Forbearance Regarding Default Under Outsourcing Agreement

Exhibit 10.38















WRITER'S DIRECT DIAL:

(813) 227-8473

WRITER'S E-MAIL:

mbrundage@hwhlaw.com







August 25, 2005





Michael A. Maltzman, CFO

Stratus Services Group, Inc.

500 Craig Road

Suite 201

Manalapan, New Jersey 07726







Re: Continued forbearance regarding default under outsourcing agreement dated August 13, 2004, by and between ALS, LLC and Stratus Services Group, Inc., as amended (the "Agreement")


Dear Mr. Maltzman:



This law firm represents ALS, LLC ("Advantage") in connection with the Agreement and Advantage's business relationships with Stratus Services Group, Inc. ("Stratus"). Capital TempFunds ( ?CTF") is Stratus' secured lender under the terms and conditions of a loan and security agreement dated as of December 8, 2000 as amended and modified (the "Secured Loan"). As you know, by letters dated July 29, 2005, and August 5, 2005, Advantage has provided Stratus with written notices of its defaults and material breaches of payment obligations due under the Agreement. Stratus has failed to cure the material breaches of payment obligations within two business days of notice and therefore, pursuant to paragraph 3 of the Agreement, Advantage currently has the right to terminate the Agreement. Additionally, as a result of the defaults, Stratus owes to Advantage $1,000.00 per day of payment obligation breach or 24% annual interest on the outstanding amount, compounded daily, or a maximum allowed by law, whichever is higher. We understand that CTF has declared defaults under the Secured Loan, but has entered into a forbearance agreement with Stratus through at least September 2, 2005.



This letter sets forth the terms by which the parties agree to a forbearance of enforcement of existing defaults that have been declared by Advantage a ...