<Page>



                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K
                                    ---------

(Mark One)

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934
                              For the fiscal year ended  September  30, 2001
                                                         -----------------------

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934
                              For the transition period from _______ to ________

                        Commission file number 001-15789
                                               ---------

                          STRATUS SERVICES GROUP, INC.
--------------------------------------------------------------------------------
             (Exact name of Registrant as specified in its charter)

<Table>
<S>                                                                  <C>
DELAWARE                                                                                      22-3499261
(State or other jurisdiction of incorporation or organization)       (I.R.S. Employer Identification No.)
</Table>

             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, $.01 par value
                                (Title of class)

Indicate by check mark whether the registrant has (1) filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of the voting stock held by non-affiliates, computed
by reference to the last sale price of such stock as reported by the Nasdaq
SmallCap Market, as of January 24, 2002, was $6,616,006, based upon 7,351,118
shares held by non-affiliates.

The number of shares of Common Stock, $.01 par value, outstanding as of January
24, 2002 was 9,637,549.



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                                    FORM 10-K
                          STRATUS SERVICES GROUP, INC.
             FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2001

<Table>
<Caption>
TABLE OF CONTENTS

                                                                                           PAGE OF REPORT
                                                                                           --------------
<S>               <C>                                                                            <C>
PART I
------
ITEM 1.           BUSINESS                                                                        3
ITEM 2.           PROPERTIES                                                                     12
ITEM 3.           LEGAL PROCEEDINGS                                                              12
ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                            12

PART II
-------
ITEM 5.           MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                       13
ITEM 6.           SELECTED FINANCIAL DATA                                                        14
ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                  14
ITEM 7A.          QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                      18
ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                    18
ITEM 9.           CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS
                  ON ACCOUNTING AND FINANCIAL DISCLOSURE                                         18

PART III
--------
ITEM 10.          DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
                  COMPLIANCE WITH SECTIONS 16(c) OF THE EXCHANGE ACT.                            19
ITEM 11.          EXECUTIVE COMPENSATION                                                         20
ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                 23
ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                 24

PART IV
-------
ITEM 14.          EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
                  ON FORM 8-K                                                                    25

INDEX TO FINANCIAL STATEMENTS                                                                   F-1
</Table>


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
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 SUCCESSFULLY IDENTIFY SUITABLE
ACQUISITION CANDIDATES, COMPLETE ACQUISITIONS OR INTEGRATE THE ACQUIRED BUSINESS
INTO OUR OPERATIONS; OUR ABILITY TO ATTRACT AND RETAIN QUALIFIED PERSONNEL; OUR
ABILITY TO DEVELOP NEW SERVICES; OUR ABILITY TO CROSS-SELL OUR SERVICES TO
EXISTING CLIENTS; OUR ABILITY TO ENHANCE AND EXPAND EXISTING OFFICES; OUR
ABILITY TO OPEN NEW OFFICES; GENERAL ECONOMIC CONDITIONS; AND OTHER FACTORS
DISCUSSED IN ITEM 1 OF THIS ANNUAL REPORT UNDER THE CAPTION "FACTORS AFFECTING
FUTURE OPERATING RESULTS" 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.


<Page>



                                     PART I

ITEM 1.  BUSINESS

GENERAL

We are a national business services company engaged in providing outsourced
labor and operational resources on a long-term, contractual basis. We were
incorporated in Delaware in March 1997 and began operations in August 1997 with
the purchase of certain assets of Royalpar Industries, Inc. and it subsidiaries.
This purchase provided us with a foundation to become a national provider of
comprehensive staffing services. We believe that as businesses increasingly
outsource a wider range of human resource functions in order to focus on their
core operations, they will require more sophisticated and diverse services from
their staffing providers.

We are functionally divided into three "service lines": Staffing Services,
Engineering Services and Information Technology Services. Our Staffing Services
Division provides temporary workers for short-term needs, extended-term
temporary employees, temporary-to-permanent placements, recruiting, permanent
placements, payroll processing, on-site supervising and human resource
consulting. Our SMARTSolutions(TM) technology, available through our Staffing
Services branch offices, provides a comprehensive, customized staffing program
designed to reduce labor and management costs and increase workforce efficiency.
Our Engineering Services Division provides a full range of technical engineering
services including on-site staff augmentation and in-house project work. Stratus
Technology Services ("STS") provides information technology ("IT") staffing
solutions to Fortune 1000, middle market and emerging companies. STS offers
expertise in a wide variety of technology practices and disciplines ranging from
networking professionals to internet development specialists and application
programmers. All three service groups seek to act as business partners to our
clients rather than merely a vendor. In doing so, they seek to systematically
enhance client productivity and positively impact our and our clients' financial
results. We are headquartered at 500 Craig Road, Suite 201, Manalapan, New
Jersey 07726 and our telephone number is (800) 777-1557.

Between September 1997 and January 2002 we completed nine acquisitions of
staffing businesses, representing twenty-nine offices in six states. As of
January 24, 2002 we were providing services from thirty-two locations in eight
states. We also maintain a presence on the Internet with our website at
WWW.STRATUSSERVICES.COM, an informational site designed to give prospective
customers and employees additional information regarding our operations.

MATERIAL RECENT EVENTS

On January 24, 2002 the Company entered into an agreement to sell the assets of
its Engineering Services Division ("SED") to SEA Consulting Services
Corporation. Concurrent with the execution of the agreement the Company
transferred 30% interest in SED to Sahyoun, LLC, a company controlled by the
President of SED in exchange for a combination of bonuses due the SED
management, options owned by the SED management and Company shares owned by
the SED management. The agreement provides for a purchase price of $2,200,000
of which the Company will receive 80% ($1,760,000). In addition, the Company
will receive additional payments of $250,000 each on June 30, 2002 and
December 31, 2002. Closing of the sale is contingent upon shareholder
approval and receipt of a fairness opinion by the Company. The pro forma
effect of this transaction on the September 30, 2001 balance sheet can be
found in the Financial Statements on page F-3.

PRINCIPAL SERVICES & MARKETS

Our business operations are classified as one segment that consists of Staffing
Services, Engineering Services and Information Technology Services, each
reporting to a Division President who reports directly to the Chief Executive
Officer and each with its own target market.

     STAFFING SERVICES includes both personnel placement and employer services
     such as payrolling, outsourcing, on-site management and administrative
     services. Payrolling, which is also referred to as employee leasing,
     typically involves the transfer of a customer's employees to our payroll.
     Outsourcing represents a growing trend among businesses to contract with
     third parties to provide a particular function or business department for
     an agreed price over a designated period. On-site services involve the
     placement of a Company employee at the customer's place of business to
     manage all of the customer's temporary staffing requirements.
     Administrative services include skills testing, drug testing and risk
     management services. Skills testing available to the Company's customers
     include cognitive, personality and psychological evaluation and drug
     testing that is confirmed through an independent, certified laboratory.

     Staffing Services can also be segmented by assignment types into
     supplemental staffing, long-term staffing and project staffing.
     Supplemental staffing provides workers to meet variability in employee
     cycles, and assignments typically range from days to months. Long-term
     staffing provides employees for assignments that typically last three to
     six months but can sometimes last for years. Project staffing provides
     companies with workers for a time specific project and may include
     providing management, training and benefits.

     Staffing services are marketed through our on-site sales professionals
     throughout our nationwide network of offices. Generally, new customers are
     obtained through customer referrals, telemarketing, advertising and
     participating in numerous community and trade organizations.

     SMARTSOLUTIONS(TM). SMARTSolutions(TM) is a customized staffing program
     provided through our staffing services offices designed to reduce labor and
     management costs and increase workforce efficiency. The programs typically
     require an eight-week implementation process beginning with an operational
     assessment of the client's tasks and



                                       3
<Page>

     processes conducted by the SMARTSolutions(TM) implementation team. The team
     compiles and analyzes the data and then presents its recommendations to the
     client's senior management. Together they establish an implementation
     timeline with target dates and responsibility checklists. Once the timeline
     is approved, a workforce-training curriculum or SMARTTraining(TM) Program
     is developed and implemented by a team of associates headed by the On-site
     Manager provided by Stratus. Monthly performance is reported to the client
     through SMARTReports(TM) that track workforce performance, analyze that
     performance against the pre-determined goals and adjust programs to meet
     evolving customer needs.

     While SMARTSolutions(TM) is designed to be most effective in manufacturing,
     distribution and telemarketing operations, it is marketed to all companies
     that have at least 50 people dedicated to specific work functions that
     involve repetitive tasks measurable through worker output and could benefit
     from proactive workforce management. Since SMARTSolutions(TM) differs
     greatly from traditional staffing services, we have developed a national
     marketing team dedicated strictly to marketing these programs. However, the
     team utilizes our Staffing Services branch staff to identify companies
     within their geographic regions that could potentially benefit from a
     SMARTSolutions(TM) program. Once identified, the team assumes full
     responsibility for the sales process. A significant portion of our
     SMARTSolutions(TM) clients have been obtained through this process or from
     "word of mouth" recommendations from current SMARTSolutions(TM) customers.

     ENGINEERING SERVICES require highly specialized and technically skilled
     employees that demand significantly higher hourly rates than traditional
     temporary staffing services. Engineering Services augments customers'
     in-house engineering capability by supplying our engineers as contract
     labor. We will also take the lead role as the project manager on specific
     engagements and provide a full range of services that include design
     requirements, scheduling, drawing and specification management, field
     supervision and quality assurance. On large engagements, we may take
     responsibility for specific areas of the engagement only, or supply staff
     to the project manager.

     In addition to staff augmentation, we provide a broad range of project
     support to Fortune 100 companies, government agencies and educational
     institutions in electrical engineering, instrumentation and controls,
     mechanical engineering, piping and pipe support analysis, civil, structural
     and architectural engineering. We have developed an expertise providing
     services to utilities and cogeneration facility operators and are qualified
     to provide staffing services to nuclear power plants. Projects typically
     last six months to one year and may require the services of several
     specialized professionals.

     The marketing of engineering services is focused primarily on addressing
     the requirements typical of specific customers. In marketing to potential
     customers, the engineering sales team identifies the requirements of the
     customer and promotes services offerings designed to meet those
     requirements. In addition to personal sales calls, targeted mailings and
     telephone solicitations, the entire management team promotes our services
     through cross-selling complementary services to existing customers,
     submitting bids on "competitive bid" projects and networking through
     industry trade associations. As is the case with SMARTSolutions(TM), we
     anticipate that with the extensive experience of the Engineering Services
     management team, word of mouth and personal contacts will provide the
     majority of sales leads.

     STRATUS TECHNOLOGY SERVICES, LLC. We provide Information Technology ("IT")
     services throughout our branch network through our affiliate, Stratus
     Technology Services, LLC ("STS"). STS was formed in November 2000 as a
     50/50 joint venture between us and Fusion Business Services, LLC, a New
     Jersey based technology project management firm, to consolidate and manage
     the company-wide technology services business into a single entity focused
     on establishing market share in the IT market. STS markets its services to
     client companies seeking staff for project staffing, system maintenance,
     upgrades, conversions, installations, relocations, etc. STS provides
     broad-based professionals in such disciplines as finance, pharmaceuticals,
     manufacturing and media and include such job specifications as Desktop
     Support Administrators, Server Engineers, Programmers, Mainframe IS
     Programmers, System Analysts, Software Engineers and Programmer Analysts.
     In addition, STS, through its roster of professionals, can initiate and
     manage turnkey IT projects and provide outsourced IT support on a
     twenty-four hour, seven day per week basis.

BUSINESS STRATEGY

The Company's objective is to become a leading provider of staffing services
throughout the United States. Key elements of the Company's business strategy
include:

     FOCUS ON SALES WITHIN THE CLERICAL, LIGHT INDUSTRIAL AND LIGHT TECHNICAL
     SECTOR. The Company focuses on placing support personnel in markets for
     clerical, light industrial and light technical temporary



                                       4
<Page>

     staffing. The Company believes that these services are the foundation of
     the temporary staffing industry, will remain so for the foreseeable future
     and best leverages the assets and expertise of our Company. The Company
     also believes that employees performing these functions are, and will
     remain, an integral part of the labor market in local, regional and
     national economies around the world. The Company believes that it is
     well-positioned to capitalize on these business segments because of its
     ability to attract and retain qualified personnel and its knowledge of the
     staffing needs of customers.

     ENHANCE RECRUITING OF QUALIFIED PERSONNEL. The Company believes that a key
     component of the Company's success is its ability to recruit and maintain a
     pool of qualified personnel and regularly place them into desirable
     positions. The Company uses comprehensive methods to assess, select and,
     when appropriate, train its temporary employees in order to maintain a pool
     of qualified personnel to satisfy ongoing customer demand. The Company
     offers its temporary employees comprehensive benefit, retention and
     recognition packages, including bonuses, vacation pay, holiday pay and
     opportunities to participate in the Company's contributory 401(k) plan and
     is considering a discounted employee stock purchase plan.

     EMPHASIZE BUSINESS CORRIDORS. The Company's strategy is to capitalize on
     its presence along the I-95 business corridor from New York to Delaware and
     to build market share by targeting small to mid-sized customers, including
     divisions of Fortune 500 companies. The Company believes that in many
     cases, such markets are less competitive and less costly in which to
     operate than the more central areas of metropolitan markets, where a large
     number of staffing services companies frequently compete for business and
     occupancy costs are relatively high. In addition, the Company believes that
     business corridor markets are more likely to provide the opportunity to
     sell recurring business that is characterized by relatively higher gross
     margins. The Company focuses on this type of business while also
     selectively servicing strategic national and regional contracts.

     MAINTAIN ENTREPRENEURIAL AND DECENTRALIZED OFFICES WITH STRONG CORPORATE
     SUPPORT. The Company seeks to foster an entrepreneurial environment by
     operating each office as a separate profit center, by giving managers and
     staff considerable operational autonomy and financial incentives. The
     Company has designed programs to encourage a "team" approach in all aspects
     of sales and recruiting, to improve productivity and to maximize profits.
     The Company believes that this structure allows it to recruit and retain
     highly motivated managers who have demonstrated the ability to succeed in a
     competitive environment. This structure also allows managers and staff to
     focus on branch operations while relying on corporate headquarters for
     support in back-office operations, such as risk management programs and
     unemployment insurance, credit, collections, advice on legal and regulatory
     matters, quality standards and marketing.

     ENHANCE INFORMATION SYSTEMS. The Company believes its management
     information systems are instrumental to the success of its operations. The
     Company's business depends on its ability to store, retrieve, process and
     manage significant amounts of data. The Company continually evaluates the
     quality, functionality and performance of its systems in an effort to
     ensure that these systems meet the operation needs of the Company. During
     fiscal 2001, the Company completed the implementation and rollout of the
     Keynote Staffing Business Software System. This AS/400 based system comes
     complete with a rich automated skill search capability, quality and
     performance measurement reporting capabilities and user friendly, proactive
     tools that we believe will improve the level of service our branch offices
     are capable of delivering.

     In addition, we have fully upgraded both our hardware and software at
     corporate headquarters. Our AS/400 based system is capable of sustaining
     the user demand with the exponential growth that we are currently
     experiencing for the next 2-3 years. We are currently implementing a
     nationwide area network based upon a reliable, secure, inexpensive, and
     high performance Frame Relay network that has integrated all of our offices
     onto one internal network linked through our servers at corporate. Once
     fully completed, all of our branches will share a common server for
     critical operating data utilized with the Keynote and other back office
     software systems, as well as having access to other less critical but,
     mission essential applications, i.e., real-time e-mail and internet access.

     The Company believes that its investments in information technology will
     increase management's ability to store, retrieve, process and manage
     information. As a result, the Company believes it will be able to improve
     service to its customers and employees by reducing errors and speeding the
     resolution of inquiries, while more efficiently allocating resources
     devoted to developing and maintaining the Company's information technology
     infrastructure.

     CONTROL COSTS THROUGH EMPHASIS ON RISK MANAGEMENT. Workers' compensation
     and unemployment insurance premiums are significant expenses in the
     temporary staffing industry. Workers' compensation costs are particularly
     high in the light industrial sector. Furthermore, there can be significant
     volatility in these costs. The Company has a dedicated risk management
     department that has developed risk management programs


                                       5
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     and loss control strategies that the Company believes will improve
     management's ability to control these employee-related costs through
     pre-employment safety training, safety assessment and precautions in the
     workplace, post-accident procedures and return to work programs. The
     Company believes that its emphasis on controlling employee-related costs
     enables branch office managers to price services more competitively and
     improve profitability.

GROWTH STRATEGY

The Company's current growth strategy focuses evenly on a combination of
internal growth and strategic external and complementary acquisitions.

     INTERNAL GROWTH. A significant element of the Company's growth strategy has
     been, and continues to be, its focus on internal growth. The Company's
     internal growth strategy consists of the following:

     o    INCREASE SALES AND PROFITABILITY AT EXISTING OFFICES. The Company
          believes that a substantial opportunity exists to increase sales of
          services and profitability in existing offices. The Company has
          incentive compensation plans to encourage branch office managers and
          staff to increase productivity and profits at the branch level while
          maintaining accountability for costs and collections of accounts
          receivable. In addition, the Company has maintained its
          corporate-level branch management function to establish and monitor
          branch office performance targets and develop programs to support
          branch operations.

     o    EXPAND SMARTSOLUTIONS(TM) AND VENDOR-ON-PREMISE PROGRAMS. The Company
          has taken advantage of industry trends by continuing to promote its
          SMARTSolutions(TM) program and "vendor-on-premises" programs. As of
          January 18, 2002, the Company had four SMARTSolutions(TM) sites and
          vendor-on-premises programs. Under these programs, the Company assumes
          administrative responsibility for coordinating all essential staffing
          services throughout a customer's location, including skills testing
          and training.

     o    PURSUE EXPANSION BY ESTABLISHMENT OF NEW OFFICES. The Company seeks to
          open new offices primarily in existing markets to benefit from common
          area management, cross-marketing opportunities and leveraging of
          administrative expenses. The Company's corporate and operating
          management jointly develop expansion plans for new offices based upon
          various criteria, including market demand, availability of qualified
          personnel, the regulatory environment in the relevant market and
          whether a new office would complement or broaden the Company's current
          geographic network.

     PURSUIT OF COMPLEMENTARY AND STRATEGIC ACQUISITIONS. The Company intends to
     focus on opportunities for growth through acquisitions in existing as well
     as new markets. The Company made three strategic external acquisitions in
     fiscal 2001 and is continuously evaluating other potential acquisition
     opportunities.

     In evaluating potential acquisition candidates, the Company focuses on
     independent staffing companies with a history of profitable operations, a
     strong management team, a recognized presence in secondary markets and
     compatible corporate philosophies and culture. The Company has used, and
     may continue to use, a team approach by making select corporate officers
     and outside consultants responsible for identifying prospective
     acquisitions, performing due diligence, negotiating contacts and
     subsequently integrating the acquired companies. The integration of newly
     acquired companies generally involves standardizing each company's
     accounting and financial procedures with those of the Company. Acquired
     companies typically are brought under the Company's uniform risk management
     program and key personnel of acquired companies often become part of field
     management. Marketing, sales, field operations and personnel programs must
     be reviewed and, where appropriate, conformed to the practices of the
     Company's existing operations.

     Between September 1997 and January 2002 we completed nine acquisitions of
     primarily staffing companies or divisions of staffing companies. These
     acquisitions included twenty-nine offices located in six states and
     collectively generated over $60 million in revenue for the twelve months
     preceding such acquisitions. Pursuant to our acquisition strategy we made
     the following purchases:

     o    In August 1998, we acquired the assets of J.P. Industrial, LLC, a $1
          million (in annual revenues) Canby, Oregon based Engineering Services
          firm. We made this acquisition to expand our presence in the
          engineering services intensive power generation and paper/wood product
          industries in the Pacific Northwest.

     o    In January 1999, we completed the acquisition of the assets of B & R
          Employment, Inc. ("B & R"), a $4 million (in annual revenues)
          Wilmington, Delaware based provider of traditional temporary staffing
          services. This acquisition gave us an immediate presence in the
          industrial and banking center of Delaware.



                                       6
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     o    In April 1999, we acquired certain assets of Adapta Services Group,
          Inc., a single location, $2 million (in annual revenues) New Castle,
          Delaware based provider of traditional staffing services. This
          acquisition was an excellent complement to our acquisition of B&R
          Employment, Inc., gave us full coverage of all of the major Delaware
          metropolitan areas and provided us with additional quality customers.

     o    In June 2000, we acquired the assets of the eight New Jersey and
          Pennsylvania branches of Tandem, a $25 million (in annual revenues)
          division of Outsource International, Inc. This acquisition greatly
          expanded our presence in our home state of New Jersey and continued
          our Mid-Atlantic regional expansion.

     o    In July 2000, we acquired certain assets of Apoxiforce, Inc., a $1
          million (in annual revenues) Elizabeth, New Jersey based provider of
          traditional staffing services. This acquisition provided us with a
          strong presence in the commercial food service industry and an
          excellent customer list. These operations were incorporated into our
          existing Elizabeth, New Jersey office and the personnel assimilated
          throughout our New Jersey operations.

     o    In October 2000 we acquired the assets of seven New Hampshire and
          Massachusetts branches of Tandem, a $9 million (in annual revenues)
          division of Outsource International, Inc. This acquisition further
          continued our East Coast expansion plan and provided us with a
          platform to further expand our New England presence.

     o    In January 2001, we acquired certain assets of Cura Staffing Inc. and
          WorkGroup Professional Services, Inc. sister companies, producing $4.8
          million in revenues from offices in Coral Gables and Miami Springs,
          Florida. This acquisition further expanded our South Florida presence
          and provided SMARTSolutions(TM) opportunities.

     o    In August 2001, we acquired certain assets of the light industrial and
          clerical businesses of Source One Personnel, Inc., a $15 million
          Lawrenceville, New Jersey based, closely-held corporation. This
          acquisition significantly expanded our I-95 corridor coverage in New
          Jersey and provided inroads into the lucrative Philadelphia suburb
          market.

     o    In January 2002, we acquired the assets of the seven Southern
          California branches of Provisional Employment Services, Inc. a $23
          million (in annual revenues) Orange, California based provider of
          light industrial and clerical staffing services. This acquisition
          establishes a strong base in Southern California for regional
          expansion.

     Due to these acquisitions, as well as new offices we opened, the number of
     our offices increased from five in five states after the Royalpar, Inc.
     acquisition in August 1997 to thirty-two in eight states at January 24,
     2002.

COMPETITIVE BUSINESS CONDITIONS

Staffing companies provide one or more of four basic services to clients: (i)
flexible staffing; (ii) Professional Employer Organization ("PEO") services;
(iii) placement and search; and (iv) outplacement. Based on information provided
by the American Staffing Association (formerly the National Association of
Temporary and Staffing Services), the National Association of Professional
Employer Organizations and Staffing Industry Analysts, Inc., 2000 staffing
industry revenues were approximately $77 billion. Over the past seven years, the
staffing industry has experienced significant growth, growing at an average rate
of 10% per year largely due to the utilization of temporary help across a
broader range of industries, as well as the emergence of the PEO sector.
Currently, over 90% of the companies surveyed by the American Staffing
Association reported using temporary personnel.

The U.S. staffing industry is highly fragmented and has been experiencing
consolidation in recent years, particularly with respect to temporary staffing
companies. Recent industry statistics indicate that approximately 7,000
companies provide temporary staffing services in the United States. Many of
these companies are small, owner-operated businesses with limited access to
capital for development and expansion. We believe that the industry is
consolidating in response to:

     o    The increased demands of companies for a single supplier of a full
          range of staffing and human resource services;

     o    Increased competition from larger, better capitalized competitors; and

     o    Owner's desires for liquidity.



                                       7
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Although some consolidation activity has already occurred, we believe that
consolidation in the U.S. staffing industry will continue and that there will be
numerous available acquisition candidates.

Historically, the demand for temporary staffing employees has been driven by a
need to temporarily replace regular employees. More recently, competitive
pressures have forced businesses to focus on reducing costs, including
converting fixed labor costs to variable and flexible costs. Increasingly, the
use of temporary staffing employees has become widely accepted as a valuable
tool for managing personnel costs and for meeting specialized or fluctuating
employment requirements. Organizations have also begun using temporary staffing
to reduce administrative overhead by outsourcing operations that are not part of
their core business operations, such as recruiting, training and benefits
administration. By utilizing staffing services companies, businesses are able to
avoid the management and administrative costs that would be incurred if full
time employees were employed. An ancillary benefit, particularly for smaller
business, is that the use of temporary personnel reduces certain employment
costs and risks, such as, workers' compensation and medical and unemployment
insurance, that a temporary personnel provider can spread over a much larger
pool of employees.

In the past decade, the staffing industry has seen an evolution of services move
away from "temp help" or supplemental staffing to more permanent staffing
relationships. The industry has developed specialization among various sectors
and can be classified into four categories: integrated staffing service
providers, professional services providers, information technology providers and
commodity providers. Integrated staffing services provide a vendor-on-premise,
acting as the general contractor managing the workforce and maintaining the
payroll. Through this arrangement, providers are able to establish long-term
relationships with their customers, reduce cyclicality of employees, and
maintain relationships with customers that are less price sensitive. The
professional services provider supplies employees in the fields of engineering,
finance, legal, accounting and other professions. In general, these services are
less cyclical than the light industrial and clerical segments and carry higher
margins. Information technology companies offer technical employees to maintain
and implement all forms of information systems. The commodity segment of the
staffing industry is the traditional temporary employer business in which an
employee of the service is placed at the customer for a short period. It is
characterized by intense competition and low margins. This sector is most
exposed to economic cycles and price competition to win market share. Growth in
this segment has been constrained over the past three years due to a competitive
labor market for low-end workers.

We compete with other companies in the recruitment of qualified personnel, the
development of client relationships and the acquisition of other staffing and
professional service companies. A large percentage of temporary staffing and
consulting companies are local operators with fewer than five offices and have
developed strong local customer relationships within local markets. These
operators actively compete with us for business and, in most of these markets,
no single company has a dominant share of the market. We also compete with
larger, full-service and specialized competitors in national, regional and local
markets. The principal national competitors include AccuStaff, Inc., Manpower,
Inc., Kelly Services, Inc., The Olsten Corporation, Interim Services, Inc., and
Norrell Corporation, all of which may have greater marketing, financial and
other resources than Stratus. We believe that the primary competitive factors in
obtaining and retaining clients are the number and location of offices, an
understanding of clients' specific job requirements, the ability to provide
temporary personnel in a timely manner, the monitoring of the quality of job
performance and the price of services. The primary competitive factors in
obtaining qualified candidates for temporary employment assignments are wages,
responsiveness to work schedules and number of hours of work available. We
believe our long-term client relationships and strong emphasis on providing
service and value to our clients and temporary staffing employees makes us
highly competitive.

CUSTOMERS

During the year ended September 30, 2001 we provided services to 1,917 customers
in 27 states. Our five largest customers represented 28% of our revenue but no
one customer exceeded 10%. At January 24, 2002 we were providing services to 919
customers in 21 states, with the five largest customers representing 41% of our
revenues and no one customer exceeding 10%.

GOVERNMENTAL REGULATION

Staffing services firms are generally subject to one or more of the following
types of government regulation: (1) regulation of the employer/employee
relationship between a firm and its temporary employees; and (2) registration,
licensing, record keeping and reporting requirements. Staffing services firms
are the legal employers of their temporary workers. Therefore, laws regulating
the employer/employee relationship, such as tax withholding and reporting,
social security or retirement, anti-discrimination and workers' compensation,
govern these firms. State mandated workers' compensation and unemployment
insurance premiums have increased in recent years and have directly increased
our cost of services. In addition, the extent and type of health insurance
benefits that employers are required to provide employees have been the subject
of intense scrutiny and debate in recent years at both the national and state
level. Proposals have been made to


                                       8
<Page>

mandate that employers provide health insurance benefits to staffing employees,
and some states could impose sales tax, or raise sales tax rates on staffing
services. Further increases in such premiums or rates, or the introduction of
new regulatory provisions, could substantially raise the costs associated with
hiring and employing staffing employees.

Certain states have enacted laws that govern the activities of "Professional
Employer Organizations," which generally provide payroll administration, risk
management and benefits administration to client companies. These laws vary from
state to state and generally impose licensing or registration requirements for
Professional Employer Organizations and provide for monitoring of the fiscal
responsibility of these organizations. We believe that Stratus is not a
Professional Employer Organization and not subject to the laws that govern such
organizations; however, the definition of "Professional Employer Organization"
varies from state to state and in some states the term is broadly defined. If we
are determined to be a Professional Employer Organization, we can give no
assurance that we will be able to satisfy licensing requirements or other
applicable regulations. In addition, we can give no assurance that the states in
which we operate will not adopt licensing or other regulations affecting
companies that provide commercial and professional staffing services.

TRADEMARKS

We have filed for Federal Trademark registration of SMARTSolutions, SMARTReport,
SMARTTraining, our slogan, name and logo. No assurance can be given that this
registration will be obtained or if obtained, will be effective to prevent
others from using the mark concurrently or in certain locations. Currently, we
are asserting Common Law protection by holding the marks out to the public as
the property of Stratus. However, no assurance can be given that this Common Law
assertion will be effective to prevent others from using the mark concurrently
or in other locations. In the event someone asserts ownership to a mark, we may
incur legal costs to enforce any unauthorized use of the marks or defend
ourselves against any claims.

EMPLOYEES

As of September 30, 2001 we were employing 3,044 total employees. Of that amount
186 were classified as Staff employees and 2,858 were classified as field or
"temp" employees, those employees placed at client facilities. As of January 24,
2002 those numbers had increased to 3,894; 228 and 3,666, respectively.

A key factor contributing to future growth and profitability will be the ability
to recruit and retain qualified personnel. To attract personnel, we employ
recruiters, called "Staffing Specialists" who regularly visit schools, churches
and professional associations and present career development programs to various
organizations. In addition, applicants are obtained from referrals by existing
staffing employees and from advertising on radio, television, in the Yellow
Pages, newspapers and through the Internet. Each applicant for a Staffing
Services position is interviewed with emphasis on past work experience, personal
characteristics and individual skills. We maintain software-testing and training
programs at our offices for applicants and employees who may be trained and
tested at no cost to the applicant or customer. Engineering Services and
Management Personnel are targeted and recruited for specific engagements. We
usually advertise for professionals who possess specialized education, training
or work experience. Engineering Services recruiting efforts also rely upon
industry contacts, personal networks and referrals from existing and former
Engineering Services personnel.

To promote loyalty and improve retention among our employees and to
differentiate ourselves from competing staffing firms, we offer a comprehensive
benefits package after only ninety days of employment instead of the industry
standard of one hundred eighty days. The benefits package includes paid time
off, holiday and vacation time, medical coverage, dental, vision, prescription,
mental health, life insurance, disability coverage and a 401(k) defined
contribution plan. The average length of assignment for employees ranges from
six months to five years depending on the client requirements.

FACTORS AFFECTING FUTURE OPERATING RESULTS

This Form 10-K contains forward-looking statements concerning the Company's
future programs, products, expenses, revenue, liquidity and cash needs as well
as the Company's plans and strategies. These forward-looking statements are
based on current expectations and the Company assumes no obligation to update
this information. Numerous factors could cause actual results to differ
significantly from the results described in these forward-looking statements,
including the following risk factors.

     WE HAVE LIMITED LIQUID RESOURCES AND A HISTORY OF NET LOSSES. At September
     30, 2001, current liabilities were approximately $14.5 million and current
     assets were approximately $13.0 million. The difference of approximately
     $1.5 million is a working capital deficit which is primarily the result of
     the losses we had during the last three quarters. We have incurred net
     losses in recent periods, including net losses of $409,069 in our inception
     period from August 11, 1997 through September 30, 1997, $2,412,145 in the
     year ended September 30, 1998, $1,527,043 in


                                       9
<Page>

     the year ended September 30, 1999 and $5,910,457 in the year ended
     September 30, 2001. Although we had net earnings in the year ended
     September 30, 2000 of $1,045,910, we can provide no assurance that our
     operations will be profitable in the future. This situation has also made
     it difficult for us to make timely payments to our vendors and we can make
     no assurances that vendors and creditors will not exercise remedies against
     us. The working capital deficit will remain until additional capital is
     raised.

     POSSIBLE ADVERSE EFFECTS ON FLUCTUATIONS IN THE GENERAL ECONOMY. Demand for
     the Company's staffing services is significantly affected by the general
     level of economic activity and unemployment in the United States. Companies
     use temporary staffing services to manage personnel costs and staffing
     needs. When economic activity increases, temporary employees are often
     added before full-time employees are hired. However, as economic activity
     slows, many companies reduce their utilization of temporary employees
     before releasing full-time employees. In addition, the Company may
     experience less demand for its services and more competitive pricing
     pressure during periods of economic downturn. Therefore, any significant
     economic downturn could have a material adverse effect on the Company's
     business, results of operations, cash flows or financial condition.

     UNCERTAIN ABILITY TO CONTINUE AND MANAGE GROWTH. The Company's ability to
     continue growth will depend on a number of factors, including: (i) the
     strength of demand for temporary employees in the Company's markets; (ii)
     the availability of capital to fund acquisitions; (iii) the ability to
     maintain or increase profit margins despite pricing pressures; and (iv)
     existing and emerging competition. The Company must also adapt its
     infrastructure and systems to accommodate growth and recruit and train
     additional qualified personnel. Furthermore, the United States economy is
     currently showing signs of an economic slowdown. Should an extended
     economic slowdown or recession continue, competition for customers in the
     staffing industry would increase and may adversely impact management's
     allocation of the Company's resources and result in declining revenues.

     RELIANCE ON EXECUTIVE MANAGEMENT. The Company is highly dependent on its
     senior executives, including Joseph J. Raymond, its Chairman, CEO and
     President since September 1, 1997; Michael A. Maltzman, Executive Vice
     President and Chief Financial Officer who has been serving in that capacity
     since September 1, 1997; and on the other members of its senior management
     team. The Company entered into an employment agreement with Mr. Raymond
     effective September 1, 1997 for continuing employment until he chooses to
     retire or until his death and that agreement remains in effect as written.
     Employment arrangements with all of the Company's executive officers are
     at-will. The loss of the services of either Mr. Raymond or Mr. Maltzman and
     other senior executives or other key executive personnel could have a
     material adverse effect on the Company's business, results of operations,
     cash flows or financial condition.

     RELIANCE ON MANAGEMENT INFORMATION SYSTEMS. The Company believes its
     management information systems are instrumental to the success of its
     operations. The Company's business depends on its ability to store,
     retrieve, process and manage significant amounts of data. The Company
     continually evaluates the quality, functionality and performance of its
     systems in an effort to ensure that these systems meet the operational
     needs of the Company. The Company has, in the past, encountered delays in
     implementing, upgrading or enhancing systems and may, in the future,
     experience delays or increased costs. There can be no assurance that the
     Company will meet anticipated completion dates for system replacements,
     upgrades or enhancements, that such work will be competed in the
     cost-effective manner, or that such replacements, upgrades and enhancements
     will support the Company's future growth or provide significant gains in
     efficiency. The failure of the replacements, upgrades and enhancements to
     meet these expected goals could result in increased system costs and could
     have a material adverse effect on the Company's business, results of
     operations, cash flows or financial condition.

     VARIABILITY OF EMPLOYEE-RELATED COSTS. The Company is responsible for all
     employee-related expenses for the temporary employees, including workers'
     compensation, unemployment insurance, social security taxes, state and
     local taxes and other general payroll expenses. The Company maintains
     workers' compensation insurance for all claims in excess of a loss cap of
     $150,000 per incident, except with respect to locations in states where
     private insurance is to permitted and which are covered by state insurance
     funds. The Company accrues for workers' compensation costs based upon
     payroll dollars paid to temporary employees. The accrual rates vary based
     upon the specific risks associated with the work performed by the temporary
     employee. At the beginning of each policy year, the Company reviews the
     overall accrual rates with its outside actuaries and makes changes to the
     rates as necessary based primarily upon historical loss trends.
     Periodically, the Company evaluates its historical accruals based on an
     actuarially developed estimate of the ultimate cost for each open policy
     year and adjusts such accruals as necessary. These adjustments can either
     be increases or decreases to workers' compensation costs, depending upon
     the actual loss experience of the Company. There can be no assurance that
     the Company's programs to control workers' compensation and other
     payroll-related expenses will be effective or that loss development trends
     will not require a charge to costs of services in future periods to
     increase workers' compensation accruals. Unemployment insurance


                                       10
<Page>

     premiums are set by the states in which the Company's employees render
     their services. A significant increase in these premiums or in workers'
     compensation-related costs could have a material adverse effect on the
     Company's business, results of operations, cash flows or financial
     condition.

     RISKS RELATED TO CUSTOMERS. As is common in the temporary staffing
     industry, the Company's engagements to provide services to its customers
     are generally of a non-exclusive, short-term nature and subject to
     termination by the customer with little or no notice. During fiscal 2000
     and 2001 no single customer of the Company accounted for more than 12% and
     10%, respectively, of the Company's sales of services. Nonetheless, the
     loss of any of the Company's significant customers could have an adverse
     effect on the Company's business, results of operations, cash flows or
     financial condition. The Company is also subject to credit risks associated
     with its trade receivables. During fiscal 2000 and fiscal 2001, the Company
     incurred costs of $122,500 and $661,000, respectively, for bad debts.
     Should any of the Company's principal customers default on their large
     receivables, the Company's business results of operations, cash flows or
     financial condition could be adversely affected.

     VARIABILITY OF OPERATING RESULTS; SEASONALITY. The Company has experienced
     significant fluctuations in its operating results and anticipates that
     these fluctuations may continue. Operating results may fluctuate due to a
     number of factors, including the demand for the Company's services, the
     level of competition within its markets, the Company's ability to increase
     the productivity of its existing offices, control costs and expand
     operations, the timing and integration of acquisitions and the availability
     of qualified temporary personnel. In addition, the Company's results of
     operations could be, and have in the past been, adversely affected by
     severe weather conditions. Moreover, the Company's results of operations
     have also historically been subject to seasonal fluctuations. Demand for
     temporary staffing historically has been greatest during the Company's
     fourth fiscal quarter due largely to the planning cycles of many of its
     customers. Furthermore, sales for the first fiscal quarter are typically
     lower due to national holidays as well as plant shutdowns during and after
     holiday season. These shutdowns and post-holiday season declines negatively
     impact job orders received by the Company, particularly in the light
     industrial sector. Due to the foregoing factors, the Company has
     experienced in the past, and may possibly experience in the future, results
     of operations below the expectations of public market analysts and
     investors. The occurrence of such an event could likely have a material
     adverse effect on the price of the common stock.

     ABILITY TO ATTRACT AND RETAIN THE SERVICES OF QUALIFIED TEMPORARY
     PERSONNEL. The Company depends upon its ability to attract and retain
     qualified personnel who possess the skills and experience necessary to meet
     the staffing requirements of its customers. During periods of increased
     economic activity and low unemployment, the competition among temporary
     staffing firms for qualified personnel increases. Many regions in which the
     Company operates have in the past and may continue to experience
     historically low rates of unemployment and the Company has experienced, and
     may continue experience, significant difficulties in hiring and retaining
     sufficient numbers of qualified personnel to satisfy the needs of its
     customers. Furthermore, the Company may face increased competitive pricing
     pressures during such periods. While the current economic environment is
     facing uncertainties, competition for individuals with the requisite skills
     is expected to remain strong for the foreseeable future. There can be no
     assurance that qualified personnel will continue to be available to the
     Company in sufficient numbers and on terms of employment acceptable to the
     Company. The Company must continually evaluate and upgrade its base of
     available qualified personnel to keep pace with changing customer needs and
     emerging technologies. Furthermore, a substantial number of the Company's
     temporary employees during any given year will terminate their employment
     with the Company to accept regular staff employment with customers of the
     Company. The inability to attract and retain qualified personnel could have
     a material adverse effect on the Company's business, results of operations,
     cash flows or financial condition.

     RELIANCE ON FIELD MANAGEMENT. The Company is dependent on the performance
     and productivity of its local managers, particularly branch, and regional
     managers. This loss of some of the Company's key managers could have an
     adverse effect on the Company's operations, including the Company's ability
     to establish and maintain customer relationships. The Company's ability to
     attract and retain business is significantly affected by local
     relationships and the quality of services rendered by branch, area,
     regional and zone managerial personnel. If the Company is unable to attract
     and retain key employees to perform these services, the Company's business,
     results of operations, cash flows or financial condition could be adversely
     affected. Furthermore, the Company may be dependent on the senior
     management of companies that may be acquired in the future. If any of these
     individuals do to continue in their management roles, there could be
     material adverse effect on the Company's business, results of operations,
     cash flows or financial condition.

     EMPLOYER LIABILITY RISKS. Providers of temporary staffing services place
     people in the workplaces of other businesses. An inherent risk of such
     activity includes possible claims of errors and omissions, discrimination
     or harassment, theft of customer property, misappropriation of funds,
     misuse of customers' proprietary information,


                                       11
<Page>

     employment of undocumented workers, other criminal activity or torts,
     claims under health and safety regulations and other claims. There can be
     no assurance that the Company will not be subject to these types of claims,
     which may result in negative publicity and the payment by the Company of
     monetary damages or fines which, if substantial, could have a material
     adverse effect on the Company's business, results of operations, cash flows
     or financial condition.

     RISK OF NASDAQ DELISTING. There are several requirements for continued
     listing on the Nasdaq SmallCap Market ("Nasdaq") including, but not limited
     to, a minimum stock bid price of one dollar per share and $2.5 million in
     stockholder's equity. As of September 30, 2001 our stockholder's equity was
     below the Nasdaq requirement and, although management is actively seeking
     to remedy the problem, the Company can make no assurance that it will be
     resolved in a timely fashion or at all. Furthermore, if the Company's
     common stock price closes below one dollar per share for 30 consecutive
     days, the Company may receive notification from Nasdaq that its common
     stock will be delisted from the Nasdaq unless the stock closes at or above
     one dollar per share for at least ten consecutive days during the 90-day
     period following such notification. If the Company fails to comply with the
     listing requirements, the result will be that its common stock might be
     delisted. If its common stock is delisted, the Company may list its common
     stock for trading over-the-counter. Delisting from the Nasdaq could
     adversely affect the liquidity and price of the Company's common stock and
     it could have a long-term impact on the Company's ability to raise future
     capital through a sale of its common stock. In addition, it could make it
     more difficult for investors to obtain quotations or trade this stock.

     On January 17, 2002 the Company received a Nasdq Staff Determination,
     due to its failure to file its Form 10-K for the fiscal period ended
     September 30, 2001, indicating the Company's noncompliance with the
     requirement for continued listing set forth in Nasdaq's Marketplace Rule
     4310(c)(14), and that its securities are, therefore subject to
     delisting. On January 24, 2002, the Company submitted a request for a
     hearing to review the Staff Determination, staying the delisting. There
     is no assurance the Panel will grant Stratus' request for continued
     listing.

     RISKS RELATED TO ACQUISITIONS. While the Company intends to pursue
     acquisitions in the future, there can be no assurance that the Company will
     be able to expand its current market presence or successfully enter other
     markets through acquisitions. Competition for acquisitions may increase to
     the extent other temporary services firms, many of which have significantly
     greater financial resources than the Company, seek to increase their market
     share through acquisitions. In addition, the Company is subject to certain
     limitations on the incurrence of additional indebtedness under its credit
     facilities, which may restrict the Company's ability to finance
     acquisitions. Further, there can be no assurance that the Company will be
     able to identify suitable acquisition candidates or, if identified,
     complete such acquisitions or successfully integrate such acquired
     businesses into its operations. Acquisitions also involve special risks,
     including risks associated with unanticipated problems, liabilities and
     contingencies, diversion of management's attention and possible adverse
     effects on earnings resulting from increased goodwill amortization,
     interest costs and workers' compensation costs, as well as difficulties
     related to the integration of the acquired businesses, such as retention of
     management. Furthermore, once integrated, acquisitions may not achieve
     comparable levels of revenue or profitability as the Company's existing
     locations. In addition, to the extent that the Company consummates
     acquisitions in which a portion of the consideration is in the form of
     common stock, current shareholders may experience dilution. The failure to
     identify suitable acquisitions, to complete such acquisitions or
     successfully integrate such acquired businesses into its operations could
     have a material adverse effect on the Company's business, results of
     operations, cash flows or financial condition.

     RISK RELATED TO CONVERTIBLE SECURITIES. In December 2000, we raised
     $1,987,400 by issuing 6% debentures, which are convertible into shares
     of our common stock. In July 2001, we issued 1,458,933 shares of Series
     A preferred stock which are convertible into 1,458,933 shares of common
     stock. If all of the debentureholders convert their debentures into
     shares of common stock, we will be required to issue no less than
     427,398 shares of common stock and, if all the Series A preferred
     stockholders elect to convert into common stock, we will be required to
     issue no less than 1,458,933 shares of common stock. If the trading
     price of the common stock is low when the conversion price of the 6%
     debentures is determined, we would be required to issue a higher number
     of shares of common stock, which could cause a further reduction in each
     of our stockholder's percentage ownership interest. In addition, if a
     selling shareholder converts our 6% debentures or Series A preferred
     stock and sells the common stock, this could result in an imbalance of
     supply and demand for our common stock and a decrease in the market
     price of our common stock. The further our stock price declines, the
     further the conversion price of the 6% debentures will fall and the
     greater the number of shares we will have to issue upon conversion.

ITEM 2.  PROPERTIES

We own no real property. We lease approximately 6,300 square feet in a
professional office building in Manalapan, New Jersey as our corporate
headquarters. That facility houses all of our centralized corporate functions,
including the Executive management team, payroll processing, accounting, human
resources and legal departments. Our lease expires on September 30, 2002 and we
have begun discussions with realtors regarding locating sufficient space. As of
September 30, 2001 we leased 35 additional facilities, primarily flexible
staffing offices, in 10 states. With the exception of the corporate
headquarters, we believe that our facilities are generally adequate for our
needs and we do not anticipate any difficulty in replacing such facilities or
locating additional facilities, if needed.



                                       12
<Page>

ITEM 3.  LEGAL PROCEEDINGS

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

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.






                                       13
<Page>




                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

On April 11, 2000 our registration statement on Form SB-2 (Commission File No.
333-83255) for our initial public offering (the "IPO") of common stock, $.01 par
value, became effective and our shares commenced trading on the Nasdaq SmallCap
Market under the symbol "SERV" on April 26, 2000. There were approximately 197
holders of record of Common Stock as of January 24, 2002. This number does not
include the number of shareholders whose shares were held in "nominee" or
"street name", which we cannot determine until after we have held our annual
meeting. The table below sets forth, for the periods indicated, the high and low
sales prices of our Common Stock as reported by the Nasdaq Stock Market.

<Table>
<Caption>
                                                                         SALES PRICES
                                                                         ------------
        FISCAL YEAR 2000                                             HIGH             LOW
        ----------------                                             ----             ---
<S>                                                                  <C>            <C>
        Quarter Ended June 30, 2000 (from April 26, 2000)            9.00           $5.875
        Quarter Ended September 30, 2000                             7.00            4.25

        FISCAL YEAR 2001                                             HIGH             LOW
        ----------------                                             ----             ---
        Quarter Ended December 31, 2000                              6.75            3.625
        Quarter Ended March 31, 2001                                 4.875           1.3125
        Quarter Ended June 30, 2001                                  2.05            1.16
        Quarter Ended September 30, 2001                             1.90            1.00
</Table>

On January 24, 2002, the closing price of our Common Stock as reported by the
Nasdaq Stock Market, was $0.90 per share. We have never paid dividends on our
Common Stock and we intend to retain earnings, if any, to finance future
operations and expansion. In addition, our credit agreement restricts the
payment of dividends. Therefore, we do not anticipate paying any cash dividends
in the foreseeable future. Any future payment of dividends will depend upon the
financial condition, capital requirements and our earnings as well as other
factors that the Board of Directors deems relevant.

On August 7, 2001, we issued 400,000 shares of our common stock to Source One
Personnel, Inc. ("Source One") in connection with our acquisition of
substantially all of the assets, excluding accounts receivable, of Source One.
The issuance of the shares was made in reliance upon the exemption provided by
Section 4(2) of the Securities Act of 1933 as a transaction not involving a
public offering.

Between September 21, 2001 and October 8, 2001 we sold a total of 383,000
shares of our common stock for an aggregate of $410,000 to Charles A.
Sahyoun, Jeffrey J. Raymond, Jr., Nicole Raymond, Jake Raymond and Jamie
Raymond. The issuance of the shares was made in reliance upon the exemption
provided by Section 4(2) of Securities Act of 1933 as a transaction not
involving a public offering.

Between November 28, 2001 and December 20, 2001 we issued 266,670 shares of
our common stock to private investors in our private placement initiated in
June 2001. The issuance of the shares was made in reliance upon the exemption
provided by Section 4(2) of Securities Act of 1933 as a transaction not
involving a public offering.

On December 28, 2001, we issued 400,000 shares of our common stock to
Provisional Employment Solutions, Inc. ("PES") in connection with our
acquisition of substantially all of the assets, excluding accounts receivable,
of PES. The issuance of the shares was made in reliance upon the exemption
provided by Section 4(2) of the Securities Act of 1933 as a transaction not
involving a public offering.

During the period between December 2000 and September 30, 2001, we sold
$3,643,402 of 6% Convertible Debentures (the "Debentures") in private
offerings to accredited investors conducted under Rule 506 of Regulation D.
The Debentures mature in five years from issuance and into a number of shares
of Common Stock which is determined by dividing the principal amount by the
lesser of (a) 120% of the closing bid price of Common Stock on the trading
day immediately preceding the initial issue date of the Debentures or (b) 75%
of the average closing bid price of the Common Stock for the five trading
days immediately preceding the conversion. Interest on the Debentures is
payable, at the option of the Company, in Common Stock. A five-year warrant
to acquire 25,000 shares of Common Stock at an exercise price of $7.50 per
share was issued to one of the investors in the offerings.

                                       14
<Page>




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

<Table>
<Caption>
                                                                                                    August 11, 1997
                                                                Year Ended September 30,              (inception)
                                                                ------------------------                  to
                                                         2001       2000       1999        1998    September 30, 1997
                                                         ----       ----       ----        ----    ------------------
<S>                                   <C>                <C>         <C>        <C>         <C>            <C>
Operating results:
Revenues                                                 $ 64,272    $ 41,677   $ 30,043    $ 24,920       $  2,442
Earnings (loss) from operations                            (3,182)      1,579       (518)     (1,873)          (355)
Net earnings (loss)                                        (5,847)      1,046     (1,527)     (2,412)          (409)
Net earnings (loss) attributable
     to common stockholders                                (5,910)      1,046     (1,527)     (2,412)          (409)

Per share data:
Net earnings (loss) attributable to
     common stockholders - basic                         $   (.99)   $    .21   $   (.40)   $   (.67)      $   (.20)
Net earnings (loss)  attributable to
      common stockholders - diluted                          (.99)        .20       (.40)       (.67)          (.20)
Cash dividends declared                                        --          --         --          --             --

                                      Pro Forma (1)                      September 30,
                                      September 30,                 ------------------------
                                          2001              2001       2000       1999        1998           1997
                                          ----              ----       ----       ----        ----    ------------------
<S>                                   <C>                <C>         <C>        <C>         <C>            <C>
Balance sheet data:
Net working capital (deficiency)      $        200       $ (1,546)   $  2,086   $ (3,777)   $ (1,985)      $   (204)
Long-term obligations, including
     current portion                         3,153          3,153         462      1,370          --            365
Convertible debt                             1,125          1,125          --         --          --             --
Preferred stock                              2,792          2,792          --         --          --             --
Temporary equity                               869            869          --      2,138       1,618            343
Stockholders' equity (deficiency)            3,079          1,283       6,799     (3,012)     (3,356)          (500)
Total assets                                24,065         22,268      10,318      4,926       1,095          1,310
</Table>

(1) Pro forma adjustment reflects the sale of the assets of the Engineering
Division for net proceeds of $1,496,000 at closing plus additional proceeds
to be received of $250,000 on June 30, 2002 and $250,000 on December 31, 2002.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.

INTRODUCTION

We provide a wide range of staffing, engineering and productivity consulting
services nationally through a network of offices located throughout the United
States. We recognize revenues based on hours worked by assigned personnel.
Generally, we bill our customers a pre-negotiated fixed rate per hour for the
hours worked by our temporary employees. We are responsible for workers'
compensation, unemployment compensation insurance, Medicare and Social Security
taxes and other general payroll related expenses for all of the temporary
employees we place. These expenses are included in the cost of revenue. Because
we pay our temporary employees only for the hours they actually work, wages for
our temporary personnel are a variable cost that increases or decreases in
proportion to revenues. Gross profit margin varies depending on the type of
services offered. Our Engineering Services division typically generates higher
margins while the Staffing Services division typically generates lower margins.
In some instances, temporary employees placed by us may decide to accept an
offer of permanent employment from the customer and thereby "convert" the
temporary position to a permanent position. Fees received from such conversions
are included in our revenues. Selling, general and administrative expenses
include payroll for management and administrative employees, office occupancy
costs, sales and marketing expenses and other general and administrative costs.

RESULTS OF OPERATIONS

YEAR ENDED SEPTEMBER 30, 2001 COMPARED TO YEAR ENDED SEPTEMBER 30, 2000

REVENUES. Revenues increased 54.2% to $64,271,705 for the year ended September
30, 2001 from $41,676,587 for the year ended September 30, 2000. Revenues
increased primarily as a result of acquisitions.

GROSS PROFIT. Gross profit increased 26.3% to $13,250,092 for the year ended
September 30, 2001 from $10,493,909 for the year ended September 30, 2000
primarily as a result of increased revenues attributable to acquisitions. Gross
profit as a


                                       15
<Page>

percentage of revenues decreased to 20.6% for the year ended September 30, 2001
from 25.2% for the year ended September 30, 2000. This decrease was due to lower
gross profit percentages realized by the acquired businesses as compared to our
historical gross profit percentages.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses not including depreciation and amortization increased
69.0% to $14,442,893 for the year ended September 30, 2001 from $8,547,788 for
the year ended September 30, 2000. Selling, general and administrative expenses
as a percentage of revenues increased to 22.5% for the year ended September 30,
2001 from 20.5% for the year ended September 30, 2000. The increases are
primarily attributable to costs associated with the integration of the
acquisitions, an increase in credit losses and additional management and other
costs in anticipation of future growth and acquisitions.

LOSS ON IMPAIRMENT OF GOODWILL. We periodically determine if there has been a
permanent impairment of goodwill. In this connection, we recorded an impairment
loss of $700,000 in the year ended September 30, 2001.

OTHER CHARGES. During the year ended September 30, 2001, we wrote off costs
associated with discontinued negotiations to sell the Engineering Division and
discontinued efforts to make certain acquisitions. We also wrote off costs we
incurred in connection with various financing not obtained and costs associated
with closed offices. The total of all these costs was $519,801.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses increased
109.5% to $768,994 for the year ended September 30, 2001 from $367,129 for the
year ended September 30, 2000. Depreciation and amortization expenses as a
percentage of revenues increased to 1.2% for the year ended September 30, 2001
from 0.9% for the year ended September 30, 2000. These increases were primarily
due to the amortization of goodwill associated with acquisitions and the impact
of increased capital expenditures.

FINANCE CHARGES. Finance charges were the amounts charged under an agreement
with a factor, which was terminated on December 12, 2000. Finance charges
decreased 83.7% to $100,934 for the year ended September 30, 2001 from $618,134
for the year ended September 30, 2000. As a percentage of revenues, finance
charges decreased to 0.2% for the year ended September 30, 2001, from 1.5% for
the year ended September 30, 2000. This decrease was due to the agreement being
terminated December 12, 2000.

INTEREST AND FINANCING COSTS. Interest and financing costs increased to
$2,176,964 for the year ended September 30, 2001 from $300,892 for the year
ended September 30, 2000. Included in the amount for the year ended September
30, 2001 is $1,213,747, which is the portion of the discount on the beneficial
conversion feature of convertible debt issued during the year and $135,374 of
costs we incurred in connection with the issuance of the convertible debt.
Interest and financing costs, not including these debt costs, as a percentage of
revenue increased to 3.4% for the year ended September 30, 2001 from 0.7% for
the year ended September 30, 2000. The increase was primarily attributable to
the line of credit agreement which replaced the agreement with the factor (see
"Finance Changes" above) on December 12, 2000.

INCOME TAX (BENEFIT). Income tax benefit of $340,000 for the year ended
September 30, 2000 is the result of the utilization of a portion of the net
operating loss carryforwards. Income tax expense for the year ended September
30, 2001 is the result of a change in judgment about the realizability of
deferred tax assets.

NET EARNINGS (LOSS) AND NET EARNINGS (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS.
As a result of the foregoing, we had a net loss and net loss attributable to
common stockholders of ($5,847,457) and ($5,910,457), respectively, for the year
ended September 30, 2001 compared to net earnings and net earnings attributable
to common stockholders of $1,045,910 for the year ended September 30, 2000. The
net loss as a percentage of revenues was (9.1%) for the year ended September 30,
2001. The net earnings for the year ended September 30, 2000 as a percentage of
revenues was 2.5%.

YEAR ENDED SEPTEMBER 30, 2000 COMPARED TO YEAR ENDED SEPTEMBER 30, 1999

REVENUES. Revenues increased 38.7% to $41,676,587 for the year ended September
30, 2000 from $30,042,751 for the year ended September 30, 1999. A significant
portion of the increase was attributable to the growth of our SMARTSolutions(TM)
division where revenues increased 108.1% to $14,443,057 for the year ended
September 30, 2000 from $6,938,887 for the year ended September 30, 1999.

GROSS PROFIT. Gross profit increased 55.8% to $10,493,909 for the year ended
September 30, 2000 from $6,736,497 for the year ended September 30, 1999. Gross
profit as a percentage of revenues increased to 25.2% for the year ended
September 30, 2000 from 22.4% for the year ended September 30, 1999. This
increase was due to continuing our plan to seek higher gross margin business and
the higher margins generated by our SMARTSolutions(TM) and Engineering
divisions.



                                       16
<Page>

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses not including depreciation and amortization increased
21.1% to $8,547,788 for the year ended September 30, 2000 from $7,057,631 for
the year ended September 30, 1999. Selling, general and administrative expenses
as a percentage of revenues decreased to 20.5% for the year ended September 30,
2000 from 23.5% for the year ended September 30, 1999. The increased dollar
amount is due to the increase in costs, primarily for personnel, to support the
increase in revenues.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses increased
86.5% to $367,129 for the year ended September 30, 2000 from $196,818 for the
year ended September 30, 1999. Depreciation and amortization expenses as a
percentage of revenues increased to 0.9% for the year ended September 30, 2000
from 0.7% for the year ended September 30, 1999. This increase was primarily due
to the amortization of goodwill associated with the acquisition in June 2000 and
the impact of increased capital expenditures.

FINANCE CHARGES. Finance charges decreased 14.4% to $618,134 for the year ended
September 30, 2000 from $722,020 for the year ended September 30, 1999. As a
percentage of revenues, finance charges decreased to 1.5% for the year ended
September 30, 2000 from 2.4% for the year ended September 30, 1999. This
decrease was due to improved collections, which reduced the average days
outstanding of the accounts receivable sold.

INCOME TAX BENEFIT. Income tax benefit of $340,000 for the year ended September
30, 2000 is the result of the utilization of a portion of the net operating loss
carryforwards. As a percentage of revenue, income tax benefit was 0.8%.

NET EARNINGS (LOSS) AND NET EARNINGS (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS.
As a result of the foregoing, we had net earnings and net earnings attributable
to common stockholders of $1,045,910 for the year ended September 30, 2000
compared to a net loss and net loss attributable to common stockholders of
($1,527,043) for the year ended September 30, 1999. The net earnings as a
percentage of revenues was 2.5% for the year ended September 30, 2000. The net
loss for the year ended September 30, 1999 as a percentage of revenues was
(5.1%).

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2001, we had limited liquid resources. Current liabilities were
approximately $14.5 million and current assets were approximately $13.0 million.
The difference of approximately $1.5 million is a working capital deficit which
is primarily the result of the losses we had during the last three quarters.
This situation has also made it difficult for us to make timely payments to our
vendors.

On January 24, 2002 we entered into an agreement to sell the assets of our
Engineering Division. Approximately, $1,796,000 of working capital will be
received by us and be available to eliminate our working capital deficit.

We believe that our liquidity position is currently manageable, but the working
capital deficit will remain until additional capital is raised.

Net cash used in operating activities was $2,405,464 and $1,624,452 in the years
ended September 30, 2001 and 2000, respectively. The change in operating cash
flow was primarily a result of a net increase of $3,159,746 in net (loss)
adjusted by non-cash items, including depreciation, amortization and imputed
interest. This change was substantially offset by the increase in accounts
payable and accrued expenses which was attributable to insufficient cash to
reduce these balances. Approximately $1,200,000 of the net proceeds from the
initial public offering (IPO) in April 2000 was used to reduce trade and other
payables in the year ended September 30, 2000.

Net cash used in investing activities was $2,032,021 and $1,955,343 in the years
ended September 30, 2001 and 2000, respectively. Cash used for acquisitions was
$1,218,674 and $1,053,868 in the years ended September 30, 2001 and 2000,
respectively. The balance in both periods was primarily for capital
expenditures.

Net cash provided by financing activities was $3,578,585 and $4,187,445 in the
years ended September 30, 2001 and 2000, respectively. We had net borrowings of
$2,065,156 under the line of credit obtained on December 12, 2000. We also
received net proceeds less redemptions of $441,356 from the issuance of
convertible debt and $1,412,772 from the sale of our common stock in the year
ended September 30, 2001. We used $265,125 to purchase treasury stock and
$320,394 to reduce our notes payable acquisitions in the year ended September
30, 2001. Net proceeds of the IPO in the year ended September 30, 2000 were
$6,034,169, of which $1,125,000 was used to repay notes and loans payable and
$350,000 was used to purchase treasury stock.

Our principal uses of cash are to fund temporary employee payroll expense and
employer related payroll taxes; investment in capital equipment; start-up
expenses of new offices; expansion of services offered; and costs relating to
other transactions such as acquisitions. Temporary employees are paid weekly.



                                       17
<Page>

During the year ended September 30, 2001, we sold $3,643,402 of 6% convertible
debentures in private offerings. The debentures mature five years from issuance
and are convertible commencing 120 days from issuance into a number of shares,
which is determined by dividing the principal amount by the lesser of (a) $4.65
or (b) 75% of the average closing bid price of the common stock for the five
trading days immediately preceding the conversion. We recorded interest expenses
of approximately $1.2 million for the beneficial conversion feature of the
convertible debt in the year ended September 30, 2001. As of September 30, 2001,
$1,125,399 of the 6% convertible debentures were outstanding.

On December 12, 2000, we entered into a loan and security agreement with a
lending institution which replaced our prior factoring arrangement and provides
for a line of credit up to 90% of eligible accounts receivable, as defined, not
to exceed $12,000,000. Advances under the credit agreement bear interest at a
rate of prime plus one and one-half percent (1 1/2 %). The credit agreement
restricts our ability to incur other indebtedness, pay dividends and repurchase
stock. Borrowings under the agreement are collateralized by substantially all of
our assets. As of September 30, 2001, $7,306,581 was outstanding under the
credit agreement. The agreement expires June 12, 2002.

Because we have a working capital deficit, we need to raise additional capital
to continue our operations. We are currently seeking sources of capital to
eliminate the working capital deficit. There can be no assurance that we will be
able to obtain additional capital at acceptable rates. If we cannot raise
additional capital, we will seek other alternatives such as the sale of assets.

SEASONALITY

Our business follows the seasonal trends of our customers business.
Historically, Staffing Services has experienced lower revenues in the first
calendar quarter with revenues accelerating during the second and third calendar
quarters and then staring to slow again during the fourth calendar quarter.

SMARTSolutions(TM) and Engineering Services do not experience the same level of
seasonality associated with Staffing Services.

IMPACT OF INFLATION

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

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) No. 141, "Business Combinations". SFAS
No. 141 establishes new standards for accounting and reporting requirements for
business combinations and requires that the purchase method of accounting be
used for all business combinations initiated after June 30, 2001. SFAS No. 141
also requires that acquired intangible assets be recognized as assets apart from
goodwill if they meet one of the two specified criteria. Additionally, the
statement adds certain disclosure requirements to those required by APB 16,
including disclosure of the primary reasons for the business combination and the
allocation of the purchase price paid to the assets acquired and liabilities
assumed by major balance sheet caption. This statement is required to be applied
to all business combinations initiated after June 30, 2001 and to all business
combinations accounted for using the purchase method for which the date of
acquisition is July 1, 2001 or later. Use of the pooling-of-interests method is
prohibited. The adoption of SFAS No. 141 did not have an impact on our financial
condition or results of operations.

In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 142, which must be applied to fiscal years beginning after
December 15, 2001, modifies the accounting and reporting of goodwill and
intangible assets. The pronouncement requires entities to discontinue the
amortization of goodwill, reallocate all existing goodwill among its reporting
segments based on criteria set by SFAS No. 142 and perform initial impairment
tests by applying a fair-value-based analysis on the goodwill in each reporting
segment. Any impairment at the initial adoption date shall be recognized as the
effect of a change in accounting principle. Subsequent to the initial adoption,
goodwill shall be tested for impairment annually or more frequently if
circumstances indicate a possible impairment.

Under SFAS No. 142, entities are required to determine the useful life of other
intangible assets and amortize the value over the useful life. If the useful
life is determined to be indefinite, no amortization will be recorded. For
intangible assets recognized prior to the adoption of SFAS No. 142, the useful
life should be reassessed. Other intangible assets are required to be tested for
impairment in a manner similar to goodwill. At September 30, 2001, the Company's
goodwill was approximately $7,815,000, and annual amortization of such goodwill
was approximately $341,000. The Company expects to adopt SFAS No. 142 during its
first fiscal quarter of fiscal 2003. Because of the extensive effort required to
comply with


                                       18
<Page>

the remaining provisions of SFAS Nos. 141 and 142, we cannot reasonably estimate
the impact on its financial statements of these provisions beyond discontinuing
amortization.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

We are subject to the risk of fluctuating interest rates in the ordinary course
of business for borrowings under our Loan and Security Agreement with Capital
Tempfunds, Inc. This credit agreement provides for a line of credit up to 90% of
eligible accounts receivable, not to exceed $12,000,000. Advances under this
credit agreement bear interest at a rate of prime plus one and one-half percent
(1-1/2%).

We are also exposed to equity price risk on our investment in
enterpriseAsia.com, a publicly-traded foreign company. We do not attempt to
reduce or eliminate our market exposure on this investment.

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

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The response to this item is submitted in a separate section of this report
commencing on Page F-1.

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

No change in accountants or disagreement requiring disclosure pursuant to
applicable regulations took place within the reporting period or in any
subsequent interim period.



                                       19
<Page>


                                    PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTIONS 16(C) OF THE EXCHANGE ACT.

THE BOARD OF DIRECTORS AND OFFICERS

The name and age of each the directors and the executive officers of the Company
and their respective positions with the Company are set forth below. Additional
biographical information concerning each of the nominees and the executive
officers follows the table.

<Table>
<Caption>
                      Name           Age                            Position
                      ----           ---                            --------
<S>                                   <C>    <C>
Joseph J. Raymond                     66     Chairman of the Board, President and Chief Executive
                                               Officer
Michael J. Rutkin                     50     Director
Harry Robert Kingston                 77     Director
Donald W. Feidt                       70     Director
Sanford I. Feld                       71     Director
Charles A. Sahyoun                    50     President, Engineering Division
Michael A. Maltzman                   54     Chief Financial Officer and Treasurer
J. Todd Raymond                       33     General Counsel and Corporate Secretary
</Table>

Set forth below is certain biographical information with respect to the nominees
for election to the Board of Directors.

JOSEPH J. RAYMOND has served as Chairman of the Board and Chief Executive
Officer of Stratus since its inception in 1997. Prior thereto, he served as
Chairman of the Board, President and Chief Executive Officer of Transworld Home
Healthcare, Inc. (NASDAQ:TWHH), a provider of healthcare services and products,
from 1992 to 1996. From 1987 through 1997, he served as Chairman of the Board
and President of Transworld Nurses, Inc., a provider of nursing and
paraprofessional services, which was acquired by Transworld Home Healthcare,
Inc. in 1992.

MICHAEL J. RUTKIN has served as a Director of Stratus since November 1997 and
was Chief Operating Officer and President from March 1997 to October 1998. Since
November 1998, Mr. Rutkin has served as General Manager/Chief Executive Officer
of Battleground Country Club. From 1996 to 1998, Mr. Rutkin served as Vice
President of Transworld Management Services, Inc. From February 1993 to October
1996, he served as Chief Operating Officer of HealthCare Imaging Services, Inc.
Prior thereto, Mr. Rutkin was the Executive Vice President of Advanced
Diagnostic Imaging from February 1987 to February 1993. From March 1981 to
September 1984, he served as Director of New Business Development for the United
States Pharmaceutical Division of CIBA-Geigy. Mr. Rutkin is the brother-in-law
of Joseph J. Raymond.

HARRY ROBERT KINGSTON has served as a Director of Stratus since November 1997.
From 1977 until his retirement in 1989, he served as the President and Chief
Executive Officer of MainStream Engineering Company, Inc., an engineering
staffing firm located in California . From 1965 to 1968, he served as President
and Partner of VIP Engineering Company, a subsidiary of CDI Corporation, a
staffing and engineering services business. From 1968 to 1977, Mr. Kingston
served as Vice President for CDI Corporation.

DONALD W. FEIDT has served as a Director of Stratus since November 1997. From
1987 to December 1998, Mr. Feidt was a Managing Partner of Resource Management
Associates, an information technology consulting company. Since December 1998,
Mr. Feidt has served as a Vice President to the Chief Executive Officer of Skila
Inc., a global web-based business intelligence platform company providing
services to the medical industry.

SANFORD I. FELD has served as a Director of the Company since November 1997. Mr.
Feld is currently president of Leafland Associates, Inc., an advisor to Feld
Investment and Realty Management, a real estate development and management
company. He also serves as Chairman of Flavor and Food Ingredients, a private
savory and flavor company. From 1973 to 1979, he served as Director of the
Chelsea National Bank of New York City.

CHARLES A. SAHYOUN has served as President of Stratus' Engineering Services
Division since December 1997. From September 1988 to December 1997, he was
employed in various capacities with Day & Zimmerman Utilities Services Group,
Inc., an engineering and design services company, including Vice President of
Business Development. Mr. Sahyoun is a cousin of Joseph J. Raymond.



                                       20
<Page>

MICHAEL A. MALTZMAN has served as Treasurer and Chief Financial Officer of
Stratus since September 1997 when it acquired the assets of Royalpar Industries,
Inc. Mr. Maltzman served as a Chief Financial Officer of Royalpar, which filed
for protection under United States Bankruptcy Code in 1997, from April 1994 to
August 1997. From June 1988 to July 1993, he served as Vice President and Chief
Financial Officer of Pomerantz Staffing Services, Inc., a national staffing
company. Prior thereto, he was a Partner with Eisner & Lubin, a New York
accounting firm. Mr. Maltzman is a Certified Public Accountant.

J. TODD RAYMOND has served as General Counsel and Secretary of the Company since
September 1997. From December 1994 to January 1996, Mr. Raymond was an associate
and managing attorney for Pascarella & Oxley, a New Jersey general practice law
firm. Prior thereto, Mr. Raymond acted as in-house counsel for Raymond & Perri,
an accounting firm. From September 1993 to September 1994, Mr. Raymond was an
American Trade Policy Consultant for Sekhar-Tunku Imran Holdings Sdn Berhad, a
Malaysian multi-national firm. He is the nephew of Joseph J. Raymond.

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

Section 16(a) of the Exchange Act requires the Company's executive officers and
directors, and persons who own more than ten percent of a registered class of
the Company's equity securities, to file reports of ownership and changes in
ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission (the
"SEC"). Officers, directors and greater than ten percent stockholders are
required by SEC regulation to furnish the Company with copies of all Forms 3, 4
and 5 they file.

Based solely on the Company's review of the copies of such forms it has
received, the Company believes that all of its executive officers, directors and
greater than ten percent stockholders complied with all filing requirements
applicable to them with respect to events or transactions during fiscal 2001,
except that each of Joseph J. Raymond, Charles Sahyoun, Michael A. Maltzman, J.
Todd Raymond, Sanford I. Feld and Donald W. Feidt are late in filing the Forms
5 which were due for filing in November 2001.

ITEM 11. EXECUTIVE COMPENSATION.

The following table provides certain summary information regarding compensation
paid by the Company during the fiscal years ended September 30, 1999, 2000 and
2001 to the Chief Executive Officer of the Company and to each of the Company's
other two most highly paid executive officers (together with the Chief Executive
Officer, the "Named Executive Officers"):

<Table>
<Caption>
                                                                                                            Long Term
                                                                                                           Compensation
                                                               Annual Compensation                            Awards
                                              ------------------------------------------------------   ---------------------
                                                                                                         Number of Shares
                                                                                                         Underlying Stock
        Name and Principal Position             Fiscal Year         Salary($)          Bonus ($)           Options (#)
   --------------------------------------     ----------------    ---------------    ---------------   ---------------------
<S>                                                <C>                 <C>                <C>                <C>
   Joseph J. Raymond                               2001                175,000                 --            1,200,000
   Chairman and Chief Executive                    2000                127,855             25,900            1,102,115
   Officer                                         1999                 53,846                 --                   --

                                                   2001                165,000                 --              200,000
   Michael A. Maltzman                             2000                155,039             21,975              102,115
   Treasurer and Chief Financial Officer           1999                145,550              7,500                   --

   Charles Sahyoun                                 2001                190,577            115,000              200,000
   President, Engineering Services                 2000                160,962             54,400              102,115
   Division                                        1999                159,284                 --                   --
</Table>


DIRECTORS' COMPENSATION

                                       21
<Page>

Directors who are employees of the Company are not compensated for serving on
the Board of Directors. Non-employee directors are paid a fee of $1,000 per
Board of Directors or committee meeting attended in person and $500 for
telephonic attendance.

EMPLOYMENT AGREEMENTS

In September 1997, the Company entered into an employment agreement (the
"Raymond Agreement") with Joseph J. Raymond, Chairman and Chief Executive
Officer, which had an initial term that expired in September 2000. The Raymond
Agreement has been extended through September, 2002. Pursuant to the Raymond
Agreement and subsequent amendments, Mr. Raymond is entitled to a minimum annual
base salary of $175,000 which is reviewed periodically and subject to such
increases as the Board of Directors, in its sole discretion, may determine.
During the term of the Raymond Agreement, if Stratus is profitable, Mr. Raymond
is entitled to a bonus/profit sharing award equal to .4% of Stratus' gross
margin, but not in excess of 100% of his base salary. If Stratus is not
profitable, he is entitled to a $10,000 bonus. Mr. Raymond is eligible for all
benefits made available to senior executive employees, and is entitled to the
use of an automobile.

In the event Stratus terminates Mr. Raymond without "Good Cause", Mr. Raymond
will be entitled to severance compensation equal to 2.9 times his base salary
then in effect plus any accrued and unpaid bonuses and unreimbursed expenses. As
defined in the Raymond Agreement "Good Cause" shall exist only if Mr. Raymond:

     o    willfully or repeatedly fails in any material respect to perform his
          obligations under the Raymond Agreement, subject to certain
          opportunities to cure such failure;

     o    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;

     o    has committed any act which constitutes fraud or gross negligence;

     o    is determined by the Board of Directors to be dependent upon alcohol
          or drugs; or

     o    breaches confidentiality or non-competition provisions of the Raymond
          Agreement.

Mr. Raymond is also entitled to severance compensation in the event that he
terminates the Raymond Agreement for "Good Reason" which includes:

     o    the assignment to him or 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;

     o    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 gross sales of Stratus
          over the prior twelve month period;

     o    Stratus requires Mr. Raymond to be based at any location other than
          within 50 miles of Stratus' current executive office location; and

     o    a Change in Control of Stratus, which includes the acquisition by any
          person or persons acting as a group of beneficial ownership of more
          than 20% of the outstanding voting stock of Stratus, mergers or
          consolidations of Stratus 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 the assets of Stratus, and certain
          changes in the Stratus Board of Directors.

In the event that the aggregate amount of compensation payable to Mr. Raymond
would constitute an "excess parachute payment" under the Internal Revenue Code
of 1986, as amended (the "Code"), then the amount payable to Mr. Raymond will be
reduced so as not to constitute an "excess parachute payment." All severance
payments are payable within 60 days after the termination of employment.

Mr. Raymond has agreed that during the term of the Raymond Agreement and for a
period of one year following the termination of his employment, he will not
engage in or have any financial interest in any business enterprise in
competition with Stratus that operates anywhere within a radius of 25 miles of
any offices maintained by the Company as of the date of the termination of
employment.



                                       22
<Page>

The Company entered into employment agreements with each of the other two (2)
officers named in the Executive Compensation table set forth above. The
agreements with Mr. Sahyoun and Mr. Maltzman provide for base salaries of
$165,000 and $146,000, respectively. The agreement with Mr. Sahyoun entitles him
to a profit sharing award equal to 10% of the Engineering Services Division's
pre-tax income, but not in excess of his base salary. Mr. Maltzman is entitled
to profit sharing awards based upon the Company's overall profitability. Each of
these agreements is terminable by any party at any time without cause. However,
in the event that either of these agreements are terminated by the Company
without cause or by the executive with good reason, the executive will be
entitled to a severance payment equal to the greater of one month's salary for
each year worked or three months salary. In addition, the Company will pay the
executive any earned but unused vacation time and any accrued but unpaid profit
sharing. The Company is also required to maintain insurance and benefits for a
terminated executive during the severance period.

OPTION GRANTS

Shown below is further information with respect to grants of stock options in
fiscal 2001 to the Named Officers by the Company which are reflected in the
Summary Compensation Table set forth under the caption "Executive Compensation."

<Table>
<Caption>


                                                 Individual Grants
                           ---------------------------------------------------------------    Potential Realizable Value at
                                             Percent of                                    Assumed Annual Rates of Stock Price
                                               Total                                          Appreciation for Option Term
                             Number of        Options                                      --------------------------------------
                             Securities      Granted to
                             Underlying      Employees       Exercise or
                              Options        in Fiscal       Base Price      Expiration
          Name             Granted (#)(1)       Year           ($/Sh)           Date              5%                 10%
-------------------------  --------------    ----------      -----------     ----------    ----------------   -------------------
<S>                         <C>                  <C>            <C>            <C>         <C>                <C>
Joseph J. Raymond........   1,000,000 (1)        50.0%          $1.10          4/3/11      $        280,000   $           510,000
                              200,000 (2)        20.0            1.10          4/3/11                36,000               102,000

Michael A. Maltzman......     200,000 (2)        20.0            1.10          4/3/11                36,000               102,000

Charles Sahyoun..........     200,000 (2)        20.0            1.10          4/3/11                36,000               102,000
</Table>

--------------------------------------------------------------------------------
(1)  500,000 of these options are exercisable cumulative in two (2) equal annual
     installments, commencing on the date of the grant; 500,000 are exercisable
     cumulatively in five (5) equal annual installments, commencing on the date
     of the grant.

(2)  These options are exercisable cumulative in two (2) equal annual
     installments, commencing on the date of the grant.

     OPTION EXERCISES AND FISCAL YEAR-END VALUES

     Shown below is information with respect to options exercised by the Named
     Executive Officers during fiscal 2001 and the value of unexercised options
     to purchase the Company's Common Stock held by the Named Executive Officers
     at September 30, 2001.

<Table>
<Caption>
                                                                Number of Securities             Value of Unexercised
                                                               Underlying Unexercised                In-The-Money
                                                             Options Held At FY-End (#)        Options At FY-End ($)(1)
                                                            ----------------------------     ----------------------------
                               Shares
                             Acquired on       Value
           Name              Exercise(#)    Realized($)     Exercisable   Unexercisable      Exercisable    Unexercisable
           ----              -----------    -----------     -----------   -------------      -----------    -------------
<S>                          <C>            <C>                 <C>             <C>          <C>             <C>
Joseph J. Raymond.......           --             --            693,782         1,575,000    $       0       $        0
Charles Sahyoun.........           --             --            210,448           175,000            0                0
Michael A. Maltzman.....           --             --            210,448           175,000            0                0
</Table>

No options were exercised by the Named Executive Officers during the fiscal year
ended September 30, 2001.

(1)  Represents market value of shares covered by in-the-money options on
     September 30, 2001. The closing price of the Common Stock on such date was
     $1.00. Options are in-the-money if the market value of shares covered
     thereby is greater than the option exercise price.



                                       23
<Page>

ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The following table sets forth information, as of January 18, 2001 with respect
to the beneficial ownership (as defined in Rule 13d-3) of the Company's Common
Stock by each director and nominee for director, each of the Named Executive
Officers (as defined in the section captioned "Executive Compensation") who is
currently an officer of the Company and by all directors and executive officers
as a group. Except as set forth in the footnotes to the table, the stockholders
have sole voting and investment power over such shares.

<Table>
<Caption>
                                                                                  Amount and              Percent
                                                                                  Nature of                  of
Name of Beneficial Owner                                                     Beneficial Ownership          Class
------------------------                                                     --------------------          -----
<S>                                                                               <C>                        <C>
Artisan.com Limited................................................               2,358,933 (1)              21.3%
Joseph J. Raymond..................................................               1,137,202 (2)              11.0
Charles A. Sahyoun.................................................                 415,448 (3)               4.2
Michael A. Maltzman................................................                 257,116 (3)               2.6
Michael J. Rutkin..................................................                 213,075 (4)               2.2
Sanford I. Feld....................................................                  57,834 (5)              (6)
H. Robert Kingston.................................................                  43,333 (7)              (6)
Donald W. Feidt....................................................                  30,000 (7)              (6)
All Directors and Executive Officers as
   a Group (8 persons)(2)(3)(4)(5)(7), and (8).....................               2,268,790                  20.9%
</Table>

---------------
(1)  Includes 1,458,933 shares of Series A Preferred Stock that are convertible
     into 1,458,933 shares of common stock at the holder's option.
(2)  Includes 693,782 shares subject to options to purchase that are currently
     exercisable or may become exercisable within 60 days of January 18, 2001.
     Excludes 1,575,000 shares subject to options that are not vested or
     exercisable within 60 days of January 18, 2001.
(3)  Includes 210,448 shares subject to currently exercisable stock options.
     Excludes 175,000 shares subject to options that are not vested or
     exercisable within 60 days of January 18, 2001.
(4)  Includes 30,000 shares held by the children of Michael Rutkin living in his
     household and 10,000 shares held by his wife.
(5)  Includes 49,167 shares subject to currently exercisable stock options and
     warrants.
(6)  Shares beneficially owned do not exceed 1% of the Company's outstanding
     Common Stock.
(7)  Includes 10,000 shares subject to current exercisable options.
(8)  Includes 114,782 shares that are beneficially owned by J. Todd Raymond, the
     Company's General Counsel and Corporate Secretary, including 88,782 shares
     subject to currently exercisable options.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS.

Jeffrey J. Raymond, the son of the Company's Chairman and Chief Executive
Officer, serves as a consultant to the Company pursuant to an agreement which
requires him to supervise the collection of certain accounts receivable, to use
his best efforts to maintain relationships with certain clients and to assist in
due diligence investigations of acquisitions of other companies. Total
consulting fees paid to Jeffrey Raymond were $281,000 in fiscal 2001.

During fiscal 2000, the Company paid consulting fees of $119,000 to RVR
Consulting, Inc., a corporation of which Joseph J. Raymond, Jr., the son of
Joseph J. Raymond, the Company's Chairman and Chief Executive Officer, is an
officer and 50% shareholder.

In November 2000, the Company formed the Stratus Technology Services, LLC
joint venture with Fusion Business Services, LLC. Jamie Raymond, son of
Joseph J. Raymond, Chairman & CEO, is the managing member of both Fusion and
STS and J. Todd Raymond, Secretary and General Counsel, holds a minority
interest in Fusion.

Between September 21, 2001 and October 8, 2001 we sold a total of 383,000
shares of our common stock to Charles A. Sahyoun, Jeffrey J. Raymond, Jr.,
Nicole Raymond, Jake Raymond and Jamie Raymond. The issuance of the shares
was made in reliance upon the exemption provided by Section 4(2) of the
Securities Act of 1933 as a transaction not involving a public offering.

All prior and ongoing material transactions with related parties have been
reviewed and/or ratified by a majority of the Company's independent,
disinterested directors. The Company anticipates that from time to time it will
enter into additional transactions with related parties. However, all future
material transactions with related parties will be entered into on terms that
are no less favorable than those that can be obtained from unaffiliated third
parties. At all times, the Company's directors have access to the Company's
counsel to discuss Company related issues.



                                       24
<Page>




                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

                                                                          PAGE
                                                                          ----

     (a)  Financial statements and financial statement schedules.         F-1
          Reference is made to Index of Financial Statements and
          Financial Statement Schedules hereinafter contained.

     (b)  Reports on Form 8-K

          On June 30, 2000 we filed a Form 8-K announcing the purchase of
          certain assets of the New Jersey and Pennsylvania Tandem Division of
          Outsource International of America, Inc.

          On October 27, 2000 we filed a Form 8-K announcing the purchase of
          certain assets of the New England Tandem Division of Outsource
          International of America, Inc.

          On August 9, 2001 we filed a Form 8-K announcing the purchase of
          certain assets of Source One Personnel, Inc.

          On January 3, 2002 we filed a Form 8-K announcing the purchase of
          certain assets of Provisional Employment Solutions, Inc.

     (c)  Exhibits

<Table>
<Caption>
NUMBER    DESCRIPTION

<S>       <C>
2.1       Asset Purchase Agreement, dated July 9, 1997, among Stratus Services
          Group, Inc. 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
          Stratus Services Group, Inc. and B&R Employment Inc.(1)

2.3       Asset Purchase Agreement, dated June 16, 2000, by and between Stratus
          Services Group, Inc. and OutSource International of America, Inc.(5)

2.4       Asset Purchase Agreement, dated October 13, 2000, by and between
          Stratus Service Group, Inc. and OutSource International of America,
          Inc.(6)

2.5       Asset Purchase Agreement, dated January 2, 2001, by and between
          Stratus Services Group, Inc. and Cura Staffing Inc. and Professional
          Services, Inc. (filed herewith).

2.6       Asset Purchase Agreement, dated July 27, 2001, by and between Stratus
          Services Group, Inc. and Source One Personnel, Inc.(8)

2.7       Asset Purchase Agreement, dated December 27, 2001, by and between
          Stratus Services Group, Inc. and Provisional Employment Solutions,
          Inc.(9)

3.1       Amended and Restated Certificate of Incorporation of the
          Registrant.(1)

3.1.1     Certificate of Designation, Preferences and Rights of Series A
          Preferred Stock.(10)

3.2       By-Laws of the Registrant.(2)

4.1.1     Specimen Common Stock Certificate of the Registrant.(1)

4.1.2     Form of 6% Convertible Debenture.(11)



                                       25
<Page>

4.1.3     Specimen Series A Preferred Stock Certificate of the Registrant.
          (filed herewith)

4.1.4     Agreement dated as of June 26, 2001 between Stratus Services Group,
          Inc. and Artisan (UK) plc.(10)

4.1.5     Subscription Agreement dated as of June 26, 2001 between Stratus
          Services Group, Inc. and Artisan.com Limited.(10)

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 Stratus Services Group, Inc., 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 Stratus Services Group, Inc.(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 Stratus Services Group, Inc., 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 Stratus Services Group, Inc.(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
          Stratus Services Group, Inc.(1)

4.2.6     Form of Underwriter's Warrant Agreement, including form of warrant
          certificate.(7)

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. (filed herewith)

10.1.1    Employment Agreement dated September 1, 1997, between Stratus Services
          Group, Inc. and Joseph J. Raymond.(1)*

10.1.2    Executive Employment Agreement dated September 1, 1997, between
          Stratus Services Group, Inc. and J. Todd Raymond, Esq.(1)*

10.1.3    Executive Employment Agreement dated December 1, 1997, between Stratus
          Services Group, Inc. and Charles A. Sahyoun.(1)*

10.1.6    Executive Employment Agreement dated September 1, 1997 between Stratus
          Services Group, Inc. and Michael A. Maltzman.(1)*

10.1.7    Consulting Agreement, dated as of August 11, 1997, between Stratus
          Services Group, Inc. and Jeffrey J. Raymond.(1)

10.1.8    Non-Competition Agreement, dated June 19, 2000 between Stratus
          Services Group, Inc. and OutSource International of America, Inc.(5)

10.1.9    Non-Competition Agreement, dated October 27, 2000 between Stratus
          Services Group, Inc. and OutSource International of America, Inc.(6)

10.1.10   Option to purchase 1,000,000 shares of Stratus Services Group, Inc.
          Common Stock issued to Joseph J. Raymond.(11)



                                       26
<Page>

10.2      Lease, effective June 1, 1998, for offices located at 500 Craig Road,
          Manalapan, New Jersey 07726.(1)

10.3.1    Loan and Security Agreement, dated December 8, 2000, between Capital
          Tempfunds, Inc. and Stratus Services Group, Inc.(11)

10.4.2    Promissory Note and Security Agreement in the amount of $400,000,
          dated as of June 19, 2000, issued by Stratus Services Group, Inc. 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 Stratus Services Group, Inc. to OutSource International of
          America, Inc.(5)

10.4.4    Promissory Note and Security Agreement in the amount of $75,000, dated
          as of October 27, 2000, issued by Stratus Services Group, Inc. 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 Stratus Services Group, Inc. 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 Stratus Services Group, Inc. to
          Source One Personnel, Inc.(8)

10.5.1    Registration Rights Agreement, dated August, 1997, by and among
          Stratus Services Group, Inc. and AGR Financial, L.L.C.(1)

10.5.2    Registration Rights Agreement, dated August, 1997, by and among
          Stratus Services Group, Inc. and Congress Financial Corporation
          (Western).(1)

10.5.3    Form of Registration Rights Agreement, dated December 4, 2000 by and
          among Stratus Services Group, Inc. and purchasers of the Stratus
          Services Group, Inc. 6% Convertible Debenture.(11)

10.5.4    Registration Rights Agreement, dated as of December 4, 2000 between
          Stratus Services Group, Inc., 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 Stratus Services Group, Inc. and Congress Financial
          Corporation (Western).(1)

10.6.2    Stock Purchase and Investor Agreement, dated August, 1997, by and
          among Stratus Services Group, Inc. and AGR Financial, L.L.C.(1)

10.6.3    Form of Securities Purchase Agreement, dated December 4, 2000 by and
          between Stratus Services Group, Inc. and purchasers of the Stratus
          Services Group, Inc. 6% Convertible Debenture.(11)

10.7.1    1999 Equity Incentive Plan(1)**

10.7.2    2000 Equity Incentive Plan(11)**

10.7.3    Form of Option issued under 2000 Equity Incentive Plan(11)**

10.7.4    2001 Equity Incentive Plan(12)**

10.8      Debt to Equity Conversion Agreement by and between Stratus Services
          Group, Inc. and B&R Employment, Inc.(3)

10.8.1    Amendment to Debt to Equity Conversion Agreements by and between
          Stratus Services Group and B&R Employment, Inc.(2)

10.8.2    Forbearance Agreement dated January 24, 2002 between Stratus
          Services Group, Inc. and Source One Personnel. (filed herewith)

10.9      Undertaking Letter from Joseph J. Raymond, Chairman & CEO to the Board
          of Directors.(4)

21        Subsidiaries of Registrant (filed herewith).

23.1      Consent of Amper, Politzner & Mattia, P.A., Independent Accountants
          (filed herewith).
</Table>

--------------------------------------------------------------------------------


                                       27
<Page>

<Table>
<S>            <C>
*              Constitutes a Management Contract required to be filed pursuant
               to Item 14(c) of Form 10-K.

**             Constitutes a Compensatory 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 number 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.
</Table>



                                       28
<Page>




                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
behalf of the undersigned, thereunto duly authorized.

                                    STRATUS SERVICES GROUP, INC.


                                    By:      /s/ Joseph J. Raymond
                                       -----------------------------------------
                                       Joseph J. Raymond
                                       Chairman of the Board of Directors,
                                       President and Chief Executive Officer

                                    Date:    January 25, 2002

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<Table>
<Caption>
         Signature                                   Title                              Date
         ---------                                   -----                              ----
<S>                                         <C>                                         <C>
/s/ Joseph J. Raymond                       Chairman, Chief Executive Officer           January 25, 2002
------------------------------------        (Principal Executive Officer)
Joseph J. Raymond



/s/ Michael A. Maltzman                     Vice President and Chief Financial          January 25, 2002
------------------------------------        Officer (Principal Financing and
Michael A. Maltzman                         Accounting Officer)



/s/ Michael J. Rutkin                                Director                           January 25, 2002
------------------------------------
Michael J. Rutkin



/s/ H. Robert Kingston                               Director                           January 25, 2002
------------------------------------
H. Robert Kingston



/s/ Sanford I. Feld                                  Director                           January 25, 2002
------------------------------------
Sanford I. Feld



/s/ Donald W. Feidt                                  Director                           January 25, 2002
------------------------------------
Donald W. Feidt
</Table>



                                       29
<Page>



                          STRATUS SERVICES GROUP, INC.
                          INDEX TO FINANCIAL STATEMENTS
              FOR THE YEARS ENDED SEPTEMBER 30, 2001, 2000 AND 1999

<Table>
<Caption>
                                                                 Page(s) No.
<S>                                                                  <C>
Independent Auditors Report...................................       F-2
Financial Statements
     Balance Sheets...........................................       F-3
     Statements of Operations.................................       F-4
     Statements of Cash Flows.................................       F-5
     Statements of Stockholders' Equity.......................       F-7
     Statements of Comprehensive Income.......................       F-9
     Notes to Financial Statements............................       F-10
</Table>



                                       F-1
<Page>








                          Independent Auditors' Report



To the Stockholders of
Stratus Services Group, Inc.

We have audited the accompanying balance sheets of Stratus Services Group, Inc.
as of September 30, 2001 and 2000, and the related statements of operations,
stockholders' equity, cash flows and comprehensive income for each of the three
years in the period ended September 30, 2001. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Stratus Services Group, Inc. as
of September 30, 2001 and 2000, and the results of its operations and its cash
flows for each of the three years in the period ended September 30, 2001, in
conformity with generally accepted accounting principles in the United States of
America.

In connection with our audits of the financial statements referred to above, we
audited the financial schedule listed under Item 14. In our opinion, the
financial schedule, when considered in relation to the financial statements
taken as a whole, presents fairly, in all material respects, the information
stated therein.

                                       /s/ AMPER, POLITZINER & MATTIA, P.A.
                                       AMPER, POLITZINER & MATTIA, P.A.

January 24, 2002
--------------------------------------------------------------------------------
Edison, New Jersey



                                      F-2
<Page>

<Table>
                                               STRATUS SERVICES GROUP, INC.
                                                      Balance Sheets
                                                          Assets

<Caption>
                                                                                     Unaudited
                                                                                     Pro Forma
                                                                                     (Note 24)                September 30,
                                                                                    September 30,             -------------
                                                                                         2001              2001           2000
                                                                                         ----              ----           ----
<S>                                                                                 <C>                <C>           <C>
Current assets
     Cash and cash equivalents                                                      $  1,667,822       $    171,822  $  1,030,722
     Due from factor - less allowance for recourse obligation of  $-0- and $30,000            --                 --     1,154,012
     Accounts receivable - less allowance for doubtful accounts of $551,000
         and $255,000                                                                  8,540,112          8,540,112       852,876
     Unbilled receivables                                                              1,566,417          1,566,417     1,236,002
     Loans to related parties                                                                 --                 --        64,500
     Loans receivable                                                                         --                 --        56,000
     Prepaid insurance                                                                 1,436,278          1,436,278       432,674
     Investment                                                                        1,166,046          1,166,046            --
     Prepaid expenses and other current assets                                           327,146             77,146       278,169
     Deferred taxes                                                                           --                 --       340,000
                                                                                    ------------       ------------  ------------
                                                                                      14,703,821         12,957,821     5,444,955

Property and equipment, net of accumulated depreciation                                1,427,216          1,612,216     1,118,625
Intangible assets, net of accumulated amortization                                     7,078,428          7,078,428     3,716,538
Deferred financing costs, net of accumulated amortization                                454,878            454,878            --
Other assets                                                                             400,205            164,815        38,163
                                                                                    ------------       ------------  ------------
                                                                                    $ 24,064,548       $ 22,268,158  $ 10,318,281
                                                                                    ============       ============  ============
                                           Liabilities and Stockholders' Equity
Current liabilities
     Loans payable (current portion)                                                $    347,289       $    347,289  $     27,012
     Notes payable - acquisitions (current portion)                                    1,110,726          1,110,726       275,000
     Line of credit                                                                    7,306,581          7,306,581            --
     Insurance obligation payable                                                        549,460            549,460       367,100
     Accounts payable and accrued expenses                                             3,421,796          3,421,796     1,172,148
     Accrued payroll and taxes                                                         1,461,738          1,461,738     1,105,363
     Payroll taxes payable                                                               306,230            306,230       412,513
                                                                                    ------------       ------------  ------------
                                                                                      14,503,820         14,503,820     3,359,136

Loans payable (net of current portion)                                                   291,243            291,243       134,700
Notes payable - acquisitions (net of current portion)                                  1,403,847          1,403,847        25,000
Convertible debt                                                                       1,125,399          1,125,399            --
                                                                                    ------------       ------------  ------------
                                                                                      17,324,309         17,324,309     3,518,836

Series A voting redeemable convertible preferred stock, $.01 par value, 1,458,933
     and -0- shares issued and outstanding, liquidation preference of $4,376,799
     (including unpaid dividends of $39,000 and $-0-)                                  2,792,000          2,792,000            --
Temporary equity - put options                                                           869,000            869,000            --
Commitments and contingencies
Stockholders' equity
     Preferred stock, $.01 par value, 5,000,000 shares authorized                             --                 --            --
     Common stock, $.01 par value, 25,000,000 shares authorized; 8,217,764 and
        5,712,037 shares issued and outstanding                                           82,178             82,178        57,120
     Additional paid-in capital                                                       11,992,685         11,992,685    10,554,782
     Deferred compensation                                                                    --                 --       (67,900)
     Accumulated deficit                                                              (7,795,624)        (9,592,014)   (3,744,557)
     Accumulated other comprehensive loss                                             (1,200,000)        (1,200,000)           --
                                                                                    ------------       ------------  ------------
         Total stockholders' equity                                                    3,079,239          1,282,849     6,799,445
                                                                                    ------------       ------------  ------------
                                                                                    $ 24,064,548       $ 22,268,158  $ 10,318,281
                                                                                    ============       ============  ============

                    See accompanying summary of accounting policies and notes to financial statements.
</Table>


                                                           F-3
<Page>



<Table>

                                                 STRATUS SERVICES GROUP, INC.
                                                   Statements of Operations

<Caption>
                                                                                     Years Ended September 30,
                                                                                     -------------------------
                                                                            2001                2000                1999
                                                                            ----                ----                ----
<S>                                                                    <C>                 <C>                 <C>
Revenues (including  $-0-, $364,000 and $1,696,000 from
     related parties)                                                  $    64,271,705     $    41,676,587     $   30,042,751
Cost of revenues (including $-0-, $326,000 and $1,521,000
     from related parties)                                                  51,021,613          31,182,678         23,306,254
                                                                       ----------------    ----------------    ---------------

Gross profit                                                                13,250,092          10,493,909          6,736,497
                                                                       ----------------    ----------------    ---------------

Selling, general and administrative expenses                                15,211,887           8,914,917          7,254,449
Loss on impairment of goodwill                                                 700,000                  --                 --
Other charges                                                                  519,801                  --                 --
                                                                       ----------------    ----------------    ---------------
                                                                            16,431,688           8,914,917          7,254,449
                                                                       ----------------    ----------------    ---------------

Earnings (loss) from operations                                            (3,181,596)           1,578,992          (517,952)
                                                                       ----------------    ----------------    ---------------


Other income (expenses)
     Finance charges                                                         (100,934)           (618,134)          (722,020)
     Interest and financing costs                                          (2,176,964)           (300,892)          (309,257)
     Other income (expense)                                                   (47,963)              45,944             22,186
                                                                       ----------------    ----------------    ---------------
                                                                           (2,325,861)           (873,082)        (1,009,091)
                                                                       ----------------    ----------------    ---------------

Earnings (loss) before income taxes                                        (5,507,557)             705,910        (1,527,043)

                                                                       ----------------    ----------------    ---------------
Income taxes (benefit)                                                         340,000           (340,000)                 --
                                                                       ----------------    ----------------    ---------------

Net earnings (loss)                                                        (5,847,457)           1,045,910        (1,527,043)
     Dividends and accretion on preferred stock                               (63,000)                  --                 --
                                                                       ----------------    ----------------    ---------------
Net earnings (loss) attributable to common stockholders                $   (5,910,457)     $     1,045,910     $  (1,527,043)
                                                                       ================    ================    ===============

Net earnings (loss) per share attributable to common
   stockholders

     Basic                                                             $         (.99)     $           .21     $        (.40)
     Diluted                                                                     (.99)                 .20              (.40)


Weighted average shares, outstanding per common share
     Basic                                                                   5,996,134           4,931,914          3,828,530
     Diluted                                                                 5,996,134           5,223,508          3,828,530


                      See accompanying summary of accounting policies and notes to financial statements.
</Table>


                                                             F-4
<Page>



<Table>

                                                    STRATUS SERVICES GROUP, INC.
                                                      Statements of Cash Flows


<Caption>
                                                                                           Years Ended September 30,
                                                                                           -------------------------
                                                                                 2001                2000                1999
                                                                                 ----                ----                ----
<S>                                                                         <C>                 <C>                 <C>
Cash flows from operating activities
  Net earnings (loss)                                                       $  (5,847,457)      $     1,045,910     $   (1,527,043)
                                                                            ----------------    ----------------    ----------------
  Adjustments to reconcile net earnings (loss)
    to net cash used by operating activities
       Depreciation                                                                 409,860             175,419              74,970
       Amortization                                                                 359,134             191,710             121,848
       Provision for doubtful accounts                                              661,000             122,500             595,000
       Loss on impairment of goodwill                                               700,000                  --                  --
       Deferred financing costs amortization                                        209,897                  --                  --
       Loss on extinguishments of convertible debt                                   70,560                  --                  --
       Deferred taxes                                                               340,000           (340,000)                  --
       Interest expense amortization for the intrinsic value of the
         beneficial conversion feature of convertible debentures                  1,146,463                  --                  --
       Imputed interest                                                                  --              57,652              25,645
       Accrued interest                                                              64,410              41,522              91,996
       Compensation - stock options                                                  67,900              46,800              46,800
  Changes in operating assets and liabilities
       Due to/from factor/accounts receivable                                   (2,347,247)         (2,938,890)           (832,427)
       Prepaid insurance                                                        (1,003,604)           (175,461)            (34,922)
       Prepaid expenses and other current assets                                    201,023           (262,261)            (10,778)
       Other assets                                                                (65,652)              19,593               6,582
       Insurance obligation payable                                                 182,360             114,214              41,178
       Accrued payroll and taxes                                                    356,375             171,028              64,512
       Payroll taxes payable                                                      (106,283)             186,281              82,920
       Accounts payable and accrued expenses                                      2,195,797            (80,469)             259,274
                                                                            ----------------    ----------------    ----------------
              Total adjustments                                                   3,441,993         (2,670,362)             532,598
                                                                            ----------------    ----------------    ----------------
                                                                                (2,405,464)         (1,624,452)           (994,445)
                                                                            ================    ================    ================
Cash flows (used in) investing activities
  Purchase of property and equipment                                              (755,801)           (780,975)           (283,466)
  Payments for business acquisitions                                            (1,218,674)         (1,053,868)           (194,930)
  Costs incurred in connection with investment                                     (17,046)                  --                  --
  Loans receivable                                                                 (40,500)           (120,500)                  --
                                                                            ----------------    ----------------    ----------------
                                                                                (2,032,021)         (1,955,343)           (478,396)
                                                                            ----------------    ----------------    ----------------
Cash flows from financing activities
  Proceeds from initial public offering                                                  --           6,034,169                  --
  Proceeds from issuance of common stock                                          1,412,772                  --             732,126
  Proceeds from loans payable                                                       255,000           1,125,000           1,388,375
  Payments of loans payable                                                        (70,180)         (1,457,624)           (370,746)
  Payments of notes payable - acquisitions                                        (320,394)         (1,164,100)                  --
  Net proceeds from line of credit                                                2,065,156                  --                  --
  Net proceeds from convertible debt                                              2,664,239                  --                  --
  Redemption of convertible debt                                                (2,222,883)                  --                  --
  Proceeds from temporary equity - put options                                       60,000                  --                  --
  Purchase of treasury stock                                                      (265,125)           (350,000)                  --
  Payments of registration costs                                                         --                  --           (103,829)
                                                                            ----------------    ----------------    ----------------
                                                                                  3,578,585           4,187,445           1,645,926
                                                                            ----------------    ----------------    ----------------
Net change in cash and cash equivalents                                           (858,900)             607,650             173,085
Cash and cash equivalents - beginning                                             1,030,722             423,072             249,987
                                                                            ----------------    ----------------    ----------------
Cash and cash equivalents - ending                                          $       171,822     $     1,030,722     $       423,072
                                                                            ================    ================    ================

                         See accompanying summary of accounting policies and notes to financial statements.
</Table>



                                                                F-5
<Page>


<Table>
                                                    STRATUS SERVICES GROUP, INC.
                                                Statements of Cash Flows - Continued

<Caption>
                                                                                          Years Ended September 30,
                                                                                          -------------------------
                                                                                2001                2000                1999
                                                                                ----                ----                ----
<S>                                                                        <C>                 <C>                 <C>
Supplemental disclosure of cash paid
    Interest                                                               $       739,872     $       201,718     $       174,175
Schedule of Noncash Investing and Financing Activities
    Fair value of assets acquired                                          $     4,568,674     $     1,548,097     $     2,421,903
    Less: cash paid                                                            (1,218,674)         (1,048,097)            (57,430)
    Less: common stock and put options issued                                    (800,000)                  --           (520,000)
                                                                           ----------------    ----------------    ----------------
    Liabilities assumed                                                    $     2,550,000     $       500,000     $     1,844,473
                                                                           ================    ================    ================
    Issuance of common stock in exchange for notes payable                 $            --     $     1,000,000     $     1,092,762
                                                                           ================    ================    ================
    Accrued and imputed interest                                           $        64,410     $        99,174     $       117,641
                                                                           ================    ================    ================
    Purchase of property and equipment for notes                           $            --     $       163,836     $            --
                                                                           ================    ================    ================
    Purchase of treasury stock in exchange for loans                       $       402,000     $            --     $            --
                                                                           ================    ================    ================
    Issuance of common stock in exchange for investment                    $        61,000     $            --     $            --
                                                                           ================    ================    ================
    Issuance of common stock upon conversion of convertible debt           $       542,500     $            --     $            --
                                                                           ================    ================    ================
    Issuance of preferred stock in exchange for investment                 $     1,592,000     $            --     $            --
                                                                           ================    ================    ================
    Issuance of preferred stock for fees in connection with private
        placement ($410,000) and investment ($727,000)                     $     1,137,000     $            --     $            --
                                                                           ================    ================    ================
    Issuance of common stock for fees in connection with private
        placement and investment                                           $        30,000     $            --     $            --
                                                                           ================    ================    ================
    Cumulative dividends and accretion on preferred stock                  $        63,000     $            --     $            --
                                                                           ================    ================    ================


                         See accompanying summary of accounting policies and notes to financial statements.
</Table>



                                                                F-6
<Page>



<Table>
                                                    STRATUS SERVICES GROUP, INC.
                                                  Statement of Stockholders' Equity

<Caption>

                                                                                                               Additional
                                                                        Common Stock            Treasury         Paid-In
                                                    Total          Amount        Shares          Stock           Capital
                                                 -------------    ---------    ------------    -----------    --------------
<S>                                              <C>              <C>          <C>             <C>            <C>
Balance - October 1, 1998                        $(3,356,310)     $ 37,198     3,719,734       $      --      $    31,416
Net (loss)                                        (1,527,043)           --            --              --               --
Compensation expense in connection with
   stock options granted (no tax effect)               46,800           --            --              --               --
Issuance of common stock in connection
   with acquisition                                        --          347        34,667              --            (347)
Issuance of common stock in exchange for
   notes payable                                    1,092,762        2,914       291,403              --        1,089,848
Proceeds from the private placement of
   common stock (net of costs of $117,874)
   for cash                                           732,126        2,266       226,666              --          729,860
                                                 -------------    ---------    ------------    -----------    --------------
Balance - September 30, 1999                     $(3,011,665)     $ 42,725     4,272,470       $      --      $ 1,850,777
Net earnings                                        1,045,910           --            --              --               --
Compensation expense in connection with
   stock options granted (no tax effect)               46,800           --            --              --               --
Issuance of common stock in exchange for
   notes payable                                    1,000,000        1,933       193,333              --          998,067
Proceeds from the initial public offering of
   common stock (net of costs of ($1,869,660)       5,930,340       13,000     1,300,000              --        5,917,340
Transfer from temporary equity                      2,138,060           --            --              --        2,138,060
Purchase and retirement of treasury stock           (350,000)        (538)      (53,766)              --        (349,462)
                                                 -------------    ---------    ------------    -----------    --------------
Balance - September 30, 2000                     $  6,799,445     $ 57,120     5,712,037       $      --      $10,554,782
Net (loss)                                        (5,847,457)           --            --              --               --
Unrealized loss on securities available for       (1,200,000)           --            --              --               --
sale
Dividends and accretion on preferred stock           (63,000)           --            --              --         (63,000)
Purchase and retirement of treasury stock            (15,125)         (33)       (3,333)              --         (15,092)
Purchase of treasury stock                          (652,000)           --            --       (652,000)               --
Beneficial conversion feature of
   convertible debt                                 1,213,747           --            --              --        1,213,747
Warrants issued in connection with
   issuance of convertible debt                        88,000           --            --              --           88,000
Compensation expense in connection with
   stock options granted (no tax effect)               67,900           --            --              --               --


<Caption>
                                                                        Accumulated
                                                                           Other
                                                     Deferred          Comprehensive        Accumulated
                                                   Compensation            Loss               Deficit
                                                 ----------------    ------------------    ---------------
<S>                                              <C>                 <C>                   <C>
Balance - October 1, 1998                        $    (161,500)      $            --       $ (3,263,424)
Net (loss)                                                   --                   --         (1,527,043)
Compensation expense in connection with
   stock options granted (no tax effect)                 46,800                   --                  --
Issuance of common stock in connection
   with acquisition                                          --                   --                  --
Issuance of common stock in exchange for
   notes payable                                             --                   --                  --
Proceeds from the private placement of
   common stock (net of costs of $117,874)
   for cash                                                  --                   --                  --
                                                 ----------------    ------------------    ---------------
Balance - September 30, 1999                     $    (114,700)      $            --       $ (4,790,467)
Net earnings                                                 --                   --           1,045,910
Compensation expense in connection with
   stock options granted (no tax effect)                 46,800                   --                  --
Issuance of common stock in exchange for
   notes payable                                             --                   --                  --
Proceeds from the initial public offering of
   common stock (net of costs of ($1,869,660)                --                   --                  --
Transfer from temporary equity                               --                   --                  --
Purchase and retirement of treasury stock                    --                   --                  --
                                                 ----------------    ------------------    ---------------
Balance - September 30, 2000                     $     (67,900)                   --       $ (3,744,557)
Net (loss)                                                   --                   --         (5,847,457)
Unrealized loss on securities available for                  --          (1,200,000)                  --
sale
Dividends and accretion on preferred stock                   --                   --                  --
Purchase and retirement of treasury stock                    --                   --                  --
Purchase of treasury stock                                   --                   --                  --
Beneficial conversion feature of
   convertible debt                                          --                   --                  --
Warrants issued in connection with
   issuance of convertible debt                              --                   --                  --
Compensation expense in connection with
   stock options granted (no tax effect)                 67,900                   --                  --


                         See accompanying summary of accounting policies and notes to financial statements.
</Table>



                                                                F-7
<Page>





<Table>
                                                    STRATUS SERVICES GROUP, INC.
                                            Statement of Stockholders' Equity - Continued

<Caption>

                                                                                                               Additional
                                                                        Common Stock            Treasury         Paid-In
                                                    Total          Amount         Stock          Stock           Capital
                                                 -------------    ---------    ------------    -----------    --------------
<S>                                              <C>              <C>          <C>             <C>            <C>
Beneficial conversion feature of convertible
   debt redeemed                                    (631,881)           --            --              --        (631,881)
Conversion of convertible debt                        429,448        5,194       519,394         652,000        (227,746)
Issuance of common stock in connection
   with acquisition                                        --        4,000       400,000              --          (4,000)
Proceeds from the private placements of
common stock (net of costs of $432,228)
   for cash                                         1,002,772       14,497     1,449,666              --          988,275
Issuance of shares for services provided               30,000          300        30,000              --           29,700
Issuance of stock in exchange for investment           61,000          500        50,000              --           60,500
Issuance of stock with put options                         --          600        60,000              --            (600)
                                                 -------------    ---------    ------------    -----------    --------------
Balance - September 30, 2001                     $  1,282,849     $ 82,178     8,217,764       $      --      $11,992,685
                                                 =============    =========    ============    ===========    ==============


<Caption>
                                                                       Accumulated
                                                                          Other
                                                    Deferred          Comprehensive        Accumulated
                                                  Compensation            Loss               Deficit
                                                 ---------------    ------------------    ---------------
<S>                                              <C>                <C>                   <C>
Beneficial conversion feature of convertible
   debt redeemed                                            --                   --                  --
Conversion of convertible debt                              --                   --                  --
Issuance of common stock in connection
   with acquisition                                         --                   --                  --
Proceeds from the private placements of
common stock (net of costs of $432,228)
   for cash                                                 --                   --                  --
Issuance of shares for services provided                    --                   --                  --
Issuance of stock in exchange for investment                --                   --                  --
Issuance of stock with put options                          --                   --                  --
                                                 ---------------    ------------------    ---------------
Balance - September 30, 2001                     $          --      $   (1,200,000)       $ (9,592,014)
                                                 ===============    ==================    ===============


                         See accompanying summary of accounting policies and notes to financial statements.
</Table>



                                                                F-8
<Page>




                                              STRATUS SERVICES GROUP, INC.
                                           Statements of Comprehensive Income

<Table>
<Caption>
                                                                           Years Ended September 30,
                                                                           -------------------------
                                                                2001                  2000                 1999
                                                                ----                  ----                 ----

<S>                                                        <C>                  <C>                   <C>
Net earnings (loss)                                        $  (5,847,457)       $     1,045,910       $   (1,527,043)

Unrealized loss on securities available for sale              (1,200,000)                    --                    --
                                                           ---------------      -----------------     ----------------

Comprehensive income (loss)                                $  (7,047,457)       $     1,045,910       $   (1,527,043)
                                                           ===============      =================     ================








                   See accompanying summary of accounting policies and notes to financial statements.
</Table>



                                                          F-9
<Page>


                          STRATUS SERVICES GROUP, INC.
                          NOTES TO FINANCIAL STATEMENTS

NOTE 1 -          NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
                  ----------------------------------------------------------
                  POLICIES
                  --------
                  OPERATIONS
                  ----------
                  Stratus Services Group, Inc. (the "Company") is a national
                  provider of staffing and productivity consulting services. As
                  of September 30, 2001, the Company operated a network of
                  thirty-five offices in ten states.

                  The Company operates as one business segment. The one business
                  segment consists of its traditional staffing services,
                  engineering staffing services, and SMARTSolutions(TM), a
                  structured program to monitor and enhance the production of a
                  client's labor resources. The Company's customers are in
                  various industries and are located throughout the United
                  States. Credit is granted to substantially all customers. No
                  collateral is maintained.

                  LIQUIDITY
                  ---------

                  At September 30, 2001, the Company had limited liquid
                  resources. Current liabilities were $14,503,820 and current
                  assets were $12,957,821. The difference of $1,545,999 is a
                  working capital deficit which is primarily the result of
                  losses incurred during each of the three quarters ended
                  September 30, 2001. Management believes that the liquidity
                  position is currently manageable, but the working capital
                  deficit will remain until additional capital is raised.

                  On January 24, 2002 the Company entered into an agreement
                  to sell the assets of its Engineering Division (see
                  Note 24). Approximately $1,796,000 of working capital will
                  be received by the Company from this transaction.

                  REVENUE RECOGNITION
                  -------------------
                  The Company recognizes revenue as the services are performed
                  by its workforce. The Company's customers are billed weekly.
                  At balance sheet dates, there are accruals for unbilled
                  receivables and related compensation costs. The Company
                  believes its revenue recognition policies do not significantly
                  differ from SAB 101.

                  USE OF ESTIMATES
                  ----------------
                  The preparation of financial statements in conformity with
                  generally accepted accounting principles requires management
                  to make estimates and assumptions that affect the reported
                  amounts of assets and liabilities and disclosure of contingent
                  assets and liabilities at the date of the financial statements
                  and the reported amounts of revenues and expenses during the
                  reporting period. Actual results could differ from those
                  estimates.

                  CASH EQUIVALENTS AND CONCENTRATION OF CASH
                  ------------------------------------------
                  The Company considers all highly liquid investments with
                  original maturities of three months or less to be cash
                  equivalents. The Company maintains its cash in bank deposit
                  accounts, which, at times may exceed federally insured limits.
                  The Company has not experienced any losses in such accounts.

                  RECLASSIFICATION
                  ----------------
                  Certain items in the Statements of Cash Flows for the years
                  ended September 30, 1999 and 2000 have been reclassified to
                  conform to the year ended September 30, 2001 presentation.

                  COMPREHENSIVE INCOME (LOSS)
                  ---------------------------
                  Comprehensive income (loss) is the total of net income (loss)
                  and other non-owner changes in equity including unrealized
                  gains or losses on available-for-sale marketable securities.

                  EARNINGS/LOSS PER SHARE
                  -----------------------
                  The Company utilizes Statement of Financial Accounting
                  Standards No. 128 "Earnings Per Share", (SFAS 128), whereby
                  basic earnings per share ("EPS") excludes dilution and is
                  computed by dividing earnings available to common stockholders
                  by the weighted-average number of common shares outstanding
                  during the period. Diluted EPS assumes conversion of dilutive
                  options and warrants, and the issuance of common stock for all
                  other potentially dilutive equivalent shares outstanding.



                                      F-10
<Page>

                          STRATUS SERVICES GROUP, INC.
                          NOTES TO FINANCIAL STATEMENTS


NOTE 1 -          NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
                  ----------------------------------------------------------
                  POLICIES - CONTINUED
                  --------
                  EARNINGS/LOSS PER SHARE
                  -----------------------
                  Following is a reconciliation of the numerator and denominator
                  of Basic EPS to the numerator and denominator of Diluted EPS
                  for all years presented.

<Table>
<Caption>
                                                                             Year Ended September 30,
                                                                     2001                2000               1999
                                                                     ----                ----               ----
<S>                                                             <C>                 <C>                 <C>
                 Numerator:
                 Basic EPS
                     Net earnings (loss)                        $ (5,847,457)       $   1,045,910       $ (1,527,043)
                     Dividends and accretion on
                         preferred stock                               63,000                  --                  --
                                                                ----------------    ----------------    --------------
                 Net earnings (loss) attributable to
                     common stockholders                        $ (5,910,457)       $   1,045,910       $ (1,527,043)
                                                                ================    ================    ==============

                 Denominator:
                 Basic EPS
                     Weighted average shares outstanding            5,996,134           4,931,914           3,828,530
                                                                ----------------    ----------------    --------------
                     Per share amount                           $       (.99)       $         .21       $       (.40)
                                                                ================    ================    ==============

                 Effect of stock options and warrants                      --             291,594                  --

                 Dilutive EPS
                     Weighted average shares outstanding
                         including incremental shares               5,996,134           5,223,508           3,828,530
                                                                ----------------    ----------------    --------------
                     Per share amount                           $       (.99)       $         .20       $       (.40)
                                                                ================    ================    ==============
</Table>

                  INVESTMENT
                  ----------
                  The investment represents securities available for sale which
                  are stated at fair value. Unrealized holding gains and losses
                  are reflected as a net amount in accumulated other
                  comprehensive loss until realized. There were no gross
                  realized gains and losses on sales of available-for-sale
                  securities for the years ended September 30, 2001, 2000 and
                  1999. At September 30, 2001, the Company's securities
                  available-for-sale consisted of an investment in a
                  publicly-traded foreign company (see note 4).

                  PROPERTY AND EQUIPMENT
                  ----------------------
                  Property and equipment is stated at cost, less accumulated
                  depreciation. Depreciation is provided over the estimated
                  useful lives of the assets as follows:

<Table>
<Caption>
                                                                                                Estimated
                                                                Method                         Useful Life
                                                                ------                         -----------
<S>                                                        <C>                                   <C>
                      Furniture and fixtures               Declining balance                     5 years
                      Office equipment                     Declining balance                     5 years
                      Computer equipment                     Straight-line                       5 years
                      Computer software                      Straight-line                       3 years
                      Vans                                   Straight-line                       5 years
</Table>

                  GOODWILL
                  --------
                  Goodwill is amortized on a straight-line basis over fifteen
                  years except for acquisitions after June 30, 2001 where
                  goodwill is not being amortized.

                  Periodically, the Company will determine if there has been a
                  permanent impairment of goodwill by comparing anticipated
                  undiscounted cash flows for operating activities of acquired
                  businesses with



                                      F-11
<Page>

                          STRATUS SERVICES GROUP, INC.
                          NOTES TO FINANCIAL STATEMENTS


NOTE 1 -          NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
                  ----------------------------------------------------------
                  POLICIES - CONTINUED
                  --------
                  GOODWILL
                  --------
                  the carrying value of the related goodwill. In this connection
                  the Company charged $700,000 to operations in the year ended
                  September 30, 2001.

                  FACTORING
                  ---------
                  The Company's factoring agreement (see Note 5) with a
                  financing institution ("factor") has been accounted for as a
                  sale of receivables under Statement of Financial Accounting
                  Standards No. 125 "Accounting for Transfers and Services of
                  Financial Assets and Extinguishment of Liabilities". ("SFAS"
                  No. 125)

                  FAIR VALUES OF FINANCIAL INSTRUMENTS
                  ------------------------------------
                  Fair values of cash and cash equivalents, accounts receivable,
                  due from factor, accounts payable and short-term borrowings
                  approximate cost due to the short period of time to maturity.
                  Fair values of long-term debt, which have been determined
                  based on borrowing rates currently available to the Company
                  for loans with similar terms or maturity, approximate the
                  carrying amounts in the financial statements.

                  STOCK - BASED COMPENSATION
                  --------------------------
                  Statement of Financial Accounting Standards No. 123
                  "Accounting for Stock Based Compensation" ("SFAS" 123") allows
                  a company to adopt a fair value based method of accounting for
                  its stock-based compensation plans or continue to follow the
                  intrinsic value method of accounting prescribed by Accounting
                  Principles Board Opinion ("APB") No. 25, "Accounting for Stock
                  Issued to Employees". The Company accounts for stock-based
                  compensation in accordance with the provisions of APB No. 25,
                  and complies with the disclosure provisions of SFAS No. 123.
                  Under APB No. 25, compensation cost for stock options is
                  measured as the excess, if any, of the quoted market price of
                  the Company's stock at the date of the grant over the amount
                  an employee must pay to acquire the stock.

                  INCOME TAXES
                  ------------
                  The Company recognizes deferred tax assets and liabilities
                  based on differences between the financial reporting and tax
                  bases of assets and liabilities using the enacted tax rates
                  and laws that are expected to be in effect when the
                  differences are expected to be recovered. The Company provides
                  a valuation allowance for deferred tax assets for which it
                  does not consider realization of such assets to be more likely
                  than not.

                  ADVERTISING COSTS
                  -----------------
                  Advertising costs are expensed as incurred. The expenses for
                  the years ended September 30, 2001, 2000 and 1999 were
                  $189,000, $185,000 and $133,000, respectively, and are
                  included in selling, general and administrative expenses.

                  IMPAIRMENT OF LONG-LIVED ASSETS
                  -------------------------------
                  The Company evaluates the recoverability of its long-lived
                  assets in accordance with Statement of Financial Accounting
                  Standards No. 121 "Accounting for the Impairment of Long-Lived
                  Assets and for Long-Lived Assets to be Disposed of" ("SFAS No.
                  121"). SFAS No. 121 requires recognition of impairment of
                  long-lived assets in the event the net book value of such
                  assets exceeds the future undiscounted cash flows attributable
                  to such assets.

                  NEW ACCOUNTING PRONOUNCEMENTS
                  -----------------------------
                  In June 1998, the Financial Accounting Standards Board
                  ("FASB") issued Statement of Financial Accounting Standards
                  ("SFAS") No. 133, Accounting for Derivative Instruments and
                  Hedging Activities. As amended by SFAS 138, SFAS No. 133 is
                  effective for all fiscal quarters of all fiscal years
                  beginning after June 15, 2000. SFAS No. 133 establishes
                  accounting and reporting standards for derivative instruments,
                  including certain derivative instruments embedded in other
                  contracts, and for hedging activities. This statement did not
                  have a material impact on the Company's financial position and
                  results of operations.



                                      F-12
<Page>

                          STRATUS SERVICES GROUP, INC.
                          NOTES TO FINANCIAL STATEMENTS


NOTE 1 -          NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
                  ----------------------------------------------------------
                  POLICIES - CONTINUED
                  --------
                  NEW ACCOUNTING PRONOUNCEMENTS
                  -----------------------------
                  In December 1999, the Securities and Exchange Commission staff
                  released Staff Accounting Bulletin No. 101, Revenue
                  Recognition in Financial Statements (SAB 101), which provides
                  guidance on the recognition, presentation and disclosure of
                  revenue in financial statements. The Company believes its
                  revenue recognition policies do not significantly differ from
                  SAB 101.

                  In September 2000, the FASB issued SFAS No. 140 "Accounting
                  for Transfers and Servicing of Financial Assets and
                  Extinguishment of Liabilities" which is a replacement of SFAS
                  No. 125. SFAS No. 140 is effective for transfers and servicing
                  of financial assets and extinguishment of liabilities
                  occurring after March 31, 2001. This statement did not have a
                  material impact on the Company's financial position and
                  results of operations.

                  In June 2001, the FASB issued SFAS No. 141, "Business
                  Combinations". SFAS No. 141 establishes new standards for
                  accounting and reporting requirements for business
                  combinations and requires that the purchase method of
                  accounting be used for all business combinations initiated
                  after June 30, 2001. SFAS No. 141 also requires that acquired
                  intangible assets be recognized as assets apart from goodwill
                  if they meet one of the two specified criteria. Additionally,
                  the statement adds certain disclosure requirements to those
                  required by APB 16, including disclosure of the primary
                  reasons for the business combination and the allocation of the
                  purchase price paid to the assets acquired and liabilities
                  assumed by major balance sheet caption. This statement is
                  required to be applied to all business combinations initiated
                  after June 30, 2001 and to all business combinations accounted
                  for using the purchase method for which the date of
                  acquisition is July 1, 2001 or later. Use of the
                  pooling-of-interests method is prohibited. The adoption of
                  SFAS No. 141 did not have an impact on the Company's financial
                  condition or results of operations.

                  In June 2001, the FASB issued SFAS No. 142, "Goodwill and
                  Other Intangible Assets". SFAS No. 142, which must be applied
                  to fiscal years beginning after December 15, 2001, modifies
                  the accounting and reporting of goodwill and intangible
                  assets. The pronouncement requires entities to discontinue the
                  amortization of goodwill, reallocate all existing goodwill
                  among its reporting segments based on criteria set by SFAS No.
                  142 and perform initial impairment tests by applying a
                  fair-value-based analysis on the goodwill in each reporting
                  segment. Any impairment at the initial adoption date shall be
                  recognized as the effect of a change in accounting principle.
                  Subsequent to the initial adoption, goodwill shall be tested
                  for impairment annually or more frequently if circumstances
                  indicate a possible impairment.

                  Under SFAS No. 142, entities are required to determine the
                  useful life of other intangible assets and amortize the value
                  over the useful life. If the useful life is determined to be
                  indefinite, no amortization will be recorded. For intangible
                  assets recognized prior to the adoption of SFAS No. 142, the
                  useful life should be reassessed. Other intangible assets are
                  required to be tested for impairment in a manner similar to
                  goodwill. At September 30, 2001, the Company's net goodwill
                  was approximately $7,815,000, and annual amortization of such
                  goodwill was approximately $341,000. The Company expects to
                  adopt SFAS No. 142 during its first fiscal quarter of fiscal
                  2003. Because of the extensive effort required to comply with
                  the remaining provisions of SFAS Nos. 141 and 142, the Company
                  cannot reasonably estimate the impact on its financial
                  statements of these provisions beyond discontinuing
                  amortization.

                  In August 2001, the FASB issued SFAS No. 144, "Accounting for
                  the Impairment or Disposal of Long-Lived Assets". SFAS No. 144
                  supercedes SFAS No. 121, "Accounting for the Impairment of
                  Long-Lived Assets and for Long-Lived Assets to be Disposed
                  of". SFAS No. 144 establishes a single accounting model for
                  long-lived assets to be disposed of by sale and requires that
                  those long-lived assets be measured at the lower of carrying
                  amount or fair value less cost to sell, whether reported in
                  continuing operations or in discontinued operations. SFAS No.
                  144 is effective for fiscal years beginning after December 15,
                  2001. The Company does not anticipate that this statement will
                  have a material impact on its financial position and results
                  of operations.



                                      F-13
<Page>

                          STRATUS SERVICES GROUP, INC.
                          NOTES TO FINANCIAL STATEMENTS


NOTE 2 -          INITIAL PUBLIC OFFERING
                  -----------------------
                  On May 5, 2000, the Company completed its initial public
                  offering ("IPO") of 1,300,000 shares of common stock at a
                  price of $6.00 per share, generating net proceeds of
                  approximately $5,930,000 after deducting underwriters
                  discounts and offering costs of approximately $1,870,000.

NOTE 3 -          ACQUISITIONS
                  ------------
                  On January 4, 1999, the Company entered into an asset purchase
                  agreement with B&R Employment, Inc. ("B&R"). The Company
                  purchased certain assets including office equipment, furniture
                  and fixtures, sales and operating records, customer contracts
                  and agreements, vendor lists, and seller's licenses and
                  certificates. The purchase price was $2,400,000, consisting of
                  notes for $1,880,000 and the issuance of 34,667 shares of the
                  Company's common stock. B&R had a put option to sell these
                  shares back to the Company at $15 per share, provided that the
                  Company did not conduct an initial public offering within
                  twenty-four months. As a result of the IPO, $520,000 of
                  "Temporary equity - put options" representing 34,667 shares in
                  connection with the acquisition was transferred to additional
                  paid-in capital. In February 2000, the Company entered into a
                  debt-equity conversion agreement with B&R whereby, B&R agreed
                  to convert, except for $666,000, the amounts due under the
                  notes payable-acquisition, including accrued interest, into
                  shares of the Company's common stock upon the Company's
                  initial public offering of securities. The number of shares to
                  be issued was based on the offering price in the initial
                  public offering. In April 2000, the agreement was amended to
                  provide that B&R would convert $500,000 into shares of the
                  Company's common stock. Accordingly, upon the completion of
                  the IPO, B&R was issued 83,333 shares of the Company's common
                  stock and the notes were paid in full.

                  In connection with this acquisition, the Company entered into
                  an employment and a non-compete agreement for a three-year
                  period with the sole stockholder of B&R. The excess of cost
                  paid over net assets acquired resulted in goodwill of
                  $2,414,903, computed as follows:

<Table>
<S>                                                                                   <C>
                 Net assets acquired
                      Office equipment                                                $           7,000
                      Amounts paid
                          Notes payable (net of $35,527 discount)                             1,844,473
                          Issuance of common stock and put options                              520,000
                          Finders' fees                                                          57,430
                                                                                      -------------------
                                                                                              2,421,903

                                                                                      -------------------

                      Excess of amounts paid over net assets acquired - goodwill      $       2,414,903
                                                                                      ===================
</Table>

                  On June 26, 2000, the Company purchased substantially all of
                  the tangible and intangible assets, excluding accounts
                  receivable, of eight offices of Tandem, a division of
                  Outsource International, Inc. ("Outsource"). The purchase
                  price was $1,300,000, of which $800,000 was paid in cash at
                  the closing and the remaining $500,000 was represented by two
                  promissory notes. The first note, representing $400,000 was
                  payable in two installments of $200,000 plus accrued interest
                  at 8.5% a year, within 90 days and 180 days after closing. The
                  second note, representing $100,000 bears interest at 8.5% a
                  year and is payable in twelve equal monthly installments
                  beginning January 1, 2001. As of September 30, 2001, the
                  Company paid only two installments on the second note and the
                  balance of approximately $83,000 is included in the current
                  portion of "Notes payable - acquisitions" on the attached
                  balance sheet as of September 30, 2001.

                  The excess of cost paid over net assets acquired resulted in
                  goodwill of $1,562,693, computed as follows:



                                      F-14
<Page>

                          STRATUS SERVICES GROUP, INC.
                          NOTES TO FINANCIAL STATEMENTS



NOTE 3 -          ACQUISITIONS - CONTINUED
                  ------------

<Table>
<S>                                                                                   <C>
                  Net assets acquired
                      Furniture and equipment                                         $             38,175
                      Accrued holiday and vacation pay                                            (47,000)
                                                                                      ---------------------
                                                                                                   (8,825)
                                                                                      ---------------------
                  Amounts paid
                      Cash                                                                         800,000
                      Notes payable                                                                500,000
                      Finder's fees and other costs                                                253,868
                                                                                      ---------------------
                                                                                                 1,553,868
                                                                                      ---------------------

                      Excess of amounts paid over net assets acquired - goodwill      $          1,562,693
                                                                                      =====================
</Table>

                  On October 27, 2000, the Company purchased substantially all
                  of the tangible and intangible assets, excluding accounts
                  receivable, of seven offices of Tandem, a division of
                  Outsource International, Inc. The initial purchase price for
                  the assets was $125,000; of which $50,000 was paid in cash at
                  the closing and the remaining $75,000 was represented by a
                  promissory note secured by the assets purchased by the
                  Company. The note was payable in twenty-four equal monthly
                  installments of principal and interest at a variable rate of
                  prime plus two percent beginning December 1, 2000. In January
                  2001, the Company exercised an option to repay the outstanding
                  balance of the note plus $175,000 in lieu of an earnout
                  payment of thirty percent of the Earnings Before Interest,
                  Taxes, Depreciation and Amortization ("EBITDA") of the
                  acquired business for a two year period. The excess of cost
                  paid over net assets acquired resulted in goodwill of
                  $855,718, computed as follows:

<Table>
<S>                                                                                   <C>
                  Net assets acquired
                      Furniture and equipment                                         $             31,650
                      Accrued holiday and vacation pay                                             (21,758)
                                                                                      ---------------------
                                                                                                     9,892
                                                                                      ---------------------
                      Amounts paid
                             Cash                                                                   50,000
                             Note payable                                                           75,000
                             Earnout payable                                                       175,000
                             Finder's fees and other costs                                         565,610
                                                                                      ---------------------
                                                                                                   865,610
                                                                                      ---------------------

                      Excess of amounts paid over net assets acquired - goodwill      $            855,718
                                                                                      =====================
</Table>

                  On January 2, 2001, the Company purchased substantially all of
                  the tangible and intangible assets of Cura Staffing, Inc. and
                  The WorkGroup Professional Services, Inc. The purchase price
                  was $175,000 of which $100,000 was paid in cash at the closing
                  and the remaining $75,000 was represented by a 90-day
                  promissory note for $50,000 and $25,000 payable $5,000 a month
                  beginning after the payment of the 90-day promissory note. The
                  promissory note bears interest at 6% a year. As of September
                  30, 2001, the Company has not paid a portion of the $50,000
                  note and the entire $25,000 note. The balance of approximately
                  $31,000 is included in the current portion of "Notes payable -
                  acquisitions" on the attached balance sheet as of September
                  30, 2001.

                  The excess of cost paid over net assets acquired resulted in
                  goodwill of $228,144, computed as follows:



                                      F-15
<Page>

                          STRATUS SERVICES GROUP, INC.
                          NOTES TO FINANCIAL STATEMENTS


NOTE 3 -          ACQUISITIONS - CONTINUED

<Table>
<S>                                                                                   <C>
                  Net assets acquired
                      Furniture and equipment                                         $             11,000
                      Accrued holiday and vacation pay                                             (12,000)
                                                                                      ---------------------
                                                                                                    (1,000)
                                                                                      ---------------------
                      Amounts paid
                             Cash                                                                  100,000
                             Note payable and other payables                                        75,000
                             Finder's fees and other costs                                          52,144
                                                                                      ---------------------
                                                                                                   227,144
                                                                                      ---------------------

                      Excess of amounts paid over net assets acquired - goodwill      $            228,144
                                                                                      =====================
</Table>

                  On July 27, 2001, the Company purchased substantially all of
                  the tangible and intangible assets, excluding accounts
                  receivable of the clerical and light industrial staffing
                  division of Source One Personnel, Inc. ("Source One"). As a
                  result of the acquisition, the Company will expand its
                  presence in the Philadelphia to New York corridor.

                  The initial purchase price for the assets was $3,400,000, of
                  which $200,000, in cash, and 400,000 shares of the Company's
                  restricted common stock were paid at the closing and the
                  remaining $2,400,000 was represented by two promissory notes.
                  In addition, Source One is entitled to earnout payments based
                  upon the acquired business achieving certain performance
                  levels during each of the three fiscal years beginning October
                  1, 2001. There was an additional $42,163 of costs incurred in
                  connection with the acquisition. The first note, representing
                  $600,000, is payable in one installment of $600,000 plus
                  accrued interest at 7% per year, at 180 days after the
                  closing. The second note, representing $1,800,000 bears
                  interest at 7% per year and is payable over a four-year period
                  in equal quarterly payments beginning 120 days after the
                  closing. Source One has agreed to allow the Company to
                  defer the payment of the first note and the February 2002
                  installment of the second note until the earlier of the
                  receipt of the proceeds from the sale of the Company's
                  Engineering Division (see Note 24) or April 30, 2002. Source
                  One has a put option to sell the shares back to the Company
                  at $2 per share between 24 months after the closing and final
                  payment of the second note, but not less than 48 months.

                  The following table summarizes the fair value of the assets
                  acquired at the date of acquisition based upon a third-party
                  valuation of certain intangible assets:

                                 Property and Equipment     $    105,000
                                 Intangible assets               636,300
                                 Goodwill                      2,700,863
                                                            -------------

                                 Total assets acquired      $  3,442,163
                                                            =============

                  Of the $636,300 of intangible assets, $127,300 was assigned to
                  a covenant-not-to-compete and $509,000 was assigned to the
                  customer list. The intangible assets are being amortized over
                  their estimated useful life of four years. Goodwill is not
                  being amortized under the provision of SFAS No. 142. All of
                  the goodwill is expected to be deductible for tax purposes.

                  The above acquisitions have been accounted for as purchases.
                  The results of operations are included in the Company's
                  statements of operations from the effective date of
                  acquisition.

                  The unaudited pro forma results of operations presented below
                  assume that the acquisitions had occurred at the beginning of
                  fiscal 2000. This information is presented for informational
                  purposes only and include certain adjustments such as goodwill
                  amortization resulting from the acquisitions and interest
                  expense related to acquisition debt.



                                      F-16
<Page>

                          STRATUS SERVICES GROUP, INC.
                          NOTES TO FINANCIAL STATEMENTS


NOTE 3 -          ACQUISITIONS - CONTINUED

<Table>
<Caption>

                                                                        Year Ending September 30,
                                                                         2001                  2000
                                                                         ----                  ----
<S>                                                                <C>                   <C>
                  Revenues                                         $   74,803,000        $   82,593,000

                  Net earnings (loss) attributable to
                      common stockholders                             (5,261,000)             2,408,000

                  Net earnings (loss) per share attributable
                      to common stockholders
                          Basic                                    $        (.88)        $          .49
                          Diluted                                  $        (.88)        $          .46
<Caption>

                  The maturities on notes payable-acquisitions are as follows:

                           Year Ending September 30
                  -------------------------------------------
<S>                                      <C>
                          2002           $       1,110,726
                          2003                     435,875
                          2004                     467,197
                          2005                     500,775
                                         --------------------
                                         $       2,514,573
                                         ====================
</Table>

NOTE 4 -          TRANSACTIONS WITH ARTISAN (UK) PLC

                  On June 26, 2001, the Company entered into an agreement to
                  purchase 63,025,000 ordinary shares, representing 26.3% of the
                  outstanding shares of enterpriseAsia. com ("EPA"), a London
                  AIM listed company, from Artisan (UK) plc ("Artisan"). In
                  exchange, the Company agreed to issue to Artisan 850,837
                  shares of the Company's Series A preferred stock. The Series A
                  preferred stock pays cumulative dividends at $.21 per share
                  per year, payable semi-annually, commencing on December 31,
                  2001. Beginning on October 1, 2001 the preferred stock shares
                  are convertible at the option of the holder into shares of the
                  Company's common stock on a one-for-one basis. On June 30,
                  2008, the Company will be required to redeem any shares of
                  Series A preferred stock outstanding at a redemption price of
                  $3.00 per share together with accrued and unpaid dividends,
                  payable, at the Company's option, either in cash or in shares
                  of common stock. This transaction was consummated, effective
                  August 15, 2001.

                  The cost of the investment in EPA and value assigned to the
                  preferred stock issued was based upon the market price per
                  share of EPA on the date the transaction was consummated.
                  Accordingly, the original cost of the investment was
                  $1,592,000 and, therefore, the 850,837 shares of preferred
                  stock were assigned a value of $1.87 per share.

                  On July 3, 2001, the Company received $900,000 from
                  Artisan.com Limited ("Artisan.com"), a company affiliated with
                  Artisan, in exchange for 900,000 shares of the Company's
                  common stock in a private placement. The transaction was in
                  accordance with an agreement dated June 26, 2001 between the
                  Company and Artisan.com. The agreement provides that the
                  Company may offer and Artisan.com may buy additional shares of
                  the Company's common stock not exceeding $2,200,000 between
                  August 15, 2001 and December 31, 2001. The price per share is
                  the average market price per share over the five trading days
                  immediately preceding the issuance of the shares.

                  In connection with the transactions with Artisan and
                  Artisan.com, the Company issued 608,096 shares of its Series A
                  preferred stock and 30,000 shares of its common stock for
                  finders' fees to third parties.

                  The value of the preferred stock and common stock issued for
                  finders' fees was allocated to the investment in EPA and a
                  reduction to additional paid-in capital based on the relative
                  value of the original investment of $1,592,000 and the
                  $900,000 received for the 900,000 shares of the

                                      F-17
<Page>

                          STRATUS SERVICES GROUP, INC.
                          NOTES TO FINANCIAL STATEMENTS


NOTE 4 -          TRANSACTIONS WITH ARTISAN (UK) PLC - CONTINUED

                  Company's common stock. Accordingly, the original cost of the
                  investment in EPA increased by $757,000 and additional paid-in
                  capital was reduced by $417,700.

                  The Company is unable to exercise significant influence over
                  EPA's operating and financial policies. Therefore, the
                  investment in EPA is classified as available-for-sale
                  securities and reported at fair value in the attached balance
                  sheet.

NOTE 5 -          FACTORING AGREEMENT

                  The Company had a factoring agreement under which it was able
                  to sell up to $3,000,000 of qualified trade accounts
                  receivable, with limited recourse provisions. The Company was
                  required to repurchase or replace any receivable remaining
                  uncollected for more than 90 days. During the years ended
                  September 30, 2001, 2000 and 1999, gross proceeds from the
                  sale of receivables was $10,204,208, $34,179,692 and
                  $25,227,640, respectively.

                  On December 12, 2000, the Company terminated its agreement
                  with the factor. As part of the termination agreement, the
                  Company repurchased all accounts receivable from the factor
                  with proceeds from a new line of credit (See note 6).

NOTE 6 -          LINE OF CREDIT

                  On December 12, 2000, the Company entered into a loan and
                  security agreement with a lending institution whereby the
                  Company can borrow up to 90% of eligible accounts receivable,
                  as defined, not to exceed the lesser of $12 million or six
                  times the Company's tangible net worth (as defined).
                  Borrowings under the agreement bear interest at 1 1/2% above
                  the prime rate and are collateralized by substantially all of
                  the Company's assets. The agreement expires on June 12, 2002.
                  Approximately $5,100,000 of the initial borrowing under this
                  agreement was used to repurchase accounts receivable from the
                  factor (see Note 5). The prime rate at September 30, 2001 was
                  6%.

NOTE 7 -          PROPERTY AND EQUIPMENT

                  Property and equipment consist of the following as of
                  September 30:

<Table>
<Caption>

                                                                       2001                    2000
                                                                 ------------------    ---------------------
<S>                                                              <C>                   <C>
                  Furniture and fixtures                         $         614,980     $         206,307
                  Office equipment                                         109,498                72,729
                  Computer equipment                                     1,130,301               810,226
                  Computer software                                        244,095               113,500
                  Vans                                                     216,319               208,570
                                                                 ------------------    ---------------------
                                                                         2,315,193             1,411,332
                  Accumulated depreciation                               (702,977)             (292,707)
                                                                 ------------------    ---------------------
                  Net property and equipment                     $       1,612,216     $       1,118,625
                                                                 ==================    =====================

<Caption>

NOTE 8 -          INTANGIBLE ASSETS

                  Intangible assets consist of the following as of September 30:

                                                                       2001                    2000
                                                                 ------------------    ---------------------
<S>                                                              <C>                   <C>
                  Goodwill                                       $       7,814,822     $       4,030,096
                  Covenant-not-to-compete                                  127,300                    --
                  Customer list                                            509,000                    --
                  Less:   accumulated amortization                       (672,694)             (313,558)
                  Less:   impairment loss                                (700,000)                    --
                                                                 ------------------    ---------------------
                                                                 $       7,078,428     $       3,716,538
                                                                 ==================    =====================
</Table>


                                      F-18
<Page>

                          STRATUS SERVICES GROUP, INC.
                          NOTES TO FINANCIAL STATEMENTS


NOTE 9 -          JOINT VENTURE

                  The Company provides information technology staffing services
                  through a joint venture, Stratus Technology Services, LLC
                  ("STS"), in which the Company has a 50% interest. A son of
                  the Chief Executive Officer of the Company and the
                  Secretary and General Counsel of the Company have a
                  minority interest in the other 50% venturer. STS commenced
                  operations during the year ended September 30, 2001. The
                  Company's loss from operations of STS of $6,933 for the
                  year ended September 30, 2001 is included in other revenue
                  (expense) on the statements of operations.

NOTE 10 -         LOANS PAYABLE

                  Loans payable consist of the following as of September 30:

<Table>
<Caption>

                                                                            2001                   2000
                                                                      ------------------    -------------------
<S>                                                                   <C>                   <C>
                 Notes, secured by vans with a book value
                     of $147,528 as of  September 30, 2001      (i)   $         134,698     $         161,712
                 18% promissory notes                          (ii)             240,000                    --
                 Stock repurchase note                         (iii)            248,834                    --
                 Other                                                           15,000                    --
                                                                      ------------------    -------------------
                                                                                638,532               161,712
                 Less current portion                                         (347,289)              (27,012)
                                                                      ------------------    -------------------
                 Current portion                                      $         291,243     $         134,700
                                                                      ==================    ===================
</Table>

                  (i)      Payable $3,453 per month, including interest at 9.25%
                           to 10% a year.
                  (ii)     Due in April 2002 interest is payable monthly at 18%
                           a year. In addition, the Company issued 60,000 shares
                           of its common stock to the noteholders. The
                           noteholders have the right to demand the repurchase
                           by the Company of the shares issued, until the notes
                           are paid in full, at $1.00 per share plus 15%
                           interest. Accordingly, $9,000 was charged to interest
                           expense in the year ended September 30, 2001 and
                           $69,000, representing the put option plus interest,
                           is included in "Temporary equity - put options" on
                           the attached balance sheet as of September 30, 2001.
                  (iii)    Promissory note issued in January 2001 in connection
                           with the purchase of treasury stock. Note is payable
                           $8,000 per month, including interest at 15% a year.

                  The maturities on loans payable are as follows:
                           Year Ending September 30
                  -------------------------------------------
                          2002           $         347,289
                          2003                     105,345
                          2004                     120,317
                          2005                      65,581
                                         --------------------
                                         $         638,532
                                         ====================

                  Other loans aggregating $600,000 were settled by the issuance
                  of 160,000 shares of the Company's common stock at $3.75 per
                  share during the year ended September 30, 1999. Other loans
                  during the year ended September 30, 2000, aggregating
                  $100,000, $200,000 and $200,000, were settled by the issuance
                  of 26,667 shares at $3.75 per share and 50,000 shares at $4.00
                  per share and 33,333 shares at $6.00 per share, respectively.

NOTE 11 -         RELATED PARTY TRANSACTIONS

                  CONSULTING AGREEMENT

                  The son of the Chief Executive Officer of the Company provides
                  consulting services to the Company. Consulting expense was
                  $281,000, $156,000 and $107,000 for the years ended September
                  30, 2001, 2000 and 1999, respectively.

                  The Company has paid consulting fees to an entity whose
                  stockholder is another son of the Chief Executive Officer of
                  the Company. Consulting fees amounted to $119,000, $9,000 and
                  $23,000 for the years ended September 30, 2001, 2000 and 1999,
                  respectively.


                                      F-19
<Page>

                          STRATUS SERVICES GROUP, INC.
                          NOTES TO FINANCIAL STATEMENTS


NOTE 11 -         RELATED PARTY TRANSACTIONS - CONTINUED

                  REVENUES

                  The Company provided payroll services to an entity whose Chief
                  Executive Officer is the son of the Chief Executive Officer of
                  the Company. Revenues related thereto for the years ended
                  September 30, 2001, 2000 and 1999, were $-0-, $364,000 and
                  $1,392,000, respectively. In August 1999, $663,000 of accounts
                  receivable from this related party was converted into a note
                  of $1,017,000. The difference was attributable to interest,
                  which has not been accrued by the Company since all of the
                  receivable had previously been reserved for as a doubtful
                  account. All of the doubtful accounts receivable arose prior
                  to the entity becoming a related party. The accounts
                  receivable were generated through December 1998 and the entity
                  became a related party in March 1999. In September 1999, the
                  Company had agreed to accept 500,000 shares of the related
                  party's common stock as full payment for the note. Although
                  the shares of the related party's common stock were publicly
                  traded, the 500,000 shares held by the Company were restricted
                  at the time of issuance. Accordingly, the investment was
                  valued at $-0-. Subsequent thereto, the related party filed
                  for bankruptcy and discontinued its operations.

                  The Company also provided payroll services to a non-public
                  entity whose common stock is owned 50% by the Chief Executive
                  Officer of the Company. For the years ended September 30,
                  2001, 2000 and 1999, revenues were $-0-, $-0- and $304,000,
                  respectively.

                  In August 1999, the Chief Executive Officer of the Company and
                  his son agreed to exchange, effective June 30, 1999, $440,000
                  of notes payable by the Company to them, plus accrued interest
                  of $52,762 for 131,403 shares of the Company's common stock.
                  The stock was valued at $3.75 per share, which represented
                  fair value based on the latest stock transactions and no gain
                  or loss was recorded on the transaction.

                  SALE OF COMMON STOCK

                  During the year ended September 30, 2001, the Company sold
                  382,999 shares of its common stock in private placements to
                  relatives of the Chief Executive Officer of the Company at
                  prices approximating the then current market of $.93 to $1.43
                  per share, for total gross proceeds of $410,000, less expenses
                  of $5,958.

NOTE 12 -         ACCOUNTS PAYABLE AND ACCRUED EXPENSES

<Table>
<Caption>

                                                                  2001                    2000
                                                            -----------------      -------------------
<S>                                                         <C>                    <C>
                 Accounts payable                           $      2,513,749       $         980,880
                 Accrued compensation                                285,022                  94,457
                 Workers' compensation claims reserve                273,657                      --
                 Accrued other                                       349,368                  96,811
                                                            -----------------      -------------------
                                                            $      3,421,796       $       1,172,148
                                                            =================      ===================
</Table>

NOTE 13 -         INCOME TAXES

                  Deferred tax attributes resulting from differences between
                  financial accounting amounts and tax bases of assets and
                  liabilities follow:

<Table>
<Caption>

                                                                         2001                     2000
                                                                  -------------------     ---------------------
<S>                                                               <C>                               <C>
                  Current assets and liabilities
                       Allowance for doubtful accounts            $         220,000                 102,000
                       Allowance for recourse obligation                         --       $          12,000
                       Net operating loss carryforward                           --                 340,000
                       Valuation allowance                                (220,000)               (114,000)
                                                                  -------------------     ---------------------
                  Net current deferred tax asset                  $              --       $         340,000
                                                                  ===================     =====================
</Table>


                                      F-20
<Page>

                          STRATUS SERVICES GROUP, INC.
                          NOTES TO FINANCIAL STATEMENTS


NOTE 13 -         INCOME TAXES - CONTINUED

<Table>
<S>                                                               <C>                     <C>
                  Non-current assets and liabilities
                       Net operating loss carryforward            $       2,694,000       $         462,000
                       Stock compensation                                        --                  27,000
                       Depreciation                                              --                 (5,000)
                       Valuation allowance                              (2,694,000)               (484,000)
                                                                  -------------------     ---------------------
                  Net non-current deferred tax asset (liability)  $              --       $              --
                                                                  ===================     =====================

<Caption>

                  The change in valuation allowances was an increase of
                  $2,316,000 and a decrease of $560,000 for the years ended
                  September 30, 2001 and 2000, respectively.

                                                                 2001               2000                1999
                                                            ---------------    ----------------    ---------------
<S>                                                         <C>                <C>                 <C>
                Income taxes (benefit) is comprised of:

                     Current                                $         --       $         --        $        --
                     Deferred                                (1,976,000)            220,000                 --
                     Change in valuation allowance             2,316,000          (560,000)                 --
                                                            ---------------    ----------------    ---------------
                                                            $    340,000       $  (340,000)        $        --
                                                            ===============    ================    ===============
</Table>


                  At September 30, 2001, the Company has available the following
                  federal net operating loss carryforwards for tax purposes:

                           Expiration Date
                             Year Ending
                            September 30,
                  ----------------------------

                                 2012                $     123,000
                                 2018                    1,491,000
                                 2019                      392,000
                                 2021                    4,730,000

                  The utilization of the net operating loss carryforwards may be
                  limited due to changes in control.

                  The effective tax rate on net earnings (loss) varies from the
                  statutory federal income tax rate for periods ended September
                  30, 2001, 2000 and 1999.

<Table>
<Caption>

                                                               2001                 2000                 1999
                                                          ----------------    ------------------    ----------------
<S>                                                               <C>               <C>                 <C>
                  Statutory rate                                  (34.0)%            34.0%              (34.0)%
                  State taxes net                                  (6.0)              6.0                (6.0)
                  Other differences, net                           (0.4)              1.4                 1.3
                  Valuation allowance                              40.4             (79.4)               38.7
                  Benefit from net operating loss
                       carryforwards                                  --            (10.2)                 --
                                                          ----------------    ------------------    ----------------
                                                                      --%           (48.2)%                --%
                                                          ================    ==================    ================
</Table>

NOTE 14 -         CONVERTIBLE DEBT

                  At various times during the year ended September 30, 2001, the
                  Company issued, through private placements, a total of
                  $3,643,402 of convertible debentures. The debentures bear
                  interest at 6% a year, payable quarterly and have a maturity
                  date of five years from issuance. Each debenture is
                  convertible after 120 days from issuance into the number of
                  shares of the Company's common stock determined by dividing
                  the principal amount of the debenture by the lesser of (a)
                  120% of the closing bid price of the common stock on the
                  trading day immediately preceding the issuance date or (b) 75%
                  of the average closing bid price of the common stock for the
                  five trading days


                                      F-21
<Page>

                          STRATUS SERVICES GROUP, INC.
                          NOTES TO FINANCIAL STATEMENTS


NOTE 14 -         CONVERTIBLE DEBT - CONTINUED

                  immediately preceding the date of the conversion. The Company
                  has the right to prepay any of the debentures at any time at a
                  prepayment rate that varies from 115% to 125% of the amount of
                  the debenture depending on when the prepayment is made.

                  The discount arising from the 75% beneficial conversion
                  feature aggregated $1,213,747 and is charged to interest
                  expense during the period from the issuance of the debenture
                  to the earliest time at which the debenture becomes
                  convertible.

                  Deferred finance costs incurred in connection with the
                  issuance of the debentures aggregated approximately $738,000
                  and is being amortized over the five year term of the
                  debentures. Included in the $738,000 is $88,000 for 50,000
                  five-year $5.00 warrants and 100,000 five-year $7.50 warrants
                  issued as finders' fees. In addition, the Company paid
                  approximately $280,000 in exchange for extending the earliest
                  conversion date and the maturity date by an additional 120
                  days on approximately $1,048,500 of debentures. This amount
                  was charged to deferred finance costs and is being amortized
                  over 120 days. Included in interest expense for the year ended
                  September 30, 2001 is approximately $146,000 for amortization
                  of deferred finance costs in connection with the debentures.

                  During the year ended September 30, 2001, the Company redeemed
                  $1,897,220 of debentures resulting in a loss of approximately
                  $71,000 which is included in "Other income (expense)" in the
                  statement of operations. The loss is comprised of prepayment
                  premiums ($326,000), and the write-off of deferred finance
                  costs ($377,000), less the amount of the beneficial conversion
                  feature ($632,000).

                  During the year ended September 30, 2001, $542,500 of
                  debentures were converted into 628,060 shares of common stock
                  at prices ranging from $.85 to $.90 per share. The Company
                  issued 108,666 shares of treasury stock to a debenture holder
                  in connection with a conversion.

                  The balance of the convertible debt on the attached balance
                  sheet as of September 30, 2001 is net of unamortized discount
                  of $78,285 and is due at various dates in the year ended
                  September 30, 2006.

NOTE 15 -         PREFERRED STOCK

                  The Company has authorized 5,000,000 shares of preferred stock
                  of which 1,458,933 shares have been designated as Series A
                  preferred stock and issued in connection with transactions
                  with Artisan (see Note 4).

                  The difference between the carrying value and redemption value
                  of the preferred stock is being accreted through a charge to
                  additional paid-in-capital through the June 30, 2008
                  redemption date.

NOTE 16 -         OTHER CHARGES

                  During the year ended September 30, 2001, the Company
                  discontinued negotiations to sell the Engineering Division and
                  discontinued efforts to make certain acquisitions. In this
                  connection, costs associated with these activities were
                  charged to operations. The Company also charged operations for
                  costs incurred in connection with various financing not
                  obtained and costs associated with closed offices. The total
                  charged to operations for the foregoing was $460,800.

                  In September 2001, the Company placed 1,500,000 of
                  unregistered shares of its common stock into an escrow account
                  in anticipation of receiving a loan which was to be
                  collateralized by the shares of common stock. The loan
                  transaction was never consummated, but in October 2001 the
                  shares were illegally transferred out of the escrow account by
                  a third party. Subsequent thereto, all but 89,600 shares were
                  returned to the Company and cancelled. The Company recorded a
                  $59,000 charge to operations in the year ended September 30,
                  2001, representing the market value of the shares not
                  returned. The 89,600 shares will be recorded as issued shares
                  in the quarter ended December 31, 2001 and $59,000 will be
                  credited to stockholders' equity.

                                      F-22
<Page>

                          STRATUS SERVICES GROUP, INC.
                          NOTES TO FINANCIAL STATEMENTS


NOTE 17 -         COMMITMENTS AND CONTINGENCIES
                  OFFICE LEASES

                  The Company leases offices and equipment under various leases
                  expiring through 2006. Monthly payments under these leases are
                  $36,000.

                  The following is a schedule by years of approximate future
                  minimum rental payments required under operating leases that
                  have initial or remaining non-cancelable lease terms in excess
                  of one year, as of September 30, 2001.

                        For the Years Ending
                            September 30,
                  ----------------------------------

                                2002                        $         548,000
                                2003                                  434,000
                                2004                                  298,000
                                2005                                  263,000
                                2006                                  224,000

                  Rent expense was $697,000, $356,000 and $342,000 for the years
                  ended September 30, 2001, 2000 and 1999, respectively.

                  OTHER

                  From time to time, the Company is involved in litigation
                  incidental to its business including employment practices
                  claims. There is currently no litigation that management
                  believes will have a material impact on the Company's
                  financial portion.

NOTE 18 -         TEMPORARY EQUITY

                  Certain stockholders of the Company may have had a right to
                  pursue claims against the Company as a result of possible
                  technical violations of the laws and regulations governing the
                  private placement and issuance of securities. Accordingly, the
                  Company had recorded the original total proceeds of the sale
                  of the shares to these certain stockholders in the amount of
                  $1,618,060 as temporary equity - common shares in the balance
                  sheet. The Company made a rescission offer to stockholders
                  holding approximately 2.8 million shares, pursuant to which
                  the Company offered to repurchase the shares at their original
                  purchase price (plus applicable interest) which ranged from
                  $0.75 to $3.75 per share. As a result of no one accepting the
                  rescission offer during the rescission period and the
                  expiration, in certain cases, of applicable statutes of
                  limitation, the $1,618,060 of temporary equity - common shares
                  was transferred to additional paid-in capital during the year
                  ended September 30, 2000.

                  At September 30, 2001 "Temporary equity - put options" is
                  comprised of $800,000 for put options on 400,000 shares of the
                  Company's stock issued in connection with the acquisition of
                  Source One (see Note 3) and $69,000 for put options on 60,000
                  shares of the Company's stock (see Note 10).

NOTE 19 -         STOCK OPTIONS AND WARRANTS

                  The Company has issued stock options to employees with terms
                  of five to ten years. The options may be exercised for
                  2,107,741 shares.

                  In addition, the Company has issued to the Chief Executive
                  Officer of the Company, options to acquire 1,000,000 shares at
                  $6.00 per share and 500,000 shares at $1.10 per share. These
                  options have a ten-year term and are exercisable at the
                  earlier of five years or when the Company achieves earnings of
                  $1.00 per share in a fiscal year. These options will be
                  forfeited if the Chief Executive Officer leaves the employment
                  of the Company.

                  Pro forma information regarding net income and earnings per
                  share is required by the Financial Accounting Standards Board
                  Statement ("FASB No. 123"), and has been determined as if the


                                      F-23
<Page>

                          STRATUS SERVICES GROUP, INC.
                          NOTES TO FINANCIAL STATEMENTS


NOTE 19 -         STOCK OPTIONS AND WARRANTS - CONTINUED

                  Company had accounted for its employee stock options under the
                  fair value method. The fair value for these options was
                  estimated at the date of grant using the Black-Scholes
                  option-pricing model.

                  The Black-Scholes method option-pricing model was developed
                  for use in estimating the fair value of traded options, which
                  have no vesting restrictions and are fully transferable. In
                  addition, option valuation models require the input of highly
                  subjective assumptions. Because the Company's employee stock
                  options have characteristics significantly different from
                  those of traded options, and because changes in the subjective
                  input assumptions can materially affect the fair value
                  estimate, in management's opinion, the existing models do not
                  necessarily provide a reliable single measure of the fair
                  value of its employee stock options.

                  The following weighted-average assumptions were used:

<Table>
<Caption>

                                                                    September 30,
                                                      2001              2000               1999
                                                  --------------    --------------    ---------------
<S>                                                  <C>               <C>                  <C>
                  Risk- free interest rate                  5%                6%                 5%
                  Dividend yield                            0%                0%                 0%
                  Expected life                      4-7 years         4-7 years            4 years
                  Volatility                               84%               54%               --
</Table>

                  For purposes of pro forma disclosures, the estimated fair
                  value of the options is amortized to expense over the options'
                  vesting period. The Company's pro forma information follows:

<Table>
<Caption>

                                                                                 For the Years Ended
                                                                                    September 30,
                                                                       2001             2000              1999
                                                                  ---------------   --------------    --------------
<S>                                                               <C>               <C>               <C>
                  Pro forma net earnings (loss) attributable
                     to common stockholders                       $(8,064,810)      $   507,051       $ (1,583,829)
                  Pro forma net earnings (loss) per common
                     share attributable to common stockholders
                       Basic                                      $    (1.35)       $       .10       $       (.41)
                       Diluted                                         (1.35)               .10               (.41)
</Table>

                  Compensation expense under APB 25 for the years ended
                  September 30, 2001, 2000 and 1999 was $67,900, $46,800 and
                  $46,800, respectively.

                  A summary of the Company's stock option activity and related
                  information for the years ended September 30 follows:

<Table>
<Caption>

                                                                                                Weighted Average
                                                                          Options                Exercise Price
                                                                  ------------------------    ----------------------
<S>                                                                     <C>                   <C>
                  Outstanding at September 30, 1998                       534,000             $         2.55
                       Granted                                                 --                         --
                       Canceled                                                --                         --
                       Exercised                                               --                         --
                                                                  ------------------------

                  Outstanding at September 30, 1999                       534,000                       2.55
                       Granted                                          1,453,205                       5.91
                       Canceled                                                --                         --
                       Exercised                                               --                         --
                                                                  ------------------------    ----------------------

                                      F-24
<Page>


                          STRATUS SERVICES GROUP, INC.
                          NOTES TO FINANCIAL STATEMENTS

<Caption>

NOTE 19 -         STOCK OPTIONS AND WARRANTS - CONTINUED

<S>                                                                     <C>                             <C>
                  Outstanding at September 30, 2000                     1,987,205                       5.01
                       Granted                                          1,900,000                       2.05
                       Canceled                                         (279,464)                       4.08
                       Exercised                                               --                         --
                                                                  ------------------------    ----------------------
                  Outstanding at September 30, 2001                     3,607,741             $         3.52
                                                                  ========================    ======================
                  Exercisable at September 30, 2001                     1,341,908             $         2.26
                                                                  ========================    ======================
</Table>

                  The exercise prices range from $1.10 to $6.00 per share.

                  In connection with the IPO, the Company issued 130,000
                  warrants to its underwriters to purchase shares at $8.70 per
                  share, expiring in 2004. The Company has also issued the
                  following warrants:

<Table>
<Caption>

                            Number of
                             Warrants                          Price Per Share                   Expiring In
                  -------------------------------         ---------------------------     --------------------------

<S>                                                              <C>                                <C>
                              66,667                             $        7.50                      2004
                              65,000                                      4.00                      2005
                              10,000                                      5.00                      2005
                              20,000                                      6.00                      2005
                              16,667                                      0.75                      2006
                              50,000                                      5.00                      2006
                             100,000                                      7.50                      2006

<Caption>

                  Following is a summary of the status of stock options
                  outstanding at September 30, 2001:

                                          Outstanding Options                                   Exercisable Options
                                    ---------------------------------                      -------------------------------
                                                       Weighted
                                                         Average           Weighted                            Weighted
                    Exercise                            Remaining           Average                            Average
                      Price            Number          Contractual         Exercise           Number           Exercise
                                                                                                                Price
                  --------------    --------------    ---------------    --------------    -------------     -------------
                                                           Life              Price
                                                      ---------------    --------------
<S>                                   <C>               <C>              <C>               <C>               <C>
                  $   1.10            1,500,000         9.5 years        $     1.10          750,000         $       1.10
                      1.50              166,667         0.9 years              1.50          166,667                 1.50
                      3.00              193,333         6.0 years              3.00          172,500                 3.00
                     5.625              690,000         8.8 years             5.625          195,000                5.625
                      6.00            1,057,741         8.5 years              6.00           57,741                 6.00
                                    --------------                                         -------------
                                      3,607,741                                            1,341,908
                                    ==============                                         =============
</Table>

                  As of September 30, 2001, no stock options or warrants have
                  been exercised.

NOTE 20 -         MAJOR CUSTOMERS

                  The Company had one customer who accounted for 10% and 12% of
                  total revenues for the years ended September 30, 2001 and
                  2000, respectively, and two customers who accounted for 30% of
                  total revenues for the year ended September 30, 1999. Major
                  customers are those who account for more than 10% of total
                  revenues.

NOTE 21 -         RETIREMENT PLANS

                  The Company maintains two 401(k) savings plans for its
                  employees. The terms of the plan define qualified participants
                  as those with at least three months of service. Employee
                  contributions are discretionary up to a maximum of 15% of
                  compensation. The Company can match up to 20% of the
                  employees' first 5% contributions. The Company's 401(k)
                  expense for the years ended September 30, 2001, 2000 and 1999
                  was $50,000, $37,000 and $26,000, respectively.


                                      F-25
<Page>

                          STRATUS SERVICES GROUP, INC.
                          NOTES TO FINANCIAL STATEMENTS


NOTE 22 -         PRIVATE PLACEMENTS

                  In June 2001, the Company entered into an agreement with an
                  investment banker to raise $1,200,000 through the sale of the
                  Company's stock through private placements at a price per
                  share calculated at a 30% discount to the 20-day average of
                  the mean between the closing bid and asked prices. The
                  agreement provides that the Company pays a placement fee to
                  the investment banker of 10% of the gross proceeds received
                  from the private placements and also issues five-year warrants
                  equal to 10% of the number of shares sold at an exercise price
                  equal to the price per share of the private placement. In
                  addition, the Company is to pay the investment banker's
                  expenses in connection with the agreement, not to exceed
                  $50,000. During the year ended September 30, 2001, the Company
                  sold 166,667 shares at $.75 per share under this agreement. In
                  connection therewith, the Company paid $16,250 to the
                  investment banker and issued warrants to purchase 16,667
                  shares of the Company's common stock.

                  For the year ended September 30, 2001, private placements
                  resulted in the issuance of 1,449,666 shares of common stock
                  (see Notes 4 and 11 above).

                  The Company raised $1,000,000 in gross proceeds through a
                  private placement during the year ended September 30, 1999.
                  Each private placement "unit" was a combination of debt and
                  equity. For each $50,000 unit, the investor received a $50,000
                  promissory note from the Company and 3,333 shares of the
                  Company's common stock valued at $3.75 per share.

                  In August 1999, each private placement participant was offered
                  an additional 10,000 shares of the Company's common stock in
                  exchange for the original debt portion of the unit, thereby
                  exchanging each unit acquired by an investor accepting the
                  offer into 13,333 shares of common stock at $3.75 per share.
                  In connection with this offer, participants representing
                  sixteen units agreed to this offer.

                  As each private placement investor representing the remaining
                  $200,000 received both debt (in the form of a promissory note
                  payable by the Company) and equity (in the form of the
                  Company's common stock), a portion of the $200,000 face value
                  of the debt was allocated to equity based on the value of
                  $3.75 per share of common stock. As such, the Company had
                  allocated $133 and $49,867 to common stock and additional
                  paid-in capital, respectively. The remainder of $150,000 was
                  allocated to short-term debt. The difference between the face
                  value and the amount recorded in short-term debt was accrued
                  to interest expense. All private placement debt was paid in
                  full from proceeds of the IPO.

NOTE 23 -         SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

<Table>
<Caption>

                                                           First            Second             Third              Fourth
                                                          Quarter           Quarter           Quarter            Quarter
                                                       ---------------   --------------    --------------     ---------------
<S>                                                    <C>               <C>               <C>                <C>
           Year ended September 30, 2001:
               Revenues                                $  18,660,417     $  14,460,150     $  14,596,631      $  16,554,507
               Gross profit                                4,298,575         2,938,207         2,833,932          3,179,378
               Net earnings (loss)                           313,499        (2,152,648)       (1,524,508)        (2,483,800) (1)
               Net earnings (loss) attributable to
                  common stockholders                        313,499        (2,152,648)    (1,(1,524,508)        (2,546,800)
           Net earnings (loss) per share
              attributable to common stockholders:
               Basic                                             .05              (.38)             (.26)              (.36)
               Diluted                                           .05              (.38)             (.26)              (.36)

           Year ended September 30, 2000:

               Revenues                                $   7,723,887     $   9,201,351     $   8,859,979      $  15,891,370
               Gross profit                                2,113,870         2,273,985         2,352,357          3,753,697
               Net earnings                                  155,936           161,603           177,896            550,475
           Net earnings per share:
               Basic                                             .04               .04               .03                .10
               Diluted                                           .03               .04               .03                .10
</Table>


                                      F-26
<Page>

                          STRATUS SERVICES GROUP, INC.
                          NOTES TO FINANCIAL STATEMENTS


NOTE 23 -         SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) - CONTINUED

<Table>
<S>                                                        <C>               <C>               <C>                <C>
           Year ended September 30, 1999:
               Revenues                                    5,912,643         7,007,582         8,343,592          8,778,934
               Gross profit                                1,262,905         1,441,052         1,933,089          2,099,451
               Net earnings (loss)                         (997,849)         (756,005)            75,049            151,762
           Net earnings (loss) per share:

               Basic                                           (.27)             (.20)               .02                .05
               Diluted                                         (.27)             (.20)               .02                .05
</Table>

         (1) Includes a $700,000 charge for loss on impairment of goodwill.

NOTE 24 -         SUBSEQUENT EVENTS

          a.      Effective January 1, 2002, the Company purchased substantially
                  all of the tangible and intangible assets, excluding accounts
                  receivable, of seven offices of Provisional Employment
                  Solutions, Inc. ("PES"). The initial purchase price was
                  $1,480,000, represented by a $1,100,000 promissory note and
                  400,000 shares of the Company's common stock. In addition, PES
                  is entitled to earnout payments of 15% of pretax profit of the
                  acquired business up to a total of $1.25 million or the
                  expiration of ten years, whichever occurs first. The note
                  bears interest at 6% a year and is payable over a ten-year
                  period in equal quarterly payments.

           b.     On January 24, 2002 the Company entered into an agreement
                  to sell the assets of its Engineering Services Division
                  ("SED") to SEA Consulting Services Corporation. Concurrent
                  with the execution of the agreement the Company transferred
                  30% interest in SED to Sahyoun, LLC, a company controlled
                  by the President of SED. The agreement provides for a
                  purchase price of $2,200,000 of which the Company will
                  receive 80% ($1,760,000). In addition, the Company will
                  receive additional payments of $250,000 each on June 30, 2002
                  and December 31, 2002. Closing of the sale is contingent upon
                  shareholder approval and receipt of a fairness opinion by
                  the Company.

                  The pro forma adjustments to the unaudited pro forma
                  balance sheet includes an adjustment to record the
                  Company's 80% share of the cash proceeds of $2,200,000, net
                  of an estimated $330,000 professional fees and other costs
                  related to the transaction, and the additional proceeds to
                  the Company of $500,000 to be received, $250,000 on June
                  30, 2002 and $250,000 on December 31, 2002, net of $199,610
                  of asset sold, resulting in a gain of $1,796,390, which is
                  shown as an increase to stockholders' equity.

           c.     On January 17, 2002 the Company received a Nasdaq Staff
                  Determination, due to its failure to file its Form 10-K for
                  the fiscal period ended September 30, 2001, indicating the
                  Company's noncompliance with the requirement for continued
                  listing set forth in Nasdaq's Marketplace Rule 4310(c)(14),
                  and that its securities are, therefore subject to delisting.
                  On January 24, 2002 the Company submitted a request for a
                  hearing to review the Staff Determination, staying the
                  delisting. There is no assurance the Panel will grant Stratus'
                  request for continued listing.


                                      F-27
<Page>


                          STRATUS SERVICES GROUP, INC.
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

ALLOWANCE FOR DOUBTFUL ACCOUNTS

<Table>
<Caption>

                                    Balance at       Charged to                        Deductions       Balance at
                                   beginning of       bad debt                       (Write-offs of       end of
                                      period           expense         Other (1)       bad debts)         period
                                      ------           -------         ---------       ----------         ------
<S>                               <C>              <C>              <C>              <C>              <C>
       September 30:
          2001                    $      255,000   $     $661,000   $       30,000   $    (395,000)   $      551,000
          2000                           703,000               --          142,500        (590,500)          255,000
          1999                            37,000               --          677,000         (11,000)          703,000

<Caption>

ALLOWANCE FOR RECOURSE OBLIGATION

                                    Balance at       Charged to                        Deductions       Balance at
                                   beginning of       bad debt                       (Write-offs of       end of
                                      period           expense         Other (1)       bad debts)         period
                                      ------           -------         ---------       ----------         ------
<S>                               <C>              <C>              <C>              <C>              <C>
       September 30:
          2001                    $       30,000   $           --   $     (30,000)   $           --   $           --
          2000                            50,000          122,500        (142,500)               --           30,000
          1999                           795,000          595,000      (1,340,000)               --           50,000

<Caption>

ALLOWANCE FOR INVESTMENT IN RELATED PARTY

                                    Balance at       Charged to                        Deductions       Balance at
                                   beginning of       bad debt                       (Write-offs of       end of
                                      period           expense         Other (1)       bad debts)         period
                                      ------           -------         ---------       ----------         ------
<S>                               <C>              <C>              <C>              <C>              <C>
       September 30:
          2001                    $      663,000   $           --   $           --   $    (663,000)   $           --
          2000                           663,000               --               --               --          663,000
          1999                                --               --          663,000               --          663,000

<Caption>

VALUATION ALLOWANCE FOR DEFERRED TAXES

                                    Balance at       Charged to                                         Balance at
                                   beginning of       costs and                                           end of
                                      period        expenses (2)         Other         Deductions         period
                                      ------        ------------         -----         ----------         ------
<S>                               <C>              <C>              <C>              <C>              <C>
       September 30:
          2001                    $      598,000   $    2,316,000   $           --   $           --   $    2,914,000
          2000                         1,158,000        (560,000)               --               --          598,000
          1999                         1,015,000          143,000               --               --        1,158,000
</Table>

(1)      Transfers between valuation accounts.

(2)      Reflects the increase (decrease) in the valuation allowance associated
         with net operating losses of the Company.


                                      F-28