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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

                                   (MARK ONE)

   [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
       EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005

   [ ] 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

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 the 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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]

There were 43,670,968 issued and outstanding shares of the registrant's common
stock, par value $.001 per share, at May 6, 2005.


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                              STONEPATH GROUP, INC.

                                      INDEX


                                                                                                               PAGE


                                                                                                              
PART I FINANCIAL INFORMATION......................................................................................1
         ITEM 1. Financial Statements.............................................................................1
                  Consolidated Balance Sheets at March 31, 2005 and December 31, 2004.............................1
                  Consolidated Statements of Operations - Three months ended March 31, 2005 and 2004..............2
                  Consolidated Statements of Cash Flows - Three months ended March 31, 2005 and 2004..............3
                  Notes to Unaudited Consolidated Financial Statements............................................4
         ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...........13
         ITEM 3. Quantitative and Qualitative Disclosures About Market Risk......................................23
         ITEM 4. Controls and Procedures.........................................................................23


PART II OTHER INFORMATION........................................................................................25
         ITEM 1. Legal Proceedings...............................................................................25
         ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.....................................26
         ITEM 3. Defaults Upon Senior Securities.................................................................26
         ITEM 4. Submission of Matters to a Vote of Security Holders.............................................26
         ITEM 5. Other Information...............................................................................27
         ITEM 6. Exhibits........................................................................................27

SIGNATURES


                                       i





                                     PART I
                              FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS



                              STONEPATH GROUP, INC.
                           Consolidated Balance Sheets

                                                                        March 31, 2005            December 31, 2004
                                                                        --------------            -----------------
                             Assets                                       (UNAUDITED)
                                                                                                           
Current assets
  Cash and cash equivalents                                              $   6,021,937                $   2,800,645
  Accounts receivable, net                                                  57,627,822                   64,064,382
  Prepaid expenses and other current assets                                  2,539,605                    2,559,858
                                                                         -------------                -------------
         Total current assets                                               66,189,364                   69,424,885

Goodwill                                                                    38,030,818                   37,278,661
Technology, furniture and equipment, net                                     7,183,825                    7,595,859
Acquired intangibles, net                                                    6,563,967                    7,079,986
Note receivable, related party                                                  87,500                       87,500
Other assets                                                                 1,397,667                    1,479,181
                                                                         -------------                -------------
         Total assets                                                    $ 119,453,141                $ 122,946,072
                                                                         =============                =============

                     Liabilities and Stockholders' Equity
Current liabilities:
  Short-term lines of credit                                             $   5,000,000                $  16,911,700
  Note payable                                                               1,897,539                           --
  Accounts payable                                                          39,699,277                   38,537,750
  Earn-outs payable                                                          2,645,695                    2,645,695
  Accrued payroll and related expenses                                       2,977,217                    3,192,889
  Accrued restructuring costs                                                2,893,376                      741,637
  Capital lease obligation - current portion                                 1,129,774                    1,274,117
  Accrued expenses                                                           5,269,869                    5,627,276
                                                                         -------------                -------------
         Total current liabilities                                          61,512,747                   68,931,064

Long-term debt                                                              12,191,000                           --
Capital lease obligation-net of current portion                                241,840                      236,344
Other long-term liabilities                                                     41,317                    2,064,128
Deferred tax liability                                                       1,830,300                    1,650,900
                                                                         -------------                -------------
         Total liabilities                                                  75,817,204                   72,882,436
                                                                         -------------                -------------
Minority interest                                                            5,364,489                    5,094,336
                                                                         -------------                -------------

Commitments and contingencies (Note 6)

Stockholders' equity:
  Preferred stock, $.001 par value, 10,000,000 shares authorized;
     none issued                                                                    --                           --
  Common stock, $.001 par value, 100,000,000 shares authorized;
     issued and outstanding:  43,591,952 and 42,839,795 shares
     at 2005 and 2004, respectively                                             43,592                       42,840
  Additional paid-in capital                                               222,480,203                  221,728,796
  Accumulated deficit                                                     (184,369,991)                (176,806,892)
  Accumulated other comprehensive income                                       131,544                       35,856
  Deferred compensation                                                        (13,900)                     (31,300)
                                                                         -------------                -------------
         Total stockholders' equity                                         38,271,448                   44,969,300
                                                                         -------------                -------------
         Total liabilities and stockholders' equity                      $ 119,453,141                $ 122,946,072
                                                                         =============                =============


          See accompanying notes to consolidated financial statements.

                                       1



                              STONEPATH GROUP, INC.
                      Consolidated Statements of Operations
                                   (UNAUDITED)



                                                                                 Three months ended March 31,
                                                                          -----------------------------------------
                                                                              2005                         2004
                                                                          ------------                 ------------
                                                                                                          
Total revenue                                                             $ 89,989,605                 $ 60,224,390
Cost of transportation                                                      69,575,287                   43,472,712
                                                                          ------------                 ------------
Net revenue                                                                 20,414,318                   16,751,678

Personnel costs                                                             11,868,964                    9,897,742
Other selling, general and administrative costs                             10,405,812                    8,308,401
Depreciation and amortization                                                1,158,307                      850,836
Restructuring charges                                                        3,341,547                           --
                                                                          ------------                 ------------
Loss from operations                                                        (6,360,312)                  (2,305,301)

Other income (expense):
   Provision for excess earn-out payments                                           --                   (3,075,190)
   Interest expense                                                           (438,163)                     (35,739)
   Other income (expense), net                                                  41,407                      (15,508)
                                                                          ------------                 ------------
Loss before income tax expense and minority interest                        (6,757,068)                  (5,431,738)
Income tax expense                                                             535,878                      199,100
                                                                          ------------                 ------------
Loss before minority interest                                               (7,292,946)                  (5,630,838)
Minority interest                                                              270,153                       69,608
                                                                          ------------                 ------------
Net loss                                                                  $ (7,563,099)                $ (5,700,446)
                                                                          ============                 ============
Basic and diluted loss per common share                                   $      (0.17)                $      (0.15)
                                                                          ============                 ============
Basic and diluted weighted average common shares outstanding                43,266,017                   38,385,489
                                                                          ============                 ============


          See accompanying notes to consolidated financial statements.

                                       2




                              STONEPATH GROUP, INC.
                      Consolidated Statements of Cash Flows
                                   (UNAUDITED)



                                                                             Three months ended March 31,
                                                                              2005                 2004
                                                                          ------------         ------------
Cash flow from operating activities:                             
                                                                                                   
Net loss                                                                  $ (7,563,099)        $ (5,700,446)
  Adjustments to reconcile net loss to net cash used in
     operating activities:
  Deferred income taxes                                                        179,400              121,000
  Depreciation and amortization                                              1,158,307              850,836
  Stock-based compensation                                                      17,400               21,174
  Minority interest in income of subsidiaries                                  270,153               69,608
  Loss (gain) on disposal of technology, furniture and     
     equipment                                                                 (44,467)              10,450
Changes in assets and liabilities, net of effect of acquisitions:
  Accounts receivable                                                        6,436,563            4,997,308
  Other assets                                                                  (7,502)              17,686
  Accounts payable and accrued expenses                                      2,685,079           (3,246,478)
                                                                          ------------         ------------
         Net cash provided by (used) in operating activities                 3,131,834           (2,858,862)
                                                                          ------------         ------------
Cash flows from investing activities:
  Purchases of technology, furniture and equipment                            (124,692)          (1,081,720)
  Proceeds from sales of technology, furniture and 
     equipment                                                                  48,622                   --
  Acquisition of business, net of cash acquired                                     --           (2,334,012)
  Payment of earn-out                                                               --           (2,390,796)
  Loans made                                                                        --              (75,000)
                                                                          ------------         ------------
         Net cash used in investing activities                                 (76,070)          (5,881,528)
                                                                          ------------         ------------
Cash flows from financing activities:
  Proceeds from line of credit, net                                            279,300            8,623,305
  Proceeds from issuance of common stock upon exercise of                           
     options and warrants                                                           --            1,237,357 
  Principal payments on capital lease                                         (209,460)            (175,382)
                                                                          ------------         ------------
         Net cash provided by financing activities                              69,840            9,685,280
                                                                          ------------         ------------
  Effect of foreign currency translation                                        95,688               35,743
                                                                          ------------         ------------
         Net increase in cash and cash equivalents                           3,221,292              980,633
Cash and cash equivalents at beginning of period                             2,800,645            3,074,151
                                                                          ------------         ------------
Cash and cash equivalents at end of period                                $  6,021,937         $  4,054,784
                                                                          ============         ============

Cash paid for interest                                                    $    484,277         $     45,256
                                                                          ============         ============
Cash paid for income taxes                                                $      8,287         $     51,261
                                                                          ============         ============
Supplemental disclosure of non-cash investing and
   financing activities:
Issuance of common stock in connection with acquisitions                  $    752,157         $         --
  Increase in technology, furniture and equipment and
     capital lease obligation                                                       --              390,754
  Increase in common stock from conversion of Series D
     preferred stock                                                                --                  117


          See accompanying notes to consolidated financial statements.

                                       3






                              STONEPATH GROUP, INC.
                   Notes to Consolidated Financial Statements
                           March 31, 2005 (Unaudited)

(1)      Nature of Operations and Basis of Presentation

         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 the
         Company's 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 owned offices in North
         America and Puerto Rico, strategic locations in Asia, Brazil and
         Europe, and service partners strategically located around the world.

         The accompanying unaudited consolidated financial statements were
         prepared in accordance with generally accepted accounting principles in
         the United States for interim financial information. Certain
         information and footnote disclosures normally included in financial
         statements have been condensed or omitted pursuant to the rules and
         regulations of the U.S. Securities and Exchange Commission (the "SEC")
         relating to interim financial statements. These statements reflect all
         adjustments, consisting only of normal recurring accruals, necessary to
         present fairly the Company's financial position, operations and cash
         flows for the periods indicated. While the Company believes that the
         disclosures presented are adequate to make the information not
         misleading, these unaudited consolidated financial statements should be
         read in conjunction with the Company's Annual Report on Form 10-K for
         the year ended December 31, 2004. Interim operating results are not
         necessarily indicative of the results for a full year because our
         operating results are 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.

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

(2)      Restructuring Charges

         In November 2004, the Company commenced a restructuring program,
         engineered to accelerate the integration of its businesses and improve
         the Company's overall profitability. The Company will consolidate its
         corporate headquarters and the domestic and international divisional
         headquarters into one central management facility in Seattle,
         Washington. This streamlining will eliminate unnecessary duplication of
         efforts as well as provide a much more cohesive day-to-day management
         coordination capability and improved internal controls. In addition,
         the restructuring initiative includes the rationalization of technology
         systems, personnel and facilities throughout the U.S. In connection
         with this plan, the Company recorded pre-tax restructuring charges of
         $3,341,547 for the three-month period ended March 31, 2005. The pre-tax
         restructuring charges are composed of:



                     LIABILITY BALANCE,    RESTRUCTURING        NON-CASH        CASH PAYMENTS     LIABILITY BALANCE,
                      JANUARY 1, 2005         CHARGES            CHARGES                            MARCH 31, 2005  
                     -----------------    ---------------    ---------------    --------------    -------------------

                                                                                                
     Personnel         $      666,408     $      627,361     $           --     $    (414,668)    $          879,101
     Lease terminations:
       Building                75,229          2,146,187                 --          (207,141)             2,014,275
       Equipment                   --            567,999                 --          (567,999)                    --
                      ----------------    ---------------    ---------------    --------------    -------------------
                       $      741,637     $    3,341,547     $           --     $  (1,189,808)    $        2,893,376
                      ================    ===============    ===============    ==============    ===================


                                       4



         The personnel charges relate to contractual obligations incurred in
         2005 with certain former executives of International Services. The
         lease terminations relate to vacating certain Domestic facilities and
         abandonment of equipment in 2005. All restructuring charges will result
         in cash payments in future periods through 2008. The Company expects to
         complete its restructuring activities by the end of the second quarter
         of 2005 and anticipates that additional costs of approximately $500,000
         will be incurred for personnel terminations and facility closing costs.

(3)      Stock-Based Compensation

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



                                                                              Three months ended March 31,
                                                                          ---------------------------------
                                                                              2005                 2004
                                                                          ------------         ------------
                                                                                                   
Net loss:
As reported                                                               $ (7,563,099)        $ (5,700,446)
Add:  stock-based employee compensation expense included in
     reported net loss                                                              --               21,174
Deduct:  total stock-based compensation expense determined under
     fair value method for all awards                                         (355,651)          (2,154,238)
                                                                          ------------         ------------
Pro forma net loss                                                        $ (7,918,750)        $ (7,833,510)
                                                                          ============         ============
Basic and diluted loss per common share:
  As reported                                                             $      (0.17)        $      (0.15)
  Pro forma                                                                      (0.18)               (0.20)


(4)      Acquisitions

         On February 9, 2004, the Company acquired, through its indirect
         wholly-owned subsidiary, Stonepath Holdings (Hong Kong) Limited, a 55%
         interest in Shaanxi Sunshine Cargo Services International Co., Ltd.
         ("Shaanxi"). Shaanxi is a Class A licensed freight forwarder
         headquartered in Shanghai, PRC and provides a wide range of customized
         transportation and logistics services and supply chain solutions,
         including global freight forwarding, warehousing and distribution,
         shipping services and special freight handling. As consideration for
         the purchase, which was effective as of March 1, 2004, the Company paid
         $3,500,000 in cash, financed through its revolving credit agreement,
         and 630,915 shares of the Company's common stock which had a value of
         $2,000,000 on the date of the transaction. The common shares issued in
         the transaction were subject to a one-year restriction on sale and were
         subject to a pro rata forfeiture based upon a formula that compares the
         actual pre-tax income of Shaanxi through December 31, 2004 with the
         targeted level of income of $4,000,000 (on an annualized basis). Also,
         if the trading price of the Company's common stock was less than $3.17
         per share at the end of the one-year restriction, the Company could
         issue up to 169,085 additional shares to the seller. Because the common
         shares issued in connection with this transaction were subject to

                                       5



         forfeiture, they were accounted for as contingent consideration. Based
         upon the actual pre-tax income through December 31, 2004, the seller
         forfeited 37,731 shares of common stock. As provided for in the
         purchase agreement, the amount of $119,608, which represents the
         original fair value of the forfeited shares at the date of acquisition,
         will be added ratably to the future earn-outs. Because the quoted
         market price of the Company's common stock was less than $3.17 on
         February 9, 2005, the Company issued 158,973 additional shares of its
         common stock. As of February 9, 2005, the Company had issued 752,157
         shares of its common stock in connection with this transaction. The
         Company recorded additional goodwill amounting to $752,157 in the first
         quarter of 2005. The seller may receive additional consideration of up
         to $5,619,608 under an earn-out arrangement payable at the rate of
         $1,100,000 in the first year and $1,129,902 per year over the next four
         years based on the future financial performance of Shaanxi.

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

         The acquisition, which significantly enhances the Company's presence in
         the region, was accounted for as a purchase and accordingly, the
         results of operations and cash flows of Shaanxi have been included in
         the Company's consolidated financial statements prospectively from the
         date of acquisition. Because the Company consolidates its foreign
         subsidiaries on a one-month lag, such information has been reflected in
         the consolidated statement of operations effective for periods
         subsequent to April 1, 2004. The total purchase price, including
         acquisition expenses of $269,000, was $7,402,000. The following table
         summarizes the allocation of the purchase price based on the fair value
         of the assets acquired and liabilities assumed at March 1, 2004 (in
         thousands):

                        Current assets                          $ 15,090
                        Furniture and equipment                      157
                        Goodwill                                   2,913
                        Other intangible assets                    1,453
                                                                --------
                                 Total assets acquired            19,613
                        Current liabilities assumed               (9,727)
                        Minority interest                         (2,484)
                                                                --------
                                 Net assets acquired            $  7,402
                                                                ========

         The acquired intangible assets have a weighted average life of 6.6
         years. The intangible assets include a customer related intangible of
         $1,112,100 with a 7.1 year life and a covenant-not-to-compete of
         $341,000 with a five year life. The $2,913,300 of goodwill was assigned
         to the Company's International Services business unit and is not
         deductible for income tax purposes.

                                       6



         The following unaudited pro forma information for the three months
         ended March 31, 2004 is presented as if the acquisition of Shaanxi had
         occurred on December 1, 2003, using the one month lag consolidation
         policy (in thousands, except earnings per share):

                                                            March 31, 2004
                                                            --------------

               Revenue                                         $ 80,221
               Net loss                                          (5,136)
               Loss per share:
                   Basic and diluted                           $  (0.13)

(5)      Revolving Credit Facilities

         At March 31, 2005, the Company maintained a $25,000,000 revolving
         credit facility (the "U.S. Facility") collateralized by the accounts
         receivable and the other assets of the Company and its subsidiaries.
         The maximum availability under the U.S. Facility was $22,500,000. The
         U.S. Facility established certain EBITDA targets for the Company and
         defined segments, fixed the interest rate at the lender's prime rate
         plus 200 basis points and precluded further acquisitions, among other
         provisions. As of March 2, 2005, the Company failed to deliver to the
         lender a compliance certificate and certain financial statements as of
         and for the period ended January 31, 2005 as required by the U.S.
         Facility. On March 30, 2005, the Company obtained a waiver of the
         breach of these covenants as well as an extension of the term of the
         agreement from January 21, 2006 to May 31, 2006. The Company incurred a
         fee of $50,000 in connection with this waiver. At March 31, 2005, the
         outstanding balance on the U.S. Facility was $12,191,000; based on
         available collateral and an outstanding $150,000 letter of credit,
         there was an additional $2,923,000 available for borrowing under the
         U.S. Facility.

         On April 5, 2006, the Company amended the U.S. Facility. The
         amendment, which is more fully discussed in Note 11, assigned the
         interests in the U.S. Facility to a new lender in addition to making
         changes to other key terms, including restrictive covenants. Advances
         under the agreement may be used to fund capital expenditures, working
         capital requirements and earn-out payments from previous acquisitions.
         The agreement prohibits the use of proceeds to fund new acquisitions.
         The amended agreement, which expires May 31, 2007, bears interest at
         Libor plus 800 basis points and carries a commitment fee on the unused
         portion of the facility of 1.0% per annum. The agreement provides for
         maximum borrowings of $25,000,000 although such borrowings are limited
         by the amount of eligible receivables. On May 12, 2005, the Company
         further amended the agreement to revise certain EBIDTA calculations
         commencing with the three-month period ended March 31, 2005. As a
         result of this amendment, the Company was in compliance with all
         applicable covenants as of March 31, 2005.

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

                                       7



(6)      Commitments and Contingencies

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

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

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

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

                                       8



         Employment Agreement and Stock Purchase Agreement and seeks, among
         other things, the production of financial information, unspecified
         damages, attorney's fees and interest. The defendants believe that Mr.
         Burke's claims are without merit and intend to vigorously defend
         against them. In addition, the Company is seeking $456,000 in excess
         earn-out payments that were paid to Mr. Burke.

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

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

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

(7)      Stockholders' Equity

         In connection with the Shaanxi acquisition, as of February 9, 2005 the
         Company had issued 752,157 shares of its common stock. Because the
         ultimate number issued shares in connection with the transaction were
         contingent on the financial performance of Shaanxi through December 31,
         2004, and the trading price of the Company's common stock on February
         9, 2005, such shares were not reflected as outstanding securities in
         the accompanying consolidated financial statements for periods prior to
         February 9, 2005.

         During the three-month period ended March 31, 2004, holders converted
         117,000 shares of the Company's Series D Preferred Stock into 1,170,000
         shares of the Company's common stock.

(8)      Loss per Share

         Basic loss per common share and diluted loss per common share are
         presented in accordance with SFAS No. 128, "Earnings per Share." Basic
         loss per common share has been computed using the weighted-average
         number of shares of common stock outstanding during the period. Diluted
         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. For the
         three-month period ended March 31, 2005 and 2004, all stock options,
         stock warrants, and convertible securities were excluded because their
         effect was antidilutive. The total number of such shares excluded from
         diluted loss per common share are 8,381,876 and 10,821,405 at March 31,
         2005 and 2004, respectively.

         Also, the 630,915 shares of common stock issued in connection with the
         Shaanxi acquisition were subject to pro rata forfeiture based upon the
         financial performance of Shaanxi through December 31, 2004.
         Accordingly, such shares have been excluded from the calculation of
         basic and diluted loss per common share for the three-month period
         ended March 31, 2004.

                                        9



(9)      Income Taxes

         The components of income tax expense consist of the following:

                                     Three months ended March 31,
                                     ----------------------------
                                        2005              2004
                                     ----------        ----------
                 U.S. federal        $  155,400        $  105,100
                 State                   24,000            26,900
                 Foreign                356,478            67,100
                                     ----------        ----------
                                     $  535,878        $  199,100
                                     ==========        ==========

         The Company has accumulated net operating losses (NOLs). Due to the
         uncertainty surrounding the realization of the NOLs, the Company has
         placed a valuation allowance on its deferred tax assets. Income tax
         expense for the three-month periods ended March 31, 2005 and 2004
         resulted primarily from non-U.S.-based earnings, state income taxes and
         deferred income taxes arising from the amortization of goodwill for
         income tax purposes.

(10)     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 or group in
         deciding how to allocate resources and in assessing performance. The
         Company identifies operating segments based on the principal service
         provided by the business unit. Each segment has a separate management
         structure. The accounting policies of the reportable segments are the
         same as described in our Annual Report on Form 10-K for the year ended
         December 31, 2004. Segment information, in which corporate expenses
         have been fully allocated to the operating segments, is as follows (in
         thousands):

                                       10






                                                              Three months ended March 31, 2005
                                               -------------------------------------------------------------------
                                               Domestic         International
                                               Services           Services            Corporate            Total
                                               --------         -------------         ---------          ---------
                                                                                                   
Revenue from external customers                $ 32,408              $ 57,582           $    --          $  89,990
Intersegment revenue                                  4                    66                                   70
Revenue from significant customer                 7,216                    --                --              7,216
Segment operating loss                           (5,927)                 (433)               --             (6,360)

Segment assets                                   42,447                73,971             3,035            119,453
Segment goodwill                                 19,641                18,390                --             38,031
Depreciation and amortization                       660                   498                --              1,158
Capital additions                                    41                    58                26                125
                                                               

                                                              Three months ended March 31, 2004
                                               -------------------------------------------------------------------
                                               Domestic         International
                                               Services           Services             Corporate           Total
                                               --------         -------------          ---------         ---------
Revenue from external customers                $ 34,695              $ 25,529           $    --          $  60,224
Intersegment revenue                                  8                    12                --                 20
Revenue from significant customer                11,761                    --                --             11,761
Segment operating income (loss)                  (2,563)                  258                --             (2,305)

Segment assets                                   42,948                57,059             4,808            104,815
Segment goodwill                                 19,551                12,366                --             31,917
Depreciation and amortization                       658                   193                --                851
Capital additions                                   414                   127               931              1,472
 

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

                                                  Three months ended March 31,
                                                  ----------------------------
                                                     2005              2004
                                                  ----------        ----------
         Total revenue:

         United States                            $   56,431        $   52,936
         Asia                                         30,176             6,071
         North America (excluding the
             United States)                              164               124
         Europe                                        1,466               668
         South America                                 1,230                --
         Other                                           523               425
                                                  ----------        ----------
         Total                                    $   89,990        $   60,224
                                                  ==========        ==========

                                       11



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

                                                        March 31,
                                                -----------------------
                                                  2005            2004
                                                -------         -------
                 United States                  $ 6,396         $ 7,893
                 Asia                               682             401
                 South America                      106              --
                                                -------         -------
                 Total long-lived assets        $ 7,184         $ 8,294
                                                =======         =======

(11)     Subsequent Events

         Effective April 6, 2005, the Company amended its revolving credit
         facility with LaSalle Business Credit, LLC ("LaSalle") by assigning
         LaSalle's interests in the facility to Zohar II 2005-1, a firm
         affiliated with Patriarch Partners, LLC. In addition to the assignment,
         the agreement was amended to, among other things:

         o  Extend the termination date of the facility to May 31, 2007

         o  Eliminate certain reserves against the amounts available and
            increase the borrowing base for accounts receivable of certain
            Company subsidiaries.

         o  Permit immediate earn-out payments of up to $2,000,000.

         o  Increase the interest rate to LIBOR plus 800 basis points.

         o  Require that any funds received in an equity offering be applied to
            reduce the amount of indebtedness under the facility.

         o  Revise restrictive financial covenants regarding certain EBITDA
            calculations.

         The amendment leaves in place restrictions on further acquisitions.

         On May 12, 2005, the Company further amended its revolving credit
         agreement with Zohar II 2005-1. The agreement was amended to revise
         certain financial covenants regarding certain EBITDA calculations,
         including EBITDA calculations for the three-month period ended March
         31, 2005.

         On April 28, 2005, the Compensation Committee of the Board of Directors
         approved the acceleration of the vesting of unvested stock options
         having an exercise price of more than $0.92 per share granted under the
         Company's stock option plan. As a result of this action, options to
         purchase 1,931,244 shares of common stock became immediately
         exercisable, representing approximately 17.2% of total outstanding
         options. Because the accelerated options had exercise prices in excess
         of the current market value of the Company's common stock, they were
         not fully achieving their original objectives of incentive compensation
         and employee retention. The Company expects the acceleration to have a
         positive effect on employee morale, retention, and perception of option
         value. The acceleration is also intended to eliminate future
         compensation expense the Company would otherwise have to recognize in
         its income statement with respect to the accelerated options once SFAS
         No. 123, as revised, "Share-Based Payment", becomes effective.



                                       12



ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
        RESULTS OF OPERATIONS

CAUTIONARY STATEMENT FOR FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q 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, regarding future
results, levels of activity, events, trends or plans. We have based these
forward-looking statements on our current expectations and projections about
such future results, levels of activity, events, trends or plans. These
forward-looking statements are not guarantees and are subject to known and
unknown risks, uncertainties and assumptions about us that may cause our actual
results, levels of activity, events, trends or plans to be materially different
from any future results, levels of activity, events, trends or plans 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. While it
is impossible to identify all of the factors that may cause our actual results,
levels of activity, events, trends or plans to differ materially from those set
forth in such forward-looking statements, such factors include the inherent
risks associated with: (i) our ability to sustain an annual growth rate in
revenue consistent with recent results, (ii) our ability to achieve our targeted
operating margins, (iii) our ability to complete our restructuring efforts
within the costs we now expect, (iv) our ability to realize the planned benefits
from our restructuring efforts, (v) our dependence on certain large customers,
(vi) our dependence upon certain key personnel, (vii) an unexpected adverse
result in any legal proceeding, (viii) competition in the freight forwarding,
logistics and supply chain management industry, (ix) the impact of current and
future laws affecting the Company's operations, (x) adverse changes in general
economic conditions as well as economic conditions affecting the specific
industries and customers we serve, (xi) regional disruptions in transportation,
and (xii) other factors which are or may be identified from time to time in our
Securities and Exchange Commission filings and other public announcements.
Readers are cautioned not to place undue reliance on forward-looking statements,
which speak only as of the date made. We undertake no obligation to publicly
release the result of any revision of these forward-looking statements to
reflect events or circumstances after the date they are made or to reflect the
occurrence of unanticipated events.

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 the 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 also offer a
full range of international logistics services, including international air and
ocean transportation as well as customs house brokerage services, through our
International Services platform. In addition to these core services, we provide
a broad range of value-added supply chain management services, including
warehousing, order fulfillment and inventory management solutions. We serve a
customer base of manufacturers, distributors and national retail chains through
a network of offices in 24 major metropolitan areas in North America, Puerto
Rico, 13 locations in Asia, six locations in Brazil and one location in Europe,
as well as an extensive network of independent carriers and service partners
strategically located around the world.

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

Our objective is to build a leading global logistics services organization that
integrates established operating businesses and 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 operations.

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

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

We have completed, to date, the acquisition of 16 logistics companies and are
currently working to improve profitability by further consolidating and
rationalizing our facilities and personnel within the U.S. Because of provisions
contained in our current domestic revolving credit facility, we are presently
precluded from making additional acquisitions. If and when our acquisition
program is resumed, we do not expect it to continue at its historic pace because
of our desire to optimize and fully integrate new acquisitions into our existing
facilities, personnel and services.

                                       13



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

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
turn key cost for the movement of their freight. Our price quote will often
depend upon the customer's time-definite needs (next 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 value added services, which include customized
distribution, fulfillment, and other value added supply chain services.

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

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

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

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

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

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

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

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

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

                                       14



Our operating results will be affected as acquisitions occur. Since all
acquisitions are made using the purchase method of accounting for business
combinations, our consolidated financial statements will only include the
results of operations and cash flows of acquired companies for periods
subsequent to the dates of acquisition. To help facilitate the consolidation,
analysis and public reporting process, our offshore operations are included
within our consolidated results on a one-month lag, as such, our first quarter
will include results from our offshore operations for the period December 1
through February 28. As a result of the one-month lag, the operating results of
Shaanxi were first reflected in our consolidated financial statements beginning
in April 2004.

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

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


CRITICAL ACCOUNTING POLICIES

Our accounting policies, which are in compliance with accounting principles
generally accepted in the United States, require us to apply methodologies,
estimates and judgments that have a significant impact on the results we report
in our financial statements. In our Annual Report on Form 10-K for the year
ended December 31, 2004 we have discussed those policies that we believe are
critical and require the use of complex judgment in their application. Since
December 31, 2004, there have been no material changes to our critical
accounting policies.


RESULTS OF OPERATIONS

Quarter ended March 31, 2005 compared to quarter ended March 31, 2004

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



                                                                  Quarter ended March 31,
                                             -----------------------------------------------------------------
                                                                                            Change
                                                                                  ----------------------------
                                               2005              2004              Amount           Percentage
                                             --------          --------           --------          ----------
                                                                                             
Total revenue                                $ 89,990          $ 60,224           $ 29,766             49.4%
                                             ========          ========           ========         
Transportation revenue                       $ 83,672          $ 55,045             28,627             52.0
Cost of transportation                         69,575            43,472             26,103             60.0
                                             --------          --------           -------- 
Net transportation revenue                     14,097            11,573              2,524             21.8
   Net transportation margin                    16.8%             21.0%


Customs brokerage                               2,142             2,679               (537)           (20.0)
Warehousing and other value added services      4,175             2,500              1,675             67.0
                                             --------          --------           -------- 
         Total net revenue                   $ 20,414          $ 16,752           $  3,662             21.9%
                                             ========          ========           ========
   Net revenue margin                           22.7%             27.8%
                                             ========          ========


                                       15



Total revenue was $90.0 million in the first quarter of 2005, an increase of
49.4% over total revenue of $60.2 million in the first quarter of 2004. $6.5
million or 21.8% of the increase in total revenue was attributable to same store
growth with $23.3 million or 78.2% of the increase in total revenue attributable
to acquisitions. The Domestic Services platform recorded $32.4 million in total
revenue for the first quarter of 2005, a decline of 6.6% compared to $34.7
million in same period in 2004. There were no domestic acquisitions in 2004 or
2005 effecting the comparability of this platform's results. The decline in
Domestic Services total revenue was due to lower automotive related business
caused by the difficult economic conditions of domestic automobile manufacturers
and reduced volume from a major customer. The decline in revenue from this major
customer, which was approximately $4.6 million less in the first quarter of 2005
than was recorded in the first quarter of 2004, resulted from the customer
selling a line of business we serviced and realigning a distribution program to
an in-house operation. The International Services platform recognized $57.6
million in total revenue for the first quarter of 2005, a year over year
improvement of $32.1 million or 126.2%, with $8.8 million of the increase coming
from same store growth and the remaining $23.3 million improvement attributed to
acquisitions.

Net transportation revenue was $14.1 million in the first quarter of 2005, an
increase of 21.8% over net transportation revenue of $11.6 million in the first
quarter of 2004. $0.2 million, or 7.1% of the increase in net transportation
revenue, was attributable to same store growth with $2.3 million, or 92.9% of
the increase, attributable to acquisitions. The Domestic Services platform
recorded $7.3 million in net transportation revenue for the first quarter of
2005, a decrease of $1.1 million or 13.2% over the same prior year period. The
International Services platform recognized $6.8 million in net transportation
revenue for the first quarter of 2005, a year over year improvement of $3.6
million or 102.6%, with $1.3 million of the increase resulting from same store
growth and the remaining $2.3 million improvement attributed to acquisitions.

Net transportation margins decreased to 16.8% for the first quarter of 2005 from
21.0% for the first quarter of 2004. For the first quarter of 2005, net
transportation margins for the Domestic Services platform declined to 25.1% from
25.7% in the same period in 2004. For the International Services platform, net
transportation margins declined to 12.5% from 14.2% driven primarily by the mix
of lower margin business acquired with the Shaanxi transaction.

Net revenue was $20.4 million in the first quarter of 2005, an increase of 21.9%
over net revenue of $16.8 million in the first quarter of 2004. $1.3 million, or
36.0% of the increase in net revenue, was attributable to same store growth,
with $2.3 million, or 64.0% of the increase, attributable to acquisitions. The
Domestic Services platform delivered $10.7 million in net revenue for the first
quarter of 2005, a 1.6% increase over the $10.6 million in net revenue recorded
in the first quarter of 2004. The International Services platform delivered $9.6
million in net revenue for the first quarter of 2005, a year over year
improvement of $3.5 million or 56.8%, with $1.1 million of the increase
resulting from same store growth and the remaining $2.4 million improvement
attributed to acquisitions.

Net revenue margins decreased to 22.7% for the first quarter of 2005 compared to
27.8% for the same prior in the year period. Net revenue margins for Domestic
Services improved to 33.3% from 30.5%. For the International Services platform,
net transportation margins declined to 16.7% from 24.1% driven primarily by the
mix of lower margin business acquired with the Shaanxi transaction.

                                       16



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



                                                    Quarter ended March 31,
                                                    -----------------------
                                                2005                         2004                       Change
                                                ----                         ----                       ------
                                        Amount        Percent        Amount        Percent        Amount       Percent
                                        ------        -------        ------        -------        ------       -------
                                                                                                 
Net revenue                            $ 20,414        100%         $ 16,752        100.0%        $ 3,662        21.9%
                                       --------        ------       --------        ------        -------      
Personnel costs                          11,869         58.1           9,898         59.1           1,971        19.9
Other selling, general and
   administrative                        10,406         51.0           8,308         49.6           2,098        25.3
Depreciation and amortization             1,158          5.7             851          5.1             307        36.1
Restructuring charges                     3,341         16.4              --         --             3,341        NM
                                       --------        ------       --------        ------        -------      
Total operating costs                    26,774        131.2          19,057        113.8           7,717        40.5
                                       --------        ------       --------        ------        -------      
Loss from operations                     (6,360)       (31.2)         (2,305)       (13.8)         (4,055)     (175.9)
Provision for excess earn-out
   payments                                  --         --            (3,075)       (18.4)          3,075        NM
Other income (expense), net                (397)        (1.9)            (52)        (0.2)           (345)       NM
                                       --------        ------       --------        ------        -------      
Loss before income tax expense
   and minority interest                 (6,757)       (33.1)         (5,432)       (32.4)         (1,325)      (24.4)
Income tax expense                          536          2.6             199          1.2             337       169.3
                                       --------        ------       --------        ------        -------      
Loss before minority interest            (7,293)       (35.7)         (5,631)       (33.6)         (1,662)      (29.5)
Minority interest                           270          1.3              69          0.4             201       291.3
                                       --------        ------       --------        ------        -------      
Net loss                               $ (7,563)       (37.0)%      $ (5,700)       (34.0)%       $(1,863)      (32.7)%
                                       ========        ======       ========        ======        ======= 


Personnel costs were $11.9 million for the first quarter of 2005, an increase of
19.9% over $9.9 million recorded in the first quarter of 2004. $0.9 million or
43.6% of the increase in personnel costs is attributable to incremental costs
assumed as part of our acquisition program with $1.1 million or 56.4% of the
increase attributable to increased costs in the base business. Personnel costs
as a percentage of net revenue decreased to 58.1% in the first quarter of 2005
from 59.1% in the first quarter of 2004. Compared to March 31, 2004, headcount
increased by 4.0% or 44 employees to a total of 1,142. Headcount has decreased
by 27 employees since December 31, 2004.

Other selling, general and administrative costs were $10.4 million for the first
quarter of 2005, an increase of 25.3% over $8.3 million for the first quarter of
2004. $0.6 million or 37.0% of the increase is attributable to incremental costs
assumed as part of our acquisition program with $1.3 million or 63.0% of the
increase attributable to increased costs of the base business. As a percentage
of net revenue, other selling, general and administrative costs increased to
51.0% in the first quarter of 2005 from 49.6% in the first quarter of 2004. This
increase is primarily due to higher legal, technology and Sarbanes-Oxley and
audit related expenses.

Depreciation and amortization was $1.1 million in the first quarter of 2005, an
increase of 36.1% over $0.9 million in the first quarter of 2004. Depreciation
and amortization as a percentage of net revenue increased to 5.7% in the first
quarter of 2005 from 5.1% in the first quarter of 2004. The increase is due to
higher depreciation from technology and equipment assets acquired since the
first quarter of 2004 and increases in intangible asset amortization resulting
from the Shaanxi acquisition.

Restructuring costs were $3.3 million in the first quarter of 2005 and are
comprised of $0.6 million of personnel costs and $2.7 million of primarily
facility lease and equipment costs. These costs were incurred in connection with
management's previously announced restructuring initiative, which includes the
rationalization of facilities and personnel in the U.S.

                                       17



As a result of the matters above, loss from operations was $6.4 million in the
first quarter of 2005, as compared to $2.3 million for the first quarter of
2004. Loss from operations as a percentage of net revenue was 31.2% for the
first quarter of 2005 compared to 13.8% for the first quarter of 2004. The loss
from operations was negatively effected by the level of restructuring charges
and higher legal and accounting related costs. A significant portion of these
costs were nonrecurring in nature and are not expected to be as significant in
future periods.

The provision for excess earn-out payments recorded in the first quarter of 2004
represented a valuation adjustment for amounts paid to former shareholders of
acquired companies that, as a result of the restatement of our financial
performance for 2003, was in excess of the amount that would have been paid out
based upon the restated financial results for 2003. Due to differing
interpretations, by the Company and the selling shareholders, of the earn-out
provisions of the purchase agreements, the Company determined that the resulting
receivable from the former shareholders should be fully reserved. If in the
future, excess amounts paid are recovered, those proceeds would be reflected as
other income in the Company's consolidated statement of operations.

The Company has accumulated U.S. federal net operating losses (NOLs). A portion
of tax expense during the three months ended March 31, 2005 resulted from
increased earnings from overseas operations. The foreign income tax provision
amounted to 66.5% of the consolidated income tax provisions and the balance is
due to state income taxes and deferred income taxes resulting from the
amortization of goodwill for income tax purposes. At December 31, 2004, the
Company had a net operating loss for U.S. federal income taxes of approximately
$47.0 million.

Net loss was $7.6 million in the first quarter of 2005, compared to a net loss
of $5.7 million in the first quarter of 2004. Basic and diluted loss per common
share was $0.17 for the first quarter of 2005 compared to a net loss of $0.15
per basic and diluted common share for the first quarter of 2004.

FINANCIAL OUTLOOK

We believe that gross revenues will be approximately $400 million in 2005. Due
to a number of factors, including the financial performance of our Domestic
Services operations, the Company's continued restructuring of its operations to
realize synergies as part of the Company's overall acquisition strategy and
future efforts to realize efficiencies from a newly developed operating system,
we are not able to provide guidance at this time about expected future operating
performance beyond gross revenues.

LIQUIDITY AND CAPITAL RESOURCES

As we approach the next stage of our development, we need to augment our capital
structure by obtaining additional capital from other sources and assess the
benefits and potential of replacing or further modifying our revolving credit
facilities to provide enhanced flexibility. Additional forms of capital could
take the form of subordinated debt, convertible preferred stock and/or common
stock, among others. Such enhancements to our capital structure would permit
continued expansion. There is no assurance we can raise additional capital from
other sources or modify our credit facilities with terms that are favorable to
us.

Cash and cash equivalents totaled $6.0 million and $2.8 million as of March 31,
2005 and December 31, 2004, respectively. Working capital was $4.4 million at
March 31, 2005 compared to $0.5 million at December 31, 2004. The increase in
working capital was primarily due to a change in classification of borrowings
under our amended revolving credit agreement from a current obligation to
long-term.

Net cash provided by operating activities was $3.1 million for the first quarter
of 2005 compared to cash used of $2.9 million in the first quarter of 2004.
The change was driven principally by increases in receivable collections and
increases in current payables.

Net cash used in investing activities during the first quarter of 2005 was $0.1
million compared to $5.9 million in the first quarter of 2004. Investing
activities in 2004 were driven principally by cash paid in connection with the
Shaanxi acquisition and approximately $2.4 million in earn-out payments made in
relation to 2003 performance targets.

Net cash provided by financing activities during the first quarter of 2005 was
approximately $70,000 compared to $9.7 million in the first quarter of 2004.
Financing activities in 2004 consisted of $8.6 million in proceeds from the
Company's line of credit and $1.2 million from the issuance of common stock upon
the exercises of options and warrants, offset by principal payments of $0.2
million for a capital lease.


                                       18


We may receive proceeds in the future from the exercise of outstanding options
and warrants. The proceeds ultimately received upon exercise, if any, are
dependent on a number of factors, including the trading price of our common
stock in relation to the exercise price. As of March 31, 2005, the number of
shares issuable upon exercise of our options and warrants were as follows:


                                                       Number of shares    Proceeds if exercised
                                                       ----------------    ---------------------
                                                                                    
Options outstanding under our stock option plan            10,576,283             $16,950,424
Non-plan options                                              615,200               2,026,750
Warrants                                                    1,957,784               4,417,794
                                                           ----------             -----------
Total                                                      13,149,267             $23,394,968
                                                           ==========             ===========


We have a revolving credit agreement, which was amended in April and May 2005
and is collateralized by certain U.S. accounts receivable and other assets of
the Company and its subsidiaries. The amended agreement assigned the interests
to a new lender in addition to making changes to other key terms, including
modifications to restrictive covenants. Advances under the agreement may be used
to fund capital expenditures, working capital requirements and earn-out payments
from previous acquisitions. The agreement prohibits the use of proceeds to fund
new acquisitions. The amended agreement, which expires May 31, 2007, bears
interest at Libor plus 800 basis points and carries a commitment fee on the
unused portion of the facility of 1.0% per annum. The agreement provides for
maximum borrowings of $25,000,000 although such borrowings are limited by the
amount of eligible receivables. As of March 31, 2005, amounts outstanding were
$12,191,000 and an additional $2,923,000 was available based on the level of
eligible receivables. The amended agreement contains certain financial covenants
regarding the maintenance of certain specified levels of EBITDA commencing with
the quarter ended March 31, 2005. As a result of the May 2005 amendment, the
Company was in compliance with all applicable covenants as of March 31, 2005.

Stonepath Holdings (Hong Kong) Limited ("Asia Holdings"), a subsidiary of the
Company, has a $10.0 million term credit facility with Hong Kong League Central
Credit Union (the "Asia Facility") collateralized by the accounts receivable of
the Company's Hong Kong and Singapore operations and an unsecured subordinated
guarantee from Stonepath Group, Inc. The Asia Facility expires in October 2005
and carries an interest rate of 15% for amounts outstanding thereunder. As of
March 31, 2005, Asia Holdings borrowed $5.0 million under this facility. There
is no assurance the remaining $5,000,000 will be available in the future. We are
currently developing strategies to address the liquidity requirements that
result from the expiration of this facility.

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

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

                                       19



On April 4, 2002, we acquired Stonepath Logistics International Services, Inc.
("SLIS") (f/k/a Global Transportation Services, Inc.), 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
SLIS. We agreed to pay the former Global shareholders a total of $5.0 million in
base earn-out payments payable in installments of $0.8 million in 2003, $1.0
million in 2004 through 2007 and $0.2 million in 2008, with each installment
payable in full if SLIS achieves pre-tax income of $2.0 million in each of the
years preceding the year of payment (or the pro rata portion thereof in 2002 and
2007). In the event there is a shortfall in pre-tax income, the earn-out payment
will be reduced on a pro-rata basis. Shortfalls may be carried over or carried
back to the extent that pre-tax income in any other payout year exceeds the $2.0
million level. We also provided the former Global shareholders with an
additional incentive to generate earnings in excess of the base $2.0 million
annual earnings target ("SLIS' tier-two earn-out"). Under SLIS' tier-two
earn-out, the 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. SLIS would need to generate cumulative earnings of $15.0
million over the five-year earn-out period to receive the full $7.0 million in
contingent earn-out payments. Based upon 2004 performance, the former Global
shareholders received $1.0 million in April 2005. On a cumulative basis, SLIS
has generated $13.5 million in adjusted earnings, providing its former
shareholders with a total of $2.8 million in cash earn-out payments and excess
earnings of $8.0 million to carryforward and apply to future earnings targets.

On May 30, 2002, we acquired United American, a Detroit-based privately held
provider of expedited transportation services. The United American transaction
provided us with a new time-definite service offering focused on the automotive
industry. The transaction was valued at up to $16.1 million, consisting of cash
of $5.1 million paid at closing and a four-year earn-out arrangement based upon
the future financial performance of United American. We agreed to pay the former
United American shareholder a total of $5.0 million in base earn-out payments
payable in installments of $1.25 million in 2003 through 2006, with each
installment payable in full if United American achieves pre-tax income of $2.2
million in each of the years preceding the year of payment. In the event there
is a shortfall in pre-tax income, the earn-out payment will be reduced on a
dollar-for-dollar basis to the extent of the shortfall. Shortfalls may be
carried over or carried back to the extent that pre-tax income in any other
payout year exceeds the $2.2 million level. The Company has also provided the
former United American shareholder with an additional incentive to generate
earnings in excess of the base $2.2 million annual earnings target ("United
American's tier-two earn-out"). Under United American's tier-two earn-out, the
former United American shareholder is entitled to receive 50% of the cumulative
pre-tax earnings generated by a certain pre-acquisition customer in excess of
$8.8 million during the four-year earn-out period subject to a maximum
additional earn-out opportunity of $6.0 million. United American would need to
generate cumulative earnings of $20.8 million over the four-year earn-out period
to receive the full $11.0 million in contingent earn-out payments. Based upon
restated financial results, the Company believes that it has paid approximately
$0.5 million to the selling shareholder in excess of amounts due. As a
consequence of these restatements, the amounts paid in 2003 in excess of
earn-out payments due have been reclassified from goodwill to advances due from
shareholders. At March 31, 2005, the excess earn-out payments related to the
2002 and 2003 results of operations have been fully reserved for because of
differing interpretations, by the Company and the selling shareholders, of the
earn-out provisions of the purchase agreement. However, the Company has sought
the refund of such excess payment in litigation with the selling shareholder.

On June 20, 2003, through our indirect wholly-owned subsidiary, Stonepath
Logistics Government Services, we acquired the business of Regroup, a Virginia
limited liability company. The Regroup transaction enhanced our presence in the
Washington, D.C. market and provided a platform to focus on the logistics needs
of U.S. government agencies and contractors. The transaction was valued at up to
$27.2 million, consisting of cash of $3.7 million and $1.0 million of Company
stock paid at closing, and a five-year earn-out arrangement. The Company agreed
to pay the members of Regroup a total of $10.0 million in base earn-out payments
payable in equal installments of $2.5 million in 2005 through 2008, if Regroup
achieves pre-tax income of $3.5 million in each of the years preceding the year
of payment. In the event there is a shortfall in pre-tax income, the earn-out
payment will be reduced on a dollar-for-dollar basis. Shortfalls may be carried
over or carried back to the extent that pre-tax income in any other payout year

                                       20



exceeds the $3.5 million level. The Company also agreed to pay the former
members of Regroup an additional $2.5 million if Regroup earned $3.5 million in
pre-tax income during the 12-month period commencing July 1, 2003, however no
payment was required based on Regroup's actual results. In addition, the Company
has also provided the former members of Regroup with an additional incentive to
generate earnings in excess of the base $3.5 million annual earnings target
("Regroup's tier-two earn-out"). Under Regroup's tier-two earn-out, the former
members of Regroup are also entitled to receive 50% of the cumulative pre-tax
earnings in excess of $17.5 million generated during the five-year earn-out
period subject to a maximum additional earn-out opportunity of $10.0 million.
Regroup would need to generate cumulative earnings of $37.5 million over the
five-year earn-out period in order for the former members to receive the full
$22.5 million in contingent earn-out payments.

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

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

We have accrued $2.6 million as of March 31, 2005 and December 31, 2004 for
amounts we believe are due under the earn-out provisions of the various
acquisition agreements for the 2004 performance period. Certain selling
shareholders have provided us notice disputing the underlying earn-out
calculations and have requested further supporting information. We are currently
working to provide this supporting documentation as appropriate. Although we
believe the calculations have been accurately computed and intend to vigorously
defend the computations, there is a possibility we could incur additional costs
to resolve these matters. These additional costs, if incurred, could have a
material and adverse effect on the Company's financial position, results of
operations and/or cash flows.

We may be required to make significant payments in the future if the earn-out
installments under our various acquisitions become due. While we believe that a
significant portion of the required payments will be generated from earnings of
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 securities.

                                       21



The following table summarizes our maximum possible contingent base earn-out
payments for the years indicated based on results of the prior year assuming
pre-tax earning targets associated with each acquisition were achieved. Based on
our recent performance levels and current expectations, we do not anticipate the
Domestic Services pre-tax earnings targets to be fully achieved.



                                                    2006          2007           2008          2009         TOTAL
                                                  --------      --------       --------      --------      --------
                                                                                                 
Earn-out payments(1)(2):
   Domestic                                       $  8,050      $  2,500       $  2,500      $     --      $ 13,050
   International                                     5,131         5,503          3,769         3,417        17,820
                                                  --------      --------       --------      --------      --------
   Total earn-out payments                        $ 13,181      $  8,003       $  6,269      $  3,417      $ 30,870
                                                  ========      ========       ========      ========      ========

Prior year pre-tax earnings targets(3):
   Domestic                                       $ 12,306      $  3,500       $  3,500      $     --      $ 19,306
   International                                    12,446        13,502          8,840         7,723        42,511
                                                  --------      --------       --------      --------      --------
   Total pre-tax earnings targets                 $ 24,752      $ 17,002       $ 12,340      $  7,723      $ 61,817
                                                  ========      ========       ========      ========      ========

Earn-outs as a percentage of prior year pre-tax earnings targets:
   Domestic                                         65.4%         71.4%          71.4%             --         67.9%
   International                                    41.2%         40.8%          42.6%          44.2%         41.9%
   Combined                                         53.3%         47.1%          50.8%          44.2%         49.9%


_______________

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

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

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

The Company is a defendant in a number of legal proceedings. Although we believe
that the claims asserted in these proceedings are without merit, and we intend
to vigorously defend these matters, there is the possibility that the Company
could incur material expenses in the defense and resolution of these matters.
Furthermore, since the Company has not established any reserves in connection
with such claims, 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.





                                       22



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's short-term cash investments and its line of credit.
The Company is averse to principal loss and ensures the safety and preservation
of its invested funds by limiting default risk, market risk and reinvestment
risk. The Company invests its excess cash in institutional money market
accounts. The Company does not use interest rate derivative instruments to
manage its exposure to interest rate changes. If market interest rates were to
change by 10% from the levels at March 31, 2005, the change in interest expense
would have had an immaterial impact on the Company's results of operations and
cash flows.

The Company also has exposure to foreign currency fluctuations with respect to
its offshore subsidiaries. The Company does not utilize derivative instruments
to manage such exposure. A hypothetical change of 10% in the value of the U.S.
dollar would have had an immaterial impact on the Company's results of
operations.

ITEM 4. CONTROLS AND PROCEDURES

Overview

In January 2004, the Company restated its consolidated statements of operations
for the last three quarters of fiscal 2002, the first three quarters of fiscal
2003, and for the year ended December 31, 2002, as a result of an error
discovered in the legacy accounting processes of SLIS. The Company determined
that a process error existed which resulted in the failure to eliminate certain
intercompany transactions in consolidation. This process error was embedded in
the legacy accounting process of SLIS for a period which began substantially
before its acquisition by the Company in April 2002. The Company believes that
the presence of this error, in and of itself, constituted a reportable condition
as defined under standards established by the American Institute of Certified
Public Accountants. This significant deficiency was addressed by correcting the
process error that resulted in the failure to eliminate intercompany
transactions in consolidation. In addition, the Company changed its
organizational structure to require the senior financial representatives within
the International Services segment to report directly to the Company's Chief
Financial Officer.

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

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

                                       23



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

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

A material weakness is a significant deficiency, or combination of significant
deficiencies, that results in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented
or detected. A significant deficiency is a control deficiency, or combination of
control deficiencies that adversely affects the Company's ability to initiate,
record, process and report financial data consistent with the assertions of
management in the financial statements.

In connection with the preparation of this Form 10-Q, the Company carried out an
evaluation of the effectiveness of the Company's disclosure controls and
procedures as of March 31, 2005. This evaluation was carried out under the
supervision and with the participation of the Company's Chief Executive Officer
and Chief Financial Officer. Based on that evaluation, taking into account the
reportable condition, material weaknesses, and remedial actions described above,
the Company's Chief Executive Officer and Chief Financial Officer have concluded
that the Company's disclosure controls and procedures were effective as of March
31, 2005.

Disclosure Controls and Procedures

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
disclosures.

Changes in Internal Control over Financial Reporting

Management of the Company has evaluated, with the participation of the Company's
Chief Executive Officer and Chief Financial Officer, changes in the Company's
internal control over financial reporting (as defined in Rule 13a-15(f) and
15d-15(f) of the Exchange Act) during the first quarter of 2005 that have
materially affected or are reasonably likely to materially affect, the Company's
internal control over financial reporting. As discussed in Management's Report
on Internal Control Over Financial Reporting contained in the Company's Annual
Report on Form 10-K for the year ending December 31, 2004, in the fourth quarter
of 2004, the Company identified material weaknesses in internal control over
financial reporting in the Company's information systems and financial policies
and procedures.

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

                                       24



         o  Corporate systems and financial leadership is being replaced;

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

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

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

      Other than the changes identified above, there have been no changes to the
Company's internal control over financial reporting that occurred since the
beginning of the Company's first quarter of 2005 that have materially affected,
or are reasonably likely to materially affect, the Company's internal control
over financial reporting.

                                    PART II
                                OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

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

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

                                       25



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

         On October 22, 2004, Douglas Burke filed a two-count action against
         United American Acquisitions, Inc. ("UAF"), Stonepath Logistics
         Domestic Services, Inc., and the Company in the Circuit Court for Wayne
         County, Michigan. Mr. Burke is the former President and Chief Executive
         Officer of UAF. The Company purchased the stock of UAF from Mr. Burke
         on May 30, 2002 pursuant to a Stock Purchase Agreement. At the closing
         of the transaction Mr. Burke received $5,100,000 and received the right
         to receive an additional $11,000,000 in four annual installments based
         upon UAF's performance in accordance with the Stock Purchase Agreement.
         Subject to the purchase, Stonepath Logistics Domestic Services, Inc.
         and Mr. Burke entered into an Employment Agreement. Mr. Burke's
         complaint alleges that the defendants breached the terms of the
         Employment Agreement and Stock Purchase Agreement and seeks, among
         other things, the production of financial information, unspecified
         damages, attorney's fees and interest. The defendants believe that Mr.
         Burke's claims are without merit and intend to vigorously defend
         against them. In addition, the Company is seeking $456,000 in excess
         earn-out payments that were paid to Mr. Burke.

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

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

         The Company is also involved in various other claims and legal actions
         arising in the ordinary course of business. In the opinion of
         management, the ultimate disposition of those matters will not have a
         material adverse effect on the Company's consolidated financial
         position, results of operations or liquidity.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

         On February 9, 2005 the Company issued 158,973 shares under the terms
         of the acquisition agreement for Shaanxi Sunshine Cargo Services
         International Co., Ltd. The transaction was 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, and pursuant to Regulation S.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         None.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None.

                                       26



ITEM 5.  OTHER INFORMATION

         Stonepath Group, Inc. and its subsidiaries which are parties to the
         Loan and Security Agreement dated May 15, 2002 (the "Loan Agreement")
         with Zohar II 2005-1, Limited (successor by assignment to LaSalle
         Business Credit, LLC) (the "Lender") and Patriarch Partners Agency
         Services, as agent for the Lender, have entered into a Tenth Amendment
         to the Loan Agreement dated May 12, 2005 (the "Amendment"). The
         Amendment modified certain of the financial covenants of the Loan
         Agreement, confirmed the Lender's prior consent to a lease payment made
         to an affiliate of the prior lender under the Loan Agreement, required
         the retention of a consultant, and provides for the payment of certain
         fees in connection with the Amendment.

ITEM 6.  EXHIBITS

         The following exhibits are included herein:

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

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

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

         32.1  Certification of 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.)


                                   SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                                            STONEPATH GROUP, INC.


Date:  May 15, 2005                         /s/ Jason Totah
                                            ----------------------------
                                            Jason Totah
                                            Chief Executive Officer


Date:  May 15, 2005                         /s/ Thomas L. Scully
                                            ----------------------------
                                            Thomas L. Scully
                                            Chief Financial Officer




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