##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934For the Quarterly Period Ended March 31, 2006
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934For the transition period from  to
 Commission File Number: 001-16105
 STONEPATH GROUP, INC.
  Delaware
(State or other jurisdiction of
incorporation or organization)
    
    65-0867684
(I.R.S. Employer
Identification No.)
 2200 Alaskan Way, Suite 200
Seattle, WA 98121   (206) 336-5400
 þ  o
  o o þ
 o þ




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Table of Contents
 STONEPATH GROUP, INC.
INDEX
 PART I FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets at March 31, 2006 and December 31, 2005Consolidated Statements of Operations  Three-months ended March 31, 2006 and 2005Consolidated Statements of Cash Flows  Three-months ended March 31, 2006 and 2005Notes to Unaudited Consolidated Financial StatementsItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPART II OTHER INFORMATIONItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales of Equity Securities and Use of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Submission of Matters to a Vote of Security HoldersItem 5. Other InformationItem 6. ExhibitsSIGNATURESEXHIBIT 12EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
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##### Table of Contents



PART I
FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 STONEPATH GROUP, INC.
 
 Consolidated Balance Sheets
 (dollars in thousands)
 March 31, 2006(UNAUDITED)
    
    
    December 31, 2005AssetsCurrent assets:Cash and cash equivalents
    
    $
    6,275
    
    
    $
    4,601Accounts receivable, net
    
    
    58,969
    
    
    
    69,836Prepaid expenses and other current assets
    
    
    2,098
    
    
    
    2,312Total current assets
    
    
    67,342
    
    
    
    76,749Goodwill
    
    
    44,179
    
    
    
    43,762Technology, furniture and equipment, net
    
    
    6,451
    
    
    
    6,856Acquired intangibles, net
    
    
    4,799
    
    
    
    5,212Other assets
    
    
    2,986
    
    
    
    2,703Total assets
    
    $
    125,757
    
    
    $
    135,282Liabilities and Stockholders EquityCurrent liabilities:Short-term debt
    
    $
    17,313
    
    
    $
    14,039Accounts payable
    
    
    39,994
    
    
    
    50,054Earn-outs payable
    
    
    2,639
    
    
    
    3,513Accrued payroll and related expenses
    
    
    3,505
    
    
    
    3,393Accrued restructuring costs
    
    
    1,209
    
    
    
    1,485Accrued expenses
    
    
    7,523
    
    
    
    7,516Total current liabilities
    
    
    72,183
    
    
    
    80,000Long-term debt
    
    
    2,008
    
    
    
    1,137Long-term earn-outs payable
    
    
    2,255
    
    
    
    2,255Other long-term liabilities
    
    
    4,532
    
    
    
    4,210Deferred tax liability
    
    
    3,118
    
    
    
    2,898Total liabilities
    
    
    84,096
    
    
    
    90,500Minority interest
    
    
    6,464
    
    
    
    6,478Commitments and contingencies (Note 7)Convertible preferred stock, $100.00 par value, 48,000 shares authorized,
30,000 shares issued
    
    
    1,804
    
    
    
    1,804Stockholders equity:Preferred stock, $.001 par value, 10,000,000 shares authorized; none issued
    
    
    
    
    
    
    Common stock, $.001 par value, 100,000,000 shares authorized; issued and
outstanding: 43,749,693 shares at 2006 and 2005, respectively
    
    
    44
    
    
    
    44Additional paid-in capital
    
    
    223,034
    
    
    
    222,779Accumulated deficit
    
    
    (190,050
    )
    
    
    (186,581
    )Accumulated other comprehensive income
    
    
    365
    
    
    
    258Total stockholders equity
    
    
    33,393
    
    
    
    36,500Total liabilities and stockholders equity
    
    $
    125,757
    
    
    $
    135,282
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STONEPATH GROUP, INC.
 
 Consolidated Statements of Operations
 (UNAUDITED)
 (In thousands, except per share data)
 Three months ended March 31,2006
    
    
    2005Total revenue
    
    $
    92,183
    
    
    $
    89,990Cost of transportation
    
    
    72,667
    
    
    
    69,576Net revenue
    
    
    19,516
    
    
    
    20,414Personnel costs
    
    
    11,300
    
    
    
    12,105Other selling, general and administrative costs
    
    
    8,458
    
    
    
    10,170Depreciation and amortization
    
    
    935
    
    
    
    1,158Restructuring charges
    
    
    
    
    
    
    3,341Loss from operations
    
    
    (1,177
    )
    
    
    (6,360
    )Other income (expense):Interest expense, net
    
    
    (1,361
    )
    
    
    (438
    )Change in fair value of derivatives
    
    
    (343
    )
    
    
    Other income (expense), net
    
    
    (6
    )
    
    
    41Loss before income tax expense and minority
interest
    
    
    (2,887
    )
    
    
    (6,757
    )Income tax expense
    
    
    357
    
    
    
    536Loss before minority interest
    
    
    (3,244
    )
    
    
    (7,293
    )Minority interest
    
    
    135
    
    
    
    270Net loss
    
    
    (3,379
    )
    
    
    (7,563
    )Preferred stock dividends
    
    
    90
    
    
    
    Net loss attributable to common stockholders
    
    $
    (3,469
    )
    
    $
    (7,563
    )Basic and diluted loss per common share
    
    $
    (0.08
    )
    
    $
    (0.17
    )Basic and diluted weighted average shares
outstanding
    
    
    43,750
    
    
    
    43,266
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STONEPATH GROUP, INC.
 
 Consolidated Statements of Cash Flows
 (UNAUDITED)
 (In thousands)
 Three months ended March 31,2006
    
    
    2005Cash flow from operating activities:Net loss
    
    $
    (3,469
    )
    
    $
    (7,563
    )Adjustments to reconcile net loss to net cash provided by (used in) operating activities:Deferred income taxes
    
    
    220
    
    
    
    180Depreciation and amortization
    
    
    935
    
    
    
    1,158Change in fair value of derivatives
    
    
    343
    
    
    
    Amortization of loan discount and fees
    
    
    478
    
    
    
    Minority interest in income of subsidiaries
    
    
    136
    
    
    
    270Stock-based compensation
    
    
    84
    
    
    
    17Gain on
disposal of technology, furniture and equipment and other
    
    
    (4
    )
    
    
    (44
    )Changes in assets and liabilities:Accounts receivable
    
    
    10,867
    
    
    
    6,437Prepaid expenses and other assets
    
    
    (143
    )
    
    
    (8
    )Accounts payable and accrued expenses
    
    
    (10,238
    )
    
    
    2,685Net cash (used in) provided by operating activities
    
    
    (791
    )
    
    
    3,132Cash flows from investing activities:Purchases of technology, furniture and equipment
    
    
    (125
    )
    
    
    (125
    )Payment of earn-out
    
    
    (95
    )
    
    
    Proceeds from sales of technology, furniture and equipment
    
    
    17
    
    
    
    49Net cash used in investing activities
    
    
    (203
    )
    
    
    (76
    )Cash flows from financing activities:Proceeds from credit facilities, net
    
    
    2,756
    
    
    
    279Principal payments on capital leases
    
    
    (46
    )
    
    
    (209
    )Payment to minority shareholder
    
    
    (150
    )
    
    
    Net cash provided by financing activities
    
    
    2,560
    
    
    
    70Effect of foreign currency translation
    
    
    108
    
    
    
    95Net increase in cash and cash equivalents
    
    
    1,674
    
    
    
    3,221Cash and cash equivalents at beginning of period
    
    
    4,601
    
    
    
    2,801Cash and cash equivalents at end of period
    
    $
    6,275
    
    
    $
    6,022Cash paid for interest

    
    $
    597
    
    
    $
    484Cash paid for income taxes
    
    $
    60
    
    
    $
    8Supplemental disclosure of non-cash investing and financing activities:Issuance of notes payable in connection with financing of earn-out payments
    
    $
    1,196
    
    
    $
    Increase in goodwill related to accrued earn-out payments
    
    
    417
    
    
    
    Issuance of warrants in connection with loan refinancing
    
    
    171
    
    
    
    Issuance of common stock in connection with acquisitions
    
    
    
    
    
    
    752
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STONEPATH GROUP, INC.
 
 Notes to Unaudited Consolidated Financial Statements
 March 31, 2006
 (1)
    
    Nature of Operations and Basis of Presentation
     (2)
    
    Restructuring Charges
  Liability Balance
    
    
    Restructuring
    
    
    Cash
    
    
    Liability Balance,January 1, 2006
    
    
    Charges
    
    
    Payments
    
    
    March 31, 2006Personnel
    
    $
    159
    
    
    $
    
    
    
    $
    (92
    )
    
    $
    67Building leases
    
    
    1,326
    
    
    
    
    
    
    
    (184
    )
    
    
    1,142$
    1,485
    
    
    $
    
    
    
    $
    (276
    )
    
    $
    1,209
  (3)
    
    Stock-Based Compensation
  6




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Accounting for Stock-Based
Compensation Accounting for Equity Instruments That are Issued to
Other Than Employees for Acquiring, or in Conjunction
with Selling Goods or Services
 Share Based Payment Statement of Cash Flows
 (4)
    
    Acquired Intangible AssetsInformation with respect to acquired intangible assets is as follows (in thousands):
 March 31, 2006
    
    
    December 31, 2005Gross
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationAmortizable intangible assets:Customer related
    
    $
    11,042
    
    
    $
    6,773
    
    
    $
    11,042
    
    
    $
    6,421Covenants-not-to-compete
    
    
    1,506
    
    
    
    976
    
    
    
    1,506
    
    
    
    915Total
    
    $
    12,548
    
    
    $
    7,749
    
    
    $
    12,548
    
    
    $
    7,336Aggregate amortization expense:For the three-months ended March 31, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    413For the three-months ended March 31, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    516Estimated aggregate amortization expense:For the remainder of the year ended December 31, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,134For the year ended December 31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,254For the year ended December 31, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    931For the year ended December 31, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    607For the year ended December 31, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    482
 (5)
    
    GoodwillThe changes in the carrying amount of goodwill for the three-months ended March 31, 2006 are as follows (in thousands):
 Domestic Services
    
    
    International Services
    
    TotalBalance, December 31, 2005
    
    $
    19,821
    
    
    $
    23,941
    
    
    $
    43,762Adjustments to 2005 earn-out accruals
    
    
    100
    
    
    
    317
    
    
    
    417Balance, March 31, 2006
    
    $
    19,921
    
    
    $
    24,258
    
    
    $
    44,179
  7




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(6)
    
    Credit FacilitiesShort and long-term debt consists of the following (in thousands):
 March 31, 2006
    
    
    December 31, 2005Short-term
debt U.S. Facility:Revolving note
    
    $
    7,802
    
    
    $
    6,045Convertible minimum borrowing note, (net of discount of $3,753 and $4,075)
    
    
    6,247
    
    
    
    5,925Total U.S. Facility
    
    
    14,049
    
    
    
    11,970Note payable  related party
    
    
    1,897
    
    
    
    1,897Note payable  earn-outs
    
    
    1,196
    
    
    
    Capital lease obligations
    
    
    171
    
    
    
    172Total short-term debt
    
    $
    17,313
    
    
    $
    14,039
 March 31, 2006
    
    
    December 31, 2005Long-term
debt Offshore Credit Facilities, (net of discount of $83 as of March 31, 2006)
    
    $
    1,917
    
    
    $
    1,000Capital lease obligations
    
    
    91
    
    
    
    137Total long-term debt
    
    $
    2,008
    
    
    $
    1,137
 U.S.
Facility
  Secured Convertible Minimum Borrowing Note (Minimum Borrowing Note)
  Secured Revolving Note (Revolving Note)
 Common Stock Purchase Warrants (Warrant)
 Registration Rights Agreement (Rights Agreement)
 8




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Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Companys Own Stock Accounting for
Convertible Debt and Debt Issued with Stock Purchase Warrants.
    Balance Sheet Classification of Borrowings Outstanding under
Revolving Credit Agreements that Include Both a Subjective Acceleration
Clause and a Lock-Box Arrangement.
 Offshore
Credit Facilities 
    9




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Other
Debt
   Derivative
Liabilities 
  Minimum BorrowingNote
    
    
    Warrant
    
    
    Preferred Shares
    
    
    TotalDerivative
liabilities recorded
upon inception of
contracts
    
    $
    3,771
    
    
    $
    1,294
    
    
    $
    1,196
    
    
    $
    6,261Change in fair value
of derivatives during
2005
    
    
    (1,332
    )
    
    
    (512
    )
    
    
    (273
    )
    
    
    (2,117
    )Derivative
liabilities as of
December 31, 2005
    
    
    2,439
    
    
    
    782
    
    
    
    923
    
    
    
    4,144Change in fair value
of derivatives during
the period
    
    
    374
    
    
    
    (69
    )
    
    
    38
    
    
    
    343Derivative
liabilities as of
March 31, 2006
    
    $
    2,813
    
    
    $
    713
    
    
    $
    961
    
    
    $
    4,487Significant
assumptions used in
Black-Scholes fair
value calculations as
of March 31, 2006:Expected life in years
    
    
    2.4
    
    
    
    4.4
    
    
    
    3.6Volatility
    
    
    74.8
    %
    
    
    70.2
    %
    
    
    68.6
    %Discount rate
    
    
    4.8
    %
    
    
    4.8
    %
    
    
    4.8
    %
 (7)
    
    Commitments and Contingencies
   10




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11




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##### Table of Contents



(8)
    
    Stockholders Equity
   (9)
    
    Earnings (Loss) per Share
  (10)
    
    Income Taxes
  Three months ended March 31,2006
    
    
    2005U.S. federal
    
    $
    190
    
    
    $
    155State
    
    
    47
    
    
    
    24Foreign
    
    
    120
    
    
    
    357$
    357
    
    
    $
    536
  (11)
    
    Related Party Transactions
   
    
    The Company has advances receivable of approximately
$390,000 to the principal minority shareholder as of March 31,
2006. There are currently no repayment terms for this advance.
    
    The Company has a note payable for $1,897,000 and accrued
interest of $237,000 due to the principal minority shareholder as of
March 31, 2006. The note was issued in connection with the
Companys acquisition of a 55% interest in Shaanxi.
    
    The Company pays rent for office space to a direct family
member of the principal minority shareholder. Monthly
and annual rental payments are approximately $8,046 and $96,553,
respectively. The rental payments are scheduled to continue
through March 31, 2009.
 (12)
    
    Segment Information
 12




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Disclosures About Segments of an Enterprise and
Related Information
 Three months ended March 31, 2006Domestic
    
    InternationalServices
    
    Services
    
    Corporate
    
    TotalRevenue from external customers
    
    $
    25,681
    
    
    $
    66,502
    
    
    $
    
    
    
    $
    92,183Intersegment revenue
    
    
    51
    
    
    
    337
    
    
    
    
    
    
    
    388Segment operating loss
    
    
    (972
    )
    
    
    (205
    )
    
    
    
    
    
    
    (1,177
    )Segment assets
    
    
    38,813
    
    
    
    89,966
    
    
    
    (3,022
    )
    
    
    125,757Segment goodwill
    
    
    19,921
    
    
    
    24,258
    
    
    
    
    
    
    
    44,179
 Three months ended March 31, 2005Domestic
    
    InternationalServices
    
    Services
    
    Corporate
    
    TotalRevenue from external customers
    
    $
    32,408
    
    
    $
    57,582
    
    
    $
    
    
    
    $
    89,990Intersegment revenue
    
    
    4
    
    
    
    66
    
    
    
    
    
    
    
    70Segment operating loss
    
    
    (5,927
    )
    
    
    (433
    )
    
    
    
    
    
    
    (6,360
    )Segment assets
    
    
    42,447
    
    
    
    73,971
    
    
    
    3,035
    
    
    
    119,453Segment goodwill
    
    
    19,641
    
    
    
    18,390
    
    
    
    
    
    
    
    38,031
  Three months ended March 31,2006
    
    
    2005Total revenue:United States
    
    $
    49,584
    
    
    $
    56,431Asia
    
    
    37,169
    
    
    
    30,176North America (excluding the United States)
    
    
    69
    
    
    
    164Europe
    
    
    3,928
    
    
    
    1,466South America
    
    
    769
    
    
    
    1,230Other
    
    
    664
    
    
    
    523Total
    
    $
    92,183
    
    
    $
    89,990
  March 31,2006
    
    
    2005United States
    
    $
    5,629
    
    
    $
    6,396Asia
    
    
    724
    
    
    
    682South America
    
    
    86
    
    
    
    106Europe
    
    
    12
    
    
    
    Total long-lived assets
    
    $
    6,451
    
    
    $
    7,184
  13




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Cautionary Statement For Forward-Looking Statements
  OVERVIEW
     14




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CRITICAL ACCOUNTING POLICIES
  RESULTS OF OPERATIONS
 Quarter ended March 31, 2006 compared to quarter ended March 31, 2005
  15




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Change2006
    
    
    2005
    
    
    Amount
    
    
    PercentTotal
revenue
    
    $
    92,183
    
    
    $
    89,990
    
    
    $
    2,193
    
    
    
    2.4
    %Transportation
revenue
    
    $
    86,780
    
    
    $
    83,709
    
    
    
    3,071
    
    
    
    3.7Cost of
transportation
    
    
    72,667
    
    
    
    69,576
    
    
    
    3,091
    
    
    
    4.4Net transportation
revenue
    
    
    14,113
    
    
    
    14,133
    
    
    
    (20
    )
    
    
    Net transportation
margin
    
    
    16.3
    %
    
    
    16.9
    %Customs
brokerage
    
    
    1,808
    
    
    
    2,078
    
    
    
    (270
    )
    
    
    (13.0
    )Warehousing and other
services
    
    
    3,595
    
    
    
    4,203
    
    
    
    (608
    )
    
    
    (14.5
    )Net revenue
    
    $
    19,516
    
    
    $
    20,414
    
    
    $
    (898
    )
    
    
    (4.4
    %)Net revenue
margin
    
    
    21.2
    %
    
    
    22.7
    %
         16




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2006
    
    
    2005
    
    
    ChangeAmount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    PercentNet revenue
    
    $
    19,516
    
    
    
    100.0
    %
    
    $
    20,414
    
    
    
    100.0
    %
    
    $
    (898
    )
    
    
    (4.4
    )%Personnel costs
    
    
    11,300
    
    
    
    57.9
    
    
    
    12,105
    
    
    
    59.3
    
    
    
    (805
    )
    
    
    (6.7
    )Other selling, general and administrative costs
    
    
    8,458
    
    
    
    43.3
    
    
    
    10,170
    
    
    
    49.8
    
    
    
    (1,712
    )
    
    
    (16.8
    )Depreciation and amortization
    
    
    935
    
    
    
    4.8
    
    
    
    1,158
    
    
    
    5.7
    
    
    
    (223
    )
    
    
    (19.3
    )Restructuring charges
    
    
    
    
    
    
    
    
    
    
    3,341
    
    
    
    16.4
    
    
    
    (3,341
    )
    
    NMTotal operating costs
    
    
    20,693
    
    
    
    106.0
    
    
    
    26,774
    
    
    
    131.2
    
    
    
    (6,081
    )
    
    
    (22.7
    )Loss from operations
    
    
    (1,177
    )
    
    
    (6.0
    )
    
    
    (6,360
    )
    
    
    (31.2
    )
    
    
    5,183
    
    
    
    81.5Change in fair value of derivatives
    
    
    (343
    )
    
    
    (1.8
    )
    
    
    
    
    
    
    
    
    
    
    (343
    )
    
    NMOther income (expense), net
    
    
    (1,367
    )
    
    
    (7.0
    )
    
    
    (397
    )
    
    
    (1.9
    )
    
    
    (970
    )
    
    
    244.3Loss from operations before income taxes and
minority interest
    
    
    (2,887
    )
    
    
    (14.8
    )
    
    
    (6,757
    )
    
    
    (33.1
    )
    
    
    3,870
    
    
    
    57.3Income taxes
    
    
    357
    
    
    
    1.8
    
    
    
    536
    
    
    
    2.6
    
    
    
    (179
    )
    
    
    (33.4
    )Loss from operations before minority interest
    
    
    (3,244
    )
    
    
    (16.6
    )
    
    
    (7,293
    )
    
    
    (35.7
    )
    
    
    4,049
    
    
    
    55.5Minority Interest
    
    
    135
    
    
    
    0.7
    
    
    
    270
    
    
    
    1.3
    
    
    
    (135
    )
    
    
    (50.0
    )Net loss
    
    
    (3,379
    )
    
    
    (17.3
    )
    
    
    (7,563
    )
    
    
    (37.0
    )
    
    
    4,184
    
    
    
    55.3Preferred stock dividends
    
    
    90
    
    
    
    (0.5
    )
    
    
    
    
    
    
    
    
    
    
    90
    
    
    NMLoss attributable to common stockholders
    
    $
    (3,469
    )
    
    
    (17.8
    )%
    
    $
    (7,563
    )
    
    
    (37.0
    )%
    
    $
    4,094
    
    
    
    54.1
    %
       17




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
       Number of Shares
    
    
    ProceedsOptions outstanding under our stock
option plan
    
    
    11,979,384
    
    
    $
    17,863,782Non-plan options
    
    
    552,000
    
    
    
    920,750Warrants
    
    
    3,976,778
    
    
    
    11,364,399Total
    
    
    16,508,162
    
    
    $
    30,148,931
  Secured Convertible Minimum Borrowing Note (Minimum Borrowing
Note)
  Secured Revolving Note (Revolving Note)
 18




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##### Table of Contents



Common Stock Purchase Warrants (Warrant)
 Registration Rights Agreement (Rights Agreement)
      Other Debt
  Acquisitions
   19




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20




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2007
    
    
    2008
    
    
    2009
    
    
    TotalEarn-Out Payments:Domestic
    
    $
    2,500
    
    
    $
    2,500
    
    
    $
    
    
    
    $
    5,000International
    
    
    5,758
    
    
    
    3,514
    
    
    
    3,235
    
    
    
    12,507Total earn-out payments
    
    $
    8,258
    
    
    $
    6,014
    
    
    $
    3,235
    
    
    $
    17,507Prior year pre-tax earnings targets (3)Domestic
    
    $
    3,500
    
    
    $
    3,500
    
    
    $
    
    
    
    $
    7,000International
    
    
    14,012
    
    
    
    8,693
    
    
    
    8,160
    
    
    
    30,865Total pre-tax earnings targets
    
    $
    17,512
    
    
    $
    12,193
    
    
    $
    8,160
    
    
    $
    37,865Domestic
    
    
    71.4
    %
    
    
    71.4
    %
    
    
    N/A
    
    
    
    71.4
    %International
    
    
    41.1
    %
    
    
    40.4
    %
    
    
    39.6
    %
    
    
    40.5
    %Combined
    
    
    47.2
    %
    
    
    49.3
    %
    
    
    39.6
    %
    
    
    46.2
    %
 
      21




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk.
    
 Item 4. Controls and Procedures.
 Evaluation of disclosure controls and procedure
  Changes in internal controls
  
 PART II
 OTHER INFORMATION
 
 Item 1. Legal Proceedings.
   22




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23




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Item 1A. Risk Factors.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
  
 Item 6. Exhibits.
  12
    
    Calculation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends.31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 31.2
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This exhibit shall
not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as
amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be
deemed to be incorporated by reference into any filing under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended.)
 24




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SIGNATURES
  STONEPATH GROUP, INC.Date: May 12, 2006
    /s/ Jason F. TotahJason F. TotahChief Executive OfficerDate: May 12, 2006
    /s/ Robert ArovasRobert ArovasPresident & Chief Financial OfficerDate: May 12, 2006
    /s/ Robert T. ChristensenRobert T. ChristensenVice President, Controller and
Principal Accounting Officer 25