<PAGE>

================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   ----------

                                    FORM 10-K

      |X|   ANNUAL  REPORT  PURSUANT  TO SECTION  13 OR 15(d) OF THE  SECURITIES
            EXCHANGE ACT OF 1934

                   For The Fiscal Year Ended December 31, 2004
                                       OR
      |_|   TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
            EXCHANGE ACT OF 1934

             For the transition period from __________ to __________

                        Commission File Number: 001-16105

                              STONEPATH GROUP, INC.
             (Exact name of registrant as specified in its charter)

                        Delaware                              65-0867684
            (State or other jurisdiction of               (I.R.S.  Employer
             incorporation or organization)               Identification No.)

    1600 Market Street, Suite 1515, Philadelphia, PA            19103
       (Address of principal executive offices)               (Zip Code)

       Registrant's telephone number, including area code: (215) 979-8370

           Securities registered pursuant to Section 12(b) of the Act:

                                                        Name of each exchange on
         Title of each class:                               which registered:
Common Stock, par value $.001 per share                 American Stock Exchange

           Securities registered pursuant to Section 12(g) of the Act:

                                      None

Indicate  by check  mark  whether  the  Registrant:  (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934 during the preceding 12 months (or for such shorter period that  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  pursuant 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.|X|

      Indicate by check mark whether the Registrant is an accelerated filer
                      (as defined in Rule 12b-2 of the Act)
                                 YES |X| NO |_|

The  aggregate   market  value  of  the   Registrant's   common  stock  held  by
non-affiliates  of the Registrant as of June 30, 2004 was $84,432,579 based upon
the closing sale price of the  Registrant's  common stock on the American  Stock
Exchange of $2.14 on such date. See Footnote (1) below.

     The number of shares outstanding of the Registrant's common stock as of
                        February 28, 2005 was 43,591,952.

                    Documents Incorporated by Reference: None

               Index to Exhibits appears at page 57 of this Report

----------
(1)   The information provided shall in no way be construed as an admission that
      any person whose  holdings are excluded from the figure is an affiliate or
      that any person whose  holdings  are included is not an affiliate  and any
      such admission is hereby  disclaimed.  The information  provided is solely
      for record keeping purposes of the Securities and Exchange Commission.

================================================================================


<PAGE>

                              STONEPATH GROUP, INC.
                           ANNUAL REPORT ON FORM 10-K
                            FOR THE FISCAL YEAR ENDED
                                DECEMBER 31, 2004

                                TABLE OF CONTENTS

<TABLE>
<S>                                                                                                 <C>
                                     PART I
Item 1.  Business....................................................................................1
Item 2.  Properties.................................................................................16
Item 3.  Legal Proceedings..........................................................................17
Item 4.  Submission Of Matters To A Vote Of Security Holders........................................18

                                     PART II
Item 5.  Market For Registrant's Common Equity, Related Stockholder Matters and Issuer
         Purchases of Equity Securities.............................................................18
Item 6.  Selected Financial Data....................................................................19
Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations......21
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.................................38
Item 8.  Financial Statements and Supplementary Data................................................38
Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......38
Item 9A. Controls and Procedures....................................................................38
Item 9B. Other Information..........................................................................43

                                    PART III
Item 10. Directors and Executive Officers of the Registrant.........................................43
Item 11. Executive Compensation.....................................................................46
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
         Matters....................................................................................54
Item 13. Certain Relationships and Related Transactions.............................................55
Item 14. Principal Accountant Fees and Services ....................................................56

                                     PART IV
Item 15. Exhibits and Financial Statement Schedules ................................................57
</TABLE>


                                        i
<PAGE>

                                     PART I

      This Annual Report on Form 10-K includes 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.  We have based
these  forward-looking  statements on our current  expectations  and projections
about future events. These  forward-looking  statements are subject to known and
unknown risks,  uncertainties and assumptions about us and our subsidiaries that
may cause our actual results, levels of activity, performance or achievements to
be materially different from any future results, levels of activity, performance
or achievements expressed or implied by such forward-looking statements. In some
cases, you can identify forward-looking statements by terminology such as "may,"
"will," "should," "could," "would," "expect," "plan,"  "anticipate,"  "believe,"
"estimate,"   "continue"  or  the  negative  of  such  terms  or  other  similar
expressions.  Factors  that  might  cause  or  contribute  to  such  a  material
difference  include,  but are not limited to, those discussed  elsewhere in this
Annual Report, including the section entitled "Risks Particular to Our Business"
and the risks discussed in our other Securities and Exchange Commission filings.
The  following  discussion  should  be  read in  conjunction  with  our  audited
consolidated  financial  statements and related notes thereto included elsewhere
in this report.

Item 1. Business

Overview

      We are a non-asset-based  third-party logistics services company providing
supply chain solutions on a global basis. We offer a full range of time-definite
transportation and distribution solutions through our Domestic Services platform
which manages and arranges the movement of raw materials,  supplies,  components
and finished  goods for our customers.  These  services are offered  through our
domestic air and ground freight forwarding business.  We also offer a full range
of  international  logistics  services  including  international  air and  ocean
transportation  as  well  as  customs  house  brokerage   services  through  our
International  Services platform. In addition to these core services, we provide
a broad  range  of  value-added  supply  chain  management  services,  including
warehousing,  order fulfillment and inventory management  solutions.  We serve a
customer base of manufacturers,  distributors and national retail chains through
a network of offices in 24 major  metropolitan areas in North America and Puerto
Rico, 13 locations in the Asia Pacific region and 6 locations in Brazil, as well
as  an  extensive   network  of  independent   carriers  and  service   partners
strategically located throughout the world.

      Our objective is to build a leading global logistics services organization
that integrates established logistics companies with innovative technologies. To
that end, we are extending  our network  through a  combination  of  synergistic
acquisitions and the organic expansion of our existing operations.

      Our acquisition  strategy  focuses on acquiring and integrating  logistics
businesses that will enhance  operations within our current market areas as well
as extend our network to targeted  locations in Asia, South America,  Europe and
the Middle  East.  We select  acquisition  targets  based upon their  ability to
demonstrate:  (1)  historic  levels  of  profitability;  (2) a proven  record of
delivering superior  time-definite  distribution and other value-added services;
(3) an  established  customer  base of large and  mid-sized  companies;  and (4)
opportunities for significant growth within strategic segments of our business.

      As  we  integrate  these  companies,   we  intend  to  create   additional
stockholder   value  by:  (1)  improving   productivity  by  adopting   enhanced
technologies and business  processes;  (2) improving  transportation  margins by
leveraging  our growing  purchasing  power;  (3) enhancing the  opportunity  for
organic  growth  by  cross-selling  and  offering  expanded  services;  and  (4)
implementing standard management reporting systems.

      Our strategy is designed to take  advantage of shifting  market  dynamics.
The third-party  logistics industry continues to grow as an increasing number of
businesses  outsource their logistics  functions to more cost effectively manage
and extract  value from their supply  chains.  Also,  we believe the industry is
positioned for further  consolidation  since it remains highly  fragmented,  and
since  customers  are demanding the types of  sophisticated  and broad  reaching
services  that can more  effectively  be  handled  by  larger  and more  diverse
organizations.

      We have completed the acquisition of 16 logistics  companies.  The initial
phase of our  acquisition  strategy  was to  develop a  U.S.-based  platform  of
service offerings. We accomplished this through the acquisition of M.G.R.,


                                       1
<PAGE>

Inc. (d/b/a "Air Plus") on October 5, 2001 and Global  Transportation  Services,
Inc. and its wholly-owned  subsidiary Global Container Line, Inc.  (collectively
"Stonepath Logistics International Services,  Inc." or "SLIS") on April 4, 2002.
Founded in 1990, Air Plus is a leading time-definite logistics company providing
a full range of domestic  transportation  and distribution  solutions  including
warehousing  and  order  fulfillment.  Air  Plus  services  a  customer  base of
manufacturers,  distributors  and national  retail chains through its network of
offices in North America and an extensive network of over 200 agents. Founded in
1985, SLIS provides a full range of international  transportation  and logistics
solutions to a customer base of manufacturers  and national retail chains.  SLIS
also provides customs brokerage, ocean forwarding, NVOCC services, consolidation
and deconsolidation services, air import and export services and warehousing and
distribution services.

      The next phase of our  acquisition  strategy was to supplement the organic
growth of our organization  through  targeted  "add-on"  acquisitions  that were
intended to fill a strategic industry niche and offer complementary  services to
our existing  customer base. We accomplished  this by acquiring  United American
Acquisitions and Management,  Inc. d/b/a United American Freight Services,  Inc.
("United  American") on May 30, 2002,  Transport  Specialists,  Inc.  ("TSI") on
October 1, 2002,  Transportation  Rail Warehousing  Logistics,  Inc. ("TRWL") on
January 31, 2003,  Regroup  Express LLC ("Regroup") on June 20, 2003 and Customs
Services International, Inc. ("CSI") on July 16, 2003. United American, based in
the  Detroit,  Michigan  area,  provides us with a division  that  supports  the
automotive industry, while both TSI and Regroup, based in Northern Virginia, and
TRWL,  based in Portland,  Maine,  service  government  agencies and the defense
sector.  CSI  provides  a full range of  international  freight  forwarding  and
customs  brokerage  services  out of its offices in Miami,  Florida and El Paso,
Texas, with a focus on Latin America, Europe and Asia.

      In 2003 and 2004, we completed a series of acquisitions that increased our
presence in Asia with the goal of building  Stonepath  into a leading  worldwide
integrated  logistics  service  organization.  On August 8, 2003,  we acquired a
controlling  interest in the  Singapore  and Cambodia  based  operations  of the
G-Link  Group of  companies,  a regional  logistics  business  headquartered  in
Singapore,  with offices  throughout  Southeast  Asia.  We then  acquired  three
Malaysian-based  offices of G-Link in December  2003.  During  December 2003, we
also  acquired  controlling  interests  in East  Ocean  Logistics  Ltd.,  a Hong
Kong-based  company that  specializes in international  ocean freight  services,
Planet  Logistics  Pte.  Ltd.,  a   Singapore-based   company  that  focuses  on
international and intra-Asia air cargo services,  and Group Logistics Pte. Ltd.,
a start-up  providing air cargo services in Shanghai,  PRC. On February 9, 2004,
we  increased  our  presence  in Shanghai  by  acquiring a majority  interest in
Shaanxi Sunshine Cargo Services International Company, Ltd. ("Shaanxi"), a Class
A licensed freight forwarder headquartered in Shanghai that has been operated by
founder and  President  Andy Tsai since 1993.  Shaanxi  provides a wide range of
customized  transportation  and logistics  services and supply chain  solutions,
including  global freight  forwarding,  warehousing and  distribution  services,
shipping services and special freight handling.

      As a result of an amendment to our domestic  credit  facility with LaSalle
Business  Credit,  LLC in November 2004, we are presently  precluded from making
any acquisitions.  However,  we are seeking to replace that credit facility with
one that will permit us to resume our acquisition program.  However, if and when
our  acquisition  program is  resumed,  we do not expect it to  continue  at its
historic  pace  because of our desire to optimize  our  existing  footprints  of
offices and services.

      There are a variety of risks  associated  with our  ability to achieve our
strategic  objectives,  including  our ability to replace  our current  domestic
credit,  our  ability  to obtain  additional  capital,  our  ability  to achieve
profitability,   our  ability  to  acquire  and  profitably   manage  additional
businesses,  our current reliance on a small number of key customers,  the risks
inherent  in  international  operations,  and  the  intense  competition  in our
industry for customers and for the acquisition of additional  businesses.  For a
more detailed discussion of these risks, see the section of this Item 1 entitled
"Risks Particular to our Business."

Industry Overview

      Businesses  are   increasingly   focused  on  identifying   ways  to  more
efficiently  manage their supply chains - an  operational  necessity as products
are  sourced  and  distributed   globally,   and  a  financial   requirement  as
organizations   have  discovered  the  fiscal  benefits  of  streamlining  their
logistics  processes - providing an increased demand and opportunity for freight
transportation  and  logistics  providers.   Companies  increasingly  strive  to
minimize inventory levels, reduce order and cash-to-cash cycle lengths,  perform
manufacturing  and assembly  operations in lowest cost  locations and distribute
their  products   throughout  global  markets,   often  requiring  expedited  or
time-definite  shipment services.  Furthermore,  customers  increasingly cite an
efficient supply chain as a critical


                                       2
<PAGE>

element  in  improving  their  financial  performance.  To  remain  competitive,
successful  companies need to not only achieve success in their core businesses,
they must execute quickly and accurately.

      To accomplish their goals,  businesses turn to  organizations  providing a
broad array of  transportation  supply chain services.  These service  providers
consist of freight  forwarders,  customs brokers,  warehouse operators and other
value-added logistics service providers.  They also have the option of utilizing
asset-based  providers  who offer their  services  primarily  through  their own
fleets of trucks, aircraft and vessels.

      We believe that non-asset-based  carriers are able to serve customers less
expensively and with greater flexibility than asset-based providers because they
select from various transportation options in routing customer shipments.  To be
competitive,  these  non-asset-based  service providers must possess experienced
and talented personnel armed with state-of-the-art technology and the ability to
provide  global  supply  chain  management  services  to be  responsive  to  the
marketplace.  Many logistics  providers are now providing  their  customers with
customized  solutions for the planning and  management of complex supply chains.
The demand for these  solutions  has risen as  companies  continue to  outsource
non-core competencies, globally source goods and materials and focus on managing
the overall cost of their supply chain. These trends are further  facilitated by
the rapid growth of technology including the growth of Web-based track and trace
technology,  and the ability to create electronic interfaces between the systems
of service providers and their customers.

      We believe we can  differentiate  ourselves  by focusing on  time-definite
supply  chain  solutions  with  capabilities  across  virtually  every  mode  of
transportation,  as well as  combining  these  services  with other  value-added
logistics  services,   including   pick-and-pack   services,   merge-in-transit,
inventory control, Web-based order management, warehousing and reverse logistics
solutions.  We also believe that we have a competitive  advantage resulting from
our  extensive  knowledge  of  logistics  markets,   information   systems,  the
experience of our logistics  managers and the market information we possess from
our diverse customer base.

      We believe that the third-party  logistics  industry in general,  and that
time-definite  distribution in particular,  is poised for continued growth.  The
growth in the use of third-party  logistics services is being driven by a number
of factors, including:

      o     Outsourcing  of  Non-Core  Activities.  Companies  are  increasingly
            outsourcing freight  forwarding,  warehousing and other supply chain
            activities to allow them to focus on their core  competencies.  From
            managing  purchase  orders  to  the  timely  delivery  of  products,
            companies turn to third-party logistics providers ("3PLs") to manage
            these functions at a lower cost and more efficiently.

      o     Globalization  of Trade.  As  barriers  to  international  trade are
            reduced or  eliminated,  companies are  increasingly  sourcing their
            parts,  supplies and raw  materials  from the most cost  competitive
            suppliers  throughout the world.  This places a greater  emphasis on
            international   freight   management   and   just-in-time   delivery
            capabilities. Outsourcing of manufacturing functions to, or locating
            company-owned  manufacturing  facilities  in,  low cost areas of the
            world also results in increased volumes of world trade.

      o     Increased Need for Time-Definite Delivery. The need for just-in-time
            and other  time-definite  delivery has  increased as a result of the
            globalization   of   manufacturing,    greater   implementation   of
            demand-driven  supply  chains,  the shortening of product cycles and
            the  increasing  value  of  individual  shipments.  Many  businesses
            recognize  that  increased  spending on  time-definite  supply chain
            management   services  can  decrease   overall   manufacturing   and
            distribution  costs,  reduce  capital  requirements,  allow  them to
            manage their working capital more efficiently by reducing  inventory
            levels and inventory loss and improve service to their customers.

      o     Consolidation  of Logistics  Function.  As companies  try to develop
            "partnering"  relationships with fewer suppliers,  they are reducing
            the  number  of  freight  forwarders  and  supply  chain  management
            providers they use. This trend places  greater  pressure on regional
            or local freight forwarders and supply chain management providers to
            grow  or  become  aligned  with a  global  network.  Larger  freight
            forwarders  and  supply  chain  management  providers  benefit  from
            economies  of  scale  which   enable  them  to   negotiate   reduced
            transportation  rates  with  the  carriers  actually  providing  the
            transportation  services,  improve  their  mix of cargo  to  achieve
            desired  densities  and to  allocate  their  overhead  over a larger
            volume of transactions.  Globally-integrated  freight forwarders and
            supply chain  management


                                       3
<PAGE>

            providers  are  better  situated  to  provide a full  complement  of
            services,  including  pick-up and  delivery,  shipment  via air, sea
            and/or ground transport,  warehousing and distribution,  and customs
            brokerage.

      o     Increased  Significance  of  Technology.  Advances in technology are
            placing a  premium  on  decreased  transaction  times and  increased
            business-to-business   activity.   Companies  have   recognized  the
            benefits  of  being  able  to  transact   business   electronically.
            Accordingly,  businesses  increasingly are seeking the assistance of
            supply  chain  service  providers  with  sophisticated   information
            technology systems which facilitate real-time transaction processing
            and Web-based shipment monitoring.

      The growing emphasis on just-in-time inventory control processes has added
to the complexity and need for time-definite and other value-added  supply-chain
services.  We  believe  that  we can  continue  to  differentiate  ourselves  by
combining our time-definite  transportation  solutions with other  complementary
supply chain solutions. We expect to benefit from the intense corporate focus on
lower-cost  services,  which will positively impact those providers who have the
ability to leverage  relationships with numerous carriers and shippers.  We also
believe  that we are well  positioned  to take  advantage  of the growing  trend
toward  international   freight  services  and  time-definite   domestic  ground
services, both of which have increased in demand during the most recent economic
cycle.

Our Strategic Objectives

      Our Business Strategy

      Our  objective  is to provide  customers  with  comprehensive  value-added
logistics  solutions on a global  scale.  We plan to achieve this goal through a
combination of growth  through  acquisition  and continued  organic  growth.  We
intend to carry out the following strategies:

      o     Enter New and  Expand  Existing  Markets  through  Acquisitions.  We
            intend to pursue additional  acquisitions,  although at a far slower
            pace  than we have in the  past,  to  enhance  our  position  in our
            current  markets  and  to  acquire  operations  in new  markets.  We
            anticipate  expanding  into new and  existing  markets by  acquiring
            well-established  logistics  organizations that are leaders in their
            regional markets. In particular,  we intend to focus our acquisition
            strategy on candidates that have historic levels of profitability, a
            proven record of delivering superior time-definite  distribution and
            other value-added  services,  an established  customer base of large
            and mid-sized  companies and  opportunities  for significant  growth
            within strategic segments of our business.

      o     Continue  Organic  Growth.  A key  component  of our  strategy is to
            continue the organic growth of our existing  business as well as the
            business of the  companies  we intend to acquire.  We expect that we
            can continue to fuel internal growth by  cross-selling  our domestic
            and  international  capabilities  to our existing  customer base and
            deploying  supply  chain  technologies  that will drive new customer
            acquisitions.  As our organization grows and matures, we are able to
            share  opportunities  throughout our organization and increase joint
            selling efforts.  We share our experiences and personnel  throughout
            the  organization  to  enhance  local  expertise  and  optimize  our
            organization's  capabilities.   We  believe  these  activities  will
            increase our  network's  growth well beyond the growth  available to
            each of our businesses on a stand-alone basis.

      Our Acquisition Strategy

      We  believe  there  are  many  attractive  acquisition  candidates  in our
industry because of the highly  fragmented  composition of the marketplace,  the
industry participants' need for capital and their owners' desire for liquidity.

      We plan to  continue to expand our  Domestic  and  International  Services
platforms in the United States through "add-on"  acquisitions of other companies
with complementary  geographical and logistics service offerings. These "add-on"
acquisitions are generally  expected to have pre-tax operating  earnings of $1.0
million to $3.0 million. Companies in this range of earnings may be receptive to
our  acquisition  program  since  they are often too small to be  identified  as
acquisition targets by larger public companies or to independently attempt their
own public  offerings.  In addition,  we intend to continue to pursue "platform"
acquisitions to expand in targeted  markets in Asia,  South America,  Europe and
the Middle  East  which will  further  enable  our global  supply-chain  service
capabilities


                                       4
<PAGE>

and improve our overall profitability. We believe that our combined domestic and
international  capabilities will provide a significant  competitive advantage in
the marketplace.

      A  "platform"  acquisition  is  defined  by  us  as  one  that  creates  a
significant  new  capability  for  the  Company,  or  entry  into  a new  global
geography. When completing a platform acquisition, we would expect to retain the
management  as well as the  operating,  sales  and  technical  personnel  of the
acquired company to maintain continuity of operations and customer service.  The
objective  would be to increase an  acquired  company's  revenue and improve its
profitability  by  implementing  our operating  strategies for internal  growth,
internal controls and management controls.

      An "add-on"  acquisition,  on the other hand, will more likely be regional
in nature,  will be smaller  than a platform  acquisition  and will enable us to
offer  additional  services or expand into new  regional  markets,  or serve new
industries.  When  justified  by the size and  service  offerings  of an  add-on
acquisition, we expect to retain the management, along with the operating, sales
and technical  personnel of the acquired company,  while seeking to improve that
company's  profitability  by  implementing  our operating  strategies,  internal
controls and management  controls.  In most instances  where there is overlap of
geographic  coverage,   operations  acquired  by  add-on  acquisitions  will  be
integrated  into  our  existing  operations  in that  market,  resulting  in the
elimination of duplicative overhead and operating costs.

      If we are able to replace our current  domestic  credit  facility with one
that  permits  additional   acquisitions,   we  should  be  well  positioned  to
successfully  pursue our acquisition  strategy due to: (i) the highly fragmented
composition of the market;  (ii) our strategy for creating an organization  with
global reach,  which should enhance an acquired  company's ability to compete in
its local and regional market through an expansion of offered services and lower
operating costs; (iii) the potential for increased  profitability as a result of
our  centralization  of certain  administrative  functions,  greater  purchasing
power, and economies of scale;  (iv) our standing as a public  corporation;  (v)
our management  strategy and controls,  which should, in most cases,  enable the
acquired  company's  management  to  remain  involved  in the  operation  of the
business;  and  (vi) the  ability  of our  experienced  management  to  identify
acquisition opportunities.

      Our Operating Strategy

      o     Foster a Disciplined  Entrepreneurial  Environment. A key element of
            our operating strategy is to foster a disciplined  environment while
            maintaining an entrepreneurial  culture for our employees. We intend
            to foster  this  environment  by  continuing  to build on the names,
            reputations and customer relationships of acquired companies. We are
            also implementing a global  management  reporting and control system
            requiring each business to implement Company-wide controls, policies
            and  management  accountabilities.   A  disciplined  entrepreneurial
            business atmosphere should allow our regional offices to quickly and
            creatively  respond to local market  demands and enhance our ability
            to  motivate,  attract and retain  managers  to maximize  growth and
            profitability.

      o     Develop  and  Maintain  Strong  Customer  Relationships.  We seek to
            develop and maintain strong,  interactive customer  relationships by
            anticipating  and focusing on our customers'  needs.  We emphasize a
            relationship-oriented  approach to business, rather than a commodity
            or assignment-oriented  approach used by many of our competitors. To
            develop  close  customer  relationships,   we  regularly  meet  with
            existing  and  prospective  customers  to help  design  and  execute
            solutions  for their supply chain  strategies.  We believe that this
            relationship-oriented   approach   results   in   greater   customer
            satisfaction and reduced business development expense.

      o     Centralize   Administrative  Functions.  We  seek  to  maximize  our
            operational  efficiencies by integrating  general and administrative
            functions at the corporate  level,  thereby  reducing or eliminating
            redundant  functions  and  facilities  at acquired  companies.  This
            enables us to  quickly  realize  potential  savings  and  synergies,
            efficiently  control and monitor our operations and allows  acquired
            companies to focus on growing their sales and operations.

      o     Enhance Our Capital Structure.  As we approach the next stage of our
            development,  we need to augment our capital  structure by replacing
            our domestic  credit  facility and by obtaining  additional  capital
            from other  sources.  This may take the form of  subordinated  debt,
            convertible  preferred stock and common stock, among others. Such an
            enhanced capital structure will permit continued


                                       5
<PAGE>

            expansion,  but at a far slower past than we have in the past.  This
            growth will expand our  services in existing  markets and expand our
            global reach.

Operations

      Our primary business  operations  involve  obtaining  shipment or material
orders  from  customers,  creating  and  delivering  a wide  range of  logistics
solutions  to meet  customers'  specific  requirements  for  transportation  and
related  services,  and  arranging and  monitoring  all aspects of material flow
activity  utilizing advanced  information  technology  systems.  These logistics
solutions  include  domestic  and  international  freight  forwarding,   customs
brokerage   and   door-to-door   delivery   services   using  a  wide  range  of
transportation  modes,  including  air,  ocean  and  truck  as well  as  customs
brokerage,  warehousing  and  other  value-added  services,  such  as  inventory
control, assembly, distribution and installation for manufacturers and retailers
of commercial and consumer products.

      As a non-asset-based  logistics  provider,  we arrange for and subcontract
services  on  a  non-committed  basis  to  airlines,  motor  carriers,   express
companies,  steamship  lines and  warehousing  and  distribution  operators.  By
concentrating on network-based  solutions,  we avoid  competition with logistics
providers that offer dedicated  outsourcing solutions for single elements of the
supply chain. Such dedicated  logistics  companies  typically provide expensive,
customized infrastructure and systems for a customer's specific application and,
as a result, dedicated solutions that are generally asset-intensive,  inflexible
and  invariably  localized to address only one or two steps in the supply chain.
Our network-based services leverage common infrastructure and technology systems
so that  solutions  are  scalable,  replicable  and require a minimum  amount of
customization  (typically  only  at  the  interface  with  the  customer).  This
non-asset   ownership   approach  maximizes  our  flexibility  in  creating  and
delivering  a wide range of  end-to-end  logistics  solutions  on a global basis
while  simultaneously  allowing  us to  exercise  significant  control  over the
quality and cost of the transportation services provided.

      Within the  logistics  industry,  we target  specific  markets in which we
believe we can achieve a competitive advantage and/or which are growing rapidly.
For example, in the freight forwarding market, we arrange for the transportation
of cargo that is generally  larger and more complex  than  shipments  handled by
integrated  carriers such as United Parcel Service,  Inc. and FedEx Corporation.
In addition,  we provide  specialized  combinations of services that traditional
freight  forwarders cannot  cost-effectively  provide,  including  time-definite
delivery   requirements,   direct-to-store   distribution  and  merge-in-transit
movement of products from various vendors in a single  coordinated  delivery to,
and/or installation at, the end-user.

      Our services are broadly classified into the following categories:

      o     Freight  Forwarding  Services.  We offer domestic and  international
            air, ocean and ground freight  forwarding for shipments that require
            special handling or are generally  larger than shipments  handled by
            integrated carriers of primarily small parcels such as United Parcel
            Service,  Inc. and FedEx  Corporation.  Our basic freight forwarding
            business   is    complemented    by   customized   and   information
            technology-based  options to meet  customers'  specific  needs.  Our
            Domestic Services  organization  offers same day, one, two and three
            to five day service along with expedited ground service within North
            America and Puerto Rico through our network of asset-based carriers.
            On a limited basis, we also provide motor carrier  services  through
            one of our own affiliates.  Internationally we offer a wide range of
            services  from  expedited  air to  multi-modal  options  through our
            network of owned or agent  offices  throughout  the world.  In a few
            markets in Asia,  the  Company  offers  co-loading  services  to the
            freight forwarding marketplace.

      o     Customs Brokerage Services.  Our International Services organization
            provides customs brokerage services.  Within each country, the rules
            and  regulations  vary  along  with the level of  expertise  that is
            required  to perform  the customs  brokerage  services.  Our customs
            brokers and support staff have substantial  knowledge of the complex
            tariff laws and customs  regulations  governing  the payment of duty
            and taxes,  as well as valuation  and import  restrictions  in their
            respective countries.

      o     Warehousing and Other Value-added Services. Our warehousing services
            primarily  relate  to  storing  goods  and  materials  to  meet  our
            customers' production or distribution  schedules.  Other value-added
            services include receiving,  deconsolidation and decontainerization,
            sorting,  put away,  consolidation,  assembly,  inspection services,
            cargo loading and unloading, assembly of freight, customer inventory


                                       6
<PAGE>

            control and  protective  packing and storage,  order  processing and
            customer-directed  invoicing.  We receive storage charges for use of
            our warehouses and fees for our other services.

      o     Time-Definite    Transportation.    We    specialize   in   complex,
            time-definite  delivery of product to many  destinations  around the
            world   and  all  North   American   destinations.   These   include
            high-volume,  complex  multi-destination  consolidation programs for
            catalog, retail and other shippers. We have special programs focused
            on  high  value  and  breakable   freight  utilizing  all  modes  of
            transportation.

      Other value-added services provided by us include:

      o     Direct-to-store    logistics   for   retail   customers    involving
            coordination of product  received  directly from  manufacturers  and
            dividing large shipments from  manufacturers  into numerous  smaller
            shipments for delivery  directly to retail  outlets or  distribution
            centers to meet time-definite product launch dates.

      o     Turn-key  product  management  services  for  retailers  - including
            comprehensive  vendor  compliance  management,  central delivery and
            distribution  centers close to consumption,  inventory  forecasting,
            replenishment and management - all on the Web.

      o     Merge-in-transit  logistics  involving  movement  of  products  from
            various vendors at multiple  locations to a Company facility and the
            subsequent   merger  of  the  various   deliveries   into  a  single
            coordinated  delivery to the final  destination.  Such  services are
            useful to  retailers  where  deliveries  from  diverse  sources  are
            organized and distributed to maximize  efficiency of their sales and
            marketing programs.

      o     Web-based  fulfillment  solutions providing order management as well
            as the subsequent pick, pack and shipment for our customers.

      o     Turn-key  supply chain and logistics  outsourcing  projects where we
            operate  one or more  warehouses  or the  entire  end-to-end  supply
            chain. We provide sophisticated systems that supply global location,
            status and  ownership  of  parts/SKUs  and  enable the timely  cross
            border customs clearance and placement desired by the final consumer
            of the goods.

      o     Value-added, high-speed,  time-definite,  total-destination programs
            that include packaging,  transportation,  unpacking and placement of
            new products and equipment.

      o     Packaging,  transportation,  unpacking  and stand  installation  for
            domestic trade shows and major expositions.

      o     Reverse logistics involving the return of products from end users to
            manufacturers,  retailers,  resellers or remanufacturers,  including
            verification  of  working  order,  defect  analysis,  serial  number
            tracking and inventory management.

Information Systems

      A key component of our growth  strategy is the regular  enhancement of our
information  systems and ultimate  migration of the  information  systems of our
acquired   companies  to  a  common  set  of  back-office  and  customer  facing
applications.  We  believe  that the  ability  to  provide  accurate,  real-time
information on the status of shipments and the status,  ownership and details of
the  accompanying  inventory is paramount to our customers.  We believe that our
efforts in this area will provide competitive service advantages,  new customers
and an increase of business from existing accounts. In addition, we believe that
centralizing our back-office operations and using our transportation  management
system  to  automate  the  rating,  routing,  tender  and  financial  settlement
processes  for  transportation  movements  will drive  significant  productivity
improvement across our network.

      To execute this strategy, we have and will continue to assess technologies
obtained  through our  acquisition  strategy in  combination  with  commercially
available supply chain technologies to launch our own  "best-of-breed"  solution
set using a  combination  of owned and licensed  technologies.  We refer to this
technology set as Tech-Logis(TM) (or Technology in Logistics). We are developing
Tech-Logis(TM) to provide:  (1) a  customer-facing  portal that unifies the look
and feel of how customers,  employees and suppliers work with and connect to us;
(2) a robust


                                       7
<PAGE>

supply  chain  operating  system  including   order,   inventory   optimization,
transportation,  warehouse and supply chain event  management for use across the
organization;  and (3) a common data  repository  for analysis and  reporting to
provide advanced metrics to management and our customers.  We have completed the
added value  logistics  portion of this  integrated  logistics  and  information
platform. We did encounter  difficulty,  however, with the functionality for the
multi-modal  forwarding  portion of the  Tech-Logis(TM)  platform in 2004.  As a
result,  the Company wrote off its investment in this  unsuitable  system in the
fourth  quarter of 2004.  The Company  has  redirected  its  efforts  into a new
solution  to  meet  its  increasingly   sophisticated  needs  for  leading  edge
technologies.

      In  executing  this  strategy,   we  have  and  will  continue  to  invest
significant management and financial resources to deliver these technologies. We
believe these technologies will provide financial and competitive  advantages in
the years ahead and will increase our competitive differentiation.

Consolidation of Businesses

      We  began  to make  changes  in the  fourth  quarter  of  2004 to  further
consolidate our businesses and to improve our  profitability.  After a review of
our entire business, we made a number of targeted reductions across our employee
base. We also streamlined our line-haul trucking  division,  a strategic step to
ensure  that our core  focus  remains  on  providing  non-asset-based  logistics
solutions to our clients.  We also plan to move our  corporate  headquarters  to
Seattle,  Washington in the first half of 2005, in an effort to derive synergies
from the  integration of the Company's  corporate  team with its U.S.  operating
companies' support staff.

Sales and Marketing

      We market  services on a global basis using our senior  management,  sales
executives,  regional  managers,  terminal  managers  and our  national  service
centers   located   strategically   across  the  United  States  and  in  select
international locations.

      We seek to  create  long-term  relationships  with  our  customers  and to
increase the quantity and diversity of business from each customer over time. We
also emphasize obtaining  high-revenue  national accounts with multiple shipping
locations.  These  accounts  typically  impose  numerous  requirements  on those
competing for their freight business,  including electronic data interchange and
proof of delivery capabilities,  the ability to track shipments,  the ability to
generate  customized  shipping  reports and a nationwide  network of  terminals.
These  requirements  often limit the  competition  for these  accounts to a very
small number of logistics providers, enabling us to more effectively compete for
these accounts.

      Our customers  include large  manufacturers  and distributors of computers
and other  electronic  and  high-technology  equipment,  printed and  publishing
materials,  automotive and aerospace  components,  trade show exhibit materials,
telecommunications   equipment,    machinery   and   machine   parts,   apparel,
entertainment  products and  household  goods.  For the year ended  December 31,
2004, our largest customer,  Best Buy Co., Inc., accounted for approximately 13%
of our revenue. In 2003, Best Buy represented 24% of our revenue. The change was
principally due to the Company's organic and acquired growth. In March 2005, the
Company  entered into a new  three-year  contract with Best Buy providing for an
expansion of its  existing  expedited  transportation  and  logistics  services.
Approximately  16% of our 2004  revenue was derived  from our next five  largest
customers,  none of which accounted for 10% or more of our 2004 revenue.  As our
current  operations  continue to diversify,  and as we continue our  acquisition
strategy,  our  exposure  to  customer  and  industry  concentrations  should be
significantly reduced.

Competition and Business Conditions

      Our  business  is  directly   impacted  by  the  volume  of  domestic  and
international  trade.  The volume of this trade is  influenced  by many factors,
including  economic and  political  conditions  in the United States and abroad,
major work stoppages,  exchange controls,  currency  fluctuations,  acts of war,
terrorism and other armed conflicts,  and United States and  international  laws
relating to tariffs, trade restrictions, foreign investments and taxation.

      The  global   logistics   services  and   transportation   industries  are
intensively  competitive  and are  expected  to  remain  so for the  foreseeable
future.  We compete against other  integrated  logistics  companies,  as well as
transportation services companies,  consultants,  information technology vendors
and shippers' transportation


                                       8
<PAGE>

departments. This competition is based primarily on capabilities, rates, quality
of service  (such as  damage-free  shipments,  on-time  delivery and  consistent
transit times), reliable pickup and delivery and scope of operations.

      As a provider of third-party  logistics services, we encounter competition
from a large  number of firms,  much of it coming from local or  regional  firms
which have only one or a small number of offices and do not offer the breadth of
services  and  integrated  approach  that  we  offer.   However,  some  of  this
competition  comes from major United States and  foreign-owned  firms which have
networks  of offices  and offer a wide  variety  of  services.  We believe  that
quality of service,  including  information systems  capability,  global network
capacity,  reliability,   responsiveness,   expertise,   convenience,  scope  of
operations, customized program design and implementation and price are important
competitive factors in our industry.

      Competition  within  the  domestic  freight  forwarding  industry  is also
intense.  Although  the  industry is highly  fragmented  with a large  number of
participants,  we compete most often with a  relatively  small number of freight
forwarders with nationwide networks and the capability to provide the breadth of
services  offered by us. We also encounter  competition from passenger and cargo
air  carriers,  trucking  companies and others.  As we expand our  international
operations,  we expect to encounter  increased  competition  from those  freight
forwarders that have a predominantly  international focus,  including DHL Danzas
Air and Ocean,  Expeditors  International of Washington,  Inc., UPS Supply Chain
Solutions (a unit of United Parcel Service, Inc.), UTi Worldwide, Inc. and Eagle
Logistics,  Inc. Many of our competitors have  substantially  greater  financial
resources than we do.

      We  also  encounter  competition  from  regional  and  local  air  freight
forwarders,  cargo sales  agents and brokers,  surface  freight  forwarders  and
carriers and associations of shippers organized for the purpose of consolidating
their  members'  shipments to obtain lower  freight rates from  carriers.  As an
ocean freight  forwarder,  we encounter  strong  competition in every country in
which we choose to operate.  This includes  competition from steamship companies
and  both  large  forwarders  with  multiple  offices  and  local  and  regional
forwarders with one or a small number of offices. Quality of service,  including
reliability,  responsiveness,  expertise and  convenience,  scope of operations,
information  technology and price are the most important  competitive factors in
our industry.

Regulation

      We do not believe that  transportation  related regulatory  compliance has
had a material adverse impact on operations to date. However,  failure to comply
with the  applicable  regulations  or to maintain  required  permits or licenses
could result in  substantial  fines or revocation  of our  operating  permits or
authorities.  We  cannot  give  assurance  as to the  degree  or cost of  future
regulations on our business.  Some of the  regulations  affecting our operations
are described below.

      Our air  freight  forwarding  business  is  subject to  regulation,  as an
indirect  air cargo  carrier,  under  the U.S.  Department  of  Transportation's
Transportation  Security  Administration.  The airfreight forwarding industry is
subject to regulatory and  legislative  changes that can affect the economics of
the industry by  requiring  changes in operating  practices or  influencing  the
demand for, and the costs of providing, services to customers.

      Our surface freight  forwarding  operations are subject to various federal
statutes and are  regulated by the Surface  Transportation  Board.  This federal
agency has broad  investigatory  and regulatory  powers,  including the power to
issue a  certificate  of  authority  or  license to engage in the  business,  to
approve specified mergers,  consolidations and acquisitions, and to regulate the
delivery of some types of domestic  shipments and operations  within  particular
geographic  areas.  The  Surface  Transportation  Board and U.S.  Department  of
Transportation  also have the  authority to regulate  interstate  motor  carrier
operations,  including the regulation of certain  rates,  charges and accounting
systems,  to require periodic financial  reporting,  and to regulate  insurance,
driver  qualifications,  operation of motor vehicles,  parts and accessories for
motor  vehicle  equipment,  hours of service  of  drivers,  inspection,  repair,
maintenance  standards  and other  safety  related  matters.  The  federal  laws
governing interstate motor carriers have both direct and indirect application to
the  Company.  The breadth and scope of the federal  regulations  may affect our
operations and the motor carriers we use to provide transportation  services. In
certain locations,  state or local permits or registrations may also be required
to provide or obtain  intrastate  motor  carrier  services for the Company.  Our
property brokerage  operations  similarly subject us to various federal statutes
and regulation as a property broker by the Surface  Transportation Board, and we
have obtained a property  broker license and posted a surety bond as required by
federal law.  Our  international  operations  are subject to  regulation  by the
Federal  Maritime  Commission,  or  FMC,  as it  regulates  and  licenses  ocean
forwarding  operations.  Indirect ocean carriers  (non-vessel  operating  common
carriers) are subject to FMC regulation,  under the FMC tariff filing and


                                       9
<PAGE>

surety bond requirements, and under the Shipping Act of 1984, particularly those
terms proscribing rebating practices.

      Our customs brokerage operations are subject to the licensing requirements
of the U.S.  Treasury and are  regulated by the U.S.  Customs  Service.  Foreign
customs brokerage operations are also licensed in and subject to the regulations
of their respective countries.

      In the United  States,  we are also  subject to  federal,  state and local
provisions  relating to the  discharge  of  materials  into the  environment  or
otherwise  for the  protection  of the  environment.  Similar laws apply in many
foreign jurisdictions in which we operate or may operate in the future. Although
current operations have not been significantly affected by compliance with these
environmental  laws,   governments  are  becoming   increasingly   sensitive  to
environmental  issues,  and we cannot  predict what impact future  environmental
regulations may have on our business.  We do not anticipate  making any material
capital expenditures for environmental control purposes.

Personnel

      At December 31, 2004, we had 1,169  employees of which 866 employees  were
engaged  in  operations,  86  in  sales  and  marketing,  and  217  in  finance,
administration and management functions.

      None of our  employees are covered by a collective  bargaining  agreement,
and we believe that we have a good relationship with our employees.

Discontinued Operations

      Prior to the first quarter of 2001, our principal  business was developing
early-stage   technology  businesses  with  significant  Internet  features  and
applications.  Largely as a result of the  significant  correction in the global
stock markets  which began during 2000,  and the  corresponding  decrease in the
valuation of  technology  businesses  and  contraction  in the  availability  of
venture financing,  we changed our business strategy to focus on the acquisition
of operating businesses within a particular industry segment.

      After having evaluated a number of different industries, during the second
quarter  of  2001  we  focused  our  acquisition  efforts  specifically  on  the
transportation and logistics industry as it:

      o     demonstrated  significant  growth  characteristics  as an increasing
            number of  businesses  outsource  their  supply-chain  management in
            order to achieve cost-effective logistics solutions;

      o     is  positioned  for  further  consolidation  as many  sectors of the
            industry remain fragmented; and

      o     is capable of achieving enhanced  efficiencies  through the adoption
            of e-commerce and other technologies.

      This decision  occurred in conjunction  with our June 21, 2001 appointment
of Dennis L.  Pelino as our  Chairman  and  Chief  Executive  Officer.  Prior to
joining  Stonepath,  Mr.  Pelino  had  over 25 years  of  logistics  experience,
including as President and Chief  Operating  Officer of Fritz  Companies,  Inc.,
where he was employed from 1987 to 1999.

      To reflect  the  change in  business  model,  our  consolidated  financial
statements  have been  presented  in a manner in which the assets,  liabilities,
results of operations  and cash flows  related to our former  business have been
segregated  from  those  of our  continuing  operations  and  are  presented  as
discontinued operations.

Corporate Information

      Stonepath Group,  Inc. was incorporated in Delaware in 1998. Our principal
executive offices are located at 1600 Market Street,  Suite 1515,  Philadelphia,
Pennsylvania.  Our telephone  number is (215) 979-8370 and our Internet  website
address is  www.stonepath.com.  We make  available free of charge on our website
all  materials  that  we file  with  the  Securities  and  Exchange  Commission,
including  our  Annual  Report on Form  10-K,  Quarterly  Reports  on Form 10-Q,
Current  Reports  on  Form  8-K  and  amendments  to  these  reports  as soon as
reasonably  practicable  after such materials have been filed with, or furnished
to, the Securities and Exchange Commission.


                                       10
<PAGE>

Segment Information

      For additional  information about our business segments,  see the business
segment  information  presented  in  Note  16  to  the  consolidated   financial
statements.

Risks Particular to Our Business

      o     We have not been profitable in four out of the last five years.

      We  incurred  net  losses  of  $13,043,355  in  2004,  $785,603  in  2003,
$17,459,092  in 2001,  and  $36,171,273  in 2000.  Since the adoption of our new
business model of delivering  non-asset based third-party  logistics services in
2001, we have incurred losses from continuing  operations of $13,018,355 in 2004
and $522,572 in 2003. Although our 2004 results include restructuring and excess
earn-out  charges of  $7,443,440,  our  ability to  achieve  profitability  on a
continuing  basis in the future is dependent upon (a) the results of the efforts
we began in the fourth quarter of 2004 to integrate our business operations, (b)
our ability to pass along added costs to customers,  including  escalating  fuel
charges,  (c) our  ability to improve  our buying of carrier  services,  (d) our
ability to implement a new freight  forwarding  information  system, and (e) our
ability to retain and attract talented and experienced  personnel in the future.
There is no assurance that those results will achieve their  intended  effect or
that we will be able to effectuate such actions.

      o We are unable to make further acquisitions until we replace our existing
domestic credit facility.

      An amendment to our credit facility with LaSalle Business  Credit,  LLC in
November 2004 prohibits us from making further acquisitions. Our ability to make
further  acquisitions  is  dependent  upon our  ability to replace  that  credit
facility with a credit facility which permits us to make further acquisitions.

      o If we are unable to  profitably  manage and  integrate  the companies we
acquire or are unable to acquire additional  companies,  we will not achieve our
growth and profit objectives.

      Our goal is to build a global logistics services  organization.  Realizing
this goal will require the  acquisition of a number of diverse  companies in the
logistics  industry  covering a variety of  geographic  regions and  specialized
service  offerings.  There  can be no  assurance  that,  if we are  able to make
further acquisitions,  we will be able to identify, acquire or profitably manage
additional businesses or successfully  integrate any acquired businesses without
substantial costs, delays or other operational or financial  problems.  Further,
acquisitions  involve a number of risks,  including  possible adverse effects on
our operating results, diversion of management resources,  failure to retain key
personnel, and risks associated with unanticipated  liabilities,  some or all of
which could have a material adverse effect on our business,  financial condition
and results of operations.

      o Additional  long-term and equity financing will be required to implement
our business strategy and meet our existing earn-out obligations.

      We believe  that  additional  capital  will be  required  to  execute  our
strategy  in the  future  as  well  as  fund  existing  obligations  from  prior
acquisitions.  We intend to obtain that additional capital through a combination
of debt and equity financing. There is no assurance that any such debt or equity
can be raised on a cost  effective  basis or within the  timeframe  necessary to
implement  our strategy or to meet our existing  obligations.

      o Our domestic credit facility limits earn-out payments.

      An amendment to our credit facility with LaSalle Business  Credit,  LLC in
November  2004  precludes  the payment of future  earn-out  payments  unless the
undrawn  availability under the credit facility averages $2.5 million for the 60
days preceding the payment and will be at least $2.5 million after giving effect
to the payment.  This limitation  creates the possibility that earn-out payments
cannot be made when due which could result in a breach of our obligations to the
parties entitled to receive the earn-out  payments,  unless we are successful in
replacing the facility with one that permits such payments.


                                       11
<PAGE>

      o Our domestic credit facility  requires  repayment on its expiration date
of May 31, 2006.

      Our amended credit agreement expires on May 31, 2006. There is an absolute
need to replace  this  facility on or before the  expiration  date to resume our
acquisition  strategy to grow  through  acquisitions  and to provide  sufficient
liquidity to continue to finance our existing and future working  capital needs.
Our free cash flow,  if any,  through the  expiration  of this  facility will be
insufficient  in amount to repay this  facility and finance our working  capital
needs at the facility's  expiration  date. There is no assurance that we will be
able to replace this credit facility.

      o Due to our acquisition strategy, our earnings will be adversely affected
by  non-cash  charges  relating  to  the  amortization  of  intangibles.

      Under applicable accounting standards, purchasers are required to allocate
the  total  consideration  paid  in a  business  combination  to the  identified
acquired  assets  and  liabilities  based on their  fair  values  at the time of
acquisition. The excess of the consideration paid in a business combination over
the fair value of the  identifiable  tangible assets acquired is to be allocated
among  identifiable  intangible  assets and  goodwill.  The amount  allocated to
goodwill is not subject to amortization. However, it is tested at least annually
for  impairment.  The amount  allocated  to  identifiable  intangibles,  such as
customer  relationships  and the  like,  is  amortized  over  the  life of these
intangible assets.  This subjects us to periodic charges against our earnings to
the extent of the  amortization  incurred for that period.  Because our business
strategy  focuses on growth through  acquisitions,  our future  earnings will be
subject to greater non-cash  amortization  charges than a company whose earnings
are derived organically. As a result, we will experience an increase in non-cash
charges  related  to the  amortization  of  intangible  assets  acquired  in our
acquisitions.  This  will  create  the  appearance,  based  on our  consolidated
financial statements,  that our intangible assets are diminishing in value, when
in  fact  they  may be  increasing  because  we are  growing  the  value  of our
intangible assets (e.g., customer relationships).

      o Since  we are  not  obligated  to  follow  any  particular  criteria  or
standards  for  acquisition  candidates,  shareholders  must rely  solely on our
ability to identify, evaluate and complete acquisitions.

      Even though we have developed general acquisition  guidelines,  we are not
obligated to follow any  particular  operating,  financial,  geographic or other
criteria  in  evaluating  candidates  for  potential  acquisitions  or  business
combinations.  We target  companies,  in growing markets,  which we believe will
provide the best potential for long-term  financial  return for our shareholders
and  we  determine  the  purchase  price  and  other  terms  and  conditions  of
acquisitions.  Our  shareholders  will not have the  opportunity to evaluate the
relevant economic, financial and other information that we will use and consider
in deciding whether or not to enter into a particular transaction.

      o The scarcity of, and competition for, acquisition opportunities makes it
more difficult to complete acquisitions.

      There  are  a  limited  number  of  operating   companies   available  for
acquisition which we consider desirable.  In addition,  there is a high level of
competition to acquire these operating companies.  A large number of established
and  well-financed  entities  are active in  acquiring  the type of companies we
believe  are  desirable.  Many of  these  entities  have  significantly  greater
financial  resources  than  we  have.  Consequently,  we  are  at a  competitive
disadvantage  in  negotiating  and  executing  possible  acquisitions  of  these
businesses.  Even if we are able to  successfully  compete with these  entities,
this  competition  may  affect the terms of  completed  transactions  and,  as a
result, we may pay more than we expected for potential acquisitions. We may find
it difficult to identify operating  companies that complement our strategy,  and
even if we identify a company that complements our strategy, we may be unable to
complete an acquisition of such a company for many reasons, including:

      -     a failure to agree on the terms necessary for a transaction, such as
            purchase price;

      -     incompatibility of operating strategies and management philosophies;

      -     competition from other acquirers of operating companies;

      -     insufficient capital to acquire a profitable logistics company; and

      -     the  unwillingness  of  a  potential   acquiree  to  work  with  our
            management or our affiliated companies.


                                       12
<PAGE>

      We will not be able to successfully  implement our business plan if we are
unable to successfully compete with other entities in acquiring the companies we
target.

      o The issuance of additional  securities may cause additional  dilution to
the interests of our existing shareholders.

      The additional  financing  required to fund our  acquisition  strategy and
other capital needs may require us to issue additional shares of common stock or
common stock  equivalents  to generate the required  financing.  The issuance of
such  securities  will  further  increase the number of shares  outstanding  and
further  dilute the  interests of our existing  shareholders.  We may issue more
shares  of  common  stock  for  this  purpose   without   prior  notice  to  our
shareholders.

      We may also issue securities to, among other things, facilitate a business
combination,  acquire assets or stock of another business,  compensate employees
or  consultants  or for other valid  business  reasons at the  discretion of our
Board of  Directors,  which could  further  dilute the interests of our existing
shareholders.

      o The exercise or conversion of our outstanding options, warrants or other
convertible  securities or any derivative securities we issue in the future will
result in the  dilution of our  existing  shareholders  and may create  downward
pressure on the trading price of our common stock.

      We are currently  authorized to issue 100,000,000  shares of common stock.
As of February 28, 2005, we had 43,591,952  outstanding  shares of common stock.
We may in the  future  issue up to  13,330,435  additional  shares of our common
stock  upon   conversion  or  exercise  of  existing   outstanding   convertible
securities, options and warrants in accordance with the following schedule:

                                                  Number of Shares    Proceeds
                                                  ----------------  ------------
Options outstanding under our stock option plan       10,757,451    $ 17,336,395
Non-plan options                                         615,200       2,026,750
Warrants                                               1,957,784       4,417,794
                                                    ------------    ------------
Total                                                 13,330,435    $ 23,780,939
                                                    ============    ============

      Even though the  aggregate  exercise of these  securities  could  generate
material  proceeds  for us, the  issuance of these  additional  shares of common
stock would  result in the dilution of the  ownership  interests of our existing
common  shareholders and the market price of our common stock could be adversely
affected.

      o We rely on a small  number of large  customers,  the loss of which would
have a negative effect on our results of operations.

      Even  though our  customer  base is  diversifying  as we grow,  it remains
concentrated.  For the year ended December 31, 2004 our largest  customer,  Best
Buy Co., Inc. ("Best Buy"), a national retail chain, accounted for approximately
13% of our  total  revenue.  Our  next  five  largest  customers  accounted  for
approximately 16% of our total revenue,  with none of these customers accounting
for 10% or more  of our  total  revenue.  We  believe  the  risk  posed  by this
concentration is mitigated by our longstanding and continuing relationships with
these  customers  and we are  confident  that these  relationships  will  remain
ongoing for the  foreseeable  future.  In March 2005, the Company entered into a
new three-year contract with Best Buy. We intend to continue to provide superior
service to all of our customers and have no expectation that revenue from any of
these  customers  will be reduced as a result of any factors within our control.
However, adverse conditions in the industries of our customers could cause us to
lose a significant customer or experience a decrease in shipment volume.  Either
of these events could negatively impact us. Our immediate plans, however, are to
reduce our dependence on any particular  customer or customers by increasing our
sales and  customer  base by,  among  other  things,  diversifying  our  service
offerings and continuing with our growth strategy.


                                       13
<PAGE>

      o The risks  associated  with  international  operations  could  adversely
affect our operations and ability to grow outside of the United States.

      A  significant  portion of our revenue is derived  from our  international
operations  and the  growth  of those  operations  is an  important  part of our
business  strategy.  Our  current  international  operations  are focused on the
shipment  of goods into and out of the United  States and are  dependent  on the
volume of  international  trade  with the  United  States.  Our  strategic  plan
contemplates  the  growth  of those  operations  as well as  expanding  into the
transportation  of goods  wholly  outside of the United  States.  The  following
factors could adversely affect our current  international  operations as well as
the growth of those operations:

      -     the political and economic systems in certain  international markets
            are less stable than in the United States;

      -     wars,  civil unrest,  acts of terrorism and other conflicts exist in
            certain international markets;

      -     export restrictions,  tariffs, licenses and other trade barriers can
            adversely   affect  the   international   trade   serviced   by  our
            international operations;

      -     managing distant  operations with different local market  conditions
            and practices is more difficult than managing domestic operations;

      -     differing   technology   standards   in  other   countries   present
            difficulties  and  incremental  expense in integrating  our services
            across international markets;

      -     complex  foreign laws and treaties can adversely  affect our ability
            to compete; and

      -     our ability to repatriate funds may be limited by tax  ramifications
            and foreign exchange controls.

      o  Terrorist  attacks  and other  acts of  violence  or war may affect any
market  on which  our  shares  trade,  the  markets  in which  we  operate,  our
operations and our profitability.

      Terrorist acts or acts of war or armed conflict  could  negatively  affect
our  operations in a number of ways. Any of these acts could result in increased
volatility in or damage to the United States and worldwide financial markets and
economy. Acts of terrorism or armed conflict, and the uncertainty caused by such
conflicts,  could cause an overall  reduction  in  worldwide  sales of goods and
corresponding  shipments  of goods.  This would  have a  negative  effect on our
operations.  Also,  terrorist  activities  similar  to the type  experienced  on
September  11, 2001 could result in another halt of trading of securities on the
American Stock Exchange,  which could also have an adverse effect on the trading
price of our shares and overall market capitalization.

      o We depend on the continued service of certain executive officers. We can
not assure you that we will be able to retain these persons.

      For the  foreseeable  future,  our  success  will  depend  largely  on the
continued  services of Dennis L. Pelino,  our Chairman,  Jason Totah,  our Chief
Executive Officer and Robert Arovas, our President,  because of their collective
industry  knowledge,  marketing skills and relationships  with major vendors and
customers.  We have employment  agreements with each of these  individuals which
contain  a  non-competition   covenant  which  survives  their  actual  term  of
employment.  Nevertheless, should any of these individuals leave the Company, it
could have a material adverse effect on our future results of operations.

      o We face intense competition in our industry.

      The freight forwarding,  logistics and supply chain management industry is
intensely  competitive and is expected to remain so for the foreseeable  future.
We face  competition  from a number  of  companies,  including  many  that  have
significantly greater financial,  technical and marketing resources. There are a
large number of companies  competing  in one or more  segments of the  industry,
although the number of firms with a global network that offer a full  complement
of freight  forwarding  and supply chain  management  services is more  limited.
Depending on the  location of the customer and the scope of services  requested,
we must compete against both the niche players and larger entities. In addition,
customers  increasingly are turning to competitive bidding situations  involving
bids from a number of competitors, including competitors that are larger than we
are.


                                       14
<PAGE>

      o Our stock price may be volatile due to factors under, as well as out of,
our control.

      The  market  price of our  common  stock has been  highly  volatile.  Some
factors that may affect the market price in the future include:

      -     actual or anticipated fluctuations in our operating results;

      -     announcements  of   technological   innovations  or  new  commercial
            products or services by us or our competitors;

      -     a continued  weakening of general  market  conditions  which in turn
            could have a  depressive  effect on the volume of goods  shipped and
            shipments that we manage or arrange;

      -     acts of global terrorism or armed conflicts; and

      -     changes in  recommendations  or  earnings  estimates  by  securities
            analysts.

      Furthermore,  the stock  market has  historically  experienced  volatility
which  has  particularly  affected  the  market  prices  of  securities  of many
companies  with a small  market  capitalization  and  which  sometimes  has been
unrelated to the operating performances of such companies.

      o Our cash flow will be adversely  affected in the future once we make use
of our consolidated net operating loss  carryforward  available to offset future
taxable income.

      We have  accumulated a net operating loss  carryforward for federal income
tax  purposes.  As of December 31, 2004,  approximately  $47.0  million of these
losses were  available  to offset our taxable  income until the losses are fully
utilized. Once these available losses have been utilized, our cash flows will be
affected  accordingly.  We do not anticipate  paying federal income taxes in the
near future as we expect  that our  existing  net  operating  loss  carryforward
should be  sufficient to offset any taxable  income that is generated.  However,
additional  sales of our  securities  could  have the  effect  of  significantly
limiting our ability to utilize our existing net operating loss  carryforward in
the future.

      o If we fail to improve our management information and financial reporting
systems,  we may  experience an adverse  effect on our  operations and financial
condition.

      Our  management  information  and financial  reporting  systems need to be
improved. Failure to enhance these systems could delay our receipt of management
and  financial  information  at the  consolidated  level which could disrupt our
operations or impair our ability to monitor our  operations  and have a negative
effect on our financial condition. We have completed our first assessment of the
Company's internal control over financial  reporting as of December 31, 2004. In
making our assessment of internal control over financial  reporting,  management
used the criteria  issued by the  Committee of Sponsoring  Organizations  of the
Treadway  Commission  in  "Internal   Control-Integrated   Framework."  We  have
concluded that our internal  control over financial  reporting was not effective
as of December 31, 2004 based on that criteria.

      o Because we are a holding company,  we depend on receiving  distributions
from our subsidiaries and we could be harmed if such distributions  could not be
made in the future.

      We are a holding  company and all of our operations are conducted  through
subsidiaries.   Consequently,   we  rely  on  dividends  or  advances  from  our
subsidiaries.  The ability of our  subsidiaries to pay dividends and our ability
to receive distributions from those subsidiaries are subject to applicable local
law and other  restrictions  including,  but not limited to,  applicable tax and
exchange  control laws.  Such laws and  restrictions  could limit the payment of
dividends and  distributions  to us which would restrict our ability to continue
operations.

      o We  believe  our  industry  is  consolidating  and  if  we  cannot  gain
sufficient market presence,  we may not be able to compete  successfully against
larger global companies.

      We believe the market trend  within our industry is towards  consolidation
of the niche  players into larger  companies  which are  attempting  to increase
global  operations  through  the  acquisition  of  regional  and  local  freight


                                       15
<PAGE>

forwarders.  If we cannot gain sufficient market presence or otherwise establish
a  successful  strategy  in  our  industry,  we  may  not  be  able  to  compete
successfully against larger companies in our industry with global operations.

      o We may be required to incur material  expenses in defending or resolving
outstanding lawsuits which would adversely affect our results of operations.

      We are a defendant in a number of legal  proceedings,  including  those we
have  identified  as material in our periodic  SEC filings.  Although we believe
that the claims asserted in these  proceedings are without merit,  and we intend
to vigorously  defend these  matters,  we could incur  material  expenses in the
defense and  resolution  of these  matters.  Since we have not  established  any
reserves in connection  with these claims,  any such liability would be recorded
as an expense in the period  incurred or  estimated.  This  amount,  even if not
material to our overall financial condition,  could adversely affect our results
of operations in the period recorded.

      o We have a limited  operating  history  upon which you can  evaluate  our
prospects.

      During 2001,  we  discontinued  our former  business  model of  developing
early-stage  technology  businesses,  and  adopted  a new  model  of  delivering
non-asset-based  third-party logistics services. The first acquisition under our
new business model  occurred on October 5, 2001.  Subsequent  acquisitions  were
completed during 2002, 2003 and 2004. As a result,  we have a limited  operating
history under our current  business model.  Even though we are managed by senior
executives with significant  experience in the industry,  our limited  operating
history  makes it difficult to predict the  longer-term  success of our business
model.

      o Provisions of our charter and  applicable  Delaware law may make it more
difficult to complete a contested takeover of our company.

      Certain  provisions of our  certificate of  incorporation  and the General
Corporation Law of the State of Delaware (the "GCL") could deter a change in our
management or render more  difficult an attempt to obtain control of us, even if
such a proposal is favored by a majority of our  shareholders.  For example,  we
are  subject  to the  provisions  of the GCL that  prohibit  a  public  Delaware
corporation  from  engaging  in a broad range of  business  combinations  with a
person who,  together with  affiliates and  associates,  owns 15% or more of the
corporation's  outstanding voting shares (an "interested shareholder") for three
years after the person  became an  interested  shareholder,  unless the business
combination  is approved in a prescribed  manner.  Finally,  our  certificate of
incorporation  includes undesignated preferred stock, which may enable our Board
of  Directors  to  discourage  an attempt to obtain  control of us by means of a
tender offer, proxy contest, merger or otherwise.

Item 2. Properties

      The Company does not own any real estate and  currently  leases all of its
facilities.

      Our corporate  headquarters is located at 1600 Market Street,  Suite 1515,
Philadelphia,  Pennsylvania  where we lease  approximately  4,000 square feet of
office space.

      As of February 28, 2005, we leased and maintained  logistics facilities in
28 locations  throughout the United States plus one in Puerto Rico as well as 19
international locations. The majority of these locations are operating terminals
that contain  office space and warehouse or cross-dock  facilities  and range in
size from approximately 1,200 square feet to 160,000 square feet. A few of these
facilities are limited to a small sales and administrative office.

      Lease terms for our  principal  properties  are generally up to five years
and  terminate  at  various  times  through  2010,  while  a few of the  smaller
facilities  are leased on a  month-to-month  basis.  The Company  believes  that
current  leases can be extended and that  suitable  alternative  facilities  are
available  in  the  vicinity  of  existing   facilities   should  extensions  be
unavailable or undesirable at the end of the current lease arrangements.


                                       16
<PAGE>

      Our facilities are situated in the following locations:

              Philadelphia                        New York (2 locations)
              Atlanta                             Orlando
              Binghamton, NY                      Portland, ME
              Boston                              Salt Lake City
              Chicago (2 locations)               San Francisco
              Columbus                            Seattle
              Dallas/Fort Worth                   St. Louis
              Denver                              Washington, D.C
              Detroit                             San Juan, Puerto Rico
              El Paso                             Hong Kong
              Houston                             PRC (6 locations)
              Indianapolis                        Singapore (2 locations)
              Los Angeles (2 locations)           Malaysia (3 locations)
              Miami                               Cambodia
              Milwaukee                           Brazil (6 locations)
              Minneapolis (2 locations)

Item 3. Legal Proceedings

      The Company  was named as a  defendant  in eight  purported  class  action
complaints  filed  in the  United  States  Court  for the  Eastern  District  of
Pennsylvania  between  September  24, 2004 and November 19, 2004.  Also named as
defendants in these lawsuits were officers Dennis L. Pelino and Thomas L. Scully
and former officer Bohn H. Crain. These cases have now been consolidated for all
purposes in that Court under the caption In re Stonepath Group, Inc.  Securities
Litigation,  Civ.  Action No.  04-4515 and the lead  plaintiff,  Globis  Capital
Partners,  LP, filed an amended  complaint in February  2005. The lead plaintiff
seeks to represent a class of purchasers of the Company's  shares  between March
29, 2002 and September 20, 2004,  and allege claims for  securities  fraud under
Sections  10(b) and 20(a) of the Securities  Exchange Act of 1934.  These claims
are based upon the  allegation  that certain public  statements  made during the
period from March 29, 2002 through  September 20, 2004 were materially false and
misleading  because they failed to disclose that the Company's Domestic Services
operations had improperly accounted for accrued purchased  transportation costs.
The plaintiffs are seeking compensatory damages,  attorneys' fees and costs, and
further relief as may be determined by the Court. The Company and the individual
defendants  believe that the plaintiffs'  claims are without merit and intend to
vigorously defend against them.

      The  Company  has  been  named as a  nominal  defendant  in a  shareholder
derivative action on behalf of the Company that was filed on October 12, 2004 in
the United States District Court for the Eastern District of Pennsylvania  under
the  caption  Ronald  Jeffrey  Neer v.  Dennis L.  Pelino,  et al.,  Civ. A. No.
04-cv-4971.  Also named as defendants  in the action are all of the  individuals
who were  serving as  directors  of the  Company  when the  complaint  was filed
(Dennis L. Pelino, J. Douglas Coates, Robert McCord, David R. Jones, Aloysius T.
Lawn and John H. Springer),  former directors Andrew Panzo, Lee C. Hansen,  Darr
Aley, Stephen George, Michela O'Connor-Abrams and Frank Palma, officer Thomas L.
Scully and former  officers Bohn H. Crain and Stephen M. Cohen.  The  derivative
action alleges breach of fiduciary duty, abuse of control,  gross mismanagement,
waste  of  corporate   assets,   unjust   enrichment   and   violations  of  the
Sarbanes-Oxley  Act of 2002. These claims are based upon the allegation that the
defendants  knew or should  have known that the  Company's  public  filings  for
fiscal years 2001, 2002 and 2003 and for the first and second quarters of fiscal
year 2004,  and certain  press  releases and public  statements  made during the
period from January 1, 2001 through August 9, 2004, were materially  misleading.
The complaint  alleges that the statements  were materially  misleading  because
they  understated the Company's  accrued purchase  transportation  liability and
related costs of  transportation in violation of generally  accepted  accounting
principles  and they  failed  to  disclose  that  the  Company  lacked  internal
controls.  The  derivative  action  seeks  compensatory  damages in favor of the
Company,  attorneys' fees and costs,  and further relief as may be determined by
the Court. The defendants  believe that this action is without merit, have filed
a motion to dismiss  this action,  and intend to  vigorously  defend  themselves
against the claims raised in this action.



                                       17
<PAGE>


      On October 22, 2004, Douglas Burke filed a two-count action against United
American Acquisitions and Management, Inc. ("UAF"), Stonepath Logistics Domestic
Services, Inc., and the Company in the Circuit Court for Wayne County, Michigan.
Mr.  Burke is the former  President  and Chief  Executive  Officer  of UAF.  The
Company  purchased the stock of UAF from Mr. Burke on May 30, 2002 pursuant to a
Stock Purchase  Agreement.  At the closing of the transaction Mr. Burke received
$5.1 million and received the right to receive an  additional  $11.0  million in
four annual  installments  based upon UAF's  performance in accordance  with the
Stock Purchase Agreement.  Stonepath  Logistics Domestic Services,  Inc. and Mr.
Burke also entered into an Employment  Agreement.  Mr. Burke's complaint alleges
that the  defendants  breached the terms of the  Employment  Agreement and Stock
Purchase  Agreement and seeks,  among other things,  the production of financial
information,  unspecified damages,  attorney's fees and interest. The defendants
believe  that Mr.  Burke's  claims are  without  merit and intend to  vigorously
defend against them.

      By  letter  dated  March  25,  2005,  the  court-appointed  receiver  (the
"Receiver") of Lancer Management Group, LLC and certain related parties asserted
that he has determined that payments made by Lancer Partners, L.P. totaling $3.0
million  and  payments  made by related  entities  totaling  $5.3  million  were
avoidable as fraudulent  transfers.  Lancer  Partners,  L.P. and certain related
entities  purchased   securities  of  the  Company  in  past  private  placement
transactions.  The letter provides no basis for the Receiver's determination and
seeks evidence from the Company establishing that the payments are not avoidable
or the payment of $8.3  million.  The Company is in the process of reviewing the
transactions identified in the Receiver's letter.

      The  Company is not able to predict  the  outcome of any of the  foregoing
litigation  at this time,  since each  action is in an early  stage.  An adverse
determination  in any of those actions could have a material and adverse  effect
on the Company's financial position, results of operations and/or cash flows.

      The  Company  has  received   notice  that  the  Securities  and  Exchange
Commission ("Commission") is conducting an informal inquiry to determine whether
certain  provisions  of the  federal  securities  laws  have  been  violated  in
connection with the Company's accounting and financial reporting. As part of the
inquiry,  the staff of the Commission has requested  information relative to the
restatement  amounts,  personnel at the Air Plus subsidiary and Stonepath Group,
Inc. and additional  background  information for the period from October 5, 2001
to December 2, 2004. The Company is voluntarily cooperating with the staff.

Item 4. Submission Of Matters To A Vote Of Security Holders

      None

                                     PART II

Item 5. Market For Registrant's  Common Equity,  Related Stockholder Matters and
        Issuer Purchases of Equity Securities

      Our common stock is traded on the American Stock Exchange under the symbol
"STG." The table  below sets forth the high and low prices for our common  stock
for the quarters included within 2004 and 2003.

                                                             High         Low
            Year ended December 31, 2004
              First quarter                                  $4.20       $2.27
              Second quarter                                  4.05        1.80
              Third quarter                                   2.10        0.86
              Fourth quarter                                  1.28        0.60

            Year ended December 31, 2003
              First quarter                                   1.84        1.40
              Second quarter                                  2.79        1.75
              Third quarter                                   3.14        2.00
              Fourth quarter                                  2.99        2.26

Share Information

      As of February 28, 2005 there were  43,591,952  shares of our common stock
outstanding,  owned by 233 registered  holders of record.  Management  estimates
there are over 7,300  stockholders  holding  stock in nominee  name. We have not
paid cash  dividends on our common stock and do not  anticipate  or  contemplate
paying cash dividends in the foreseeable  future. We plan to retain any earnings
for use in the operations of our business and to fund our acquisition  strategy.
Furthermore,  we are limited in our ability to pay dividends  under the terms of
our domestic credit facility.


                                       18
<PAGE>

Equity Compensation Plan Information

      The following table sets forth information,  as of December 31, 2004, with
respect  to the  Company's  stock  option  plan  under  which  common  stock  is
authorized for issuance,  as well as other compensatory  options granted outside
of the Company's stock option plan.

<TABLE>
<CAPTION>
                                           (a)                 (b)                    (c)
                                                                                   Number of
                                                                                   securities
                                                                                   remaining
                                                                                 available for
                                        Number of                               future issuance
                                    securities to be                              under equity
                                       issued upon       Weighted-average      compensation plan
                                       exercise of       exercise price of         (excluding
                                       outstanding          outstanding            securities
                                    options, warrants    options, warrants        reflected in
      Plan Category                     and rights           and rights            column (a))
<S>                                     <C>                   <C>                  <C>
Equity compensation plans
  approved by security holders          10,790,984            $   1.61             2,772,923(1)

Equity compensation plans not
  approved by security holders             615,200            $   3.29                    --
                                        ----------            --------             ---------
Total                                   11,406,184            $   1.70             2,772,923
                                        ==========            ========             =========
</TABLE>

----------
(1)   Does not include options to purchase  1,436,093 shares of our common stock
      under the Company's stock option plan which have been exercised.

Item 6. Selected Financial Data

      The following  selected  financial data as of and for the dates  indicated
have been derived from our consolidated  financial  statements.  You should read
the following selected  financial data together with the consolidated  financial
statements and related footnotes of the Company and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

      The selected consolidated  statement of operations data of the Company for
the year ended December 31, 2004 and the balance sheet data of the Company as of
December  31,  2004  are  derived  from  the  Company's  consolidated  financial
statements that have been audited by Grant Thornton LLP and are included in this
Annual Report on Form 10-K.  The selected  consolidated  statement of operations
data of the Company for each of the years in the two-year  period ended December
31, 2003 and the balance  sheet data of the Company as of December  31, 2003 are
derived from the  Company's  consolidated  financial  statements  that have been
audited by KPMG LLP and are  included  in this Annual  Report on Form 10-K.  The
selected consolidated financial statements of operations data of the Company for
the years ended  December  31,  2001 and 2000 and the balance  sheet data of the
Company as of December  31, 2002,  2001 and 2000 are derived from the  Company's
audited   consolidated   financial   statements  (after   reclassification   for
discontinued  operations,  as  discussed  below)  which are not included in this
Annual Report on Form 10-K.

      From inception  through the first quarter of 2001, our principal  business
strategy  focused on the development of early-stage  technology  businesses with
significant  Internet features and applications.  In June 2001, we adopted a new
business strategy to build a global integrated  logistics services  organization
by  identifying,  acquiring  and managing  controlling  interests in  profitable
logistics  businesses.  On December 28, 2001, the Board of Directors  approved a
plan to dispose of all of the assets related to the former  business,  since the
investments were incompatible with our new business strategy.  Accordingly,  for
financial  reporting  purposes,  the results of operations of our former line of
business  have been  accounted  for as a  discontinued  operation  and have been
reclassified and reported as a separate line item in the consolidated statements
of operations.


                                       19
<PAGE>

<TABLE>
<CAPTION>
                                                                   Year ended December 31,
                                                -------------------------------------------------------------
Consolidated Statement Of
Operations Data:
(In Thousands, Except Per Share Amounts)           2004         2003         2002         2001         2000
                                                ---------    ---------    ---------    ---------    ---------
<S>                                             <C>          <C>          <C>          <C>          <C>
Total revenue                                   $ 367,081    $ 220,084    $ 122,788    $  15,598    $      --
Cost of transportation                            282,359      158,106       86,085       10,009           --
                                                ---------    ---------    ---------    ---------    ---------
Net revenue                                        84,722       61,978       36,703        5,589           --
Operating expenses                                 90,298       60,300       35,956       10,409        7,420
                                                ---------    ---------    ---------    ---------    ---------
Income (loss) from operations                      (5,576)       1,678          747       (4,820)      (7,420)
Other income (expense)                             (3,652)      (1,278)         128        1,295        2,065
                                                ---------    ---------    ---------    ---------    ---------
Income (loss) from continuing
   operations before income tax
   expense and minority interest                   (9,228)         400          875       (3,525)      (5,355)
Income tax expense                                  2,395          736          421           71           --
                                                ---------    ---------    ---------    ---------    ---------
Income (loss) from continuing
   operations before minority
   interest                                       (11,623)        (336)         454       (3,596)      (5,355)
Minority interest                                   1,395          187           --           --           --
                                                ---------    ---------    ---------    ---------    ---------
Income (loss) from continuing
   operations                                     (13,018)        (523)         454       (3,596)      (5,355)
Loss from discontinued operations                     (25)        (263)          --      (13,863)     (30,816)
                                                ---------    ---------    ---------    ---------    ---------
Net income (loss)                                 (13,043)        (786)         454      (17,459)     (36,171)
Preferred stock dividends                              --           --       15,020       (4,151)     (45,751)
                                                ---------    ---------    ---------    ---------    ---------
Net income (loss) attributable to
   common stockholders                          $ (13,043)   $    (786)   $  15,474    $ (21,610)   $ (81,922)
                                                =========    =========    =========    =========    =========

Basic earnings (loss) per common share:

   Continuing operations                        $   (0.33)   $   (0.02)   $    0.70    $   (0.38)   $   (2.89)
   Discontinued operations                             --        (0.01)          --        (0.68)       (1.75)
                                                ---------    ---------    ---------    ---------    ---------
                                                $   (0.33)   $   (0.03)   $    0.70    $   (1.06)   $   (4.64)
                                                =========    =========    =========    =========    =========

Diluted earnings (loss) per common share (1):

   Continuing operations                        $   (0.33)   $   (0.02)   $    0.02    $   (0.38)   $   (2.89)
   Discontinued operations                             --        (0.01)          --        (0.68)       (1.75)
                                                ---------    ---------    ---------    ---------    ---------
                                                $   (0.33)   $   (0.03)   $    0.02    $   (1.06)   $   (4.64)
                                                =========    =========    =========    =========    =========

Weighted average common shares:

   Basic                                           38,972       29,626       22,155       20,510       17,658
                                                =========    =========    =========    =========    =========
   Diluted                                         38,972       29,626       29,233       20,510       17,658
                                                =========    =========    =========    =========    =========
</TABLE>
----------
(1)   Diluted earnings per common share for 2002 excludes the impact of the July
      18, 2002 exchange  transaction  with the holders of the Company's Series C
      Preferred Stock.

Consolidated Balance Sheet Data: (In Thousands)

                                                December 31,
                            ----------------------------------------------------
                               2004       2003       2002       2001       2000
                            --------   --------   --------   --------   --------
Cash and cash equivalents   $  2,801   $  3,074   $  2,266   $ 15,228   $ 29,100
Working capital                  257     13,127      4,709     15,081     27,713
Total assets                 122,946     90,269     53,985     40,714     44,911
Long-term debt                 1,897      1,135         --         --         --
Stockholders' equity          44,969     56,323     33,165     32,092     43,326


                                       20
<PAGE>

Item 7. Management's  Discussion and Analysis of Financial Condition and Results
of Operations

      This discussion is intended to further the reader's  understanding  of our
financial  condition and results of operations and should be read in conjunction
with our consolidated  financial statements and related notes included elsewhere
herein. This discussion also contains statements that are  forward-looking.  Our
actual  results  could  differ   materially  from  those  anticipated  in  these
forward-looking  statements as a result of the risks and uncertainties set forth
elsewhere  in this  Annual  Report  and in our other SEC  filings.  Readers  are
cautioned not to place undue reliance on any forward-looking  statements,  which
speak only as of the date hereof.

Overview

      We are a non-asset-based  third-party logistics services company providing
supply chain solutions on a global basis. We offer a full range of time-definite
transportation and distribution solutions through our Domestic Services platform
where we manage and arrange the movement of raw materials,  supplies, components
and finished  goods for our customers.  These  services are offered  through our
domestic air and ground freight  forwarding  business.  We offer a full range of
international   logistics  services   including   international  air  and  ocean
transportation  as  well  as  customs  house  brokerage   services  through  our
International Services platform. In addition to these core service offerings, we
also  provide a broad range of  value-added  supply chain  management  services,
including  warehousing,  order fulfillment and inventory control  solutions.  We
serve a customer base of manufacturers,  distributors and national retail chains
through a network of offices in 24 major  metropolitan  areas in North  America,
one in Puerto Rico,  13  locations  in Asia and 6 locations in Brazil,  using an
extensive  network of independent  carriers and service  partners  strategically
located around the world.

      As a non-asset-based  provider of third-party  logistics services, we seek
to limit our  investment in equipment,  facilities and working  capital  through
contracts  and  preferred  provider  arrangements  with  various  transportation
providers who generally provide us with favorable rates, minimum service levels,
capacity  assurances  and priority  handling  status.  The dollar  volume of our
purchased  transportation  services enables us to negotiate  attractive  pricing
with our transportation providers.

      Although our strategic  objective is to build a leading  global  logistics
services  organization  that  integrates  established  operating  businesses and
innovative  technologies,  we  identified a need to  restructure  certain of our
businesses commencing in the fourth quarter of 2004. This restructuring involves
the  integration  of  duplicate  facilities,  abandonment  of a major  facility,
rationalization of personnel and systems and certain other actions. We expect to
complete the  restructuring  by the end of the second  quarter of 2005.  Further
limiting  our  acquisition  strategy  is the  seventh  amendment  to our  credit
facility  with  LaSalle  Business  Credit,  LLC (see Note 8 to our  consolidated
financial  statements).  This  amendment  includes,  among  other  covenants,  a
prohibition   on  further   acquisitions   and  conditions  to  the  payment  of
contractually  obligated earn-out payments.  Notwithstanding these conditions in
our credit facility and our immediate-term focus on restructuring certain of the
businesses  within the United  States,  we remain  committed to our  acquisition
strategy.  We plan to achieve this objective by broadening our network through a
combination of synergistic acquisitions (assuming we are allowed to continue our
acquisition  strategy  under a  replacement  credit  facility)  and the  organic
expansion of our existing base of  operations.  Once resumed,  the focus of this
strategy will be on acquiring businesses that have demonstrated  historic levels
of profitability, have a proven record of delivering high quality services, have
a customer base of large and mid-sized companies and which otherwise may benefit
from our long-term growth strategy and status as a public company.

      Our  acquisition  strategy  relies upon two primary  factors:  First,  our
ability to identify and acquire  target  businesses  that fit within our general
acquisition  criteria and,  second,  the continued  availability  of capital and
financing resources  sufficient to complete these acquisitions and fund earn-out
payments for previous acquisitions.  Our growth strategy relies upon a number of
factors,  including our ability to  efficiently  integrate the businesses of the
companies we acquire, generate the anticipated synergies from their integration,
and  maintain the historic  sales  growth of the  acquired  businesses  so as to
generate  continued  organic  growth.  The business risks  associated with these
factors  are  discussed  in Item 1 of  this  report  under  the  heading  "Risks
Particular to our Business."

      Our  principal  source  of  income  is  derived  from  freight  forwarding
services. As a freight forwarder,  we arrange for the shipment of our customers'
freight from point of origin to point of  destination.  Generally,  we quote our
customers a turnkey cost for the movement of their freight. Our price quote will
often  depend  upon the  customer's  time-definite  needs  (same day or later as
scheduled), special handling needs (heavy equipment, delicate


                                       21
<PAGE>

items,  environmentally  sensitive goods,  electronic components,  etc.) and the
means  of  transport  (truck,  air,  ocean or  rail).  In turn,  we  assume  the
responsibility   for   arranging  and  paying  for  the   underlying   means  of
transportation.

      We also provide a range of other  services  including  customs  brokerage,
warehousing and other value-added  logistics  services which include  customized
distribution  and inventory  control  services,  fulfillment  services and other
value-added supply chain services.

      Gross revenue represents the total dollar value of services we sell to our
customers.  Our cost of transportation  includes direct costs of transportation,
including motor carrier, air, ocean and rail services. We act principally as the
service provider to add value in the execution and procurement of these services
to our customers.  Our net transportation  revenue (gross transportation revenue
less the direct cost of  transportation) is the primary indicator of our ability
to source, consolidate, add value and resell services provided by third parties,
and is  considered by management  to be a key  performance  measure.  Management
believes that net revenue is also an important measure of economic  performance.
Net revenue includes transportation revenue and our fee-based activities,  after
giving effect to the cost of purchased transportation.  In addition,  management
believes  measuring  operating  costs as a function  of net  revenue  provides a
useful  metric as our  ability to control  costs as a  function  of net  revenue
directly  impacts  operating  earnings.  With respect to our services other than
freight  transportation,  net  revenue  is  identical  to gross  revenue  as the
principal costs for these services are payroll and facility costs.

      Our operating  results will be affected as acquisitions  occur.  Since all
acquisitions  are made using the  purchase  method of  accounting  for  business
combinations,  our  consolidated  financial  statements  will only  include  the
results  of  operations  and  cash  flows  of  acquired  companies  for  periods
subsequent to the date of  acquisition.  Starting in the second half of 2003, we
began a program  to  establish  an  offshore  network of owned  offices  with an
initial focus in Asia. To help facilitate the consolidation, analysis and public
reporting process,  our offshore operations are included within our consolidated
results on a one-month lag, or more specifically, our calendar year results will
include  results  from  offshore  operations  for the  period  December 1 though
November 30.

      Our GAAP  based net  income  will also be  affected  by  non-cash  charges
relating to the  amortization of customer  related  intangible  assets and other
intangible  assets  arising from our completed  acquisitions.  Under  applicable
accounting   standards,   purchasers   are   required  to  allocate   the  total
consideration  in a business  combination to the identified  assets acquired and
liabilities  assumed based on their fair values at the time of acquisition.  The
excess of the  consideration  paid over the fair value of the  identifiable  net
assets  acquired  is to be  allocated  to  goodwill,  which is  tested  at least
annually for impairment.  Applicable accounting standards require the Company to
separately account for and value certain identifiable intangible assets based on
the  unique  facts and  circumstances  of each  acquisition.  As a result of the
Company's  acquisition  strategy,  our net income  (loss) will include  material
non-cash charges  relating to the  amortization of customer  related  intangible
assets and other intangible assets acquired in our acquisitions.  Although these
charges may increase as the Company completes more  acquisitions,  we believe we
are  actually  growing  the  value  of our  intangible  assets  (e.g.,  customer
relationships).

      A  significant  portion of our revenue is derived  from our  international
operations,  and the  growth of those  operations  is an  important  part of our
business  strategy.  Our  current  international  operations  are focused on the
shipment  of goods into and out of the United  States and are  dependent  on the
volume of  international  trade  with the  United  States.  Our  strategic  plan
contemplates the growth of those  operations,  as well as the expansion into the
transportation  of goods  wholly  outside  of the United  States.  A list of the
factors that could  adversely  affect our current  international  operations has
been  included in Item 1 of this Annual  Report on Form 10-K,  under the heading
"Risks Particular to our Business."

      Our operating results are also subject to seasonal trends when measured on
a  quarterly  basis.  Our first and second  quarters  are likely to be weaker as
compared with our other fiscal quarters, which we believe is consistent with the
operating  results  of other  supply  chain  service  providers.  This  trend is
dependent  on  numerous  factors,  including  the  markets in which we  operate,
holiday seasons,  consumer demand and economic conditions.  Since our revenue is
largely  derived from  customers  whose  shipments are  dependent  upon consumer
demand and just-in-time production schedules, the timing of our revenue is often
beyond our  control.  Factors  such as shifting  demand for retail  goods and/or
manufacturing  production  delays  could  unexpectedly  affect the timing of our
revenue. As we increase the scale of our operations, seasonal trends in one area
may be offset  to an  extent by  opposite  trends  in  another  area.  We cannot
accurately predict the timing of these factors,  nor can we accurately  estimate
the impact of any  particular  factor,  and thus we can give no  assurance  that
historical seasonal patterns will continue in future periods.


                                       22
<PAGE>

Critical Accounting Policies

      Accounting  policies,  methods and  estimates  are an integral part of the
consolidated  financial statements prepared by us and are based upon our current
judgments.  Those  judgments are normally based on knowledge and experience with
regard to past and current events and assumptions  about future events.  Certain
accounting policies, methods and estimates are particularly sensitive because of
their significance to the consolidated  financial  statements and because of the
possibility  that  future  events  affecting  them may differ  from our  current
judgments.  While  there  are a  number  of  accounting  policies,  methods  and
estimates that affect our consolidated financial statements as described in Note
2  to  the  consolidated  financial  statements,  areas  that  are  particularly
significant  include  revenue  recognition,  costs of purchased  transportation,
accounting for stock options, the assessment of the recoverability of long-lived
assets, specifically goodwill and acquired intangibles,  the establishment of an
allowance for doubtful accounts, useful lives for tangible and intangible assets
and the valuation allowance for deferred income tax assets.

      The Company  derives its revenue  from three  principal  sources:  freight
forwarding,  customs brokerage,  and warehousing and other value-added services.
As a freight forwarder,  the Company is primarily a non-asset-based carrier that
does  not own or  lease  any  significant  transportation  assets.  The  Company
generates the majority of its revenue by purchasing transportation services from
direct  (asset-based)  carriers  and using  those  services  to  provide  to its
customers  transportation of property for  compensation.  The Company is able to
negotiate  favorable  buy  rates  from  the  direct  carriers  by  consolidating
shipments from multiple  customers and concentrating its buying power,  while at
the same time offering lower sell rates than most customers  would  otherwise be
able to negotiate  themselves.  When acting as an indirect carrier,  the Company
will enter into a written  agreement  with its customers or issue a tariff and a
house bill of lading to customers as the contract of carriage.  When the freight
is  physically  tendered to a direct  carrier,  the Company  receives a separate
contract of carriage,  or master bill of lading.  In order to claim for any loss
associated with the freight,  the customer is first obligated to pay the freight
charges.  Based on the terms in the  contract of  carriage,  revenue  related to
shipments where the Company issues a house bill of lading is recognized when the
freight is  delivered  to the direct  carrier  at origin.  Costs  related to the
shipment are also  recognized at this same time. Most  transportation  costs are
estimated at the time of shipment and such estimates are updated for differences
between  estimated  and actual  amounts at the time  invoices are  processed for
payment. Our revised processes for domestic purchased  transportation costs also
require the  assessment  of the  adequacy of the recorded  estimates.  All other
revenue,  including  revenue for customs  brokerage  and  warehousing  and other
value-added services, is recognized upon completion of the service.

      In certain  instances,  accounting  principles  generally  accepted in the
United  States of America  allow for the  selection  of  alternative  accounting
methods.  Two alternative methods for accounting for stock options are available
- the  intrinsic  value method and the fair value  method.  We use the intrinsic
value method of accounting for stock options,  and accordingly,  no compensation
expense is  recognized  for  options  issued at an  exercise  price  equal to or
greater than the quoted market price on the date of grant to employees, officers
and directors.  Under the fair value method,  the determination of the pro forma
amounts involves several  assumptions  including option life and volatility.  If
the fair value  method were used,  both basic and  diluted  loss per share would
have increased by $0.15 in 2004.

      As  discussed  in Note 2 to the  consolidated  financial  statements,  the
goodwill arising from our  acquisitions is not amortized,  but instead is tested
for impairment at least annually in accordance  with the provisions of Statement
of Financial  Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible
Assets.  The impairment test requires  several  estimates  including future cash
flows,  growth rates and the  selection  of a discount  rate.  In addition,  the
acquired intangibles arising from those transactions are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
the asset may not be recoverable.  The recoverability of long-lived assets to be
held and used  (including  our  identifiable  intangible  assets) is assessed by
comparing the carrying amount of the asset to the future net  undiscounted  cash
flows expected to be generated by the asset.  In developing our future cash flow
estimates, we incorporate assumptions that marketplace participants would use in
their estimates, including, among other things, that (i) existing operations are
evaluated  on a  stand-


                                       23
<PAGE>

alone basis and, as such, achieve no revenue or cost synergies,  (ii) no further
acquisitions are made, (iii) formerly acquired  companies achieve their earnings
targets and their earn-outs are fully paid, (iv) future earnings are fully taxed
and (v) no additional equity is raised. We cannot guarantee that our assets will
not be impaired in future periods.

      Acquired   intangibles   consist  of  customer  related   intangibles  and
non-compete agreements arising from the Company's acquisitions. Customer related
intangibles are amortized using accelerated methods over five to seven years and
non-compete agreements are amortized using the straight-line method over periods
of three to five years.

      We maintain reserves for specific and general  allowances against accounts
receivable.  The specific  reserves are  established on a case-by-case  basis by
management.  A general reserve is established for all other accounts receivable,
based  on  a  specified  percentage  of  the  accounts  receivable  balance.  We
continually assess the adequacy of the recorded allowance for doubtful accounts,
based on our  knowledge  about the  customer  base.  While  credit  losses  have
historically  been within our  expectations and the provisions  established,  we
cannot  guarantee that we will continue to experience the same credit loss rates
that we have in the past.

      Our  discontinued   operations,   which  focused  on  the  development  of
early-stage technology businesses,  and our continuing operations have generated
significant  net operating loss  carryforwards  (NOLs) which could have value in
the future.  After giving effect for certain annual limitations based on changes
in ownership as defined in Section 382 of the Internal Revenue Code, we estimate
that  approximately  $47.0  million in NOLs may be  available  to offset  future
federal taxable income.  Under SFAS No. 109, Accounting for Income Taxes, we are
required  to provide a valuation  allowance  to offset  deferred  tax assets if,
based upon  available  evidence,  it is more likely than not that some or all of
the  deferred  tax assets  will not be  realized.  At  December  31,  2004,  the
valuation  allowance  was $23.1  million.  Given our  historical  losses and our
limited track record to date, we maintained a full valuation  allowance  against
our deferred tax assets as of December 31, 2004. We had deferred tax liabilities
of  approximately  $1.7  million at  December  31, 2004 and  approximately  $1.0
million at December  31,  2003,  primarily  related to the tax  amortization  of
goodwill,  which is  deductible  for tax purposes over a life of 15 years but is
not amortized for book  purposes.  We do not  anticipate  paying  federal income
taxes in the near future as we expect that our existing  NOLs will be sufficient
to offset current  taxable  income,  if any.  However,  additional  sales of our
securities  could  have the  effect of  significantly  limiting  our  ability to
utilize our existing NOLs in the future.

Discontinued Operations

      Prior to the first quarter of 2001, our principal  business was developing
early-stage   technology  businesses  with  significant  Internet  features  and
applications.  Largely as a result of the  significant  correction in the global
stock markets  which began during 2000,  and the  corresponding  decrease in the
valuation of  technology  businesses  and  contraction  in the  availability  of
venture  financing  during 2001,  we elected to shift our  business  strategy to
focus on the acquisition of operating  businesses  within a particular  industry
segment.  Following  a wind down of the  technology  business  during the second
quarter of 2001,  we focused our  acquisition  efforts  specifically  within the
transportation  and logistics  industry.  This decision  occurred in conjunction
with our June 21, 2001 appointment of Dennis L. Pelino as our Chairman and Chief
Executive  Officer.  Mr.  Pelino  brings  to  us  over  25  years  of  logistics
experience, including most recently, as President and Chief Operating Officer of
Fritz Companies, Inc., where he was employed from 1987 to 1999.

      To reflect  the  change in  business  model,  our  consolidated  financial
statements  have been  presented  in a manner in which the assets,  liabilities,
results of operations  and cash flows  related to our former  business have been
segregated  from  that  of  our  continuing  operations  and  are  presented  as
discontinued operations.


                                       24
<PAGE>

Results Of Operations

      Year ended December 31, 2004 compared to year ended December 31, 2003

      The following  table  summarizes  our total  revenue,  net  transportation
revenue and other revenue (in thousands):

<TABLE>
<CAPTION>
                                                                               Change
                                                                       ----------------------
                                                2004         2003        Amount      Percent
                                             ---------    ---------    ---------    ---------
<S>                                          <C>          <C>          <C>             <C>
Total revenue                                $ 367,081    $ 220,084    $ 146,997       66.8%
                                             =========    =========    =========

Transportation revenue                       $ 343,460    $ 203,187    $ 140,273       69.0
Cost of transportation                         282,359      158,106      124,253       78.6
                                             ---------    ---------    ---------
Net transportation revenue                      61,101       45,081       16,020       35.5
   Net transportation margin                      17.8%        22.2%
Customs brokerage                                9,393       10,027         (634)      (6.3)
Warehousing and other value-added services      14,228        6,870        7,358      107.1
                                             ---------    ---------    ---------
   Net revenue                               $  84,722    $  61,978    $  22,744       36.7%
                                             =========    =========    =========
   Net revenue margin                             23.1%        28.2%
                                             =========    =========
</TABLE>

      Total revenue was $367.1  million in 2004, an increase of 66.8% over total
revenue of $220.1  million in 2003.  $39.4  million or 26.8% of the  increase in
total revenue was attributable to same store growth with $107.6 million or 73.2%
of the increase in total  revenue  attributable  to  acquisitions.  The Domestic
Services  platform  delivered  $145.2  million  in total  revenue  in  2004,  an
improvement of $15.7 million or 12.1% over the same prior year period with $14.0
million of the  increase  coming from same store growth and the  remaining  $1.7
million coming from acquisitions.  The International Services platform delivered
$221.9  million in total revenue for 2004, a period over period  improvement  of
$131.3  million or 144.9%,  with $25.3 million of the increase  coming from same
store  growth  and  the  remaining  $106.0  million  improvement  attributed  to
acquisitions, primarily Shaanxi.

      Net transportation revenue was $61.1 million in 2004, an increase of 35.5%
over net transportation  revenue of $45.1 million in 2003. $4.0 million or 25.0%
of the increase  was  attributable  to same store  growth with $12.0  million or
75.0%  of  the  increase  in  net   transportation   revenue   attributable   to
acquisitions.  The Domestic  Services  platform  delivered  $32.6 million of net
transportation  revenue in 2004, a decrease of $0.8 million or 2.4%  compared to
the same prior year period with a $1.2 million  decrease in same store activity,
which was driven by low margin  transportation  business  under a broad services
contract  with a large  customer  and higher  fuel  surcharges  absorbed  by the
business, partially offset by an increase of $0.4 million from acquisitions. The
International  Services platform  delivered $28.5 million of net  transportation
revenue in 2004, a period over period  improvement  of $16.8  million or 143.3%,
with $3.9  million  of the  increase  coming  from  same  store  growth  and the
remaining  $12.9  million  improvement  attributed  to  acquisitions,  primarily
Shaanxi.

      Net  transportation  margin decreased to 17.8% for the year ended December
31, 2004 from 22.2% for the comparable  period in 2003  primarily  driven by the
change  in  revenue  mix  resulting  from the  recent  acquisitions  within  the
International  Services platform,  which generally operate at lower margins than
those  found in the  Domestic  Services  platform.  The  International  Services
expansion has added  significantly  to our global  capabilities  required by our
customers.  For the International  Services platform,  net transportation margin
has declined in line with previous  expectations to 13.6% from 14.9% as a result
of the general rate  increases  and fuel  surcharges  imposed by the  underlying
asset-based  carriers as well as the impact of the Shaanxi  transaction in early
2004.  Shaanxi operates  principally as a wholesaler of airfreight which carries
lower  margins  but  provides  the  International  Services  platform  with  the
opportunity for growth in the  higher-margin  retail component of the airfreight
business. Net transportation margin for the Domestic Services platform decreased
to 24.5% for the year ended  December  31,  2004 from  26.9% for the  comparable
period in 2003 driven  primarily  by one low margin  piece of business  that the
Company exited in 2004 and higher fuel surcharges.

      Customs brokerage and other value-added services revenue was $23.6 million
in 2004, an increase of 39.8% over $16.9 million in 2003.  $6.5 million or 96.3%
of the increase was  attributable to same store growth with $0.2 million or 3.7%
of the increase  attributable to acquisitions.  The Domestic  Services  platform
delivered $12.2


                                       25
<PAGE>

million of revenue from these  services in 2004, an  improvement of $7.0 million
or 128.3%  over the same prior year  period  with $6.5  million of the  increase
coming  from same store  growth,  driven by the  start-up of a  significant  new
account,   and  the  remaining  $0.5  million  coming  from  acquisitions.   The
International  Services  platform  delivered $11.4 million of revenue from these
services in 2004, a period over period decrease of $0.3 million or 2.2%,  driven
primarily by a decline in activity from a large customer.  The customs brokerage
and other  value-added  services revenue from this large customer is expected to
continue at this level through 2005.

      Net  revenue  was $84.7  million in 2004,  an  increase  of 36.7% over net
revenue of $62.0  million in 2003.  $10.4  million or 45.7% of the  increase was
attributable  to same store  growth with $12.3  million or 54.3% of the increase
attributable to acquisitions.  The Domestic  Services  platform  delivered $44.8
million of net revenue in 2004, an improvement of $6.2 million or 16.0% over the
same prior year period with $5.2 million of the increase  coming from same store
growth  and  the  remaining   $1.0  million   coming  from   acquisitions.   The
International  Services platform delivered $39.9 million of net revenue in 2004,
a period over period improvement of $16.5 million or 70.9%, with $5.2 million of
the  increase  coming from same store  growth and the  remaining  $11.3  million
improvement attributable to acquisitions.

      Net revenue margin decreased to 23.1% for 2004 compared to 28.2% for 2003.
This decrease in net revenue  margin is primarily the result of the expansion of
our  International  Services  platform,  which  traditionally has lower margins,
through multiple  acquisitions in 2003 and 2004 which added significantly to our
global  capabilities.  Net revenue  margin for the  Domestic  Services  platform
increased  to 30.9% for the year  ended  December  31,  2004 from  29.8% for the
comparable  period in 2003  driven  primarily  by  growth  in other  value-added
services  provided in connection with the start-up of a significant new account.
This increase was  partially  offset by higher fuel  surcharges  absorbed by the
business and one low margin piece of business  that the Company  exited in 2004.
Net revenue margin for the  International  Services  platform  decreased in line
with previous  expectations  to 18.0% for the year ended  December 31, 2004 from
25.8%  for the  comparable  period  in  2003 as a  result  of the  general  rate
increases and fuel surcharges imposed by the underlying  asset-based carriers as
well as the impact of the Shaanxi  transaction in early 2004.  Shaanxi  operates
principally  as a wholesaler  of  airfreight  which  carries  lower  margins but
provides the International  Services platform with the opportunity for growth in
the higher-margin retail component of the airfreight business.


                                       26
<PAGE>

      The following table summarizes certain historical  consolidated  statement
of operations data as a percentage of our net revenue (in thousands):

<TABLE>
<CAPTION>
                                            2004                     2003                    Change
                                    --------    --------     --------    --------     --------    --------
                                     Amount      Percent      Amount      Percent      Amount      Percent
                                    --------    --------     --------    --------     --------    --------
<S>                                 <C>            <C>       <C>            <C>       <C>           <C>
Net revenue                         $ 84,722       100.0%    $ 61,978       100.0%    $ 22,744        36.7%
                                    --------    --------     --------    --------     --------
Personnel costs                       44,988        53.1       31,888        51.5       13,100        41.1
Other selling, general and
   administrative costs               36,753        43.4       24,583        39.7       12,170        49.5
Depreciation and amortization          4,189         4.9        2,660         4.3        1,529        57.5

Restructuring charges                  4,368         5.2           --          --        4,368          NM
Litigation settlement and
   nonrecurring costs                     --          --        1,169         1.8       (1,169)     (100.0)
                                    --------    --------     --------    --------     --------
Total operating costs                 90,298       106.6       60,300        97.3       29,998        49.7
                                    --------    --------     --------    --------     --------
Income (loss) from operations         (5,576)       (6.6)       1,678         2.7       (7,254)         NM
Provisions for excess earn-out
   payments                           (3,075)       (3.6)      (1,270)       (2.1)      (1,805)     (142.1)

Interest income                           62         0.1           49         0.1           13        26.5

Interest expense                        (640)       (0.8)        (142)       (0.2)        (498)     (350.7)

Other income, net                          1         0.0           85         0.1          (84)      (98.8)
                                    --------    --------     --------    --------     --------
Income (loss) from continuing
   operations before income taxes
   and minority interest              (9,228)      (10.9)         400         0.6       (9,628)         NM

Income tax expense                     2,395         2.8          736         1.2        1,659       225.4
                                    --------    --------     --------    --------     --------
Loss from continuing operations
   before minority interest          (11,623)      (13.7)        (336)       (0.6)     (11,287)   (3,359.2)

Minority interest                      1,395         1.7          187         0.3        1,208       646.0
                                    --------    --------     --------    --------     --------
Loss from continuing operations      (13,018)      (15.4)        (523)       (0.9)     (12,495)   (2,389.1)

Loss from discontinued operations        (25)        0.0         (263)       (0.4)         238        90.5
                                    --------    --------     --------    --------     --------
Net loss                            $(13,043)      (15.4)%       (786)       (1.3)    $(12,257)   (1,559.4)%
                                    ========    ========     ========    ========     ========
</TABLE>

      Personnel  costs were $45.0  million in 2004,  an  increase  of 41.1% over
$31.9 million in 2003. $8.0 million or 61.1% of the increase was attributable to
same store  growth with $5.1 million or 38.9% of the  increase  attributable  to
acquisitions. The Domestic Services platform incurred $25.1 million in personnel
costs in 2004,  an increase  of $5.1  million and 25.6% over the same prior year
period with $4.3 million of the  increase  coming from same store growth and the
remaining  $0.8 million coming from  acquisitions.  The  International  Services
platform  incurred  $19.9  million in  personnel  costs for 2004,  a period over
period  increase of $8.0  million or 67.0%,  with $3.7  million of the  increase
coming from same store growth and the remaining $4.3 million increase attributed
to  acquisitions.  As a percentage of net revenue,  personnel costs increased in
2004 to  53.1%  compared  to  51.5%  in  2003.  This  increase  was due to staff
increases in sales and marketing in the  International  Services platform in the
second half of 2004 partially offset by operations and sales and marketing staff
reductions in the Domestic Services platform.

      The number of  employees  increased to 1,169 at December 31, 2004 from 827
at December 31, 2003, an increase of 342 employees or 41.4%. Of the total number
of employees,  866 or 74.1% of the employees  are engaged in  operations;  86 or
7.4% of the  employees are engaged in sales and  marketing;  and 217 or 18.5% of
the employees are engaged in finance, administration,  and management functions.
Additionally,  approximately 335 or 98.0% of the total increase in employees was
attributable to acquisitions,  while same store employee headcount  increased by
seven or 2.0% of the total increase in employees.

      Other  selling,  general and  administrative  costs were $36.8  million in
2004, an increase of 49.5% over $24.6 million in 2003.  $8.2 million or 66.9% of
the increase was attributable to same store growth including  increased expenses
for leased equipment and facilities to support a broad services  contract with a
large  customer  and  $4.0  million  or 33.1% of the  increase  attributable  to
acquisitions.  The Domestic  Services  platform  incurred $26.6 million of other
selling,  general and administrative  costs in 2004, an increase of $6.9 million
and 35.4% over the same  prior year  period  with $5.9  million of the  increase
coming  from same store  growth  and the  remaining  $1.0  million  coming  from
acquisitions.  The  International  Services  platform had $10.1 million in other
selling,  general  and  administrative  costs for  2004,  a period  over  period
increase of $5.2 million or 106.3%,  with $2.2  million of the  increase  coming
from same store growth and the  remaining  $3.0 million  increase  attributed to
acquisitions.  As a percentage of net revenue,  other selling and administrative
costs  increased in 2004 to 43.4%  compared to 39.7% in 2003.  This increase was
primarily  due to  non-recurring  charges  incurred in the first quarter of 2004
related to bad debts,


                                       27
<PAGE>

communications  and  technology  costs and higher than expected costs related to
our Sarbanes-Oxley compliance initiatives.

      Depreciation and amortization  amounted to $4.2 million for the year ended
December  31,  2004,  an increase of $1.5  million or 57.5% over the  comparable
period in 2003  principally due to amortization  of acquired  intangible  assets
acquired in the Shaanxi and other Asian  transactions.  See Notes 5 and 6 to the
Company's consolidated financial statements.

      Restructuring costs were $4.4 million for the year ended December 31, 2004
and are comprised of $3.6 million write-off of certain technology  assets,  $0.7
million of  personnel  related  charges  and $0.1  million of lease  termination
charges.

      Litigation  and  nonrecurring  costs were $1.2  million for the year ended
December 31, 2003 and are  comprised  of $0.8 million paid to settle  litigation
commenced against the Company in August 2000 in a combination of $0.4 million in
cash and $0.4 million in Company stock, and $0.4 million associated with the SEC
review and delayed effectiveness of a registration statement filed in connection
with a March 2003 private placement.

      Loss from  operations  was $5.6  million in 2004,  compared to income from
operations of $1.7 million for 2003.

      Provisions  for excess  earn-out  payments  represent  the amount  paid to
former owners of acquired businesses that, as a result of the restatement of our
financial  performance  for 2003, was in fact in excess of the amount that would
have been paid out based on the restated  financial results for 2003. Due to the
uncertainty  of collecting the excess  payments,  the Company has fully reserved
for the resulting  receivable from the former owners. If excess amounts paid are
recovered in the future,  those  proceeds  would be reflected as other income in
the Company's consolidated statement of operations.

      Interest  income was  relatively  flat in 2004 and 2003,  and  remained an
insignificant  component of the Company's overall financial  performance.

      Interest  expense was $0.6  million for the year ended  December  31, 2004
compared to $0.1 million in the comparable  prior year period driven by advances
on our revolving  credit facility used to fund  acquisitions and working capital
during 2004.

      Loss from continuing  operations before income taxes and minority interest
was $9.2 million in 2004 compared to income from  continuing  operations  before
income taxes and minority interest of $0.4 million in 2003.

      As a result of historical  losses  related to  investments  in early-stage
technology  businesses and our subsequent  transition to a third-party logistics
services  provider,  the Company has  accumulated  federal NOLs. The Company has
approximately  $47.0  million of NOLs as of December  31, 2004 to offset  future
federal  taxable  income.  The Company does not  anticipate  paying  significant
federal income taxes in the near future because it expects that the NOLs will be
sufficient to offset  substantially all of its federal income tax liability,  if
any. In addition to minor state income taxes and  approximately  $1.7 million of
foreign income taxes,  the Company  recorded  deferred income taxes amounting to
$0.6  million and $0.6  million for the years ended  December 31, 2004 and 2003,
respectively,  primarily  related to  amortization  of  goodwill  for income tax
purposes.  This provision will increase as the goodwill related to the Company's
U.S.-based operations is amortized over its tax life of fifteen years.

      Loss from continuing operations before minority interest was $11.6 million
in 2004, compared to a loss of $0.3 million in 2003.

      Minority  interest  for the year ended  December 31, 2004 was $1.4 million
compared to $0.2  million in 2003.  The increase  was  primarily  related to the
Shaanxi  operation,  acquired in February  2004, of which the Company owns a 55%
interest.

      Loss from  discontinued  operations  was  nominal  in 2004.  The loss from
discontinued operations in 2003 reflects the costs associated with the remaining
lease liability of a property used in the Company's former internet business, as
well as a payment made to a consultant for services provided in 2000.


                                       28
<PAGE>

      Net loss was $13.0  million  in 2004,  compared  to $0.8  million in 2003.
Basic and  diluted  loss per share was  ($0.33)  for 2004  compared to a loss of
($0.03) per basic and diluted share for 2003.

      Year ended December 31, 2003 compared to year ended December 31, 2002

      The following  table  summarizes  our total  revenue,  net  transportation
revenue and other revenue (in thousands):

<TABLE>
<CAPTION>
                                                                               Change
                                                                       ----------------------
                                                2003         2002        Amount      Percent
                                             ---------    ---------    ---------    ---------
<S>                                          <C>          <C>          <C>            <C>
Total revenue                                $ 220,084    $ 122,788    $  97,296       79.2%
                                             =========    =========    =========
Transportation revenue                       $ 203,187    $ 113,510    $  89,677       79.0
Cost of transportation                         158,106       86,085       72,021       83.7
                                             ---------    ---------    ---------
Net transportation revenue                      45,081       27,425       17,656       64.4
   Net transportation margin                      22.2%        24.2%
Customs brokerage                               10,027        6,290        3,737       59.4
Warehousing and other value-added services       6,870        2,988        3,882      129.9
                                             ---------    ---------    ---------
   Net revenue                               $  61,978    $  36,703    $  25,275       68.9
                                             =========    =========    =========
   Net revenue margin                             28.2%        29.9%
                                             =========    =========
</TABLE>

      Total revenue was $220.1  million for the year ended December 31, 2003, an
increase of $97.3 million or 79.2% over total revenue of $122.8  million for the
comparable  period in 2002.  $17.1  million  or 17.6% of the  increase  in total
revenue was  attributable  to the  operations  of the  businesses we acquired in
2003;  $24.3 million or 25.0% was due to an increase in same store  growth;  and
the  remaining  $55.9  million  or 57.4% of the  increase  was  attributable  to
operations  acquired or launched as new operations over the course of 2002 which
included the Global and United  American  acquisitions  as well as the office in
Hong Kong that was opened in the third quarter of 2002.

      Net  transportation  revenue was $45.1 million for the year ended December
31, 2003, an increase of $17.7 million or 64.4% over net transportation  revenue
of $27.4 million for the comparable period in 2002. $3.8 million or 21.5% of the
increase in net transportation revenue was attributable to the operations of the
businesses  we  acquired  in 2003;  $5.1  million or 28.8% was due to same store
growth; and the remaining $8.8 million or 49.7% of the increase was attributable
to  operations  acquired or launched as new  operations  over the course of 2002
which included the Global and United American acquisitions as well as the office
in Hong Kong that was opened in the third quarter of 2002.

      Net  transportation  margin decreased to 22.2% for the year ended December
31,  2003 from 24.2% for the  comparable  period in 2002.  This  decrease in net
transportation  margin is  primarily  the result of the  addition  in the second
quarter of 2002 of our International Services platform,  which traditionally has
lower margins, and its expansion through our 2003 acquisitions of CSI and G-Link
Singapore and Cambodia. Net transportation margin for the International Services
platform,  while still reducing the consolidated net transportation  margin, did
increase  to 14.9% for the year  ended  December  31,  2003  from  13.9% for the
comparable  period in 2002 driven  primarily  by increased  capacity  purchasing
power at our emerging  Hong Kong  facility.  Net  transportation  margin for the
Domestic  Services  platform  decreased to 26.9% for the year ended December 31,
2003 from 29.2% for the  comparable  period in 2002 driven  primarily by one low
margin piece of business that the Company ultimately exited in 2004.

      Customs brokerage and other value-added services revenue was $16.9 million
for the year ended  December 31, 2003,  an increase of $7.6 million over customs
brokerage  and  other  value-added  services  revenue  of  $9.3  million  in the
comparable   period  of  2002.  $3.1  million  or  40.8%  of  the  increase  was
attributable  to same store  growth;  $0.3  million or 3.9% of the  increase was
attributable  to  operations  of the  businesses  we acquired  in 2003;  and the
remaining $4.2 million or 55.3% of the increase was  attributable  to operations
acquired or launched as new operations  over the course of 2002,  which included
the Global and United  American  acquisitions as well as the office in Hong Kong
that was opened in the third quarter of 2002.

      Net revenue was $62.0  million for the year ended  December 31,  2003,  an
increase  of $25.3  million or 68.9% over net  revenue of $36.7  million for the
comparable  period in 2002. $4.1 million or 16.2% of the increase in


                                       29
<PAGE>

net revenue was  attributable to the operations of the businesses we acquired in
2003;  $8.3  million or 32.8% was due to same store  growth;  and the  remaining
$12.9  million  or 51.0% of the  increase  was  attributable  to an  incremental
quarter of Global and United American results and an incremental  three quarters
of Hong Kong results in 2003 over 2002.

      Net revenue margin decreased to 28.2% for 2003 compared to 29.9% for 2002.
This  decrease in net revenue  margin is primarily the result of the addition in
the  second  quarter  of  2002 of our  International  Services  platform,  which
traditionally has lower margins, and its expansion through our 2003 acquisitions
of  CSI  and  G-Link  Singapore  and  Cambodia.   Net  revenue  margin  for  the
International  Services platform  decreased to 25.8% for the year ended December
31, 2003 from 27.5% for the  comparable  period in 2002.  Net revenue margin for
the Domestic  Services  platform  decreased to 29.8% for the year ended December
31, 2003 from 31.2% for the  comparable  period in 2002 driven  primarily by one
low margin piece of business that the Company ultimately exited in 2004.

      The following table summarizes certain historical  consolidated  statement
of operations data as a percentage of our net revenue (in thousands):

<TABLE>
<CAPTION>
                                            2003                     2002                   Change
                                    --------    --------     --------    --------    --------    --------
                                     Amount      Percent      Amount      Percent     Amount      Percent
                                    --------    --------     --------    --------    --------    --------
<S>                                 <C>            <C>       <C>            <C>      <C>          <C>
Net revenue                         $ 61,978       100.0%    $ 36,703       100.0%   $ 25,275       68.9%
                                    --------    --------     --------    --------    --------
Personnel costs                       31,888        51.5       19,089        52.0      12,799       67.0
Other selling, general and
   administrative costs               24,583        39.7       14,680        40.0       9,903       67.5
Depreciation and amortization          2,660         4.3        2,187         6.0         473       21.6
Litigation settlement and
   nonrecurring costs                  1,169         1.8           --          --       1,169         NM
                                    --------    --------     --------    --------    --------
Total operating costs                 60,300        97.3       35,956        98.0      24,344       67.7
                                    --------    --------     --------    --------    --------
Income from operations                 1,678         2.7          747         2.0         931      124.6
Provisions for excess earn-out
   payments                           (1,270)       (2.1)          --          --      (1,270)        NM
Interest income                           49         0.1           91         0.3         (42)     (46.2)
Interest expense                        (142)       (0.2)          --          --        (142)        NM
Other income, net                         85         0.1           37         0.1          48      129.7
                                    --------    --------     --------    --------    --------
Income from continuing operations
   before income taxes and
   minority interest                     400         0.6          875         2.4        (475)     (54.3)
Income tax expense                       736         1.2          421         1.2         315       74.8
                                    --------    --------     --------    --------    --------
Income (loss) from continuing
   operations before minority
   interest                             (336)       (0.6)         454         1.2        (790)        NM
Minority interest                        187         0.3           --          --         187         NM
                                    --------    --------     --------    --------    --------
Income (loss) from continuing
   operations                           (523)       (0.9)         454         1.2        (977)        NM
Loss from discontinued operations       (263)       (0.4)          --          --        (263)        NM
                                    --------    --------     --------    --------    --------
Net income (loss)                       (786)       (1.3)         454         1.2      (1,240)        NM
Preferred stock dividends                 --          --       15,020        40.9     (15,020)    (100.0)
                                    --------    --------     --------    --------    --------
Net income (loss) attributable to
   common stockholders              $   (786)       (1.3)%   $ 15,474        42.1%   $(16,260)        NM
                                    ========    ========     ========    ========    ========
</TABLE>

      Personnel  costs were $31.9 million for the year ended  December 31, 2003,
an increase of $12.8 million or 67.0% over personnel  costs of $19.1 million for
the  comparable  period  in 2002.  $1.4  million  or 10.9%  of the  increase  in
personnel costs was attributable to the operations of the businesses we acquired
in 2003; $4.2 million or 32.8% was due to same store growth; and $7.2 million or
56.3% of the increase was attributable to operations acquired or launched as new
operations over the course of 2002 which included the Global and United American
acquisitions  as well as the  office in Hong  Kong that was  opened in the third
quarter of 2002.  Personnel  costs as a percentage  of net revenue  decreased to
51.5% from 52.0% year over year.

      The number of employees  increased to 827 at December 31, 2003 from 510 at
December 31, 2002, an increase of 317 employees or 62.2%. Of the total number of
employees,  622 or 75.2% of the employees are engaged in operations;  57 or 6.9%
of the  employees  are engaged in sales and  marketing;  and 148 or 17.9% of the
employees  are engaged in finance,  administration,  and  management  functions.
Additionally,  approximately 185 or 58.4% of the total increase in employees was
attributable to acquisitions,  while  approximately  130 employees or 41.6% were
added to meet the demands of the increase in our business in 2003.


                                       30
<PAGE>

      Other selling, general and administrative costs were $24.6 million for the
year ended  December 31,  2003,  an increase of $9.9 million or 67.5% over other
selling,  general and  administrative  costs of $14.7 million for the comparable
period in 2002.  $1.7 million or 17.2% of the increase was  attributable  to the
operations of the businesses we acquired in 2003;  $5.3 million or 53.5% was due
to same store growth; and $2.9 million or 29.3% of the increase was attributable
to  operations  acquired or launched as new  operations  over the course of 2002
which included the Global and United American acquisitions as well as the office
in Hong  Kong.  As a  percentage  of net  revenue,  other  selling  general  and
administrative costs decreased to 39.7% from 40.0% year over year.

      Depreciation and amortization  amounted to $2.7 million for the year ended
December  31,  2003,  an increase of $0.5  million or 21.6% over the  comparable
period in 2002  principally due to amortization  of acquired  intangible  assets
acquired  in the Regroup and G-Link  transactions.  See Note 6 to the  Company's
consolidated financial statements.

      Litigation  and  nonrecurring  costs were $1.2  million for the year ended
December 31, 2003 and are  comprised  of $0.8 million paid to settle  litigation
commenced against the Company in August 2000 in a combination of $0.4 million in
cash and $0.4 million in Company stock, and $0.4 million associated with the SEC
review and delayed effectiveness of a registration statement filed in connection
with a March 2003 private placement.

      Income from operations was $1.7 million in 2003,  compared to $0.7 million
for 2002.

      Provisions  for excess  earn-out  payments  represent  the amount  paid to
former owners of acquired businesses that, as a result of the restatement of our
financial  performance  for 2003, was in fact in excess of the amount that would
have been paid out based on the restated  financial results for 2003. Due to the
uncertainty of collecting the excess  payments,  the Company has determined that
the resulting receivable from the former owners should be fully reserved for. If
excess  amounts  paid are  recovered  in the  future,  those  proceeds  would be
reflected as other income in the Company's consolidated statement of operations.

      Interest  income was nominal for the year ended December 31, 2003 compared
to interest  income of $0.1 million for the comparable  prior year period.  With
year  over year  cash  balances  being  reduced  as a result of our  acquisition
program,  interest income remained an  insignificant  component of the Company's
overall financial performance.

      Interest  expense was $0.1  million for the year ended  December  31, 2003
compared to no interest  expense in the  comparable  prior year period driven by
advances on our revolving credit facility used to fund  acquisitions and working
capital during 2003.

      Income  from  continuing  operations  before  income  taxes  and  minority
interest was $0.4 million in 2003 compared to $0.9 million in 2002.

      As a result of historical  losses  related to  investments  in early-stage
technology  businesses and our subsequent  transition to a third-party logistics
services  provider,  the Company has  accumulated  federal  NOLs. In addition to
minor state and foreign income taxes, the Company recorded deferred income taxes
amounting to $0.6 million and $0.4 million for the years ended December 31, 2003
and 2002, respectively, primarily related to amortization of goodwill for income
tax  purposes.  This  provision  will  increase as the  goodwill  related to the
Company's U.S.-based operations is amortized over its tax life of fifteen years.

      Loss from continuing  operations before minority interest was $0.3 million
in 2003, compared to income of $0.5 million in 2002.

      Minority  interest  for the year ended  December 31, 2003 was $0.2 million
and was primarily related to the G-Link operations,  acquired in August 2003, of
which the Company owns a 70% interest.

      The  losses  from  discontinued  operations  in  2003  reflect  the  costs
associated  with  the  remaining  lease  liability  of a  property  used  in the
Company's  former internet  business,  as well as a payment made to a consultant
for services provided in 2000.

      Net loss was $0.8 million in 2003,  compared to net income of $0.5 million
in 2002.


                                       31
<PAGE>

      In 2002,  the Company  recorded a net  non-cash  benefit of $15.0  million
associated with the restructuring of our Series C Preferred stock,  after giving
effect  to  $1.9  million  in  preferred  stock  dividends.  See  Note 12 to the
consolidated financial statements.

      Net loss  attributable  to common  stockholders  was $0.8 million in 2003,
compared to net income  attributable to common  stockholders of $15.5 million in
2002.  Basic loss per share was ($0.03) for 2003  compared to earnings per share
of $0.70 for 2002.  Diluted  loss per share was  ($0.03)  for 2003  compared  to
earnings  per  share of $0.02  for  2002.  Diluted  earnings  per share for 2002
excludes the net effect of the Series C exchange transaction.

Disclosures About Contractual Obligations

      The following table aggregates all contractual  commitments and commercial
obligations that affect the Company's financial condition and liquidity position
as of December 31, 2004 (in thousands):

<TABLE>
<CAPTION>
                                                Less than     1 - 3       3 - 5     More than
Contractual Obligations                           1 year      years       years      5 years      Total
                                                ---------   ---------   ---------   ---------   ---------
<S>                                             <C>         <C>         <C>         <C>         <C>
Operating lease obligations                     $   8,578   $  12,522   $   1,952   $   1,516   $  24,568
Capital lease obligations                           1,510          --          --          --       1,510
Earn-out payable                                    2,646          --          --          --       2,646
Other long-term liabilities reflected on the
   Company's consolidated balance sheet under
   GAAP (a)                                            --       1,898          --          --       1,898
Lines of credit                                    16,912          --          --          --      16,912
Letter of credit                                      150          --          --          --         150
                                                ---------   ---------   ---------   ---------   ---------
Total contractual obligations                      29,796      14,420       1,952       1,516      47,684
Contingent earn-out obligations (b) (c)                --      27,453       3,417          --      30,870
                                                ---------   ---------   ---------   ---------   ---------
Total contractual and contingent obligations    $  29,796   $  41,873   $   5,369   $   1,516   $  78,554
                                                =========   =========   =========   =========   =========
</TABLE>

----------
(a)   Consists of a note  payable to the former  owner of Shaanxi  amounting  to
      $1,898 due March 31, 2006.

(b)   Consists of  potential  obligations  related to  earn-out  payments to the
      former owners of our existing  subsidiaries,  as discussed under Liquidity
      and Capital Resources.

(c)   During the 2005-2008  earn-out period,  there is an additional  contingent
      obligation  related to tier-two  earn-outs  that could be as much as $18.0
      million if certain of the acquired companies generate an incremental $37.0
      million in pre-tax earnings.

Financial Outlook

      We believe that gross revenues will be approximately $375 million in 2005.
Due to a number of factors,  including the financial performance of our Domestic
Services  operations,  the Company's  intent to  restructure  its  operations to
realize  synergies as part of the  Company's  overall  acquisition  strategy and
future efforts to realize  efficiencies from a newly developed operating system,
we are  not  able to  provide  guidance  at  this  time  about  expected  future
performance beyond gross revenues.

      Our restructuring  initiative  includes the  rationalization of facilities
and personnel  within the U.S. Some of these  initiatives  have been defined but
much  remains to be defined  and  implemented.  This  initiative  resulted  in a
material charge which negatively impacted the Company's financial results in the
fourth quarter of 2004. We will provide  guidance in the future,  but only after
our plan is fully  implemented  and the newly  streamlined  operations have been
functioning  for a  reasonable  period of time.  This  moratorium  on  financial
performance  guidance  will be in  effect  for  2005  and  perhaps  beyond.  All
previously issued financial guidance did not reflect the impact of the decreased
financial  performance  of  the  Domestic  Services  platform  or  restructuring
discussed  above,  nor was management aware of these issues at the time that the
previously  issued guidance was provided.  For these reasons,  previously issued
guidance relative to operating results for 2005 has been withdrawn.

Sources of Growth

      Management  believes  that a comparison of "same store" growth is critical
in the  evaluation  of the  quality  and  extent  of  the  Company's  internally
generated growth. This "same store" analysis isolates the revenue  contributions
from operations that have been included in the Company's  operating  results for
the full comparable


                                       32
<PAGE>

prior year period.  The table below  presents "same store"  comparisons  for the
year ended December 31, 2004 (which is the measure of any increase from the same
period of 2003).

                                          For the year ended
                                           December 31, 2004
                                        -----------------------
                 Domestic                        10.6%
                 International                   29.9%
                 Total                           18.7%

Liquidity and Capital Resources

      As we approach the next stage of our  development,  we need to augment our
capital  structure by replacing  our U.S.  Facility and by obtaining  additional
capital  from  other  sources.  This may take  the  form of  subordinated  debt,
convertible  preferred stock and/or common stock, among others. Such an enhanced
capital  structure would permit  continued  expansion,  but at a far slower pace
than it has in the past.  There is no assurance  that we will be able to replace
our U.S. Facility,  that additional capital will be available,  or if available,
at terms acceptable to us.

      The seasonal trend of the business together with earnout payments presents
significant liquidity challenges for the Company at the end of the first quarter
of each year.  These  challenges have been magnified by the acceleration of $1.4
million in lease  payments in connection  with a cross default  provision in the
lease documents.  (See Notes 8 and 18 to the consolidated financial statements).
These needs will be satisfied by the deferral of certain  earn-out  payments for
the purchases of certain  subsidiaries and the successful  raising of additional
equity and debt financing, all of which are in various steps of completion.

      Cash and cash  equivalents  totaled  $2.8  million and $3.1  million as of
December  31, 2004 and 2003.  Working  capital  totaled  $0.3  million and $13.1
million at December 31, 2004 and 2003.

      Cash used in operating  activities  was $1.6 million for 2004  compared to
$4.0 million used in 2003, which included a decrease of $12.2 million in working
capital.

      Net cash used in investing  activities  was $16.4 million in 2004 compared
to $15.9 million used in 2003.  Investing  activities were driven principally by
the acquisition of new businesses.  We deployed $8.0 million for the acquisition
of new  businesses  in 2004 compared to $9.4 million in 2003 and $2.7 million in
support of our web-based operating platform, Tech-Logis(TM), in 2004 compared to
$3.2 million in 2003. In addition,  we funded $3.4 million in earn-out  payments
in 2004.

      Cash  provided by financing  activities  generated  $17.7  million in 2004
compared to cash  provided by financing  activities of $20.7 million in 2003. In
2004, we borrowed $16.9 million under our lines of credit, received $1.8 million
of proceeds from exercised  options and warrants and paid debt financing fees of
$0.2 million and capital lease payments of $0.8 million.

      We paid $6.5  million  in cash for  earn-outs  on or around  April 1, 2004
based on initially  the 2003  performance  of certain of our acquired  companies
relative to their  respective  pre-tax  earnings  targets that we believed to be
accurate at the time of the payments.  Based on restated  financial  results for
the year ended December 31, 2003, we have  determined  that amounts were paid in
excess of amounts due by  approximately  $3.1  million.  We have fully  reserved
these receivables because of differing  interpretations,  by the Company and the
selling shareholders,  of the earn-out provisions of the purchase agreements. We
will attempt to recover the excess  amounts  paid from the former  owners of the
acquired  businesses.  Any amounts we recover will result in the  recognition of
non-operating income in the period recovered.

      On  July  18,  2002 we  completed  a  private  exchange  transaction  that
eliminated  approximately $44.6 million, the Series C preferred stock. The terms
of the Series C preferred stock would have significantly  constrained our future
growth opportunities. In return for eliminating the Series C preferred stock, we
issued 1,911,071 shares of common stock,  warrants to purchase  1,543,413 shares
of  common  stock at an  exercise  price of $1.00  per share for a term of three
years,  and a new class of Series D  preferred  stock  that would  convert  into
3,607,420  shares of our common stock no later than December 31, 2004. The terms
of the Series D preferred  stock were  structured  to make it much like a common
equity  equivalent in that (1) it received no dividend,  (2) it was subordinated
to new rounds of equity, and (3) it held a limited liquidation  preference which
expired at the end of 2003.  In addition,  the holders of the Series D preferred
stock were  restricted from selling the common stock received upon conversion of
the Series D  preferred  stock until July 19,  2003 and were  permitted  limited
resale based on trading  volume  through  July 19, 2004.


                                       33
<PAGE>


      We may receive  proceeds in the future from the  exercise of warrants  and
options  outstanding  as of February 28, 2005 in  accordance  with the following
schedule:

                                                 Number of Shares     Proceeds
                                                 ----------------   ------------
Options outstanding under our stock option plan      10,757,451     $ 17,336,395
Non-plan options                                        615,200        2,026,750
Warrants                                              1,957,784        4,417,794
                                                   ------------     ------------
Total                                                13,330,435     $ 23,780,939
                                                   ============     ============

      Effective November 17, 2004, we amended our revolving credit facility with
LaSalle  Business  Credit,  LLC (the  "U.S.  Facility").  The U.S.  Facility  is
collateralized  by accounts  receivable  and other assets of the Company and its
subsidiaries.  The U.S. Facility requires the Company and its U.S.  subsidiaries
to comply with certain financial covenants. Advances under the U.S. Facility are
available to fund future working  capital and other  corporate  purposes.  As of
March 1, 2005,  we had advances of $13.1  million and we had  eligible  accounts
receivable  sufficient  to support  $18.6  million in  borrowings  from our U.S.
Facility.  This U.S.  Facility also included a $5.0 million bridge loan facility
available to the Company at the rate of prime plus 2.00%.  The Company  borrowed
the full $5.0 million  available for the bridge loan facility on August 24, 2004
and subsequently repaid the bridge loan facility by November 26, 2004. Under the
terms of our amended U.S.  Facility,  we are not  permitted  to make  additional
acquisitions  without the lender's consent.  In addition,  as a condition to the
payment of any  earn-out  payments  for any of its  U.S.-based  operations,  the
amended  U.S.  Facility  requires  that the  Company  maintain a 60 day  average
undrawn  availability  of at least $2.5 million after taking effect for any such
earn-out payment.

      Effective October 27, 2004,  Stonepath Holdings (Hong Kong) Limited ("Asia
Holdings")  entered  into a $10.0  million term credit  facility  with Hong Kong
League Central Credit Union (the "Asia Facility") collateralized by the accounts
receivable of the Company's Hong Kong and Singapore  operations and an unsecured
subordinated  guarantee from Stonepath  Group,  Inc. The Asia Facility carries a
term  of one  year  and an  interest  rate  of  15.0%  for  amounts  outstanding
thereunder.  On November 4, 2004, Asia Holdings  borrowed $3.0 million under the
Asia Facility.

      Below are descriptions of material  acquisitions made since 2001 including
a  breakdown  of  consideration  paid at closing and future  potential  earn-out
payments.  We define "material  acquisitions" as those with aggregate  potential
consideration of $5.0 million or more.

      On October 5, 2001,  we acquired  Air Plus,  a group of  Minneapolis-based
privately   held   companies   that  provide  a  full  range  of  logistics  and
transportation  services.  The total value of the transaction was $34.5 million,
consisting  of cash of $17.5  million  paid at closing and a four-year  earn-out
arrangement of $17.0 million.  In the earn-out,  we agreed to pay the former Air
Plus  shareholders  installments  of $3.0 million in 2003, $5.0 million in 2004,
$5.0 million in 2005 and $4.0 million in 2006, with each installment  payable in
full if Air Plus  achieves  pre-tax  income of $6.0 million in each of the years
preceding  the year of payment.  In the event  there is a  shortfall  in pre-tax
income, the earn-out payment will be reduced on a dollar-for-dollar basis to the
extent of the  shortfall.  Shortfalls may be carried over or carried back to the
extent that  pre-tax  income in any other  payout year  exceeds the $6.0 million
level. Based upon restated financial results,  the cumulative  adjusted earnings
for Air Plus from date of acquisition through December 31, 2003 was $8.1 million
compared to the previously  calculated amount of $12.7 million. As a result, the
Company  believes  that  it has  paid  approximately  $3.9  million  to  selling
shareholders  in excess of amounts that should have been paid.  As a consequence
of the  restatements,  the  amounts  paid in 2004 and 2003 in excess of earn-out
payments due were reclassified from goodwill to advances due from  shareholders.
At December 31, 2004, the excess earn-out  payments related to the 2003 and 2002
results  of  operations  have been  fully  reserved  for  because  of  differing
interpretations,  by the  Company  and  selling  shareholders,  of the  earn-out
provisions of the purchase agreement.  However, the Company will seek the refund
of such excess payments.

      On April 4, 2002, we acquired SLIS, a Seattle-based privately held company
which provides a full range of international  air and ocean logistics  services.
The transaction was valued


                                       34
<PAGE>

at up to $12.0  million,  consisting of cash of $5.0 million paid at the closing
and up to an additional  $7.0 million  payable over a five-year  earn-out period
based upon the future financial performance of SLIS. We agreed to pay the former
SLIS  shareholders a total of $5.0 million in base earn-out  payments payable in
installments of $0.8 million in 2003, $1.0 million in 2004 through 2007 and $0.2
million in 2008, with each installment  payable in full if SLIS achieves pre-tax
income of $2.0  million in each of the years  preceding  the year of payment (or
the pro  rata  portion  thereof  in 2002  and  2007).  In the  event  there is a
shortfall in pre-tax income,  the earn-out payment will be reduced on a pro-rata
basis. Shortfalls may be carried over or carried back to the extent that pre-tax
income in any other payout year exceeds the $2.0 million level. We also provided
the former SLIS shareholders  with an additional  incentive to generate earnings
in excess of the base $2.0 million  annual  earnings  target  ("SLIS's  tier-two
earn-out").  Under SLIS's tier-two  earn-out,  the former SLIS  shareholders are
also  entitled to receive 40% of the  cumulative  pre-tax  earnings in excess of
$10.0  million  generated  during the  five-year  earn-out  period  subject to a
maximum  additional  earn-out  opportunity  of $2.0 million.  SLIS would need to
generate cumulative earnings of $15.0 million over the five-year earn-out period
to receive the full $7.0 million in  contingent  earn-out  payments.  Based upon
2004  performance,  the former SLIS  shareholders  will  receive $1.0 million on
April 1, 2005.  On a  cumulative  basis,  SLIS has  generated  $13.5  million in
adjusted  earnings,  providing  its  former  shareholders  with a total  of $2.8
million  in cash  earn-out  payments  and  excess  earnings  of $8.0  million to
carryforward and apply to future earnings targets.

      On May 30, 2002, we acquired United  American,  a Detroit-based  privately
held  provider  of  expedited   transportation  services.  The  United  American
transaction provided us with a new time-definite service offering focused on the
automotive  industry.  The  transaction  was  valued  at  up to  $16.1  million,
consisting  of cash of $5.1  million  paid at closing and a  four-year  earn-out
arrangement based upon the future financial  performance of United American.  We
agreed to pay the former United American  shareholder a total of $5.0 million in
base earn-out  payments payable in installments of $1.25 million in 2003 through
2006, with each installment  payable in full if United American achieves pre-tax
income of $2.2 million in each of the years  preceding  the year of payment.  In
the event there is a shortfall in pre-tax income,  the earn-out  payment will be
reduced on a dollar-for-dollar basis to the extent of the shortfall.  Shortfalls
may be carried  over or carried  back to the extent that  pre-tax  income in any
other payout year exceeds the $2.2 million level.  The Company has also provided
the former United American  shareholder with an additional incentive to generate
earnings in excess of the base $2.2  million  annual  earnings  target  ("United
American's tier-two earn-out").  Under United American's tier-two earn-out,  the
former  United  American  shareholder  is also  entitled  to receive  50% of the
cumulative pre-tax earnings generated by a certain  pre-acquisition  customer in
excess of $8.8 million during the four-year earn-out period subject to a maximum
additional earn-out  opportunity of $6.0 million.  United American would need to
generate cumulative earnings of $20.8 million over the four-year earn-out period
to receive the full $11.0 million in contingent  earn-out  payments.  Based upon
restated financial results, the cumulative adjusted earnings for United American
from the date of acquisition through December 31, 2003 was $1.7 million compared
to the previously  calculated amount of $2.4 million.  The Company believes that
it has paid approximately  $0.5 million to the selling  shareholder in excess of
amounts due. As a consequence of the restatements,  the amounts paid in 2004 and
2003 in excess of  earn-out  payments  due were  reclassified  from  goodwill to
advances  due from  shareholders.  At December  31,  2004,  the excess  earn-out
payment  related  to the 2003 and 2002  results  of  operations  have been fully
reserved  for  because of  differing  interpretations,  by the  Company  and the
selling  shareholder,  of the earn-out  provisions  of the  purchase  agreement.
However, the Company will seek the refund of such excess payment.

      On June 20, 2003, through our indirect wholly owned subsidiary,  Stonepath
Logistics  Government  Services,  Inc.  (f/k/a TSI) we acquired  the business of
Regroup, a Virginia limited liability company.  The Regroup transaction enhanced
our presence in the Washington,  D.C. market and provided a platform to focus on
the logistics needs of U.S. government agencies and contractors. The transaction
was valued at up to $27.2  million,  consisting of cash of $3.7 million and $1.0
million of Company stock paid at closing, and a five-year earn-out  arrangement.
The  Company  agreed to pay the  members of Regroup a total of $10.0  million in
base earn-out  payments  payable in equal  installments  of $2.5 million in 2005
through 2008, if Regroup  achieves pre-tax income of $3.5 million in each of the
years  preceding  the year of  payment.  In the event  there is a  shortfall  in
pre-tax  income,  the earn-out  payment  will be reduced on a  dollar-for-dollar
basis. Shortfalls may be carried over or carried back to the extent that pre-tax
income in any other payout year exceeds the $3.5 million level. The Company also
agreed to pay the  former  members  of Regroup  an  additional  $2.5  million if
Regroup  earned  $3.5  million in pre-tax  income  during  the  12-month  period
commencing  July 1, 2003,  however no payment was  required  based on  Regroup's
actual results. In addition, the Company has also provided the former members of
Regroup with an additional  incentive to generate earnings in excess of the base
$3.5 million annual  earnings  target  ("Regroup's  tier-two  earn-out").  Under
Regroup's tier-two earn-out,  the former members of Regroup are also entitled to
receive  50% of the  cumulative  pre-tax  earnings  in excess  of $17.5  million
generated during the five-year  earn-out period subject to a maximum  additional
earn-out


                                       35
<PAGE>

opportunity of $10.0 million. Regroup would need to generate cumulative earnings
of $37.5  million  over the  five-year  earn-out  period in order for the former
members to receive the full $22.5 million in contingent earn-out payments.

      On August 8, 2003,  through two indirect  international  subsidiaries,  we
acquired a seventy  (70%) percent  interest in the assets and  operations of the
Singapore and Cambodia  based  operations  of the G-Link Group,  which provide a
full range of international logistics services,  including international air and
ocean  transportation,  to  a  worldwide  customer  base  of  manufacturers  and
distributors. This transaction substantially increased our presence in Southeast
Asia and expanded our network of owned offices  through which to deliver  global
supply  chain  solutions.  The  transaction  was  valued at up to $6.2  million,
consisting of cash of $2.8 million,  $0.9 million of the Company's  common stock
paid at the closing and an  additional  $2.5  million  payable  over a four-year
earn-out  period  based upon the future  financial  performance  of the acquired
operations.  We agreed to pay $2.5 million in base earn-out  payments payable in
installments of $0.3 million in 2004, $0.6 million in 2005 through 2006 and $1.0
million  in  2007,  with  each  installment  payable  in  full  if the  acquired
operations achieve pre-tax income of $1.8 million in each of the years preceding
the year of payment (or the pro rata portion  thereof in 2003 and 2006).  In the
event there is a shortfall  in pre-tax  income,  the  earn-out  payment  will be
reduced on a dollar-for-dollar  basis. Shortfalls may be carried over or carried
back to the extent that pre-tax income in any other payout year exceeds the $1.8
million  level.  As additional  purchase  price,  the Company also agreed to pay
G-Link for excess net assets  amounting to $1.5 million  through the issuance of
Company common stock,  on a  post-closing  basis.  Based upon 2004  performance,
G-Link will be entitled to receive $0.5 million on April 1, 2005.

      On February 9, 2004, through a wholly-owned subsidiary,  we acquired a 55%
interest in Shanghai-based Shaanxi.  Shaanxi provides a wide range of customized
transportation   and  logistics   services  and  supply  chain  solutions.   The
transaction  was  valued  at up to  $11.0  million,  consisting  of cash of $3.5
million and $2.0 million of the Company's common stock paid at the closing, plus
up to an additional $5.5 million payable over a five-year  period based upon the
future financial  performance of Shaanxi.  The earn-out payments are due in five
installments of $1.1 million beginning in 2005, with each installment payable in
full if Shaanxi  achieves pre-tax income of at least $4.0 million in each of the
earn-out  years.  In the event  there is a  shortfall  in  pre-tax  income,  the
earn-out payment for that year will be reduced on a  dollar-for-dollar  basis by
the  amount of the  shortfall.  Shortfalls  may be  carried  over or back to the
extent that  pre-tax  income in any other  payout year  exceeds the $4.0 million
level. As additional  purchase price, on a post-closing basis the Company agreed
to pay Shaanxi for 55% of its closing date working  capital,  which  amounted to
$1.9 million. On March 21, 2005, the Company and the selling shareholder entered
into a financial  arrangement  whereby  the amount due became  subject to a note
payable  due March 31,  2006 with  interest  at 10% per  annum.  Based upon 2004
performance, the shareholder of Shaanxi will be entitled to receive $0.9 million
on April 1, 2005.

      We may be  required  to make  significant  payments  in the  future if the
earn-out  installments  under our  various  acquisitions  become  due.  While we
believe that a significant portion of the required payments will be generated by
the acquired  subsidiaries,  we may have to secure additional sources of capital
to fund some portion of the earn-out  payments as they become due. This presents
us with  certain  business  risks  relative to the  availability  and pricing of
future fund raising,  as well as the potential  dilution to our  stockholders if
the fund raising involves the sale of equity.


                                       36
<PAGE>

      The  following  table  summarizes  our maximum  possible  contingent  base
earn-out  payments for the years indicated based on results of the prior year as
if pre-tax  earnings  targets  associated  with each  acquisition  were achieved
although  the Company  does not expect the Domestic  Services  pre-tax  earnings
levels to be fully achieved (in thousands) (1)(2)(3):

<TABLE>
<CAPTION>
                                            2006        2007        2008        2009        Total
                                          --------    --------    --------    --------    --------
<S>                                       <C>         <C>         <C>         <C>         <C>
Earn-out payments:
   Domestic                               $  8,050    $  2,500    $  2,500    $     --    $ 13,050
   International                             5,131       5,503       3,769       3,417      17,820
                                          --------    --------    --------    --------    --------
Total earn-out payments                   $ 13,181    $  8,003    $  6,269    $  3,417    $ 30,870
                                          ========    ========    ========    ========    ========
Prior year pre-tax earnings targets (3)
   Domestic                               $ 12,306    $  3,500    $  3,500    $     --    $ 19,306
   International                            12,446      13,502       8,840       7,723      42,511
                                          --------    --------    --------    --------    --------
Total pre-tax earnings targets            $ 24,752    $ 17,002    $ 12,340    $  7,723    $ 61,817
                                          ========    ========    ========    ========    ========
   Domestic                                   65.4%       71.4%       71.4%         --        67.6%
   International                              41.2%       40.8%       42.6%       44.2%       41.9%
   Combined                                   53.3%       47.1%       50.8%       44.2%       49.9%
</TABLE>

----------
(1)   Excludes the impact of prior year's pre-tax earnings carryforwards (excess
      or shortfalls versus earnings targets).

(2)   During the 2005-2008  earn-out period,  there is an additional  contingent
      obligation  related to tier-two  earn-outs  that could be as much as $18.0
      million if certain of the acquired companies generate an incremental $37.0
      million in pre-tax earnings.

(3)   Aggregate pre-tax earnings targets as presented here identify the uniquely
      defined earnings targets of each acquisition and should not be interpreted
      to be the  consolidated  pre-tax  earnings of the Company which would give
      effect for, among other things,  amortization  or impairment of intangible
      assets  created in  connection  with each  acquisition  or  various  other
      expenses which may not be charged to the operating  groups for purposes of
      calculating earn-outs.

      The Company is a defendant in a number of legal  proceedings.  Although we
believe that the claims asserted in these  proceedings are without merit, and we
intend to vigorously  defend these matters,  there is the  possibility  that the
Company  could incur  material  expenses in the defense and  resolution of these
matters.  Furthermore,  since the Company has not  established  any  reserves in
connection  with such claims,  such  liability,  if any, would be recorded as an
expense in the period incurred or estimated.  This amount,  even if not material
to the  Company's  overall  financial  condition,  could  adversely  affect  the
Company's results of operations and cash flows in the period recorded.

New Accounting Pronouncements

      In December 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123 (revised),  "Share-Based Payment" ("SFAS No. 123R"), which replaced
SFAS  No.  123,  "Accounting  for  Stock-Based  Compensation",   and  superseded
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to  Employees."  SFAS  No.  123R  will  require  compensation  cost  related  to
share-based payment  transactions to be recognized in the financial  statements.
As permitted  by SFAS No. 123, we  currently  follow the guidance of APB No. 25,
which  allows  the use of the  intrinsic  value  method of  accounting  to value
share-based  payment  transactions  with  employees.   SFAS  No.  123R  requires
measurement of the cost of share-based payment  transactions to employees at the
fair value of the award on the grant date and  recognition  of expense  over the
requisite service or vesting period. SFAS No. 123R allows implementation using a
modified version of prospective  application,  under which compensation  expense
for the unvested portion of previously granted awards and all new awards will be
recognized on or after the date of adoption. SFAS No. 123R also allows companies
to implement it by restating previously issued financial statements,  basing the
amounts on the expense  previously  calculated  and  reported in their pro forma
footnote  disclosures  required  under SFAS No. 123. We will adopt SFAS No. 123R
using the modified  prospective  method  beginning  July 1, 2005.  The impact of
adopting SFAS No. 123R on our consolidated results of operations is not expected
to differ materially from the pro forma disclosures  currently  required by SFAS
No. 123 (see Note 2j to our consolidated financial statements).

      In December 2004, the FASB issued SFAS No. 153,  "Exchanges of Nonmonetary
Assets."  This  statement  addresses  the fair value  concepts  contained in APB
Opinion  No. 29,  "Accounting  for  Nonmonetary  Transactions",  which  included
certain  exceptions to the concept that exchanges of similar  productive  assets
should be recorded at the carrying value


                                       37
<PAGE>
of the asset  relinquished.  SFAS No. 153 eliminates that exception and replaces
it with a general  exception  for  exchanges  of  nonmonetary  assets  that lack
commercial  substance.  Only  nonmonetary  exchanges in which an entity's future
cash flows are expected to significantly change as a result of the exchange will
be  considered  to have  commercial  substance.  SFAS No. 153 must be applied to
nonmonetary asset exchanges occurring in fiscal periods beginning after June 15,
2005.  Adoption of SFAS No. 153 is not expected to have a significant  effect on
the Company's financial position, results of operations or cash flows.

      The FASB issued two final FASB Staff  Positions  ("FSPs")  addressing  the
financial accounting for certain provisions of the American Jobs Creation Act of
2004 (the "Act"). A provision of the Act allows taxpayers a deduction equal to a
percentage  of  the  lesser  of the  taxpayer's  qualified  domestic  production
activities  income or taxable  income,  subject to a limitation of 50% of annual
wages paid. FSP 109-1,  "Application  of FASB Statement No. 109,  Accounting for
Income Taxes, to the Tax Deduction on Qualified  Production  Activities Provided
by the American  Jobs  Creation Act of 2004,"  addresses  whether the  qualified
domestic  production  activities  should be treated as a special  deduction or a
rate reduction under SFAS No. 109.

      Additionally,  another provision of the Act provides  taxpayers a special,
one-time 85% dividend  received  deduction for certain foreign earnings that are
repatriated  in either a company's  first taxable year beginning on or after the
date of the Act's enactment or the last taxable year beginning before such date.
Some companies have requested that  clarification be provided on certain aspects
of the repatriation  provisions of the Act. Until these clarifications are made,
we are unable to conclude  whether we will repatriate  earnings or how much that
repatriation will be.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

      Currently,   our  exposure  to  foreign  currency  exchange  risk  is  not
significant,  although,  as our international  operations expand,  that exposure
could  increase.  Our  exposure to market risk  relates  primarily to changes in
interest  rates and the resulting  impact on our interest  incurred and our cash
flows.  We place our cash with high credit quality  financial  institutions  and
invest that cash in money  market funds and  investment  grade  securities  with
maturities of less than 90 days. We are averse to principal  loss and ensure the
safety and  preservation of our invested funds by investing in only highly rated
investments  and by  limiting  our  exposure  in any one  issuance.  Our  credit
facility bears interest at a variable rate. If market interest rates had changed
by 100 basis points,  interest  expense and our cash flows would have changed by
approximately  $118,000  and  $107,000,   respectively.  We  do  not  invest  in
derivative financial instruments.

Item 8. Financial Statements and Supplementary Data

      Our consolidated financial statements as of December 31, 2004 and 2003 and
for each of the years in the  three-year  period  ended  December  31,  2004 and
footnotes  related thereto are included within Item 15(a) of this report and may
be  found at pages  63  through  98.  Schedule  II -  Valuation  and  Qualifying
Accounts, may be found on page 100.

Item 9. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure

         On June 17,  2004,  the  Company  dismissed  KPMG LLP  ("KPMG")  as the
Company's independent  accountants.  On June 24, 2004, the Company engaged Grant
Thornton LLP as its new independent accountants.

         KPMG's audit reports on the Company's consolidated financial statements
for the years  ended  December  31,  2003 and 2002 did not  contain  an  adverse
opinion or a disclaimer of opinion,  nor were such reports qualified or modified
as to uncertainty, audit scope or accounting principles.

         The  decision  to  change  accountants  was made by  Stonepath's  Audit
Committee.

      During  the  fiscal  years  ended  December  31,  2003 and  2002,  and the
subsequent   interim  period   through  the  Company's   change  in  independent
accountants,  there were no disagreements  with KPMG on any matter of accounting
principles or practices,  financial statement  disclosure,  or auditing scope or
procedure,  which disagreements,  if not resolved to KPMG's satisfaction,  would
have caused KPMG to make reference to the subject matter of the disagreements in
connection with its report.

         There were no  reportable  events (as defined in  Regulation  S-K, Item
304(a)(1)(v))  during the fiscal years ended  December 31, 2003 and 2002 and the
subsequent   interim  period   through  the  Company's   change  in  independent
accountants,  except  for  the  reportable  condition  described  in  the  first
paragraph of Item 9A of this Annual Report on Form 10-K.


Item 9A. Controls and Procedures

Overview

      In January  2004,  the Company  restated its  consolidated  statements  of
operations  for the last three quarters of fiscal 2002, the first three quarters
of fiscal 2003,  and for the year ended  December  31,  2002,  as a result of an
error  discovered  in the  legacy  accounting  processes  of SLIS.  The  Company
determined  that a process  error  existed  which  resulted  in the  failure  to
eliminate certain intercompany transactions in consolidation. This process error
was embedded in the legacy accounting  process of SLIS  Transportation  Systems,
Inc.  for a period  which  began  substantially  before its  acquisition  by the
Company in April 2002.

                                       38
<PAGE>

The  Company  believes  that  the  presence  of this  error,  in and of  itself,
constituted a reportable condition as defined under standards established by the
American Institute of Certified Public Accountants.  This significant deficiency
was  addressed by  correcting  the process error that resulted in the failure to
eliminate intercompany  transactions in consolidation.  In addition, the Company
changed  its   organizational   structure   to  require  the  senior   financial
representatives  within the International Services segment to report directly to
the Company's Chief Financial Officer.

      In  connection  with  the  preparation  of the  Company's  June  30,  2004
consolidated  financial  statements,  the Company's  management  determined that
Stonepath  Logistics  Domestic  Services,  Inc.  ("SLDS")  did  not  follow  the
Company's  designed  disclosure  controls and  procedures  to report a potential
weakness  in the  methodology  used by  SLDS to  estimate  its  accrued  cost of
purchased  transportation.  Based on its  initial  analysis  at that  time,  the
Company recorded an immaterial  increase to SLDS' cost of  transportation in the
second  quarter of 2004. The Company's  management  believes that the failure of
SLDS to follow the designed  disclosure and control  procedures in and of itself
constitutes a material  weakness as defined under  standards  established by the
Public Company Accounting Oversight Board (United States) ("PCAOB"). The Company
has  implemented  changes in its  estimating  procedures  and its  processes for
recognizing  differences between actual and estimated costs to assure the proper
recognition  of  purchased   transportation  costs.  To  address  this  material
weakness,  the Company  initiated an immediate change in process at its Domestic
Services  segment to reduce the  likelihood  that a similar error could occur in
the future.  In addition,  the Company changed its  organizational  structure to
require  the  senior  financial  representatives  within the  Domestic  Services
segment to report directly to the Company's Chief Financial Officer.

      On September 20, 2004, the Company announced,  after having performed some
additional analysis, that it had understated its accrued purchase transportation
liability and related cost of purchased  transportation for previously  reported
periods as a result of an error  discovered in the accounting  processes  within
certain  subsidiary  operations of the Domestic  Services  segment.  The Company
determined that the process error did not accurately account for the differences
between the estimates and the actual freight costs incurred. This allowed for an
accumulation of previously unrecorded purchased transportation costs to build up
(such amounts should have been reflected as purchased  transportation costs). In
addition,  the error resulted in the Company making earn-out payments to selling
shareholders  in amounts  greater than what otherwise  would have been owed. The
Company  believes  that the presence of this error is  indicative  of a material
weakness in internal  controls as defined  under  standards  established  by the
PCAOB. To address this material weakness, the Company has altered its methods to
recognize the difference  between actual costs of  transportation  and estimates
for such  costs on a timely  basis and will  modify  its  operating  systems  to
provide for the recording of purchased transportation costs at the time an order
is entered.

      In the  course of its  review of the  process  error  related to the under
accrual of purchased transportation,  the Company also identified two additional
process  errors  related to revenue  transactions  within the Domestic  Services
segment.  At its Detroit  location,  the Company  identified a billing  error in
which the operating unit was invoicing one of its automotive  customers at rates
which  had  been  approved  by a  customer  representative  who did not have the
authority to do so. This customer  billing error caused the Company to overstate
its revenues. At its Minneapolis location,  the Company identified an accounting
error related to revenue recognition and depreciation that originated during the
second quarter of 2004. Upon billing to a customer for certain capital equipment
purchased in connection  with the launch of a new  distribution  center for that
customer,  the unit  recognized  the  revenue  immediately  rather than over the
two-year life of the contract and had depreciated the capital equipment over its
useful  life rather than  matching it to the life of the  contract.  The Company
believes that the presence of the billing error and the accounting  error in the
aggregate constitute a material weakness as defined under standards  established
by the PCAOB.  The  Company  has  addressed  the  material  weakness by advising
management of each unit in question on the proper treatment of these and similar
transactions in the future.

      The Company has restated its  consolidated  financial  statements  for the
first two quarters of 2004, and for the years ended December 31, 2003,  2002 and
2001 to correct the processing  errors  related to its purchased  transportation
accrual,  the customer  billings  issue,  and to reflect the related  income tax
effects.  In  addition,  the amounts owed as of December 31, 2003 and 2002 under
various  earn-out  provisions  have been  changed to  reflect  the impact of the
restatement.

      A  material  weakness  is a  significant  deficiency,  or  combination  of
significant  deficiencies,  that results in more than a remote likelihood that a
material  misstatement of the annual or interim financial statements will not be
prevented or detected.  A  significant  deficiency is a control  deficiency,  or
combination of control deficiencies that


                                       39
<PAGE>
adversely affects the Company's ability to initiate,  record, process and report
financial  data  consistent  with the  assertions of management in the financial
statements.

Disclosure Controls and Procedures

      As of December  31, 2004,  the Company  carried out an  evaluation  of the
effectiveness  of  the  Company's  disclosure  controls  and  procedures.   This
evaluation was carried out under the supervision and with the  participation  of
the  Company's  management,  including  the Chief  Executive  Officer  and Chief
Financial Officer. The Company's disclosure controls and procedures are designed
to ensure the information required to be disclosed by the Company in the reports
that it  files  or  submits  under  the  Exchange  Act is  recorded,  processed,
summarized and reported on a timely basis.

      Based  on  that   evaluation,   taking  into   account   the   significant
deficiencies,  material  weaknesses and remedial  actions  described  above, the
Company's  Chief Executive  Officer and Chief  Financial  Officer have concluded
that the  Company's  disclosure  controls and  procedures  were  effective as of
December 31, 2004.

Management's Report on Internal Control over Financial Reporting

      Management  is  responsible  for  establishing  and  maintaining  adequate
internal  control  over  financial  reporting  for the  Company.  The  Company's
internal  control  over  financial  reporting  is a process  designed  under the
supervision of the Company's Chief Executive Officer and Chief Financial Officer
to provide reasonable assurance regarding the reliability of financial reporting
and the  preparation  of the Company's  consolidated  financial  statements  for
external  reporting  purposes in  accordance  with the U.S.  generally  accepted
accounting principles.  Management,  together with independent consultants,  has
made a comprehensive review, evaluation and assessment of the Company's internal
control  over  financial  reporting  as of  December  31,  2004.  In making  its
assessment of internal  control over financial  reporting,  management  used the
criteria  issued by the  Committee of Sponsoring  Organizations  of the Treadway
Commission ("COSO") in "Internal Control - Integrated  Framework." In accordance
with  Section 404 of the  Sarbanes-Oxley  Act of 2002,  management  has made the
following assessment:

      o     Disparate  operating  systems  impacting  the design  and  operating
            effectiveness of internal control over financial  reporting  require
            rationalization,  modification,  documentation  and  remediation  of
            internal control weaknesses

      o     Operating and financial systems,  including program change controls,
            impacting the design and operating effectiveness of internal control
            over  financial  reporting  require  rationalization,  modification,
            documentation and remediation of internal control weaknesses.

      o     Financial policies and procedures impacting the design and operating
            effectiveness of internal control over financial  reporting  require
            rationalization,  modification,  documentation  and  remediation  of
            internal control weaknesses.

                                       40
<PAGE>

      o     The Company had inadequate controls related to its assessment of the
            effectiveness  of the  Company's  internal  control  over  financial
            reporting. Management was not able to complete their assessment in a
            timely manner and completed  their  assessment on February 11, 2005,
            which did not  allow  adequate  time for the  external  auditors  to
            complete their audit of management's  report on the effectiveness of
            the Company's internal control over financial reporting.

      o     The Company had  inadequate  controls  related to its  consolidation
            process.  The Company's  consolidation  process is a manual  process
            performed  by  individuals  with the ability to initiate  and record
            adjustments within the consolidation. Certain reporting subsidiaries
            maintain two general ledger applications which creates the potential
            for errors as a result of entering  information  twice.  The Company
            has a large  number of  entities  and a large  number  of  different
            applications.   The  Company's  process  for  the  consolidation  of
            accounting information from this number of entities and applications
            is error prone. In addition, the corporate office has the ability to
            make adjustments to the  consolidation  without any documented level
            of approval.

      o     The Company had  inadequate  controls  related to the accounting for
            purchased  transportation.  The Company's  public filings for fiscal
            years 2003 and 2002, and for the first and second quarters of fiscal
            year 2004 have been restated due to control  deficiencies related to
            the accrued purchased transportation. The process for accounting for
            accrued purchased  transportation did not accurately account for the
            differences  between  the  estimates  and the actual  freight  costs
            incurred.  This allowed for an accumulation of previously unrecorded
            purchased  transportation  costs to accumulate  (such amounts should
            have been reflected as purchased transportation costs). In addition,
            the error  resulted  in the  Company  making  earn-out  payments  to
            selling  shareholders  in amounts  greater than what otherwise would
            have been owed.

      o     The  Company  had  inadequate  controls  related to the  approval of
            contracts,  and  initiating  and  approving  adjustments  related to
            claims.  A key  member of  management  of a Company  subsidiary  was
            responsible for initiating and approving contracts.  This individual
            also had the  ability to  initiate  and  approve  the  recording  of
            related transactions to contracts. We noted that this individual was
            responsible for establishing  policies and procedures,  establishing
            limits of authority, and approving customers.

      o     The Company had inadequate  controls  related to application  access
            rights at its International  Services subsidiary.  Various employees
            have access to numerous application programs that are outside of the
            employees' job requirements. For example, of the 82 employees of the
            subsidiary,  34 have the ability to add,  delete,  or modify vendors
            and 27 employees  have the ability to issue checks.  Of the 60 users
            who have the  ability  to  initiate  a  payment,  28 are  authorized
            signatories  with the bank.  In  addition,  all users have access to
            enter  payment  information  into  the  accounts  payable  subsystem
            regardless of job responsibility.

      A material  weakness is a control  deficiency,  or  combination of control
deficiencies,  that  results  in more than a remote  likelihood  that a material
misstatement of the annual or interim financial statements will not be prevented
or detected. These control deficiencies identified above resulted in the need to
restate the Company's  consolidated  financial  statements  as described  above.
Accordingly,  management  has  determined  that these  conditions  constitute  a
material weakness. Because of this material weakness, we have concluded that the
Company did not maintain effective internal control over financial  reporting as
of December 31, 2004 based on the criteria in the "Internal Control - Integrated
Framework."

      Management's  assessment of the  effectiveness  of the Company's  internal
control  over  financial  reporting  as of December 31, 2004 has been audited by
Grant Thornton LLP, an independent  registered public accounting firm, as stated
in their report (which  disclaimed an opinion on management's  assessment and on
the effectiveness of the Company's internal control over financial  reporting as
of December 31, 2004) which appears on pages 63 to 65.


                                       41
<PAGE>

Changes in Internal Control over Financial Reporting

      Management of the Company has  evaluated,  with the  participation  of the
Company's Chief Executive  Officer and Chief Financial  Officer,  changes in the
Company's  internal  control  over  financial  reporting  (as  defined  in  Rule
13a-15(f) and  15d-15(f) of the Exchange Act) during the fourth  quarter of 2004
that have materially affected or are reasonably likely to materially affect, the
Company's   internal   control  over  financial   reporting.   As  discussed  in
Management's Report on Internal Control Over Financial Reporting,  in the fourth
quarter of 2004, the Company identified  material weaknesses in internal control
over  financial  reporting in the  Company's  information  systems and financial
policies and procedures.

      As of the end of the period  covered by this  report,  the Company has not
fully remediated the material  weaknesses in the Company's internal control over
financial  reporting.  However,  the  Company has taken the  following  remedial
actions:

      o     Corporate systems and financial leadership is being replaced;

      o     Consolidation and integration of all financial and systems personnel
            within the United States is in process of implementation;

      o     Policies  and  procedural  definitions  and,  in certain  instances,
            changes  resulting from the Chief Executive  Officer's and the Chief
            Financial  Officer's  evaluation of internal  control over financial
            reporting are in various stages of being  developed,  documented and
            implemented; and

      o     An ongoing self evaluation system of internal control over financial
            reporting and disclosures is being developed.

      Other than the changes identified above, there have been no changes to the
Company's  internal  control over  financial  reporting  that occurred since the
beginning of the Company's fourth quarter of 2004 that have materially affected,
or are reasonably likely to materially  affect,  the Company's  internal control
over financial reporting.

           REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS OF
                              STONEPATH GROUP, INC.

      The  following  is the  report of the Audit  Committee  for the year ended
December 31, 2004. The Audit Committee is composed of three  directors,  each of
whom meets the  American  Stock  Exchange's  independence  standards.  The Audit
Committee had historically operated under a written charter adopted by the Board
of  Directors  in 2000.  At a  meeting  held on March  25,  2003,  the  Board of
Directors adopted a new written charter for the Audit Committee.  On January 28,
2004  the  Board  of  Directors  amended  such  written  charter  for the  Audit
Committee.  The Audit  Committee as a whole meets  regularly  with the Company's
management  and  independent  auditors to discuss the adequacy of the  Company's
internal control environment and financial reporting,  accounting matters, audit
results and compliance with its corporate responsibility program.

      In carrying out its responsibilities and fulfilling  obligations under its
charter, the Audit Committee, among other things:

      o     reviewed with the independent auditors their audit plan audit scope,
            and identified audit risks;

      o     discussed  with the  independent  auditors  matters  required  to be
            discussed by Statement on Auditing Standards No. 61, "Communications
            with Audit  Committees,"  as  modified or  supplemented,  including,
            among other  items,  matters  related to the conduct of the audit of
            the Company's consolidated financial statements;

      o     obtained  from  the   independent   auditors  a  written   statement
            describing all  relationships  between the independent  auditors and
            the  Company  that  might  bear  on  the   auditors'   independence,
            consistent  with  Independence   Standards  Board  Standard  No.  1,
            "Independence Discussions with Audit Committees";


                                       42
<PAGE>

      o     discussed with the independent  auditors any relationships  that may
            impact their objectivity and independence,  and generally  satisfied
            itself that the auditors are independent;

      o     reviewed and discussed the Company's audited consolidated  financial
            statements for the year ended December 31, 2004 with  management and
            the independent auditors;

      o     obtained  from  management  the  representation  that the  Company's
            consolidated  financial  statements were prepared in conformity with
            accounting  principles  generally  accepted in the United  States of
            America; and

      o     discussed with management and the  independent  auditors the quality
            and adequacy of the Company's internal controls.

      Based on its review,  analysis and  discussions  with  management  and the
independent auditors,  the Audit Committee recommended to the Company's Board of
Directors  (and the Board  approved)  that the  Company's  audited  consolidated
financial  statements for the three years ended December 31, 2004 be included in
the Company's  Annual Report on Form 10-K for the year ended  December 31, 2004.
The Audit Committee and the Board have also recommended,  subject to shareholder
ratification, the selection of the Company's independent auditors for 2005.

                                       AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
                                       David R. Jones, Chairman
                                       Aloysius T. Lawn, IV
                                       Robert McCord

Item 9B. Other Information

      None.

                                    PART III

Item 10. Directors and Executive Officers of the Registrant

      Our  directors  and  executive  officers as of  February  28, 2005 were as
follows:

<TABLE>
<CAPTION>
Name                              Age   Position
----                              ---   --------
<S>                               <C>   <C>
Dennis L. Pelino                  57    Chairman of the Board of Directors
Jason F. Totah                    45    Chief Executive Officer
Robert Arovas                     61    President
Thomas L. Scully                  55    Chief Financial Officer, Vice President, Secretary, Treasurer and Controller
J. Douglass Coates                62    Director
John H. Springer (2)              48    Director
David R. Jones (1)(2)             56    Director
Aloysius T. Lawn, IV (1)(2)       46    Director
Robert McCord (1)                 46    Director
</TABLE>

----------
(1)   Member of Audit Committee

(2)   Member of Compensation Committee

      The  following  is a  brief  summary  of the  business  experience  of the
foregoing directors and executive officers.

      Dennis L.  Pelino has  served as our  Chairman  of the Board of  Directors
since  June 21,  2001 and was also our Chief  Executive  Officer  from that date
until October 2004.  Mr. Pelino has over two decades of executive  experience in
the logistics  industry.  From 1986 to 1999, he was employed by Fritz Companies,
Inc., initially as director of International Operations and Sales and Marketing,
in 1993 as its Chief  Operating  Officer  and  commencing  in 1996,  also as its
President. Mr. Pelino was also a member of the Board of Directors of Fritz


                                       43
<PAGE>

Companies from 1991 to 1999.  During Mr. Pelino's tenure, he acquired or started
over 50  companies  for Fritz as it became one of the leading  global  logistics
companies.  Prior to Fritz,  Mr. Pelino held senior  executive  positions in the
container  shipping  industry and in the  domestic  full-service  truck  leasing
industry.  From 1999  through  2001,  Mr.  Pelino was involved as a director and
principal of a number of private  ventures which explored  opportunities  in the
logistics industry and which provided  consulting  services relative to business
opportunities in Latin America, China and other Far Eastern regions.

      Jason F. Totah has served as our Chief  Executive  Officer  since  October
2004. Prior to then, he was the Chief Executive  Officer of Stonepath  Logistics
International  Services,  Inc.  (f/k/a  Global  Transportation  Services,  Inc.,
"Global").  Mr.  Totah  joined  Global  in 1990 and has held  several  positions
including Seattle branch manager and Senior Vice President, Sales and Marketing,
and Senior Vice President of Sales and Operations.  Prior to joining Global,  he
worked in  international  logistics  for Amoco  Petroleum,  stationed in various
locations around the world. He graduated from Oregon State in 1983 with a degree
in Agriculture Engineering.

      Robert  Arovas has served as our President  since October 2004.  From June
1999 to July 2002, Mr. Arovas was the President and Chief  Executive  Officer of
Geologistics  Corporation,  a privately held global logistics provider. Prior to
that, Mr. Arovas was the Executive Vice President,  Chief  Financial  Officer of
Fritz  Companies  from 1997 to 1999.  Earlier in his  career,  Mr.  Arovas  held
executive  positions at various  companies,  including The Pittston  Company and
Burlington  Air Express and has a background in public  accounting.  Since 2002,
Mr.  Arovas has been on the board of  directors  of a  privately  held  company,
provided  consulting  services and served as part of an acquisition group in the
logistics area, among other activities.

      Thomas L. Scully has served as our Vice  President  and  Controller  since
November 19, 2001, as our Chief  Financial  Officer since  November 2004, and as
our Treasurer and Secretary since January 2005.  Before joining  Stonepath,  Mr.
Scully was a senior  manager  within the  assurance  and  advisory  services  of
Deloitte & Touche,  LLP  ("Deloitte & Touche")  from  December  1996 to November
2001. Prior to Deloitte & Touche, from October 1980 to June 1996, Mr. Scully was
an audit partner at BDO Seidman,  LLP ("BDO") where he led numerous  accounting,
auditing and tax  engagements  for  publicly  traded and  privately-held  local,
national, and international clients. Prior to BDO, he held the position of audit
supervisor  at  Coopers  &  Lybrand,  LLP.  Mr.  Scully  is a  certified  public
accountant  and  earned  a B.S.  in  Accounting  from St.  Joseph's  University,
Philadelphia.

      J. Douglass  Coates has served as a member of our Board of Directors since
August  2001.  He has been a principal  of  Manalytics  International,  Inc.,  a
transportation,  logistics  and  supply  chain  consulting  firm  based  in  San
Francisco, California, since 1992. He was previously President of ACS Logistics,
a division of American President Lines, and President of Milne Truck Lines, then
a subsidiary  of the Sun Company.  Mr. Coates holds a B.S. in  Engineering  from
Pennsylvania  State  University  and an  MBA  from  the  Wharton  School  of the
University of Pennsylvania.

      John H.  Springer has served as a member of our Board of  Directors  since
May 2003.  Mr.  Springer  has  extensive  global  supply  chain  management  and
logistics experience, having held both domestic U.S. and international logistics
positions at IBM Corporation,  Union Pacific Corporation's third party logistics
unit, and at Dell Computer from 1995 to 2002. Mr.  Springer  joined Nike Inc. in
2002 and is its Director of Global Operations - Nike Golf. Mr. Springer has been
active in the Council of Logistics Management  throughout his career,  including
holding the position of President for the Central  Texas  region.  He earned his
B.S. at Syracuse University in Transportation & Distribution Management, and his
MBA from St. Edwards University in Austin, Texas.

      David R.  Jones has  served as a member  of our Board of  Directors  since
September  2000.  Mr. Jones has been  President of DR Jones  Financial,  Inc., a
privately-held  consulting  firm since its  formation in September  1995.  He is
presently a director of Financial Asset Securities Corporation,  an affiliate of
Greenwich Capital Markets,  Inc. Prior to forming DR Jones Financial,  Inc., Mr.
Jones was  Senior  Vice  President-Asset  Backed  Finance of  Greenwich  Capital
Markets,  Inc.  from 1989 to 1995.  Mr.  Jones served as a Vice  President,  and
subsequently  as a  Managing  Director  of  The  First  Boston  Corporation,  an
investment banking firm, from 1982 to 1989 and as Manager-Product Development of
General  Electric  Credit Corp.,  an asset-based  lender and financial  services
company,  from 1981 to 1982. Mr. Jones is a graduate of Harvard  College and has
an MBA from the Amos Tuck School of Business Administration.

      Aloysius  T.  Lawn,  IV has  served as a member of our Board of  Directors
since February 2001. Mr. Lawn is the Executive Vice President - General  Counsel
and Secretary of Talk America Holdings, Inc., an integrated


                                       44
<PAGE>

communications   service   provider  with  programs   designed  to  benefit  the
residential and small business markets.  Prior to joining Talk America Holdings,
Inc.  in 1996,  Mr.  Lawn was an attorney  in private  practice  with  extensive
experience  in  private  and  public   financings,   mergers  and  acquisitions,
securities  regulation and corporate governance from 1985 through 1995. Mr. Lawn
graduated from Yale University and Temple University School of Law.

      Robert McCord has served as a member of our Board of Directors since March
2001. He is also a Managing  Director of PA Early Stage,  an affiliated  fund of
Safeguard Scientifics,  Inc. At PA Early Stage, which he co-founded in 1997, Mr.
McCord  specializes in business  development for their portfolio  companies.  He
also serves as President and Chief Executive  Officer of the Eastern  Technology
Council, a consortium of more than 1,200  technology-oriented  companies. At the
Technology  Council he provides  contacts,  capital and  information  for senior
executives.  Mr. McCord co-founded and also serves as a principal of the Eastern
Technology  Fund,  which  provides seed and  early-stage  funding for technology
companies in the eastern  corridor.  Previously,  he served as Vice President of
Safeguard Scientifics,  Inc., a leader in identifying,  developing and operating
premier  technology  companies.  Before  joining  Safeguard,  Mr. McCord spent a
decade on  Capitol  Hill  where he served  as Chief of Staff,  Speechwriter  and
Budget Analyst in a variety of congressional  offices.  He specialized in budget
and  deregulatory  issues  and,  as Chief  Executive  Officer of the  bipartisan
Congressional Institute for the Future, he ran a staff which tracked legislation
and provided  policy  analyses and briefings.  Mr. McCord earned his B.S.,  with
high honors,  from Harvard University and his MBA from the Wharton School of the
University of Pennsylvania.

Code of Ethics

      Our Board of Directors  has adopted a Code of Ethics  applicable to all of
our  employees,  including  our Chief  Executive  Officer  and  Chief  Financial
Officer,  Principal  Accounting  Officer and  Controller.  A copy of our Code of
Ethics is attached as an exhibit to this Annual  Report on Form 10-K.  We intend
to provide any disclosures which are required by the rules of the Securities and
Exchange  Commission,  or which we otherwise  determine to be appropriate,  with
respect to amendments  of, and waivers from,  our Code of Ethics by posting such
disclosures on our Internet website, www.stonepath.com.

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

      Based  solely on our review of copies of forms  filed  pursuant to Section
16(a)  of  the  Securities  Exchange  Act  of  1934,  as  amended,  and  written
representations  from certain reporting persons, we believe that during 2004 all
reporting  persons timely  complied with all filing  requirements  applicable to
them.

Audit Committee Financial Expert

      The  Audit  Committee  of  our  Board  of  Directors  is  responsible  for
monitoring the integrity of the Company's  consolidated financial statements and
reporting   processes  and  systems  of  internal  control  regarding   finance,
accounting, and legal compliance and approving the engagement of its independent
auditors.  The members of the Audit Committee are David R. Jones,  Chairman,  as
well as Aloysius T. Lawn, IV, and Robert McCord.  The Board has determined  that
Mr. Jones is independent and qualifies as an "audit committee  financial expert"
as defined in the rules of the Securities  and Exchange  Commission by virtue of
his education and experience in complex  financial  matters and the analysis and
review of  financial  statements  and has  designated  Mr.  Jones as the  "audit
committee financial expert."


                                       45
<PAGE>
Item 11. Executive Compensation

      The  following  table  sets forth a summary  of the  compensation  paid or
accrued for the three fiscal years ended December 31, 2004 to or for the benefit
of our Chief Executive  Officer and our four most highly  compensated  executive
officers whose total annual salary and bonus compensation exceeded $100,000 (the
"Named Executive Officers").

                           Summary Compensation Table
<TABLE>
<CAPTION>
                                                                                       Long-Term
                                                      Annual Compensation         Compensation Awards
                                                    -----------------------    ----------------------------
                                                                                Restricted      Number of         All Other
     Name and Principal Position                     Salary         Bonus      Stock Awards      Options       Compensation(1)
-------------------------------------               ---------     ---------    ------------   -------------    ---------------
<S>                                        <C>      <C>           <C>                <C>       <C>                <C>
Dennis L. Pelino, Chairman                 2004     $ 360,000            --          --        1,034,600(2)            --
                                           2003     $ 360,000            --          --          700,000(3)            --
                                           2002     $ 360,000            --          --        1,900,000(4)            --

Jason F. Totah, Chief                      2004     $ 325,476     $ 150,000          --          493,100(5)            --
Executive Officer                          2003     $ 259,436     $ 150,000          --               --               --
                                           2002     $ 187,500     $ 131,250          --          250,000(6)            --

Thomas L. Scully, Vice President,          2004     $ 116,750            --          --           56,000(7)            --
Chief Financial Officer, Controller,       2003     $ 105,000     $   5,000          --           33,300(8)            --
Secretary and Treasurer                    2002     $ 105,000     $  12,500          --           25,000(9)            --

Bohn H. Crain, former Chief Financial
Officer and Treasurer                      2004     $ 210,000            --          --          423,300(10)           --
                                           2003     $ 200,000            --          --          325,000(11)           --
                                           2002     $ 200,000     $  37,500          --          350,000(12)      $44,000

Gary Koch, former Chief Executive
Officer of Stonepath Logistics
Domestic Services, Inc.                    2004     $ 194,228            --          --          150,000(13)           --
                                           2003     $ 270,509            --          --               --               --
                                           2002     $ 264,497            --          --               --               --
</TABLE>
----------
(1)   During the periods reflected,  certain of the officers named in this table
      received  perquisites  and other  personal  benefits not  reflected in the
      amounts of their respective annual salaries or bonuses.  The dollar amount
      of these  benefits did not,  for any  individual  in any year,  exceed the
      lesser of $50,000 or 10% of the total annual salary and bonus reported for
      that individual in any year, unless otherwise noted.
(2)   The first grant of 550,000 options  occurred on January 23, 2004, of which
      183,334  options vested  immediately,  183,333 options vested on the first
      anniversary  of the award  date and  183,333  options  vest on the  second
      anniversary  of the  award  date.  The  second  grant of  125,600  options
      occurred on February 16, 2004 and vested  immediately.  The third grant of
      359,000 options  occurred on March 11, 2004 and vest pro rata on a monthly
      basis commencing on March 31, 2004 through June 30, 2009.
(3)   These  options were granted on March 10, 2003.  The first grant of 300,000
      options vested  immediately.  The second grant of 400,000  options vest to
      the extent of 133,334 on the first  anniversary date of the award date and
      to the extent of 133,333  on the  second  and third  anniversaries  of the
      award date.
(4)   These  options  were  granted  on July 3, 2002 and vested to the extent of
      633,334  on the first  anniversary  of the award date and to the extent of
      633,333 on the second and third anniversaries of the award date.
(5)   The first grant of 80,000  options  occurred on January 9, 2004,  of which
      26,667  options  vested  immediately,  26,667  options vested on the first
      anniversary  of the  award  date and  26,666  options  vest on the  second
      anniversary of the award date. The second grant of 13,100 options occurred
      on February  26, 2004 and vested  immediately.  The third grant of 400,000
      options  occurred on October 13, 2004, of which 133,333  vested on October
      14, 2004,  66,667 options vest annually on October 14, 2005, 2006 and 2007
      and 66,666 vest on October 14, 2008,
(6)   The first  grant of 200,000  options  occurred on April 4, 2002 and second
      grant of 50,000 options occurred on September 5, 2002.  One-fourth of each
      of these  options vest on each of the first four  anniversaries  after the
      grant date, subject to continued  employment with the Company through each
      vesting date.
(7)   The first grant of 25,000  options  occurred on January 9, 2004,  of which
      8,334  options  vested  immediately,  8,333  options  vested  on the first
      anniversary  of the  award  date  and  8,333  options  vest on the  second
      anniversary of the award date. The second grant of 6,000 options  occurred
      on  February  26, 2004 and vested  immediately.  The third grant of 25,000
      options occurred on May 21, 2004 of which 8,334 options vested immediately
      on the first  anniversary  of the award date and 8,333 options vest on the
      second and third anniversaries of the award date.
(8)   The first  grant of 8,300  options  occurred on March 25,  2003,  of which
      2,767 vested immediately with the remainder vesting pro rata over the next
      24 months.
(9)   These  options were granted on September 5, 2002 and vest to the extent of
      6,250 options on the first,  second, third and fourth anniversaries of the
      award date.
(10)  The first  grant of 100,000  options  occurred on January 9, 2004 of which
      33,333 options vested immediately,  33,334 options vest on January 9, 2005
      and 33,333  options  vest on January 9, 2006.  The second  grant of 23,300
      options  occurred on February 26, 2004 and vested  immediately.  The third
      grant of 300,000  options  occurred on May 26, 2004 and vest to the extent
      of 100,000 options on each of the first,  second and third  anniversary of
      the award date.
(11)  The first grant of 200,000  options  occurred on February  24,  2003.  The
      second grant of 25,000 options occurred on March 25, 2003. The third grant
      of 100,000 occurred on September 5, 2003. All of these options are vested.
(12)  The first  grant of 150,000  options  occurred on January  10,  2002.  The
      second  grant of 200,000  options  occurred on July 3, 2002.  All of these
      options are vested.

                                       46
<PAGE>

(13)  These  options  were granted on January 9, 2004,  of which 50,000  options
      vested immediately,  50,000 options vested on the first anniversary of the
      award date and 50,000 options vest on the second  anniversary of the award
      date.

Employment Agreements

      On March 10,  2004,  effective  as of January 1, 2004,  we entered into an
amended employment agreement with our Chairman, Dennis L. Pelino. This agreement
amended our prior  agreements  with Mr. Pelino dated  February 22, 2002 and June
21, 2001. Pursuant to this amendment, we agreed to extend the term of employment
of Mr.  Pelino  through  June 2009.  The  amendment  also  increased  the annual
compensation  payable to Mr.  Pelino by granting him, in addition to his current
base salary of $360,000,  options to purchase 359,000 shares of our common stock
which vest in equal installments over the term of his employment.  This grant of
options was  intended to provide Mr.  Pelino with  incremental  compensation  of
$700,000 over the term of his  employment.  In addition to his base salary,  Mr.
Pelino is entitled to bonus  compensation  based upon the achievement of certain
target objectives, as well as discretionary merit bonuses that can be awarded at
the discretion of our Board of Directors. Mr. Pelino is also entitled to certain
severance  benefits upon his death,  disability or  termination  of  employment.
Pursuant to the  employment  agreement,  Mr.  Pelino is also  entitled to fringe
benefits including  participation in pension, profit sharing and bonus plans, as
applicable,  and life insurance,  hospitalization,  major medical, paid vacation
and expense reimbursement.

      In connection  with our acquisition of Stonepath  Logistics  International
Services, Inc. we entered into an employment agreement with Jason F. Totah, then
the President and Chief  Executive  Officer of that  subsidiary  and the current
Chief Executive Officer of the Company. On April 1, 2004, we amended Mr. Totah's
employment  agreement to extend the term of his employment  until April 1, 2009.
Mr. Totah's  employment  agreement  provides him with the right to a base annual
salary  of no less than  $250,000,  subject  to  minimum  annual  cost-of-living
increases of five  percent,  subject to the approval of the Board of  Directors.
Mr. Totah is entitled to an annual  performance  bonus at the  discretion of the
Board of  Directors.  Mr. Totah is also entitled to certain  severance  benefits
upon his  death,  disability  or  termination  of  employment.  Pursuant  to the
employment  agreement,  Mr. Totah is also entitled to fringe benefits  including
participation  in pension,  profit sharing and bonus plans,  as applicable,  and
life  insurance,  hospitalization  major  medical,  paid  vacation  and  expense
reimbursement.

      On February 3, 2005,  we entered  into an  employment  agreement  with our
President,  Robert Arovas  providing for an employment term of five years ending
on October 14, 2009.  It provides Mr.  Arovas with the right to an annual salary
of $250,000 (which may be increased or decreased by our Board of Directors,  but
not to an amount less than  $250,000),  annual  bonuses at our  discretion,  and
options to  purchase  200,000  shares of our common  stock.  Mr.  Arovas is also
entitled to certain severance benefits upon his death, disability or termination
of employment. Pursuant to the employment agreement, Mr. Arovas is also entitled
to fringe benefits including  participation in pension, profit sharing and bonus
plans, as applicable, and life insurance,  hospitalization,  major medical, paid
vacation and expense reimbursement.

      On November 12, 2004, the Company entered into a letter agreement with its
then  Chief  Financial  Officer,  Bohn Crain (the  "Agreement").  The  Agreement
provided  for the  continuation  of his role as Chief  Financial  Officer of the
Company until  December 31, 2004 or such earlier date  requested by the Company.
It also  provided  for his  continuing  service as a  consultant  to the Company
during 2005. Under the terms of the Agreement, Mr. Crain was entitled to receive
his current base salary  through  December 31, 2004.  During 2005,  Mr. Crain is
entitled  to receive  monthly  payments  in the  amount of  $75,250  for each of
January and February and then monthly  payments of $30,100 for the  remainder of
the year.

Change in Control Arrangements

      Our Chairman and our  President are each employed  under  agreements  that
contain change in control  arrangements.  If employment of any of these officers
is terminated following a change in control (other than for cause), then we must
pay such  terminated  employee  a  termination  payment  equal to 2.99 times his
salary  and  bonus,  based upon the  average  annual  bonus paid to him prior to
termination of his employment.  In addition, all of their unvested stock options
shall  immediately  vest as of the termination date of their employment due to a
change in control. In each of their agreements, a change in control is generally
defined as the occurrence of any one of the following:


                                       47
<PAGE>

      o     any  "Person"  (as the term  "Person"  is used in Section  13(d) and
            Section 14(d) of the  Securities  Exchange Act of 1934),  except for
            the affected  employee,  becoming the beneficial owner,  directly or
            indirectly,  of  our  securities  representing  50% or  more  of the
            combined voting power of our then outstanding securities;

      o     a contested proxy  solicitation of our stockholders  that results in
            the  contesting  party  obtaining  the  ability  to vote  securities
            representing  50%  or  more  of the  combined  voting  power  of our
            then-outstanding securities;

      o     a sale,  exchange,  transfer or other  disposition of 50% or more in
            value of our assets to another Person or entity, except to an entity
            controlled directly or indirectly by us;

      o     a merger,  consolidation  or other  reorganization  involving  us in
            which we are not the surviving  entity and in which our stockholders
            prior  to the  transaction  continue  to own  less  than  50% of the
            outstanding  securities  of the acquirer  immediately  following the
            transaction,  or if a plan involving our  liquidation or dissolution
            other than pursuant to bankruptcy or insolvency laws is adopted; or

      o     during any period of twelve consecutive  months,  individuals who at
            the  beginning  of such period  constituted  the Board of  Directors
            cease for any reason to  constitute at least a majority of the Board
            of Directors unless the election,  or the nomination for election by
            our stockholders,  of each new director was approved by a vote of at
            least a  majority  of the  directors  then  still in office who were
            directors at the beginning of the period.

Under Mr. Arovas' employment agreement,  a change of control would also occur if
Dennis  L.  Pelino is no longer  the  Chairman  of the  Company  and his  direct
superior.

      Notwithstanding the foregoing, a "change of control" is not deemed to have
occurred (i) in the event of a sale, exchange,  transfer or other disposition of
substantially  all of  our  assets  to,  or a  merger,  consolidation  or  other
reorganization  involving,  any  entity  in which  the  affected  employee  has,
directly or indirectly,  at least a 25% equity or ownership interest; or (ii) in
a  transaction  otherwise  commonly  referred  to  as  a  "management  leveraged
buy-out."

      In  addition,  the  existing  stock  options  granted  to these  executive
officers  fully vest upon a "change  in  control,"  as defined  within our Stock
Incentive Plan.

Directors Compensation

      Non-employee  directors  are paid $3,750 per quarter,  provided  that each
member  attends 75% of all meetings.  In addition,  a quarterly fee of $3,750 is
paid to the chairman of the Audit and Compensation Committees.  Upon joining our
Board of Directors,  each of our  non-employee  directors  received an option to
purchase  50,000 shares of our common stock with an exercise  price equal to the
closing price of our common stock on the trading day prior to the date of grant.
One-half of these  options  vested on the first  anniversary  of the  director's
membership on the Board, and the balance vest on the second anniversary of Board
membership.  On  November 5, 2002 each  member of our Audit  Committee  received
options to purchase  15,000  shares of our common stock at an exercise  price of
$1.45 per share (of which 50% vested on November 5, 2003 and the balance  vested
on November 5, 2004). In addition,  on January 23, 2004, the chairmen of each of
our Audit  Committee and  Compensation  Committee  received  options to purchase
25,000  shares of our common  stock at an exercise  price of $3.05 per share (of
which 50% vested on January 23, 2005 and the balance  vest on January 23,  2006,
contingent upon continued Board service).


                                       48
<PAGE>

Stock Options and Warrants

      The following table sets forth information on option grants in fiscal 2004
to the Named Executive Officers.

                        Option Grants in Last Fiscal Year

<TABLE>
<CAPTION>
                                                                                              Potential Realizable
                                                                                                    Value at
                                                                                             Assumed Annual Rates of
                                                                                            Stock Price Appreciation
                                                                                                for Option Term
                                  % of Total                                                ------------------------
                                    Options
                                  Granted to
                      Number of    Employees                Market Price
                       Options        in         Exercise    on Date of     Expiration
      Name             Granted    Fiscal-Year     Price        Grant           Date             5%            10%
----------------     ----------   -----------    --------   ------------   -------------    ----------    ----------
<S>                    <C>           <C>          <C>         <C>          <C>              <C>           <C>
Dennis L. Pelino       550,000       15.32%       $ 3.05      $ 3.05        January 2014    $1,054,971    $2,673,503
Dennis L. Pelino       125,600        3.50          3.38        3.38       February 2014       266,983       676,588
Dennis L. Pelino       359,000       10.00          3.75        3.75          March 2014       846,649     2,145,576
Jason F. Totah          80,000        2.23          2.38        2.38        January 2014       119,742       303,449
Jason F. Totah          13,100        0.36          3.38        3.38       February 2014        27,846        70,568
Jason F. Totah         400,000       11.14          0.75        0.75        October 2014       188,668       478,123
Thomas L. Scully        25,000        0.70          2.38        2.38        January 2014        37,419        94,828
Thomas L. Scully         6,000        0.17          3.38        3.38       February 2014        12,754        32,321
Thomas L. Scully        25,000        0.70          2.18        2.18            May 2014        34,275        86,859
Bohn H. Crain          100,000        2.79          2.38        2.38        January 2014       149,677       379,311
Bohn H. Crain           23,300        0.65          3.38        3.38       February 2014        49,528       125,514
Bohn H. Crain          300,000        8.36          2.37        2.37            May 2014       447,144     1,133,151
Gary A. Koch           150,000        4.18          2.38        2.38        January 2014       224,515       568,966
</TABLE>

      The following  table sets forth  information  concerning  year-end  option
values  for  fiscal  2004 for the  Named  Executive  Officers.  The value of the
options was based on the closing  price of our common stock on December 31, 2004
of $1.20.

                          Fiscal Year End Option Values

<TABLE>
<CAPTION>
                        Number of Unexercised Options          Value of Unexercised In-The-Money
                              at Fiscal Year End                 Options at Fiscal Year End
                    -------------------------------------  -----------------------------------------
                      Shares
                    Acquired on    Value
                     Exercise     Realized    Exercisable  Unexercisable  Exercisable  Unexercisable
                    -----------  ----------   -----------  -------------  -----------  -------------
<S>                    <C>          <C>        <C>           <C>           <C>           <C>
Dennis L. Pelino          --            --     3,865,029     1,569,571     $ 684,000     $      --
Jason F. Totah            --            --       348,100       395,000        60,000       120,000
Thomas L. Scully       6,900        15,699        60,875        71,525            --            --
Bohn H. Crain             --            --     1,098,300            --            --            --
Gary A. Koch              --            --            --            --            --            --
</TABLE>

      Outstanding Stock Options

      The Amended and Restated  Stonepath Group, Inc. 2000 Stock Incentive Plan,
(the "Stock Incentive Plan") covers 15,000,000 shares of common stock. Under its
terms, employees, officers and directors of the Company and its subsidiaries are
currently  eligible to receive  non-qualified  stock options,  restricted  stock
awards and  incentive  stock  options  within the  meaning of Section 422 of the
Code. In addition, advisors and consultants who perform services for the Company
or its  subsidiaries are eligible to receive  non-qualified  stock options under
the Stock  Incentive Plan. The Stock Incentive Plan is administered by the Board
of Directors or a committee designated by the Board of Directors.

      All stock options  granted under the Stock  Incentive Plan are exercisable
for a period of up to ten  years  from the date of grant.  The  Company  may not
grant incentive stock options pursuant to the Stock Incentive Plan at


                                       49
<PAGE>

exercise prices which are less than the fair market value of the common stock on
the date of grant. The term of an incentive stock option granted under the Stock
Incentive  Plan  to a  stockholder  owning  more  than  10%  of the  issued  and
outstanding  common stock may not exceed five years and the exercise price of an
incentive stock option granted to such  stockholder may not be less than 110% of
the fair  market  value of the  common  stock on the date of  grant.  The  Stock
Incentive Plan contains  certain  limitations on the maximum number of shares of
the common stock that may be awarded in any calendar year to any one  individual
for the purposes of Section 162(m) of the Code.

      Generally,  most of the options under the Stock Incentive Plan are granted
subject  to  periodic  vesting  over a period of between  three and four  years,
contingent upon continued  employment with the Company. In addition to the stock
options covered by the Stock Incentive Plan, the Company has outstanding options
to purchase  615,200 shares of common stock. The following  schedule  identifies
the vesting schedule associated with all of the Company's outstanding options as
of February 28, 2005.

                                      Plan        Non-Plan          Total
                                   ----------    ----------      ----------
         Vested as of 12/31/04      7,402,194       615,200       8,017,394
         To vest in 2005            1,736,692                     1,736,692
         To vest in 2006            1,053,843                     1,053,843
         To vest in 2007              380,837                       380,837
         To vest in 2008              150,229                       150,229
         To vest in 2009               33,656                        33,656
                                   ----------    ----------      ----------
                                   10,757,451       615,200      11,372,651
                                   ==========    ==========      ==========

At February 28, 2005, these options were  outstanding at the following  exercise
prices:

                     Number of Options
          ----------------------------------------
             Plan         Non-Plan         Total       Range of Exercise Prices
          ----------     ----------     ----------     ------------------------
           3,473,334        422,000      3,895,334          $0.50 to $1.00
           4,169,117              0      4,169,117          $1.01 to $2.00
           3,115,000        120,000      3,235,000          $2.01 to $4.00
                  --         73,200         73,200         $6.38 to $17.50
          ----------     ----------     ----------
          10,757,451        615,200     11,372,651
          ==========     ==========     ==========

      Outstanding Warrants

      As of February 28, 2005,  warrants to purchase  1,957,784 shares of common
stock were  outstanding.  Most of these warrants were granted in connection with
investment-related  transactions.  With the  exception  of  warrants to purchase
50,000  shares at $1.23 per share,  warrants to purchase  99,000 shares at $1.49
per share and warrants to purchase 600,000 shares at $5.00 per share, all of the
remaining  warrants  are  subject  to an  exercise  price of $1.00 per share and
expire in July 2005.

         REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
               OF THE BOARD OF DIRECTORS OF STONEPATH GROUP, INC.

      The  Compensation  Committee of the Board of Directors (the  "Compensation
Committee") consists of three (3) directors who are not employees of the Company
and who are  considered  "independent"  under  the rules of The  American  Stock
Exchange.

Role of the Committee

      The Compensation Committee establishes, oversees and directs the Company's
executive compensation programs and policies and administers the Company's stock
option and other long-term incentive plans. The Compensation  Committee seeks to
align executive  compensation with Company  objectives and strategies,  business
financial performance and enhanced stockholder value.


                                       50
<PAGE>

      The Compensation  Committee  regularly reviews and approves  generally all
compensation  and fringe  benefit  programs of the Company and also  reviews and
determines the actual compensation of the Company's executive officers,  as well
as all stock option grants and cash incentive  awards to all key employees.  The
Compensation  Committee  reviews and  administers  the Company's Stock Incentive
Plan and the Company's 2003 Employee Stock Purchase Plan.

      The  Compensation   Committee's  objectives  include  (i)  attracting  and
retaining  exceptional  individuals as executive officers and (ii) providing key
executives with motivation to perform to the full extent of their abilities,  to
maximize  Company  performance  and  deliver  enhanced  value  to the  Company's
stockholders.  The  Compensation  Committee  believes it is important to place a
greater percentage of executive officers' total compensation, principally in the
form of  equity,  at risk  through  the grant of stock  options  whose  value is
derived from the  performance  of the  business  and  increase in the  Company's
common  stock  price.  Executive  compensation  consists  primarily of an annual
salary,  annual bonuses  linked to the  performance of the Company and long-term
equity-based compensation.

Compensation

      Salary payments in 2004 were made to compensate the ongoing performance of
the  Company's  executive  officers.  Bonuses  in 2004  were  made to  recognize
contributions to the Company's business strategy.  The Compensation  Committee's
specific decisions  concerning 2004 compensation for each executive officer were
made in light of each officer's  level of  responsibility  and the  Compensation
Committee's   judgment  with  respect  to  whether  that   executive   officer's
compensation  provides appropriate  recognition for performance and an incentive
for future performance.

      The  Compensation  Committee  took a variety  of  actions  during  2004 to
address  the need to  recruit  and  retain  executives  with  relevant  industry
experience.

      The actions taken by the Compensation  Committee during 2004 were designed
to  reward  the  Company's   senior   management  group  for  their  efforts  in
successfully  implementing the Company's business plan and to provide additional
incentives  to  continue  their  efforts  to achieve  significant  growth in the
Company's business and financial performance.

      In determining  the  compensation  to be provided to the Company's  senior
management group during 2004, the  Compensation  Committee took into account the
following matters:

      o     The continued growth in the Company's revenues;

      o     Overall    responsibilities    and   the    importance    of   these
            responsibilities to the Company's success;

      o     Experience and ability; and

      o     Past short-term and long-term job performance.

      During 2004, the Compensation Committee and the Board of Directors changed
the basis for the  compensation  provided  to Dennis L.  Pelino,  the  Company's
Chairman  and  former  Chief  Executive  Officer.  The  Compensation   Committee
abandoned the objective of continuing to provide Mr. Pelino with the opportunity
to acquire up to ten percent  (10%) of the amount of the  Company's  outstanding
common  stock  on  a  fully  diluted  basis.  After  reviewing  the  substantial
contributions  made by Mr. Pelino to the  Company's  growth and the benefits the
Compensation Committee believed could result from his future contributions,  the
Compensation  Committee  extended the term of his employment period through June
2009,  the date the earnout  period from the Company's  most recent  acquisition
expires, and increased his salary from its present level of $360,000 per year to
$500,000 per year.  This  increase was provided to Mr.  Pelino in the form of an
award of options to purchase  359,000  shares of common stock that vest over the
term of his employment.  The Compensation  Committee separately  determined that
Mr.  Pelino was  entitled to a bonus for 2003 based upon his  performance,  peer
group  compensation   levels,  and  the  advice  of  an  independent   financial
consultant.  This bonus was  provided to Mr.  Pelino by awarding  him options to
purchase an  additional  675,600  shares of common stock in lieu of a $1,080,000
cash bonus the Compensation  Committee would have otherwise provided to him. The
decision to provide Mr. Pelino with options to purchase  common stock instead of
the cash  payment  of his  performance  bonus for 2003 and the  increase  in his
annual  salary was made after  consultation  with Mr. Pelino and in an effort to
accommodate his desire to conserve the cash resources of the Company to fund its
continued growth.


                                       51
<PAGE>

      In October  2004,  Mr.  Pelino  relinquished  the role of Chief  Executive
Officer  and Jason F. Totah was  appointed  to that  office.  While Mr.  Totah's
compensation did not change with his appointment to that office,  he received an
award of  options to  purchase  400,000  shares of common  stock in light of his
substantially  increased  responsibilities.  Earlier in the year,  Mr. Totah was
awarded  options to purchase 93,100 shares of common stock in recognition of his
contributions   as  the  Chief   Executive   Officer  of   Stonepath   Logistics
International Services, Inc.

      The  Compensation  Committee  believes  that  the  foregoing  compensation
actions have helped  develop a senior  management  group  dedicated to achieving
significant   improvement  in  both  the  short-term  and  long-term   financial
performance of the Company.

                                        COMPENSATION COMMITTEE OF THE BOARD
                                        OF DIRECTORS
                                        Aloysius T. Lawn, IV, Chairman
                                        David R. Jones
                                        John H. Springer


                                       52
<PAGE>

Performance Presentation

      The following graph shows the total stockholder return of an investment of
$100 in  cash on  December  31,  1999  for the  Company's  common  stock  and an
investment of $100 in cash on that day for (i) the NASDAQ Market Index, (ii) the
AMEX Market Index and (iii) a peer group consisting of C.H. Robinson  Worldwide,
Inc.,  EGL, Inc.,  Expeditors  International  of Washington,  Inc.,  Forward Air
Corporation,  and UTi Worldwide  Inc.  weighted by their market  capitalization.
Historic stock  performance is not necessarily  indicative of future stock price
performance.  All values assume reinvestment of the full amount of any dividends
and are calculated daily.

                        COMPARE CUMULATIVE TOTAL RETURN
                          AMONG STONEPATH GROUP INC.,
                     AMEX MARKET INDEX AND PEER GROUP INDEX

                              [LINE GRAPH OMITTED]

                          1999     2000      2001       2002      2003      2004
Stonepath Group         100.00     4.55     16.82      13.18     20.55     10.91
Peer Group Index        100.00   119.60    113.21     121.46    148.47    227.76
AMEX Market Index       100.00    98.77     94.22      90.46    123.12    140.99
NASDAQ Market Index     100.00    62.85     50.10      34.95     52.55     56.97


                                       53
<PAGE>

Item 12. Security Ownership of Certain Beneficial Owners and Management and
         Related Stockholder Matters

      The following tables set forth  information with respect to the beneficial
ownership of common stock owned, as of February 28, 2005, by:

      o     the  holders  of more than 5% of any class of the  Company's  voting
            securities;

      o     each of the directors;

      o     each of the executive officers; and

      o     all directors and executives officers of the Company as a group.

      As of February 28, 2005, an aggregate of 43,591,952 shares of common stock
were issued and outstanding. For purposes of computing the percentages under the
following  tables, it is assumed that all options and warrants to acquire common
stock  which  have been  issued to the  directors,  executive  officers  and the
holders  of more than 5% of common  stock  and are fully  vested or will  become
fully vested within 60 days from February 28, 2005 have been  exercised by these
individuals  and the  appropriate  number of shares  of common  stock  have been
issued to these individuals.

                                  COMMON STOCK
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
                                                                     Shares Owned
                                                                   Beneficially and    Percentage
Name of Beneficial Owner                        Position             of Record(1)       of Class
<S>                                             <C>                   <C>                 <C>
Gruber and McBaine Capital Management, LLC.
50 Osgood Place, Penthouse,
San Francisco, CA 94133(2)                      Beneficial Owner      2,478,200           5.68
Dennis L. Pelino(3)                             Director              4,630,301           9.69
Jason F. Totah(3)                               Officer                 415,353           *
Robert Arovas(3)                                Officer                  66,000           *
Thomas L. Scully(3)                             Officer                  68,775           *
Bohn H. Crain(3)                                Former Officer        1,195,797           2.66
David R. Jones(8)                               Director                167,500           *
Aloysius T. Lawn, IV(8)                         Director                 77,500           *
Robert McCord(10)                               Director                100,000           *
J. Douglass Coates(11)                          Director                 50,000           *
John H. Springer(12)                            Director                 40,000           *

All directors and executive officers as a group
  (10 people)                                                         6,881,226           13.72
</TABLE>

----------
(*)   Less than one percent.

(1)   The  securities  "beneficially  owned" by an individual  are determined in
      accordance with the definition of "beneficial  ownership" set forth in the
      regulations of the SEC under the Exchange Act. They may include securities
      owned by or for,  among  others,  the spouse  and/or minor  children of an
      individual  and  any  other  relative  who  has  the  same  home  as  such
      individual, as well as, other securities as to which the individual has or
      shares voting or investment power. The number of shares beneficially owned
      by the  individual  may include  options to purchase  shares of our common
      stock  exercisable  as of,  or  within  60  days  of  February  28,  2005.
      Beneficial ownership may be disclaimed as to certain of the securities.

(2)   Based upon  Schedule 13G filed on February 14, 2005 by a group  consisting
      of Gruber and McBaine Capital Management, LLC, Jon D. Gruber, J. Patterson
      McBaine,  Eric B. Swergold,  and J. Lynne Rose. Gruber and McBaine Capital
      Management,  LLC,  Eric B.  Swergold,  and J. Lynne Rose  reported  shared
      voting and dispositive  power of 2,007,750  shares.  Jon D.Gruber reported
      sole voting and dispositive  power of 219,100 shares and shared voting and
      dispositive  power of 2,007,750 shares. J. Patterson McBaine reported sole
      voting  and  dispositive  power of 251,350  shares  and shared  voting and
      dispositive power of 2,007,750 shares.

(3)   Includes 431,222 shares of common stock held by Dennis Pelino and Meredith
      L. Pelino  Declaration of Trust,  of which Dennis L. Pelino and his spouse
      are trustees and beneficiaries,  though beneficial  ownership of which may
      be  disclaimed.  Also includes  4,199,079  shares of common stock issuable
      upon exercise of vested  options  presently  exercisable  and  exercisable
      within 60 days of February 28, 2005. Does not include  1,210,521 shares of
      common stock issuable  pursuant to options not presently  exercisable  and
      not exercisable within 60 days of February 28, 2005.


                                       54
<PAGE>

(4)   Includes  55,000 shares of common stock held by Mr.  Totah.  Also includes
      360,353  shares of common stock  issuable upon exercise of vested  options
      presently exercisable and exercisable within 60 days of February 28, 2005.
      Does not  include  369,667  shares of common  stock  issuable  pursuant to
      options not presently  exercisable and not  exercisable  within 60 days of
      February 28, 2005.

(5)   Includes  66,000  shares of common  stock  issuable  upon the  exercise of
      vested options presently  exercisable.  Does not include 134,000 shares of
      common stock issuable  pursuant to options not presently  exercisable  and
      not exercisable within 60 days of February 28, 2005.

(6)   Includes  7,779 shares of common stock held by Mr.  Scully.  Also includes
      60,996 shares of common stock  issuable  upon  exercise of vested  options
      presently exercisable and exercisable within 60 days of February 28, 2005.
      Does not  include  70,834  shares of common  stock  issuable  pursuant  to
      options not presently  exercisable and not  exercisable  within 60 days of
      February 28, 2005.

(7)   Includes  979,497 shares of common stock held by Mr. Crain.  Also includes
      1,098,300  shares of common  stock  issuable  upon the  exercise of vested
      options presently exercisable.

(8)   Includes  90,000 shares of common stock held by Mr.  Jones.  Also includes
      77,500 shares of common stock issuable upon the exercise of vested options
      presently exercisable and exercisable within 60 days of February 28, 2005.
      Does not  include  42,500  shares of common  stock  issuable  pursuant  to
      options not presently  exercisable and not  exercisable  within 60 days of
      February 28, 2005.

(9)   Includes  77,500  shares of common  stock  issuable  upon the  exercise of
      vested options  presently  exercisable.  Does not include 42,500 shares of
      common stock issuable  pursuant to options not presently  exercisable  and
      not exercisable within 60 days of February 28, 2005.

(10)  Includes  100,000  shares of common stock issuable upon exercise of vested
      options  presently  exercisable.  Does not include 25,000 shares of common
      stock  issuable  pursuant to options  not  presently  exercisable  and not
      exercisable within 60 days of February 28, 2005.

(11)  Includes  50,000  shares of common stock  issuable upon exercise of vested
      options  presently  exercisable.  Does not include 25,000 shares of common
      stock  issuable  pursuant to options  not  presently  exercisable  and not
      exercisable within 60 days of February 28, 2005.

(12)  Includes 15,000 shares of common stock held by Mr. Springer. Also includes
      25,000 shares of common stock issuable upon exercise of options  presently
      exercisable.  Does not  include  50,000  shares of common  stock  issuable
      pursuant to options not presently  exercisable and not exercisable  within
      60 days of February 28, 2005.

Securities Authorized For Issuance Under Equity Compensation Plans

      For information on the securities authorized for issuance under our equity
compensation plans, see "Equity Compensation Plan Information" in Item 5 of this
Annual Report on Form 10-K.

Item 13. Certain Relationships and Related Transactions

Loans to Officers

      In connection  with our  acquisition of SLIS on April 4, 2002, we advanced
the sum of $350,000 to Jason F. Totah.  Mr.  Totah was a former  shareholder  of
SLIS and is now the Chief Executive  Officer of the Company.  The advance to Mr.
Totah is to be repaid through 2006 by offset  against the earn-out  amounts that
are otherwise due to Mr. Totah under the Stock Purchase  Agreement.  The balance
of Mr. Totah's advance was $87,500 at December 31, 2004.

Amendment and Restatement of Employment Arrangements with Executive Officers

      On March 11, 2004, we entered into an amended  employment  agreement  with
our former Chief Executive Officer, Dennis L. Pelino. This agreement amended our
prior  agreements  with Mr. Pelino dated  February 22, 2002 and June 21, 2001 to
extend the term of his  employment  through June 2009, and to award Mr. Pelino a
salary  increase in the form of additional  options that vest over the period of
the  employment  agreement.  On October  18,  2001,  we amended the terms of the
options granted to Mr. Pelino under his original employment agreement dated June
21, 2001. We further amended the terms of Mr. Pelino's  options on July 3, 2002,
when we accelerated  the vesting of his original  options to purchase  1,800,000
shares of our common  stock and granted  him  options to purchase an  additional
1,900,000 shares of our common stock.

      On April 1, 2004, we amended the  employment  agreement of Jason F. Totah,
our Chief Executive Officer, to extend the term of his employment until April 1,
2009.

      On November 12, 2004,  we entered  into a letter  agreement  with our then
Chief Financial Officer,  Bohn Crain (the  "Agreement").  The Agreement provided
for the continuation of his role as Chief Financial Officer of the Company until
December  31, 2004 or such  earlier  date as the Company  may  request.  It also
provided for his continuing  service as a consultant to the Company during 2005.
Under the terms of the Agreement,  Mr. Crain was entitled to receive his current
base salary  through  December 31, 2004.  During 2005,  Mr. Crain is entitled to
receive  monthly  payments  in the  amount of $75,250  for each of  January  and
February and then monthly payments of $30,100 for the remainder of the year.


                                       55
<PAGE>

Item 14. Principal Accountant Fees and Services

      During  the year ended  December  31,  2003,  professional  services  were
provided  to the  Company by KPMG LLP,  our  former  independent  auditors.  The
following table presents fees for professional services rendered by KPMG LLP for
the  audit of the  Company's  annual  financial  statements  for the year  ended
December  31,  2003,  and fees  billed for other  services  rendered by KPMG LLP
during 2003.

                                             2003
                                          ---------
              Audit fees(1)               $ 656,883
              Audit related fees(2)         125,000
              Tax fees(3)                    73,900
              All other fees                     --
                                          ---------
              Total                       $ 855,783
                                          =========

(1)   Represents the aggregate fees billed for the audit of the Company's annual
      financial statements,  the reviews of the financial statements included in
      the Company's  quarterly  reports on Form 10-Q,  and services  rendered in
      connection with SEC registration statements and filings, all in 2003.

(2)   Represents fees billed for acquisition related services.

(3)   Represents fees billed for tax consulting  services,  primarily related to
      international acquisitions.

      For the year ended December 31, 2004,  professional services were provided
to the Company by Grant  Thornton  LLP, our current  independent  auditors.  The
following  table  presents  fees for  professional  services  rendered  by Grant
Thornton LLP for the audit of the Company's annual financial  statements for the
year ended December 31, 2004.

                                               2004
                                            ---------
              Audit fees(1)                 $ 630,862
              Audit related fees                   --
              Tax fees                             --
              All other fees                       --
                                            ---------
              Total                         $ 630,862
                                            =========

(1)   Audit fees represent aggregate fees billed for the audit for the Company's
      annual financial  statements and quarterly reports on Form 10-Q and 10-Q/A
      for the second and third quarters of 2004.

      Our Audit Committee approves the engagement of our independent auditors to
render audit and non-audit services before they are engaged. All of the services
for which fees are listed above were pre-approved by our Audit Committee.


                                       56
<PAGE>

                                     PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)  Documents filed as part of this Report:

     1.  Consolidated Financial Statements:

         Report of Independent Registered Public Accounting Firm              63

         Report of Independent Registered Public Accounting Firm              66

         Report of Independent Registered Public Accounting Firm              67

         Consolidated Balance Sheets as of December 31, 2004 and 2003         68

         Consolidated Statements of Operations for the Years Ended
         December 31, 2004, 2003 and 2002                                     69

         Consolidated Statements of Stockholders' Equity and Comprehensive
         Income (Loss) for the Years Ended December 31, 2004, 2003 and 2002   70

         Consolidated Statements of Cash Flows for the Years Ended
         December 31, 2004, 2003 and 2002                                     72

         Notes to Consolidated Financial Statements                           73

     2.  Financial Statement Schedule:

         Report of Independent Registered Public Accounting Firm              99

         Schedule II - Valuation and Qualifying Accounts                     100


                                       57
<PAGE>

(b)  Exhibit Listing:


Exhibit     Document
Number      --------
------

2.1         Stock Purchase  Agreement by and among  Stonepath  Logistics,  Inc.,
            Stonepath Group, Inc. and M.G.R., Inc, Distribution Services,  Inc.,
            Contract Air, Inc., the Shareholders of M.G.R.,  Inc.,  Distribution
            Services,   Inc.,   Contract   Air,   Inc.  and  Gary  A.  Koch  (as
            shareholders'  agent)  (incorporated  by reference to Exhibit 2.5 to
            the Current Report on Form 8-K filed on October 19, 2001)

2.2         First  Amendment to Stock Purchase  Agreement by and among Stonepath
            Logistics, Inc., Stonepath Group, Inc. and M.G.R., Inc, Distribution
            Services,  Inc.,  Contract Air,  Inc., the  Shareholders  of M.G.R.,
            Inc.,  Distribution  Services,  Inc., Contract Air, Inc. and Gary A.
            Koch (as shareholders'  agent) (incorporated by reference to Exhibit
            2.6 to the Current Report on Form 8-K filed on October 19, 2001)

2.3         Stock Purchase  Agreement dated March 5, 2002 by and among Stonepath
            Group, Inc., Stonepath Logistics  International  Services,  Inc. and
            Global Transportation  Services, Inc. and the Shareholders of Global
            Transportation  Services,  Inc. and Jason F. Totah (as shareholders'
            agent)  (incorporated  by  reference  to Exhibit 2.4 to the Form 8-K
            Current Report on Form 8-K filed on April 19, 2002)

2.4         Stock Purchase  Agreement dated April 9, 2002 by and among Stonepath
            Logistics Domestic Services,  Inc. and United American  Acquisitions
            and Management,  Inc., d/b/a United American Freight Services,  Inc.
            and Douglas Burke  (incorporated  by reference to Exhibit 2.5 to the
            Form 8-K Current Report filed on June 12, 2002)

2.5         Amendment to Stock Purchase Agreement dated May 30, 2002 by an among
            Stonepath  Logistics  Domestic  Services,  Inc., and United American
            Acquisitions and Management,  Inc.,  d/b/a United Freight  Services,
            Inc. and Douglas Burke  (incorporated by reference to Exhibit 2.6 to
            the Form 8-K Current Report filed on June 12, 2002)

2.6         Asset Purchase Agreement by and among Stonepath Logistics Government
            Services,  Inc.  (f/k/a  "Transport  Specialists,   Inc."),  Regroup
            Express  L.L.C.  and Jed J.  Shapiro and  Charles R. Cain,  the sole
            members of Regroup Express LLC, dated June 4, 2003  (incorporated by
            reference  to Exhibit  2.6 to the Form 8-K Current  Report  filed on
            July 7, 2003)

2.7         Asset Purchase Agreement by and among Stonepath Holdings (Hong Kong)
            Limited,  G Link  Express  Logistics  (Singapore)  Pte.  Ltd, G Link
            Express Pte. Ltd and the  shareholders  of G Link Express Pte.  Ltd,
            dated  August 8, 2003  (incorporated  by reference to Exhibit 2.7 to
            the Form 8-K Current Report filed on August 13, 2003)

2.8         Asset Purchase Agreement by and among Stonepath Holdings (Hong Kong)
            Limited,  G Link Express (Cambodia) Pte. Ltd and the shareholders of
            G  Link  Express   (Cambodia)   Pte.  Ltd.   dated  August  8,  2003
            (incorporated  by  reference  to Exhibit 2.8 to the Form 8-K Current
            Report filed on August 13, 2003)

2.9         Amended and Restated  Contract for the Sale of Assets by and between
            Stonepath  Holdings (Hong Kong) Limited and Andy Tsai dated November
            10,  2003  (incorporated  by  reference  to Exhibit  2.9 to Form 8-K
            Current Report filed on February 24, 2004)

2.10        Letter  Agreement  dated  February 9, 2004  amending the Amended and
            Restated  Contract  for the Sale of Assets by and between  Stonepath
            Holdings  (Hong Kong) Limited and Andy Tsai dated  November 10, 2003
            (incorporated  by  reference  to  Exhibit  2.10 to Form 8-K  Current
            Report filed on February 24, 2004)


                                       58
<PAGE>

3.1         Amended and  Restated  Certificate  of  Incorporation  of  Stonepath
            Group,  Inc.  (incorporated  by  reference  to  Exhibit  3.1  to the
            Registration Statement on Form S-1 (Registration No. 333-88629)

3.2         Certificate  of Amendment to the  Certificate  of  Incorporation  of
            Stonepath Group,  Inc.  (incorporated by reference to Exhibit 3.2 to
            the Form 10-K Annual Report filed on April 2, 2001)

3.3         Amended and Restated Bylaws of Stonepath Group,  Inc.  (incorporated
            by reference to Exhibit 3.3 to the Form 10-K Annual  Report filed on
            April 2, 2001)

4.1         Specimen  Common  Stock   Certificate  for  Stonepath  Group,   Inc.
            (incorporated by reference to Exhibit 4.25 to Amendment No. 1 to the
            Registration  Statement  on Form S-3  (Registration  No.  333-91240)
            filed on July 31, 2002)

4.2         Form of Common Stock Purchase  Warrant issued in connection with the
            Series C Convertible  Preferred Stock  (incorporated by reference to
            Exhibit 4.2 to Form 8-K Current Report filed on March 17, 2000)

4.3         Form of  Amendment  to Common  Stock  Purchase  Warrant  issued upon
            conversion of the Series C Convertible  Preferred Stock effective as
            of July 19, 2002  (incorporated  by reference to Exhibit 4.30 to the
            Form 10-Q Quarterly Report filed on November 14, 2002)

4.4         Form of Contingent  Warrant  issued upon  conversion of the Series C
            Convertible   Preferred   Stock   effective  as  of  July  19,  2002
            (incorporated  by  reference  to  Exhibit  4.29  to  the  Form  10-Q
            Quarterly Report filed on November 14, 2002)

4.5         Form of  Exchange  Agreement  by and between the Company and certain
            holders  of the  Company's  Series  C  Convertible  Preferred  Stock
            (incorporated by reference to Exhibit 4.26 to Amendment No. 1 to the
            Registration  Statement  on Form S-3  (Registration  No.  333-91240)
            filed on July 31, 2002)

4.6*        Stonepath Group, Inc. Amended and Restated 2000 Stock Incentive Plan
            (incorporated  by  reference  to Exhibit A to the Schedule 14A Proxy
            Statement filed on April 8, 2004)

4.7*        Form of Stock  Option  Agreement  under  the Plan  (incorporated  by
            reference to Exhibit 4.2 to the  Registration  Statement on Form S-8
            (Registration No. 333-74918) filed on December 11, 2001)

4.8*        Form of  Non-Plan  Option to  Purchase  Common  Stock of the Company
            (incorporated  by  reference  to  Exhibit  4.3 to  the  Registration
            Statement on Form S-8 (Registration No. 333-74918) filed on December
            11, 2001)

4.9         Form of  Subscription  Agreement  by and  between  the  Company  and
            certain purchasers of common shares (including exhibit providing for
            registration  rights)  (incorporated by reference to Exhibit 4.19 to
            the Form 10-K Annual Report filed on March 31, 2003)

4.10        Placement  Agency  Agreement   between  the  Company  and  Stonegate
            Securities,  Inc. dated October 16, 2002  (incorporated by reference
            to Exhibit  4.20 to the Form 10-K Annual  Report  filed on March 31,
            2003)

4.11*       2003  Employee  Stock  Purchase Plan  (incorporated  by reference to
            Exhibit 99.1 to the Registration Statement on Form S-8 (Registration
            No. 333-109249) filed on September 29, 2003)

4.12        Form of Initial Warrants issued to Stonegate Securities,  Inc. as of
            October 16, 2002  (incorporated  by reference to Exhibit 4.24 to the
            Registration  Statement on Form S-3  (Registration  No. 333- 104228)
            filed on April 1, 2003)


                                       59
<PAGE>

4.13        Form of  Representative's  Warrants issued to Stonegate  Securities,
            Inc. as of March 6, 2003  (incorporated by reference to Exhibit 4.25
            to the  Registration  Statement on Form S-3  (Registration  No. 333-
            104228) filed on April 1, 2003)

4.14        Form of  subscription  agreement  by and  between  the  Company  and
            certain holders of common stock (including the exhibit providing for
            registration  rights)  (incorporated by reference to Exhibit 4.27 to
            the  Registration  Statement on Form S-3  (Registration  No. 110231)
            filed on November 4, 2003)

4.15        Amendment  to  Placement  Agency  Agreement  between the Company and
            Stonegate Securities,  Inc. dated as of July 29, 2003 (including the
            exhibit   providing  for  registration   rights)   (incorporated  by
            reference to Exhibit 4.28 to the Registration  Statement on Form S-3
            (Registration No. 110231) filed on November 4, 2003)

10.1*       Amended and Restated  Employment  Agreement  between the Company and
            Dennis L. Pelino dated February 22, 2002  (incorporated by reference
            to Exhibit  10.2 to the Form 10-K Annual  Report  filed on March 29,
            2002)

10.2*       Modification to Employment Agreement of Dennis L. Pelino dated March
            11, 2004  (incorporated  by reference  to Exhibit  10.14 of the Form
            10-K Annual Report filed on March 15, 2004)

10.3*       Executive   Employment   Agreement  between  Global   Transportation
            Services,  Inc. and Jason F. Totah dated April 4, 2002 (incorporated
            by reference to Exhibit 10.7 to the Form 10-K Annual Report filed on
            March 31, 2003)

10.4*       Amendment to Executive  Employment Agreement of Jason F. Totah dated
            April 1, 2004  (incorporated  by reference to Exhibit  10.14 to Form
            10-Q Quarterly Report filed on May 10, 2004)

10.5*       Employment Agreement dated February 2, 2005 by and between Stonepath
            Group, Inc. and Robert Arovas  (incorporated by reference to Exhibit
            10.22 to Form 8-K/A Current Report filed on February 7, 2005)

10.6*       Amended and Restated  Employment  Agreement  between the Company and
            Bohn H. Crain dated February 24, 2003  (incorporated by reference to
            Exhibit 10.4 to the Form 10-K Annual Report filed on March 31, 2003)

10.7*       Letter  Agreement  dated  November  12, 2004 between the Company and
            Bohn H. Crain  (incorporated  by reference  to Exhibit  10.18 to the
            Form 8-K Current Report filed on November 18, 2004)

10.8*       Stonepath  Group,  Inc. 401(k) Profit Sharing Plan  (incorporated by
            reference to Exhibit 10.12 to the Registration Statement on Form S-8
            (Registration No. 333- 103439) filed on February 25, 2003

10.9        Loan and Security Agreement dated as of May 15, 2002 between LaSalle
            Business Credit, Inc. and Stonepath Group, Inc., Contract Air, Inc.,
            Distribution Services,  Inc., Global Transportation  Services, Inc.,
            Global Container Line, Inc.,  M.G.R.,  Inc., d/b/a Air Plus Limited,
            Net  Value,  Inc.,  Stonepath  Logistics  Domestic  Services,  Inc.,
            Stonepath  Logistics  International  Services,  Inc.  and  Stonepath
            Operations,  Inc.  (incorporated by reference to Exhibit 10.2 to the
            Form 8-K Current Report filed on May 20, 2002)


                                       60
<PAGE>

10.10       Amendment to Loan and Security  Agreement  dated May 15, 2003 by and
            among LaSalle Business Credit,  LLC, Stonepath Group, Inc., Contract
            Air, Inc., Distribution Services, Inc., Global Container Line, Inc.,
            M.G.R.,   Inc.,  Net  Value,  Inc.,   Stonepath  Logistics  Domestic
            Services,  Inc., Stonepath Logistics International  Services,  Inc.,
            Stonepath  Operations  Inc., and United  American  Acquisitions  and
            Management,  Inc., and Transport Specialists,  Inc. (incorporated by
            reference to Exhibit  10.10 to the Form 10-K Annual  Report filed on
            March 15, 2004)

10.11       Second  Amendment to Loan and Security  Agreement dated September 5,
            2003 by and among LaSalle  Business  Credit,  LLC,  Stonepath Group,
            Inc.,  Contract  Air,  Inc.,  Distribution  Services,  Inc.,  Global
            Container  Line,  Inc.,  M.G.R.,  Inc., Net Value,  Inc.,  Stonepath
            Logistics Domestic Services,  Inc.,  Stonepath Logistics  Government
            Services,  Inc., Stonepath Logistics International  Services,  Inc.,
            Stonepath  Logistics   International   Services,   Inc.,   Stonepath
            Operations  Inc., and United American  Acquisitions  and Management,
            Inc.  (incorporated  by reference  to Exhibit  10.10 to the Form 8-K
            Current Report filed on September 9, 2003)

10.12       Third  Amendment to Loan and Security  Agreement  dated December 23,
            2003 by and among LaSalle  Business  Credit,  LLC,  Stonepath Group,
            Inc.,  Contract  Air,  Inc.,  Distribution  Services,  Inc.,  Global
            Container  Line,  Inc.,  M.G.R.,  Inc., Net Value,  Inc.,  Stonepath
            Logistics Domestic Services,  Inc.,  Stonepath Logistics  Government
            Services,  Inc., Stonepath Logistics International  Services,  Inc.,
            Stonepath  Logistics   International   Services,   Inc.,   Stonepath
            Operations  Inc., and United American  Acquisitions  and Management,
            Inc.  (incorporated  by reference to Exhibit  10.12 to the Form 10-K
            Annual Report filed on March 15, 2004)

10.13       Fourth  Amendment  and  Consent   Agreement  to  Loan  and  Security
            Agreement  dated  January  30,  2004 by and among  LaSalle  Business
            Credit, LLC, Stonepath Group, Inc., Contract Air, Inc., Distribution
            Services,  Inc.,  Global  Container Line,  Inc.,  M.G.R.,  Inc., Net
            Value, Inc., Stonepath Logistics Domestic Services,  Inc., Stonepath
            Logistics   Government    Services,    Inc.,   Stonepath   Logistics
            International  Services,  Inc.,  Stonepath  Logistics  International
            Services,  Inc.,  Stonepath  Operations  Inc.,  and United  American
            Acquisitions  and  Management,  Inc.  (incorporated  by reference to
            Exhibit  10.13 to the Form  10-K  Annual  Report  filed on March 15,
            2004)

10.14       Fifth  Amendment  and Joinder to Loan and Security  Agreement  dated
            April 6, 2004 by and among LaSalle Business Credit,  LLC,  Stonepath
            Group, Inc., Contract Air, Inc., Distribution Services, Inc., Global
            Container  Line,  Inc.,  M.G.R.,  Inc., Net Value,  Inc.,  Stonepath
            Logistics Domestic Services,  Inc.,  Stonepath Logistics  Government
            Services,  Inc., Stonepath Logistics International  Services,  Inc.,
            Stonepath  Logistics   International   Services,   Inc.,   Stonepath
            Operations  Inc., and United American  Acquisitions  and Management,
            Inc. D/B/A United  American  Freight  Services,  Inc., and Stonepath
            Offshore Holdings,  Inc. (incorporated by reference to Exhibit 10.16
            to Form 10-Q Quarterly Report filed on August 9, 2004)

10.15       Sixth  Amendment to Loan and Security  Agreement dated July 28, 2004
            by and among LaSalle Business Credit,  LLC,  Stonepath Group,  Inc.,
            Contract Air, Inc.,  Distribution  Services,  Inc., Global Container
            Line,  Inc.,  M.G.R.,  Inc., Net Value,  Inc.,  Stonepath  Logistics
            Domestic Services,  Inc.,  Stonepath Logistics  Government Services,
            Inc., Stonepath Logistics  International  Services,  Inc., Stonepath
            Logistics International  Services,  Inc., Stonepath Operations Inc.,
            and United American  Acquisitions and Management,  Inc. D/B/A United
            American Freight Services,  Inc., and Stonepath  Offshore  Holdings,
            Inc.  (incorporated  by  reference  to  Exhibit  10.17 to Form  10-Q
            Quarterly Report filed on August 9, 2004)


                                       61
<PAGE>

10.16       Seventh Amendment to Loan and Security  Agreement dated November 17,
            2004 by and among LaSalle  Business  Credit,  LLC,  Stonepath Group,
            Inc.,  Contract  Air,  Inc.,  Distribution  Services,  Inc.,  Global
            Container  Line,  Inc.,  M.G.R.,  Inc., Net Value,  Inc.,  Stonepath
            Logistics Domestic Services,  Inc.,  Stonepath Logistics  Government
            Services,  Inc., Stonepath Logistics International  Services,  Inc.,
            Stonepath  Logistics   International   Services,   Inc.,   Stonepath
            Operations  Inc., and United American  Acquisitions  and Management,
            Inc. D/B/A United  American  Freight  Services,  Inc., and Stonepath
            Offshore Holdings,  Inc. (incorporated by reference to Exhibit 10.19
            to Form 8-K Current Report filed on November 18, 2004).

10.17       Term  Credit  Agreement  Dated  October  27,  2004  By  And  Between
            Stonepath  Holdings,  (Hong Kong) Limited,  Hong Kong League Central
            Credit Union,  and SBI Advisors,  LLC  (incorporated by reference to
            Exhibit  10.20 to Form 10-Q  Quarterly  Report  filed on  January 6,
            2005)

10.18       Guaranty  of  Stonepath  Group,  Inc.,  in favor of Hong Kong League
            Central Credit Union  (incorporated by reference to Exhibit 10.21 to
            Form 10-Q Quarterly Report filed on January 6, 2005)

10.19       Waiver  and Rider No. 7 to  Equipment  Lease  Agreement  dated as of
            March 30, 2005 between  Stonepath  Group,  Inc., MGR, Inc. d/b/a Air
            Plus  Limited,  Stonepath  Logistics  Domestic  Services,  Inc.  and
            LaSalle National Leasing Corporation

10.20       Eighth Amendment to Loan and Security Agreement dated March 30, 2005
            by and among LaSalle Business Credit,  LLC,  Stonepath Group,  Inc.,
            Contract Air, Inc.,  Distribution  Services,  Inc., Global Container
            Line, Inc.,  M.G.R.,  Inc. d/b/a Air Plus Limited,  Net Value, Inc.,
            Stonepath  Logistics Domestic Services,  Inc.,  Stonepath  Logistics
            Government  Services,   Inc.,   Stonepath  Logistics   International
            Services,  Inc., Stonepath Logistics  International  Services,  Inc.
            f/k/a  Global  Transportation  Services,  Inc.,  Stonepath  Offshore
            Holding,  Inc.,  Stonepath  Operations  Inc.,  and  United  American
            Acquisitions  and  Management,  Inc. d/b/a United  American  Freight
            Services, Inc.

11          Code of Ethics

12          Calculation  of Ratio of  Earnings  to  Combined  Fixed  Charges and
            Preferred Stock Dividends

21.1        Subsidiaries of Stonepath Group, Inc.

23.1        Consent of Independent Registered Public Accounting Firm

23.2        Consent of Independent Registered Public Accounting Firm

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 Chief Executive  Officer 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.)

32.2        Certification of Chief Financial  Officer 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.)

*     Constitutes a management contract or compensatory plan or arrangement


                                       62
<PAGE>


            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Stockholders and Board of Directors
Stonepath Group, Inc. and Subsidiaries
Philadelphia, Pennsylvania

We were engaged to audit  management's  assessment  included in the accompanying
Management's  Report on Internal Control over Financial Reporting that Stonepath
Group, Inc. and subsidiaries (the Company) maintained effective internal control
over  financial  reporting  as of  December  31,  2004,  based  on the  criteria
established  in the  Internal  Control  -  Integrated  Framework  issued  by the
Committee of Sponsoring  Organizations of the Treadway  Commission  (COSO).  The
Company's  management is responsible for maintaining  effective internal control
over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting.

A  material  weakness  is  a  control  deficiency,  or  combination  of  control
deficiencies,  that  results  in more than a remote  likelihood  that a material
misstatement of the annual or interim financial statements will not be prevented
or detected. The following material weaknesses have been identified and included
in management's assessment:

      The Company  had  inadequate  controls  related to its  assessment  of the
      effectiveness of the Company's internal control over financial  reporting.
      Management  was not able to complete  their  assessment in a timely manner
      and completed their  assessment on February 11, 2005,  which did not allow
      adequate  time  for the  external  auditors  to  complete  their  audit of
      management's report on the effectiveness of the Company's internal control
      over financial reporting.

      The Company has inadequate controls related to its consolidation  process.
      The  Company's  consolidation  process is a manual  process  performed  by
      individuals with the ability to initiate and record adjustments within the
      consolidation.  Certain reporting subsidiaries maintain two general ledger
      applications  which  creates  the  potential  for  errors  as a result  of
      entering information twice. The Company has a large number of entities and
      a large number of different  applications.  The Company's  process for the
      consolidation  of accounting  information from this number of entities and
      applications  is error prone.  In addition,  the corporate  office has the
      ability to make  adjustments to the  consolidation  without any documented
      level of approval.

                                       63
<PAGE>


      The  Company  had  inadequate  controls  related  to  the  accounting  for
      purchased  transportation.  The Company's  public filings for fiscal years
      2003 and 2002,  and for the first and second  quarters of fiscal year 2004
      have been  restated  due to control  deficiencies  related to the  accrued
      purchased transportation. The process for accounting for accrued purchased
      transportation did not accurately account for the differences  between the
      estimates  and the actual  freight  costs  incurred.  This  allowed for an
      accumulation of previously  unrecorded  purchased  transportation costs to
      accumulate   (such  amounts   should  have  been  reflected  as  purchased
      transportation  costs).  In  addition,  the error  resulted in the Company
      making earn-out  payments to selling  shareholders in amounts greater than
      what otherwise would have been owed.

      The Company had inadequate  controls related to the approval of contracts,
      and initiating and approving  adjustments  related to claims. A key member
      of management of a Company  subsidiary was  responsible for initiating and
      approving contracts.  This individual also had the ability to initiate and
      approve the recording of related transactions to contracts.  We noted that
      this individual was responsible for establishing  policies and procedures,
      establishing limits of authority, and approving customers.

      The Company had inadequate  controls related to application  access rights
      at its International Services subsidiary. Various employees have access to
      numerous  application  programs  that are  outside of the  employees'  job
      requirements.  For example, of the 82 employees of the subsidiary, 34 have
      the ability to add,  delete,  or modify  vendors and 27 employees have the
      ability to issue checks.  Of the 60 users who have the ability to initiate
      a payment, 28 are authorized  signatories with the bank. In addition,  all
      users have access to enter payment  information  into the accounts payable
      subsystem regardless of job responsibility.

We believe these  conditions are material  weaknesses in the design or operation
of the internal control of the Company in effect at December 31, 2004.  Although
the Company has implemented new controls before and after December 31, 2004, the
new  controls  were either not in operation  for a sufficient  period of time to
enable us to obtain sufficient  evidence about their operating  effectiveness or
the new controls were not in operation during the period under audit.

A company's  internal control over financial  reporting is a process designed to
provide reasonable  assurance  regarding the reliability of financial  reporting
and the preparation of financial  statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial  reporting  includes those policies and procedures that (1) pertain to
the  maintenance  of records that, in reasonable  detail,  accurately and fairly
reflect the  transactions  and  dispositions  of the assets of the company;  (2)
provide  reasonable  assurance  that  transactions  are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting  principles,  and that receipts and  expenditures  of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of  unauthorized  acquisition,  use, or  disposition  of the company's
assets that could have a material effect on the financial statements.


                                       64
<PAGE>


Because of its inherent  limitations,  internal control over financial reporting
may not prevent or detect misstatements.  Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate  because of changes in  conditions,  or that the degree of compliance
with the policies or procedures may deteriorate.

Because   management  was  not  able  to  complete   their   assessment  of  the
effectiveness of the Company's  internal  control over financial  reporting in a
timely manner and we were unable to apply other procedures to satisfy  ourselves
as to the  effectiveness  of  the  Company's  internal  control  over  financial
reporting, the scope of our work was not sufficient to enable us to express, and
we do not  express,  an  opinion  either on  management's  assessment  or on the
effectiveness of the Company's internal control over financial reporting.

We have also  audited,  in accordance  with the standards of the Public  Company
Accounting  Oversight Board,  (United States), the consolidated balance sheet as
of  December  31,  2004  and  related  consolidated  statements  of  operations,
shareholders'  equity and  comprehensive  income (loss),  and cash flows for the
year then ended of Stonepath  Group,  Inc. and subsidiaries and our report dated
March 30, 2005 expressed an unqualified opinion on those financial statements.

GRANT THORNTON LLP


Minneapolis, Minnesota
March 30, 2005


                                       65
<PAGE>

             Report of Independent Registered Public Accounting Firm

Stockholders and Board of Directors
Stonepath Group, Inc. and Subsidiaries
Philadelphia, Pennsylvania

      We have audited the accompanying  consolidated  balance sheet of Stonepath
Group,  Inc. (a Delaware  corporation) and subsidiaries as of December 31, 2004,
and the related consolidated statements of operations,  stockholders' equity and
comprehensive  income  (loss),  and cash  flows for the year then  ended.  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 audit.

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

      In our opinion the  consolidated  financial  statements  referred to above
present fairly, in all material  respects,  the financial  position of Stonepath
Group,  Inc. and  subsidiaries as of December 31, 2004, and the results of their
operations  and their cash flows for the year then  ended,  in  conformity  with
accounting principles generally accepted in the United States of America.

      Our audits  were  conducted  for the  purpose of forming an opinion on the
basic  consolidated  financial  statements  taken as a whole.  The  accompanying
Schedule  II of  Stonepath  Group,  Inc.  and  subsidiaries  for the year  ended
December 31, 2004 is presented for purposes of additional  analysis and is not a
required part of the basic consolidated financial statements.  This schedule has
been  subjected  to the auditing  procedures  applied in the audits of the basic
consolidated  financial  statements and, in our opinion, is fairly stated in all
material  respects  in  relation  to  the  basic   consolidated  2004  financial
statements taken as a whole.

      Additionally,  we were engaged to audit,  in accordance with the standards
of  the  Public  Company  Accounting   Oversight  Board  (United  States),   the
effectiveness of the Company's  internal control over financial  reporting as of
December 31, 2004, based on criteria established in Internal Control--Integrated
Framework  issued by the Committee of Sponsoring  Organizations  of the Treadway
Commission (COSO) and our report dated March 30, 2005,  disclaimed an opinion on
management's  assessment of the effectiveness of the Company's  internal control
over financial  reporting and disclaimed an opinion on the  effectiveness of the
Company's internal control over financial reporting.


/s/GRANT THORNTON LLP

Minneapolis, Minnesota
March 30, 2005


                                       66
<PAGE>

             Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders of
Stonepath Group, Inc.:

We have audited the accompanying  consolidated balance sheet of Stonepath Group,
Inc. (a Delaware  corporation) and subsidiaries (the Company) as of December 31,
2003 and the related consolidated statements of operations, stockholders' equity
and  comprehensive  income  (loss)  and cash  flows for each of the years in the
two-year period ended December 31, 2003. These consolidated financial statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an  opinion  on these  consolidated  financial  statements  based on our
audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). 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 consolidated  financial statements referred to above present
fairly,  in all material  respects,  the financial  position of Stonepath Group,
Inc.  and  subsidiaries  as of  December  31,  2003  and the  results  of  their
operations  and their  cash flows for each of the years in the  two-year  period
ended December 31, 2003, in conformity with U.S. generally  accepted  accounting
principles.


                                  /s/ KPMG LLP


Philadelphia, Pennsylvania
February 24, 2004

                                       67
<PAGE>

                              STONEPATH GROUP, INC.
                           Consolidated Balance Sheets
                           December 31, 2004 and 2003

<TABLE>
<CAPTION>
                                                                          2004              2003
                                                                     -------------     -------------
<S>                                                                  <C>               <C>
                                 Assets
Current assets:
Cash and cash equivalents                                            $   2,800,645     $   3,074,151
Accounts receivable, less allowances for doubtful accounts of
   $1,872,000 and $1,055,000 at 2004 and 2003, respectively             64,064,382        38,250,610
Loans receivable from related parties                                           --            14,597
Prepaid expenses and other current assets                                2,559,858         2,216,700
                                                                     -------------     -------------
   Total current assets                                                 69,424,885        43,556,058
Goodwill                                                                37,278,661        31,508,931
Technology, furniture and equipment, net                                 7,595,859         7,062,956
Acquired intangibles, net                                                7,079,986         6,775,893
Note receivable, related party                                              87,500           175,000
Other assets                                                             1,479,181         1,189,917
                                                                     -------------     -------------
   Total assets                                                      $ 122,946,072     $  90,268,755
                                                                     =============     =============

                  Liabilities and Stockholders' Equity
Current liabilities:
Lines of credit                                                      $  16,911,700     $          --
Accounts payable                                                        38,537,750        22,412,287
Earn-outs payable                                                        2,645,695         3,548,534
Accrued payroll and related expenses                                     3,192,889         1,975,859
Accrued restructuring costs                                                741,637                --
Capital lease obligation - current portion                               1,510,461           671,197
Accrued expenses                                                         5,627,276         1,821,671
                                                                     -------------     -------------
   Total current liabilities                                            69,167,408        30,429,548

Capital lease obligation - net of current portion                               --         1,134,815
Other long-term liabilities                                              2,064,128                --
Deferred tax liability                                                   1,650,900         1,035,600
                                                                     -------------     -------------
   Total liabilities                                                    72,882,436        32,599,963
                                                                     -------------     -------------
Minority interest                                                        5,094,336         1,345,790
                                                                     -------------     -------------
Commitments and contingencies (Notes 10 and 11)

Stockholders' equity:
Preferred stock, $.001 par value, 10,000,000 shares authorized;
   Series D, convertible, issued and outstanding:  310,477 shares
   at 2003                                                                      --               310
Common stock, $.001 par value, 100,000,000 shares authorized;
   issued and outstanding:  42,839,795 and 37,449,944 shares at
   2004 and 2003, respectively                                              42,840            37,450
Additional paid-in capital                                             221,728,796       220,067,956
Accumulated deficit                                                   (176,806,892)     (163,763,537)
Accumulated other comprehensive income                                      35,856             1,997
Deferred compensation                                                      (31,300)          (21,174)
                                                                     -------------     -------------
   Total stockholders' equity                                           44,969,300        56,323,002
                                                                     -------------     -------------
   Total liabilities and stockholders' equity                        $ 122,946,072     $  90,268,755
                                                                     =============     =============
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       68
<PAGE>

                              STONEPATH GROUP, INC.
                      Consolidated Statements of Operations
                  Years ended December 31, 2004, 2003 and 2002

<TABLE>
<CAPTION>
                                                             2004             2003             2002
                                                        -------------    -------------    -------------
<S>                                                     <C>              <C>              <C>
Total revenue                                           $ 367,080,665    $ 220,084,190    $ 122,787,625
Cost of transportation                                    282,358,647      158,105,595       86,084,863
                                                        -------------    -------------    -------------
Net revenue                                                84,722,018       61,978,595       36,702,762

Personnel costs                                            44,987,407       31,887,773       19,089,069
Other selling, general and administrative costs            36,753,275       24,583,040       14,679,960
Depreciation and amortization                               4,189,040        2,659,882        2,186,951
Restructuring charges                                       4,368,250               --               --
Litigation settlement and nonrecurring costs                       --        1,169,035               --
                                                        -------------    -------------    -------------
Income (loss) from operations                              (5,575,954)       1,678,865          746,782
Other income (expense):
   Provisions for excess earn-out payments                 (3,075,190)      (1,270,141)              --
   Interest income                                             61,964           48,909           90,680
   Interest expense                                          (639,491)        (141,859)              --
   Other income                                                 1,024           84,850           37,311
                                                        -------------    -------------    -------------
Income (loss) from continuing operations before
   income taxes and minority interest                      (9,227,647)         400,624          874,773
Income tax expense                                          2,395,812          735,886          421,177
                                                        -------------    -------------    -------------
Income (loss) from continuing operations before
   minority interest                                      (11,623,459)        (335,262)         453,596
Minority interest                                           1,394,896          187,310               --
                                                        -------------    -------------    -------------
Income (loss) from continuing operations                  (13,018,355)        (522,572)         453,596
Loss from discontinued operations, net of tax                 (25,000)        (263,031)              --
                                                        -------------    -------------    -------------
Net income (loss)                                         (13,043,355)        (785,603)         453,596
Preferred stock dividends and effect of redemption                 --               --       15,020,148
                                                        -------------    -------------    -------------
Net income (loss) attributable to common stockholders   $ (13,043,355)   $    (785,603)   $  15,473,744
                                                        =============    =============    =============
Basic earnings (loss) per common share -
   Continuing operations                                $       (0.33)   $       (0.02)   $        0.70
   Discontinued operations                                         --            (0.01)              --
                                                        -------------    -------------    -------------
   Earnings (loss) per common share                     $       (0.33)   $       (0.03)   $        0.70
                                                        =============    =============    =============
Diluted earnings (loss) per common share -
   Continuing operations                                        (0.33)   $       (0.02)   $        0.02
   Discontinued operations                                         --            (0.01)              --
                                                        -------------    -------------    -------------
   Earnings (loss) per common share                     $       (0.33)           (0.03)   $        0.02
                                                        =============    =============    =============
Basic weighted average common shares outstanding           38,971,526       29,625,585       22,154,861
                                                        =============    =============    =============
Diluted weighted average common shares outstanding         38,971,526       29,625,585       29,232,568
                                                        =============    =============    =============
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       69
<PAGE>

                              STONEPATH GROUP, INC.
 Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss)
                  Years ended December 31, 2004, 2003 and 2002

<TABLE>
<CAPTION>
                                                    Preferred Stock
                                -----------------------------------------------------
                                         Series C                    Series D                   Common Stock           Additional
                                -------------------------    ------------------------    --------------------------     paid-in
                                   Shares        Amount        Shares        Amount         Shares        Amount        capital
                                -----------    ----------    ----------    ----------    ------------   -----------   ------------
<S>                              <C>           <C>             <C>         <C>             <C>          <C>           <C>
Balances at January 1, 2002       3,750,479    $    3,750            --    $       --      20,903,110   $    20,903   $210,730,999
Net income                               --            --            --            --              --            --             --
Exercise of options and
   warrants                              --            --            --            --         440,808           441        424,740
Series C Preferred Stock
   conversion                    (3,913,220)       (3,913)      360,742           361       2,109,496         2,109    (16,971,597)
Preferred stock dividends           162,741           163            --            --              --            --      1,952,729
Compensatory common stock,
   options and warrants
   issued, net of
   cancellations                         --            --            --            --              --            --         95,000
Amortization of deferred
   stock-based compensation              --            --            --            --              --            --          3,193
                                -----------    ----------    ----------    ----------    ------------   -----------   ------------
Balances at December 31, 2002            --            --       360,742           361      23,453,414        23,453    196,235,064
Net loss                                 --            --            --            --              --            --             --
Other comprehensive income:
   Foreign currency
     translation adjustment              --            --            --            --              --            --             --
Comprehensive loss
Issuance of common stock, net
   of issuance costs                     --            --            --            --      10,453,500        10,454     18,054,961
Exercise of options and
   warrants                              --            --            --            --         920,739           921        649,858
Series D Convertible
   Preferred Stock conversion            --            --       (50,265)          (51)        502,650           503           (452)
Issuance of common stock in
   lieu of cash for earn-out             --            --            --            --         254,825           255        402,745
Issuance of common stock in
   lieu of cash for legal
   settlement                            --            --            --            --         271,339           271        583,279
Issuance of common stock for
   acquisitions                          --            --            --            --       1,593,477         1,593      4,142,501
Amortization of deferred
   stock-based compensation              --            --            --            --              --            --             --
                                -----------    ----------    ----------    ----------    ------------   -----------   ------------
Balances at December 31, 2003            --            --       310,477           310      37,449,944        37,450    220,067,956
Net loss                                 --            --            --            --              --            --             --
Other comprehensive income:
   Foreign currency
   translation adjustment                --            --            --            --              --            --             --

Comprehensive loss

Exercise of options and
   warrants                              --            --            --                     2,119,108         2,119      1,269,631
Series D Convertible
   Preferred Stock conversion            --            --      (310,477)         (310)      3,104,770         3,105         (2,795)
Issuance of common stock to
   Employee Stock Purchase
   Plan                                  --            --            --            --         123,238           123        224,047
Issuance of common stock for
   acquisitions                          --            --            --            --          42,735            43         99,957
Options issued to consultant             --            --            --            --              --            --         70,000
Amortization of deferred
   stock-based compensation              --            --            --            --              --            --             --
                                -----------    ----------    ----------    ----------    ------------   -----------   ------------
Balances at December 31, 2004            --    $       --            --    $       --      42,839,795   $    42,840   $221,728,796
                                ===========    ==========    ==========    ==========    ============   ===========   ============
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       70
<PAGE>

                              STONEPATH GROUP, INC.
                 Consolidated Statements of Stockholders' Equity
                   and Comprehensive Income (Loss) (continued)
                  Years ended December 31, 2004, 2003 and 2002

<TABLE>
<CAPTION>
                                                     Accumulated
                                                        other         Deferred                            Total
                                    Accumulated     comprehensive    stock-based                      comprehensive
                                      deficit          income       compensation         Total        income (loss)
                                   -------------    -------------   -------------    -------------    -------------
<S>                                <C>              <C>             <C>              <C>              <C>
Balances at January 1, 2002        $(178,451,678)   $          --   $    (211,638)   $  32,092,336
Net income                               453,596               --              --          453,596    $     453,596
                                                                                                      =============
Exercise of options and warrants              --               --              --          425,181
Series C Preferred Stock
   conversion                         16,973,040               --              --               --
Preferred stock dividends             (1,952,892)              --              --               --
Compensatory common stock,
   options and warrants issued,
   net of cancellations                       --               --              --           95,000
Amortization of deferred
   stock-based compensation                   --               --          95,232           98,425
                                   -------------    -------------   -------------    -------------
Balances at December 31, 2002       (162,977,934)              --        (116,406)      33,164,538
Net loss                                (785,603)              --              --         (785,603)   $    (785,603)
Other comprehensive income:
   Foreign currency translation
     adjustment                               --            1,997              --            1,997            1,997
                                                                                                      -------------
Comprehensive loss                                                                                    $    (783,606)
                                                                                                      =============
Issuance of common stock, net of
   issuance costs                             --               --              --       18,065,415
Exercise of options and warrants              --               --              --          650,779
Series D Convertible Preferred
   Stock conversion                           --               --              --               --
Issuance of common stock in lieu
   of cash for earn-out                       --               --              --          403,000
Issuance of common stock in lieu
   of cash for legal settlement               --               --              --          583,550
Issuance of common stock for
   acquisitions                               --               --              --        4,144,094
Amortization of deferred
   stock-based compensation                   --               --          95,232           95,232
                                   -------------    -------------   -------------    -------------
Balances at December 31, 2003       (163,763,537)           1,997         (21,174)      56,323,002
Net loss                             (13,043,355)              --              --      (13,043,355)   $ (13,043,355)
Other comprehensive income:
   Foreign currency translation
     adjustment                               --           33,859              --           33,859           33,859
                                                                                                      -------------
Comprehensive loss                                                                                    $ (13,009,496)
                                                                                                      =============
Exercise of options and warrants              --               --              --        1,271,750
Series D Convertible Preferred
   Stock conversion                           --               --              --               --
Issuance of common stock to
   Employee Stock Purchase Plan               --               --              --          224,170
Issuance of common stock for
   Acquisitions                               --               --              --          100,000
Options issued to consultant                  --               --         (70,000)              --
Amortization of deferred
   stock-based compensation                   --               --          59,874           59,874
                                   -------------    -------------   -------------    -------------
Balances at December 31, 2004      $(176,806,892)   $      35,856   $     (31,300)   $  44,969,300
                                   =============    =============   =============    =============
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       71
<PAGE>

                              STONEPATH GROUP, INC.
                      Consolidated Statements of Cash Flows
                  Years ended December 31, 2004, 2003 and 2002

<TABLE>
<CAPTION>
                                                                            2004             2003             2002
                                                                       -------------    -------------    -------------
<S>                                                                    <C>              <C>              <C>
Cash flows from operating activities:
   Net income (loss)                                                   $ (13,043,355)   $    (785,603)   $     453,596
   Adjustments to reconcile net income (loss) to net cash
     used in operating activities, net of acquisitions:
     Deferred income taxes                                                   615,300          574,800          389,300
     Depreciation and amortization                                         4,189,040        2,659,882        2,186,951
     Stock-based compensation                                                 59,874           95,232           98,425
     Minority interest in income of subsidiaries                           1,394,896          187,310               --
     Loss from disposal of furniture and equipment                             8,350               --            4,560
     Non-cash restructuring charges                                        3,556,133               --               --
     Issuance of common stock in litigation settlement                            --          350,000               --
     Issuance of common stock to vendor of former business                        --          135,000               --
     Issuance of common stock in offering penalty                                 --           98,550               --
   Changes in assets and liabilities, net of effect of acquisitions:
     Accounts receivable                                                 (11,957,872)     (11,187,538)      (5,731,830)
     Other assets                                                             11,973         (887,891)        (160,903)
     Accounts payable and accrued expenses                                13,587,422        4,771,653        2,176,634
                                                                       -------------    -------------    -------------
     Net cash used in operating activities                                (1,578,239)      (3,988,605)        (583,267)
                                                                       -------------    -------------    -------------

Cash flows from investing activities:
   Acquisition of businesses, net of cash acquired                        (8,004,253)      (9,385,908)     (10,497,306)
   Purchases of technology, furniture and equipment                       (4,909,148)      (4,183,201)      (1,812,750)
   Loans made                                                                (75,000)        (130,000)        (350,000)
   Payment of earn-out                                                    (3,431,285)      (2,206,715)              --
   Discontinued operations:
     Proceeds from sale of ownership interests in affiliate
       companies                                                                  --               --          115,000
                                                                       -------------    -------------    -------------

       Net cash used in investing activities                             (16,419,686)     (15,905,824)     (12,545,056)
                                                                       -------------    -------------    -------------

Cash flows from financing activities:
   Issuance of common stock                                                       --       18,185,415               --
   Payment of equity financing fees                                               --               --          (25,000)
   Payment of debt financing fees                                           (250,000)              --         (233,580)
   Proceeds from line of credit, net                                      16,911,700               --               --
   Proceeds from financing of equipment                                           --        2,049,638               --
   Principal payments on capital lease                                      (753,959)        (265,178)              --
   Proceeds related to minority interest in subsidiary                            --           81,818               --
   Proceeds from issuance of common stock upon exercise of
     options and warrants                                                  1,782,819          650,779          425,181
                                                                       -------------    -------------    -------------
     Net cash provided by financing activities                            17,690,560       20,702,472          166,601
                                                                       -------------    -------------    -------------
     Effect of foreign currency translation                                   33,859               --               --
                                                                       -------------    -------------    -------------
     Net increase (decrease) in cash and cash equivalents                   (273,506)         808,043      (12,961,722)
Cash and cash equivalents, beginning of year                               3,074,151        2,266,108       15,227,830
                                                                       -------------    -------------    -------------
Cash and cash equivalents, end of year                                 $   2,800,645    $   3,074,151    $   2,266,108
                                                                       =============    =============    =============

Cash paid for interest                                                 $     617,007    $     189,359    $          --
                                                                       =============    =============    =============

Cash paid for income taxes                                             $     157,145    $     373,832    $      84,959
                                                                       =============    =============    =============
Supplemental disclosure of non-cash investing and financing
   activities:

   Issuance of common stock in satisfaction of earn-out                $          --    $     403,000    $          --

   Increase in goodwill related to accrued earn-out payments               2,615,946        3,636,034        2,697,215

   Issuance of warrants in connection with consulting services                70,000               --           95,000

   Offset of related party loan against earn-out                              87,500           87,500           87,500

   Issuance of common stock in connection with acquisitions                  100,000        4,144,094               --
   Issuance of common stock from conversion of Series D
     Convertible Preferred Stock                                                 310               51               --
   Issuance of common stock in connection with cashless
     exercise of options                                                     511,068               --               --
   Issuance of common stock in connection with Employee Stock
     Purchase Plan                                                           224,170               --               --
   Increase in technology, furniture and equipment from
     capital lease obligations                                               458,408               --               --
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       72
<PAGE>

                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002

(1)   Nature of Operations

      Stonepath   Group,   Inc.   and   subsidiaries   (the   "Company")   is  a
      non-asset-based  third-party  logistics  services company providing supply
      chain  solutions  on  a  global  basis.  A  full  range  of  time-definite
      transportation and distribution  solutions is offered through its Domestic
      Services platform,  where the Company manages and arranges the movement of
      raw materials,  supplies, components and finished goods for its customers.
      These services are offered  through the Company's  domestic air and ground
      freight  forwarding  business.  A full  range of  international  logistics
      services including  international air and ocean  transportation as well as
      customs  house  brokerage   services  is  offered  through  the  Company's
      International  Services  platform.  In  addition  to  these  core  service
      offerings,  the Company also provides a broad range of value-added  supply
      chain management services,  including  warehousing,  order fulfillment and
      inventory management. The Company serves a customer base of manufacturers,
      distributors and national retail chains through a network of owned offices
      in North America and Puerto Rico,  strategic locations in Asia and Brazil,
      and service partners strategically located around the world.

      The Company has experienced losses from operations, and has an accumulated
      deficit.  In addition the Company has experienced  negative cash flow from
      operations. In view of these matters, recoverability of a major portion of
      the recorded  asset  amounts  shown in the  accompanying  balance sheet is
      dependent  upon  continued  profitable   operations  of  the  Company  and
      generation of cash flow  sufficient to meet its  obligations.  The Company
      believes that planned  operating  improvements and cost reductions and the
      availability  on its credit  facilities  will  provide  the  Company  with
      adequate  liquidity  to provide  uninterrupted  support  for its  business
      operations through December 31, 2005.

(2)   Summary of Significant Accounting Policies

a)    Principles of Consolidation

      The accompanying consolidated financial statements include the accounts of
      Stonepath  Group,  Inc.,  a  Delaware  corporation,  and its  wholly-  and
      majority-owned  subsidiaries.  All intercompany  balances and transactions
      have been eliminated in consolidation.  The Company's foreign subsidiaries
      are included in the consolidated  financial  statements on a one month lag
      to  facilitate  timely  reporting.  The Company does not have any variable
      interest  entities  whose  financial  results  are  not  included  in  the
      consolidated financial statements.

b)    Use of Estimates

      The  preparation  of  financial  statements  and  related  disclosures  in
      accordance with  accounting  principles  generally  accepted in the United
      States of America  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 revenue and  expenses  during the
      reporting period. Such estimates include revenue recognition, accruals for
      the cost of purchased  transportation,  accounting for stock options,  the
      assessment  of  the  recoverability  of  long-lived  assets  (specifically
      goodwill and acquired intangibles),  the establishment of an allowance for
      doubtful  accounts and the  valuation  allowance  for deferred  income tax
      assets.  Estimates  and  assumptions  are  reviewed  periodically  and the
      effects of revisions are reflected in the period that they are  determined
      to be necessary. Actual results could differ from those estimates.

c)    Cash and Cash Equivalents

      Cash and cash  equivalents  include cash on hand and  investments in money
      market  funds and  investment  grade  securities  held  with high  quality
      financial   institutions.   The  Company   considers   all  highly  liquid
      instruments  with a  remaining  maturity of 90 days or less at the time of
      purchase to be cash equivalents.

d)    Concentrations of Credit Risk

      Financial   instruments   that   potentially   subject   the   Company  to
      concentrations of credit risk consist  principally of cash investments and
      accounts receivable.

      The  Company  maintains  its cash  accounts  with high  quality  financial
      institutions.  With respect to accounts  receivable,  such receivables are
      primarily from  manufacturers,  distributors  and major retailers  located
      throughout the United States, Asia and South America. Credit is granted to
      customers on an unsecured basis, and generally provides for 30-day payment
      terms. For the years ended December 31, 2004, 2003 and


                                       73
<PAGE>

                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002

      2002, the Company's largest customer,  a national retail chain,  accounted
      for  approximately  13%,  24%  and  33%  of  revenue,   respectively,  and
      approximately 5% and 16% of the accounts receivable balance as of December
      31, 2004 and 2003,  respectively.  No other customer accounted for greater
      than 10% of revenue.  To reduce credit risk, the Company  performs ongoing
      credit  evaluations of its customers'  financial  conditions.  The Company
      maintains  reserves for specific and general  allowances  against accounts
      receivable.  The specific reserves are established on a case-by-case basis
      by management.  A general  reserve is  established  for all other accounts
      receivable,  based on a specified  percentage  of the accounts  receivable
      balance.  Management  continually  assesses  the  adequacy of the recorded
      allowance for doubtful accounts, based on its knowledge about the customer
      base. Credit losses have been within management's expectations.

e)    Technology, Furniture and Equipment

      Technology,  furniture and equipment are stated at cost, less  accumulated
      depreciation  computed on a straight-line  basis over the estimated useful
      lives of the respective  assets.  Depreciation is computed using three- to
      ten-year lives for furniture and office  equipment,  a three-year life for
      computer  software,  the  shorter  of the lease  term or  useful  life for
      leasehold improvements and a three-year life for vehicles. Upon retirement
      or other  disposition  of these assets,  the cost and related  accumulated
      depreciation are removed from the accounts and the resulting gain or loss,
      if  any,  is  reflected  in  results  of  operations.   Expenditures   for
      maintenance, repairs and renewals of minor items are charged to expense as
      incurred. Major renewals and improvements are capitalized.

      Under the  provisions of Statement of Position  98-1,  Accounting  for the
      Costs of Computer  Software  Developed or Obtained  for Internal  Use, the
      Company  capitalizes  costs  associated with internally  developed  and/or
      purchased  software systems that have reached the application  development
      stage and meet  recoverability  tests.  Capitalized costs include external
      direct costs of materials and services utilized in developing or obtaining
      internal-use software,  payroll and payroll-related expenses for employees
      who are  directly  associated  with and  devote  time to the  internal-use
      software project and capitalized interest, if appropriate.  Capitalization
      of such costs begins when the  preliminary  project  stage is complete and
      ceases  no later  than the  point at which the  project  is  substantially
      complete  and ready  for its  intended  purpose.  Costs  for  general  and
      administrative, overhead, maintenance and training, as well as the cost of
      software that does not add functionality to existing systems, are expensed
      as incurred.

f)    Goodwill

      Goodwill  consists of the excess of cost over the fair value of net assets
      acquired in business combinations accounted for as purchases (see Note 5).

      The Company  follows the  provisions of Statement of Financial  Accounting
      Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets. SFAS No.
      142 requires an annual  impairment test for goodwill and intangible assets
      with  indefinite  lives.  Under the  provisions of SFAS No. 142, the first
      step of the impairment  test requires that the Company  determine the fair
      value of each reporting  unit, and compare the fair value to the reporting
      unit's carrying  amount.  To the extent a reporting unit's carrying amount
      exceeds its fair value,  an indication  exists that the  reporting  unit's
      goodwill  may be  impaired  and the  Company  must  perform a second  more
      detailed impairment assessment.  The second impairment assessment involves
      allocating  the reporting  unit's fair value to all of its  recognized and
      unrecognized assets and liabilities in order to determine the implied fair
      value of the reporting  unit's  goodwill as of the  assessment  date.  The
      implied fair value of the  reporting  unit's  goodwill is then compared to
      the carrying amount of goodwill to quantify an impairment charge as of the
      assessment  date.  The  Company   performed  its  annual  impairment  test
      effective  October  1,  2004 and  noted no  impairment  for  either of its
      reporting  units. In the future,  the Company will continue to perform the
      annual  test  during  its  fiscal   fourth   quarter   unless   events  or
      circumstances indicate an impairment may have occurred before that time.


                                       74
<PAGE>

                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002

g)    Long-Lived Assets

      Acquired   intangibles   consist  of  customer  related   intangibles  and
      non-compete agreements arising from the Company's  acquisitions.  Customer
      related  intangibles are amortized using accelerated  methods over five to
      seven years and  non-compete  agreements are amortized  using the straight
      line method over periods of three to five years.

      The Company  follows the  provisions of SFAS No. 144,  Accounting  for the
      Impairment or Disposal of Long-Lived Assets, which establishes  accounting
      standards for the impairment of long-lived assets such as property,  plant
      and equipment and intangible  assets subject to amortization.  The Company
      reviews  long-lived  assets to be  held-and-used  for impairment  whenever
      events or changes in  circumstances  indicate that the carrying  amount of
      the assets may not be recoverable. If the sum of the undiscounted expected
      future cash flows over the remaining  useful life of a long-lived asset is
      less than its carrying  amount,  the asset is  considered  to be impaired.
      Impairment  losses are measured as the amount by which the carrying amount
      of the asset exceeds the fair value of the asset. When fair values are not
      available, the Company estimates fair value using the expected future cash
      flows discounted at a rate commensurate with the risks associated with the
      recovery of the asset.  Assets to be disposed of are reported at the lower
      of carrying amount or fair value less costs to sell.

h)    Income Taxes

      Taxes on income are provided in accordance  with SFAS No. 109,  Accounting
      for  Income  Taxes.   Deferred  income  tax  assets  and  liabilities  are
      recognized for the expected  future tax  consequences  of events that have
      been  reflected in the  consolidated  financial  statements.  Deferred tax
      assets and liabilities are determined based on the differences between the
      book values and the tax bases of particular assets and liabilities and the
      tax effects of net operating loss and capital loss carryforwards. Deferred
      tax assets and  liabilities are measured using tax rates in effect for the
      years in which the  differences  are  expected  to  reverse.  A  valuation
      allowance is provided to offset the net deferred tax assets if, based upon
      the available evidence, it is more likely than not that some or all of the
      deferred tax assets will not be realized.

i)    Revenue Recognition and Purchased Transportation Costs

      The Company  derives its revenue  from three  principal  sources:  freight
      forwarding,  customs  brokerage,  and  warehousing  and other  value-added
      services.

      As a freight forwarder, the Company is primarily a non-asset-based carrier
      that  does not own or lease any  significant  transportation  assets.  The
      Company generates the majority of its revenue by purchasing transportation
      services from direct  (asset-based)  carriers and using those  services to
      provide transportation of property for compensation to its customers.  The
      Company is able to negotiate  favorable buy rates from the direct carriers
      by consolidating  shipments from multiple  customers and concentrating its
      buying power,  while at the same time offering  lower sell rates than most
      customers would otherwise be able to negotiate themselves.  When acting as
      an indirect carrier,  the Company will enter into a written agreement with
      its customers or issue a tariff and a house bill of lading to customers as
      the contract of  carriage.  When the freight is  physically  tendered to a
      direct carrier,  the Company receives a separate contract of carriage,  or
      master bill of lading. In order to claim for any loss or damage associated
      with the  freight,  the  customer  is first  obligated  to pay the freight
      charges.  Based on the terms in the contract of carriage,  revenue related
      to shipments where the Company issues a house bill of lading is recognized
      when the freight is delivered to the direct  carrier at origin.  All other
      revenue, including revenue for customs brokerage and warehousing and other
      value-added services, is recognized upon completion of the service.

      At the time of delivery to the direct  carrier,  the Company records costs
      related  to  the  shipment   based  on   estimates   of  total   purchased
      transportation  costs. The estimates are based upon  anticipated  margins,
      contractual arrangements with direct carriers and other known factors. The
      estimates are routinely  monitored and compared to actual  invoiced costs.
      The estimates  are adjusted as deemed  necessary by the Company to reflect
      differences  between the  original  accruals and actual costs of purchased
      transportation.


                                       75
<PAGE>

                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002

j)    Stock-Based Compensation

      As permitted by SFAS No. 123, Accounting for Stock-Based Compensation, the
      Company  has  elected to account for  stock-based  compensation  using the
      intrinsic value method  prescribed in Accounting  Principles Board ("APB")
      Opinion No. 25,  Accounting  for Stock  Issued to  Employees,  and related
      interpretations.  Accordingly, compensation cost for stock options granted
      to  employees  and  members of the board of  directors  is measured as the
      excess,  if any, of the quoted market price of the Company's  common stock
      at the date of the grant over the amount the  grantee  must pay to acquire
      the  stock.   The  Company   accounts  for  stock-based   compensation  to
      non-employees  (including  directors  who provide  services  outside their
      capacity  as  members of the  board) in  accordance  with SFAS No. 123 and
      Emerging Issues Task Force ("EITF") Issue No. 96-18, Accounting for Equity
      Instruments  That Are Issued to Other Than Employees for Acquiring,  or in
      Conjunction with Selling,  Goods or Services.  The Company has implemented
      the  disclosure  provisions of SFAS No. 148,  Accounting  for  Stock-Based
      Compensation - Transition and Disclosure.

      The table below  illustrates the effect on net income (loss)  attributable
      to common stockholders and income (loss) per share as if the fair value of
      options granted had been recognized as compensation  expense in accordance
      with the  provisions  of SFAS No. 123. See Notes 12 and 13 for  additional
      information regarding options and warrants.

<TABLE>
<CAPTION>
Year ended December 31:                                        2004             2003             2002
                                                          -------------    -------------    -------------
<S>                                                       <C>              <C>              <C>
Net income (loss) attributable to common stockholders:
As reported                                               $ (13,043,355)   $    (785,603)   $  15,473,744
Add: stock-based employee compensation expense included
  in reported net income (loss)                                  21,174           95,232           92,566
Deduct:  total stock-based compensation expense
  determined under fair value method for all awards          (5,848,264)      (2,306,736)      (1,922,051)
                                                          -------------    -------------    -------------
Pro forma                                                 $ (18,870,445)   $  (2,997,107)   $  13,644,259
                                                          =============    =============    =============
Basic earnings (loss) per common share:
  As reported                                             $       (0.33)   $       (0.03)   $        0.70
  Pro forma                                                       (0.48)           (0.10)            0.62
Diluted earnings (loss) per common share:
  As reported                                             $       (0.33)   $       (0.03)   $        0.02
  Pro forma                                                       (0.48)           (0.10)           (0.05)
</TABLE>

      The weighted  average fair value of employee  options granted during 2004,
      2003 and 2002 was $2.16, $1.05 and $0.89 per share, respectively. The fair
      value of options  granted  were  estimated  on the date of grant using the
      Black-Scholes option pricing model, with the following assumptions:

                                             2004          2003           2002
                                          ---------     ---------      ---------
      Dividend yield                      None          None           None
      Expected volatility                 83.8%         55.8%          93.8%
      Average risk free interest rate     4.25%         1.56%          1.36%
      Average expected lives              9.3 years     6.9 years      6.8 years


                                       76
<PAGE>

                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002

k)    Restructuring Charges

      The Company accounts for restructuring charges in accordance with SFAS No.
      146,  "Accounting for Costs  Associated with Exit or Disposal  Activities"
      and SFAS No.  144.  SFAS No.  146  requires  that a  liability  for  costs
      associated  with an exit or  disposal  activity  be  recognized  when  the
      liability is incurred.

l)    Earnings (Loss) Per Share

      Basic  earnings  (loss) per common share and diluted  earnings  (loss) per
      common share are  presented in accordance  with SFAS No 128,  Earnings per
      Share.  Basic earnings (loss) per common share has been computed using the
      weighted-average  number of shares of common stock outstanding  during the
      period.   Diluted  earnings  (loss)  per  common  share  incorporates  the
      incremental shares issuable upon the assumed exercise of stock options and
      warrants and upon the assumed conversion of the Company's preferred stock,
      if dilutive.  Certain  stock  options,  stock  warrants,  and  convertible
      securities were excluded because their effect was antidilutive.  The total
      numbers of such shares  excluded from diluted  earnings  (loss) per common
      share are 7,799,763,  7,443,299 and 1,336,825 for the years ended December
      31, 2004, 2003 and 2002, respectively.

      The  following  table  indicates  the  calculation  of earnings  per share
      related to continuing operations for the year ended December 31, 2002:

<TABLE>
<S>                                                     <C>              <C>          <C>
Year ended December 31, 2002:

  Income from continuing operations                     $    453,596

  Less:  preferred stock dividend                         (1,952,892)
  Plus: redemption of Series C Preferred Stock in
    exchange transaction (see Note 12)                    16,973,040
                                                        ------------
Basic Earnings per Common Share
  Income from continuing operations attributable to
    common stockholders                                   15,473,744     22,154,861   $       0.70
                                                                                      ============
Effect of Dilutive Securities
  Options and warrants                                            --      3,331,275
  Convertible preferred stock                            (15,020,148)     3,746,432
                                                        ------------   ------------
Diluted Earnings Per Common Share
  Net income attributable to common stockholders plus
  assumed conversions                                   $    453,596     29,232,568   $       0.02
                                                        ============   ============   ============
</TABLE>

m)    New Accounting Pronouncements

      In December  2004,  the  Financial  Accounting  Standards  Board  ("FASB")
      revised SFAS No. 123,  "Share-Based Payment" ("SFAS No. 123R"), which will
      replace SFAS No. 123 and  supersede APB Opinion No. 25. SFAS No. 123R will
      require  compensation cost related to share-based payment  transactions to
      be recognized in the consolidated  financial  statements.  As permitted by
      SFAS No. 123,  the Company  currently  follows the guidance of APB Opinion
      No. 25, which allows the use of the  intrinsic  value method of accounting
      to value share-based  payment  transactions with employees.  SFAS No. 123R
      requires  measurement of the cost of share-based  payment  transactions to
      employees at the fair value of the award on the grant date and recognition
      of expense over the  requisite  service or vesting  period.  SFAS No. 123R
      allows implementation using a modified version of prospective application,
      under which  compensation  expense for the unvested  portion of previously
      granted  awards and all new awards will be recognized on or after the date
      of adoption. SFAS No. 123R also allows companies to implement by restating
      previously issued financial statements,  basing the amounts on the expense
      previously calculated and reported in their pro forma footnote disclosures
      required  under SFAS No. 123.  The Company  will adopt SFAS No. 123R


                                       77
<PAGE>

                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002

      using the modified  prospective  method beginning July 1, 2005. The impact
      of  adopting  SFAS  No.  123R on the  Company's  consolidated  results  of
      operations  is not  expected  to  differ  materially  from  the pro  forma
      disclosures currently required by SFAS No. 123.

      In December 2004, the FASB issued SFAS No. 153,  "Exchanges of Nonmonetary
      Assets." This statement addresses the fair value concepts contained in APB
      Opinion No. 29, "Accounting for Nonmonetary  Transactions"  which included
      certain  exceptions  to the concept that  exchanges of similar  productive
      assets should be recorded at the carrying value of the asset relinquished.
      SFAS No. 153  eliminates  that  exception  and  replaces it with a general
      exception  for  exchanges  of  nonmonetary  assets  that  lack  commercial
      substance.  Only  nonmonetary  exchanges in which an entity's  future cash
      flows are  expected to  significantly  change as a result of the  exchange
      will be  considered  to have  commercial  substance.  SFAS No. 153 must be
      applied  to  nonmonetary  asset  exchanges  occurring  in  fiscal  periods
      beginning after June 15, 2005. Adoption of SFAS No. 153 is not expected to
      have a significant effect on the Company's financial position,  results of
      operations or cash flows.

      The FASB issued two final FASB Staff  Positions  ("FSPs")  addressing  the
      financial  accounting for certain provisions of the American Jobs Creation
      Act of 2004 ("Act").  A provision of the Act allows  taxpayers a deduction
      equal to a percentage of the lesser of the taxpayer's  qualified  domestic
      production activities income or taxable income, subject to a limitation of
      50% of annual wages paid.  FSP 109-1,  "Application  of FASB Statement No.
      109,  Accounting  for Income  Taxes,  to the Tax  Deduction  on  Qualified
      Production Activities Provided by the American Jobs Creation Act of 2004,"
      addresses whether the qualified domestic  production  activities should be
      treated as a special deduction or a rate reduction under SFAS No. 109.

      Additionally,  another provision of the Act provides  taxpayers a special,
      one-time 85% dividend received deduction for certain foreign earnings that
      are  repatriated in either a company's  first taxable year beginning on or
      after the date of the Act's  enactment or the last taxable year  beginning
      before such date.  Some companies have  requested  that  clarification  be
      provided on certain  aspects of the  repatriation  provisions  of the Act.
      Until  these  clarifications  are made,  the Company is unable to conclude
      whether it will repatriate earnings or how much that repatriation will be.

(3)   Restructuring Charges

      In  November  2004,  the  Company   commenced  a  restructuring   program,
      engineered to accelerate the integration of its businesses and improve the
      Company's  overall  profitability.  During  the  first  half of 2005,  the
      Company will  consolidate its corporate  headquarters and the domestic and
      international divisional headquarters into one central management facility
      in Seattle,  Washington.  This  streamlining  will  eliminate  unnecessary
      duplication  of efforts as well as provide a much more cohesive day to day
      management  coordination   capability.   In  addition,  the  restructuring
      initiative includes the  rationalization of technology systems,  personnel
      and facilities. In connection with this plan, the Company recorded pre-tax
      restructuring  charges of $4,368,250 for the year ended December 31, 2004.
      The pre-tax restructuring charges are composed of:

<TABLE>
<CAPTION>
                                                                             Liability
                                                                              Balance,
                            Restructuring     Non-Cash          Cash        December 31,
                               Charges         Charges        Payments          2004
                            -------------   ------------    ------------    ------------
<S>                         <C>             <C>             <C>             <C>
      Systems               $  3,556,134    $ (3,556,134)   $         --    $         --
      Personnel                  666,408              --              --         666,408
      Lease terminations:
        Building                  75,229              --              --          75,229
        Truck                     70,479              --         (70,479)             --
                            ------------    ------------    ------------    ------------
                            $  4,368,250    $ (3,556,134)   $    (70,479)   $    741,637
                            ============    ============    ============    ============
</TABLE>

      The  systems  charges  relate to  impairment  of the  Company's  corporate
      freight software systems in 2004 which were in development.  The personnel
      charges relate to corporate contractual  obligations incurred in 2004 with
      certain


                                       78
<PAGE>

                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002

      former  executives.  The lease  terminations  relate to  vacating  certain
      Domestic  facilities in 2004 and the cancellation of truck leases in 2004.
      Except for the systems charges,  all restructuring  charges will result in
      cash  outflows.   The  Company  expects  to  complete  its   restructuring
      activities by the end of the second quarter of 2005 and  anticipates  that
      additional costs of approximately $3,000,000 will be incurred.

(4)   Discontinued Operations

      On December 28, 2001, the Board of Directors approved a plan to dispose of
      all of the assets related to the Company's former business of investing in
      early-stage   technology   companies,   since   these   investments   were
      incompatible  with the  Company's  current  strategy  of building a global
      integrated  logistics  services  organization.  Therefore,  for  financial
      reporting  purposes,  results of  operations  and cash flows of the former
      business have been segregated from those of the continuing  operations and
      are  presented  in the  Company's  consolidated  financial  statements  as
      discontinued operations. The Company never recognized any revenue from its
      former business model. At December 31, 2004 and 2003, there were no assets
      or liabilities of the discontinued  operations  remaining on the Company's
      consolidated balance sheets.

      During the second  quarter of 2003,  the Company  recorded a liability for
      $135,000  related  to  services  rendered  in  2000 by a  consultant.  The
      liability  was satisfied in the third quarter of 2003 through the issuance
      of common  stock.  Also  during the second  quarter of 2003,  a  subtenant
      defaulted  on the  payment  of  sublease  rentals  related  to a  property
      occupied  by  the  Company's  former  business.  The  Company  recorded  a
      liability  for the  remaining  rental  payments  and  recognized a loss of
      approximately  $239,000.  During the fourth  quarter of 2003,  the Company
      entered into a new sublease  agreement and reduced the rental liability by
      approximately  $92,000,  which  represents  the  amount of  rentals  to be
      received under the new  agreement.  The total loss  recognized  related to
      discontinued   operations  in  2003,  net  of  income  taxes,  amounts  to
      approximately  $263,000,  and  is  reflected  as  loss  from  discontinued
      operations in the  accompanying  consolidated  statement of operations for
      the year ended December 31, 2003.

      The Company settled the suit brought by Emergent Capital Investment LLC in
      the United States District Court for the Southern  District of New York in
      exchange for the payment by the Company of $50,000. The settlement, net of
      insurance  recoveries  amounting  to  $25,000,  is  included  in loss from
      discontinued  operations in the  consolidated  statement of operations for
      the year ended December 31, 2004.

(5)   Acquisitions

      On  February  9,  2004,  the  Company   acquired,   through  its  indirect
      wholly-owned  subsidiary,  Stonepath  Holdings (Hong Kong) Limited,  a 55%
      interest  in Shaanxi  Sunshine  Cargo  Services  International  Co.,  Ltd.
      ("Shaanxi"). Shaanxi is a Class A licensed freight forwarder headquartered
      in Shanghai,  PRC and provides a wide range of  customized  transportation
      and  logistics  services  and supply  chain  solutions,  including  global
      freight  forwarding,  warehousing and distribution,  shipping services and
      special freight  handling.  As consideration  for the purchase,  which was
      effective as of March 1, 2004, the Company paid  $5,500,000  consisting of
      $3,500,000 in cash,  financed through its revolving credit agreement,  and
      $2,000,000 of the Company's  common stock. The common shares issued in the
      transaction are subject to a one-year  restriction on sale and are subject
      to a pro rata  forfeiture  based upon a formula  that  compares the actual
      pre-tax  income of Shaanxi  through  December  31, 2004 with the  targeted
      level of income of  $4,000,000  (on an  annualized  basis).  Also,  if the
      trading price of the  Company's  common stock is less than $3.17 per share
      at the end of the  one-year  restriction,  the  Company  will  issue up to
      169,085 additional shares to the seller.  Because the common shares issued
      in connection with this  transaction  are subject to forfeiture,  they are
      accounted  for as  contingent  consideration.  When the  number  of common
      shares to be retained by the seller is ultimately determined,  such shares
      will be valued  at their  then fair  value and will  result in  additional
      goodwill  being  recorded.  Based upon the actual  pre-tax  income through
      December 31, 2004, the seller  forfeited 37,731 shares of common stock. As
      provided for in the purchase  agreement,  the amount of $119,  608,  which
      represents the original fair value of the forfeited  shares at the date of
      acquisition,  will be added ratably to the future  earn-outs.  Because the
      quoted market price of the  Company's  common stock was less than $3.17 on
      February 9, 2005, the Company will issue 158,973  additional shares of its
      common  stock.  As of  February 9, 2005,  the  Company has issued  752,157
      shares  of its  common  stock in  connection  with this  transaction.  The
      Company will record additional goodwill amounting to $752,157 in the first
      quarter of


                                       79
<PAGE>
                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002

      2005. The seller may receive additional  consideration of up to $5,619,608
      under an earn-out  arrangement  payable at the rate of  $1,100,000  in the
      first year and  $1,254,902  per year over the next four years based on the
      future financial performance of Shaanxi.

      In  addition,  the  Company  agreed  to pay the  seller  55% of  Shaanxi's
      accounts receivable  balances,  net of assumed liabilities (the "Effective
      Date  Net  Accounts  Receivable"),  existing  on the  date of  acquisition
      realized in cash within 180 days following the acquisition with a targeted
      distribution  date in August  2004.  Effective  September  20,  2004,  the
      Company amended the purchase agreement for a change in the settlement date
      from August 2004 to an initial payment of $1,045,000 on or before November
      15, 2004,  and the final  payment of $868,000 on or before March 31, 2005.
      The amendment also fixed the date of distribution  for collections in cash
      after the initial 180 day working capital assessment period from being due
      when  collected to March 31, 2005. On March 21, 2005,  the Company and the
      seller  entered  into a  financing  arrangement  whereby the amount due on
      March 31, 2005 would  become  subject to a note payable due March 31, 2006
      with interest at 10% per annum.  Due to this  financing  arrangement,  the
      balance due to the seller amounting to $1,897,539 is included in the other
      long-term  liabilities in the  consolidated  balance sheet at December 31,
      2004.

      The acquisition,  which  significantly  enhances the Company's presence in
      the region,  was accounted for as a purchase and accordingly,  the results
      of  operations  and cash  flows  of  Shaanxi  have  been  included  in the
      Company's consolidated financial statements prospectively from the date of
      acquisition.  Because the Company consolidates its foreign subsidiaries on
      a one-month lag, such  information has been reflected in the  consolidated
      statement of operations effective for periods subsequent to April 1, 2004.
      At December 31, 2004,  the total  purchase  price,  including  acquisition
      expenses of $269,000,  but excluding  the  contingent  consideration,  was
      $6,650,000.  The following table summarizes the allocation of the purchase
      price  based on the fair  value of the  assets  acquired  and  liabilities
      assumed at March 1, 2004 (in thousands):

             Current assets                   $ 15,090
             Furniture and equipment               157
             Goodwill                            2,161
             Other intangible assets             1,453
                                              --------
                  Total assets acquired         18,861
             Current liabilities assumed        (9,727)
             Minority interest                  (2,484)
                                              --------
                  Net assets acquired         $  6,650
                                              ========

                                       80
<PAGE>
                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002


      The acquired  intangible assets have a weighted average life of 6.6 years.
      The intangible assets include a customer related  intangible of $1,112,100
      with a 7.1 year life and a covenant-not-to-compete of $341,000 with a five
      year life.  The  $2,161,100  of goodwill  was  assigned  to the  Company's
      International  Services business unit and is not deductible for income tax
      purposes.

      The  following  unaudited  pro forma  information  is  presented as if the
      acquisition  of Shaanxi  had  occurred  on  December  1,  2002,  using the
      one-month lag  consolidation  policy (in  thousands,  except  earnings per
      share):
                                                       Year ended December 31,
                                                      -------------------------

                                                         2004            2003
                                                      ---------       ---------
Total revenue                                         $ 391,637       $ 287,785
Loss from continuing operations                         (12,245)            (56)
Net loss                                                (12,295)            (56)
Earnings per share:
   Basic                                              $   (0.31)      $   (0.01)
   Diluted                                            $   (0.31)      $   (0.01)

(6)   Acquired Intangible Assets

      Information with respect to acquired intangible assets is as follows:

<TABLE>
<CAPTION>
                                                                            December 31,
                                                     --------------------------------------------------------------
                                                               2004                               2003
                                                     ----------------------------      ----------------------------
                                                       Gross                              Gross
                                                      Carrying       Accumulated         Carrying      Accumulated
                                                       Amount        Amortization         Amount       Amortization
                                                     -----------     ------------      -----------     ------------
<S>                                                  <C>              <C>              <C>              <C>
      Amortizable intangible assets:
         Customer related                            $11,042,100      $ 4,813,229      $ 8,970,000      $ 2,923,033
         Covenants-not-to-compete                      1,506,000          654,885        1,119,000          390,074
                                                     -----------      -----------      -----------      -----------
      Total                                          $12,548,100      $ 5,468,114      $10,089,000      $ 3,313,107
                                                     ===========      ===========      ===========      ===========

      Aggregate amortization expense:

           For the year ended December 31, 2004      $ 2,282,887
           For the year ended December 31, 2003        1,615,662
           For the year ended December 31, 2002        1,404,778


      Estimated aggregate amortization expense:

           For the year ended December 31, 2005      $ 1,859,000
           For the year ended December 31, 2006        1,547,000
           For the year ended December 31, 2007        1,254,000
           For the year ended December 31, 2008          931,000
           For the year ended December 31, 2009          607,000
</TABLE>


                                       81
<PAGE>

                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002

(7)   Technology, Furniture and Equipment

      Technology, furniture and equipment consists of the following:

                                                           December 31,
                                                -------------------------------
                                                    2004               2003
                                                ------------       ------------
      Furniture and office equipment            $  6,105,146       $  3,396,048
      Computer software                            3,845,479          5,006,495
      Leasehold improvements                       1,037,696            593,425
      Vehicles                                       241,179             62,334
                                                ------------       ------------
                                                  11,229,500          9,058,302
                                                ------------       ------------
      Less: accumulated depreciation              (3,633,641)        (1,995,346)
                                                ------------       ------------
                                                $  7,595,859       $  7,062,956
                                                ============       ============

(8)   Credit Facilities

      In May 2002, the Company secured a $15,000,000  revolving  credit facility
      (the "U.S.  Facility") which was increased to $20,000,000  during 2003 and
      to $25,000,000 in 2004. The U.S.  Facility is  collateralized  by accounts
      receivable and other assets of the Company and its subsidiaries. Under the
      original  U.S.  Facility,  the  Company  had the  option  to  elect to pay
      interest  at a rate  equal to LIBOR  plus  2.25% or the  prime  rate.  The
      Company also paid a commitment fee of 0.5% per annum on the average unused
      balance of the U.S.  Facility.  The Company  could use advances  under the
      U.S.  Facility to finance future  acquisitions,  capital  expenditures  or
      other  corporate  purposes.  Borrowings  under the original U.S.  Facility
      could be limited based upon  measures of the Company's  cash flow, as well
      as a covenant that limited  funded debt (the "Funded Debt  Covenant") to a
      multiple of consolidated earnings before interest, taxes, depreciation and
      amortization ("EBITDA") generated from the operations of the United States
      subsidiaries.  At December 31, 2004, the  outstanding  balance on the U.S.
      Facility was $13,911,700; based on available collateral and an outstanding
      $150,000 letter of credit commitment,  there was $7,565,700  available for
      borrowing under the U.S. Facility.

      On July 28,  2004,  the  Company  amended  its U.S.  Facility to provide a
      bridge loan with a principal amount of $5,000,000,  a term of 120 days and
      interest at 200 basis points above the prime rate. The amendment  modified
      certain  financial  covenants,  including  but not  limited  to, cash flow
      coverage ratio test,  funded debt  limitations  and domestic and worldwide
      funded  debt  to  consolidated  EBITDA.  The  Company  borrowed  the  full
      $5,000,000  available  under  the  bridge  loan on  August  24,  2004  and
      subsequently repaid the bridge loan facility by November 26, 2004.

      The Company restated its consolidated  financial statements as of December
      31, 2003 and 2002 and for each of the years in the three-year period ended
      December  31, 2003,  which  resulted in the  technical  default of certain
      financial covenants of the U.S. Facility, as amended.  These defaults were
      waived and the Company  entered into a further  amended  revolving  credit
      facility,  dated  November  17,  2004.  This  amendment  reduced  the U.S.
      Facility  term from May 15, 2007 to January 31, 2006,  reduced the maximum
      availability  under the U.S.  Facility from  $25,000,000  to  $22,500,000,
      established  minimum  quarterly EBITDA targets for the Company and defined
      segments  commencing  in the quarter  ended  December 31, 2004,  precluded
      acquisitions,  eliminated LIBOR based borrowings,  fixed the interest rate
      at the lender's  prime rate plus 200


                                       82
<PAGE>

                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002

      basis points and imposed semi-annual fees of approximately $125,000, among
      other changes to the  agreement.  At December 31, 2004, the Company was in
      default of the EBITDA target for the quarter ended December 31, 2004, and,
      as a result of a cross  default  provision,  the Company was in default of
      its Master Lease  Agreement  dated June 6, 2003. On March 16, 2005,  these
      defaults  were  waived by the lender and  lessor;  however,  future  lease
      payments  to July 1,  2006  under the  Master  Lease  Agreement  have been
      accelerated to March 31, 2005. Accordingly, the consolidated balance sheet
      at December 31, 2004 reflects all future  payments  under the Master Lease
      Agreement  as  current  liabilities.  See  also  Note  18  for  additional
      information about the U.S. Facility.

      Effective  October  27,  2004,  a  subsidiary  of the  Company,  Stonepath
      Holdings (Hong Kong) Limited ("Asia Holdings")  entered into a Term Credit
      Agreement  with Hong Kong Central  League Credit Union (the  "Lender") and
      SBI  Advisors,  LLC,  as agent for the Lender.  The Term Credit  Agreement
      provides  Asia  Holdings  with the right to borrow  an  initial  amount of
      $3,000,000 and up to an additional  $7,000,000  upon the  satisfaction  of
      certain conditions. The obligations of Asia Holdings under the Term Credit
      Agreement  are  secured  by  floating  charges  on  the  foreign  accounts
      receivable  of  three  of  its  subsidiaries,   Planet  Logistics  Express
      (Singapore) Pte. Ltd., GLink Express  (Singapore) Pte. Ltd., and Stonepath
      Logistics  (Hong Kong)  Limited.  Asia  Holdings  borrowed  $3,000,000  on
      November  4,  2004  and  $2,000,000  on  February  16,  2005.  There is no
      assurance that the remaining $5,000,000 will be available to Asia Holdings
      under the Term  Credit  Agreement.  All  borrowings  under the Term Credit
      Agreement  bear interest at an annual rate of 15% and must be repaid on or
      before November 4, 2005. The obligation to repay the borrowings  under the
      Term Credit Agreement may be accelerated by the Lender upon the occurrence
      of events of default  customary for loan  transactions.  Stonepath  Group,
      Inc. has guaranteed the obligations of Asia Holdings under the Term Credit
      Agreement.  The  outstanding  balance  on the  Term Credit  Agreement  was
      $3,000,000 at December 31, 2004.

      During the year ended  December  31, 2004 and 2003,  the Company  incurred
      interest  costs of $701,391 and $189,359,  respectively,  of which $61,900
      and $47,500, respectively, was capitalized.


                                       83
<PAGE>

                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002

(9)   Income Taxes

      Deferred  tax  assets  and  liabilities  are  determined  based  upon  the
      estimated  future  tax  effects  of  temporary   differences  between  the
      financial  statement and tax bases of assets and  liabilities,  as well as
      for operating and capital loss  carryforwards,  using the current  enacted
      tax rates.  Deferred  income tax assets and  liabilities are classified as
      current and noncurrent based on the financial reporting  classification of
      the  related  assets  and  liabilities  that  give  rise to the  temporary
      difference. The tax effects of temporary differences that give rise to the
      Company's deferred tax accounts are as follows:

<TABLE>
<CAPTION>
                                                                        December 31,
                                                              -------------------------------
                                                                  2004               2003
                                                              ------------       ------------
<S>                                                           <C>                <C>
      Deferred tax assets:
         Accruals                                             $    527,000       $    191,000
         Equity in losses of affiliate companies                   373,000            384,000
         Depreciation and amortization                             422,000            616,000
         Deferred compensation and warrants                      1,403,000          3,044,000
         Capital loss carryforward                               2,137,000          2,201,000
         Federal and state deferred tax benefits
           arising from net operating loss carryforwards        18,220,000          9,550,000
                                                              ------------       ------------
      Total gross deferred tax assets                           23,082,000         15,986,000
      Less: valuation allowance                                (23,082,000)       (15,986,000)
                                                              ------------       ------------
      Net total deferred tax assets                                     --                 --
                                                              ------------       ------------
      Deferred tax liabilities:
           Amortization of goodwill for tax purposes            (1,600,900)          (985,600)
           Foreign taxes                                           (50,000)           (50,000)
                                                              ------------       ------------
      Total gross deferred tax liabilities                      (1,650,900)        (1,035,600)
                                                              ------------       ------------
         Net deferred tax liabilities                         $ (1,650,900)      $ (1,035,600)
                                                              ============       ============
</TABLE>

      The Company has not recorded  deferred  income taxes on the  undistributed
      earnings of its foreign subsidiaries because it is management's  intention
      to reinvest  such  earnings for the  foreseeable  future.  At December 31,
      2004, the undistributed  earnings of the foreign subsidiaries  amounted to
      approximately $2,268,000.  Upon distribution of these earnings in the form
      of dividends or otherwise, the Company may be subject to U.S. income taxes
      and foreign  withholding taxes. It is not practical,  however, to estimate
      the  amount of taxes that may be payable  on the  eventual  remittance  of
      these earnings.

      In  assessing  the  realizability  of  deferred  tax  assets,   management
      considers  whether it is more likely than not that some  portion or all of
      the deferred tax assets will not be realized.  The ultimate realization of
      deferred tax assets is dependent  upon the  generation  of future  taxable
      income  during  the  periods  in which the  temporary  differences  become
      deductible.  Management  considers the scheduled  reversal of deferred tax
      liabilities,  projected future taxable income and tax planning  strategies
      in making  this  assessment.  Based upon the level of  historical  taxable
      income and projections for future taxable income, management believes that
      a  valuation   allowance   against  the  gross   deferred  tax  assets  is
      appropriate.

      The net change in the valuation allowance for the years ended December 31,
      2004 and 2003 was an increase of $7,096,000  and a decrease of $6,042,000,
      respectively.  The increase in 2004 was principally due to the increase in
      the  amount  of the  deferred  tax  asset  related  to the  Company's  net
      operating loss carryforward. The decrease in 2003 was principally due to a
      reduction in the amount of the deferred tax asset  related to  stock-based
      compensation.  As of December 31, 2004, the Company had net operating loss
      carryforwards  for  federal and state  income tax  purposes  amounting  to
      approximately $47,000,000 and $50,000,000,  respectively.  The federal net
      operating loss  carryforwards  expire beginning 2018 through 2024, and the
      state net operating loss  carryforwards  expire beginning in 2005. The use
      of certain net operating losses may be subject to annual limitations based
      on changes in the ownership of the Company's  common stock,  as defined by
      Section 382 of the Internal Revenue Code.


                                       84
<PAGE>

                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002

      Income tax expense attributable to continuing operations is as follows:

                                                Years ended December 31,
                                      ------------------------------------------
                                         2004             2003            2002
                                      ----------      ----------      ----------
Current:
   Federal                            $       --      $       --      $       --
   State                                 109,337          40,000          30,000
   Foreign                             1,671,175         121,086           1,877
                                      ----------      ----------      ----------
                                       1,780,512         161,086          31,877
                                      ----------      ----------      ----------
Deferred:
   Federal                               572,600         448,800         309,500
   State                                  42,700          76,000          79,800
   Foreign                                    --          50,000              --
                                      ----------      ----------      ----------
                                         615,300         574,800         389,300
                                      ----------      ----------      ----------
                                      $2,395,812      $  735,886      $  421,177
                                      ==========      ==========      ==========

      In  addition  to the  amounts  reflected  above,  an income tax benefit of
      approximately  $19,000 has been allocated to  discontinued  operations for
      the year ended December 31, 2003.

      The following table  reconciles  income taxes based on the U.S.  statutory
      tax  rate to the  Company's  income  tax  expense  related  to  continuing
      operations.

<TABLE>
<CAPTION>
                                                                 Years ended December 31,
                                                       ----------------------------------------
                                                          2004           2003            2002
                                                       --------        --------        --------
<S>                                                       <C>             <C>              <C>
      Tax at statutory rate                                34.0%           34.0%           34.0%
      Amortization of goodwill                             (6.2)          112.0            35.4
      Change in valuation allowance                       (50.7)           22.5           (44.0)
      State taxes                                          (1.3)           29.0            12.5
      Effect of tax rates of foreign subsidiaries          (0.7)          (39.1)           (0.2)
      Non-deductible items                                 (1.1)           25.3            10.4

                                                       --------        --------        --------
      Income tax expense                                  (26.0)%         183.7%           48.1%
                                                       ========        ========        ========
</TABLE>

(10)  Commitments

      Employment Agreements

      At December 31, 2004, the Company had employment  agreements with three of
      its officers for an  aggregate  annual base salary of $810,000  plus bonus
      and  increases  in  accordance  with  the  terms  of the  agreements.  The
      contracts are for varying terms through October 2009.


                                       85
<PAGE>
                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002
      Leases

      The Company leases  equipment,  office and warehouse space under operating
      leases  expiring at various times through 2010.  During 2004,  the Company
      entered  into  various  capital  leases  aggregating  $458,408 for certain
      equipment  utilized in its Domestic  Services  segment.  During 2003,  the
      Company  entered into a capital lease for certain  technology and hardware
      related to its  Tech-Logis(TM)  project.  Total rent expense for the years
      ended  December 31, 2004,  2003 and 2002 was  $9,150,000,  $7,451,000  and
      $4,750,000, respectively. Future minimum lease payments are as follows:
<TABLE>
<CAPTION>
                                                                           Operating Leases
            Year ending December 31,                         Third-party     Related Party        Total       Capital Lease
      -------------------------------------------------      -----------   -----------------   -----------    -------------
<S>                                                          <C>              <C>              <C>              <C>
                        2005                                 $ 8,578,000      $    94,000      $ 8,672,000      $   914,491
                        2006                                   5,792,000               --        5,792,000          604,507
                        2007                                   3,862,000               --        3,862,000           85,891
                        2008                                   2,868,000               --        2,868,000               --
                        2009                                   1,952,000               --        1,952,000               --

                   Thereafter                                  1,516,000               --        1,516,000               --
                                                             -----------      -----------      -----------      -----------
      Total minimum lease payments                           $24,568,000      $    94,000      $24,662,000        1,604,888
                                                             ===========      ===========      ===========
      Less: Amount representing interest                                                                             94,427
                                                                                                                -----------
      Present value of minimum lease payments                                                                     1,510,461
      Less: Current portion of capital lease obligation                                                           1,510,461
                                                                                                                -----------
      Long-term portion of capital lease obligation                                                             $        --
                                                                                                                ===========
</TABLE>
Property under capital leases consists of the following:

                                                 December 31,
                                          ---------------------------
                                            2004             2003
                                          ---------       -----------

           Software                       $    --         $ 2,049,638
           Equipment                        458,409            --
           Accumulated amortization        (119,397)           --
                                          ---------       -----------
                                          $ 339,012       $ 2,049,638
                                          =========       ===========
      Employee Benefit Plan

      The Company sponsors voluntary defined contribution savings plans covering
      all U.S. employees. Company contributions are discretionary. For the years
      ended  December  31,  2004,  2003 and 2002,  total  Company  contributions
      amounted to $629,000, $547,000 and $260,000, respectively.

(11)  Contingencies

      Acquisition Agreements

      Assuming  minimum  pre-tax  income  levels are  achieved  by the  acquired
      companies,  the  Company  will  be  required  to  make  future  contingent
      consideration  payments by April 1 of the  respective  year as follows (in
      thousands):
<TABLE>
<CAPTION>
                                                      2006            2007            2008           2009            Total
                                                   ---------       ---------       ---------       ---------       ---------
<S>                                                <C>             <C>             <C>             <C>             <C>
      Earn-out payments:
         Domestic                                  $   8,050       $   2,500       $   2,500       $      --       $  13,050
         International                                 5,131           5,503           3,769           3,417          17,820
                                                   ---------       ---------       ---------       ---------       ---------
      Total earn-out
      Payments                                     $  13,181       $   8,003       $   6,269       $   3,417       $  30,870
                                                   =========       =========       =========       =========       =========
      Prior year pre-tax earnings targets (3)
         Domestic                                  $  12,306       $   3,500       $   3,500       $      --       $  19,306
         International                                12,446          13,502           8,840           7,723          42,511
                                                   ---------       ---------       ---------       ---------       ---------
      Total pre-tax earnings targets               $  24,752       $  17,002       $  12,340       $   7,723       $  61,817
                                                   =========       =========       =========       =========       =========
         Domestic                                       65.4%           71.4%           71.4%             --            67.6%
         International                                  41.2%           40.8%           42.6%           44.2%           41.9%
         Combined                                       53.3%           47.1%           50.8%           44.2%           49.9%
</TABLE>
----------
(1)   Excludes the impact of prior year's pre-tax earnings carryforwards (excess
      or shortfalls versus earnings targets).
(2)   During the 2005-2008  earn-out period,  there is an additional  contingent
      obligation  related to tier-two  earn-outs  that could be as much as $18.0
      million if certain of the acquired companies generate an incremental $37.0
      million in pre-tax earnings.
(3)   Aggregate pre-tax earnings targets as presented here identify the uniquely
      defined earnings targets of each acquisition and should not be interpreted
      to be the  consolidated  pre-tax  earnings of the Company which would give
      effect for, among other things,  amortization  or impairment of intangible
      assets  created in  connection  with each  acquisition  or  various  other
      expenses which may not be charged to the operating  groups for purposes of
      calculating earn-outs.

                                       86
<PAGE>
                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002

      Legal Proceedings

      The Company  was named as a  defendant  in eight  purported  class  action
      complaints  filed in the United  States Court for the Eastern  District of
      Pennsylvania  between September 24, 2004 and November 19, 2004. Also named
      as defendants in these lawsuits were officers  Dennis L. Pelino and Thomas
      L.  Scully and former  officer  Bohn H.  Crain.  These cases have now been
      consolidated  for all  purposes  in that  Court  under the  caption  In re
      Stonepath Group, Inc. Securities  Litigation,  Civ. Action No. 04-4515 and
      the  lead  plaintiff,  Globis  Capital  Partners,  LP,  filed  an  amended
      complaint in February 2005. The lead plaintiff  seeks to represent a class
      of purchasers of the Company's shares between March 29, 2002 and September
      20, 2004, and allege claims for securities  fraud under Sections 10(b) and
      20(a) of the Securities  Exchange Act of 1934. These claims are based upon
      the allegation that certain public  statements made during the period from
      March 29,  2002  through  September  20,  2004 were  materially  false and
      misleading  because they failed to disclose  that the  Company's  Domestic
      Services  operations  had  improperly   accounted  for  accrued  purchased
      transportation  costs.  The plaintiffs are seeking  compensatory  damages,
      attorneys' fees and costs,  and further relief as may be determined by the
      Court.  The  Company  and  the  individual  defendants  believe  that  the
      plaintiffs'  claims  are  without  merit and intend to  vigorously  defend
      against them.

      The  Company  has  been  named as a  nominal  defendant  in a  shareholder
      derivative  action on behalf of the Company  that was filed on October 12,
      2004 in the United  States  District  Court for the  Eastern  District  of
      Pennsylvania under the caption Ronald Jeffrey Neer v. Dennis L. Pelino, et
      al.,  Civ. A. No.  04-cv-4971.  Also named as defendants in the action are
      all of the  individuals  who were serving as directors of the Company when
      the  complaint  was filed  (Dennis L. Pelino,  J. Douglas  Coates,  Robert
      McCord,  David R. Jones,  Aloysius T. Lawn and John H.  Springer),  former
      directors Andrew Panzo, Lee C. Hansen, Darr Aley, Stephen George,  Michela
      O'Connor-Abrams  and Frank  Palma,  officer  Thomas L.  Scully  and former
      officers Bohn H. Crain and Stephen M. Cohen. The derivative action alleges
      breach of fiduciary duty, abuse of control, gross mismanagement,  waste of
      corporate assets,  unjust enrichment and violations of the  Sarbanes-Oxley
      Act of  2002.  These  claims  are  based  upon  the  allegation  that  the
      defendants knew or should have known that the Company's public filings for
      fiscal years 2001,  2002 and 2003 and for the first and second quarters of
      fiscal year 2004,  and certain press releases and public  statements  made
      during  the  period  from  January 1, 2001  through  August 9, 2004,  were
      materially  misleading.  The complaint  alleges that the  statements  were
      materially  misleading  because they  understated  the  Company's  accrued
      purchase  transportation  liability and related costs of transportation in
      violation of generally accepted  accounting  principles and they failed to
      disclose that the Company lacked internal controls.  The derivative action
      seeks  compensatory  damages in favor of the Company,  attorneys' fees and
      costs,  and  further  relief  as  may be  determined  by  the  Court.  The
      defendants  believe that this action is without merit, have filed a motion
      to dismiss this action, and intend to vigorously defend themselves against
      the claims raised in this action.

      By  letter  dated  March  25,  2005,  the  court-appointed  receiver  (the
      "Receiver") of Lancer  Management  Group,  LLC and certain related parties
      asserted that he has  determined  that  payments made by Lancer  Partners,
      L.P.  totaling  $3,000,000 and payments made by related entities  totaling
      $5,349,000 were avoidable as fraudulent transfers.  Lancer Partners,  L.P.
      and certain related entities  purchased  securities of the Company in past
      private  placement  transactions.  The  letter  provides  no basis for the
      Receiver's  determination and seeks evidence from the Company establishing
      that the payments  are not  avoidable  or the payment of  $8,349,000.  The
      Company is in the process of reviewing the transactions  identified in the
      Receiver's letter.

      On October 22, 2004, Douglas Burke filed a two-count action against United
      American   Acquisitions,   Inc.  ("UAF"),   Stonepath  Logistics  Domestic
      Services,  Inc.,  and the Company in the Circuit  Court for Wayne  County,
      Michigan. Mr. Burke is the former President and Chief Executive Officer of
      UAF. The Company purchased the stock of UAF from Mr. Burke on May 30, 2002
      pursuant to a Stock Purchase Agreement.  At the closing of the transaction
      Mr.  Burke  received  $5,100,000  and  received  the right to  receive  an
      additional  $11,000,000  in four  annual  installments  based  upon  UAF's
      performance in accordance  with the Stock Purchase  Agreement.  Subject to
      the purchase,  Stonepath  Logistics Domestic Services,  Inc. and Mr. Burke
      entered into an Employment  Agreement.  Mr. Burke's complaint alleges that
      the defendants  breached the terms of the  Employment  Agreement and Stock
      Purchase  Agreement  and seeks,  among other  things,  the  production  of
      financial information,  unspecified damages, attorney's fees and interest.
      The  defendants

                                       87
<PAGE>

                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002

      believe that Mr. Burke's claims are without merit and intend to vigorously
      defend  against  them.  In  addition,  the Company is seeking  $456,000 in
      excess earn-out payments that were paid to Mr. Burke.

      The  Company is not able to predict  the  outcome of any of the  foregoing
      litigation  at this  time,  since  each  action is in an early  stage.  An
      adverse  determination  in any of those  actions could have a material and
      adverse effect on the Company's financial position,  results of operations
      and/or cash flows.

      The  Company  has  received   notice  that  the  Securities  and  Exchange
      Commission  ("Commission")  is conducting an informal inquiry to determine
      whether  certain  provisions  of the  federal  securities  laws  have been
      violated  in  connection  with  the  Company's  accounting  and  financial
      reporting.  As  part of the  inquiry,  the  staff  of the  Commission  has
      requested  information relating to the restatement  amounts,  personnel at
      the  Air  Plus  subsidiary  and  Stonepath  Group,   Inc.  and  additional
      background  information for the period from October 5, 2001 to December 2,
      2004. The Company is voluntarily cooperating with the staff.

      The Company settled the suit brought by Emergent Capital Investment LLC in
      the United States District Court for the Southern  District of New York in
      exchange for the payment by the Company of $50,000. The settlement, net of
      insurance  recoveries  amounting  to  $25,000,  is  included  in loss from
      discontinued  operations in the  consolidated  statement of operations for
      the year ended December 31, 2004.

      On May 6, 2003,  the Company  elected to settle  litigation  instituted on
      August 20, 2000 by Austost  Anstalt Schaan,  Balmore Funds,  S.A. and Amro
      International,  S.A.  Although the Company  believed that the  plaintiffs'
      claims were without merit, the Company chose to settle the matter in order
      to  avoid  future  litigation  costs  and to  mitigate  the  diversion  of
      management's  attention from  operations.  The total  settlement  costs of
      $787,500,  paid  $437,500 in cash and $350,000 in shares of the  Company's
      common stock,  are included in litigation  and  nonrecurring  costs in the
      accompanying  consolidated  statement  of  operations  for the year  ended
      December 31, 2003.

      The Company is also  involved in various  other  claims and legal  actions
      arising in the ordinary course of business.  In the opinion of management,
      the ultimate disposition of those matters will not have a material adverse
      effect  on the  Company's  consolidated  financial  position,  results  of
      operations or liquidity. No accruals have been established for any pending
      legal proceedings.

(12)  Stockholders' Equity

      The  Company  has two  classes  of  authorized  stock:  common  stock  and
      preferred stock.

a)    Common Stock

      The Company is authorized to issue 100,000,000 shares of common stock, par
      value  $.001 per share.  The holders of common  stock are  entitled to one
      vote per share and are entitled to dividends  as declared.  Dividends  are
      subject  to the  preferential  rights  of  the  holders  of the  Company's
      preferred  stock.  The Company has never declared  dividends on its common
      stock.

      In March 2003,  the Company  completed a private  placement  of  4,470,000
      shares of its  common  stock at a price of  approximately  $1.35 per share
      realizing  gross  proceeds  of  $6,072,500.  This  placement  yielded  net
      proceeds of  $5,512,468  for the  Company,  after the payment of placement
      agent fees and other out-of-pocket costs associated with the placement.

      In October 2003,  the Company  completed a private  placement of 5,983,500
      shares of its common stock at a price of $2.20 per share  realizing  gross
      proceeds  of   $13,163,700.   This  placement   yielded  net  proceeds  of
      $12,552,947 for the Company, after the payment of placement agent fees and
      other out-of-pocket costs associated with the placement.

      On February 9, 2004 the Company filed a shelf registration  statement with
      the Commission.  This registration statement,  filed on Form S-3, had been
      declared  effective,  and  permitted  the Company to sell,


                                       88
<PAGE>

                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002

      in one or more public offerings,  shares of common stock, preferred stock,
      or warrants for proceeds of up to an aggregate  amount of $50,000,000.  In
      view of the Company's  late filing of its Form 10-Q for the three and nine
      month periods ending  September 30, 2004, the  aforementioned  Form S-3 is
      not available for use by the Company at this time.

b)    Preferred Stock

      The Company's Board of Directors has the authority, without further action
      by the stockholders,  to issue up to 10,000,000 shares of preferred stock,
      par value  $.001 per share,  that may be issued in one or more  series and
      with  such  terms  as may be  determined  by the  Board of  Directors.  At
      December  31,  2004,   there  are  no  preferred   shares  of  any  series
      outstanding.

      Series C Preferred Stock

      In March 2000, the Company  completed a private  placement  transaction in
      which it issued  4,166,667 shares of Series C Preferred Stock and warrants
      to purchase 416,667  additional shares of common stock for aggregate gross
      proceeds of $50,000,000.

      The terms of the Series C Preferred Stock  initially  required the Company
      to use the proceeds from this  offering  solely for  investments  in early
      stage Internet companies.  In February 2001, the Company received consents
      (the  "Consents")  from the holders of more than  two-thirds of its issued
      and  outstanding  shares  of  Series  C  Preferred  Stock to  modify  this
      restriction  to permit it to use the proceeds to make any  investments  in
      the ordinary course of business,  as from  time-to-time  determined by the
      Board of  Directors,  or for any other  business  purpose  approved by the
      Board of Directors.

      In exchange for the  Consents,  the Company  agreed to a private  exchange
      transaction  (the "Exchange  Transaction")  in which it would issue to the
      holders  of the  Series  C  Preferred  Stock  as of  July  18,  2002  (the
      "conversion  date"),  additional  warrants  to purchase up to a maximum of
      2,692,195  shares of common stock at an exercise price of $1.00 per share,
      and reduce the per share  exercise  price from $26.58 to $1.00 for 307,805
      existing warrants owned by the holders of the Series C Preferred Stock. As
      a condition to receiving the additional warrants and having their existing
      warrants re-priced,  the holders of the Series C Preferred Stock agreed to
      convert their shares of preferred stock into shares of common stock on the
      conversion date.

      At the request of the largest holder of Series C Preferred  Stock (because
      of legal limitations in its governing  instruments which prevented it from
      holding  investments in common stock),  the Company  expanded the Exchange
      Transaction to include an additional alternative.  Holders of the Series C
      Preferred  Stock  as  of  the  conversion  date  were  provided  with  the
      alternative of exchanging the common stock issuable upon conversion of the
      Series C Preferred Stock, the additional  warrants and re-priced warrants,
      for shares of a newly designated Series D Convertible Preferred Stock.

      As a result of the exercise of these rights by the holders of the Series C
      Preferred  Stock,  as of July 19,  2002,  all of the  Company's  shares of
      Series  C  Preferred  Stock,  representing  approximately  $44,600,000  in
      liquidation preferences, together with warrants to purchase 307,805 shares
      of the Company's  common stock,  were  surrendered and retired in exchange
      for a combination of securities consisting of:

      o     1,911,071 shares of common stock;

      o     1,543,413  warrants to purchase common stock at an exercise price of
            $1.00; and

      o     360,745 shares of Series D Convertible Preferred Stock.

      The  1,911,071  shares  of  common  stock and the  1,543,413  warrants  to
      purchase  shares of common stock at an exercise price of $1.00 were issued
      in exchange for 1,911,071  shares of Series C Preferred Stock and


                                       89
<PAGE>

                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002

      warrants to purchase  158,349  shares of the Company's  common stock at an
      exercise  price of $26.58 per share.  The exchange of the common stock for
      the Series C Preferred  Stock was  accounted  for as a  conversion  of the
      Series C Preferred  Stock pursuant to its terms.  The estimated fair value
      of the additional  warrants and the re-priced warrants had been previously
      recorded by the Company in 2001 as a  dividend,  so no further  amount was
      recorded in 2002.

      The remaining  1,803,725 shares of Series C Preferred Stock were converted
      into  1,803,725  shares of common stock.  In addition,  the Company issued
      1,307,130  additional  warrants to purchase  shares of common  stock at an
      exercise  price of $1.00 per  share  and  re-priced  149,457  warrants  to
      purchase shares of the Company's common stock (the re-priced warrants were
      re-priced  from an exercise price of $26.58 per share to an exercise price
      of $1.00 per share). The common stock,  additional  warrants and re-priced
      warrants were then immediately  surrendered by the holders in exchange for
      360,745 shares of Series D Convertible Preferred Stock.

      EITF Topic D-42,  The Effect on the  Calculation of Earnings per Share for
      the Redemption or Induced  Conversion of Preferred  Stock,  indicates that
      the excess of the carrying  amount of preferred  stock over the fair value
      of the  consideration  transferred  to the holders of the preferred  stock
      should be added to net  income.  The Series C  Preferred  Stock  which was
      converted into Series D Convertible  Preferred  Stock had a carrying value
      of  approximately   $21,645,000.   The  Company  obtained  an  independent
      appraisal  which  valued  the  Series  D  Convertible  Preferred  Stock at
      approximately $4,672,000. The excess of the carrying value of the Series C
      Preferred Stock over the fair value of the Series D Convertible  Preferred
      Stock was  added to net  income  for  purposes  of  computing  net  income
      attributable to common  stockholders for the year ended December 31, 2002.
      The Exchange Transaction had no effect on the cash flows of the Company.

      The  holders of the Series C Preferred  Stock  earned  162,741  additional
      shares of  Series C  Preferred  Stock  from  payment  of  preferred  stock
      dividends during the year ended December 31, 2002.

      Series D Convertible Preferred Stock

      Each share of the Series D  Convertible  Preferred  Stock was  convertible
      into ten shares of common stock of the Company.  The conversion terms were
      negotiated to be similar to the terms of the Exchange Transaction.  During
      the years  ended  December  31, 2004 and 2003,  310,477  shares and 50,265
      shares,  respectively,  of  Series  D  Convertible  Preferred  Stock  were
      converted  into  3,104,770  shares and 502,650  shares,  respectively,  of
      common stock of the Company.

      Preferred Stock Dividends

      For the year ended  December 31, 2002,  the  components  of the  preferred
      stock dividends were as follows:

<TABLE>
<S>                                                                       <C>
      Series C Preferred Stock dividend payable in kind                   $ (1,952,892)
      Non-cash credit: excess of carrying value of Series C
         Preferred Stock over the fair value of Series D Convertible
         Preferred Stock                                                    16,973,040

                                                                          ------------
                                                                          $ 15,020,148
                                                                          ============
</TABLE>

c)    Deferred Stock-Based Compensation

      The Company records deferred  compensation  when it makes restricted stock
      awards or compensatory  stock option grants to employees and  consultants.
      In the case of stock option  grants to  employees,  the amount of deferred
      compensation  initially  recorded is the difference,  if any,  between the
      exercise  price and quoted market value of the common stock on the date of
      grant.  Such  deferred  compensation  is fixed and remains  unchanged  for
      subsequent  increases or  decreases  in the market value of the  Company's
      common stock. In


                                       90
<PAGE>

                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002

      the case of  options  granted  to  consultants,  the  amount  of  deferred
      compensation  recorded is the fair value of the stock options on the grant
      date as determined  using a  Black-Scholes  valuation  model.  The Company
      records deferred  compensation as a reduction to stockholders'  equity and
      an offsetting  increase to additional  paid-in  capital.  The Company then
      amortizes deferred compensation into stock-based compensation expense over
      the performance period,  which typically coincides with the vesting period
      of the stock-based award of three to four years.

      The components of deferred compensation are as follows:

<TABLE>
<CAPTION>
                                                     Employees        Consultants          Total
                                                    -----------       -----------       -----------
<S>                                                 <C>               <C>               <C>
      Balance at January 1, 2002                    $   211,638       $        --       $   211,638
      Deferred compensation recorded                         --             3,193             3,193
      Amortization to stock-based compensation          (95,232)           (3,193)          (98,425)
                                                    -----------       -----------       -----------
      Balance at December 31, 2002                      116,406                --           116,406
      Amortization to stock-based compensation          (95,232)               --           (95,232)
                                                    -----------       -----------       -----------
      Balance at December 31, 2003                       21,174                --            21,174

      Deferred compensation recorded                         --            70,000            70,000
      Amortization to stock-based compensation          (21,174)          (38,700)          (59,874)
                                                    -----------       -----------       -----------
      Balance at December 31, 2004                  $        --       $    31,300       $    31,300
                                                    ===========       ===========       ===========
</TABLE>

      Stock-based compensation is included in personnel costs in the
      accompanying consolidated statements of operations.


                                       91
<PAGE>

                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002

(13)  Stock Options and Warrants

a)    Stock Options

      The Amended and Restated Stonepath Group, Inc. 2000 Stock Incentive Plan,
      (the "Stock Incentive Plan") covers 13,000,000 shares of common stock.
      Under its terms, employees, officers and directors of the Company and its
      subsidiaries are currently eligible to receive non-qualified and incentive
      stock options and restricted stock awards. Options granted generally vest
      over three to four years and expire ten years following the date of grant.
      The Board of Directors or a committee thereof determines the exercise
      price of options granted.

      The following summarizes the Company's stock option activity and related
      information:

                                                                       Weighted
                                                                       average
                                                          Range of     exercise
                                            Shares    exercise prices    price
                                           ---------  ---------------  --------
      Outstanding at January 1, 2002       6,282,883    $0.50 -17.50    $1.47
      Granted                              3,648,000     1.30 - 2.30     1.37
      Exercised                             (409,583)    0.50 - 1.00     0.96
      Expired                                (74,400)    0.70 - 1.58     0.98
                                          ----------
      Outstanding at December 31, 2002     9,447,300     0.50 -17.50     1.46
      Granted                              1,862,100     1.53 - 2.85     1.95
      Exercised                             (307,916)    0.70 - 1.30     1.04
      Expired                               (273,600)    9.27 -10.00     9.27
      Cancelled                             (123,750)    1.21 - 2.00     1.34
                                          ----------
      Outstanding at December 31, 2003    10,604,134     0.50 -17.50     1.36
      Granted                              3,774,700     0.75 - 3.75     2.25
      Exercised                           (2,089,094)    0.60 - 1.38     0.85
      Expired                                (24,000)           2.50     2.50
      Cancelled                             (859,556)    1.30 - 2.85     1.89
                                          ----------
      Outstanding at December 31, 2004    11,406,184    $0.50 -17.50    $1.70
                                          ==========


                                       92
<PAGE>

                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002

      The following table summarizes information about options outstanding and
      exercisable as of December 31, 2004:

<TABLE>
<CAPTION>
                                             Outstanding Options                        Exercisable Options
          ---------------      -----------     ----------------    --------------    -----------     --------------
                                               Weighted Average
              Range of            Number           Remaining      Weighted Average     Number       Weighted Average
          Exercise Prices      Outstanding     Contractual Life    Exercise Price    Exercisable     Exercise Price
          ---------------      -----------     ----------------    --------------    -----------     --------------
<S>                             <C>                <C>               <C>              <C>             <C>
         $0.50 - $1.00           3,895,334         7.0 years         $    0.79        3,157,833       $      0.80
         $1.01 - $2.00           4,189,619         7.5 years              1.47        2,863,412              1.45
         $2.01 - $4.00           3,248,031         7.8 years              2.78        1,922,950              2.72
         $6.38                      10,000         4.5 years              6.38           10,000              6.38
         $17.50                     63,200         2.7 years             17.50           63,200             17.50
                                ----------                                            ---------

         Total                  11,406,184         7.4 years         $    1.70        8,017,395       $      1.63
                                ==========                                            =========
</TABLE>

      On October 5, 2001, February 28, 2002 and July 3, 2002, the Company
      modified the existing option arrangements with its Chairman such that,
      effective as of July 3, 2002, vesting was fully accelerated on options to
      purchase 1,800,000 shares of the Company's common stock. Based on the
      excess of the trading price of the common stock on the dates of the
      modifications over the exercise price, the Company could incur a non-cash
      charge to its earnings of approximately $870,000 if the Chairman leaves
      the employment of the Company prior to the vesting dates specified in the
      original option grant.

b)    Warrants

      The following summarizes warrant activity and related information:

<TABLE>
<CAPTION>
                                                                      Range of       Weighted Average
                                                 Shares           Exercise Prices     Exercise Price
                                              -----------         ---------------     --------------
<S>                                            <C>                <C>                      <C>
      Outstanding at January 1, 2002            3,473,051         $ 0.82 - 26.58           $ 6.67
      Issued                                    1,693,413            1.00 - 1.23             1.02
      Exercised                                   (31,225)                  1.00             1.00
      Expired                                  (1,780,027)          2.40 - 10.00             5.16
      Cancelled                                  (407,806)           0.82- 26.58            20.26
                                              -----------
      Outstanding at December 31, 2002          2,947,406           1.00 - 26.58             2.51

      Issued                                      297,000                   1.49             1.49
      Exercised                                  (923,040)           1.00 - 1.49             1.13
      Expired                                    (437,970)          6.00 - 26.58            11.12
                                              -----------
      Outstanding at December 31, 2003          1,883,396            1.00 - 1.49             1.03

      Issued                                      600,000                   5.00             5.00
      Exercised                                  (525,612)                  1.00             1.00
                                              -----------
      Outstanding at December 31, 2004          1,957,784           $1.00 - 5.00           $ 2.26
                                              ===========
</TABLE>

      These warrants were issued primarily in connection with former borrowing
      arrangements, the Series C Preferred Stock issuance, the receipt of
      consulting services and services to be rendered in connection with a
      private placement of the Company's common stock. In 2002, the Company
      recorded $95,000 of deferred


                                       93
<PAGE>

                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002

      offering costs for warrants that were issued in connection with an
      anticipated private placement of the Company's common stock.

(14)  Fair Value of Financial Instruments

      At December 31, 2004 and 2003, the carrying values of cash and cash
      equivalents, accounts receivable, loans receivable, accounts payable and
      lines of credit approximated their fair values as they are short-term and
      are generally receivable or payable on demand. At December 31, 2004, the
      carrying value of the capital leases approximated their fair value, since
      they are payable in full on March 31, 2005. Other long-term liabilities
      represented amounts payable to the former shareholder of Shaanxi and
      approximated their fair value since they are now the subject of a
      recently-negotiated note payable, due March 31, 2006.

(15)  Related Party Transactions

      During 2002, the Company purchased certain computer equipment and
      peripherals for $28,000 from a company owned by the Company's Chairman.

      During 2002, the Company paid a total of $60,000 to two of its directors
      as a placement fee related to the employment of the Company's former Chief
      Financial Officer.

      During 2003, the Company paid $25,872 for consulting services received
      from a company owned by a director.

      At December 31, 2003, a former officer was indebted to the Company for a
      loan with an aggregate unamortized balance of $14,597. This loan is
      generally forgivable over a three-year term and for accounting purposes
      was amortized evenly to expense over the term which ended in April 2004.

      Certain  real estate is leased  under an  operating  lease from the former
      principal  shareholder of M.G.R.,  Inc. d/b/a Air Plus,  which the Company
      acquired on October 5, 2001. Rent under this arrangement was determined by
      a survey of comparable building rents and totaled $187,000 for each of the
      years ended December 31, 2004, 2003 and 2002.

      At  December  31,  2004,  a  former   principal   shareholder   of  Global
      Transportation  Services,  Inc.,  which the  Company  acquired on April 4,
      2003,  was indebted to the Company for a loan  amounting  to $87,500.  The
      loan  is  repayable  by  offset  against  his  portion  of the  contingent
      consideration payment to be made in 2006.

(16)  Segment Information

      SFAS No 131, Disclosures About Segments of an Enterprise and Related
      Information, established standards for reporting information about
      operating segments in financial statements. Operating segments are defined
      as components of an enterprise engaging in business activities about which
      separate financial information is available that is evaluated regularly by
      the chief operating decision maker in deciding how to allocate resources
      and in assessing performance. The Company identifies operating segments
      based on the principal service provided by the business unit. The Company
      determined that it has two operating segments: the Domestic Services
      platform, which provides a full range of logistics and transportation
      services throughout North America, and its International Services
      platform, which provides international air and ocean logistics services.
      Each segment has a separate management structure. The accounting policies
      of the reportable segments are the same as described in Note 2. Segment
      information, in which corporate expenses (other than the legal settlement
      and nonrecurring costs) have been fully allocated to the operating
      segments, is as follows (in thousands):


                                       94
<PAGE>

                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002

<TABLE>
<CAPTION>
                                                            Year Ended December 31, 2004
                                             ----------------------------------------------------------------
                                              Domestic        International
                                              Services           Services        Corporate            Total
                                             -----------       -----------      -----------       -----------
<S>                                          <C>               <C>              <C>               <C>
      Revenue from external customers        $   145,172       $   221,909      $        --       $   367,081
      Inter-segment revenue                           18               350               --               368
      Revenue from significant customer           46,998                --               --            46,998
      Segment operating income (loss)             (9,879)            4,303               --            (5,576)
      Segment assets                              42,278            76,420            4,248           122,946
      Segment goodwill                            19,641            17,638               --            37,279
      Depreciation and amortization                2,551             1,638               --             4,189
      Capital expenditures                         1,887               716            2,765             5,368

<CAPTION>
                                                             Year Ended December 31, 2003
                                             ----------------------------------------------------------------
                                              Domestic        International
                                              Services           Services        Corporate            Total
                                             -----------       -----------      -----------       -----------
<S>                                          <C>               <C>              <C>               <C>
      Revenue from external customers        $   129,474       $    90,610      $        --       $   220,084
      Inter-segment revenue                           56               124               --               180
      Revenue from significant customer           53,582                 _               --            53,852
      Segment operating income (loss)             (1,465)            4,312           (1,169)            1,678
      Segment assets                              49,780            36,577            3,912            90,269
      Segment goodwill                            19,641            11,868               --            31,509
      Depreciation and amortization                2,259               401               --             2,660
      Capital expenditures                           643               140            3,400             4,183

<CAPTION>
                                                             Year Ended December 31, 2002
                                             ----------------------------------------------------------------
                                              Domestic        International
                                              Services           Services        Corporate            Total
                                             -----------       -----------      -----------       -----------
<S>                                          <C>               <C>              <C>               <C>
      Revenue from external customers        $    78,319       $    44,469      $        --       $   122,788
      Inter-segment revenue                           76                15               --                91
      Revenue from significant customer           40,164                 _               --            40,164
      Segment operating income (loss)             (1,023)            1,770                                747
      Segment assets                              40,682            13,867             (564)           53,985
      Segment goodwill                            13,923             5,208               --            19,131
      Depreciation and amortization                2,036               151               --             2,187
      Capital expenditures                           788               349              676             1,813
</TABLE>


                                       95
<PAGE>

                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002

      The revenue in the table below is allocated to geographic areas based upon
the location of the customer (in thousands):

<TABLE>
<CAPTION>
                                                               Year Ended December 31,
                                                       ------------------------------------------
                                                          2004            2003            2002
                                                       ----------      ----------      ----------
<S>                                                    <C>             <C>             <C>
      Total revenue:

      United States                                    $  239,389      $  208,591      $  121,111
      Asia                                                116,388           8,003           1,076
      North America (excluding the United States)             220           1,360              55
      Europe                                                6,507           1,287             344
      South America                                         2,605              --              --
      Other                                                 1,972             843             202
                                                       ----------      ----------      ----------
      Total                                            $  367,081      $  220,084      $  122,788
                                                       ==========      ==========      ==========
</TABLE>

      The following table presents long-lived assets by geographic area (in
      thousands):

                                                December 31,
                                           ----------------------
                                             2004          2003
                                           --------      --------
               United States               $  6,797      $  6,737
               Asia                             691           326
               South America                    108            --
                                           --------      --------
                                           $  7,596      $  7,063
                                           ========      ========

Cash on deposit with foreign banks amounted to $6,005,000 at December 31, 2004.

                                       96
<PAGE>

                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002

(17)  Quarterly Information (Unaudited)

      The following is a summary of certain unaudited quarterly financial
      information for fiscal 2004 and 2003:

<TABLE>
<CAPTION>
                                                                      Quarter Ended
                                          ------------------------------------------------------------------------
      2004                                  March 31             June 30          September 30        December 31
      -------------------------------     -------------       -------------       -------------      -------------
<S>                                       <C>                 <C>                 <C>                <C>
      Total revenue                       $  60,224,390       $  86,469,712       $ 109,711,414      $ 110,675,149
      Cost of transportation                 43,472,712          67,404,844          84,638,366         86,842,725
                                          -------------       -------------       -------------      -------------
      Net revenue                         $  16,751,678       $  19,064,868       $  25,073,048      $  23,832,424
                                          =============       =============       =============      =============
      Income (loss) from continuing
       operations                         $  (5,700,446)      $  (1,368,806)      $     105,767      $  (6,054,870)
      Gain (loss) from discontinued
       operations                                    --                                 (50,000)            25,000
                                          -------------       -------------       -------------      -------------
      Net income (loss) attributable
       to common stockholders             $  (5,700,446)      $  (1,368,806)      $      55,767      $  (6,029,870)
                                          =============       =============       =============      =============
      Loss per common share:
        Basic
          Continuing                      $       (0.15)      $       (0.03)      $          --      $       (0.15)
          Discontinued operations                    --                  --                  --                 --
                                          -------------       -------------       -------------      -------------
        Earnings per common share         $       (0.15)      $       (0.03)      $          --      $       (0.15)
                                          =============       =============       =============      =============
        Diluted
          Continuing                      $       (0.15)      $       (0.03)      $          --      $       (0.15)
          Discontinued operations                    --                  --                  --                 --
                                          -------------       -------------       -------------      -------------

        Earnings per common share         $       (0.15)      $       (0.03)      $          --      $       (0.15)
                                          =============       =============       =============      =============

<CAPTION>
                                                                      Quarter Ended
                                          ------------------------------------------------------------------------
      2003                                  March 31             June 30          September 30        December 31
      -------------------------------     -------------       -------------       -------------      -------------
<S>                                       <C>                 <C>                 <C>                <C>
      Total revenue                       $  38,572,441       $  46,333,989       $  65,507,874      $  69,669,977
      Cost of transportation                 26,634,489          34,392,588          47,554,483         49,524,035
                                          -------------       -------------       -------------      -------------
      Net revenue                         $  11,937,952       $  11,941,401       $  17,953,391      $  20,145,942
                                          =============       =============       =============      =============
      Income (loss) from continuing
       operations                         $  (1,656,934)      $  (1,792,020)      $   1,307,951      $   1,618,431
      Gain (loss) from discontinued
       operations                                    --            (354,991)                 --             91,960
                                          -------------       -------------       -------------      -------------
      Net income (loss) attributable
       to common stockholders             $  (1,656,934)      $  (2,147,011)      $   1,307,951      $   1,710,391
                                          =============       =============       =============      =============

      Earnings (loss) per common
       share:
        Basic
          Continuing operations           $       (0.07)      $       (0.06)      $        0.04      $        0.05
          Discontinued operations                    --               (0.01)                 --                 --
                                          -------------       -------------       -------------      -------------
        Earnings per common share         $       (0.07)      $       (0.07)      $        0.04      $        0.05
                                          =============       =============       =============      =============
        Diluted
          Continuing operations           $       (0.07)      $       (0.06)      $        0.03      $        0.04
          Discontinued operations                    --               (0.01)                 --                 --
                                          -------------       -------------       -------------      -------------
        Earnings per common share         $       (0.07)      $       (0.07)      $        0.03      $        0.04
                                          =============       =============       =============      =============
</TABLE>


                                       97
<PAGE>

                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002

(18)  Subsequent Events

      On March 21, 2005, the Company and the former Shaanxi  shareholder entered
      into a  financing  agreement  whereby  the  amount  payable  to the former
      shareholder  for  55% of  Shaanxi's  working  capital  at the  date of the
      acquisition  (approximately  $1,900,000)  became subject to a note payable
      due March 31, 2006 with interest at 10% per annum.

      As of March 2,  2005,  the  Company  failed  to  deliver  to the  lender a
      compliance  certificate and certain financial statements as of and for the
      period ended January 31, 2005 as required by its U.S.  Facility.  On March
      28, 2005, the Company  obtained a waiver of the breach of these  covenants
      as well as an extension of the term of the agreement from January 31, 2006
      to May 31, 2006. The Company  incurred a fee of $50,000 in connection with
      this waiver.  The lender also  requires  the Company to secure  additional
      financing of $5,000,000 by April 30, 2005 or have  availability  under the
      U.S.  Facility  reduced by $250,000 and incur a fee of  $100,000.  Similar
      fees and  reductions in  availability  will occur on each of May 31, 2005,
      June 30, 2005,  September 30, 2005,  December 31, 2005 and March 31, 2006.
      If the financing is received,  the Company will incur fees of $100,000 and
      availability  reductions of $250,000 on each of August 31, 2005,  November
      30, 2005 and February 28, 2006.  In  connection  with the extension of the
      term of the loan agreement, the payoff of the leases referred to in Note 8
      have been  modified  from full  payment on March 31,  2005 to  $438,000 on
      March 31, 2005 and the remaining balance of $904,000 on April 30, 2005.


                                       98
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders of
Stonepath Group, Inc.:

Under date of February 24, 2004, we reported on the  consolidated  balance sheet
of Stonepath  Group,  Inc.  and  subsidiaries  as of December 31, 2003,  and the
related  consolidated   statements  of  operations,   stockholders'  equity  and
comprehensive income (loss) and cash flows for each of the years in the two-year
period  ended  December  31,  2003.  In  connection   with  our  audits  of  the
aforementioned  consolidated  financial statements,  we also audited the related
financial statement schedule as of and for the years ended December 31, 2003 and
2002, as listed in the accompanying  index. This financial statement schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement schedule based on our audits.

In our opinion,  such financial statement schedule,  when considered in relation
to the  basic  consolidated  financial  statements  taken as a  whole,  presents
fairly, in all material respects, the information set forth therein.


                                  /s/ KPMG LLP

Philadelphia, Pennsylvania
January 31, 2005


                                       99
<PAGE>

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                     STONEPATH GROUP, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
                                                                 Column C - Additions
                                                             ------------------------------
                                                                                   (2)
                                             Column B -           (1)            Charged
                                             Balance at        Charged to       to other           Column D         Column E -
            Column A -                      beginning of       costs and        accounts -        Deductions-       Balance at
           Description                         period           expenses         describe         describe(a)     end of period
-------------------------------------      ------------      ------------      ------------      ------------     -------------
<S>                                        <C>               <C>               <C>               <C>               <C>
Allowance for doubtful accounts:
  Year ended December 31, 2004             $  1,055,000      $  1,838,000      $         --      $ (1,340,000)     $  1,553,000
                                           ============      ============      ============      ============      ============

   Year ended December 31, 2003            $    320,000      $    771,000      $         --      $    (36,000)     $  1,055,000
                                           ============      ============      ============      ============      ============

   Year ended December 31, 2002            $    167,000      $    153,000      $         --      $         --      $    320,000
                                           ============      ============      ============      ============      ============

Reserve for excess earn-out payments:

  Year ended December 31, 2004             $  1,270,141      $  3,075,190      $         --      $         --      $  4,345,331
                                           ============      ============      ============      ============      ============

  Year ended December 31, 2003             $         --      $  1,270,141      $         --      $         --      $  1,270,141
                                           ============      ============      ============      ============      ============
</TABLE>

(a)   Represents writeoff of uncollectible accounts receivable.


                                       100
<PAGE>

                                   SIGNATURES

      Pursuant to the  requirements  of the Securities  Exchange Act of 1934, as
amended,  the  registrant  has duly caused this Annual Report on Form 10-K to be
signed on its behalf by the undersigned,  thereunto duly authorized, in the City
of Philadelphia, Commonwealth of Pennsylvania, on March 31, 2005.

                               STONEPATH GROUP, INC.


                               BY: /s/ Jason Totah
                                   --------------------
                               Jason Totah (Chief Executive Officer)


                               BY: /s/ Thomas L. Scully
                                   --------------------
                               Thomas L. Scully (Chief Financial Officer,
                               Vice President and Controller)

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this Annual Report on Form 10-K has been signed by the following  persons in the
capacities indicated:

       SIGNATURE                         TITLE                        DATE

/s/ Dennis L. Pelino             Chairman of the Board           March 31, 2005
--------------------
Dennis L.Pelino

/s/ J. Douglass Coates                 Director                  March 31, 2005
----------------------------
Douglass Coates

/s/ John Springer                      Director                  March 31, 2005
----------------------------
John Springer

/s/ David R. Jones                     Director                  March 31, 2005
----------------------------
David R. Jones

/s/ Aloysius T. Lawn, IV               Director                  March 31, 2005
----------------------------
Aloysius T. Lawn, IV

/s/ Robert McCord                      Director                  March 31, 2005
----------------------------
Robert McCord


                                       101