,416    |   |

**F-23**

----

| **Note                7 -** | **Goodwill                and other Intangible                Assets** |
|-----------------------------|------------------------------------------------------------------------|

| Balance                as of September 30, 2002          |   | $      | 7,085,582  |   |
|----------------------------------------------------------|--------|--------|------------|--------|
|                                                     |   |   |       |   |
| Disposal                of certain branches (see Note 4) |   |   | (1,269,229 | )      |
|                                                     |   |   |       |   |
| Balance                as of September 30, 2003 and 2004 |   | $      | 5,816,353  |   |
|                                                     |   |   |       |   |
| Other                adjustments                         |   |   | (3,263,272 | )      |
| Balance                as of September 30, 2005          |   | $      | 2,553,081  |   |
|                                                     |   |   |       |   |

|                                          |   |   | **2005**  |   |   | **2004**   |   |
|-----------------------------------------------|--------|--------|-----------|--------|--------|------------|--------|
|                                          |   |   |      |   |   |       |   |
|                                          |   |   |      |   |   |       |   |
| Covenant-not-to-compete                       |   | $      | 17,300    |   | $      | 144,600    |   |
| Customer                list                  |   |   | 1,426,709 |   |   | 1,957,709  |   |
|                                          |   |   | 1,444,009 |   |   | 2,102,309  |   |
| Less:                accumulated amortization |   |   | (754,827  | )      |   | (1,020,373 | )      |
|                                          |   | $      | 689,182   |   | $      | 1,081,936  |   |

| **For                the Years Ending September 30,** |   |   |    |
|-------------------------------------------------------|--------|--------|---------|
|                                                  |   |   |    |   |
| 2006                                                  |   | $      | 178,000 |   |
| 2007                                                  |   |   | 156,000 |   |
| 2008                                                  |   |   | 153,000 |   |
| 2009                                                  |   |   | 152,000 |   |
| 2010                                                  |   |   | 50,000  |   |

| **Note                8 -** | **Loans                Payable** |
|-----------------------------|----------------------------------|

|                                  |   |   |   |   |   | **2005** |   |   | **2004** |   |
|---------------------------------------|--------|--------|--------|--------|--------|----------|--------|--------|----------|--------|
|                                  |   |   |   |   |   |     |   |   |     |   |
|                                  |   |   |   |   |   |     |   |   |     |   |
| Notes,                secured by vans |   |   |   |   | $      | -        |   | $      | 19,091   |   |
| Promissory                note        |   |   | (i     | )      |   | 53,450   |   |   | 80,000   |   |
| Demand                notes           |   |   | (ii    | )      |   | 145,000  |   |   | 50,000   |   |
|                                  |   |   |   |   | $      | 198,450  |   | $      | 149,091  |   |
|                                  |   |   |   |   |   |     |   |   |     |   |

| (i)  | Note                was due in April 2002. In addition, the Company issued 5,000 shares                of its                common stock to the noteholder. The noteholder had the right to demand                the                repurchase by the Company of the shares issued, until the note was                paid in                full, at $4.00 per share plus 15% interest. Accordingly, $23,000,                representing the put option plus interest, is included in “Put options -                Liability” on the attached consolidated balance sheets as of September 30,                2003 (see Note 17). In November 2003, the noteholder exercised the                put                options and the Company and noteholder agreed that the then aggregate                amount of liability and unpaid interest of $119,600 would be paid                over 84                weeks at $1,500 per week, including interest at 5 1/2 % a                year. |
|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (ii) | Due                to non-related parties on demand, bearing interest at various rates                (see                Note 22).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |

**F-24**

----

| **Note                10 -** | **Related                Party Transactions** |
|------------------------------|-----------------------------------------------|

**Consulting      Fees**

**Loans      Payable**

**Joint      Venture**

**Note      Receivable**

**Payroll      Outsourcing**

**F-25**

----

**Other**

| **Note                11 -** | **Accounts                Payable and Accrued                Expenses** |
|------------------------------|-------------------------------------------------------------------------|

|                                                                         |   |   | **2005**  |   |   | **2004**  |   |
|------------------------------------------------------------------------------|--------|--------|-----------|--------|--------|-----------|--------|
|                                                                         |   |   |      |   |   |      |   |
|                                                                         |   |   |      |   |   |      |   |
| Accounts                payable                                              |   | $      | 3,735,261 |   | $      | 2,118,201 |   |
| Accrued                compensation                                          |   |   | 85,558    |   |   | 94,993    |   |
| Accrued                workers’ compensation expense                   |   |   | 176,859   |   |   | 2,410,164 |   |
| Workers’                compensation claims reserve                    |   |   | 403,015   |   |   | 468,794   |   |
| Accrued                interest                                              |   |   | 11,802    |   |   | 85,655    |   |
| Contingent                portion of acquisition purchase price (see Note 3) |   |   | 96,000    |   |   | 244,000   |   |
| Accrued                other                                                 |   |   | 251,129   |   |   | 153,045   |   |
|                                                                         |   | $      | 4,759,624 |   | $      | 5,574,852 |   |
|                                                                         |   |   |      |   |   |      |   |

| **Note                12 -** | **Payroll                Tax Liabilities** |
|------------------------------|--------------------------------------------|

**F-26**

----

| **Note                13 -** | **Income                Taxes** |
|------------------------------|---------------------------------|

|                                              |   | **2005** |       | **2004** |   |
|---------------------------------------------------|--------|----------|------------|----------|--------|
|                                              |   |     |       |     |   |   |   |
|                                              |   |     |       |     |   |   |   |
| Current                assets and liabilities     |   |     |       |     |   |   |   |
| Allowance                for doubtful accounts    |   | $        | 1,216,000  |     | $      | 815,000 |   |
| Valuation                allowance                |   |     | (1,216,000 | )        |   | (815,000 | ) |
| Net                current deferred tax asset     |   | $        | -          |     | $      | - |   |
|                                              |   |     |       |     |   |   |   |
| Non-current                assets and liabilities |   |     |       |     |   |   |   |
| Net                operating loss carryforward    |   | $        | 8,378,000  |     | $      | 7,882,000 |   |
| Intangibles                                       |   |     | 602,000    |     |   | 485,000 |   |
| Valuation                allowance                |   |     | (8,980,000 | )        |   | (8,367,000 | ) |
| Net                non-current deferred tax asset |   | $        | -          |     | $      | - |   |
|                                              |   |     |       |     |   |   |   |

|                                                   |   |    | **2005**   |   |   | **2004**   |   |   | **2003**   |   |
|--------------------------------------------------------|--------|---------|------------|--------|--------|------------|--------|--------|------------|--------|
|                                                   |   |    |       |   |   |       |   |   |       |   |
| Income                taxes (benefit) is comprised of: |   |    |       |   |   |       |   |   |       |   |
| Current                                                |   | $       | -          |   | $      | -          |   | $      | -          |   |
| Deferred                                               |   |    | (1,014,000 | )      |   | (1,162,000 | )      |   | (2,751,000 | )      |
| Change                in valuation allowance           |   |    | 1,014,000  |   |   | 1,162,000  |   |   | 2,751,000  |   |
|                                                   |   |  $ | -          |   | $      | -          |   | $      | -          |   |
|                                                   |   |    |       |   |   |       |   |   |       |   |

| **Expiration                Date****Year                Ending September 30,** |   |   |      |
|--------------------------------------------------------------------------------|--------|--------|-----------|
|                                                                           |   |   |      |
| 2012                                                                           |   | $      | 122,000   |   |
| 2018                                                                           |   |   | 1,491,000 |   |
| 2019                                                                           |   |   | 392,000   |   |
| 2021                                                                           |   |   | 4,860,000 |   |
| 2022                                                                           |   |   | 4,407,000 |   |
| 2023                                                                           |   |   | 6,089,000 |   |
| 2024                                                                           |   |   | 2,405,000 |   |
| 2025                                                                           |   |   | 1,239,000 |   |

|                                                         |   |   | **2005** |   |   | **2004** |   |   | **2003** |   |
|--------------------------------------------------------------|--------|--------|----------|--------|--------|----------|--------|--------|----------|--------|
|                                                         |   |   |     |   |   |     |   |   |     |   |
|                                                         |   |   |     |   |   |     |   |   |     |   |
| Statutory                rate                                |   |   | (34.0    | )%     |   | (34.0    | )%     |   | (34.0    | )%     |
| State                taxes net                               |   |   | (6.0     | )      |   | (6.0     | )      |   | (6.0     | )      |
| Other                differences, net                        |   |   | -        |   |   | -        |   |   | -        |   |
| Valuation                allowance                           |   |   | 40.0     |   |   | 40.0     |   |   | 40.0     |   |
| Benefit                from net operating loss carryforwards |   |   | -        |   |   | -        |   |   | -        |   |
|                                                         |   |   | -        | %      |   | -        | %      |   | -        | %      |
|                                                         |   |   |     |   |   |     |   |   |     |   |

**F-27**

----

| **Note                14 -** | **Preferred                Stock** |
|------------------------------|------------------------------------|

**a.**
**Series      A**

**b.**
**Series      E**

**F-28**

----

**c.**
**Series      F**

**F-29**

----

**d.**
**Series      H**

**e.**
**Series      I**

**F-30**

----

| **Note                15 -** | **Other                Charges** |
|------------------------------|----------------------------------|

|                                                                             |   | **Years                Ended September 30,** |    |
|----------------------------------------------------------------------------------|--------|----------------------------------------------|---------|
|                                                                             |   | **2005**                                     |    | **2004** |   | **2003** |   |
|                                                                             |   |                                         |    |   |   |   |   |
| Adjustments                to reserves and premiums -                            |   |                                         |    |   |   |   |   |
| prior                years’ workers’ compensation insurance policies |   | $                                            | 591,619 |   | $ | - |   | $ | 1,186,000 |   |
|                                                                             |   |                                         |    |   |   |   |   |   |   |   |
| Write-off                investment                                              |   |                                         | 61,000  |   |   | - |   |   | - |   |
|                                                                             |   |                                         |    |   |   |   |   |   |   |   |
| Other                                                                            |   |                                         | 86,500  |   |   | - |   |   | - |   |
|                                                                             |   |                                         | 739,119 |   |   |   |   |   | 1,186,000 |   |
|                                                                             |   |                                         |    |   |   |   |   |   |   |   |
| Included                in discontinued operations                               |   |                                         | -       |   |   | - |   |   | 433,000 |   |
|                                                                             |   | $                                            | 739,119 |   | $ | - |   | $ | 753,000 |   |
|                                                                             |   |                                         |    |   |   |   |   |   |   |   |

| **Note                16 -** | **Commitments                and Contingencies** |
|------------------------------|--------------------------------------------------|

**Office      Leases**

| **For                the Years Ending September 30,** |   |   |    |
|-------------------------------------------------------|--------|--------|---------|
| 2006                                                  |   | $      | 510,000 |   |
| 2007                                                  |   |   | 319,000 |   |
| 2008                                                  |   |   | 33,000  |   |
| 2009                                                  |   |   | 21,000  |   |
| 2010                                                  |   |   | 9,000   |   |

**Other**

| **Note                17 -** | **Put                Options Liability** |
|------------------------------|------------------------------------------|

|                                                                                                                                                       |   |   | **2005** |   |   | **2004** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|----------|--------|--------|----------|--------|
|                                                                                                                                                       |   |   |     |   |   |     |   |
|                                                                                                                                                       |   |   |     |   |   |     |   |
| Put                options on 100,000 shares of the Company’s Common Stock issued in                connection with a prior year’s acquisition |   | $      | 650,000  |   | $      | 650,000  |   |
|                                                                                                                                                       |   |   |     |   |   |     |   |
| Put                options on 5,000 shares of the Company’s Common Stock issued in connection                with a loan payable (see Note 8)        |   |   | -        |   |   | 23,000   |   |
|                                                                                                                                                       |   | $      | 650,000  |   | $      | 673,000  |   |

**F-31**

----

| **Note                18 -** | **Stock                Options and Warrants** |
|------------------------------|-----------------------------------------------|

| 1999                Plan | — | 125,000                shares authorized, 51,333 issued, 51,333 vested                        |
|--------------------------|---------|-----------------------------------------------------------------------------------------------|
| 2000                Plan | — | 125,000                shares authorized, 25,000 issued, 25,000 vested                        |
| 2001                Plan | — | 250,000                shares authorized, 50,000 issued, 50,000 vested                        |
| 2002                Plan | — | 1,250,000                shares authorized, 1,167,500 issued, 1,165,500                vested |

|                                             |   | **Options** |      | **Weighted                Average****Exercise                Price** |   |
|--------------------------------------------------|--------|-------------|-----------|----------------------------------------------------------------------|--------|
|                                             |   |        |      |                                                                 |   |   |   |
| Outstanding                at September 30, 2002 |   |        | 1,564,088 |                                                                 | $      | 8.04 |   |
| Granted                                          |   |        | 447,115   |                                                                 |   | .92 |   |
| Canceled                                         |   |        | (70,082   | )                                                                    |   | 5.20 |   |
| Exercised                                        |   |        | -         |                                                                 |   | - |   |
|                                             |   |        |      |                                                                 |   |   |   |
| Outstanding                at September 30, 2003 |   |        | 1,941,121 |                                                                 | $      | 6.52 |   |
| Granted                                          |   |        | 455,000   |                                                                 |   | .40 |   |
| Canceled                                         |   |        | (567,538  | )                                                                    |   | 6.86 |   |
| Exercised                                        |   |        | -         |                                                                 |   | - |   |
|                                             |   |        |      |                                                                 |   |   |   |
| Outstanding                at September 30, 2004 |   |        | 1,828,583 |                                                                 | $      | 4.87 |   |
| Granted                                          |   |        | 1,050,000 |                                                                 |   | .26 |   |
| Canceled                                         |   |        | (31,250   | )                                                                    |   | 7.98 |   |
| Exercised                                        |   |        | -         |                                                                 |   | - |   |
|                                             |   |        |      |                                                                 |   |   |   |
| Outstanding                at September 30, 2005 |   |        | 2,847,333 |                                                                 | $      | 3.14 |   |
| Exercisable                at September 30, 2005 |   |        | 2,595,333 |                                                                 | $      | 1.13 |   |
|                                             |   |        |      |                                                                 |   |   |   |

**F-32**

----

|                  | **Outstanding                Options** |                                                        | **Exercisable                Options**                   |
|-----------------------|----------------------------------------|-------------------------------------------------------------|----------------------------------------------------------|
| **Exercise****Price** | **Number**                             | **Weighted****Average****Remaining****Contractual****Life** | **Weighted****Weighted****Average****Exercise****Price** | **Number** | **Weighted****Average****Exercise****Price** |
|                  |                                   |                                                        |                                                     |   |   |
| $                     | .26                                    | 1,050,000                                                   | 9.5                years                                 | $ | .26 | 1,050,000 | $ | .26 |
|                  | .39                                    | 450,000                                                     | 4.0                years                                 |   | .39 | 450,000 |   | .39 |
|                  | .92                                    | 437,116                                                     | 7.2                years                                 |   | .92 | 437,116 |   | .92 |
|                  | 2.60                                   | 637,500                                                     | 6.5                years                                 |   | 2.60 | 637,500 |   | 2.60 |
| 3.00                  | 5,000                                  | 6.4                years                                    | 3.00                                                     | 3,000 | 3.00 |
| 22.50                 | 14,375                                 | 4.8                years                                    | 22.50                                                    | 14,375 | 22.50 |
| 24.00                 | 253,342                                | 4.5                years                                    | 24.00                                                    | 3,342 | 24.00 |
|                  | 2,847,333                              |                                                        |                                                     | 2,595,333 |   |

| **Number                of Warrants** | **Price                Per Share** | **Expiring                In** |
|---------------------------------------|------------------------------------|--------------------------------|
|                                  |                               |                           |
| 15,607,403                            | $                                  | .76                            | 2007 |
| 6,667                                 | 3.00                               | 2006                           |
| 12,500                                | 20.00                              | 2006                           |
| 25,000                                | 30.00                              | 2006                           |
| 50,000                                | 4.00                               | 2007                           |
| 7,500                                 | 20.00                              | 2007                           |

|                                             |   | **Warrants** |       | **Weighted                Average****Exercise                Price** |   |
|--------------------------------------------------|--------|--------------|------------|----------------------------------------------------------------------|--------|
|                                             |   |         |       |                                                                 |   |
| Outstanding                at September 30, 2002 |   |         | 174,584    |                                                                 | $      | 19.64 |   |
| Granted                                          |   |         | 18,750     |                                                                 |   | 1.40 |   |
| Canceled                                         |   |         | -          |                                                                 |   | - |   |
| Exercised                                        |   |         | -          |                                                                 |   | - |   |
|                                             |   |         |       |                                                                 |   |   |   |
| Outstanding                at September 30, 2003 |   |         | 193,334    |                                                                 | $      | 17.88 |   |
| Granted                                          |   |         | 15,607,403 |                                                                 |   | .76 |   |
| Canceled                                         |   |         | (67,917    | )                                                                    |   | 24.40 |   |
| Exercised                                        |   |         | -          |                                                                 |   | - |   |
|                                             |   |         |       |                                                                 |   |   |   |
| Outstanding                at September 30, 2004 |   |         | 15,732,820 |                                                                 | $      | .87 |   |
| Granted                                          |   |         | -          |                                                                 |   | - |   |
| Canceled                                         |   |         | (23,750    | )                                                                    |   | 18.11 |   |
| Exercised                                        |   |         | -          |                                                                 |   | - |   |
| Outstanding                at September 30, 2005 |   |         | 15,709,070 |                                                                 | $      | .84 |   |

**F-33**

----

| **Note                19 -** | **Major                Customers** |
|------------------------------|------------------------------------|

| **Note                20 -** | **Retirement                Plans** |
|------------------------------|-------------------------------------|

| **Note                21 -** | **Selected                Quarterly Financial Data                (unaudited)** |
|------------------------------|---------------------------------------------------------------------------------|

|                                                                                                             |   | **First****Quarter** |       | **Second****Quarter** |   | **Third****Quarter** |   | **Fourth****Quarter** |       |
|------------------------------------------------------------------------------------------------------------------|--------|----------------------|------------|-----------------------|--------|----------------------|--------|-----------------------|------------|
|                                                                                                             |   | **(Restated)**       |       | **(Restated)**        |   | **(Restated)**       |   | **(Restated)**        |       |
| **Year                ended September 30, 2005:**                                                                |   |                 |       |                  |   |                 |   |                  |       |
| Revenues                from continuing operations                                                               |   | $                    | 29,601,129 |                  | $      | 26,411,686           |   | $                     | 27,257,446 |   | $ | 29,175,281 |   |
| Gross                profit from continuing operations                                                           |   |                 | 4,211,045  |                  |   | 3,644,858            |   |                  | 3,737,808  |   |   | 3,906,290 |   |
| Net                earnings from discontinued operations                                                         |   |                 | 145,149    |                  |   | 151,439              |   |                  | 2,320,278  |   |   | - |   |
| Net                earnings (loss) from continuing operations                                                    |   |                 | (416,053   | )                     |   | (3,433,530           | )      |                  | (228,981   | ) |   | (5,773,923 | ) |
| Net                earnings (loss) from continuing operations attributable to common                stockholders |   |                 | (426,553   | )                     |   | 3,423,030            |   |                  | (239,481   | ) |   | (5,784,423 | ) |
| Net                earnings (loss) attributable to common stockholders                                           |   |                 | (281,404   | )                     |   | 3,574,469            |   |                  | 2,080,797  |   |   | (5,784,423 | ) |
|                                                                                                             |   |                 |       |                  |   |                 |   |                  |       |   |   |   |   |
| Basic                earnings (loss) per share attributable to common                stockholders:               |   |                 |       |                  |   |                 |   |                  |       |   |   |   |   |
| Continuing                operations                                                                             |   |                 | (.03       | )                     |   | .20                  |   |                  | (.02       | ) |   | (.33 | ) |
| Discontinued                operations                                                                           |   |                 | .01        |                  |   | .01                  |   |                  | .14        |   |   | - |   |
| Total                                                                                                            |   |                 | (.02       | )                |   | .21                  |   |                  | .12        |   |   | (.33 | ) |
|                                                                                                             |   |                 |       |                  |   |                 |   |                  |       |   |   |   |   |
| Diluted                earnings (loss) per share attributable to common                stockholders:             |   |                 |       |                  |   |                 |   |                  |       |   |   |   |   |
| Continuing                operations                                                                             |   |                 | (.03       | )                     |   | .17                  |   |                  | (.02       | ) |   | (.33 | ) |
| Discontinued                operations                                                                           |   |                 | .01        |                  |   | .01                  |   |                  | .12        |   |   | - |   |
| Total                                                                                                            |   |                 | (.02       | )                |   | .18                  |   |                  | .10        |   |   | (.33 | ) |

**F-34**

----

|                                                                                                    |   | **First****Quarter** |       | **Second****Quarter** |   | **Third****Quarter** |   | **Fourth****Quarter** |       |
|---------------------------------------------------------------------------------------------------------|--------|----------------------|------------|-----------------------|--------|----------------------|--------|-----------------------|------------|
|                                                                                                    |   |                 |       |                  |   |                 |   | **(Restated)**        |       |
| **Year                ended September 30, 2004:**                                                       |   |                 |       |                  |   |                 |   |                  |       |
| Revenues                from continuing operations                                                      |   | $                    | 22,594,134 |                  | $      | 21,831,640           |   | $                     | 27,637,948 |   | $ | 29,964,344 |   |
| Gross                profit from continuing operations                                                  |   |                 | 3,362,193  |                  |   | 2,608,613            |   |                  | 2,368,341  |   |   | 4,020,360 |   |
| Net                earnings from discontinued operations                                                |   |                 | 31,711     |                  |   | 2,523                |   |                  | 25,883     |   |   | 153,830 |   |
| Net                earnings (loss) from continuing operations                                           |   |                 | 49,832     |                  |   | (989,157             | )      |                  | (2,340,881 | ) |   | 2,976,579 |   |
| Net                (loss) from continuing operations attributable to common                stockholders |   |                 | (22,809    | )                     |   | (2,165,273           | )      |                  | (2,422,779 | ) |   | (1,006,551 | ) |
| Net                earnings (loss) attributable to common stockholders                                  |   |                 | 8,902      |                  |   | (2,162,750           | )      |                  | (2,396,896 | ) |   | (852,721 | ) |
|                                                                                                    |   |                 |       |                  |   |                 |   |                  |       |   |   |   |   |
| Basic                earnings (loss) per share attributable to common                stockholders       |   |                 |       |                  |   |                 |   |                  |       |   |   |   |   |
| Continuing                operations                                                                    |   |                 | -          |                  |   | (.36                 | )      |                  | (.38       | ) |   | (.08 | ) |
| Discontinued                operations                                                                  |   |                 | -          |                  |   | -                    |   |                  | -          |   |   | .01 |   |
| Total                                                                                                   |   |                 | -          |                  |   | (.36                 | )      |                  | (.38       | ) |   | (.07 | ) |
|                                                                                                    |   |                 |       |                  |   |                 |   |                  |       |   |   |   |   |
| Diluted                earnings (loss) per share attributable                                           |   |                 |       |                  |   |                 |   |                  |       |   |   |   |   |
| to                common stockholders                                                                   |   |                 |       |                  |   |                 |   |                  |       |   |   |   |   |
| Continuing                operations                                                                    |   |                 | -          |                  |   | (.36                 | )      |                  | (.38       | ) |   | (.08 | ) |
| Discontinued                operations                                                                  |   |                 | -          |                  |   | -                    |   |                  | -          |   |   | .01 |   |
| Total                                                                                                   |   |                 | -          |                  |   | (.36                 | )      |                  | (.38       | ) |   | (.07 | ) |

|                                                                                                    |   | **First****Quarter** |       | **Second****Quarter** |   | **Third****Quarter** |   | **Fourth****Quarter** |       |
|---------------------------------------------------------------------------------------------------------|--------|----------------------|------------|-----------------------|--------|----------------------|--------|-----------------------|------------|
| **Year                ended September 30, 2003:**                                                       |   |                 |       |                  |   |                 |   |                  |       |
| Revenues                from continuing operations                                                      |   | $                    | 14,573,301 |                  | $      | 18,798,148           |   | $                     | 21,152,534 |   | $ | 20,368,282 |   |
| Gross                profit from continuing operations                                                  |   |                 | 2,479,115  |                  |   | 2,655,436            |   |                  | 3,045,666  |   |   | 2,976,700 |   |
| Net                earnings (loss) from discontinued operations                                         |   |                 | 13,170     |                  |   | (463,290             | )      |                  | (352,751   | ) |   | (568,571 | ) |
| Net                (loss) from continuing operations                                                    |   |                 | (703,575   | )                     |   | (1,365,405           | )      |                  | (935,630   | ) |   | (1,401,067 | ) |
| Net                (loss) from continuing operations attributable to common                stockholders |   |                 | (1,069,669 | )                     |   | (1,773,068           | )      |                  | (1,116,705 | ) |   | (2,076,109 | ) |
| Net                (loss) attributable to common stockholders                                           |   |                 | (1,056,499 | )                     |   | (2,236,358           | )      |                  | (1,469,456 | ) |   | (2,644,680 | ) |
|                                                                                                    |   |                 |       |                  |   |                 |   |                  |       |   |   |   |   |
| Basic                earnings (loss) per share attributable to common                stockholders       |   |                 |       |                  |   |                 |   |                  |       |   |   |   |   |
| Continuing                operations                                                                    |   |                 | (.30       | )                     |   | (.40                 | )      |                  | (.24       | ) |   | (.43 | ) |
| Discontinued                operations                                                                  |   |                 | .01        |                  |   | (.11                 | )      |                  | (.07       | ) |   | (.12 | ) |
| Total                                                                                                   |   |                 | (.29       | )                     |   | (.51                 | )      |                  | (.31       | ) |   | (.55 | ) |
|                                                                                                    |   |                 |       |                  |   |                 |   |                  |       |   |   |   |   |
| Diluted                earnings (loss) per share attributable to common                stockholders     |   |                 |       |                  |   |                 |   |                  |       |   |   |   |   |
| Continuing                operations                                                                    |   |                 | (.30       | )                     |   | (.40                 | )      |                  | (.24       | ) |   | (.43 | ) |
| Discontinued                operations                                                                  |   |                 | .01        |                  |   | (.11                 | )      |                  | (.07       | ) |   | (.12 | ) |
| Total                                                                                                   |   |                 | (.29       | )                     |   | (.51                 | )      |                  | (.31       | ) |   | (.55 | ) |
|                                                                                                    |   |                 |       |                  |   |                 |   |                  |       |   |   |   |   |

| **Note                22 -** | **Subsequent                Events** |
|------------------------------|--------------------------------------|

**F-35**

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**F-36**

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**F-37**

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| **Note                23 -** | **Derivative                Instruments** |
|------------------------------|-------------------------------------------|

| **Note                24 -** | **Restatement** |
|------------------------------|-----------------|

**F-38**

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**Stratus      Services Group, Inc.**

**Schedule      II - Valuation and Qualifying Accounts**

| **Allowance                for Doubtful Accounts** |   | **Balance                at****beginning                of****period** |      | **Charged                to****bad                debt****expense                (1)** |   | **Other** |   | **Deductions****(Write-offs                of****bad                debts)** |   | **Balance                at****end                of****period** |   |
|----------------------------------------------------|--------|------------------------------------------------------------------------|-----------|----------------------------------------------------------------------------------------|--------|-----------|--------|------------------------------------------------------------------------------|--------|------------------------------------------------------------------|--------|
|                                               |   |                                                                   |      |                                                                                   |   |      |   |                                                                         |   |                                                             |   |
| September                30:                       |   |                                                                   |      |                                                                                   |   |      |   |                                                                         |   |                                                             |   |   |   |   |   |   |
| 2005                                               |   | $                                                                      | 2,038,000 |                                                                                   | $      | 1,000,000 |   | $                                                                            | 3,000  |                                                             | $      | (2,000 | ) | $ | 3,039,000 |   |
| 2004                                               |   |                                                                   | 1,733,000 |                                                                                   |   | 525,000   |   |                                                                         | -      |                                                             |   | (220,000 | ) |   | (2,038,000 | ) |
| 2003                                               |   |                                                                   | 1,742,000 |                                                                                   |   | 875,000   |   |                                                                         |   |                                                             |   | (884,000 | ) |   | 1,733,000 |   |

| **Valuation                Allowance for Deferred Taxes** |   | **Balance                at****beginning                of****period** |      | **Charged                to****costs                and****expenses                (2)** |   | **Other** |   | **Deductions** |   | **Balance                at****end                of****period** |   |
|-----------------------------------------------------------|--------|------------------------------------------------------------------------|-----------|------------------------------------------------------------------------------------------|--------|-----------|--------|----------------|--------|------------------------------------------------------------------|--------|
|                                                      |   |                                                                   |      |                                                                                     |   |      |   |           |   |                                                             |   |
| September                30:                              |   |                                                                   |      |                                                                                     |   |      |   |           |   |                                                             |   |
| 2005                                                      |   | $                                                                      | 9,182,000 |                                                                                     | $      | 1,014,000 |   | $              | -      |                                                             | $      | - |   | $ | 10,196,000 |   |
| 2004                                                      |   |                                                                   | 8,020,000 |                                                                                     |   | 1,162,000 |   |           | -      |                                                             |   | - |   |   | 9,182,000 |   |
| 2003                                                      |   |                                                                   | 5,269,000 |                                                                                     |   | 2,751,000 |   |           | -      |                                                             |   | - |   |   | 8,020,000 |   |

| (1)    | Includes                $100,000 charged to discontinued operations in the year ended September                30, 2003.            |
|--------|-------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                |
| (2)    | Reflects                the increase in the valuation allowance associated with net operating                losses of the Company. |

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