Forward-Looking Statements

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or anticipated results, including those set forth under "Certain Factors That May Affect Future Results" below and elsewhere in, or incorporated by reference into, this report.

In some cases, you can identify forward-looking statements by terms such as "may," "intend," "might," "will," "should," "could," "would," "expect," "believe," "anticipate," "estimate," "predict," "potential," or the negative of these terms, and similar expressions are intended to identify forward-looking statements. When used in the following discussion, the words "believes," "anticipates" and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The forward-looking statements in this report are based upon management's current expectations and belief, which management believes is reasonable. These statements represent our estimates and assumptions only as of the date of this Quarterly Report on Form 10-Q, and we undertake no obligation to publicly release the result of any revisions to these forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

The following discussion relates to the operations of Stratus and should be read in conjunction with the Notes to Financial Statements.

Description of Business

Overview

On March 14, 2008, pursuant to an Agreement and Plan of Merger dated August 20, 2007 by and among Feris International, Inc. ("Feris"), Feris Merger Sub, Inc. and Patty Linson, on the one hand, and Pro Sports & Entertainment, Inc. ("PSEI"), on the other hand, Feris issued 49,500,000 shares of its common stock for all of the issued and outstanding shares of PSEI, resulting in PSEI becoming a wholly-owned subsidiary of Feris and the surviving entity for accounting purposes ("Reverse Merger").

In July 2008, Feris' corporate name was changed to Stratus Media Group, Inc. ("Company"). PSEI, a California corporation, was organized on November 23, 1998 and specializes in sports and entertainment events that it owns, operates, manages, markets and sells in national markets. In addition, PSEI acquired the business of Stratus Rewards, LLC ("Stratus Rewards") in August 2005. Stratus Rewards is a credit card rewards program that uses the Visa card platform that offers a unique luxury rewards redemption program, including private jet travel, premium travel opportunities, exclusive events and luxury merchandise. In May 2010, the Company entered into an agreement with a private bank in Switzerland to be the processing bank for Stratus Rewards in Europe.

PSEI, a California corporation, was organized in November 1998 and specializes in sports and entertainment events that it owns, and intends to operate, manage, market and sell in national markets. In addition, PSEI acquired the business of Stratus Rewards, LLC ("Stratus Rewards") in August 2005. Stratus Rewards is a credit card rewards marketing program that uses the Visa card platform that offers a unique luxury rewards redemption program, including private jet travel, premium travel opportunities, exclusive events and luxury merchandise.

ProElite, Inc. ("PEI") is a subsidiary of the Company. PEI specializes in the operation and management of Mixed Martial Arts events. The Company completed the acquisition of PEI on June 14, 2011. The Company has consolidated the balance sheet of PEI as of September 30, 2011. The results of operations of PEI for the three months ended September 30, 2011, were consolidated into the Company's results of operations.

The business plan of the Company is to own, operate and market live entertainment events and derive its revenue primarily from ticket/admission/membership sales, corporate sponsorship, television, print, radio, on-line and broadcast rights fees, merchandising, and hospitality activities. With additional funding, the objective of management is to build a profitable business by implementing an aggressive acquisition growth plan to acquire quality companies, build corporate infrastructure, and increase organic growth. The plan is to leverage operational efficiencies across an expanded portfolio of events to reduce costs and increase revenues. The Company intends to promote the Stratus Rewards card and its events together, obtaining maximum cross marketing benefit among card members, corporate sponsors and Stratus events.

The Company is using a "roll up" strategy, targeting sports and live entertainment events and companies that are independently owned and operated or being divested by larger companies with the plan to aggregate them into one large leading live entertainment company. A key component of this strategy is to purchase these events for approximately four to six times Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") of the events, with the expectation that the combined EBITDA of the Company from these events will receive a higher valuation multiple in the public markets. Another key component of this strategy is to complete acquisitions that may not meet these economic parameters but have other compelling attributes such as entry into a new type of event or as a strategic fit with the Company's existing events

Assuming the availability of capital, the Company is targeting acquisitions of event properties. The goal is to aggressively build-up a critical mass of events, venues and companies that allow for numerous cross-event synergies. Specifically:

? On the expense side, to share sales, financial and operations resources across multiple events, creating economies of scale, increasing the Company's purchasing power, eliminating duplicative costs, and bringing standardized operating and financial procedures to all events, thus increasing the margins of all events.

? On the revenue side, to present advertisers and corporate sponsors an exciting and diverse menu of demographics and programming that allows sponsors "one stop shopping" rather than having to deal with each event on its own, and in so doing, convert these sponsors into "strategic partners."

With these core operational synergies, and subject to available capital, the Company intends to (1) operate its existing portfolio of events, (2) implement its acquisition strategy of additional live sports and entertainment events and companies, (3) create entirely new event properties on the forefront of the "experience economy" and thus tap into people's lifestyle passions, and (4) cross-promote the Stratus Rewards Visa card with these events to enhance the results of the card and event businesses.

The business plan of Stratus is to provide integrated event management, television programming, marketing, talent representation and consulting services in the sports and other live entertainment industries. Stratus event management, television programming and marketing services may involve:

? managing sporting events, such as college bowl games, mixed martial-arts events, golf tournaments and auto racing team and events;
? managing live entertainment events, such as music festivals, car shows and fashion shows;
? producing television programs, principally sports entertainment and live entertainment programs; and ? marketing athletes, models and entertainers and organizations.

Description of our Revenues, Costs and Expenses

Revenues

When the Company commences staging events, revenues will represent event revenues from ticket sales, sponsorships, concessions and merchandise, which are recorded when the event occurs, and Stratus White revenues from membership fees, fees on purchases and interest income earned on the redemption trust. Membership fees are amortized over the twelve month period and fees from purchases and interest income are recorded when they occur.

Gross Profit (Loss)

Gross profit will represent revenues less the cost of revenues. Our event cost of revenues will consist of the costs of renting the venue, structures at the venue, concessions, and temporary personnel hired for the event. Cost of revenues for the Stratus program are nominal.

Operating Expenses

Our selling, general and administrative expenses include personnel, rent, travel, office and other costs for selling and promoting events and running the administrative functions of the Company. Legal and professional services are paid to outside attorneys, auditors and consultants are broken out separately given the size of these expenses relative to selling, general and administrative expenses. Operating expenses also include the non-cash expenses for the value of common stock issued above the value of consideration received and the Black-Sholes costs of options and warrants.

Interest Expense

Our interest expense results from preferred shares, loans payable to shareholders, current portion of notes payable-related parties and notes payable.

Critical Accounting Policies

The following discussion relates to the operations of the Company and should be read in conjunction with the Notes to Financial Statements.

Net Loss per Share

We compute net loss per share in accordance with ASC 260, Earnings Per Share. Basic per share data is computed by dividing loss available to common stockholders by the weighted average number of shares outstanding during the period. Diluted per share data is computed by dividing loss available to common stockholders by the weighted average shares outstanding during the period increased to include, if dilutive, the number of additional common share equivalents that would have been outstanding if potential common shares had been issued using the treasury stock method. Diluted per share data would also include the potential common share equivalents relating to convertible securities by application of the if-converted method.

The effect of common stock equivalents (which include outstanding warrants and stock options) are not included for the three or nine months ended September 30, 2010, as they are antidilutive to loss per share. Losses per share for the three or nine months ended September 30, 2010 do not include the potential impact of options to purchase 8,709,852 shares of the Company's common stock, warrants to purchase 914,040 shares, or of warrants to purchase $36,250 of the Company's common stock, with the number of shares issuable under this warrant to be determined by the Company's first financing round following its reverse merger on March 14, 2008.

Intangible Assets

Intangible assets consist of goodwill related to the acquisition of PEI, certain events and the Stratus Rewards Visa White Card that we have acquired. Goodwill represents the excess of the cost of an acquired entity over the net amounts assigned to tangible and intangible assets acquired and liabilities assumed. We apply the provisions of Statement of Financial Accounting Standards (SFAS) No. 142 Goodwill and Other Intangible Assets , which is codified in FASB ASC Topic 350, which requires allocating goodwill to each reporting unit and testing for impairment using a two-step approach.

The Company purchased several events that are recorded on the Company's balance sheet as intangible assets at the consideration paid for such assets, which generally include licensing rights, naming rights, merchandising rights and the right to hold such event in particular geographic locations. There was no goodwill assigned to any of these events and the value of the consideration paid for each event is considered to be the value for each related intangible asset. Each event has separate accounts for tracking revenues and expenses per event and a separate account to track the asset valuation.

A portion of the consideration used to purchase the Stratus Rewards Visa card program was allocated to specific assets, as disclosed in the footnotes to the financial statements, with the difference between the specific assets and the total consideration paid for the program being allocated to goodwill.

The Company reviews the value of intangible assets and related goodwill as part of its annual reporting process, which generally occurs in February or March of each calendar year. In between valuations, the Company conducts additional tests if circumstances warrant such testing. For example, if the Company was unable to secure the services of any sponsoring banks, the Company would then undergo a thorough valuation of the intangible assets related to its Stratus Rewards program.

To review the value of intangible assets and related goodwill, the Company compares discounted cash flow forecasts with the stated value of the assets on the balance sheet.

The events are forecasted based on historical results for those events, adjusted over time for the assumed synergies expected from discounts from purchases of goods and services from a number of events rather than from each event on its own, and for synergies resulting from the expected ability to provide sponsors with benefits from sponsoring multiple events with a single point of contact.

These forecasts are discounted at a range of discount rates determined by taking the risk-free interest rate at the time of valuation, plus a premium for equity risk, plus a premium related to small companies in general, plus a risk premium for factors specific to the Company and the business.

If the Company determines that the discount factor for cash flows should be substantially increased, or the event will not be able to being operations when planned, it is possible that the values for the intangible assets currently on the balance sheet could be substantially reduced or eliminated, which could result in a maximum charge to operations equal to the current carrying value of the intangible assets of $5,329,842.

The Company believes that Core Tour and Maui Music Festival are most at risk for additional impairment charges in the future because the fair value for each event is less than 200% of its book value for such events.

Results of Operations for the Three Months Ended September 30, 2011

Revenues

Revenues for the three months ended September 30, 2011 ("Current Period") were $250,201, compared to $0 for the three months ended September 30, 2010 ("Prior Period"). The revenues in the Current Period relates to the Company's ProElite operations. Stratus White revenues were $0 in the Current Period and $0 in the Prior Period.

Cost of Revenues

Cost of revenues for the Current Period were $253,810, compared to $0 for the Prior Period. The cost of revenues in the Current period relates to the Company's ProElite operations.

Gross Profit (Loss)

Gross loss in the Current Period is $3,609, primarily related to the Company's ProElite operations. There were no revenues or cost of revenues in the Prior Period, so the gross profit in the Prior Period was $0.

Operating Expenses

Operating expenses for the Current Period were $4,136,674, an increase of $2,439,389 from $1,643,285 in the Prior Period. This increase in operating expenses was primarily comprised of an increase of $2,041,046 in general and administrative expenses reflecting the build of Stratus operations in preparation of commencing operating revenues and the addition of ProElite operations, a reduction of $303,682 in stock compensation expense, and an increase of $747,061 in legal and professional services.

General and administrative expenses of $2,551,878 increased by $2,041,046 from $510,832 in the Prior Period. This increase was primarily related to higher levels of staffing and business development activity in the Current Period, specifically an increase for salaries and related.

Stock option and warrant expense was $331,519 in the Current Period, a decrease of $303,682 from $635,201 in the prior period. This decrease was primarily related to a lower Black Scholes expense of options issued to employees reflecting that no options were issued in the Current Period.

Legal and professional services were $1,231,463 in the Current Period, an increase of $747,061 versus $484,402 in the Prior Period, largely related to increased consulting services related to business development in Europe, and litigation expenses related to legal actions described in footnotes 4 and 21 above. Depreciation and amortization expense increased to $21,814 in the Current Period reflecting the additional assets purchased in 2011, compared to $12,850 in the Prior Period.

Other Income

Other (income)/expenses decreased by $168,084 from the Prior Period to net other expense of $0 in the Current Period. The expense in the Prior Period reflects expense for the issuance of 477,616 shares of common stock to settle a dispute with a long-term shareholder regarding the number of shares issued pursuant to a subscription agreement executed during 2007.

Interest Expense

Interest expense was $195,705 in the Current Period, an increase of $174,353 from $21,352 in the Prior Period, primarily related to the interest expense associated with the issuance of preferred stock in the latter half of 2010 and the first half of 2011.

Results of Operations for the Nine Months Ended September 30, 2011

Revenues for the nine months ended September 30, 2011 ("Current Period") were $250,021, compared to $0 for the nine months ended September 30, 2010 ("Prior Period"). The revenues in the Current Period relate to the operations of ProElite. There were no event revenues in the Prior Period. Stratus card revenues were $0 in the Current Period and $0 in the Prior Period.

Cost of Revenues

Cost of revenues for the Current Period were $253,810, compared to $0 for the Prior Period. The cost of revenues in the Current period relates to the Company's ProElite operations

Gross Profit (Loss)

Gross loss in the Current Period is $3,609, primarily related to the Company's ProElite operations. There were no revenues or cost of revenues in the Prior Period, so the gross profit in the Prior Period was $0.

Operating Expenses

Operating expenses for the Current Period were $7,867,775, an increase of $3,208,346 from $4,659,429 in the Prior Period. This increase in operating expenses was primarily comprised of an increase of $3,239,780 in general and administrative expenses reflecting the build up of Stratus operations in preparation of commencing operating revenues and the addition of ProElite operations, a decrease of $876,014 in stock compensation expense and an increase of $832,743 in legal and professional services.

General and administrative expenses of $4,697,621 increased by $3,239,780 from $1,457,841 in the Prior Period. This increase was primarily related to higher levels of staffing and business development activity in the Current Period, specifically an increase for salaries and related expenses and consulting servicdes.

The total warrant and options expense of $1,214,624 in the Current Period, a decrease $876,014 from $2,090,638 in the Prior Period. This decrease was primarily related to a lower Black Scholes expense of options issued to employees reflecting that no options were issued in the Current Period.

Legal and professional services were $1,906,958 in the Current Period, an increase of $832,743 versus $1,074,215 in the Prior Period, largely related to increased consulting related to business development in Europe, increased legal and litigation expenses related to legal actions described in footnotes 4 and 21 above. Depreciation and amortization expense increased to $48,572 in the Current Period reflecting the additional assets purchased in 2011, compared to $36,736 in the Prior Period.

Other( Income)/Expenses

Other (income)/expenses decreased by $693,462 from the Prior Period to net other expense of $0 in the Current Period. The expense in the Prior Period reflects expense for the issuance of 477,616 shares of common stock to settle a dispute with a long-term shareholder regarding the number of shares issued pursuant to a subscription agreement executed during 2007.

Interest Expense

Interest expense was $324,544 in the Current Period, an increase of $270,571 from $53,974 in the Prior Period, primarily related to the interest expense associated with the issuance of preferred stock in the latter half of 2010 and the first half of 2011.

Liquidity and Capital Resources

The report of our independent registered public accounting firm on the financial statements as of and for the year ended December 31, 2010 contains an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern as a result of recurring losses, a working capital deficiency, and negative cash flows. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that would be necessary if we are unable to continue as a going concern.

The Company has suffered losses from operations and without additional capital, currently lacks liquidity to meet its current obligations. The Company has a net loss for 2010 of $8,409,605 and a net loss of $8,195,928 for the nine months ended September 30, 2011. As of September 30, 2011, the Company had working capital of $187,345 and cumulative losses of $34,662,520. Unless additional financing is obtained, the Company may not be able to continue as a going concern. During 2010, the Company raised $2,935,720 in capital through the issuance of $2,310,000 of common stock and $625,720 of preferred stock. The Company raised $9,095,989 in capital through issuance of preferred stock and $3,609,359 through the issuance of common stock during the nine months ended September 30, 2011. The Company is still in the process of building its brand and generating revenues. It is anticipated that the losses will continue through year-end and that additional financing is necessary before December 31, 2011. The Company is in the process of raising capital for itself and its ProElite subsidiary although no assurance can be given that the Company will be able to raise such funds. If the Company is unable to raise additional funds, the ability to continue as a going concern will be difficult.

At September 30, 2011, cash and equivalents were $2,129,127 and we had working capital of $187,345. At September 30, 2011, we had $1,272,491 in debt obligations (comprised of $129,475 in loans to officers and directors and $1,070,000 of notes payable to related parties

Cash Flows

The following table sets forth our cash flows for the periods indicated:

                                      Nine Months Ended September 30,
                                          2011                 2010
                                      (Unaudited)           (Unaudited)
             Operating activities   $     (8,801,838 )     $  (1,590,133 )
             Investing activities           (991,473 )          (715,662 )
             Financing activities         11,922,438           2,318,818
             Total                  $      2,129,127       $      13,023

Operating Activities

Operating cash flows for the nine months ended September 30, 2011 reflects the net loss of $8,195,928, offset by changes in working capital of $1,869,106 primarily reflecting the reductions in various current liabilities, depreciation and amortization of $48,572, non-cash options expenses of $1,124,624

Operating cash flows for the nine months ended September 30, 2010 reflects the net loss of $5,406,865, offset by changes in working capital of $759,045, depreciation and amortization of $36,736, non-cash expenses of $2,090,638 for the excess of fair value of common stock sales over the consideration received and Black-Scholes cost of warrant issuance, $225,832 of the value of stock issued for services and $704,481 value of stock issued to settle a dispute with a long-term shareholder regarding the number of shares issued pursuant to a subscription agreement executed during 2007.

Investing Activities

During the nine months ended September 30, 2011, the Company invested $130,578 in office machines, computer equipment and an automobile. We also advanced funds to PEI and the Core Tour totaling $860,895 to complete those acquisitions. We advanced $712,794 in cash to PEI during the nine months ended September 30, 2010 for operating expenses and used $2,868 for capital expenditures during this period.

Financing Activities

During the nine months ended September 30, 2011, we raised $9,406,051 from the issuance of preferred stock and $3,609,359 from the issuance of common stock. These proceeds were partially offset by payments on loans and notes payable totaling $1,030,177. During the nine months ended September 30, 2010, we received cash proceeds of $2,260,000 from sales of common stock and warrants and $314,015 from sales of Preferred stock, and used $8,260 to cover an overdraft from December 31, 2009, $221,937 to partially repay loans from officers and a director and $25,000 to partially repay notes payable.

Off Balance Sheet Arrangements

We have no off balance sheet arrangements.