<PAGE>
================================================================================
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-K/A

                [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   For the Fiscal Year Ended December 31, 2002
                                       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:

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

           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. [ ]

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

The aggregate market value of the Registrant's common stock held by
non-affiliates of the Registrant as of June 28, 2002 was $21,606,526 based upon
the closing sale price of the Registrant's common stock on the American Stock
Exchange of $1.10 on such date. See Footnote (1) below.

                  The number of shares outstanding of the Registrant's common
stock as of March 17, 2003 was 27,945,914.

                    Documents Incorporated by Reference: None

               Index to Exhibits appears at page 43 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/A
                            FOR THE FISCAL YEAR ENDED
                                DECEMBER 31, 2002

                                TABLE OF CONTENTS
<TABLE>
<S>      <C>        <C>                                                                                               <C>
PART I..................................................................................................................1
------
         Item 1.    Business............................................................................................1
         -------    --------
         Item 2.    Properties.........................................................................................13
         -------    ----------
         Item 3.    Legal Proceedings..................................................................................13
         -------    -----------------
         Item 4.    Submission of Matters to a Vote of Security Holders................................................14
         -------    ---------------------------------------------------

PART II................................................................................................................14
-------
         Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters..............................14
         -------    ---------------------------------------------------------------------
         Item 6.    Selected Financial Data............................................................................17
         -------    -----------------------
         Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations..............19
         -------    -------------------------------------------------------------------------------------
         Item 7A.   Quantitative and Qualitative Disclosures About Market Risk.........................................33
         --------   ----------------------------------------------------------
         Item 8.    Financial Statements and Supplementary Data........................................................33
         -------    -------------------------------------------
         Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...............33
         -------    ------------------------------------------------------------------------------------

PART III...............................................................................................................33
--------
         Item 10.   Directors and Executive Officers of the Registrant.................................................33
         --------   --------------------------------------------------
         Item 11.   Executive Compensation.............................................................................35
         --------   ----------------------
         Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.....39
         --------   ----------------------------------------------------------------------------------------------
         Item 13.   Certain Relationships and Related Transactions.....................................................41
         --------   ----------------------------------------------
         Item 14.   Controls and Procedures............................................................................42
         --------   -----------------------

PART IV................................................................................................................43
-------
         Item 15.   Exhibits, Financial Statement Schedules and Reports on Form 8-K....................................43
         --------   ---------------------------------------------------------------

SIGNATURES.............................................................................................................83
----------
</TABLE>
                                        i
<PAGE>

                                Explanatory Note

         This Form 10-K/A is being filed to restate our consolidated financial
statements as of and for the years ended December 31, 2002 and 2001 and to
revise certain disclosures in connection with a review of our Form 10-K for the
year ended December 31, 2002 by the Staff of the Division of Corporation Finance
of the Securities and Exchange Commission. The restatement of our consolidated
financial statements relates to (i) allocating more value to the customer
relationship intangible assets for some of our acquisitions and (ii) revising
the amortization method and life used for such assets. The Financial Outlook
section previously included in Item 7 of Part II of our Form 10-K has been
omitted as it has been superceded by subsequent guidance provided by us. Except
as otherwise specifically noted, all information contained herein is as of
December 31, 2002 and does not reflect any events or changes in information that
may have occurred subsequent to that date.

                                     PART I

      This Annual Report on Form 10-K/A 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
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 management solutions. We
service a customer base of manufacturers, distributors and national retail
chains through a network of offices in 18 major metropolitan areas in North
America, plus two international locations, and an extensive network of over 200
independent carriers and over 150 service partners strategically located around
the world.

      Our strategic 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 base of
logistics 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 and Europe.
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 through the adoption of
enhanced technologies and business processes; (2) improving transportation
margins by leveraging our growing purchasing power; and (3) enhancing the
opportunity for organic growth by cross-selling and offering expanded services.

      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, the industry is positioned for
further consolidation since it remains highly fragmented, and since customers
are demanding the types of sophisticated and broad reaching service offerings
that can more effectively be handled by larger and more diverse organizations.

                                        1
<PAGE>


           There are a variety of risks associated with our ability to achieve
our strategic objectives, including 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."

      Through December 31, 2002, we have completed the following four
acquisitions:

      o   On October 5, 2001, we acquired M.G.R., Inc., d/b/a "Air Plus Limited"
          and its operating affiliates, a group of Minneapolis-based privately
          held companies that provide a full range of logistics and
          transportation services (collectively, "Air Plus"). Air Plus provides
          the platform for our Domestic Services organization.

      o   On April 4, 2002, we acquired Global Transportation Services, Inc.
          ("Global"), a Seattle-based privately held company that provides a
          full range of international air and ocean logistics services. Global
          provides the platform for our International Services organization.

      o   On May 30, 2002, we acquired United American Freight Services, Inc.
          ("United American"), a Detroit-based organization as an "add-on"
          acquisition to our Domestic Services organization to expand our
          service offering to include a time definite logistics service for the
          automotive industry.

      o   On October 1, 2002, we acquired Transport Specialists, Inc. ("TSI"), a
          Virginia-based organization as an "add-on" acquisition to our Domestic
          Services organization to broaden our customer base to include various
          U.S. government agency and contractor relationships.

       We are also in the process of closing a transaction that will
 significantly increase our presence in Asia. On March 12, 2003, we announced an
 agreement to acquire a 70% interest in Singapore-based G-Link Group, a
 "platform acquisition" that will provide the foundation for our service
 offering in Southeast Asia. We expect to close the transaction by no later than
 June 30, 2003, subject to customary closing conditions, including securing
 third-party and regulatory approvals and the completion of an audit for the
 year ended December 31, 2002.

      Beyond these immediate acquisition opportunities, we have also identified
a number of additional companies that may be suitable acquisition candidates and
we are in preliminary discussions with a select number of them.

Industry Overview

      As business requirements for efficient and cost-effective distribution
services have increased, so has the importance and complexity of effectively
managing freight transportation. Businesses are increasingly striving 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 are increasingly citing
an efficient supply chain as a critical element in achieving 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, many businesses turn to organizations providing
a broad array of supply chain services. These service providers consist of
freight forwarders, customs brokers, warehouse operators and other value added
logistics service providers. We believe that these service providers must
possess 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.

      The Company believes it can differentiate itself 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 management, Web-based order management, warehousing,
reverse logistics, dedicated trucking and regional and local distribution. The
Company also believes that it has a competitive advantage resulting from its
extensive knowledge of logistics markets, information systems, the experience of
its logistics managers and the market information it possesses from its diverse
customer base.

                                        2
<PAGE>

      Market penetration of third-party logistics providers ("3PLs") is still
relatively low. According to industry sources, total revenue for the third-party
logistics services in the U.S. was approximately $61 billion in 2001,
representing about 8% of the total logistics market that could be outsourced to
3PLs. The market for third-party logistics services in the United States is
expected to grow at an average rate of about 15% over the next several years, or
to well over $100 billion by 2006. The total logistics market available to 3PLs
in the United States is expected to grow at an average rate of about 4% over the
next several years, to approximately $875 billion in 2006, from $720 billion in
2001.

      Barring the risk of international crisis and armed conflicts, 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 respective core
          competencies. From managing purchase orders to the timely delivery of
          products, companies turn to 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. 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 and allow them to manage their working
          capital more efficiently by reducing inventory levels and inventory
          loss.

      o   Consolidation of logistics function. As companies try to develop
          "partnering" relationships with fewer suppliers, they are
          consolidating 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 and to allocate their overhead over a larger
          volume of transactions. Globally-integrated freight forwarders and
          supply chain management 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.

      According to a survey led by Dr. C. John Langley, Georgia Institute of
Technology, third-party logistics use among North American companies increased
to 78% in 2002, from 68% to 73% usage rates reported in the previous six years.

      We expect the strategic role of information technology and the demand for
real-time information such as inventory visibility and order status updates to
have a positive impact on our business. According to Dr. Langley's survey, of
the top five information technologies which 3PLs provided to companies in 2002,
64% of the respondents utilized Web-enabled communications, a 33% increase over
2001, and 77% utilized warehouse/distribution center management technologies, a
7% increase from the previous year.

      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, which have both 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 accelerated organic growth. We
intend to carry out the following strategies:

                                        3
<PAGE>

      o   Enter New and Expand Existing Markets through Acquisitions. We are
          pursuing an aggressive acquisition strategy 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 the potential to benefit from the synergies
          offered by our acquisition strategy.

      o   Accelerate Organic Growth. A key component of our strategy is to
          accelerate the organic growth of our existing business as well as the
          business of the companies we acquire. We expect that internal growth
          can be accelerated by cross-selling our domestic and international
          capabilities to our existing customer base and deploying supply chain
          technologies that will drive new customer acquisition.

      o   Development of Identity. We are also developing the "Stonepath
          Logistics" brand and intend to leverage our broader set of
          capabilities with the goal of capturing business opportunities which
          would not normally be available to a regionally-oriented logistics
          company.

      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 will continue to expand our Domestic and International service
platforms in the United States through a number of "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 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 will continue to pursue
"platform" acquisitions to expand in targeted markets in Asia, South America and
Europe which will further enable our global supply-chain execution capabilities
and improve our overall profitability. We believe that our combined domestic and
international capabilities 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 revenues and improve its
profitability by implementing our operating strategies for internal growth.

      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. In most
instances where there is overlap of geographic coverage, operations acquired by
add-on acquisitions can be integrated into our existing operations in that
market, resulting in the elimination of duplicative overhead and operating
costs.

      We believe we can successfully implement 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) a decentralized management strategy,
which should, in most cases, enable the acquired company's management to remain
involved in the operation of the Company; and (vi) the ability to utilize our
experienced management in identifying acquisition opportunities.

      Our Operating Strategy

      o   Foster a Decentralized Entrepreneurial Environment. A key element of
          our operating strategy is to foster a decentralized, entrepreneurial
          environment for our employees. We intend to foster this environment by
          continuing to build on the names, reputations and customer
          relationships of acquired companies and by sharing their operating
          policies, procedures and expertise across the organization to develop
          new ideas to best serve the prospects of the Company. An
          entrepreneurial business atmosphere is likely to 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.

                                        4
<PAGE>

      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 the
          transaction or assignment-oriented approach used by many of our
          competitors. To develop close customer relationships, we regularly
          meet with both existing and prospective customers to help design
          solutions for, and identify the resources needed to execute, 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, and 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.

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
management, 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. 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 and Federal Express 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 can be broadly classified into the following categories:

      o   Freight Forwarding Services. We offer domestic and international air,
          ocean and ground freight forwarding for shipments that are generally
          larger than shipments handled by integrated carriers of primarily
          small parcels such as Federal Express Corporation and United Parcel
          Service. 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.

      o   Customs Brokerage Services. Our International Services organization
          provides customs brokerage services in the United States and will
          provide similar services in other countries in which we choose to
          operate. 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, 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 management and
          protective packing and storage. We receive storage charges for use of
          our warehouses and fees for our other services.

                                        5
<PAGE>

      Other value added services provided by the Company 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   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. For example, such services are useful to
          retailers where deliveries from diverse sources are organized and
          distributed to maximize efficiency of the customer's sales and
          marketing programs.

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

      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 Services

      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 is a key component of our growth
strategy. We believe that the ability to provide accurate real-time information
on the status of shipments will become increasingly important and that our
efforts in this area will result in competitive service advantages in winning
new customers and growing business in existing accounts. In addition, through
the process of centralizing our back-office operations and using our
transportation management system to automate the rating, routing, tender and
financial settlement processes for transportation movements, we believe we will
drive significant productivity improvement across our Stonepath 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-LogisTM (or Technology in Logistics). We intend to use
Tech-LogisTM 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 supply chain operating system including order, inventory,
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.

      This strategy will result in the investment of significant management and
financial resources to deliver these enabling technologies and deliver financial
and competitive advantage in the years ahead.

Sales and Marketing

      We market services on a global basis supported by the sales efforts of
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 when
achievable, to increase the quantity of business transacted with each customer
over time. Additionally, we have increased our emphasis on 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 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 and obtain 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,
2002, our largest customer, Best Buy Co., Inc., accounted for approximately 29%
of our revenues. Approximately 21% of our 2002 revenue was derived from our next
five largest customers, none of which accounted for 10% or more of our 2002
revenue. As our current companies continue to diversify, and as we continue our
acquisition strategy, our exposure to customer and industry concentrations
should be significantly reduced.

                                        6
<PAGE>

      We have begun to place an increased emphasis on the development of a
global brand platform. Over the course of 2003, we will begin to operate all of
our businesses under the single global brand "Stonepath Logistics," which we
believe will help us reach our organic expansion goals.

Competition and Business Conditions

      Our business is directly impacted by the volume of domestic and
international trade. The volume of such 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 departments. This competition is based primarily on
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 as 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 and 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 Danzas AEI
Intercontinental, Expeditors International of Washington, Inc., UPS Supply Chain
Solutions (a unit of United Parcel Service) 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 will 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 the
operations of the Company and the motor carriers which we use to provide

                                        7
<PAGE>

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 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 during the remainder of
the current or succeeding years.

Personnel

      At December 31, 2002, we had approximately 510 total employees.
Approximately 410 employees were engaged principally in operations, 30 in sales
and marketing, and 70 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 within the
transportation and logistics industry as it:

      o   demonstrates 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. Mr. Pelino brings
to us 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 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 web site
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.

Segment Information

      For additional information about our business segments, see the business
segment information presented in Note 16 to our Consolidated Financial
Statements.

                                        8
<PAGE>

Risks Particular to our Business

      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 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 financing will be required to implement our business
strategy.

      Through cash resources and our existing credit facility, we believe we
have sufficient capital to implement our acquisition strategy in the short term.
However, we will need additional financing to pursue our acquisition strategy in
the longer term. We intend to obtain the additional financing through a
combination of additional commercial debt financing or the placement of debt and
equity securities. We may finance some portion of our future acquisitions by
using shares of our common stock for all or a substantial portion of the
purchase price. In the event that our common stock does not attain or maintain a
sufficient market value, or potential acquisition candidates are otherwise
unwilling to accept common stock as part of the consideration for the sale of
their businesses, we may be required to use more cash to maintain our
acquisition program. If we do not have sufficient cash resources, our growth
could be limited unless we are able to obtain additional capital through debt or
equity financings.

      o Earn-out payments due in connection with our acquisitions could require
us to incur additional indebtedness or issue additional equity securities.

      We are required to make significant cash payments in the future when the
earn-out installments for our acquisitions become due. While we believe that a
material portion of the required cash will be generated by each of the acquired
subsidiaries, we most likely will have to secure additional sources of capital
to fund some portion of the earn-out payments as they become due. This may
require us to incur additional indebtedness or issue additional equity
securities. We cannot be certain that we will be able to borrow any funds for
this purpose on terms acceptable to us, if at all, or that once we incur such
indebtedness, that we will be able to operate profitably. Additional
indebtedness could negatively impact our cash flow and ability to make further
acquisitions. Issuing additional shares of common stock or common stock
equivalents to generate the required financing would increase the number of
shares outstanding and further dilute the interests of our existing
stockholders.

      o Our credit facility places certain limits on the type and number of
acquisitions we may make.

      We have obtained a $15.0 million credit facility from LaSalle Business
Credit, Inc. to provide additional funding for acquisitions and for our on-going
working capital requirements. Under the terms of the credit facility, we are
permitted to make additional acquisitions without the lender's consent only if
certain conditions are satisfied. The conditions imposed by the credit facility
include the following: (1) the absence of an event of default under the credit
facility; (2) the company to be acquired must be in the transportation and
logistics industry; (3) the purchase price to be paid must be consistent with
our historical business and acquisition model; (4) the undrawn availability
under the credit facility must average $5.0 million for the 60 days preceding
the acquisition and must be at least $5.0 million on the date of the
acquisition; (5) the lender must be reasonably satisfied with projected
financial statements we provide covering a 12 month period following the
acquisition; (6) the acquisition documents must be provided to the lender and
must be consistent with the description of the transaction provided to the
lender; (7) the aggregate cash consideration paid at the closing for foreign
acquisitions must not exceed $5.0 million; and (8) the number of such permitted
acquisitions is limited to four per year (excluding any acquisitions for which
the purchase price is payable solely in stock). In the event that we were not
able to satisfy the conditions of the credit facility in connection with a
proposed acquisition, we would have to forego the acquisition unless we either
obtained the lender's consent or retired the credit facility. This may limit or
slow our ability to achieve the critical mass we may need to achieve our
strategic objectives.

      o Since we are not obligated to follow any particular criteria or
standards for acquisition candidates, stockholders 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 which we believe will provide the best
potential long-term financial return for our stockholders and we determine the
purchase price and other terms and conditions of acquisitions. Our stockholders
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.


                                        9
<PAGE>

      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 among companies seeking 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:

      o   a failure to agree on the terms necessary for a transaction, such as
          purchase price;
      o   incompatibility of operating strategies and management philosophies;
      o   competition from other acquirers of operating companies;
      o   insufficient capital to acquire a profitable logistics company; and
      o   the unwillingness of a potential acquiree to work with our management
          or our affiliated companies.

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

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

      The additional financing required to fund our acquisition strategy may
require us to issue additional shares of common stock or common stock
equivalents to generate the required financing. For example, we recently issued
4,470,000 shares of our common stock in a private placement transaction that
closed on March 6, 2003. This issuance, plus any subsequent issuances of
securities, will further increase the number of shares outstanding and further
dilute the interests of our existing stockholders. We may issue more shares of
common stock for this purpose without prior notice to our stockholders.

      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 in the discretion of our
Board of Directors, which could further dilute the interests of our existing
stockholders.

      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 the ownership interests of our existing stockholders
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 March 17, 2003, we have 27,945,914 outstanding shares. We may in the
future issue up to 16,828,043 additional shares of our common stock upon
exercise or conversion of the following existing outstanding convertible
securities:
<TABLE>
<CAPTION>
                                                                           Number of Shares            Proceeds
                                                                           ----------------            --------
<S>                                                                        <C>                       <C>
Upon conversion of our Series D Preferred Stock                                3,607,450             $        --
Options granted under our Stock Option Plan                                    8,145,600               9,568,060
Non-plan options                                                               2,282,900               5,981,650
Warrants                                                                       2,792,093               3,012,908
                                                                             -----------             -----------

Total                                                                         16,828,043             $18,562,618
                                                                              ==========             ===========
</TABLE>

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

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

                                       10
<PAGE>

      Even though our customer base will likely diversify as we grow through
acquisitions, our customer base has been highly concentrated. For the year ended
December 31, 2002 our largest customer, Best Buy Co., Inc., accounted for
approximately 29% of our total revenues. Our next five largest customers
accounted for approximately 21% of our total revenues, with none of these
customers accounting for 10% or more of our total revenues. We believe the risk
posed by this concentration is mitigated by our long standing and continuing
relationships with these customers and we are confident that these relationships
will remain ongoing for the foreseeable future. We intend to continue to provide
superior service to all of our customers and have no expectation that revenues
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.

         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 revenues 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. The following
factors could adversely affect our current international operations, as well as
the growth of those operations:

           o   the political and economic systems in certain international
               markets are less stable than in the United States;
           o   wars, civil unrest, acts of terrorism and other conflicts exist
               in certain international markets;
           o   export restrictions, tariffs, licenses and other trade barriers
               can adversely affect the international trade serviced by our
               international operations;
           o   managing distant operations with different local market
               conditions and practices is more difficult than managing domestic
               operations;
           o   differing technology standards in other countries present
               difficulties and expense in integrating our services across
               international markets;
           o   complex foreign laws and treaties can adversely affect our
               ability to compete; and
           o   our ability to repatriate funds may be limited by 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. Primarily, any of these acts could result in
increased volatility in or damage to the U.S. and worldwide financial markets
and economy. They could also result in a continuation of the current economic
uncertainty in the United States and abroad. 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 corresponding 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 our Chief Executive Officer, Dennis L. Pelino, as well as
the heads of our domestic and international service organizations, Gary Koch and
Jason Totah, 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.

                                       11
<PAGE>

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

The market price of our common stock could be highly volatile. Some factors that
may affect the market price include:

        o actual or anticipated fluctuations in our operating results;
        o announcements of technological innovations or new commercial products
          or services by us or our competitors;
        o 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;
        o acts of global terrorism or armed conflicts; and
        o changes in recommendations or earnings estimates by us or by
          securities analysts.

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

      o Our cash flow may be adversely affected in the future once we fully
utilize our consolidated net operating loss carryforward.

      Due to losses we incurred in our former business model, we have
accumulated a net operating loss carryforward for federal income tax purposes.
As of December 31, 2002, we expect that approximately $21.7 million of these
losses will be available to offset our future taxable income until the losses
are fully utilized. Once these losses have been fully utilized, our cash flows
will be affected accordingly.

      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 at the consolidated level. We may experience delays, disruptions and
unanticipated expenses in implementing, integrating and operating our
consolidated management information and financial reporting systems. 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.

      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 such subsidiaries to pay dividends and our ability
to receive distributions on our investments in other entities is subject to
applicable local law and other restrictions including, but not limited to,
applicable tax 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 marked 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
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. 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. See Item 3, Legal Proceedings.

      o We have a very 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 on April 4, 2002, May 30, 2002 and October 1, 2002. As a result, we
have a very 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.

                                       12
<PAGE>

      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 stockholders. 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 stockholder, 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.

      In addition, we lease and maintain logistics facilities in 18 locations
throughout the United States plus two 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 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.

      Our facilities are situated in the following locations:

                  Philadelphia, Corporate Headquarters
                  Minneapolis
                  Seattle
                  Chicago
                  Detroit
                  Dallas/Fort Worth
                  St. Louis
                  Atlanta
                  Indianapolis
                  Phoenix
                  Salt Lake City
                  Washington, D.C.
                  Norfolk
                  New York, NY
                  Boston
                  Portland
                  Los Angeles
                  San Francisco
                  Miami
                  St. Just, Puerto Rico
                  Hong Kong

Item 3.    Legal Proceedings

      On October 12, 2000, Emergent Capital Investment Management, LLC
("Emergent") filed suit against the Company and two of its officers contending
that it was misled by statements made by the defendants in connection with the
offering of the Company's Series C Preferred Stock which closed in March 2000.
Specifically, Emergent alleges that it is entitled to rescind the transaction
because it was allegedly represented that the size of the offering would be
$20.0 million and the Company actually raised $50.0 million. Emergent seeks a
return of its $2.0 million purchase price of Series C shares. In June of 2001,
the Company moved for summary judgment in this case.

                                       13
<PAGE>

      After the summary judgment motion was filed, Emergent filed a second
action against the Company and two of its officers alleging different
allegations of fraud in connection with the Series C offering. In the new
complaint, Emergent alleges that oral statements and written promotional
materials distributed by the Company at a meeting in connection with the Series
C offering were materially inaccurate with respect to the Company's investment
in Net Value, Inc., a wholly owned subsidiary of the Company. Emergent also
contends that the defendants failed to disclose certain allegedly material
transactions in which an officer was involved prior to his affiliation with the
Company. The Company filed a motion to dismiss this new action for failure to
state a claim upon which relief can be granted.

      On October 2, 2001, the Court entered an order granting summary judgment
to the defendants in the first case filed by Emergent and dismissing Emergent's
second complaint for failure to state a claim upon which relief can be granted.
The Court allowed Emergent 20 days to file a second amended complaint as to the
second action only. On October 21, 2001, Emergent did file a second amended
complaint in the second action. The second amended complaint does not raise any
new factual allegations regarding Emergent's participation in the offering.

      The Company filed a motion to dismiss Emergent's second amended complaint.
On April 15, 2002, the United States District Court for the Southern District of
New York entered an order granting the motion to dismiss Emergent's second
amended complaint against the Company and its former officers. The Court refused
to grant Emergent an additional opportunity to re-plead its claims against the
defendants and a final order dismissing the matter has been entered. Emergent
thereafter filed a notice of appeal to the United States Court of Appeals for
the Second Circuit, which is currently pending. The Company believes that it has
substantial defenses to the plaintiff's claims and intends to vigorously defend
this action.

      On August 22, 2000, Austost Anstalt Schaan, Balmore Funds, S.A. and Amro
International, S.A., purchasers of the Company's convertible promissory notes,
filed suit against the Company in the United States District Court for the
District of Delaware. The plaintiffs allege that, contrary to the Company's
covenant in the subscription agreement they executed, which required Stonepath
to "use reasonable commercial efforts to register" the shares of its common
stock underlying the convertible promissory notes "at some future date," the
Company verbally agreed to register such shares in the first registration
statement it filed with the Securities and Exchange Commission subsequent to the
transaction. The plaintiffs assert claims for breach of contract and the duty of
good faith and fair dealing, fraud, violation of federal securities laws,
estoppel, and reformation and seek damages in excess of $20.0 million, plus
attorneys' fees and costs. In response to a motion to dismiss that was filed by
the Company, the Court dismissed the federal securities law and estoppel claims
and denied the motion as to all other claims. Discovery in this case has
concluded, and the Company recently filed a motion for summary judgment as to
all counts of the complaint. This motion has been briefed and is pending. The
Company believes it has substantial defenses to the remaining claims and intends
to defend the matter vigorously.

      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 these 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.

Item 4. Submission of Matters to a Vote of Security Holders

      None

                                     PART II

Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters

      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 2002 and 2001.

                                                            High          Low
                                                            ----          ---
                  Year ended December 31, 2001
                           First quarter                    $1.13        $0.38
                           Second quarter                    1.33         0.57
                           Third quarter                     1.88         0.97
                           Fourth quarter                    2.10         0.90

                  Year ended December 31, 2002
                           First quarter                     2.15         1.20
                           Second quarter                    2.95         1.10
                           Third quarter                     1.70         0.95
                           Fourth quarter                    1.74         1.01

                                       14
<PAGE>

Share Information

      As of March 17, 2003, there were 27,945,914 shares of our common stock
outstanding, owned by 276 registered holders of record. Management estimates
there are approximately 3,700 additional stockholders holding their 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 pursuant to the terms of our outstanding credit facility.

Equity Compensation Plan Information

      The following table sets forth information, as of December 31, 2002, 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 securities to     Weighted-average      future issuance under equity
                                             be issued upon exercise    exercise price of       compensation plan (excluding
                                             of outstanding options,   outstanding options,        securities reflected in
               Plan Category                   warrants and rights     warrants and rights               column (a))
<S>                                          <C>                       <C>                       <C>
Equity compensation plans approved by
     security holders                               7,164,000                 $1.09                       2,426,417(1)
Equity compensation plans not approved
     by security holders                            2,283,300                 $2.62                              --
                                                    ---------                                             ---------

Total                                               9,447,300                 $1.46                       2,426,417
                                                    =========                 =====                       =========
</TABLE>
----------------
(1)   Does not include exercised options to purchase 409,583 shares of our
      common stock under the Company's Stock Option Plan.

Recent Sales of Unregistered Securities

      1. In May 2000, we issued 113,214 shares of our common stock to Webmodal,
Inc. in conjunction with a cash investment, pursuant to which we purchased
563,000 shares of Series A Preferred Stock of Webmodal, Inc. We issued these
shares of common stock in a transaction exempt from the registration
requirements of the Securities Act of 1933, pursuant to Section 4(2) thereunder.

      2. During 2001, we issued 77,916 shares of our common stock, cumulatively,
to a group of 16 former employees as severance and in exchange for the
cancellation of their options to purchase 1,309,917 shares of our common stock.
We issued these shares of common stock in a transaction exempt from the
registration requirements of the Securities Act of 1933, pursuant to Section
4(2) thereunder.

      3. During 2001, we issued options to purchase 245,000 shares of our common
stock in consideration for services provided. 50,000 options were issued on
March 7, 2001 at an exercise price of $0.70 per share, and 20,000 options were
issued on June 21, 2001 at an exercise price of $1.00 per share, to various
outside attorneys for services rendered. 75,000 options were issued in March
2001 to PMG Capital at an exercise price of $0.70 per share in consideration for
investment banking services. 100,000 options were issued on June 30, 2001 to
Brown Simpson Partners I, Ltd. at an exercise price of $0.82 per share in
consideration for advisory services. All of these options were issued in a
transaction exempt from the registration requirements of the Securities Act of
1933, pursuant to Section 4(2) thereunder.

      4. On or about July 19, 2002, we completed a private exchange transaction
resulting in the restructuring of our outstanding shares of Series C Preferred
Stock. In the restructuring, all of the Company's shares of Series C Preferred
Stock, representing approximately $44.6 million in liquidation preferences, were
surrendered and retired in exchange for a combination of securities consisting
of: (i) 1,911,071 shares of our common stock upon conversion of the Series C
Preferred Stock; (ii) warrants to purchase 1,543,413 shares of common stock at
an exercise price of $1.00 through July 18, 2005 (including an amendment to the
158,348 Series C warrants that were originally granted in March 2000 for the
purpose of reducing the exercise price thereof from $26.58 to $1.00 per share
and extending the exercise period from March 2003 to July 18, 2005); and (iii)
360,745 shares of a newly designated class of Series D Convertible Preferred
Stock which in the future are convertible into 3,607,450 shares of our common
stock.

                                       15
<PAGE>

      Each holder of our Series D Convertible Preferred Stock has the right to
convert at any time all or a portion of his Series D Convertible Preferred Stock
into ten (10) shares of common stock for each share of Series D Convertible
Preferred Stock converted, subject to certain anti-dilution adjustments. Any
shares of Series D Convertible Preferred Stock that are outstanding after
December 31, 2004 will automatically be converted into common stock. Automatic
conversion will also occur: (i) once the average closing price of our common
stock is over $7.50 for thirty (30) consecutive trading days; (ii) upon a merger
or sale transaction after December 31, 2003, unless the transaction otherwise
provides for the exchange of the outstanding shares of Series D Convertible
Preferred Stock for a like-kind preferred stock of the acquirer/surviving
corporation; or (iii) upon the affirmative vote of holders of eighty (80%)
percent of the Series D Convertible Preferred Stock.

      The warrants and shares of the Series D Convertible Preferred Stock were
issued in a transaction exempt from the registration requirements of the
Securities Act of 1933, pursuant to Section 4(2) and Rule 506 thereunder. The
shares of our common stock issued upon conversion of our Series C Preferred
Stock were issued in a transaction exempt from the registration requirements of
the Securities Act of 1933 pursuant to Section 3(a)(9) thereunder.

      5. On October 16, 2002, we issued warrants to purchase 150,000 shares of
our common stock to affiliates of Stonegate Securities, Inc. at an exercise
price of $1.23 per share. The warrants were issued in connection with services
to be rendered by Stonegate Securities, Inc. under a Placement Agency Agreement
with the Company dated October 16, 2002. The warrants were issued in a
transaction exempt from the registration requirements of the Securities Act of
1933, pursuant to Section 4(2) thereunder.

      6. On March 6, 2003, we issued 4,470,000 shares of our common stock
consisting of the sale of 4,270,000 shares at $1.35 per share and 200,000 shares
at $1.54 per share, to the accredited investors identified below in a private
placement transaction exempt from the registration requirements of the
Securities Act of 1933 pursuant to Section 4(2) and Rule 506 thereunder as an
issuer transaction not involving a public offering. In connection with this
transaction, we realized gross proceeds of approximately $6.1 million and paid a
brokerage fee consisting of cash commissions of approximately $364,000 and
placement agent warrants to purchase 297,000 shares of our common stock to
Stonegate Securities, Inc. at an exercise price of $1.49 per share. The
placement agent warrants were also issued in a transaction exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933.
<TABLE>
<CAPTION>
         Name                                                  Shares of Common Stock                   Price
         ----                                                  ----------------------                   -----
         <S>                                                   <C>                                      <C>
         George B. Clairmont 5-8-51 Trust                            60,000                             $1.35
         George B. Clairmont                                         60,000                             $1.35
         Ponte Vedra Partners Ltd.                                  100,000                             $1.35
         Ingleside Company                                          200,000                             $1.35
         Oberweis Micro-Cap Portfolio                               100,000                             $1.35
         BFS US Special Opportunities Trust PLC                     400,000                             $1.35
         Renaissance US Growth Investment Trust PLC                 200,000                             $1.35
         Renaissance Capital Growth & Income Fund III, Inc.         200,000                             $1.35
         Sherleigh Associates Inc. Profit Sharing Plan              400,000                             $1.35
         SBL Fund Series V                                          520,000                             $1.35
         Security Equity Fund - Mid Cap Value Series                480,000                             $1.35
         MidSouth Investor Fund LP                                  100,000                             $1.35
         Atlas Capital (Q.P.), L.P.                                  59,025                             $1.35
         Atlas Capital Master Fund, Ltd.                            190,975                             $1.35
         A. Spector Capital, LLC                                    500,000                             $1.35
         Crestview Capital Fund I, L.P.                             185,000                             $1.35
         Crestview Capital Fund II, L.P.                            235,000                             $1.35
         Crestview Capital Offshore Fund, Inc.                       30,000                             $1.35
         Gryphon Master Fund, LP                                    200,000                             $1.35
         London Family Trust                                         50,000                             $1.35
         London Family Trust                                         25,000                             $1.54
         Scott R. Griffith SEP IRA                                   31,800                             $1.54
         Stonegate Securities, Inc.                                  43,200                             $1.54
         Dennis L. Pelino                                           100,000                             $1.54
</TABLE>

      7. Thirty-one employees of one of the Company's subsidiaries directed the
plan administrator of its 401(k) plan to make open market purchases of, in the
aggregate, 263,439 shares of the Company's common stock for allocation to their
individual participant accounts from September 2001 through November 2002. The
Company did not receive any of the proceeds from such transactions and it
believes such sales are exempt from registration by Section 4(2) of the
Securities Act of 1933, as amended.

                                       16
<PAGE>


Item 6.    Selected Financial Data

      The following selected financial data as of and for the dates indicated
has been derived from our consolidated financial statements and the combined
financial statements of our predecessor, Air Plus, and are not complete. You
should read the following selected financial data together with the consolidated
financial statements and related footnotes of the Company, the combined
financial statements and related footnotes of Air Plus and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

      The selected consolidated statement of operations data of the Company for
each of the years in the three-year period ended December 31, 2002 and the
balance sheet data of the Company as of December 31, 2002 and 2001 are derived
from the Company's consolidated financial statements, revised to reflect the
restatement thereof as more fully discussed in Note 2 to the consolidated
financial statements, that have been audited by KPMG LLP and are included in
this Annual Report on Form 10-K/A. The selected consolidated statement of
operations data of the Company for each of the years in the two-year period
ended December 31, 1999 and the balance sheet data of the Company as of December
31, 2000, 1999 and 1998 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/A.

      The selected combined statement of operations data of Air Plus for the
year ended December 31, 2000 is derived from Air Plus' combined financial
statements that have been audited by KPMG LLP and are included in this Annual
Report on Form 10-K/A. The selected combined statement of operations data of Air
Plus for the six months ended June 30, 2001 is derived from Air Plus' combined
financial statements which are unaudited and are included in this Annual Report
on Form 10-K/A.

      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 statements of
operations.

                                       17
<PAGE>

Consolidated Statement of Operations Data:
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
                                                            Stonepath Group, Inc.
                                      ---------------------------------------------------------
                                                          Year ended December 31,                       Air Plus
                                      ---------------------------------------------------------  -----------------------
                                                                                                  Six Months  Year ended
                                      Restated     Restated                                       ended June    December
                                        2002         2001        2000        1999        1998      30, 2001     31, 2000
                                      --------     --------    --------    --------    --------    ----------  ---------
<S>                                   <C>          <C>         <C>         <C>         <C>          <C>         <C>
                                      $139,649     $ 15,598    $      -    $      -    $      -     $26,015     $56,201
Revenues
Cost of transportation                 101,339        9,741           -           -           -      15,679      31,856
                                      --------     --------    --------    --------    --------     -------     -------
Net revenues                            38,310        5,857           -           -           -      10,336      24,345
Operating expenses                      35,956       10,409       7,420       2,761           -       9,660      20,544
                                      --------     --------    --------    --------    --------     -------     -------
Income (loss) from operations            2,354       (4,552)     (7,420)     (2,761)          -         676       3,801
Other income (expense)                     128        1,295       2,065      (2,812)          -         (24)        (11)
                                      --------     --------    --------    --------    --------     -------     -------
Income (loss) from continuing
   operations before income taxes        2,482       (3,257)     (5,355)     (5,573)          -         652       3,790
Income taxes                               102            -           -           -           -           -           -
                                      --------     --------    --------    --------    --------     -------     -------
Income (loss) from continuing
   operations                            2,380       (3,257)     (5,355)     (5,573)          -         652       3,790
Loss from discontinued  operations           -      (13,863)    (30,816)    (18,258)    (12,737)          -           -
                                      --------     --------    --------    --------    --------     -------     -------
Net income (loss)                        2,380      (17,120)    (36,171)    (23,831)    (12,737)        652       3,790
Preferred stock dividends               15,020       (4,151)    (45,751)     (6,605)    (15,251)          -           -
                                      --------     --------    --------    --------    --------     -------     -------
Net income (loss) attributable to
   common stockholders                $ 17,400     $(21,271)   $(81,922)   $(30,436)   $(27,988)    $   652     $ 3,790
                                      ========     ========    ========    ========    ========     =======     =======
Basic earnings (loss) per common share:
    Continuing operations             $   0.79     $  (0.36)   $  (2.89)   $  (1.15)   $      -
    Discontinued operations                  -        (0.68)      (1.75)      (1.73)      (5.94)
                                      --------     --------    --------    --------    ---------
                                      $   0.79     $  (1.04)   $  (4.64)   $  (2.88)   $  (5.94)
                                      ========     ========    ========    ========    ========
Diluted earnings (loss) per common
   share:(1)
    Continuing operations             $   0.08     $  (0.36)   $  (2.89)   $  (1.15)   $      -
    Discontinued operations                  -        (0.68)      (1.75)      (1.73)      (5.94)
                                      --------     --------    --------    --------    --------
                                      $   0.08     $  (1.04)   $  (4.64)   $  (2.88)   $  (5.94)
                                      ========     ========    ========    ========    ========
Weighted average common shares:
    Basic                               22,155       20,510      17,658      10,558       4,711
                                      ========     ========    ========    ========    ========
    Diluted                             29,233       20,510      17,658      10,558       4,711
                                      ========     ========    ========    ========    ========
</TABLE>

Consolidated Balance Sheet Data:
(in thousands)
<TABLE>
<CAPTION>
                                                               Stonepath Group, Inc.
                                                                     December 31,
                                      ---------------------------------------------------------
                                      Restated     Restated
                                        2002         2001        2000        1999        1998
                                      --------     --------    --------    --------    --------
<S>                                   <C>          <C>         <C>         <C>         <C>
Cash and cash equivalents             $  2,266     $ 15,228    $ 29,100    $  3,127    $      1

Working capital (deficit)                5,634       15,259      27,713      (4,213)     (8,750)
Total assets                            55,166       40,803      44,911      13,989         372
Long-term debt and redeemable
   preferred stock                           -            -           -       4,516           -
Stockholders' equity (deficit)          35,431       32,432      43,326       1,701      (8,750)
</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.

                                       18
<PAGE>

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

         As noted above, our consolidated financial statements as of and for the
years ended December 31, 2002 and 2001 have been restated in connection with a
review of our Form 10-K for the year ended December 31, 2002 by the Staff of the
Division of Corporation Finance of the Securities and Exchange Commission. The
restatement of our consolidated financial statements relates to (i) allocating
more value to the customer relationship intangible assets for some of our
acquisitions and (ii) revising the amortization method and life used for such
assets. The Financial Outlook section previously included in Item 7 of Part II
of our Form 10-K has been omitted as it has been superceded by subsequent
guidance provided by us. Except as otherwise specifically noted, all information
contained herein is as of December 31, 2002 and does not reflect any events or
changes in information that may have occurred subsequent to that date.

      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 management solutions. We
service a customer base of manufacturers, distributors and national retail
chains through a network of offices in 18 major metropolitan areas in North
America, plus two international locations, using an extensive network of over
200 independent carriers and over 150 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 volume of our flow of
freight enables us to negotiate attractive pricing with our transportation
providers.

      Our strategic objective is to build a leading global logistics services
organization that integrates established operating businesses and innovative
technologies. We plan to achieve this objective by broadening our network
through a combination of synergistic acquisitions and the organic expansion of
our existing base of operations. We are currently pursuing an aggressive
acquisition strategy to enhance our position in our current markets and to
acquire operations in new markets. The focus of this strategy is 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.



                                       19



<PAGE>


      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. 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
economies of scale from the 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 at 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 (first day through fifth
day delivery), special handling needs (heavy equipment, delicate 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 services which include customized distribution and
inventory management services, fulfillment services and other value added supply
chain services.

      Gross revenues represent 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 revenues (gross transportation revenues
less the direct cost of transportation) are the primary indicator of our ability
to source, add value and resell services provided by third parties, and are
considered by management to be a key performance measure. Management believes
that net revenues are also an important measure of economic performance. Net
revenues include transportation revenues and our fee-based activities, after
giving effect to the cost of purchased transportation. In addition, management
believes measuring its operating costs as a function of net revenues provides a
useful metric as our ability to control costs as a function of net revenues
directly impacts operating earnings. With respect to our services other than
freight transportation, net revenues are identical to gross revenues.

                                       20
<PAGE>
      Our operating results will be affected as acquisitions occur. Since all
acquisitions are made using the purchase method of accounting for business
combinations, our financial statements will only include the results of
operations and cash flows of acquired companies for periods subsequent to the
date of acquisition. Accordingly, our results of operations only reflect the
operations of: Air Plus for periods subsequent to October 5, 2001; Global for
periods subsequent to April 4, 2002; United American for periods subsequent to
May 30, 2002, and TSI for periods subsequent to October 1, 2002.

      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 revenues are
largely derived from customers whose shipments are dependent upon consumer
demand and just-in-time production schedules, the timing of our revenues 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 revenues. 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.

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
3 to the consolidated financial statements, areas that are particularly
significant include 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.

      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
has been 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, basic earnings per share and diluted earnings
per share would have decreased by $0.09 and $0.06, respectively, in 2002.

      As discussed in Note 5 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 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 assets to be held and used is measured by
comparing the carrying amount of the asset to the future net undiscounted cash
flows expected to be generated by the asset. We cannot guarantee that our assets
will not be impaired in future periods.

      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 concerning 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, 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 as much as $21.7
million in NOLs may be available to offset current and future federal taxable
income. Under SFAS No. 109, Accounting for Income Taxes, we are required to
provide a valuation allowance to offset any net 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. Given our historical losses and our
limited track record of profitability to date, we maintained a full valuation
allowance against our deferred tax assets as of December 31, 2002 which is
consistent with what was done in the prior year. If we continue to operate
profitably in 2003, we believe that we may be able to demonstrate that it is
more likely than not that we will be able to use some or all of the NOLs in the
future. When, and if, we can cross the threshold of "more likely than not", we
would reduce our valuation allowance against all or a portion of the deferred
tax asset.

                                       21
<PAGE>
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 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.

      Results of Operations

Basis of Presentation

      Our results of operations are presented in a manner that is intended to
provide meaningful data with respect to our transition to and ongoing operations
as a third-party logistics company. Since Global and United American were
acquired in 2002, our historical results from continuing operations for 2001
reflect only the operations of Air Plus for the three months ended December 31,
2001. Accordingly, in addition to providing comparative analysis on a historical
basis, we have also provided supplemental unaudited pro forma information that
we believe is useful to an understanding of how our results of operations have
performed on a year on year basis.


      Year ended December 31, 2002 (historical) compared to year ended December
31, 2001 (historical)

      The following table summarizes our historical total revenues, net
transportation revenues and other revenues (in thousands):
<TABLE>
<CAPTION>
                                                                                         Change
                                                                                   ------------------
                                                              2002       2001       Amount     Percent
                                                            --------    -------    --------    -------
          <S>                                               <C>         <C>        <C>         <C>
          Total revenues                                    $139,649    $15,598    $124,051    795.3%
                                                            ========    =======    ========    ======

          Transportation revenues                            130,371     15,174     115,197     759.2
          Cost of transportation                             101,339      9,741      91,598     940.3
                                                            --------    -------    --------
          Net transportation revenues                         29,032      5,433      23,599     434.5
                      Net transportation margins               22.3%      35.8%

          Customs brokerage                                    6,290          -       6,290        NM
          Warehousing and other
               value added services                            2,988        424       2,564     604.7
                                                            --------    -------    --------
                              Total net revenues            $ 38,310    $ 5,857    $ 32,453     554.1
                                                            ========    =======    ========
</TABLE>

      Total revenues were $139.6 million for the year ended December 31, 2002,
an increase of $124.1 million or 795.3% over total revenues of $15.6 million for
the comparable period in 2001. $73.5 million or 59.3% of the increase in total
revenues was attributable to the operations of the businesses we acquired in
2002; $5.3 million or 4.3% was due to an increase in Air Plus' revenues for the
fourth quarter of 2002 over the comparable period in 2001 ("organic growth");
and the remaining $45.2 million or 36.4% of the increase was attributable to an
incremental three quarters of Air Plus' operations in 2002 over 2001.

                                       22
<PAGE>

      Net transportation revenues were $29.0 million for the year ended December
31, 2002, an increase of $23.6 million or 434.5% over net transportation
revenues of $5.4 million for the comparable period in 2001. $8.5 million or
36.0% of the increase in net transportation revenues was attributable to
acquisitions; $1.0 million or 4.2% was due to organic growth; and the remaining
$14.1 million or 59.8% of the increase was attributable to an incremental three
quarters of Air Plus' operations in 2002 over 2001.

      Net revenues were $38.3 million for the year ended December 31, 2002, an
increase of $32.5 million or 554.1% over net revenues of $5.9 million for the
comparable period in 2001. $15.5 million or 47.8% of the increase in net
revenues was attributable to the operations of the businesses we acquired in
2002; $1.0 million or 3.1% was due to organic growth; and the remaining $15.9
million or 49.1% of the increase was attributable to an incremental three
quarters of Air Plus' operations in 2002 over 2001.

      Net transportation margins decreased to 22.3% for the year ended December
31, 2002 from 35.8% for the comparable period in 2001. This decrease in net
transportation margins is primarily the result of the addition of our
international services, which traditionally have lower margins, in the second
quarter of 2002.

      The following table summarizes certain historical consolidated statement
of operations data as a percentage of our net revenues (in thousands):
<TABLE>
<CAPTION>
                                                        Restated             Restated
                                                           2002                2001                   Change
                                                  ----------------------------------------------------------------
                                                   Amount     Percent    Amount    Percent      Amount     Percent
                                                  -------     -------   --------   ------      -------     -------
<S>                                               <C>          <C>      <C>        <C>         <C>          <C>
Net revenues                                      $38,310      100.0%   $  5,857    100.0%     $32,453      554.1%
                                                  -------      -----    --------   ------      -------      -----
Personnel costs                                    19,089       49.8       5,997    102.4       13,092      218.3
Other selling, general and administrative costs    14,680       38.3       3,917     66.9       10,763      274.8
Depreciation and amortization                       2,187        5.7         495      8.4        1,692      341.8
                                                  -------      -----    --------   ------      -------      -----
Total operating costs                              35,956       93.8      10,409    177.7       25,547      245.4
                                                  -------      -----    --------   ------      -------
Income (loss) from operations                       2,354        6.2      (4,552)   (77.7)       6,906         NM
Other income (expense)                                128        0.3       1,295     22.1       (1,167)     (90.1)
                                                  -------      -----    --------   ------      -------      -----
Income (loss) from operations before
    income taxes                                    2,482        6.5      (3,257)   (55.6)       5,739         NM
Income taxes                                          102        0.3          --       --          102         NM
                                                  -------      -----    --------   ------      -------      -----
Income (loss) from continuing
    operations                                      2,380        6.2      (3,257)   (55.6)       5,637         NM
Loss from discontinued operations                      --         --     (13,863)  (236.7)      13,863         NM
                                                  -------      -----    --------   ------      -------
Net income (loss)                                   2,380        6.2     (17,120)  (292.3)      19,500         NM
Preferred stock dividends                          15,020       39.2      (4,151)   (70.9)      19,171         NM
                                                  -------      -----    --------   ------      -------      -----
Net income (loss) attributable to common
    stockholders                                  $17,400       45.4%   $(21,271)  (363.2)%    $38,671         NM
                                                  =======      =====    ========   ======      =======      =====
</TABLE>

      Personnel costs were $19.1 million for the year ended December 31, 2002,
an increase of $13.1 million or 218.3% over personnel costs of $6.0 million for
the comparable period in 2001. $5.7 million or 43.5% of the increase in
personnel costs was attributable to the operations of the businesses we acquired
in 2002; $0.7 million or 5.4% was due to organic growth; and the remaining $6.7
million or 51.1% of the increase was attributable to an incremental three
quarters of Air Plus' operations in 2002 over 2001.

      The number of employees increased to 510 at December 31, 2002 from 219 at
December 31, 2001, an increase of 291 employees or 132.9%. Of this increase, 240
or 82.5% of the employees are engaged in operations; 16 or 5.5% of the employees
are engaged in sales and marketing; and 35 or 12.0% of the employees are engaged
in finance, administration, and management functions. Additionally, 204 or 69.9%
of the total increase in employees was attributable to acquisitions, while 88
employees or 30.1% were added to meet the demands of the increase in our
business in 2002.

      Other selling, general and administrative costs were $14.7 million for the
year ended December 31, 2002, an increase of $10.8 million or 274.8% over other
selling, general and administrative costs of $3.9 million for the comparable
period in 2001. $3.0 million or 27.8% of the increase was attributable to the
operations of the businesses we acquired in 2002; $0.8 million or 7.4% was due
to organic growth; and the remaining $7.0 million or 64.8% of the increase was
attributable to an incremental three quarters of Air Plus' operations in 2002
over 2001.

                                       23
<PAGE>

      Depreciation and amortization amounted to $2.2 million for the year ended
December 31, 2002, an increase of $1.7 million or 341.8% over the comparable
period in 2001 principally due to amortization of acquired intangible assets
acquired in the Global and United American acquisitions and a full year of
amortization of the Air Plus intangible assets acquired in October 2001. (See
Note 2 to the Company's consolidated financial statements.)

      Income from operations was $2.4 million in 2002, compared to a loss of
$4.6 million for 2001.

      Other income was $0.1 million in 2002, a decrease from $1.3 million in
2001.

      As a result of historical losses related to investments in early-stage
technology business, the Company has accumulated federal net operating loss
carryforwards. Although a portion of this loss may be subject to certain
limitations, the Company expects it will be able to use approximately $21.7
million of the loss to offset current and future federal taxable income. As a
result, the Company is currently only subject to certain state and local taxes
which resulted in a state tax provision of $0.1 million in 2002.

      There were no losses from discontinued operations in 2002 as compared to
losses from discontinued operations of $13.9 million in 2001. These 2001 losses
reflect the costs associated with our holdings in early-stage technology
businesses for our previous business model, including investment losses,
personnel and office costs.

      Net income was $2.4 million in 2002, compared to a net loss of $17.1
million in 2001.

      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, compared to preferred stock dividends
of $4.2 million in 2001. See Note 12 to the consolidated financial statements.

      Net income attributable to common stockholders was $17.4 million in 2002,
compared to a net loss attributable to common stockholders of $21.3 million in
2001. Basic earnings per share was $0.79 for 2002 compared to a loss of $1.04
per basic share for 2001. Diluted earnings per share for 2002 excludes the net
effect of the Series C exchange transaction and was $0.08 per diluted share for
2002 compared to a loss of $1.04 per diluted share for 2001.

      Year ended December 31, 2001 (historical) compared to year ended
December 31, 2000 (historical)

      The following table summarizes our historical total revenues, net
transportation revenues and other revenues (in thousands):
<TABLE>
<CAPTION>
                                                                                                   Change
                                                                                              ------------------
                                                             2001              2000            Amount    Percent
                                                            -------         ---------         -------    -------
          <S>                                               <C>             <C>               <C>        <C>
          Total revenues                                    $15,598         $       -         $15,598         NM
                                                            =======         =========         =======    =======

          Transportation revenues                            15,174                 -          15,174         NM
          Cost of transportation                              9,741                 -           9,741         NM
                                                            -------         ---------         -------    -------
          Net transportation revenues                         5,433                 -           5,433         NM
                      Net transportation margins               35.8%                -               -          -

          Customs brokerage                                       -                 -               -         NM
          Warehousing and other
               value added services                             424                 -             424         NM
                                                            -------         ---------         -------    -------
                              Total net revenues            $ 5,857         $       -         $ 5,857         NM
                                                            =======         =========         =======    =======
</TABLE>
      Total revenues were $15.6 million for the year ended December 31, 2001
resulting from our transition to a third-party logistics business and represent
the revenues from Air Plus for the period from October 5, 2001 to December 31,
2001. There were no revenues for the comparable period in 2000 under the
Company's previous business model.

      Net transportation revenues were $5.4 million for the year ended December
31, 2001, while there were no net transportation revenues for the comparable
period in 2000.

                                       24
<PAGE>

      Net revenues were $5.9 million for the year ended December 31, 2001, while
there were no net revenues for the comparable period in 2000.

      Net transportation margins were 35.8% for the year ended December 31,
2001, while there were no margins for the comparable period in 2000 due to a
lack of both transportation revenues and any related costs.

      The following table summarizes certain historical consolidated statement
of operations data as a percentage of our net revenues (in thousands):
<TABLE>
<CAPTION>
                                                         Restated
                                                           2001                         2000                       Change
                                                  ------------------------  -----------------------------  ------------------------
                                                     Amount      Percent       Amount          Percent        Amount      Percent
                                                  -----------  -----------  -------------   -------------  -----------  -----------
<S>                                                <C>            <C>         <C>           <C>            <C>          <C>
Net revenues                                       $  5,857       100.0%      $      --              --      $  5,857         NM
                                                  -----------  -----------  -------------   -------------  -----------
Personnel costs                                       5,997       102.4           4,263              --         1,734         40.7%
Other selling, general and administrative costs       3,917        66.9           3,126              --           791         25.3
Depreciation and amortization                           495         8.4              31                           464      1,496.8
                                                  -----------  -----------  -------------   -------------  -----------
Total operating costs                                10,409       177.7           7,420              --         2,989         40.3
                                                  -----------  -----------  -------------   -------------  -----------
Loss from operations                                 (4,552)      (77.7)         (7,420)             --         2,868         38.7
Other income                                          1,295        22.1           2,065              --          (770)       (37.3)
                                                  -----------  -----------  -------------   -------------  -----------
Loss from continuing operations before
    income taxes                                     (3,257)      (55.6)         (5,355)             --         2,098         39.2
Income taxes                                             --          --              --              --            --         --

Loss from continuing operations                      (3,257)      (55.6)         (5,355)             --         2,098         39.2
Loss from discontinued operations                   (13,863)     (236.7)        (30,816)             --        16,953         55.0
                                                  -----------  -----------  -------------   -------------  -----------

Net loss                                            (17,120)     (292.3)        (36,171)             --        19,051         52.7
Preferred stock dividends                            (4,151)      (70.9)        (45,751)             --        41,600         90.9
                                                  -----------  -----------  -------------   -------------  -----------
Net loss attributable to common
    stockholders                                   $(21,271)     (363.2)%      $(81,922)             --     $  60,651         74.0
                                                  ===========  ===========  =============   =============  ===========
</TABLE>


      Personnel costs were $6.0 million for the year ended December 31, 2001, an
increase of $1.7 million or 40.7% over personnel costs of $4.3 million for the
comparable period in 2000. The increase, primarily attributable to the
acquisition of Air Plus in the fourth quarter of 2001, was offset by a reduction
of approximately $1.0 million in stock-based compensation.

      The number of employees increased to 219 at December 31, 2001 from 10 at
December 31, 2000, an increase of 209 employees. Of this increase, 169 or 80.9%
of the employees are engaged in operations; 14 or 6.7% of the employees are
engaged in sales and marketing; and 26 or 12.4% of the employees are engaged in
finance, administration, and management functions.

      Other selling, general and administrative costs were $3.9 million for the
year ended December 31, 2001, an increase of $0.8 million or 25.3% over other
selling, general and administrative costs of $3.1 million for the comparable
period in 2000. The increase was primarily attributable to the acquisition of
Air Plus in the fourth quarter of 2001.

      Depreciation and amortization amounted to $0.5 million for the year ended
December 31, 2001, an increase of $0.5 million or 1,496.8% compared to the prior
year, principally due to the increase in furniture and equipment and amortizable
intangible assets acquired in the Air Plus transaction.

      Loss from operations was $4.6 million in 2001, compared to a loss of $7.4
million in 2000.

      Other income was $1.3 million in 2001, a decrease from $2.1 million in
2000, principally as a result of lower interest income, because previously
invested funds were used to purchase Air Plus and to fund losses from
operations.

                                       25

<PAGE>

      There was a loss from discontinued operations in 2001 of $13.9 million, as
compared to a loss from discontinued operations of $30.8 million in 2000. These
losses reflect the costs associated with our holdings in early-stage technology
businesses under our previous business model, including investment losses,
personnel and office costs.

      Net loss was $17.1 million in 2001, compared to a net loss of $36.2
million in 2000.

      Preferred stock dividends were $4.2 million in 2001, compared to preferred
stock dividends of $45.8 million in 2000. The dividend in 2000 included $42.6
million related to a beneficial conversion feature for the Series C Preferred
Stock. See Note 12 to the consolidated financial statements.

      Net loss attributable to common stockholders was $21.3 million in 2001,
compared to a net loss attributable to common stockholders of $81.9 million in
2000. Basic and diluted loss per share was $1.04 for 2001 compared to a loss of
$4.64 per basic and diluted share for 2000.


Supplemental Unaudited Pro Forma Information

      The unaudited pro forma results of operations for 2002 and 2001 are
presented as if we had discontinued our former business model and acquired Air
Plus, Global and United American (collectively the "Material Acquisitions") as
of January 1, 2001. The unaudited pro forma results reflect a consolidation of
the historical results of operations of the Material Acquisitions, as adjusted
to reflect contractual adjustments to officers' compensation at the companies
comprising the Material Acquisitions, amortization of acquired intangibles and
income taxes. The unaudited pro forma results also exclude losses associated
with our discontinued operations as well as the impact of the July 18, 2002
exchange transaction with the holders of our Series C Preferred Stock.

      Year ended December 31, 2002 (unaudited pro forma) compared to year ended
December 31, 2001 (unaudited pro forma)

      The following table summarizes our total revenues, net transportation
revenues and other revenues on a pro forma basis (in thousands):

<TABLE>
<CAPTION>
                                                                                                       Change
                                                                                           -------------------------------
                                                             2002             2001            Amount           Percent
                                                        -------------    --------------    ------------    ---------------
<S>                                                     <C>               <C>              <C>             <C>
      Total revenues                                        $165,853          $133,193         $32,660              24.5%
                                                        =============    ==============    ============

      Transportation revenues                                154,261           124,925          29,336               23.5
      Cost of transportation                                 120,699            95,791          24,908               26.0
                                                        -------------    --------------    ------------
      Net transportation revenues
                                                              33,562            29,134           4,428               15.2
                  Net transportation margins                   21.8%             23.3%               -                  -

      Customs brokerage                                        8,333             6,799           1,534               22.6
      Warehousing and other
           value added services                                3,259             1,469           1,790              121.9
                                                        -------------    --------------    ------------

                          Total net revenues                 $45,154           $37,402         $ 7,752               20.7
                                                        =============    ==============    ============
</TABLE>


      Despite 2002's sluggish economy, pro forma total revenues were $165.9
million in 2002, an increase of 24.5% over pro forma total revenues of $133.2
million in 2001.

      Pro forma transportation revenues were $154.3 million for the year ended
December 31, 2002, an increase of 23.5% over pro forma transportation revenues
of $124.9 million for the comparable period in 2001. The increase is due to the
opening of three Domestic terminals and four International terminals during
2002, the contribution for the full year from six Domestic terminals opened in
2001, as well as organic growth. $88.7 million or 57.5% of the 2002 pro forma
transportation revenues was attributable to our Domestic operations, while $65.6
million or 42.5% was attributable to our International operations. $76.3 million
or 61.1% of the 2001 pro forma transportation revenues was attributable to our
Domestic operations, while $48.7 million or 38.9% was attributable to our
International operations.

      Pro forma net transportation revenues were $33.6 million for the year
ended December 31, 2002, an increase of $4.4 million or 15.2% over pro forma net
transportation revenues of $29.1 million for the comparable period in 2001.

      Pro forma net revenues were $45.2 million in 2002, an increase of 20.7%
over pro forma net revenues of $37.4 million in 2001.

      Pro forma net transportation margins decreased to 21.8% for the year ended
December 31, 2002 from 23.3% for the comparable period in 2001. This decrease in
pro forma net transportation margins is primarily the result of a larger
proportionate increase in our international services, which traditionally have
lower margins, in 2002. For 2002, pro forma net transportation margins were
30.5% and 10.0% for our Domestic and International operations, respectively. For
2001, pro forma net transportation margins were 32.0% and 9.8% for our Domestic
and International operations, respectively.

                                       26

<PAGE>


      The following table summarizes certain statement of operations data as a
percentage of our net revenues on a pro forma basis (in thousands):

<TABLE>
<CAPTION>
                                                    Restated                Restated
                                                      2002                    2001                    Change
                                             ----------------------- -----------------------  -----------------------
                                               Amount      Percent      Amount      Percent      Amount     Percent
                                             ----------  ----------- -----------  ----------  ----------- -----------

<S>                                          <C>            <C>      <C>            <C>       <C>             <C>
  Net revenues                               $  45,154      100.0%   $  37,402      100.0%    $   7,752       20.7%
                                             ----------  ----------- -----------  ----------  -----------
  Personnel costs                               22,214       49.2       17,377       46.5         4,837       27.8
  Other selling, general and administrative     18,398       40.7       18,180       48.6           218        1.2
                                             ----------  ----------- -----------  ----------  -----------
  Total operating costs                         40,612       89.9       35,557       95.1         5,055       14.2
                                             ----------  ----------- -----------  ----------  -----------
  Income from operations                         4,542       10.1        1,845        4.9         2,697      146.2
  Other income (expense)                            14       --            (13)      --              27       NM
                                             ----------  ----------- -----------  ----------  -----------
  Income from continuing  operations  before
      income taxes                               4,556       10.1        1,832        4.9         2,724      148.7
  Income taxes                                     187        0.4           50        0.1           137      274.0
                                             ----------  ----------- -----------  ----------  -----------
  Income from continuing operations          $   4,369        9.7%   $   1,782        4.8%    $   2,587      145.2%
                                             ==========  =========== ===========  ==========  ===========
</TABLE>

      Personnel costs were $22.2 million for 2002, an increase of 27.8% over
$17.4 million for 2001. Personnel costs as a percentage of net revenues
increased to 49.2% from 46.5% in 2001. This increase is primarily attributable
to the Company's efforts to position itself for continued growth through
additional resources deployed in sales, technology and back-office operations.

      The number of employees increased to 510 at December 31, 2002 from 409 at
December 31, 2001, an increase of 101 employees or 24.7%. Of this increase, 90
or 89.1% of the employees are engaged in operations; 2 or 2.0% are engaged in
sales and marketing; and 9 or 8.9% of the employees are engaged in finance,
administration, and management functions.

      Other selling, general and administrative expenses were $18.4 million for
2002, relatively flat compared to $18.2 million in 2001. As a percentage of net
revenues, other selling, general and administrative expenses decreased to 40.7%
from 48.6% in 2001 and is indicative of the scalability of our business model.

      Income from operations was $4.5 million in 2002, an increase of 146.2%
over $1.8 million for 2001. Income from operations as a percentage of net
revenues increased to 10.1% from 4.9% in 2001.

      As a result of historical losses related to investments in early-stage
technology businesses, the Company has accumulated net operating loss
carryforwards for federal and state income tax purposes amounting to
approximately $21.7 million and $16.2 million, respectively. Although a portion
of this loss may be subject to certain limitations, it appears that we may be
able to use approximately $21.7 million of the federal operating loss
carryforward to offset current and future federal taxable income. As a result,
the Company is currently only subject to certain state and local taxes which on
a pro forma basis results in a tax provision of $0.2 million for 2002 and $0.1
million for 2001.

      Net income was $4.4 million in 2002, an increase of 146.7% compared to
$1.8 million in 2001. Pro forma net income per share in 2002 was $0.20 per basic
share (excludes the impact of the July 18, 2002 exchange transaction with the
holders of the Series C Preferred Stock) and $0.15 per diluted share.

      In accordance with SEC Regulation S-K, we present the following tables,
which reconcile our actual results of operations to our pro forma results of
operations for the years ended December 31, 2002 and 2001 (in thousands).

                                       27

<PAGE>
<TABLE>
<CAPTION>
                                                                      Year ended December 31, 2002
                                   ------------------------------------------------------------------------------------------

                                       Restated              Global          United American      Restated
                                      historical      January 1- April 4,   January 1- May 30,    pro forma         Restated
                                    Stonepath Group           2002                2002           adjustments        pro forma
                                    ---------------           ----                ----           -----------        ---------


<S>                                      <C>                    <C>                  <C>            <C>            <C>
Total revenues                           $  139,649             $  13,797            $  12,407      $     --       $  165,853
Cost of transportation                      101,339                10,139                9,221            --          120,699
                                         ----------             ---------            ---------      --------       ----------

Net revenues                                 38,310                 3,658                3,186            --           45,154

Personnel costs                              19,089                 1,642                1,407            76(1)        22,214
Other selling, general and
    administrative costs                     16,867                   763                  880          (112)(2)       18,398
                                         ----------             ---------            ---------      --------       ----------

Income from operations                        2,354                 1,253                  899            36            4,542

Other income (expense)
  Interest income                                91                    --                   --           (73)(3)           18
  Other, net                                     37                    27                  (68)           --               (4)
                                         ----------             ---------            ---------      --------       ----------

Income before income taxes
                                              2,482                 1,280                  831           (37)           4,556
Income taxes                                    102                    36                   22            27(4)           187
                                         ----------             ---------            ---------      --------       ----------


Net income                               $    2,380             $   1,244            $     809      $    (64)      $    4,369
                                         ==========             =========            =========      ========       ==========
</TABLE>


(1)   To reflect contractual changes to officers' compensation.

(2)   To reflect amortization of acquired identifiable intangibles under the
      declining balance method using a 25% rate.

(3)   To eliminate interest income as a result of a reduced cash balance due to
      the payment of approximately $10.6 million for Global and United American.

(4)   To reflect state taxes on pro forma income before income taxes.

<TABLE>
<CAPTION>
                                                               Year ended December 31, 2001
                                ---------------------------------------------------------------------------------------------

                                    Restated           Air Plus                                   Restated
                                   historical        January 1 -                     United       pro forma        Restated
                                 Stonepath Group   October 4, 2001      Global      American     adjustments       pro forma
                                 ---------------   ---------------      ------      --------     -----------       ---------

<S>                                   <C>               <C>          <C>           <C>           <C>               <C>
Total revenues                        $   15,598        $   41,224   $    54,934   $    21,437   $        --       $  133,193
Cost of transportation                     9,741            26,527        43,884        15,639            --           95,791
                                      ----------        ----------   -----------   -----------   -----------       ----------


Net revenues                               5,857            14,697        11,050         5,798            --           37,402

Personnel costs                            5,997             5,985         6,571         2,557        (3,733)(1)       17,377
Other selling, general and
    administrative costs                   4,412             6,697         3,386         2,325         1,360(2)        18,180
                                      ----------        ----------   -----------   -----------   -----------       ----------


Income (loss) from operations             (4,552)            2,015         1,093           916         2,373            1,845

Other income (expense)
  Interest income                          1,286               (43)          (89)          (23)         (957)(3)          174
  Other, net                                   9              (196)           --            --            --             (187)
                                      ----------        ----------   -----------   -----------   -----------       ----------

Income (loss) before
  income taxes                        (3,257)             1,776         1,004           893         1,416            1,832
Income taxes                                  --                --            --            --            50(4)            50
                                      ----------        ----------   -----------   -----------   -----------       ----------

                                              --                --            --            --

Net income (loss)                     $  (3,257)        $    1,776   $     1,004   $       893   $     1,366       $    1,782
                                      ==========        ==========   ===========   ===========   ===========       ==========
</TABLE>

                                       28

<PAGE>

(1)   To reflect contractual changes to officers' compensation.

(2)   To reflect amortization of acquired identifiable intangibles under the
      declining balance method using a 25% rate.

(3)   To eliminate interest income as a result of a reduced cash balance due to
      the payment of approximately $28.5 million for the Material Acquisitions.

(4)   To reflect state taxes on pro forma income before income taxes.


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, 2002:

<TABLE>
<CAPTION>
                                                                        Payments Due By Period
                                             -----------------------------------------------------------------------------
                                               Less than                                       More than
Contractual Obligations                         1 year        1 - 3 years     3- 5 years       5 years          Total
                                             -------------  ---------------  -------------   ------------   --------------
<S>                                          <C>             <C>             <C>              <C>           <C>
Operating lease obligations                    $3,782,000      $ 5,726,000     $2,435,000       $ 611,000     $12,554,000

Other long-term liabilities reflected on
the Registrant's balance sheet under GAAP
(a)                                             3,880,000                -              -               -       3,880,000

Letter of credit                                  160,000                -              -               -         160,000
                                             -------------  ---------------  -------------   ------------   --------------

Total contractual obligations                   7,822,000        5,726,000      2,435,000         611,000      16,594,000

Contingent earn-out obligations (b)                     -       14,900,000      7,450,000         255,000      22,605,000
                                             -------------  ---------------  -------------   ------------   --------------

Total contractual and contingent obligations  $ 7,822,000      $20,626,000    $ 9,885,000        $866,000    $ 39,199,000
                                             =============  ===============  =============   ============   ==============
</TABLE>

(a)   Consists of earn-out payments which are due in 2003 to the former owners
      of our existing subsidiaries.

(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.

Liquidity and Capital Resources

      Prior to the adoption of our current business model, our operations
consisted of developing early-stage technology businesses. These operations did
not generate sufficient operating funds to meet our cash needs, and, as a
result, we funded our historic operations with the proceeds from a number of
private placements of debt and equity securities. With the advent of our new
business model, we expect to be able to fund our operations with the cash flow
generated by the subsidiaries we acquire. We are also in an acquisition mode and
expect to deploy material amounts of capital as we execute our business plan.
Therefore, it is likely that we will need to raise additional capital in the
future. There can be no assurance that we will be able to raise additional
capital on terms acceptable to us, if at all.

      Cash and cash equivalents totaled $2.3 million and $15.2 million as of
December 31, 2002 and 2001. Working capital totaled $5.6 million and $15.3
million at December 31, 2002 and 2001.

      Cash used in operating activities was $0.6 million for 2002 compared to
$0.5 million used in 2001. Before growth in working capital accounts driven
principally by the acquisition of new businesses, the Company generated cash
from operations in 2002 of $4.7 million compared to a net use of $1.1 million in
cash from operations in 2001.

      Net cash used in investing activities was $12.5 million in 2002 compared
to $12.1 million in 2001. Investing activities were driven principally by the
acquisition of new businesses. The Company deployed $10.5 million for the
acquisition of new businesses in 2002 compared to $18.0 million in 2001. The
cash used in the acquisition of Air Plus in 2001 was partially offset by
approximately $7.0 million from the sale of our interest in Webmodal, Inc.
(including $1.0 million from the repayment of prior advances).

      Cash from financing activities generated $0.2 million in 2002 compared to
a use of cash of $1.2 million in 2001. The 2001 use of cash was primarily
related to the repayment of short-term notes payable to the former shareholders
of Air Plus.

                                       29

<PAGE>

      We expect to pay approximately $3.9 million in earn-outs on April 1, 2003,
based on the performance of our acquired companies relative to their respective
pre-tax earnings targets. Approximately $3.5 million will be paid in cash with
the balance payable through the issuance of shares of our common stock.

      On July 18, 2002 we completed a private exchange transaction that
eliminated approximately $44.6 million of our 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 (3) years, and a new class of Series D preferred stock that will
convert into 3,607,450 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 receives no dividend, (2) it is
subordinated to new rounds of equity, and (3) it holds a limited liquidation
preference (expiring at the end of 2003). In addition, the holders of the Series
D preferred stock are restricted from selling the common stock received upon
conversion of the Series D preferred stock until July 19, 2003 (or earlier if
the stock trades at $4.50) and are then permitted limited resale based on
trading volume through July 19, 2004.

      In March 2003, we completed a private placement of 4,470,000 shares of our
common stock in exchange for gross proceeds of approximately $6.1 million. This
placement yielded net proceeds of $5.7 million for the Company, after the
payment of placement agent fees and other out-of-pocket costs associated with
the placement.

      We may also receive proceeds in the future from the exercise of existing
options and warrants. As of March 17, 2003, approximately 13,220,000 options and
warrants were outstanding. Of the outstanding securities, there are
approximately 300,000 that have an exercise price of $5.00 per share or higher.
If we exclude those options and warrants from our fully diluted share count, our
outstanding fully diluted shares, as adjusted, would be approximately 44,500,000
shares. Excluding options and warrants with an exercise price of $5.00 or
higher, the proceeds received by the Company, if all of the remaining options
and warrants were exercised, would be approximately $15.0 million.

      We believe that our current working capital and anticipated cash flow from
operations are adequate to fund existing operations. Through cash resources and
our existing credit facility, we believe we have sufficient capital to implement
our acquisition strategy in the short term. However, we will need additional
financing to pursue our acquisition strategy in the longer term. We intend to
finance these acquisitions primarily through the use of cash, funds from our
debt facility, and shares of our common stock or other securities. In the event
that our common stock does not attain or maintain a sufficient market value or
potential acquisition candidates are otherwise unwilling to accept our
securities as part of the purchase price for the sale of their businesses, we
may be required to utilize more of our cash resources, if available, in order to
continue our acquisition program. If we do not have sufficient cash resources
through either operations or from debt facilities, our growth could be limited
unless we are able to obtain such additional capital.

      To ensure that we have adequate near-term liquidity, we maintain a
revolving credit facility of $15.0 million (the "Facility") with LaSalle
Business Credit, Inc. that is collateralized by accounts receivable and other
assets of the Company and its subsidiaries. The Facility requires the Company
and its subsidiaries to comply with certain financial covenants. Advances under
the Facility are available to fund future acquisitions, capital expenditures or
for other corporate purposes. There were no advances against the Facility at
December 31, 2002. We expect that the cash flow from our existing operations and
any other subsidiaries acquired during the year will be sufficient to support
our corporate overhead and some portion, if not all, of the contingent earn-out
payments or other cash requirements associated with our acquisitions. Therefore,
we anticipate that our primary uses of capital in the near term will be to
finance the cost of new acquisitions and to pay any portion of existing earn-out
arrangements that cash flow from operations is otherwise unable to fund.

      The acquisition of Air Plus was completed subject to an earn-out
arrangement of $17.0 million. 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 2002 performance, former Air Plus shareholders are entitled to receive $3.0
million on April 1, 2003, and will have excess earnings of $0.3 million as a
carryforward to future earnings targets. Former Air Plus shareholders have
elected to take $2.6 million in cash with the balance payable in Company stock.

      On April 4, 2002, we acquired Global, a Seattle-based privately held
company that provides a full range of international air and ocean logistics
services. The transaction was valued 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
Global. We agreed to pay the former Global shareholders a total of $5.0 million
base earn-out payments 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 Global 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. The Company has also provided former Global shareholders with
additional incentive to generate earnings in excess of the base $2.0 million

                                       30

<PAGE>

annual earnings target ("tier-two earn-out"). Under Global's tier-two earn-out,
former Global 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. Global 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 2002 performance, former Global shareholders will
receive $0.8 million on April 1, 2003, and will have excess earnings of $2.5
million as a carryforward 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 is 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
base earn-out payments 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 additional incentive to generate
earnings in excess of the base $2.2 million annual earnings target ("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 2002
performance, the former United American shareholder will receive $0.2 million on
April 1, 2003, and has an earnings shortfall of $1.0 million. In future years,
earnings in excess of the $2.2 million earnings target would first be applied
against the $1.0 million shortfall.

      On October 1, 2002 we acquired TSI, a Northern Virginia-based privately
held provider of expedited domestic and international transportation services.
The TSI transaction capitalized on TSI's existing base of government contract
work in the Washington metropolitan area and served as a supplement to an
existing Company-operated facility in that area. The transaction was valued at
up to $1.1 million, consisting of cash of $0.5 million paid at closing, and a
three-year earn-out arrangement. The Company agreed to pay the former TSI
shareholder $0.2 million for each year in the three year earn-out period ending
December 31, 2005, based upon the annual net revenue targets of $1.6 million. In
the event there is a shortfall in net revenues, the earn-out payment will be
reduced proportionally to the extent of the shortfall, provided no earn-out
payment shall be made if net revenues for the year fall below $1.0 million.
Shortfalls may be carried over or carried back to the extent that net revenues
in any other payout year exceeds the $1.6 million level.

      We are also in the process of closing a transaction that will
significantly increase our presence in Asia. On March 12, 2003, we announced our
agreement to acquire a 70.0% interest in Singapore-based G-Link Group
("G-Link"), a platform acquisition that will provide the foundation for our
service offering in Southeast Asia. As currently structured, we are expected to
pay at closing approximately $2.4 million in cash and $1.2 million of our common
stock to the G-Link shareholders. We would also expect to pay the G-Link
shareholders for working capital balances. The amount, estimated to be in the
range of $1.0 to $2.0 million, would be paid using Company common stock. The
G-Link shareholders would be entitled to a four year earn-out arrangement based
upon the future financial performance of G-Link. The earn-out is expected to be
$2.4 million, payable in installments of $0.6 million per year. The transaction
is expected to close by no later than June 30, 2003, and is subject to customary
closing conditions, including the securing of third-party and regulatory
consents, as well as the completion of an audit of G-Link for the year ended
December 31, 2002.

      We will 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.

                                       31

<PAGE>

      The following table summarizes our contingent base earn-out payments (in
thousands)(1)(2)

<TABLE>
<CAPTION>
                                                2004        2005        2006       2007         2008       Total
                                              ----------  ----------  ---------- ----------  ----------- -----------
Earn-out payments:
<S>                                           <C>         <C>         <C>        <C>         <C>         <C>
   Domestic                                   $   6,450   $   6,450   $   5,450  $       -   $        -  $   18,350
   International                                  1,000       1,000       1,000      1,000          255       4,255
                                              ----------  ----------  ---------- ----------  ----------- -----------
Total earn-out payments                       $   7,450   $   7,450   $   6,450  $   1,000   $      255  $   22,605
                                              ==========  ==========  ========== ==========  =========== ===========

Prior year pre-tax earnings targets (3):

   Domestic                                   $   8,686   $   8,686   $   8,686  $       -   $        -  $   26,058
   International                                  2,000       2,000       2,000      2,000          510       8,510
                                              ----------  ----------  ---------- ----------  ----------- -----------
   Total pre-tax earnings targets             $  10,686   $  10,686   $  10,686  $   2,000   $      510  $   34,568
                                              ==========  ==========  ========== ==========  =========== ===========

Earn-outs as a percentage of prior year pre-tax earnings targets:

   Domestic                                        74.3%       74.3%       62.7%      --          --          70.4%
   International                                   50.0%       50.0%       50.0%      50.0%       50.0%       50.0%
   Combined                                        69.7%       69.7%       60.4%      50.0%       50.0%       65.4%
</TABLE>

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

(2)   During the 2003-2007 earn-out period, there is an additional contingent
      obligation related to tier-two earn-outs that could be as much as $8.0
      million if the applicable acquired companies generate an incremental $17.0
      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 intangibles
      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, any such liability, if at all, 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 in the period recorded.

New Accounting Pronouncements

      On January 1, 2002, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, which establishes criteria and methodologies for the
measurement, recognition and classification of long-lived assets. The adoption
of SFAS No. 144 did not have a material impact on the Company's consolidated
financial statements.

      In June 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities,
requiring companies to recognize liabilities and costs associated with exit or
disposal activities initiated after December 31, 2002 when they are incurred,
rather than when management commits to an exit or disposal plan. SFAS No. 146
also requires that such liabilities be measured at fair value. SFAS No. 146 had
no impact on the Company's consolidated financial statements but may affect the
measurement and recognition of any future restructuring activities.

      In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure of Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, which elaborates on the existing
disclosure requirements for guarantees and provides clarification on when a
company must measure and recognize a liability related to guarantees issued. The
disclosure requirements of Interpretation No. 45 are effective for the Company's
consolidated financial statements for the year ended December 31, 2002. The
measurement and recognition provisions are to be applied on a prospective basis
for guarantees issued or modified after December 31, 2002. The adoption of
Interpretation No. 45 did not require additional disclosures and is not expected
to impact the Company's consolidated financial statements as the Company does
not typically issue guarantees related to third-party indebtedness or
performance.

      In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure, which (i) amends SFAS No. 123,
Accounting for Stock-Based Compensation, to provide alternative methods of
transition for an entity that voluntarily changes the fair value based method of
accounting for stock-based employee compensation, (ii) amends the disclosure
provisions of SFAS No. 123 to require prominent disclosure about the effects on
reported net income of an entity's accounting policy decisions with respect to
stock-based employee compensation and (iii) amends Accounting Principles Board
Opinion No. 28, Interim Financial Reporting, to require disclosure about those
effects in interim financial information. Items (ii) and (iii) in the new
requirements of SFAS No. 148 are effective for financial statements for fiscal
years ending after December 15, 2002. The Company has included the requirements
of item (ii) in Note 3 - Summary of Significant Accounting Policies and will
include the requirements of item (iii) beginning with its first interim report
as of and for the period ending March 31, 2003.

                                       32

<PAGE>

      In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, which provides new guidance with respect to the
consolidation of all unconsolidated entities, including special purpose
entities. The adoption of Interpretation No. 46 in 2003 is not expected to
impact the Company's consolidated financial statements as the Company does not
have investments in any unconsolidated special purpose or variable interest
entities.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

      Our exposure to market risk relates primarily to changes in interest rates
and the resulting impact on our invested cash. 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. If market interest rates were to increase immediately and
uniformly by 10% from levels at December 31, 2002, the fair value of our
portfolio would decline by an immaterial amount. We do not invest in derivative
financial instruments.

Item 8. Financial Statements and Supplementary Data

      Our financial statements as of December 31, 2002 and 2001 and for each of
the years in the three-year period ended December 31, 2002 and footnotes related
thereto, revised to reflect the restatement thereof as more fully discussed in
Note 2 to the consolidated financial statements, are included within Item 15(a)
of this Report and may be found at pages 47 through 74. Predecessor combined
financial statements for Air Plus for the year ended December 31, 2000 and
footnotes related thereto are also included within Item 15(a) of this Report and
may be found at pages 75 through 81. Schedule II - Valuation and Qualifying
Accounts, may be found on page 82.

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

      None.

                                    PART III

Item 10. Directors and Executive Officers of the Registrant

Our directors, executive officers and significant employees as of March 17, 2003
were as follows:

<TABLE>
<CAPTION>
         Name                               Age      Position
         ----                               ---      --------
<S>                                         <C>      <C>
         Dennis L. Pelino                   55       Chairman of the Board of Directors and Chief Executive Officer
         Gary Koch                          44       Significant Employee - Chief Executive Officer of
                                                        Stonepath Logistics Domestic Services, Inc.
         Jason Totah                        43       Significant Employee - President of
                                                        Stonepath Logistics International Services, Inc.
         Bohn H. Crain                      39       Chief Financial Officer and Treasurer
         Stephen M. Cohen                   46       Senior Vice President, General Counsel and Secretary
         Thomas L. Scully                   53       Vice President and Controller/Principal Accounting Officer
         Douglass Coates                    60       Director
         Frank Palma (1)(2)                 65       Director
         David R. Jones (1)(2)              54       Director
         Aloysius T. Lawn, IV (1)(2)        44       Director
         Robert McCord                      44       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, executive officers and significant employees.

      Dennis L. Pelino has served as our Chairman of the Board of Directors and
Chief Executive Officer since June 21, 2001. 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 Companies from 1991 to 1999. During Mr. Pelino's
tenure, he acquired or started over 50 companies for Fritz as it became one of

                                       33

<PAGE>

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. Most recently, from 1999 through 2001, Mr.
Pelino has been 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.

      Gary Koch is a significant employee of the Company and serves as the Chief
Executive Officer of Air Plus and Stonepath Logistics Domestic Services, Inc.
Mr. Koch co-founded Air Plus in May 1990. In ten years, he built Air Plus into a
transportation logistics company serving a customer base of manufacturing
distributors and national retail chains with close to $60.0 million in annual
revenues, over 200 employees and 16 offices in North American cities. Mr. Koch
has over twenty years of logistics experience in the U.S. and Canadian markets
with expertise in traditional air freight and distribution logistics. Mr. Koch
received a B.S. in Marketing from Purdue University.

      Jason Totah is a significant employee of the Company and serves as the
President of Global and Stonepath Logistics International Services, Inc. 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 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.

      Bohn H. Crain has served as our Chief Financial Officer since January 10,
2002 and our Treasurer since May 30, 2002. Mr. Crain has over 15 years of
experience in finance and accounting as well as extensive knowledge of
transportation and logistics. Prior to joining Stonepath's executive team, he
served from January 2001 to September 2001 as Executive Vice President and Chief
Financial Officer for Schneider Logistics, Inc., a third-party logistics
company. Before Schneider, Mr. Crain served from May 2000 to January 2001 as
Vice President and Treasurer for Florida East Coast Industries, Inc., and from
June 1989 to May 2000, he held various Vice-President and treasury positions
with CSX and various of its subsidiaries. Mr. Crain holds a B.S. in Business
Administration - Accounting from the University of Texas.

      Stephen M. Cohen has served as the Company's Senior Vice President,
General Counsel and Secretary since April 2000. Since 1980, Mr. Cohen has been
engaged in the practice of law, having most recently been a shareholder of
Buchanan Ingersoll Professional Corporation from March 1996 to April 2000 and a
partner of Clark, Ladner, Fortenbaugh & Young from March 1990 to March 1996. Mr.
Cohen's practice focused on corporate finance and federal securities matters.
Mr. Cohen received a B.S. in Accounting from the School of Commerce and Finance
of Villanova University, a J.D. from Temple University and a L.L.M. in Taxation
from Villanova University School of Law.

      Thomas L. Scully has served as our Vice President and Controller since
November 19, 2001. Before joining Stonepath, Mr. Scully was a senior manager
within the assurance and advisory services of Deloitte & Touche, LLP 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 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 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.

      Frank Palma has served as a member of our Board of Directors since August
2001. Mr. Palma has significant experience in the field of executive search and
human resources. Since August 2000, Mr. Palma has been the principal and Chief
Executive Officer of Frank Palma Associates, LLC, an executive recruiting firm.
Briefly before that, he was the Chief Operating Officer of Global Sources, Inc.,
a human resources firm, and from 1985 to 2000, he was an Executive Vice
President with Goodrich & Sherwood Associates, Inc., a human resource consulting
services firm. Mr. Palma holds a B.S. in Business Management from the City
College of New York and has completed graduate course work at Cornell University
and New York University.

      David 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.

                                       34

<PAGE>

      Aloysius T. Lawn 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 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.

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 2002 all
reporting persons timely complied with all filing requirements applicable to
them.

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, 2002 to or for the benefit
of our Chief Executive Officer and our other executive officers whose cash
compensation exceeded $100,000 (the "Named Executive Officers").

<TABLE>
<CAPTION>
                                                             Summary Compensation Table
                                                             --------------------------

                                                                                    Long-Term
                                                Annual Compensation            Compensation Awards
                                                -------------------            -------------------

                                                            Restricted
                                                              Stock           All Other
   Name and Principal Position    Salary         Bonus        Awards      Number of Options    Compensation(1)
   ---------------------------    ------         -----        ------      -----------------    ------------

<S>                                <C>        <C>         <C>              <C>        <C>                   <C>
Dennis L. Pelino, Chairman          2002      $360,000           -            -          1,900,000 (2)                -
and Chief Executive Officer         2001      $158,691    $180,000            -          1,800,000 (3)                -


Stephen M. Cohen, Senior            2002      $200,000     $15,000            -            100,000 (4)          $62,000
Vice President, General             2001      $227,884     $50,000            -            750,000 (5)                -
Counsel and Secretary               2000      $103,927           -            -            300,000 (6)                -

Bohn H. Crain, Chief Financial      2002      $200,000     $37,500            -            350,000 (7)          $44,000
Officer and Treasurer

Thomas L. Scully, Vice President    2002      $105,000     $12,500            -             25,000                    -
- Controller and Principal          2001       $12,519           -            -             25,000                    -
Accounting Officer
</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)   These options were granted on July 3, 2002 and vest 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, with 100%
      acceleration of vesting in the event of a change of control transaction.
      These options also vest fully upon death, disability, or termination of
      employment without cause.

                                       35

<PAGE>

(3)   These options were granted in conjunction with Mr. Pelino's employment by
      the Company on June 21, 2001 and are fully vested.

(4)   These options were granted on July 3, 2002. Twenty five percent of the
      options vest on July 3, 2003 and the remainder vest pro rata over the
      following 36 months, with 100% acceleration of vesting following a change
      of control transaction.

(5)   These options were granted in conjunction with an amendment to Mr. Cohen's
      employment agreement during April 2001. They vest pro rata over the
      thirty-six (36) month period of his employment through April 2004, with
      100% acceleration of vesting following change of control, or upon a
      termination of employment without cause. In the event of death or
      disability, the options which would have become vested within the next 12
      months become vested.

(6)   These options were surrendered by Mr. Cohen during the fourth quarter of
      2001.

(7)   150,000 of these options were granted on January 10, 2002, of which 50,000
      vested on January 10, 2003, with the remainder vesting over the following
      24 months and with 100% acceleration of vesting following a change of
      control transaction or upon a termination of employment without cause.
      200,000 of these options were granted on July 3, 2002, of which 50,000
      vest on July 3, 2003, with the remainder vesting pro rata over the
      following 36 months and with 100% acceleration of vesting following a
      change of control transaction, or upon a termination of employment without
      cause.

Employment Agreements

      Effective as of February 22, 2002, we entered into an amended employment
agreement with our Chief Executive Officer, Dennis L. Pelino. This agreement
amended and restated our prior agreement with Mr. Pelino dated June 21, 2001.
Pursuant to this agreement, we have agreed to employ Mr. Pelino as our Chief
Executive Officer through June 2006 at an annual base salary of $360,000. 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.

      As of April 19, 2001, we entered into a three-year employment agreement
with our General Counsel, Stephen M. Cohen. This was further modified effective
December 27, 2001. This had the effect of amending and restating our prior
employment agreement with Mr. Cohen entered into in April 2000. In addition to
an annual salary of $200,000, Mr. Cohen 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. Cohen is also entitled to certain severance benefits upon his death,
disability or termination of employment. Pursuant to his employment agreement,
Mr. Cohen is 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.

      Effective as of February 1, 2003 we entered into an Amended Employment
Agreement with our Chief Financial Officer, Bohn H. Crain. This agreement
amended and restated our prior Agreement with Mr. Crain dated January 10, 2002.
Pursuant to this Agreement, we have agreed to employ Mr. Crain as our Chief
Financial Officer through February 1, 2006 at an annual base salary of $200,000.
In addition to his annual base salary, Mr. Crain's employment agreement provides
for bonus compensation based upon the achievement of certain target objectives,
as well as bonus compensation determined at the discretion of the Board of
Directors. Mr. Crain is also entitled to certain severance benefits upon his
death, disability or termination of employment. Pursuant to his employment
agreement, Mr. Crain is 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.

Change in Control Arrangements

      Our Chief Executive Officer, Chief Financial Officer and General Counsel
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:

      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 effected
         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;

                                       36

<PAGE>

      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 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.

      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, us and any entity in which the effected 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

      During 2002, Mr. Pelino received no compensation for serving on the Board
except for reimbursement of reasonable expenses incurred in attending meetings.
Non-employee directors are paid $1,250 per month, provided that each member
attends 75% of all meetings. In addition, an annual fee of $10,000 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. In addition, 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. One-half of these options vest on November 5, 2003,
and the balance vest on November 5, 2004, contingent upon continued Board
service.

Stock Options and Warrants

      The following table sets forth information on option grants in fiscal 2002
to the Named Executive Officers.

<TABLE>
<CAPTION>
                                                         Option Grants in Last Fiscal Year
                                                         ---------------------------------
                                                                                             Potential Realizable Value at
                                       % of Total                                            Assumed Annual Rates of Stock
                                         Options               Market                            Price Appreciation for
                                       Granted to              Price on                                Option Term
                         Number of    Employees in  Exercise   Date of       Expiration      -----------------------------
        Name          Options Granted  Fiscal-Year    Price      Grant          Date               5%             10%
        ----          ---------------  -----------    -----      -----          ----               --             ---
<S>                   <C>              <C>           <C>        <C>               <C>       <C>           <C>
Dennis L. Pelino (1)      1,900,000       52.73%      $1.30      $1.09        July 2012        $903,000      $2,902,000
Stephen M. Cohen            100,000        2.78%      $1.30      $1.09        July 2012          48,000         153,000
Bohn H. Crain (2)           150,000        4.16%      $1.78      $1.78     January 2012         168,000         426,000
                            200,000        5.55%      $1.30      $1.09        July 2012          95,000         305,000
Thomas L. Scully             25,000        0.69%      $1.30      $1.13   September 2012          14,000          41,000
</TABLE>
----------------
(1)   Does not include the grant to Mr. Pelino on March 10, 2003 of options to
      purchase 300,000 and 400,000 shares of the Company's common stock at
      exercise prices of $1.68 and $2.00 per share, respectively.

(2)   Does not include the grant to Mr. Crain on February 24, 2003 of options to
      purchase 200,000 shares of the Company's common stock at an exercise price
      of $1.53 per share, or the grant to Mr. Crain on March 25, 2003 of options
      to purchase 25,000 shares of the Company's common stock at an exercise
      price of $1.81 per share.

      The following table sets forth information concerning year-end option
values for fiscal 2002 for the Named Executive Officers. The value of the
options was based on the closing price of our common stock on December 31, 2002
of $1.45.

                                       37

<PAGE>

<TABLE>
<CAPTION>
                                                           Fiscal Year End Option Values
                                                           -----------------------------

                                                        Number of Unexercised        Value of Unexercised In-the-Money
                                                     Options 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                 -             -       1,800,000    1,900,000(1)       $1,134,000         $285,000
Stephen M. Cohen                 -             -         437,500      412,500             372,000          281,000
Bohn H. Crain                    -             -               -      350,000(1)                -           30,000
Thomas L. Scully                 -             -           8,948       41,052                   -            4,000
</TABLE>
----------------
(1)   Does not include options to purchase 300,000 and 400,000 shares of the
      Company's common stock granted to Mr. Pelino on March 10, 2003 at exercise
      prices of $1.68 and $2.00 per share, respectively, or options to purchase
      200,000 shares of the Company's common stock granted to Mr. Crain on
      February 24, 2003 at an exercise price of $1.53 per share and options to
      purchase 25,000 shares of the Company's common stock granted to Mr. Crain
      on March 25, 2003 at an exercise price of $1.81 per share.

      Outstanding Stock Options

      The Amended and Restated Stonepath Group, Inc. 2000 Stock Incentive Plan,
(the "Stock Incentive Plan") covers 10,000,000 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 (10) years from the date of grant. The Company may not
grant incentive stock options pursuant to the Stock Incentive Plan at 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.

      As of March 17, 2003, options to purchase 8,145,600 shares of common stock
were outstanding under the Stock Incentive Plan. With the exception of 271,000
options granted at exercise prices above $2.00 per share, all of the options
granted under the Stock Incentive Plan are subject to exercise prices of between
$.50 and $2.00 per share.

      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 2,282,900 shares of common stock. The following schedule identifies
the vesting schedule associated with all of the Company's outstanding options:

                                      Plan          Non-Plan          Total
                                   -----------    -----------     --------------
      Vested as of 12/31/02         2,942,381      2,256,650          5,199,031
      To vest in 2003               2,077,235         26,250          2,103,485
      To vest in 2004               1,472,010             --          1,472,010
      To vest in 2005               1,229,474             --          1,229,474
      To vest in 2006                 424,500             --            424,500
                                   -----------    -----------     --------------
                                    8,145,600      2,282,900         10,428,500
                                   ===========    ===========     ==============

                                       38

<PAGE>

      At March 17, 2003, these options were outstanding at the following
exercise prices:

                   Number of Options
      ---------------------------------------------
                                                             Range of
          Plan          Non-Plan          Total          Exercise Prices
      --------------   ------------    ------------    ---------------------

          3,315,000      1,792,500       5,107,500            $0.50 - $1.00
          4,559,600         83,200       4,642,800            $1.21 - $2.00
            271,000        144,000         415,000            $2.05 - $4.00
                 --         73,600          73,600           $6.38 - $10.00
                 --        189,600         189,600          $12.50 - $17.50
      --------------   ------------    ------------

          8,145,600      2,282,900      10,428,500
      ==============   ============    ============

      Outstanding Warrants

      As of March 17, 2003, warrants to purchase 2,792,093 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
8,157 shares at an exercise price of $6.00, warrants to purchase 150,000 shares
at $1.23 per share, and warrants to purchase 297,000 shares at $1.49 per share,
all of the remaining warrants are subject to an exercise price of $1.00 per
share and expire in July 2005.



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 and Series D preferred stock owned, as of March 17,
2003, 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 March 17, 2003, an aggregate of 27,945,914 shares of common stock
and 360,745 shares of Series D Preferred Stock were issued and outstanding. Each
share of Series D preferred stock is convertible into ten shares of our common
stock. For purposes of computing the percentages under the following tables, it
is assumed that all options and warrants to acquire common or preferred stock
which have been issued to the directors, executive officers and the holders of
more than 5% of common or preferred stock and are fully vested or will become
fully vested within 60 days from March 17, 2003 have been exercised by these
individuals and the appropriate number of shares of common stock and preferred
stock have been issued to these individuals.

                                       39

<PAGE>

<TABLE>
<CAPTION>
                                                     COMMON STOCK
                                                     ------------
                                                                  Shares Owned
                                                                  Beneficially
                                                                       and        Percentage of
Name of Beneficial Owner               Position                   of Record (1)        Class
------------------------               --------                   -------------        -----
<S>                                    <C>                        <C>                 <C>
Dennis L. Pelino(2)                    Officer, Director            2,506,222           8.34%
Stephen M. Cohen(3)                    Officer                        556,851           1.95%
Bohn H. Crain(4)                       Officer                         92,601               *
Thomas L. Scully(5)                    Officer                         15,204               *
David R. Jones(6)                      Director                       130,000               *
Aloysius T. Lawn, IV(7)                Director                        50,000               *
Robert McCord(8)                       Director                       100,000               *
J. Douglass Coates(9)                  Director                        25,000               *
Frank Palma(10)                        Director                        25,000               *

Brown Simpson Partners I, Ltd.         Beneficial Owner             2,011,840           6.71%
Carnegie Hall Tower
152 West 57th Street, 21st Fl.
New York, NY 10019(11)

Michael Karp                           Beneficial Owner             1,411,250           5.04%
University City Housing
1062 Lancaster Avenue
Suite 30B
Rosemont, PA 19010

All directors and executive officers                                3,500,878          11.31%
as a group (9 people)
</TABLE>

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

(1)   Beneficial ownership has been determined in accordance with Rule 13d-3
      under the Securities Exchange Act of 1934. Unless otherwise noted, the
      Company believes that all persons named in the table have sole voting and
      investment power with respect to all shares of common stock beneficially
      owned by them.

(2)   Includes 406,222 shares and 2,100,000 shares of common stock issuable upon
      exercise of vested options. Does not include 2,300,000 shares of common
      stock issuable pursuant to options not presently exercisable and not
      exercisable within 60 days of March 17, 2003.

(3)   Includes 11,850 shares and 545,001 shares of common stock issuable upon
      exercise of vested options and options which vest within 60 days of March
      17, 2003. Does not include 314,999 shares of common stock issuable
      pursuant to options not presently exercisable and not exercisable within
      60 days of March 17, 2003.

(4)   Includes 17,600 shares and 75,001 shares of common stock issuable upon
      exercise of vested options and options which vest within 60 days of March
      17, 2003. Does not include 499,999 shares of common stock issuable
      pursuant to options not presently exercisable and not exercisable within
      60 days of March 17, 2003.

(5)   Includes 15,204 shares of common stock issuable upon exercise of vested
      options and options which vest within 60 days of March 17, 2003. Does not
      include 43,096 shares of Common Stock issuable pursuant to options not
      presently exercisable and not exercisable within 60 days of March 17,
      2003.

(6)   Includes 80,000 shares and 50,000 shares of common stock issuable upon
      exercise of vested options and options which vest within 60 days of March
      17, 2003. Does not include 15,000 shares of common stock issuable pursuant
      to options not presently exercisable and not exercisable within 60 days of
      March 17, 2003.

(7)   Includes 50,000 shares of common stock issuable upon the exercise of
      vested options and options which vest within 60 days of March 17, 2003.
      Does not include 15,000 shares of common stock issuable pursuant to
      options not presently exercisable and not exercisable within 60 days of
      March 17, 2003.

(8)   Includes 100,000 shares of common stock issuable upon the exercise of
      vested options and options which vest within 60 days of March 17, 2003.

(9)   Includes 25,000 shares of common stock issuable upon the exercise of
      vested options and options which vest within 60 days of March 17, 2003.
      Does not include 25,000 shares of common stock issuable pursuant to
      options not presently exercisable and not exercisable within 60 days of
      March 17, 2003.

(10)  Includes 25,000 shares of common stock issuable upon the exercise of
      vested options and options which vest within 60 days of March 17, 2003.
      Does not include 40,000 shares of common stock issuable pursuant to
      options not presently exercisable and not exercisable within 60 days of
      March 17, 2003.

(11)  Represents shares of common stock issuable upon conversion of 201,184
      shares of Series D preferred stock.

                                       40

<PAGE>

                                           SERIES D PREFERRED STOCK
<TABLE>
<CAPTION>
                                                          Shares of
                                                   Series D Preferred Stock
                                                    Owned Beneficially and
      Name of Beneficial Owner                         of Record (1)(2)            Percentage of Class
      ------------------------                         ----------------            -------------------

<S>                                                             <C>                        <C>
      Brown Simpson Partners I, Ltd.                            201,184                    55%
      Carnegie Hall Tower
      152 West 57th Street, 21st Fl.
      New York, NY 10019

      Halifax Fund, LP                                           40,197                    11%
      195 Maplewood Avenue
      Maplewood, NJ  07040

      Schottenfeld Associates, L.P.                              25,451                     7%
      880 Third Avenue, 16th Floor
      New York, NY  10022

      Bridgewater Partners, L.P.                                 20,119                     6%
      880 Third Avenue, 16th Floor
      New York, NY  10022

      CSL Associates, LP                                         20,119                     6%
      399 Park Avenue,
      37th Floor
      New York, NY  10020

      Norton Herrick Irrevocable                                 40,201                    11%
      Securities Trust
      20 Community Place, 2nd Floor
      Morristown, NY  07960

      Total                                                     347,271
</TABLE>
----------------
(1)   Beneficial ownership has been determined in accordance with Rule 13d-3
      under the Securities Exchange Act of 1934. Unless otherwise noted, the
      Company believes that all persons named in the table have sole voting and
      investment power with respect to all shares of Series D preferred stock
      beneficially owned by them.

(2)   Each of the shares of Series D preferred stock converts into ten shares of
      the Company's common stock. Shares of the Series D preferred stock have
      limited voting rights, on an as converted to common stock basis, in
      connection with a consolidation, sale or merger of the Company that could
      result in a change of control.

Item  13. Certain Relationships and Related Transactions

Participation of Chief Executive Officer in Recent Private Placement Transaction

      At the request of one of the lead investors, Dennis L. Pelino, our Chief
Executive Officer, purchased 100,000 shares of our common stock at a price of
$1.54 per share in the recent private placement transaction that was completed
on March 7, 2003. Mr. Pelino's purchase price represented a 14.1% premium over
the purchase price of $1.35 paid by the non-affiliated investors in the
transaction.

Payments to Former Executive Officer

      During 2002 and 2003, we made aggregate severance payments of $575,000 to
Andrew Panzo, a former executive officer, in connection with a December 14, 2001
Separation Agreement in which Mr. Panzo resigned his position as an officer of
the Company. In connection with the Separation Agreement we also agreed to cover
Mr. Panzo and his family on our medical plan during 2002 and to accelerate the
vesting of the balance of his options to purchase 1,270,000 shares of our common
stock. As of December 14, 2001, Mr. Panzo had already vested in 1,102,500 of
these options.

Payments to Significant Employees

      In connection with our acquisition of Global on April 4, 2002, we advanced
the sum of $350,000 to Jason Totah. Mr. Totah was a former shareholder of Global
and is a significant employee of the Company, serving as the President of Global
and Stonepath Logistics International Services, Inc. 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.

      Air Plus leases certain of its office and warehouse facilities from Gary
Koch. Mr. Koch was a former shareholder of Air Plus and is a significant
employee of the Company, serving as the Chief Executive Officer of Air Plus and
Stonepath Logistics Domestic Services, Inc. Air Plus leased two of its
facilities from Mr. Koch in 2001 for a total rental of $110,000 for the period
from October 5, 2001 to December 31, 2001. In 2002, one of the leases with

                                       41

<PAGE>

Mr. Koch expired. During 2002, the rental payments to Mr. Koch were $187,000.
Payments under the lease with Mr. Koch were determined by reference to
comparable rents, and management believes the amounts payable thereunder
represent fair market rates.

Private Exchange Transaction with the Former Holders of our Series C Preferred
Stock

      During the quarter ended September 30, 2002, we completed a private
exchange transaction resulting in the restructuring of our outstanding shares of
Series C preferred stock. In the restructuring, effective as of July 19, 2002,
all of the Company's shares of Series C preferred stock, representing
approximately $44.6 million in liquidation preferences, were surrendered and
retired in exchange for a combination of securities consisting of (i) 1,911,071
shares of our common stock upon conversion of the Series C preferred stock; (ii)
warrants to purchase 1,543,413 shares of common stock at an exercise price of
$1.00 through July 18, 2005 (including an amendment to the 158,348 Series C
warrants that were originally granted in March 2000 for the purpose of reducing
the exercise price thereof from $26.58 to $1.00 per share and extending the
exercise period from March 2003 to July 18, 2005); and (iii) 360,745 shares of a
newly designated class of Series D convertible preferred stock which in the
future are convertible into 3,607,450 shares of the our common stock.

      Each holder of our Series D convertible preferred stock has the right to
convert at any time all or a portion of his Series D convertible preferred stock
into ten (10) shares of common stock for each share of Series D convertible
preferred stock converted, subject to certain anti-dilution adjustments. Any
shares of Series D convertible preferred stock that are outstanding after
December 31, 2004 will automatically be converted into common stock. Automatic
conversion will also occur: (i) once the average closing price of our common
stock is over $7.50 for thirty (30) consecutive trading days; (ii) upon a merger
or sale transaction after December 31, 2003, unless the transaction otherwise
provides for the exchange of the outstanding shares of Series D convertible
preferred stock for a like-kind preferred stock of the acquirer/surviving
corporation; or (iii) upon the affirmative vote of holders of eighty (80%)
percent of the Series D convertible preferred stock.

Amendment and Restatement of Employment Arrangements with Executive Officers

      Effective as of February 22, 2002, we entered into an amended employment
agreement with our Chief Executive Officer, Dennis L. Pelino. This agreement
amended and restated our prior agreement with Mr. Pelino dated June 21, 2001. 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.

      Effective as of February 1, 2003, we entered into an amended employment
agreement with our Chief Financial Officer, Bohn H. Crain. This agreement
amended and restated our prior agreement with Mr. Crain dated January 10, 2002.

Loan to Officer

      Under the terms of our employment agreement with Mr. Cohen, we provided
him with a loan in the principal amount of $100,000. The loan accrues interest
at the rate of 8% per annum and is due on April 17, 2004, or such earlier date
that Mr. Cohen shall have received aggregate proceeds of $5,000,000 from the
sale of his options or the shares of common stock underlying his options.
However, Mr. Cohen is not required to repay the loan if by April 17, 2004, the
sum of the proceeds which he has received from the sale of his options or the
shares of common stock underlying his options and the remaining equity in the
options as of April 17, 2004 does not equal or exceed $5,000,000.

Item 14. Controls and Procedures

Controls and Procedures

         As required by Rule 13a-15 under the Securities Exchange Act of 1934,
as of the end of the period covered by this report, 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 Company's Chief
Executive Officer and Chief Financial Officer. Based upon that evaluation, the
Company's Chief Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures are effective. There have been no
significant changes in the Company's internal controls or in other factors,
which could significantly affect internal controls subsequent to the date the
Company carried out its evaluation.

         Disclosure controls and procedures are designed to ensure that
information required to be disclosed in Company reports filed or submitted under
the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed in
Company reports filed under the Exchange Act is accumulated and communicated to
management, including the Company's Chief Executive Officer and Chief Financial
Officer as appropriate, to allow timely decisions regarding required disclosure.

                                       42

<PAGE>

                                     PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a) Documents filed as part of this Report:

<TABLE>
<CAPTION>
<S>   <C>                                                                                                <C>
      1.  Consolidated Financial Statements:
              Independent Auditors' Report............................................................   47
          Consolidated Balance Sheets as of December 31, 2002 (As restated) and 2001 (As restated)....   48
          Consolidated Statements of Operations for the Years Ended
              December 31, 2002 (As restated), 2001 (As restated) and 2000............................   49
          Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss)
              for the Years Ended December 31, 2002 (As restated), 2001 (As restated) and 2000........   50
          Consolidated Statements of Cash Flows for the Years Ended
              December 31, 2002 (As restated), 2001 (As restated) and 2000............................   52
          Notes to Consolidated Financial Statements..................................................   53

      2.  Predecessor Combined Financial Statements:
              Independent Auditors' Report............................................................   75
          Combined Statements of Operations for the Year Ended
              December 31, 2000, and the Six Months Ended June 30, 2001 and 2000 (Unaudited)..........   76
          Combined Statements of Changes in Shareholders' Equity and Comprehensive Income
              for the Year Ended December 31, 2000 and the Six Months Ended June 30, 2001
              (Unaudited).............................................................................   77
          Combined Statements of Cash Flows for the Year Ended
              December 31, 2000 and the Six Months Ended June 30, 2001 and 2000 (Unaudited)...........   78
          Notes to Combined Financial Statements......................................................   79


      3.  Consolidated Financial Statement Schedule:
          Schedule II - Valuation and Qualifying Accounts.............................................   82
</TABLE>

(b) Reports on Form 8-K:

      We filed one report on Form 8-K during the fiscal quarter ended December
31, 2002:

             (i)  Form 8-K dated October 16, 2002 providing information pursuant
                  to Regulation FD relative to a series of meetings the Company
                  intended to hold with private investors.

(c) Exhibit Listing:

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

2.1(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)

2.2(1)            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)

2.3(2)            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)

                                       43

<PAGE>


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

2.4(3)            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

2.5(3)            Amendment to Stock Purchase Agreement dated May 30, 2002 by
                  and among Stonepath Logistics Domestic Services, Inc., and
                  United American Acquisitions and Management, Inc., d/b/a
                  United Freight Services, Inc. and Douglas Burke

3.1(4)            Amended and Restated Certificate of Incorporation

3.2(5)            Certificate of Amendment to the Certificate of Incorporation

3.3(5)            Amended and Restated Bylaws

3.4(6)            Certificate of Designation of Series D Convertible Preferred
                  Stock

4.1(4)            Specimen Common Stock Certificate for Stonepath Group, Inc.

4.2(7)            Form of Common Stock Purchase Warrant issued in connection
                  with the Series C Convertible Preferred Stock

4.3(8)            Form of Amendment to Common Stock Purchase Warrant issued upon
                  conversion of the Series C Convertible Preferred Stock
                  effective as of July 19, 2002

4.4(8)            Form of Contingent Warrant issued upon conversion of the
                  Series C Convertible Preferred Stock effective as of July 19,
                  2002

4.5(6)            Form of Exchange Agreement by and between the Company and
                  certain holders of the Company's Series C Convertible
                  Preferred Stock

4.6(9)            Stonepath Group, Inc. Amended and Restated 2000 Stock
                  Incentive Plan (the "Plan")

4.7(9)            Form of Stock Option Agreement under the Plan

4.8(9)            Form of Non-Plan Option to Purchase Common Stock of the
                  Company

4.9(10)           Amended and Restated Option Agreement between the Company and
                  Dennis L. Pelino effective as of February 22, 2002 ("Pelino
                  Options")

4.10(11)          Amendment No. 1 to Amended and Restated Option to Purchase
                  Common Stock of Stonepath Group, Inc. granted to Dennis L.
                  Pelino, Effective as of July 3, 2002

4.11(11)          Stock Option Agreement between the Company and Dennis L.
                  Pelino dated July 3, 2002

4.12(9)           Stock Option Agreement between the Company and Stephen M.
                  Cohen dated April 19, 2001

4.13(14)          Stock Option Agreement between the Company and Stephen M.
                  Cohen dated July 3, 2002.

4.14(13)          Stock Option Agreement between the Company and Bohn H. Crain
                  dated January 10, 2002

4.15(14)          Stock Option Agreement between the Company and Bohn H. Crain
                  dated July 3, 2002

4.16(18)          Stock Option Agreement between the Company and Bohn H. Crain
                  dated February 24, 2003

                                       44

<PAGE>


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

4.17(18)          Stock Option Agreement between the Company and Dennis L.
                  Pelino (covering the grant of 300,000 Options) dated March 10,
                  2003

4.18(18)          Stock Option Agreement between the Company and Dennis L.
                  Pelino (covering the grant of 400,000 Options) dated March 10,
                  2003

4.19(18)          Form of Subscription Agreement by and between the Company and
                  certain purchasers of common shares (including exhibit
                  providing for registration rights)

4.20(18)          Placement Agency Agreement between the Company and Stonegate
                  Securities, Inc. dated October 16, 2002

4.21(9)           Stock Option Agreement between the Company and Andrew P. Panzo
                  dated April 19, 2001

4.22(9)           Stock Option Agreement between Net Value, Inc. and Andrew P.
                  Panzo dated December 4, 1999

4.23(12)          Option to Purchase Common Stock of the Company granted to
                  Andrew P. Panzo effective as of June 1, 1999

10.1(10)          Amended and Restated Employment Agreement between the Company
                  and Dennis L. Pelino dated February 22, 2002

10.2(12)          Amended and Restated Employment Agreement between the Company
                  and Stephen M. Cohen dated April 19, 2001

10.3(10)          Letter Agreement between the Company and Stephen M. Cohen
                  dated December 27, 2001 10.4(18) Amended and Restated
                  Employment Agreement between the Company and Bohn H. Crain
                  dated February 24, 2003

10.5(15)          Separation Agreement between the Company and Andrew P. Panzo
                  dated December 11, 2001

10.6(1)           Executive Employment Agreement between M.G.R., Inc. and Gary
                  Koch dated as of October 5, 2001

10.7(18)          Executive Employment Agreement between Global Transportation
                  Services, Inc. and Jason F. Totah dated April 4, 2002

10.8(16)          Stonepath Group, Inc. 401(k) Profit Sharing Plan.

10.9(17)          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.

21.1(18)          Subsidiaries of Stonepath Group, Inc.

23.1(19)          Independent Auditors' Consent

23.2(19)          Independent Auditors' Consent

                                       45

<PAGE>

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

31.1(19)          Certification of Chief Executive Officer Pursuant to Section
                  302 of the Sarbanes-Oxley Act of 2002

31.2(19)          Certification of Chief Financial Officer Pursuant to Section
                  302 of the Sarbanes-Oxley Act of 2002

32.1(19)          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(19)          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.)

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

(1)   Incorporated by reference to the Company's Current Report on Form 8-K
      dated October 5, 2001 filed October 19, 2001

(2)   Incorporated by reference to the Company's Current Report on Form 8-K
      dated April 4, 2002 filed April 19, 2002

(3)   Incorporated by reference to the Company's Current Report on Form 8-K
      dated May 30, 2002 filed June 12, 2002

(4)   Incorporated by reference to the Company's Registration Statement on Form
      S-1 (Reg. No. 333-88629) filed October 8, 1999

(5)   Incorporated by reference to the Company's Annual Report on Form 10-K for
      the year ended December 31, 2000, filed April 2, 2001

(6)   Incorporated by reference to Amendment No. 1 to the Company's Registration
      Statement on Form S-3 filed July 31, 2002 (Registration No. 333-91240).

(7)   Incorporated by reference to the Company's Current Report on Form 8-K
      dated March 3, 2000, filed March 17, 2000

(8)   Incorporated by reference to the Company's Form 10-Q for the third quarter
      ended September 30, 2002, filed November 14, 2002.

(9)   Incorporated by reference to the Company's Registration Statement on Form
      S-8 filed December 11, 2001

(10)  Incorporated by reference to the Company's Annual Report on Form 10-K for
      the year ended December 31, 2001, filed March 29, 2002

(11)  Incorporated by reference to the Company's Current Report on Form 8-K
      dated July 15, 2002, filed July 16, 2002

(12)  Incorporated by reference to the Company's Form 10-Q for the second
      quarter ended June 30, 2001, filed August 13, 2001

(13)  Incorporated by reference to the Company's Current Report on Form 8-K
      dated January 15, 2002, filed January 25, 2002

(14)  Incorporated by reference to the Company's Form 10-Q for the second
      quarter ended June 30, 2002, filed August 14, 2002

(15)  Incorporated by reference to the Company's Current Report on Form 8-K
      dated December 14, 2001, filed December 27, 2001

(16)  Incorporated by reference to the Company's Registration Statement on Form
      S-8 filed on February 25, 2003 (Registration No. 10439).

(17)  Incorporated by reference to the Company's Current Report on Form 8-K
      dated May 15, 2002, filed May 20, 2002

(18)  Incorporated by reference to the Company's Annual Report on Form 10-K for
      the year ended December 31, 2002, filed March 31, 2003.

(19)  Filed herewith.

                                       46

<PAGE>


                          Independent Auditors' Report

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

We have audited the accompanying consolidated balance sheets of Stonepath Group,
Inc. and subsidiaries (the Company) as of December 31, 2002 and 2001, and the
related consolidated statements of operations, stockholders' equity and
comprehensive income (loss) and cash flows for each of the years in the
three-year period ended December 31, 2002. In connection with our audits of the
consolidated financial statements, we also have audited the financial statement
schedule as of and for the three years ended December 31, 2002. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.

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

In our opinion, the 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, 2002 and 2001 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2002 in conformity with accounting principles generally
accepted in the United States of America. Also in our opinion, the related
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.

As discussed in Note 2 to the consolidated financial statements, the Company has
restated its consolidated financial statements as of and for the years ended
December 31, 2002 and 2001.

                                                     /s/ KPMG LLP

Philadelphia, Pennsylvania
February 25, 2003, except
   as to Note 18, which is
   as of March 10, 2003 and
   Note 2, which is as of
   August 25, 2003

                                       47

<PAGE>



                              STONEPATH GROUP, INC.
                           Consolidated Balance Sheets
                           December 31, 2002 and 2001


<TABLE>
<CAPTION>
                                                                                         Restated            Restated
                                                                                           2002                2001
                                                                                       ------------       --------------
                                                     Assets
Current assets:
<S>                                                                                    <C>                 <C>
     Cash and cash equivalents                                                         $ 2,266,108         $ 15,227,830
     Accounts receivable, less allowances for doubtful accounts
        of $320,000 and $167,000 at 2002 and 2001, respectively                         21,799,983            7,303,426
     Loans receivable from related parties                                                  39,593               64,589
     Prepaid expenses                                                                      963,102              618,873
     Assets of discontinued operations                                                     300,000              415,845
                                                                                       ------------       --------------
                                 Total current assets                                   25,368,786           23,630,563

Goodwill                                                                                20,311,150           10,822,816
Furniture and equipment, net                                                             3,233,677            1,737,603
Acquired intangibles, net                                                                5,042,555            4,322,333
Note receivable, related party                                                             262,500                    -
Other assets                                                                               946,847              289,574
                                                                                       ------------       --------------
                                 Total assets                                          $55,165,515         $ 40,802,889
                                                                                       ============       ==============

                                       Liabilities and Stockholders' Equity

     Current liabilities:
     Accounts payable                                                                  $12,873,703         $  5,353,656
     Earn-out payable                                                                    3,879,856                    -
     Accrued payroll and related expenses                                                1,195,275            1,427,315
     Accrued expenses                                                                    1,786,100            1,590,272
                                                                                       ------------       --------------
                                 Total current liabilities                              19,734,934            8,371,243
                                                                                       ------------       --------------

Commitments and contingencies (Notes 10 and 11)

Stockholders' equity:
     Preferred stock, $.001 par value, 10,000,000 shares authorized;
        Series C, convertible, issued and outstanding: 3,750,479 shares at 2001                  -                3,750
        Series D, convertible, issued and outstanding: 360,745 shares at 2002
          (liquidation preference: $21,644,700)                                                361                    -
     Common stock, $.001 par value, 100,000,000 shares authorized; issued and
        outstanding: 23,453,414 shares and 20,903,110 shares at 2002 and 2001,
     respectively                                                                           23,453               20,903
     Additional paid-in capital                                                        196,235,064          210,730,999
     Accumulated deficit                                                              (160,711,891)        (178,112,368)
     Deferred compensation                                                                (116,406)            (211,638)
                                                                                       ------------       --------------
                                 Total stockholders' equity                             35,430,581           32,431,646
                                                                                       ------------       --------------

                                 Total liabilities and stockholders' equity            $55,165,515         $ 40,802,889
                                                                                       ============       ==============
</TABLE>



          See accompanying notes to consolidated financial statements.

                                       48

<PAGE>



                              STONEPATH GROUP, INC.
                      Consolidated Statements of Operations
                  Years ended December 31, 2002, 2001 and 2000
<TABLE>
<CAPTION>
                                                                            Restated          Restated
                                                                              2002              2001              2000
                                                                        ----------------  ----------------  ----------------

<S>                                                                     <C>               <C>               <C>
Revenues                                                                $   139,649,219   $    15,597,889   $             -

Cost of transportation                                                      101,339,024         9,740,774                 -
                                                                        ----------------  ----------------  ----------------

Net revenues                                                                 38,310,195         5,857,115                 -
Personnel costs                                                              19,089,069         5,997,245         4,262,646
Other selling, general and administrative costs                              14,679,960         3,916,601         3,125,929
Depreciation and amortization                                                 2,186,951           495,046            31,275
                                                                        ----------------  ----------------  ----------------


Income (loss) from operations                                                 2,354,215        (4,551,777)       (7,419,850)
Other income (expense):
    Interest income                                                              90,680         1,285,657         2,080,140
    Interest expense                                                                  -            (4,102)          (15,713)
    Other income                                                                 37,311            13,153                 -
                                                                        ----------------  ----------------  ----------------

Income (loss) from continuing operations before income taxes                  2,482,206        (3,257,069)       (5,355,423)
Income taxes                                                                    101,877                 -                 -
                                                                        ----------------  ----------------  ----------------


Income (loss) from continuing operations                                      2,380,329        (3,257,069)       (5,355,423)
Discontinued operations:
     Loss from discontinued operations                                                -       (13,862,713)      (30,815,850)
                                                                        ----------------  ----------------  ----------------

Net income (loss)                                                             2,380,329       (17,119,782)      (36,171,273)
Preferred stock dividends and effect of redemption                           15,020,148        (4,151,198)      (45,750,830)
                                                                        ----------------  ----------------  ----------------


Net income (loss) attributable to common stockholders                   $    17,400,477   $   (21,270,980)  $   (81,922,103)
                                                                        ================  ================  ================

Basic earnings (loss) per common share -
     Continuing operations                                              $          0.79   $         (0.36)  $         (2.89)
     Discontinued operations                                                          -             (0.68)            (1.75)
                                                                        ----------------  ----------------  ----------------

         Earnings (loss) per common share                               $          0.79   $         (1.04)  $         (4.64)
                                                                        ================  ================  ================

Diluted earnings (loss) per common share -
     Continuing operations                                              $          0.08   $         (0.36)  $         (2.89)
     Discontinued operations                                                          -             (0.68)            (1.75)
                                                                        ----------------  ----------------  ----------------

     Earnings (loss) per common share                                   $          0.08   $         (1.04)  $         (4.64)
                                                                        ================  ================  ================



Basic weighted average common shares outstanding                             22,154,861        20,510,345        17,657,913
                                                                        ================  ================  ================



Diluted weighted average common shares outstanding                           29,232,568        20,510,345        17,657,913
                                                                        ================  ================  ================
</TABLE>


          See accompanying notes to consolidated financial statements.

                                       49

<PAGE>


                              STONEPATH GROUP, INC.
 Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss)
                  Years ended December 31, 2002, 2001 and 2000

<TABLE>
<CAPTION>
                                       Preferred stock, Series C       Preferred stock, Series D
                                      ----------------------------  ------------------------------


                                         Shares          Amount         Shares          Amount
                                      --------------  ------------  --------------    ------------

<S>                                   <C>             <C>           <C>               <C>
Balances at December 31, 1999                   --     $        --             --     $        --

Net loss                                        --              --             --              --
Other comprehensive loss:
       Unrealized loss on
        available-for-sale securities           --              --             --              --

Comprehensive loss

Issuance of warrants                            --              --             --              --
Issuance of common stock, net of
        cancellations                           --              --             --              --
Issuance of preferred stock, Series
        C, net                           4,166,667           4,167             --              --
Completion of in-process merger with
        Net Value, Inc.                         --              --             --              --
Contributed capital                             --              --             --              --
Series B preferred stock conversion             --              --             --              --
Series C preferred stock conversion       (779,793)           (779)            --              --
Preferred stock dividends                  270,196             269             --              --
Treasury stock                                  --              --             --              --
Compensatory common stock, options
        and warrants issued, net of
        cancellations                           --              --             --              --
Amortization of deferred stock-based
        compensation                            --              --             --              --
                                      --------------  ------------  --------------    ------------

Balances at December 31, 2000            3,657,070           3,657             --              --

Net loss                                        --              --             --              --
Other comprehensive income:
     Unrealized gain on
        available-for-sale securities           --              --             --              --

Comprehensive loss

Issuance of contingent warrants                 --              --             --              --
Exercise of options and warrants                --              --             --              --
Series C preferred stock conversion       (205,660)           (206)            --              --
Preferred stock dividends                  299,069             299             --              --
Compensatory common stock, options
        and warrants issued, net of
        cancellations                           --              --             --              --
Amortization of deferred stock-based
        compensation                            --              --             --              --
                                      --------------  ------------  --------------    ------------

Balances at December 31, 2001,
        restated                         3,750,479           3,750             --              --


Net income                                      --              --             --              --

Exercise of options and warrants                --              --             --              --
Series C preferred stock conversion     (3,913,220)         (3,913)       360,745             361
Preferred stock dividends                  162,741             163             --              --
Compensatory warrants issued                    --              --             --              --
Amortization of deferred stock-based
        compensation                            --              --             --              --
                                      --------------  ------------  --------------    ------------
Balances at December 31, 2002,
        restated                                --     $        --        360,745     $       361
                                      ==============  ============  ==============    ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                    Common stock
                                      -----------------------------------------------
                                          Net Value, Inc.      Stonepath Group, Inc.      Additional
                                      ---------------------- ------------------------       paid-in
                                        Shares      Amount      Shares       Amount         capital
                                      ---------- ----------- ------------   ---------    ------------

<S>                                   <C>        <C>          <C>           <C>           <C>
Balances at December 31, 1999          1,037,338  $    1,038   15,522,807  $   15,523    $103,946,136

Net loss                                      --          --           --          --              --
Other comprehensive loss:
       Unrealized loss on
        available-for-sale securities         --          --           --          --              --

Comprehensive loss

Issuance of warrants                          --          --           --          --       7,391,691
Issuance of common stock, net of
        cancellations                     60,250          60    1,494,822       1,495      10,478,493
Issuance of preferred stock, Series
        C, net                                --          --           --          --      40,878,920
Completion of in-process merger with
        Net Value, Inc.               (1,092,588)     (1,093)   1,754,132       1,754            (661)
Contributed capital                           --          --           --          --         853,319
Series B preferred stock conversion           --          --    1,180,180       1,180       4,304,734
Series C preferred stock conversion           --          --      779,793         779              --
Preferred stock dividends                     --          --           --          --      45,642,097
Treasury stock                            (5,000)         (5)    (312,200)       (312)     (1,203,044)
Compensatory common stock, options
        and warrants issued, net of
        cancellations                         --          --           --          --      (1,368,356)
Amortization of deferred stock-based
compensation                                  --          --           --          --              --
                                      ---------- ----------- ------------   ---------    ------------

Balances at December 31, 2000                 --          --   20,419,534      20,419     210,923,329

Net loss                                      --          --           --          --              --
Other comprehensive income:
     Unrealized gain on
     available-for-sale securities            --          --           --          --              --

Comprehensive loss

Issuance of contingent warrants               --          --           --          --         562,370
Exercise of options and warrants              --          --      200,000         200         199,800
Series C preferred stock conversion           --          --      205,660         206              --
Preferred stock dividends                     --          --           --          --       3,588,529
Compensatory common stock, options
        and warrants issued, net of
        cancellations                         --          --       77,916          78      (4,543,029)
Amortization of deferred stock-based
        compensation                          --          --           --          --              --
                                      ---------- ----------- ------------   ---------    ------------

Balances at December 31, 2001,
        restated                              --          --   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           --                2,109,496       2,109     (16,971,597)
Preferred stock dividends                     --          --           --          --       1,952,729
Compensatory warrants issued                  --          --           --          --          95,000
Amortization of deferred stock-based          --
        compensation                          --          --           --                       3,193
                                      ---------- ----------- ------------   ---------    ------------
Balances at December 31, 2002,
        restated                              --  $       --   23,453,414      23,453     196,235,064
                                      ========== =========== ============   =========    ============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       50

<PAGE>
                              STONEPATH GROUP, INC.
 Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss)
                                   (continued)
                  Years ended December 31, 2002, 2001 and 2000

<TABLE>
<CAPTION>
                                                     Accumulated
                                                        other        Deferred                           Total
                                       Accumulated  comprehensive   stock-based                     comprehensive
                                         deficit        loss       compensation          Total       income(loss)
                                      ---------------------------------------------------------------------------

<S>                                   <C>            <C>          <C>                 <C>          <C>
Balances at December 31, 1999         $ (74,919,285)          --    $(27,342,172)     $ 1,701,240


Net loss                                (36,171,273)          --              --      (36,171,273)   $(36,171,273)
Other comprehensive loss:
       Unrealized loss on
        available-for-sale securities            --       (8,688)             --           (8,688)         (8,688)
                                                                                                    -------------

Comprehensive loss                                                                                   $(36,179,961)
                                                                                                    =============

Issuance of warrants                             --           --              --        7,391,691
Issuance of common stock, net of
        cancellations                            --           --              --       10,480,048
Issuance of preferred stock, Series
        C, net                                   --           --              --       40,883,087
Completion of in-process merger with
        Net Value, Inc.                          --           --              --               --
Contributed capital                              --           --              --          853,319
Series B preferred stock conversion              --           --              --        4,305,914
Series C preferred stock conversion              --           --              --               --
Preferred stock dividends               (45,750,830)          --              --         (108,464)
Treasury stock                                   --           --              --       (1,203,361)
Compensatory common stock, options
        and warrants issued, net of
        cancellations                            --           --       1,368,356               --
Amortization of deferred stock-based
        compensation                             --           --      15,202,092       15,202,092
                                      -------------      -------    ------------      -----------

Balances at December 31, 2000          (156,841,388)      (8,688)    (10,771,724)      43,325,605

Net loss                                (17,119,782)          --              --      (17,119,782)   $(17,119,782)
Other comprehensive income:
     Unrealized gain on
        available-for-sale securities            --        8,688              --            8,688           8,688
                                                                                                    -------------

Comprehensive loss                                                                                   $(17,111,094)
                                                                                                    =============

Issuance of contingent warrants            (562,370)          --              --               --
Exercise of options and warrants                 --           --              --          200,000
Series C preferred stock conversion              --           --              --               --
Preferred stock dividends                (3,588,828)          --              --               --
Compensatory common stock, options
        and warrants issued, net of
        cancellations                            --           --       4,845,297          302,346
Amortization of deferred stock-based
        compensation                             --           --       5,714,789        5,714,789
                                      -------------      -------    ------------      -----------
Balances at December 31, 2001,
        restated                       (178,112,368)          --        (211,638)      32,431,646


Net income                                2,380,329           --              --        2,380,329    $  2,380,329
                                                                                                     ============

Exercise of options and warrants                 --           --              --          425,181
Series C preferred stock conversion      16,973,040           --              --               --
Preferred stock dividends                (1,952,892)          --              --               --
Compensatory warrants issued                     --           --              --           95,000
Amortization of deferred stock-based
        compensation                             --           --          95,232           98,425
                                      -------------      -------    ------------      -----------
Balances at December 31, 2002,                                                                 --
        restated                      $(160,711,891)     $    --    $   (116,406)     $35,430,581
                                      =============      =======    ============      ===========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       51

<PAGE>


                              STONEPATH GROUP, INC.
                      Consolidated Statements of Cash Flows
                  Years ended December 31, 2002, 2001 and 2000

<TABLE>
<CAPTION>
                                                                        Restated        Restated
                                                                          2002            2001             2000
                                                                       ------------   -------------    -------------
Cash flows from operating activities:
<S>                                                                    <C>            <C>              <C>
   Net income (loss)                                                   $ 2,380,329    $(17,119,782)    $(36,171,273)

   Adjustments to reconcile net income (loss) to net cash used
     in operating activities:
        Depreciation and amortization                                    2,186,951         495,046        1,620,855
        Stock-based compensation - continuing operations                    98,425       2,394,106        3,395,755
        Interest paid with common stock                                          -               -          216,511
        Loss from disposal of furniture and equipment                        4,560         101,126                -
   Changes in assets and liabilities, net of effect of acquisitions:
         Accounts receivable                                            (5,731,830)      1,205,807                -
         Other assets                                                     (160,903)       (133,499)         (96,347)
         Accounts payable and accrued expenses                             639,201        (470,871)          87,696
    Discontinued operations - working capital changes
         and non-cash items                                                      -      13,025,075       25,166,329
                                                                       ------------   -------------    -------------

                   Net cash used in operating activities                  (583,267)       (502,992)      (5,780,474)
                                                                       ------------   -------------    -------------

Cash flows from investing activities:
   Acquisition of businesses, net of cash acquired                     (10,497,306)    (18,011,262)               -
   Purchases of furniture and equipment                                 (1,812,750)       (280,670)        (232,488)
   Proceeds from sale of furniture and equipment                                 -          32,926                -
   Loans made                                                             (350,000)               -         (350,000)
   Discontinued operations:
        Advances to affiliate companies                                          -        (552,000)      (2,004,841)
        Collections on advances to affiliate companies                           -       1,000,000          105,000
        Purchase of available for sale securities                                -        (452,900)               -
        Proceeds from sale of available for sale securities                      -          57,910                -
        Acquisition of ownership interests in affiliate companies                -        (200,000)     (13,820,000)
        Proceeds from sale of ownership interests in affiliate
          companies                                                        115,000       6,285,953          100,000
                                                                       ------------   -------------    -------------

                    Net cash used in investing activities              (12,545,056)    (12,120,043)     (16,202,329)
                                                                       ------------   -------------    -------------

Cash flows from financing activities:
   Issuance of common stock                                                425,181         200,000        1,099,602
   Payment of equity financing fees                                        (25,000)              -                -
   Payment of debt financing fees                                         (233,580)              -                -
   Net repayments on short-term debt                                             -      (1,448,786)         (28,281)
   Payment of long-term debt                                                     -               -          (79,034)
   Issuance of preferred stock and warrants                                      -               -       48,274,760
   Purchase and retirement of treasury stock                                     -               -       (1,203,361)
   Payment of preferred stock dividend, Series B                                 -               -         (108,464)
                                                                       ------------   -------------    -------------

                   Net cash provided by (used in) financing
                     activities                                            166,601      (1,248,786)      47,955,222
                                                                       ------------   -------------    -------------

                   Net increase (decrease) in cash and cash
                     equivalents                                       (12,961,722)    (13,871,821)      25,972,419
Cash and cash equivalents, beginning of year                            15,227,830      29,099,651        3,127,232
                                                                       ------------   -------------    -------------

Cash and cash equivalents, end of year                                 $ 2,266,108     $15,227,830     $ 29,099,651
                                                                       ============   =============    =============

Cash paid for interest                                                 $         -    $      4,102     $     29,153
                                                                       ============   =============    =============

Cash paid for income taxes                                             $    84,959    $          -     $      2,586
                                                                       ============   =============    =============

Supplemental disclosure of non-cash investing and
 financing activities:

   Increase in goodwill related to accrued earn-out payments           $ 3,879,856    $          -     $          -
                                                                       ============   =============    =============

   Issuance of warrants in connection with private placement           $    95,000     $         -     $         -
                                                                       ============   =============    =============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       52

<PAGE>


                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                           December 31, 2002 and 2001

(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 services a customer base of
      manufacturers, distributors and national retail chains through a network
      of offices in 18 major metropolitan locations in North America plus two
      international locations, and an extensive network of over 200 independent
      carriers and over 150 service partners strategically located around the
      world.

(2)   Restatement of Previously Reported Consolidated Financial Statements

      The Company has been engaged in a dialogue with the staff of the Division
      of Corporation Finance of the U.S. Securities and Exchange Commission (the
      "Staff") as part of a review of one of the Company's filings. The results
      of our discussions with the Staff have led the Company to restate its
      consolidated financial statements for the quarters ended June 30, 2003 and
      March 31, 2003, and for the years ended December 31, 2002 and 2001.

      The restatement relates to (i) allocating more value to the customer
      relationship intangible assets for the Company's acquisitions and (ii)
      revising the amortization method and life used for such assets. The
      restatements did not impact the amounts presented in the consolidated
      statements of cash flows for net cash used in operating activities, net
      cash used in investing activities or net cash provided by (used in)
      financing activities in any of the restated periods, although it did
      impact certain non-cash components of cash flows from operating
      activities.

      Accordingly, the Company has restated its consolidated financial
      statements as of and for the years ended December 31, 2002 and 2001. The
      effects of this restatement on previously reported consolidated financial
      statements as of and for the years ended December 31, 2002 and 2001 are
      summarized below.

<TABLE>
<CAPTION>
                                         December 31, 2002                 December 31, 2001
                                  -------------------------------  ----------------------------------
                                          As                               As
                                      Previously         As            Previously           As
                                       Reported       Restated          Reported         Restated
                                  ---------------- --------------  ---------------- -----------------
<S>                               <C>              <C>             <C>              <C>

Selected Balance Sheet Data:

Goodwill                              $25,041,150    $20,311,150       $14,437,816       $10,822,816

Acquired intangibles, net               1,760,611      5,042,555           970,000         4,322,333

Total assets                           56,613,571     55,165,515        41,065,556        40,802,889

Accumulated deficit                  (159,263,835)  (160,711,891)     (177,849,701)     (178,112,368)

Total stockholders' equity             36,878,637     35,430,581        32,694,313        32,431,646

Total liabilities and
  stockholders' equity                 56,613,571     55,165,515        41,065,556        40,802,889
</TABLE>

                                       53

<PAGE>
                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                           December 31, 2002 and 2001
<TABLE>
<CAPTION>
                                             Year Ended                        Year Ended
                                          December 31, 2002                  December 31, 2001
                                    -------------------------------- --------------------------------
                                          As                                As
                                      Previously           As           Previously          As
                                       Reported         Restated         Reported        Restated
                                    --------------  ---------------- --------------- ----------------
<S>                                 <C>             <C>              <C>             <C>

Selected Statement of
Operations Data:
Depreciation and amortization        $  1,001,562    $   2,186,951    $    232,379    $     495,046
Income (loss) from operations           3,539,604        2,354,215      (4,289,110)      (4,551,777)
Income (loss) from continuing
  operations before income taxes        3,667,595        2,482,206      (2,994,402)      (3,257,069)
Income (loss) from continuing
  operations                            3,565,718        2,380,329      (2,994,402)      (3,257,069)

Net income (loss)                       3,565,718        2,380,329     (16,857,115)     (17,119,782)
Net income (loss) attributable
  to common stockholders               18,585,866       17,400,477     (21,008,313)     (21,270,980)

Basic earnings (loss) per common share:
Continuing operations                       $0.84            $0.79          $(0.34)          $(0.36)
Earnings (loss) per common
  Share                                      0.84             0.79           (1.02)           (1.04)

Diluted earnings (loss) per
  common share
Continuing operations                       $0.12            $0.08          $(0.34)          $(0.36)
Earnings (loss) per common share             0.12             0.08           (1.02)           (1.04)

Selected Statement of Cash
Flows Data:
Net income (loss)                      $3,565,718       $2,380,329    $(16,857,115)    $(17,119,782)
Depreciation and amortization           1,001,562        2,186,951         232,379          495,046
</TABLE>




(3)   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 owned subsidiaries. All intercompany balances and transactions
           have been eliminated in consolidation.

      b)   Use of Estimates

           The presentation of financial statements 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 revenues and expenses during
           the reporting period. Such estimates include 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.
           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.

                                       54

<PAGE>

                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                           December 31, 2002 and 2001


      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 in the United States. Credit is granted to customers on an
           unsecured basis, and generally provides for 30-day payment terms. To
           reduce credit risk, the Company performs ongoing credit evaluations
           of its customers' financial conditions. Credit losses have not been
           material.

           For the years ended December 31, 2002 and 2001, our largest customer,
           a national retail chain, accounted for approximately 29% and 53% of
           our revenues, respectively, and approximately 27% and 48% of our
           accounts receivable balance as of December 31, 2002 and 2001,
           respectively. For the year ended December 31, 2002, our next five
           largest customers accounted for approximately 21% of our revenue,
           with no one of these customers accounting for greater than 10% of our
           revenue.

      e)   Furniture and Equipment

           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.

      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 during the fourth quarter of 2002 and noted no
           impairment for either of its reporting units. In the future, the
           Company expects to perform the annual test during its fiscal fourth
           quarter unless events or circumstances indicate an impairment may
           have occurred before that time.

      g)   Long-Lived Assets

           Acquired intangibles consist of customer bases and non-compete
           agreements arising from the Company's acquisitions.

           The Company adopted the provisions of SFAS No. 144, Accounting for
           the Impairment or Disposal of Long-Lived Assets, on January 1, 2002.
           SFAS No. 144 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

                                       55

<PAGE>


                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                           December 31, 2002 and 2001


           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. The adoption of
           SFAS No. 144 did not have a material impact on the Company's
           consolidated financial statements.

      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

           The Company derives its revenues 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 revenues 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 associated with the freight, the customer is first obligated
           to pay the freight charges.

           Based on the terms in the contract of carriage, revenues related to
           shipments where the Company issues a house bill of lading are
           recognized when the freight is delivered to the direct carrier at
           origin. Costs related to the shipment are also recognized at this
           same time.

           All other revenues, including revenues for customs brokerage and
           warehousing and other value added services, are recognized upon
           completion of the service.


      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 Opinion ("APB") 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.

                                       56

<PAGE>

                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                           December 31, 2002 and 2001

<TABLE>
<CAPTION>
                                                             Restated        Restated
Year ended December 31:                                        2002            2001               2000
                                                           -------------   --------------    ----------------
<S>                                                        <C>             <C>               <C>

Net income (loss) attributable to common stockholders:
As reported                                                 $ 17,400,477   $ (21,270,980)    $   (81,922,103)
Add: stock-based employee compensation expense included
     in reported net income (loss), net of tax                    92,566       5,713,168           7,584,654
Deduct:  Total stock-based compensation expense
     determined under fair value method for all awards,
     net of tax                                               (1,922,051)    (10,040,316)         (6,517,739)
                                                           -------------   --------------    ----------------

Pro forma                                                    $15,570,992    $(25,598,128)       $(80,855,188)
                                                           =============   ==============    ================

Basic earnings (loss) per common share:
     As reported                                                  $0.79           $(1.04)             $(4.64)
     Pro forma                                                     0.70            (1.25)              (4.58)

Diluted earnings (loss) per common share:
     As reported                                                  $0.08           $(1.04)             $(4.64)
     Pro forma                                                     0.02            (1.25)              (4.58)
</TABLE>

      k)   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 1,336,825, 9,755,934 and 12,197,618 at December 31, 2002, 2001
           and 2000, respectively.

           During the years ended December 31, 2001 and 2000, the diluted loss
           per common share calculation was the same as the basic loss per
           common share calculation, as all potentially dilutive securities were
           anti-dilutive. The following table indicates the calculation of
           earnings per share for the year ended December 31, 2002:

<TABLE>
<CAPTION>
                                                                                    Restated                      Restated
                                                                                      Net                        Per Share
                                                                                     Income        Shares          Amount
                                                                                 --------------- -------------  -------------
<S>                                                                             <C>                <C>          <C>
  Net income                                                                     $   2,380,329
  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
  Net income attributable to common stockholders                                    17,400,477     22,154,861    $    0.79
                                                                                                                 =========

 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
                                                                                 $   2,380,329     29,232,568    $    0.08
                                                                                 =============     ==========    =========
</TABLE>
                                       57

<PAGE>

                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                           December 31, 2002 and 2001


      l)   New Accounting Pronouncements

           On January 1, 2002, the Company adopted SFAS No. 144, Accounting for
           the Impairment or Disposal of Long-Lived Assets, which establishes
           criteria and methodologies for the measurement, recognition and
           classification of long-lived assets. The adoption of SFAS No. 144 did
           not have a material impact on the Company's consolidated financial
           statements.

           In June 2002, the Financial Accounting Standards Board ("FASB")
           issued SFAS No. 146, Accounting for Costs Associated with Exit or
           Disposal Activities, requiring companies to recognize liabilities and
           costs associated with exit or disposal activities initiated after
           December 31, 2002 when they are incurred, rather than when management
           commits to an exit or disposal plan. SFAS No. 146 also requires that
           such liabilities be measured at fair value. SFAS No. 146 had no
           impact on the Company's consolidated financial statements but may
           affect the measurement and recognition of any future restructuring
           activities.

           In November 2002, the FASB issued Interpretation No. 45, Guarantor's
           Accounting and Disclosure of Requirements for Guarantees, Including
           Indirect Guarantees of Indebtedness of Others, which elaborates on
           the existing disclosure requirements for guarantees and provides
           clarification on when a company must measure and recognize a
           liability related to guarantees issued. The disclosure requirements
           of Interpretation No. 45 are effective for the Company's consolidated
           financial statements for the year ended December 31, 2002. The
           measurement and recognition provisions are to be applied on a
           prospective basis for guarantees issued or modified after December
           31, 2002. The adoption of Interpretation No. 45 did not require
           additional disclosures in 2002 and is not expected to impact the
           Company's consolidated financial statements as the Company does not
           typically issue guarantees related to third-party indebtedness or
           performance.

           In December 2002, the FASB issued SFAS No. 148, which (i) amends SFAS
           No. 123, to provide alternative methods of transition for an entity
           that voluntarily changes to the fair value based method of accounting
           for stock-based employee compensation, (ii) amends the disclosure
           provisions of SFAS No. 123 to require prominent disclosure about the
           effects on reported net income of an entity's accounting policy
           decisions with respect to stock-based employee compensation and (iii)
           amends APB Opinion No. 28, Interim Financial Reporting, to require
           disclosure about those effects in interim financial information.
           Items (ii) and (iii) in the new requirements of SFAS No. 148 are
           effective for financial statements for fiscal years ending after
           December 15, 2002. The Company intends to continue to account for its
           stock-based compensation in accordance with APB Opinion No. 25.

           In January 2003, the FASB issued Interpretation No. 46, Consolidation
           of Variable Interest Entities, which provides new guidance with
           respect to the consolidation of all unconsolidated entities,
           including special purpose entities. The adoption of Interpretation
           No. 46 in 2003 is not expected to impact the Company's consolidated
           financial statements as the Company does not have investments in any
           unconsolidated special purpose or variable interest entities.

      m)   Reclassifications

           Certain prior year amounts have been reclassified to conform to the
           current year presentation.

(4)   Discontinued Operations

      From inception through the first quarter of 2001, the Company's principal
      business strategy focused on the development of early-stage technology
      businesses with significant Internet features and applications. In October
      1998, in the first stage of a two-step process the Company acquired a
      controlling interest in a developer and distributor of online promotional
      campaigns named Net Value, Inc. ("Net Value"). This acquisition was
      accounted for as a recapitalization of Net Value. In November 2000, the
      Company completed the merger with Net Value by issuing 1,754,140 shares of
      its common stock for the remaining minority interest in Net Value.

      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

                                       58

<PAGE>

                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                           December 31, 2002 and 2001

      integrated logistics services organization. Therefore, for financial
      reporting purposes, the assets, liabilities, 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 consolidated
      financial statements of prior periods have been reclassified to reflect
      this presentation. The Company has never recognized any revenues from its
      former business model. Pre-tax operating losses amounting to $13,862,713
      and $30,815,850 are reflected in the accompanying consolidated statements
      of operations as loss from discontinued operations for the years ended
      December 31, 2001 and 2000, respectively.

      The net assets of discontinued operations relate primarily to investments
      in early-stage technology companies. The Company anticipates disposing of
      its remaining investment during 2003.

(5)   Acquisitions

      On October 5, 2001, the Company acquired all of the outstanding shares of
      M.G.R., Inc., d/b/a Air Plus Limited, and its operating affiliates
      (collectively, "Air Plus"), a group of Minneapolis-based privately held
      companies. The results of Air Plus' operations have been included in the
      consolidated financial statements since that date. Air Plus provides a
      full range of logistics and transportation services throughout North
      America. As a result of the acquisition, the Company completed the first
      step in its plan to become a leading provider of logistics and
      transportation services.

      The acquisition was accounted for as a purchase in accordance with SFAS
      No. 141, Business Combinations. As consideration for the stock of Air
      Plus, the Company paid $17,500,000. In addition, contingent consideration
      in the amount of $17,000,000, which is payable in installments of
      $3,000,000 in 2003, $5,000,000 in 2004, $5,000,000 in 2005 and $4,000,000
      in 2006, will be paid if Air Plus achieves pre-tax income of $6,000,000 in
      each of the years preceding the year of payment. Such payments, if made,
      will be reflected as additional goodwill. In the event that there is a
      shortfall in pre-tax income in any year, such shortfall may be carried
      over to the succeeding year or carried back to the preceding year to the
      extent that the pre-tax income in those years exceeds the $6,000,000
      level. Any remaining shortfall will reduce the contingent consideration on
      a dollar-for-dollar basis. The total purchase price, including acquisition
      costs of $1,254,000 but excluding the contingent consideration described
      above, was $18,754,000. The Company obtained an independent third-party
      appraisal of the fair value of the acquired intangible assets. The
      following table summarizes the estimated fair value of the assets acquired
      and liabilities assumed at the date of the acquisition:


                                                                As of
                                                           October 5, 2001
                                                              Restated
                                                           ---------------
                                                            (in thousands)
               Current assets                                   $  9,651
               Furniture and equipment                             1,538
               Other assets                                          448
               Intangible assets                                   4,615
               Goodwill                                           10,823
                                                                --------

                    Total assets acquired                         27,075
                                                                --------

               Current liabilities                                 8,321
                                                                --------

                    Total liabilities assumed                      8,321
                                                                --------

               Net assets acquired                              $ 18,754
                                                                ========

      The acquired intangible assets have a weighted average useful life of ten
      years. The intangible assets include a customer relationship intangible of
      $4,415,000 which is being amortized under the declining balance method
      using a 25% rate and a covenant-not-to-compete of $200,000 with a
      three-year life. The $10,823,000 of goodwill was assigned to the Company's
      domestic business unit and is deductible for income tax purposes.

                                       59
<PAGE>
                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                           December 31, 2002 and 2001

      On April 4, 2002, the Company acquired all of the issued and outstanding
      common shares of Global Transportation Services, Inc. ("Global"), a
      Seattle-based privately held company that provides a full range of
      international air and ocean logistics services, for $5,000,000 in cash
      paid at the closing and up to an additional $7,000,000 payable over a five
      year earn-out period based upon the future financial performance of
      Global. The Company agreed to pay the former Global shareholders a total
      of $5,000,000 base earn-out payments in installments of $745,000 in 2003,
      $1,000,000 in 2004 through 2007 and $255,000 in 2008, with each
      installment payable in full if Global achieves pre-tax income of
      $2,000,000 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 $2,000,000 level. The
      Company has also provided former Global shareholders with additional
      incentive to generate earnings in excess of the base $2,000,000 annual
      earnings target ("tier-two earn-out"). Under Global's tier-two earn-out,
      former Global shareholders are also entitled to receive 40% of the
      cumulative pre-tax earnings in excess of $10,000,000 generated during the
      five year earn-out period subject to a maximum additional earn-out
      opportunity of $2,000,000. Global would need to generate cumulative
      earnings of $15,000,000 over the five year earn-out period to receive the
      full $7,000,000 in contingent earn-out payments. With the closing of the
      transaction, the Company established its international platform for
      services between the Far East, the United States and Europe.

      The acquisition was accounted for as a purchase and accordingly, the
      results of operations and cash flows of Global are included in the
      accompanying consolidated financial statements prospectively from the date
      of acquisition. The total purchase price, including acquisition costs of
      $466,000 but excluding the contingent consideration described above, was
      $5,466,000. The Company obtained an independent third-party appraisal of
      the fair value of the acquired intangibles. The following table summarizes
      the estimated fair value of assets acquired and liabilities assumed at the
      date of the acquisition:


                                                                 As of
                                                             April 4, 2002
                                                               Restated
                                                             -------------
                                                            (in thousands)
             Current assets                                 $        3,664
             Furniture and equipment                                   169
             Other assets                                              149
             Intangible asset                                          340
             Goodwill                                                4,463
                                                            ---------------
                      Total assets acquired                          8,785
                                                            ---------------

             Current liabilities                                     3,319
                                                            ---------------
                      Total liabilities assumed                      3,319
                                                            ---------------

             Net assets acquired                            $        5,466
                                                            ===============

      The acquired intangible asset is a covenant-not-to-compete which has a
      useful life of five years. The $4,463,000 of goodwill was assigned to the
      Company's international business unit and is deductible for income tax
      purposes.

      On May 30, 2002, the Company acquired all of the issued and outstanding
      common shares of United American Acquisitions and Management, Inc. d/b/a
      United American Freight Services, Inc. ("United American"), a
      Detroit-based privately held provider of expedited transportation
      services. The United American transaction provided the Company with a new
      time-definite service offering focused on the automotive industry. The
      purchase price was $5,100,000 in cash at closing and up to an additional
      $11,000,000 payable over a four-year earn-out period based upon the future
      financial performance of United American. The Company agreed to pay the
      former United American shareholder a total of $5,000,000 base earn-out
      payments in installments of $1,250,000 in 2003 through 2006, with each
      installment payable in full if United American achieves pre-tax income of
      $2,200,000 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

                                       60

<PAGE>
                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                           December 31, 2002 and 2001

      income in any other payout year exceeds the $2,200,000 level. The Company
      has also provided the former United American shareholder with additional
      incentive to generate earnings in excess of the base $2,200,000 annual
      earnings target ("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 from a certain
      pre-acquisition customer in excess of $8,800,000 generated during the four
      year earn-out period subject to a maximum additional earn-out opportunity
      of $6,000,000. United American would need to generate cumulative earnings
      of $20,800,000 over the four year earn-out period to receive the full
      $11,000,000 in contingent earn-out payments.

      The acquisition was accounted for as a purchase and accordingly, the
      results of operations and cash flows of United American are included in
      the accompanying consolidated financial statements prospectively from the
      date of acquisition. The total purchase price, including acquisition costs
      of $48,000 but excluding the contingent consideration described above, was
      $5,148,000. The following table summarizes the estimated fair value of
      assets acquired and liabilities assumed at the date of the acquisition:


                                                                As of
                                                            May 30, 2002
                                                              Restated
                                                            ------------
                                                           (in thousands)
                Current assets                              $     5,150
                Furniture and equipment                             161
                Other assets                                         88
                Intangible assets                                 1,625
                Goodwill                                          1,235
                                                            -----------

                     Total assets acquired                        8,259
                                                            -----------

                Current liabilities                               3,111
                                                            -----------
                     Total liabilities assumed                    3,111
                                                            -----------

                Net assets acquired                         $     5,148
                                                            ===========

      The acquired intangible assets have a weighted average useful life of ten
      years. The intangible assets include a customer relationship intangible of
      $1,525,000, which is being amortized under the declining balance method
      using a 25% rate and a covenant-not-to-compete of $100,000 with a
      three-year life. The $1,235,000 of goodwill was assigned to the Company's
      domestic business unit and is deductible for income tax purposes.

      On October 1, 2002, the Company acquired Transport Specialists, Inc.
      ("TSI"), a Northern Virginia-based privately held provider of expedited
      domestic and international transportation services. The TSI transaction is
      intended to capitalize on TSI's existing base of government contract work
      in the Washington metropolitan area and serve as a supplement to an
      existing Company-operated facility in that area. The purchase price
      consisted of cash of $526,000 paid at closing, and a three-year earn-out
      arrangement based upon the future financial performance of TSI. The
      Company agreed to pay the former TSI shareholder $200,000 for each year in
      the three-year earn-out period ending December 31, 2005 that TSI achieves
      its annual net revenue target of $1,620,000. The acquisition was accounted
      for as a purchase and accordingly, the results of operations and cash
      flows of TSI are included in the accompanying consolidated financial
      statements prospectively from the date of acquisition. In connection with
      this transaction, the Company recorded intangible assets and
      tax-deductible goodwill amounting to $160,000 and $56,000, respectively.

      The primary reasons for the acquisitions of Air Plus, Global and United
      American (the "material acquisitions") and the factors that contributed to
      the recognition of goodwill are that the acquired entities: 1) established
      or expanded the domestic and international platforms, 2) had experienced,
      well-trained workforces, 3) expanded the Company's time-definite service
      offerings, and 4) strategically broadened the geographical dispersion of
      the Company's service facilities. The Company expects, through
      cross-selling and other initiatives, to increase the acquired entities'
      revenues and profitability through an expansion of the value added
      services that it offers. In addition, the Company expects to reduce the
      operating expenses of the acquired entities through economies of scale and
      synergies, such as the centralization of certain administrative functions.
      By creating a larger, stronger organization, the Company expects to
      improve its access to, and the availability of, future capital.

                                       61

<PAGE>
                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                           December 31, 2002 and 2001

      The following unaudited pro forma information is presented as if the
      material acquisitions had occurred on January 1, 2001 (in thousands):
<TABLE>
<CAPTION>
                                                                Years ended December 31,
                                                            ---------------------------------
                                                                Restated         Restated
                                                                  2002             2001
                                                            ---------------- ----------------
<S>                                                         <C>              <C>
            Total revenues                                  $     165,853    $     133,193
                                                            =============    =============
            Net revenues                                    $      45,154    $      37,402
                                                            =============    =============
            Net income                                      $       4,369    $       1,782
                                                            =============    =============
            Net income (loss) attributable
               to common stockholders                       $      19,389    $      (2,369)
                                                            =============    =============
            Basic earnings (loss) per common share          $        0.88    $       (0.12)
                                                            =============    =============
            Diluted earnings (loss) per common share        $        0.15    $       (0.12)
                                                            =============    =============
</TABLE>

      For the year ended December 31, 2002, the former shareholders of Air Plus,
      Global and United American achieved earn-out payments of $3,000,000,
      $745,206 and $222,150, respectively. Excess earnings (shortfalls) carried
      forward to 2003 amount to approximately $338,000, $2,324,000 and
      $(1,028,000) for Air Plus, Global and United American, respectively.

(6)   Acquired Intangible Assets

      Information with respect to acquired intangible assets is as follows:

<TABLE>
<CAPTION>
                                                                             December 31,
                                                   -----------------------------------------------------------------
                                                              Restated                          Restated
                                                                2002                              2001
                                                   -------------------------------   -------------------------------
                                                       Gross                            Gross
                                                      Carrying       Accumulated       Carrying        Accumulated
                                                       Amount       Amortization        Amount        Amortization
                                                   ---------------  --------------   --------------  ---------------
<S>                                                <C>              <C>              <C>             <C>
         Amortizable intangible assets:
              Customer relationship                $   5,980,000    $   1,533,667    $   4,415,000   $     276,000
              Covenants-not-to-compete                   760,000          163,778          200,000          16,667
                                                   -------------    -------------    -------------   -------------

         Total                                     $   6,740,000    $   1,697,445    $   4,615,000   $     292,667
                                                   =============    =============    =============   =============

        Aggregate amortization expense:

               For the year ended December 31, 2002                 $ 1,404,778
                                                                    ===========

               Estimated aggregate amortization expense:

                    For the year ended December 31, 2003            $ 1,313,000
                    For the year ended December 31, 2004              1,020,000
                    For the year ended December 31, 2005                735,000
                    For the year ended December 31, 2006                535,000
                    For the year ended December 31, 2007                369,000
</TABLE>
                                       62
<PAGE>
                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                           December 31, 2002 and 2001

(7)   Furniture and Equipment

      Furniture and equipment consists of the following:

                                                       December 31,
                                             ---------------------------------
                                                  2002             2001
                                             ---------------- ----------------

           Furniture and office equipment    $     2,761,837  $     1,290,469
           Computer software                         986,942          512,593
           Leasehold improvements                    400,968           95,419
           Vehicles                                   40,167           21,697
                                             ---------------  ---------------
                                                   4,189,914        1,920,178
           Less: accumulated depreciation           (956,237)        (182,575)
                                             ---------------  ---------------
                                             $     3,233,677  $     1,737,603
                                             ===============  ===============

(8)   Revolving Credit Facility

      To ensure adequate financial flexibility, the Company secured a
      $15,000,000 revolving credit facility (the "Facility") in May 2002, which
      is collateralized by the accounts receivable and the other assets of the
      Company and its subsidiaries. The Facility requires the Company and its
      subsidiaries to meet certain financial objectives and comply with certain
      financial covenants and limits to four the number of acquisitions the
      Company may make per year. The Company may use advances under the Facility
      to finance future acquisitions, capital expenditures or other corporate
      purposes. At the time of borrowing, the Company has the option to elect to
      pay interest at a rate equal to LIBOR plus 2.25% or the prime rate. The
      Company also pays a commitment fee of 0.5% per annum on the average unused
      balance of the Facility. At December 31, 2002, based on available
      collateral and an outstanding $160,000 letter of credit commitment, there
      was $14,840,000 available for borrowing under the Facility.

(9)   Income Taxes

      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,
                                                                          ---------------------------------
                                                                             Restated          Restated
                                                                               2002              2001
                                                                          ---------------    --------------
<S>                                                                       <C>                <C>
        Deferred tax assets:
             Accruals                                                     $                  $
                                                                                  52,000            141,000
             Equity in losses of affiliate companies                             432,000            578,000
             Amortization and depreciation                                            --            129,000
             Deferred compensation and warrants                               11,066,000         11,540,000
             Capital loss carryforward                                         2,475,000          2,314,000
             Federal and state deferred tax benefits
                arising from net operating loss carryforwards                  8,922,000          9,448,000
                                                                          --------------     --------------
        Total                                                                 22,947,000         24,150,000
        Less:  valuation allowance                                           (22,852,000)       (24,150,000)
                                                                          --------------     --------------
        Net deferred tax assets                                                   95,000
        Deferred tax liabilities:
             Amortization and depreciation                                       (95,000)
                                                                          --------------     --------------

        Net deferred taxes                                                $            -     $            -
                                                                          ==============     ==============
</TABLE>

      Due to the uncertainty surrounding the realization of the Company's tax
      attributes in future income tax returns, the Company has placed a
      valuation allowance against its otherwise recognizable deferred tax
      assets. Management continually reassesses the realizability of the
      Company's deferred tax assets and, based on a number of factors, has
      concluded that it is more likely than not that the benefit of the
      Company's deferred tax assets would not be realized.

                                       63

<PAGE>

                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                           December 31, 2002 and 2001

      The net change in total valuation allowance for the years ended December
      31, 2002 and 2001 was a decrease of $1,298,000 and an increase of
      $5,098,000, respectively. As of December 31, 2002, the Company had net
      operating loss carryforwards for federal and state income tax purposes
      amounting to approximately $21,687,000 and $16,233,000, respectively. For
      the year ended December 31, 2002 the Company had net income from
      continuing operations which resulted in the use of past net operating loss
      carryforwards for federal and state income tax purposes amounting to
      approximately $900,000 each. The federal net operating loss carryforwards
      expire beginning 2018 through 2021, and the state net operating loss
      carryforwards expire beginning in 2004. 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.

       Income tax expense is as follows:        Years ended December 31,
                                           ------------------------------------
                                                 2002                2001
                                           -----------------    ---------------
           Current:
           Federal                         $           --       $           --
           State                                  101,877                   --
                                           --------------       --------------
                                           $      101,877       $           --
                                           ==============       ==============

      The difference between the statutory federal income tax rate and the
      Company's effective income tax rate is principally due to state income
      taxes, the utilization of net operating loss carryforwards and changes in
      the valuation allowance for all years presented.

(10)  Commitments

      Employment Agreements

      At December 31, 2002, the Company had employment agreements with three of
      its officers for an aggregate annual base salary of $760,000 plus bonus
      and increases in accordance with the terms of the agreements. The
      contracts are for three-year terms.

      Leases

      The Company leases equipment, office and warehouse space under operating
      leases expiring at various times through 2010. Total rent expense related
      to continuing operations for the years ended December 31, 2002, 2001 and
      2000 was $4,750,000, $969,000 and $72,000, respectively. Future minimum
      lease payments are as follows:

<TABLE>
<CAPTION>
        Year ending
        December 31,    Third-party    Related Party          Total             Subrentals             Net
        ------------    -----------    -------------          -----             ----------             ---

<S>         <C>           <C>                <C>           <C>                   <C>                <C>
            2003       $ 3,778,000        $144,000      $ 3,922,000           $(140,000)         $ 3,782,000
            2004         3,055,000         144,000        3,199,000            (141,000)           3,058,000
            2005         2,643,000          72,000        2,715,000             (47,000)           2,668,000
            2006         1,390,000               -        1,390,000                   -            1,390,000
            2007         1,045,000               -        1,045,000                   -            1,045,000
        Thereafter         611,000               -          611,000                   -              611,000
                       -----------        ---------     -----------           ---------          -----------
           Total       $12,522,000        $360,000      $12,882,000           $(328,000)         $12,554,000
                       ===========        ========      ===========           =========          ===========
</TABLE>

      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, 2002 and 2001, total Company contributions amounted to
      $260,000 and $37,500, respectively. No contributions were made in the year
      ended December 31, 2000.

                                       64

<PAGE>

                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                           December 31, 2002 and 2001

(11)  Contingencies

      Purchase Agreements

      Assuming minimum pre-tax income levels are achieved by Air Plus, Global,
      United American and TSI, the Company will be required to make future
      contingent consideration payments by April 1 of the respective year as
      follows (in thousands):
<TABLE>
<CAPTION>
                               2004         2005        2006         2007         2008         Total
                            --------    ---------    --------     --------    ---------    ----------

<S>                          <C>          <C>         <C>         <C>         <C>          <C>
    Air Plus                 $5,000       $5,000      $4,000       $    -          $ -       $14,000
    Global                    1,000        1,000       1,000        1,000          255         4,255
    United                    1,250        1,250       1,250            -            -         3,750
    TSI                         200          200         200            -            -           600
                            -------       ------      ------       ------         ----       -------

    Total                    $7,450       $7,450      $6,450       $1,000         $255       $22,605
                            =======       ======      ======       ======         ====       =======
</TABLE>
      In addition, during the 2003-2007 earn-out period, there is an additional
      contingent obligation related to tier-two earn-outs that could be as much
      as $8,000,000 if the applicable acquired companies generate an incremental
      $17,000,000 in pre-tax earnings.

      Legal Proceedings

      On October 12, 2000, Emergent Capital Investment Management, LLC
      ("Emergent") filed suit against the Company and two of its officers
      contending that it was misled by statements made by the defendants in
      connection with the offering of the Company's Series C Preferred Stock
      which closed in March 2000. Specifically, Emergent alleges that it is
      entitled to rescind the transaction because it was allegedly represented
      that the size of the offering would be $20,000,000 and the Company
      actually raised $50,000,000. Emergent seeks a return of its $2,000,000
      purchase price of Series C shares. In June of 2001, the Company moved for
      summary judgment in this case.

      After the summary judgment motion was filed, Emergent filed a second
      action against the Company and two of its officers alleging different
      allegations of fraud in connection with the Series C offering. In the new
      complaint, Emergent alleges that oral statements and written promotional
      materials distributed by the Company at a meeting in connection with the
      Series C offering were materially inaccurate with respect to the Company's
      investment in Net Value, Inc., a wholly owned subsidiary of the Company.
      Emergent also contends that the defendants failed to disclose certain
      allegedly material transactions in which an officer was involved prior to
      his affiliation with the Company. The Company filed a motion to dismiss
      this new action for failure to state a claim upon which relief can be
      granted.

      On October 2, 2001, the Court entered an order granting summary judgment
      to the defendants in the first case filed by Emergent and dismissing
      Emergent's second complaint for failure to state a claim upon which relief
      can be granted. The Court allowed Emergent 20 days to file a second
      amended complaint as to the second action only. On October 21, 2001,
      Emergent did file a second amended complaint in the second action. The
      second amended complaint does not raise any new factual allegations
      regarding Emergent's participation in the offering.

      The Company filed a motion to dismiss Emergent's second amended complaint.
      On April 15, 2002, the United States District Court for the Southern
      District of New York entered an order granting the motion to dismiss
      Emergent's second amended complaint against the Company and its former
      officers. The Court refused to grant Emergent an additional opportunity to
      re-plead its claims against the defendants and a final order dismissing
      the matter has been entered. Emergent thereafter filed a notice of appeal
      to the United States Court of Appeals for the Second Circuit, which is
      currently pending. The Company believes that it has substantial defenses
      to the plaintiff's claims and intends to vigorously defend this action. No
      accrual has been established for this proceeding since (i) the Company
      believes it has substantial defenses to the plaintiff's claims, and (ii)
      the amount of the loss, if any, cannot be reasonably estimated.
      Notwithstanding the Company's belief, there can be no assurances, however,
      that the Company will not incur material expenses in the defense and
      resolution of this matter.

                                       65

<PAGE>

                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                           December 31, 2002 and 2001

      On August 22, 2000, Austost Anstalt Schaan, Balmore Funds, S.A. and Amro
      International, S.A., purchasers of the Company's convertible promissory
      notes, filed suit against the Company in the United States District Court
      for the District of Delaware. The plaintiffs allege that, contrary to the
      Company's covenant in the subscription agreement they executed, which
      required Stonepath to "use reasonable commercial efforts to register" the
      shares of its common stock underlying the convertible promissory notes "at
      some future date," the Company verbally agreed to register such shares in
      the first registration statement it filed with the Securities and Exchange
      Commission subsequent to the transaction. The plaintiffs assert claims for
      breach of contract and the duty of good faith and fair dealing, fraud,
      violation of federal securities laws, estoppel, and reformation and seek
      damages in excess of $20,000,000, plus attorneys' fees and costs. In
      response to a motion to dismiss filed by the Company, the Court dismissed
      the federal securities law and estoppel claims and denied the motion as to
      all other claims. Discovery in this case has concluded, and the Company
      recently filed a motion for summary judgment as to all counts of the
      complaint. This motion has been briefed and is pending. The Company
      believes it has substantial defenses to the remaining claims and intends
      to defend the matter vigorously. No accrual has been established for this
      proceeding since (i) the Company believes it has substantial defenses to
      the plaintiffs' claims, and (ii) the amount of the loss, if any, cannot be
      reasonably estimated. Notwithstanding the Company's belief, there can be
      no assurances, however, that the Company will not incur material expenses
      in the defense and resolution of this matter.

      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 these 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.

      (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.

      Series B Preferred Stock

      In September 1999, the Company issued 4,824 shares of Series B Preferred
      Stock for aggregate proceeds of $4,824,000. The Series B Preferred Stock
      was subsequently converted into 1,180,180 shares of common stock in
      February 2000 pursuant to the original terms of the issuance.

      In connection with the issuance of the Series B Preferred Stock, the
      Company issued warrants to purchase 295,040 shares of common stock (Series
      B Warrants). These warrants were exercisable at prices ranging from 110%
      to 140% of the conversion price of the Series B Shares. The Company
      allocated $650,000 of the net proceeds received from this offering to the
      cost of the Series B Warrants based on an independent valuation. During
      2000, the warrant holders exercised 210,944 Series B Warrants, resulting
      in cash proceeds to the Company of $1,077,792. The remaining 84,096 Series
      B Warrants expired on August 1, 2000.

      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.

                                       66

<PAGE>

                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                           December 31, 2002 and 2001

      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
      2,692,194 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 307,806
      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 prevent 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 149,457 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 warrants
      to purchase 158,348 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 earnings. 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, 299,069 and
      270,196 additional shares of Series C Preferred Stock from payment of
      preferred stock dividends during the years ended December 31, 2002, 2001
      and 2000, respectively. No further preferred stock dividends are payable

                                       67

<PAGE>
                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                           December 31, 2002 and 2001

      on the Series C Preferred Stock after July 18, 2002. At December 31, 2002
      no shares of Series C Preferred Stock were outstanding due to the
      completion of the Exchange Transaction.

      Series D Convertible Preferred Stock

      The Series D Convertible Preferred Stock is convertible into 3,607,450
      shares of common stock of the Company. The conversion terms were
      negotiated to be similar to the terms of the Exchange Transaction. In the
      event of any liquidation, dissolution or winding-up of the Company prior
      to December 31, 2003 (which also includes certain mergers, consolidations
      and asset sale transactions), holders of the Series D Convertible
      Preferred Stock are entitled to a liquidation preference equal to $60.00
      per share, paid prior to and in preference to any payment made or set
      aside for holders of common stock, but subordinate and subject in
      preference to the prior payment in full of all amounts to which holders of
      other classes of preferred stock may be entitled to receive as a result of
      such liquidation, dissolution or winding-up. Subsequent to December 31,
      2003, the holders of the Series D Convertible Preferred Stock are entitled
      to participate in all liquidation distributions made to the holders of the
      Company's common stock on an as-if converted basis. The Series D
      Convertible Preferred Stock carries no dividend, and, except under limited
      circumstances, has no voting rights except as required by law. By no later
      than December 31, 2004, the Series D Convertible Preferred Stock will
      convert into shares of the Company's common stock.

      Preferred Stock Dividends

      The components of the preferred stock dividends are as follows:

<TABLE>
<CAPTION>
                                                                  2002                 2001                2000
                                                            -----------------    -----------------   -----------------
<S>                                                         <C>                  <C>                 <C>
    Series B Preferred Stock cash dividend                  $            -       $            -      $     (108,464)

    Series C Preferred Stock dividend payable in kind           (1,952,892)          (3,588,828)         (3,034,039)

    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                    -                   -

    Non-cash charge:  issuance of contingent warrants                    -             (562,370)                  -

    Non-cash charge: beneficial conversion feature on
      Series C Preferred Stock                                           -                    -         (42,608,327)
                                                            --------------       --------------      --------------
                                                            $   15,020,148       $   (4,151,198)     $  (45,750,830)
                                                            ==============       ===============     ==============
</TABLE>

      The Company paid the Series B Preferred Stock dividend in cash as the
      holders converted their Series B Preferred Stock into shares of the
      Company's common stock. The Series C Preferred Stock dividend was payable
      in additional Series C Preferred Stock on a quarterly basis and therefore
      did not represent a cash obligation of the Company.

      At the time of issuance of the Series C Preferred Stock, the quoted market
      value of the Company's common stock was higher than the Series C Preferred
      Stock sales price of $12.00 per share. As the Series C Preferred Stock was
      immediately convertible into shares of the Company's common stock, the
      differential in price constituted a beneficial conversion feature as
      defined in EITF Issue No. 98-5, Accounting for Convertible Securities with
      Beneficial Conversion Features or Contingently Adjustable Conversion
      Ratios. Accordingly, the Company recorded $42,608,327 as additional paid
      in capital for the deemed preferential dividend related to the beneficial
      conversion feature. In accordance with EITF Issue No. 98-5, this discount
      was limited to the proceeds allocated to the Series C Preferred Stock and
      was recognized immediately as a preferred stock dividend since the Series
      C Preferred Stock was immediately convertible.

      (c)  Deferred Stock-Based Compensation

      The Company records deferred compensation when it makes restricted stock
      awards or compensatory stock option grants to employees, consultants or
      advisory board members. 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

                                       68

<PAGE>

                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                           December 31, 2002 and 2001

      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 the case of options granted to
      consultants or advisory board members, 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>
                                                                         Consultants
                                                                        And Advisory
                                                        Employees           Board              Total
                                                      --------------   ----------------    --------------
<S>                                                   <C>              <C>                 <C>
        Balance at December 31, 1999                   $   7,162,000    $    20,180,172     $  27,342,172
        Deferred compensation recorded                    20,325,684          4,195,356        24,521,040
        Cancellations and fair value adjustments          (9,223,100)       (16,666,296)      (25,889,396)
        Amortization to stock-based compensation          (7,584,654)        (7,617,438)      (15,202,092)
                                                      --------------   ----------------    --------------

        Balance at December 31, 2000                      10,679,930             91,794        10,771,724
        Deferred compensation recorded                         1,207             19,450            20,657
        Cancellations and fair value adjustments          (4,756,331)          (109,623)       (4,865,954)
        Amortization to stock-based compensation          (5,713,168)            (1,621)       (5,714,789)
                                                      --------------   ----------------    --------------

        Balance at December 31, 2001                         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
                                                      ==============   ================    ==============
</TABLE>

      For the year ended December 31, 2000, the Company also recorded
      stock-based compensation of $709,375 relating to investment banking
      services that were paid via the issuance of 25,000 shares of its common
      stock, valued based on the closing stock market price of $28.38 on the
      date of issuance.

      Stock-based compensation is reflected in the accompanying consolidated
      statements of operations as follows:

<TABLE>
<CAPTION>
                                                                        Years ended December 31,
                                                                        ------------------------

                                                                 2002            2001              2000
                                                                 ----            ----              ----
<S>                                                             <C>          <C>              <C>
         Personnel costs                                        $98,425      $2,394,106       $  3,395,755
         Loss from discontinued operations                         -          3,320,683         12,515,712
                                                                -------      ----------       ------------

         Total                                                  $98,425      $5,714,789        $15,911,467
                                                                =======      ==========       ============
</TABLE>

(13)  Stock Options and Warrants

      (a)  Stock Options

      The Amended and Restated Stonepath Group, Inc. 2000 Stock Incentive Plan,
      (the "Stock Incentive Plan") covers 10,000,000 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.

                                       69

<PAGE>
                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                           December 31, 2002 and 2001

      As part of a merger with Net Value, the Company converted the outstanding
      options under the existing Net Value stock option plan into options to
      purchase the Company's common stock using a conversion ratio of 0.4
      Company options for every one Net Value option. On an "as-converted"
      basis, Net Value had 490,900 options converted at the effective merger
      date in November 2000.

      The following summarizes the Company's stock option activity and related
      information:
<TABLE>
<CAPTION>
                                                                                                      Weighted
                                                                                Range of exercise      average
                                                              Shares                 prices        exercise price
                                                              ------                 ------        --------------
<S>                                                          <C>                 <C>               <C>
         Outstanding at December 31, 1999                     4,277,248          $1.00 - 10.13         $1.28
         Granted                                              3,223,000           0.50 - 19.69           7.08
         Net Value, Inc. options assumed                        490,900           1.00 - 17.50           8.84
         Cancelled                                           (3,440,318)          1.00 - 16.38           4.16
                                                             ----------

         Outstanding at December 31, 2000                     4,550,830           0.50 - 19.69           4.03
         Granted                                              3,725,000           0.50 -  1.60           0.76
         Cancelled                                           (1,992,947)          0.50 - 19.69           5.99
                                                             ----------

         Outstanding at December 31, 2001                     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                                                (74,000)          0.70 -  1.58           0.98
                                                               --------

         Outstanding at December 31, 2002                     9,447,300          $0.50 - 17.50          $1.46
                                                              =========
</TABLE>
         The following table summarizes information about options outstanding
and exercisable as of December 31, 2002:
<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   5,107,500     6.8 years            $   0.82         4,588,187      $   0.84
            $1.21 - $ 2.00   3,661,200     9.3 years                1.34           157,394          1.64
            $2.05 - $ 4.00     415,000     8.0 years                2.76           191,500          3.18
            $6.38 - $10.00      74,000     1.2 years                9.51            72,750          9.56
           $12.50 - $17.50     189,600     1.2 years               15.00           189,600         15.00
                          ------------                                        ------------

         Total               9,447,300     7.6 years            $   1.46         5,199,431       $  1.59
                          ============                                        ============
</TABLE>

      The weighted average fair value of employee options granted during 2002,
      2001 and 2000 was $0.89, $0.53 and $6.58 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:
<TABLE>
<CAPTION>
         Assumption                             2002              2001             2000
         ----------                             ----              ----             ----
<S>                                            <C>               <C>              <C>
         Dividend yield                         None              None             None
         Expected volatility                    93.8%             106.7%           134.6%
         Average risk free interest rate        1.36%              3.99%            4.99%
         Average expected lives                 6.8 years         4.3 years        5.0 years
</TABLE>

                                       70
<PAGE>
                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                           December 31, 2002 and 2001

      In December 2001, vesting was accelerated on options held by the Company's
      former Chief Executive Officer. Since the acceleration of vesting occurred
      pursuant to the terms of the original option agreement, no new measurement
      date occurred and no additional expense was recorded in the accompanying
      consolidated statement of operations.


      On October 5, 2001, February 28, 2002 and July 3, 2002, the Company
      modified the existing option arrangements with its Chief Executive Officer
      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 Chief Executive
      Officer leaves the employment of the Company prior to the vesting dates
      specified in the original option grant.

      (b)  Warrants

      The Company had outstanding the following warrants to purchase its
      securities as of December 31, 2002:

                                         Number of               Exercise price
      Description of series           warrants issued               per share
      ---------------------           ---------------            --------------

      Common stock                       2,947,406               $1.00 - $26.58
                                         =========               ==============

      These warrants were issued primarily in connection with (a) former
      borrowing arrangements, (b) the Series C Preferred Stock issuance, (c) the
      receipt of consulting services and (d) services to be rendered in
      connection with a private placement of the Company's common stock.
      Additionally, as part of a merger with Net Value in 2000, the Company
      assumed the existing Net Value warrants totaling 675,089 on an
      "as-converted" basis. The Company recorded interest expense on warrants
      issued in connection with borrowing arrangements equal to the warrants'
      then fair value as determined by independent valuations. The Company
      allocated a portion of the net proceeds received from the Series C
      Preferred Stock issuance to the cost of the Series C Warrants as
      determined using the Black-Scholes valuation model. In 2000, the Company
      recorded stock-based compensation of $2,799,028 on warrants issued to
      consultants equal to the warrants' then fair value as determined using the
      Black-Scholes valuation model. In 2002, the Company recorded $95,000 of
      deferred 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, 2002 and 2001, the carrying values of cash and cash
      equivalents, accounts receivable, loans receivable and accounts payable
      approximated their fair values as they are short term and are generally
      receivable or payable on demand.

(15)  Related Party Transactions

      Included in operating leases is certain real estate leased from the former
      principal shareholder of Air Plus. The Company leased one building in 2002
      and two buildings in 2001. Rent under this arrangement was determined by a
      survey of comparable building rents and totaled $187,000 for the year
      ended December 31, 2002 and $110,000 for the period from October 5, 2001
      to December 31, 2001.

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

      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 Chief
      Financial Officer.

      At December 31, 2002 and 2001, an officer was indebted to the Company for
      a loan with an aggregate unamortized balance of $39,593 and $64,589,
      respectively. This loan is generally forgivable over a three-year term and
      for accounting purposes is amortized evenly to expense over the term which
      ends in April 2004.

                                       71
<PAGE>
                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                           December 31, 2002 and 2001

      At December 31, 2002, a former principal shareholder of Global was
      indebted to the Company for a loan amounting to $262,500. The loan is
      repayable in three equal installments by offset against his portion of the
      contingent consideration payment.

      In March 2000, an officer contributed shares of an affiliated company to
      the Company. The Company recorded the shares as contributed capital equal
      to their estimated fair value of $853,319.

(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 determined that it had one
      operating segment in 2001, Domestic Services, which provides a full range
      of logistics and transportation services throughout North America. In
      2002, with the acquisition of Global, the Company established its
      International Services platform, which provides international air and
      ocean logistics services. The Company identifies operating segments based
      on the principal service provided by the business unit. Each segment has a
      separate management structure. The accounting policies of the reportable
      segments are the same as described in Note 3, Summary of Significant
      Accounting Policies. Segment information, in which corporate expenses have
      been fully allocated to the operating segments, is as follows (in
      thousands):
<TABLE>
<CAPTION>
                                                                     Year ended December 31, 2002
                                              ----------------------------------------------------------------------------
                                                 Restated            Restated
                                                 Domestic         International                          Restated
                                                 Services            Services            Corporate         Total
                                                 --------            --------            ---------         -----
<S>                                              <C>                  <C>                <C>             <C>
    Revenues from external customers             $78,319              $61,330            $   --          $139,649
    Intersegment revenues                             76                   15                --                91
    Revenues from significant customer            40,164                   --                --            40,164
    Segment operating income                         584                1,770                --             2,354

    Segment assets                                41,863               13,867              (564)           55,166
    Segment goodwill                              15,103                5,208                --            20,311
    Depreciation and amortization                  2,036                  151                --             2,187
    Capital expenditures                             788                  349               676             1,813
</TABLE>

      Revenues, based on the location of the customer, are predominately
attributed to the United States in 2002 and 2001.

                                       72
<PAGE>
                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                           December 31, 2002 and 2001

(17) Quarterly Information (Unaudited)

      The following is a summary of certain unaudited quarterly financial
information for fiscal 2002 and 2001:
<TABLE>
<CAPTION>
                                                                          Quarter ended
                                              -----------------------------------------------------------------------
                                                  Restated           Restated          Restated          Restated
2002 (1)                                          March 31           June 30         September 30       December 31
--------                                          --------           -------         ------------       -----------
<S>                                           <C>                <C>                <C>               <C>
Revenues                                      $    13,065,560    $    32,689,603    $    43,860,010   $    50,034,046
Cost of transportation                              8,645,969         23,903,884         31,863,934        36,925,237
                                              ---------------    ---------------    ---------------   ---------------
Net revenues                                  $     4,419,591    $     8,785,719    $    11,996,076   $    13,108,809
                                              ===============    ===============    ===============   ===============
Net income (loss)                             $    (1,226,954)   $       268,264    $     1,991,482   $     1,347,537
Preferred stock dividends                            (887,772)          (892,116)        16,800,036                 -
                                              ---------------    ---------------    ---------------   ---------------
Net income (loss) attributable to common      $
stockholders                                       (2,114,726)   $      (623,852)   $    18,791,518   $     1,347,537
                                              ===============    ===============    ===============   ===============
Earnings (loss) per common share (2):
  Basic                                       $         (0.10)    $        (0.03)    $         0.82    $         0.06
                                              ===============    ===============    ===============   ===============
  Diluted                                     $         (0.10)    $        (0.03)    $         0.07    $         0.04
                                              ===============    ===============    ===============   ===============


                                                                           Quarter ended
                                              -----------------------------------------------------------------------
                                                                                                         Restated
2001 (1)                                          March 31           June 30         September 30       December 31
--------                                          --------           -------         ------------       -----------

Revenues                                      $            --    $            --    $            --   $    15,597,889
Cost of transportation                                     --                 --                 --         9,740,774
                                              ---------------    ---------------    ---------------   ---------------
Net revenues                                  $            --    $            --    $            --   $     5,857,115
                                              ===============    ===============    ===============   ===============

Income (loss) from continuing operations      $    (1,241,281)   $    (2,036,713)   $      (677,031)  $       697,956
Loss from discontinued operations                  (7,483,862)          (245,513)        (1,845,232)       (4,288,106)
                                              ---------------    ---------------    ---------------   ---------------

Net loss                                           (8,725,143)        (2,282,226)        (2,522,263)       (3,590,150)
Preferred stock dividends and
effect of redemption                               (1,428,038)          (891,804)          (918,660)         (912,696)
                                              ---------------    ---------------    ---------------   ---------------

Net loss attributable to common stockholders  $   (10,153,181)   $    (3,174,030)   $    (3,440,923)  $    (4,502,846)
                                              ===============    ===============    ===============   ===============

Loss per share - basic and diluted:
Continuing operations (2)                     $         (0.13)    $        (0.14)   $        (0.08)   $        (0.01)
Discontinued operations                                 (0.37)            ( 0.01)            (0.09)            (0.21)
                                              ---------------    ---------------    ---------------   ---------------
Net loss to common shareholders               $         (0.50)    $        (0.15)   $        (0.17)   $        (0.22)
                                              ===============    ===============    ===============   ===============
</TABLE>

----------------
(1)   Certain reclassifications have been made to conform to the 2002 annual
      presentation

(2)   Includes effect of preferred stock dividends and effect of redemption

(18)  Subsequent Events

      On March 10, 2003, the Company issued to its Chairman and Chief Executive
      Officer options to purchase: 1) 300,000 shares of common stock at an
      exercise price of $1.68 per share and 2) 400,000 shares of common stock at
      an exercise price of $2.00 per share. The options to purchase 300,000
      shares vest immediately and the balance vests annually over a three-year
      period.

                                       73
<PAGE>
                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                           December 31, 2002 and 2001

      On March 6, 2003, the Company completed a private placement of 4,470,000
      shares of its common stock. The transaction consisted of the sale of
      4,270,00 shares at $1.35 per share and 200,000 shares at $1.54 per share.
      In connection with this transaction, the Company realized gross proceeds
      of $6,072,500, paid a brokerage fee consisting of cash commissions of
      $364,350 and issued placement agent warrants to purchase 297,000 shares of
      common stock at an exercise price of $1.49 per share. In addition, the
      Company had previously paid the placement agent $25,000 in cash and had
      issued them warrants to purchase 150,000 shares of common stock at an
      exercise price of $1.23 per share. Also, in connection with this private
      placement, the Company issued to its Chief Financial Officer options to
      purchase 200,000 shares of common stock at an exercise price of $1.53 per
      share. Options for 50,000 shares vest on July 3, 2003 and the balance
      vests ratably thereafter over 36 months.


                                       74
<PAGE>

                          Independent Auditors' Report

The Board of Directors and Shareholders of
M.G.R., Inc. d/b/a Air Plus Limited, Distribution Services, Inc.,
 and Contract Air, Inc.:


We have audited the accompanying combined statements of operations, changes in
shareholders' equity and comprehensive income, and cash flows of M.G.R., Inc.
d/b/a Air Plus Limited, Distribution Services, Inc., and Contract Air, Inc. (the
Companies) for the year ended December 31, 2000. These combined financial
statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these combined financial statements
based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the combined
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the combined 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
audit provides a reasonable basis for our opinion.

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
M.G.R., Inc. d/b/a Air Plus Limited, Distribution Services, Inc., and Contract
Air, Inc. for the year ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America.

                                            /s/ KPMG LLP

Minneapolis, Minnesota
September 24, 2001



                                       75
<PAGE>
                M.G.R., Inc. d/b/a AIR PLUS LIMITED, DISTRIBUTION
                     SERVICES, INC., and CONTRACT AIR, INC.
                        Combined Statements of Operations
<TABLE>
<CAPTION>
                                          Year ended                  Six months ended June 20,
                                       December 31, 2000             2001                  2000
                                       -----------------         -------------         -------------
                                                                   (unaudited)           (unaudited)
<S>                                     <C>                      <C>                   <C>
Revenues                                $   56,201,458           $  26,014,801         $  19,698,634

Operating expenses:
  Purchased transportation                 (31,856,174)            (15,678,882)          (11,525,749)
  Salaries, wages and benefits             (11,805,734)             (4,653,885)           (3,268,444)
  Depreciation and amortization               (424,803)               (240,787)             (162,484)
  Rent                                      (2,097,615)             (1,348,087)             (961,851)
  Other selling, general and
     Administrative                         (6,216,391)             (3,417,458)           (2,134,739)
                                        --------------           -------------         -------------


        Total operating expenses           (52,400,717)            (25,339,099)          (18,053,267)
                                        --------------           -------------         -------------
        Income from operations               3,800,741                 675,702             1,645,367

Other income (expense)
   Interest and dividend income                 55,542                   8,080                15,686
   Interest expense (affiliate)                (21,929)                (31,848)              (15,948)
   Other net                                   (44,465)                     --                66,961
                                        --------------           -------------         -------------

        Total other income (expense)           (10,852)                (23,768)               66,699
                                        --------------           -------------         -------------


         Net earnings                   $    3,789,889           $     651,934         $   1,712,066
                                        ==============           =============         =============
</TABLE>

See accompanying notes to combined financial statements.



                                       76
<PAGE>
                M.G.R., Inc. d/b/a AIR PLUS LIMITED, DISTRIBUTION
                     SERVICES, INC., and CONTRACT AIR, INC.
 Combined Statements of Changes in Shareholders' Equity and Comprehensive Income
<TABLE>
<CAPTION>
                                              M.G.R., Inc., d/b/a            Distribution
                                                Air Plus Limited            Services, Inc.          Contract Air, Inc.
                                                  common stock               common stock              common stock
                                                  no par value               no par value              no par value
                                             -----------------------     ----------------------    ---------------------
                                                                                                                          Retained
                                              Shares       Amount        Shares       Amount       Shares       Amount    earnings
                                              ------       ------        ------       ------       ------       ------    --------
<S>                                           <C>         <C>            <C>          <C>          <C>          <C>      <C>
Balances at December 31, 1999                 17,700      $301,500       10,000       $1,000       17,700       $1,770   $3,118,019

Comprehensive income
    Net earnings                                  --            --           --           --           --           --    3,789,889
    Unrealized gain on marketing securities       --            --           --           --           --           --           --

Total comprehensive income
Distributions to shareholders                     --            --           --           --           --           --   (3,350,732)
                                              ------      --------        -----       ------       ------       ------  -----------

Balances at December 31, 2000                 17,700       301,500       10,000        1,000       17,700        1,770   $3,557,176

Comprehensive income:
   Net earnings                                   --            --           --           --           --           --      651,934
   Unrealized loss on marketable securities       --            --           --           --           --           --           --

Total comprehensive income
Distributions to shareholders                     --            --           --           --           --           --     (624,417)
                                              ------      --------        -----       ------       ------       ------  -----------
Balances at June 30, 2001 (unaudited)         17,700      $301,500       10,000       $1,000       17,700       $1,770  $3 ,584,693
                                              ======      ========       ======       ======       ======       ======  ===========



                                                Accumulated
                                                   other
                                               comprehensive
                                                  income
                                                  (loss)           Total
                                               ------------     -----------

Balances at December 31, 1999                  $   85,951       $ 3,508,240

Comprehensive income
   Net earnings                                        --         3,789,889
  Unrealized loss on marketable securities        (70,339)          (70,339)
                                               ----------       -----------
Total comprehensive income                                        3,719,550
Distributions to shareholders                          --        (3,350,732)
                                               ----------       -----------

Balances at December 31, 2000                      15,612         3,877,058

Comprehensive income:
   Net earnings                                        --           651,934
   Unrealized loss on marketable securities      (184,980)         (184,980)
                                               ----------       -----------
Total comprehensive income                                          466,954
Distributions to shareholders                          --          (624,417)
                                               ----------       -----------
Balances at June 30, 2001                      $ (169,368)      $ 3,719,595
                                                =========       ===========
</TABLE>

See accompanying notes to combined financial statements.



                                       77
<PAGE>
                M.G.R., Inc. d/b/a AIR PLUS LIMITED, DISTRIBUTION
                     SERVICES, INC., and CONTRACT AIR, INC.
                        Combined Statements of Cash Flows
<TABLE>
<CAPTION>
                                                                Year ended                Six months ended June 30,
                                                              December 31, 2000           2001                2000
                                                              -----------------      --------------       -------------
                                                                                      (unaudited)          (unaudited)
<S>                                                          <C>                     <C>                 <C>
Cash flows from operating activities:

        Net earnings                                            $    3,789,889       $      651,934       $   1,712,066
            Adjustments  to reconcile net earnings to
               net cash provided by operating activities:
               Depreciation and amortization                           424,803              240,787             162,484
               Bad debt provision                                      403,797               19,930              15,494
               Loss (gain) on sale of marketable securities             44,465                   --             (66,961)
            Changes in assets and liabilities
               Accounts receivable                                  (3,839,503)           3,097,052           2,073,523
               Prepaid expenses                                       (127,140)            (102,043)            (89,849)
               Other assets                                            (45,398)               7,695                 266
               Accounts payable                                      3,204,764           (3,211,203)         (2,066,747)
               Accrued expenses                                        (25,282)             277,096            (194,691)
                                                                --------------       --------------       -------------
                 Net cash provided by operating activities           3,830,395              981,248           1,545,585
                                                                --------------       --------------       -------------

Cash flows from investing activities:
            Proceeds from sale of property and equipment                21,434                   --                  --
            Purchase of property and equipment                        (768,273)            (164,512)           (108,195)
            Purchase of marketable securities                           (3,132)            (253,275)                 --
            Proceeds from sale of marketable securities                146,445               25,000             103,320
                                                                --------------       --------------       -------------
                 Net cash used in investing activities                (603,526)            (392,787)             (4,875)
                                                                --------------       --------------       -------------

Cash flows from financing activities:
            Short-term borrowings                                           --              250,000                  --
            Proceeds from notes to shareholders                        452,773                   --                  --
            Repayments of notes to shareholders                             --             (466,892)           (260,965)
            Distributions to shareholders                           (3,350,732)            (624,417)         (1,170,497)
                                                                --------------       --------------       -------------
                 Net cash used in financing activities              (2,897,959)            (841,309)         (1,431,462)
                                                                --------------       --------------       -------------

                 Net increase (decrease) in cash and cash
                   equivalents                                         328,910             (252,848)            109,248

Cash and cash equivalents at beginning of period                       510,755              839,665             510,755
                                                                --------------       --------------       -------------
Cash and cash equivalents at end of period                      $      839,665       $      586,817       $     620,003
                                                                ==============       ==============       =============
Supplemental disclosure of cash flow information:
  Cash paid for interest                                        $       21,929       $       29,660       $      15,948
                                                                ==============       ==============       =============
</TABLE>

See accompanying notes to combined financial statements.


                                       78
<PAGE>

                M.G.R., Inc. d/b/a AIR PLUS LIMITED, DISTRIBUTION
                     SERVICES, INC., and CONTRACT AIR, INC.
                     Notes to Combined Financial Statements


(1) Nature of Operations and Basis of Presentation

    M.G.R., Inc. d/b/a Air Plus Limited, Distribution Services, Inc., and
    Contract Air, Inc. (the Companies) collectively constitute a national
    logistics company specializing in providing air and ground time definite
    freight distribution services to shippers and businesses. The Companies
    (through Contact Air, Inc.) also provide transportation services for a
    portion of the logistics business. The Companies are headquartered in
    Minneapolis, Minnesota and maintain offices in 13 major metropolitan areas
    in the United States and Puerto Rico. The three entities included in the
    accompanying combined financial statements are related businesses under
    common control and management. All significant intercompany accounts and
    transactions have been eliminated in the combination.

(2) Summary of Significant Accounting Policies

    (a) Cash and Cash Equivalents

        The Companies consider all highly liquid instruments with a remaining
        maturity of 90 days or less at the time of purchase to be cash
        equivalents.

    (b) Marketable Securities

        Marketable securities are classified as available for sale and are
        reported at fair value, based on quoted market prices, with the
        unrealized gain or loss reported as a component of other comprehensive
        income or loss in shareholders' equity.

    (c) Property and Equipment

        Depreciation is computed on a straight-line basis using a three-year
        life for software, ten-year life for furniture and office equipment,
        three-year life for vehicles, and the shorter of the lease term or
        useful life for leasehold improvements. Expenditures for maintenance,
        repairs, and renewals of minor items are charged to earnings as
        incurred. Major renewals and improvements are capitalized.

    (d) Impairment of Long-Lived Assets

        Long-lived assets are reviewed for impairment whenever events or changes
        in circumstances indicate that the carrying amount of an asset may not
        be recoverable. Recoverability of assets to be held and used is measured
        by comparison of the carrying amount of an asset to future net
        undiscounted cash flows expected to be generated by the asset. If such
        assets are considered to be impaired, the impairment to be recognized is
        measured by the amount by which the carrying amount of the assets exceed
        the fair value of the assets. Assets to be disposed of are reported at
        the lower of the carrying amount or fair value less costs to sell.

    (e) Income Taxes

        The Companies have elected under Section 1362 of the Internal Revenue
        Code and similar provisions of the State of Minnesota tax laws, to be
        taxed as an S Corporation. Income or losses of the Companies are passed
        directly in the Companies' shareholders; therefore, no provision is
        reflected in these combined financial statements. On August 30, 2001,
        the Companies entered into a definitive sale agreement with a publicly
        held company (see note 6). As a result, the Companies' election to be
        treated as an S corporation will be terminated, and the Companies will
        account for income taxes pursuant to Financial Accounting Standards
        Board (FASB) Statement No. 109, effective on the date the Companies are
        sold.

    (f) Revenue Recognition

        Revenues related to shipments are recognized at the time the freight is
        delivered. All other revenues, including storage, are recognized upon
        performance.

    (g) Major Customer and Concentration of Credit Risk

        A single customer accounted for approximately 58%, 50% and 57% of
        revenue in 2000 and the six months ended June 30, 2001 and 2000,
        respectively.

                                       79
<PAGE>
                M.G.R., Inc. d/b/a AIR PLUS LIMITED, DISTRIBUTION
                     SERVICES, INC., and CONTRACT AIR, INC.
                     Notes to Combined Financial Statements

    (h) Use of Estimates

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

    (i) Comprehensive Income

        Comprehensive income is calculated in accordance with FASB Statement No.
        130, Reporting Comprehensive Income. Statement 130 requires that
        unrealized gains and losses on the Companies' marketable securities be
        included in accumulated other comprehensive income as a component of
        shareholders' equity.

    (j) Impact of Recently Issued Accounting Standards

        FASB Statement No. 133, Accounting for Derivative Instruments and
        Hedging Activities, as amended by FASB Statement No. 138, Accounting for
        Certain Derivative Instruments and Certain Hedging Activities (an
        amendment of FASB Statement No. 133), is effective January 1, 2001. The
        adoption of Statement 133 will not have a significant effect on the
        Companies' results of operations.

    (k) Interim Financial Information (unaudited)

        Information presented for the six month periods ended June 30, 2001 and
        2000 is unaudited. In the opinion of management, the unaudited financial
        statements have been prepared on the same basis as the audited financial
        statements, and reflect all adjustments necessary to present fairly the
        result of operations and cash flows for the six month periods ended June
        30, 2001 and 2000. The results of operations for these interim periods
        are not necessarily indicative of results that may be expected for any
        other interim period or for the year as a whole.


(3) Related Party Transactions

    The Companies have entered into a series of notes payable with shareholders.
    These notes bear interest at 8%, and are payable in equal monthly
    installments of principal and interest. Interest under these notes totaled
    $21,929, $29,660 and $15, 948 in 2000 and the six months ended June 30, 2001
    and 2000, respectively.

    Included in operating leases are two buildings leased from the Companies'
    principal shareholder. Rent under these leases was determined by a survey of
    comparable building rents and totaled $312,000 $156,000 and $156,000 in 2000
    and the six months ended June 30, 2001 and 2000, respectively.


(4) Employee Benefit Plan

    The Companies have an employee savings plan (the Plan) for eligible
    employees under Section 401(k) of the Internal Revenue Code. The Plan allows
    employees to defer up to 6% of their compensation on a pretax basis. The
    Companies may, at their discretion, match a portion of the employee
    deferrals. In 2000 and the six months ended June 30, 2001 and 2000, the
    Companies' contributions under the Plan were $233,820, $0 and $0,
    respectively.

(5) Commitments and Contingencies

    (a) Leases

        The Companies occupy office and warehouse facilities under terms of
        operating leases expiring through 2006. Future minimum annual lease
        payments under noncancelable leases in excess of one year are as
        follows:


                                       80
<PAGE>
                M.G.R., Inc. d/b/a AIR PLUS LIMITED, DISTRIBUTION
                     SERVICES, INC., and CONTRACT AIR, INC.
                     Notes to Combined Financial Statements

    Year ending                     Third                      Related
   December 31,                     Party                       party
  --------------                 -----------                  ----------
       2001                       $1,614,895                    312,000
       2002                        1,432,104                    312,000
       2003                          894,183                    256,000
       2004                          789,353                    144,000
       2005                          784,101                     72,000
    Thereafter                       267,926                         --
                                  ----------                   --------
                                  $5,782,562                   1,096,000
                                  ==========                   =========

    (b) Litigation

        The Companies are involved in claims and lawsuits which arise in the
        normal course of business, none of which currently, in management's
        opinion, will have a significant effect on the Companies' financial
        statements.


(6) Subsequent Event

    On August 30, 2001, the Companies entered into a definitive agreement for
    sale of the Companies to Stonepath Group, Inc., a publicly traded
    corporation, for $34.5 million consisting of cash of $17.5 million at
    closing and a four-year earn-out arrangement based upon the future financial
    performance of the Companies. The acquisition is subject to customary
    closing conditions, including the completion of audited financial statements
    and the receipt of a fairness opinion.



                                       81
<PAGE>

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS


                              STONEPATH GROUP, INC.
<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        end of period
         -----------                      -------------       ----------       ---------      -----------      -------------
<S>                                       <C>                  <C>              <C>           <C>             <C>
Allowance for doubtful accounts:

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

   Year ended December 31, 2001              $     --          $167,000         $    --         $    --          $167,000
                                             ========          ========         =======         =======          ========

   Year ended December 31, 2000              $     --          $     --         $    --         $    --          $     --
                                             ========          ========         =======         =======          ========
</TABLE>



                                       82
<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/A to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Philadelphia, Commonwealth of Pennsylvania, on August 25, 2003.

                       STONEPATH GROUP, INC.

                       BY: /s/ Dennis L. Pelino
                           --------------------
                               Dennis L. Pelino, (Chairman of the Board of
                               Directors and Chief Executive Officer)

                       BY: /s/ Bohn H. Crain
                           -----------------
                               Bohn H. Crain (Chief Financial Officer)

                       BY: /s/ Thomas L. Scully
                           --------------------
                               Thomas L. Scully (Principal Accounting Officer)

         Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Annual Report on Form 10-K/A has been signed by the following
persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE                                   TITLE                                              DATE
---------                                   -----                                              ----
<S>                                         <C>                                                <C>
/s/ Dennis L. Pelino                        Chairman of the Board of Directors and             August 25, 2003
--------------------                        Chief Executive Officer
Dennis L. Pelino

/s/ J. Douglass Coates                      Director                                           August 25, 2003
----------------------
Douglass Coates

/s/John Springer                            Director                                           August 25, 2003
----------------
John Springer

/s/ David R. Jones                          Director                                           August 25, 2003
------------------
David R. Jones

/s/ Aloysius T. Lawn, IV                    Director                                           August 25, 2003
------------------------
Aloysius T. Lawn, IV

/s/ Robert McCord                           Director                                           August 25, 2003
-----------------
Robert McCord
</TABLE>



                                       83
<PAGE>
Exhibit Index
                                  Exhibit Index

Exhibit Number        Description
--------------        -----------
     23.1             Independent Auditors' Consent

     23.2             Independent Auditors' Consent

     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.)