DESCRIPTION OF SECURITIES

Our authorized capital stock consists of 250,000,000 shares of common stock, $.001 par value per share, and 1,000,000 shares of preferred stock, par value $.01 per share, of which 200,000 shares have been designated as Series B Convertible Preferred Stock, 20,000 shares have been designated as Series C Convertible Preferred Stock and 87,000 shares have been designated as Series Y Convertible Preferred Stock. The remaining 693,000 shares of our preferred stock remain without designation. As of April 30, 2006, there are 82,495,960 shares of common stock, 155,600 shares of Series B Convertible Preferred Stock, 832 shares of Series C Convertible Preferred Stock and 87,000 shares of Series Y Convertible Preferred Stock issued and outstanding.

COMMON STOCK

Holders of common stock are entitled to one vote for each share on all matters submitted to a stockholder vote. Holders of common stock do not have cumulative voting rights. Holders of common stock are entitled to share in all dividends that the board of directors, in its discretion, declares from legally available funds. In the event of our liquidation, dissolution or winding up, subject to the preferences of any series of preferred stock, each outstanding share entitles its holder to participate in all assets that remain after payment of liabilities and after providing for each class of stock, if any, having preference over the common stock.

Holders of common stock have no conversion, preemptive or other subscription rights, and there are no redemption provisions for the common stock. The rights of the holders of common stock are subject to any rights that may be fixed for holders of preferred stock, when and if any preferred stock is authorized and issued.

PREFERRED STOCK

Our board of directors, without further stockholder approval, may issue preferred stock in one or more series from time to time and fix or alter the designations, relative rights, priorities, preferences, qualifications, limitations and restrictions of the shares of each series. The rights, preferences, limitations and restrictions of different series of preferred stock may differ with respect to dividend rates, amounts payable on liquidation, voting rights, conversion rights, redemption provisions, sinking fund provisions and other matters. Our board of directors may authorize the issuance of preferred stock which ranks senior to our common stock for the payment of dividends and the distribution of assets on liquidation. In addition, our board of directors can fix limitations and restrictions, if any, upon the payment of dividends on our common stock to be effective while any shares of preferred stock are outstanding.

The rights granted to the holders of any series of preferred stock could adversely affect the voting power of the holders of common stock and issuance of preferred stock may delay, defer or prevent a change in our control.

SERIES B CONVERTIBLE PREFERRED STOCK

In June 2003, our board of directors created a series of 200,000 shares of our preferred stock and designated that series as Series B Convertible Preferred Stock. The designations, rights and preferences of the Series B Convertible Preferred Stock include:

o it has a stated value of $5.00 per share;
o it pays a 10% per annum cumulative dividend, in arrears, commencing on June 30, 2004. The dividend is payable in cash or shares of our common stock, valued at the average closing price for the 10 trading days immediately preceding the date of the dividend, at our option;
o the shares ranks (i) senior to our Series Y Convertible Preferred Stock; (ii) junior to any other class or series of our capital stock hereafter created specifically ranking by its terms senior to the Series B Preferred Stock, (iii) prior to our common stock; and (iii) prior to any other series of preferred stock or any class or series of capital stock of the corporation hereafter created not specifically ranking by its terms senior to or on parity with the Series B Preferred Stock, in each case as to the distribution of assets upon liquidation, dissolution or winding up of Power2Ship;
o the shares have no voting rights, other than as provided under the laws of the State of Nevada;
o each share is convertible at the holder's option, subject to certain limits, at the conversion rate of $0.25 per share, subject to adjustment in the event of stock splits or recapitalizations;
o each share is convertible at our option at $0.25 per share in the event of a merger or acquisition in which we are not the surviving corporation, a change of control involving 50% or more of our voting shares, or after one year if the average closing price of our common stock for any 10 consecutive trading days exceeds $2.00 per share; and
o the shares are not redeemable by us.

SERIES C CONVERTIBLE PREFERRED STOCK

In June 2003, our board of directors also created a series of 20,000 shares of our preferred stock and designated that series as Series C Convertible Preferred Stock. The designations, rights and preferences of the Series C Convertible Preferred Stock include:

o it has a stated value of $30.00 per share;
o it does not pay any dividends;
o the shares ranks (i) senior to our Series Y Convertible Preferred Stock and pari passu with our Series B Convertible Preferred Stock; (ii) pari passu with any other class or series of our capital stock hereafter created and not specifically ranking by its terms senior to the Series C Preferred Stock, and (iii) prior to our common stock and to any other series of preferred stock or any class or series of capital stock of the corporation hereafter created not specifically ranking by its terms senior to or on parity with the Series C Preferred Stock, in each case as to the distribution of assets upon liquidation, dissolution or winding up of Power2Ship;
o the shares have no voting rights, other than as provided under the laws of the State of Nevada;
o each share is convertible at the holder's option, subject to certain limits, at the conversion rate of $0.30 per share, subject to adjustment in the event of stock splits or recapitalizations;
o each share is convertible at our option at $0.30 per share in the event of a merger or acquisition in which we are not the surviving corporation, a change of control involving 50% or more of our voting shares, or after one year if the average closing price of our common stock for any 10 consecutive trading days exceeds $2.00 per share; and
o the shares are not redeemable by us.

SERIES Y CONVERTIBLE PREFERRED STOCK

In March 2003 our board of directors created a series of 87,000 shares of our preferred stock and designated that series as Series Y Convertible Preferred Stock. The designations, rights and preferences of the Series Y Convertible Preferred Stock include:

o it has a stated value of $0.01 per share;
o it does not pay any dividends;
o the shares ranks (i) junior to any other class or series of our capital stock hereafter created specifically ranking by its terms senior to the Series Y Preferred Stock, (ii) prior to our common stock; and (iii) prior to any other series of preferred stock or any class or series of capital stock of the corporation hereafter created not specifically ranking by its terms senior to or on parity with the Series Y Preferred Stock, in each case as to the distribution of assets upon liquidation, dissolution or winding up of Power2Ship;
o in addition to any voting rights provided under the laws of the State of Nevada, the Series Y Preferred Stock votes together with the common stock on all actions to be voted on by our stockholders and each share of Series Y Preferred Stock shall entitles the record holder thereof to 200 votes on each such action;
o each share is convertible into 2.66065 share of common stock, subject to adjustment in the event of stock splits or recapitalizations; and
o the shares are not redeemable by us.

OPTIONS

At April 30, 2006, we had outstanding options which have been granted outside our 2001 Employee Stock Compensation Plan entitling the holders thereof to purchase 14,924,906 shares of common stock at prices ranging from $.25 to $1.01 per share. These options generally provide that the number of shares of our common stock issuable upon the exercise of the option as well as the

exercise price of the option are subject to adjustment in the event of mergers, reorganization, recapitalization, reclassification, combination of shares, stock splits and dividends.

WARRANTS

At April 30, 2006, we had outstanding warrants to purchase 56,994,916 shares of common stock at prices ranging from $0.05 to $2.00 per share. These warrants generally provide that the number of shares of our common stock issuable upon the exercise of the option as well as the exercise price of the option are subject to adjustment in the event of mergers, reorganization, recapitalization, reclassification, combination of shares, stock splits and dividends.

DEBENTURES

14.25% SECURED CONVERTIBLE DEBENTURES

In March and April 2004, we issued $1,747,000 of our 14.25% secured convertible debentures to 35 accredited investors in a private transaction exempt from registration under the Securities Act in reliance on exemptions provided by Section 4(2) and Rule 506 of Regulation D. At April 30, 2006, $1,597,000 principal amount of these debentures remained outstanding. The principal amount of the 14.25% secured convertible debentures is secured with a first priority lien on all of our tangible and intangible assets, subject to automatic subordination to most traditional asset-based loans. The interest on these debentures is secured with the proceeds of an account established for the benefit of the debenture holders with Newbridge Securities Corporation, an NASD member which acted as placement agent in the offering, that had a balance of approximately $2,307 as of March 31, 2006.

The debentures mature on December 31, 2006, and pay interest of 14.25% per annum payable semi-annually in arrears on June 30 and December 31. The debentures may be converted by the holders at any time into shares of our common stock at a conversion price equal to $0.2673 per share. The 14.25% secured convertible debentures will automatically convert into shares of our common stock, providing that we are not in default with any provision of the debenture and the shares underlying the debentures have been registered, if the closing bid price of our common stock for the 20 trading days prior to conversion has been equal to at least 150% of the conversion price as described above. We may redeem the debentures, with 15 days notice at any time, by paying a premium of up to 20% of their original purchase price in a combination of cash and common stock. The shares issuable upon the conversion or redemption of the 14.25% secured convertible debentures are subject to adjustment in the event of stock splits and combinations, reclassifications and dividends.

SERIES B 5% SECURED CONVERTIBLE DEBENTURES

On June 28, 2004, we entered into a securities purchase agreement with Cornell Capital Partners, LP for the issuance and sale of $2,000,000 in Series B 5% secured convertible debentures maturing on the second anniversary of their issue dates. We issued Cornell one debenture for $1,000,000 on June 28, 2004, and another debenture for the remaining $1,000,000 on September 8, 2004. At April 30, 2006 $1,950,000 principal amount of these debentures remained outstanding. These funds were used for general working capital purposes and to expand our advertising and marketing campaigns.

The debentures are convertible at the option of the holder at a conversion price equal to the lesser of:

o $0.456 per share, representing 120% of the closing bid price of our common stock as quoted by Bloomberg, LP on June 28 and September 8, 2004, or
o 100% of the average of the three lowest closing bid prices for our common stock, as quoted by Bloomberg, LP, for the 30 trading days immediately preceding any conversion date.

We have the right to redeem, with three business days' advance written notice, all or a portion of the outstanding debentures at a redemption price of 120% of the amount redeemed, plus accrued interest. In connection with any redemption, we are also required to issue a warrant to purchase 35,000 of our common shares for each $100,000 of debentures redeemed. These warrants are exercisable at $0.456 per share on or prior to the second anniversary of the issue date of the debentures being redeemed.

The debentures are secured by all of the assets and property of Power2Ship and our wholly-owned subsidiary, Freight Rate, Inc., although this lien is subordinate to the lien previously granted to the holders of our 14.25% secured convertible debentures and to the lien on accounts receivable and other assets related thereto for our revolving credit facilities.

Under the terms of the purchase agreement and related debentures and warrants, no conversion of the debentures or exercise of the warrants may occur if a conversion or exercise would result in Cornell and any of its affiliates beneficially owning common shares of Power2Ship which exceed 4.99% of our outstanding common shares following such conversion or exercise.

$400,000 SHORT TERM UNSECURED DEBENTURE

In December 2005 we sold a $400,000 principal amount unsecured debenture to one accredited investor in a private transaction exempt from registration under the Securities Act in reliance on an exemption provided by
Section 4(2) of that act. These funds were used for general working capital. The debenture matures on May 15, 2006. We issued the lender a five-year warrant to purchase 1,000,000 shares of our common stock for $.07 per share and incurred a transaction fee of $40,000 that is due and payable on the maturity date of the debenture. At April 30, 2006 the debenture had been repaid.

SERIES C 10% UNSECURED CONVERTIBLE DEBENTURES

Between October 2005 and November 2005 we sold an aggregate of $420,000 principal amount Series C 10% unsecured convertible debentures to 8 existing accredited stockholders of the Company in a private transaction exempt from registration under the Securities Act in reliance on an exemption provided by
Section 4(2) of that act. At April 30, 2006, $245,000 principal amount of these debentures remained outstanding. These funds were used for general working capital. The debentures mature on the earlier of one year from the date of issuance or the dated on which we receive at least $5,000,000 in aggregate proceed from the sale of our securities. We are required to give the holders' three days notice of our intention to repay the debentures so as to permit the holders the option to convert the debentures into shares of our common stock. The debentures have an interest rate of 10% per annum payable semi-annually on June 30 and December 31. At our sole discretion, interest may be paid either in cash or in shares of our common stock valued at the average closing price of our common stock for the five trading days preceding the interest due date. We issued the debenture holders three-year warrants to purchase an aggregate of 5,600,000 shares of our common stock for $.15 per share.

The debentures are convertible into common stock at the greater of $0.15 per share or 50% of the average closing price of our common stock for the 10 trading days immediately preceding the conversion date. The conversion price

is subject to adjustment in the event of stock splits, recapitalizations, or stock combinations, or in the event we issue shares of our common stock or common stock equivalents at less than $0.15 per share. As a result of a subsequent transaction, the convertible price of these debentures has been reduced to $0.10 per share.

We have the right to redeem the debentures for cash upon 15 days notice to the holders. If we redeem the debentures within the first six months, we are required to pay the holders 110% of the principal balance of the debenture plus accrued but unpaid interest and if we redeem the debentures after the six month anniversary up to the due date we are required to pay the holders 105% of the principal balance of the debenture plus accrued but unpaid interest.

SERIES D 8% UNSECURED CONVERTIBLE DEBENTURES

Between March 2006 and April 2006 we sold an aggregate of $640,000 principal amount Series D 8% unsecured convertible debentures to five existing significant accredited stockholders of the Company in a private transaction exempt from registration under the Securities Act in reliance on an exemption provided by Section 4(2) of that act. The funds were used to repay a $400,000 short term unsecured debenture and for general working capital. The debentures mature on the earlier of June 30, 2008 or the date the Company receives proceeds from a private or public offering of its securities resulting in gross proceeds of at least $5,000,000. We are required to give holders at least 10 business days notice of our intention to prepay the debentures so as to permit the holders the option to convert the debentures into shares of our common stock. The debentures have an interest rate of 8% per annum payable semi-annually on June 30 and December 31 commencing on December 31, 2006. At our sole discretion, interest may be paid either in cash or in shares of our common stock valued at the average closing price of our common stock for the 10 trading days preceding the interest due date. We issued the debenture holders three-year warrants to purchase an aggregate of 6,400,000 shares of our common stock for $.05 per share and, simultaneous with canceling all the warrants previously held by the debenture holders to purchase an aggregate of 9,816,667 shares of common stock for prices ranging from $.10 to $.15 per share, granted them new warrants to purchase an aggregate of 9,816,667 shares of common stock for $.05 per share with the same expiration dates as the cancelled warrants.

The debentures are convertible into common stock at 80% of the price per common share which we may offer in any subsequent private offering of securities, provided that the conversion price cannot be less than $0.02 per share nor more than $0.10 per share. The holders have the option of exchanging the debentures for other Company securities that may be offered in future private offerings. We have the right to redeem the debentures and accrued interest for cash upon 15 days notice to the holders subject to holders' right to convert the debenture into common stock of the Company. We agreed to include the shares of common stock underlying the debentures in a subsequent registration statement which we may file with the SEC.

NOTE 1 - DESCRIPTION OF BUSINESS

On February 25, 2005, the Company formed P2S Holdings, Inc., a Florida corporation, as a wholly owned subsidiary. Then, on March 21, 2005, Commodity Express Transportation, Inc. ("CXT"), a wholly owned subsidiary of P2S Holdings formed as a Delaware corporation on March 21, 2002, acquired certain assets and liabilities representing the business of Commodity Express Transportation, Inc., a South Carolina based company engaged in the business of motor carriage specializing in full truckload transportation services primarily using dry vans. CXT provides its transportation services by contracting with independent truck owner-operators and drivers that use trucks provided by CXT. Also, CXT rents a 137,000 square foot distribution facility in South Carolina used by its largest customer and provides freight transportation brokerage services through its wholly owned subsidiary, Commodity Express Brokerage, Inc., a Florida corporation formed on March 3, 2005. See Note 13 - "Acquisitions" for further details related to this transaction.

Also, on March 21, 2005, Power2Ship Intermodal, Inc. ("P2SI"), a wholly owned subsidiary of CXT formed as a Delaware corporation on March 21, 2002, acquired certain assets and liabilities representing the business of GFC, Inc. It is a New Jersey based company in the business of motor carriage specializing in intermodal drayage transportation services. It has operations in Port Newark, New Jersey, Charleston, South Carolina and Charlotte, North Carolina. See Note
13 - "Acquisitions" for further details related to this transaction.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS

Freight transportation revenue consists of the total dollar value of services purchased from us by our customers. The Company recognizes freight transportation revenue when shipments of goods reach their destinations and the receiver of the goods acknowledges their receipt by signing a bill of lading. At that time, our obligations to the customer are completed and collection of receivables is reasonably assured. Emerging Issues Task Force Issue No. 99-19, "Reporting Revenue Gross as a Principal versus Net as an Agent", establishes the criteria for recognizing revenues on a gross or net basis. When we provide these freight transportation services, we are the primary obligor, we are a principal to the transaction not an agent, we have the risk of loss for collection, we

have discretion to select the supplier when we do not supply the services and we have latitude in pricing decisions.

Access services revenue is recognized in the month that access to the P2S MobileMarket(TM) is provided to customers. When the Company provides equipment to customers, in conjunction with providing access services to them, on any basis in which ownership is retained by the Company, then the Company accounts for equipment provided to the customer as part of the access services agreement and revenue is recognized ratably over the term of the agreement.

Implementation services revenue, generated pursuant to software development contracts with customers, is recognized on the percentage of completion basis for each deliverable provided for in the contract. Revenue from implementation services is expected to be insignificant as a percentage of total revenue in the foreseeable future.

Based on the guidance in SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", the Company evaluates long-lived assets, such as property and equipment and intangible assets subject to amortization for impairment at each balance sheet date . Among the factors considered in such evaluations are the occurrence of significant events, significant changes in the environment in which the business assets operate, and the expected future undiscounted cash flows of the business assets in relation to the carrying value of the assets. If impairment is deemed to exist, an impairment charge would be recognized equal to the amount by which the carrying amount of the asset exceeds the fair value of the assets. Management also evaluates events and circumstances to determine whether revised estimates of useful lives are warranted. Assets to be disposed of would be separately presented in the consolidated balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and would no longer be depreciated. The assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the consolidated balance sheet. As of June 30, 2005, management expected its long-lived assets to be fully recoverable.

allows entities to continue to apply the provision of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants as if the fair-value-based method defined in SFAS No. 123 has been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123 and SFAS No. 148.

The following table presents pro forma net loss and per share amounts as if the fair value method had been applied to employee stock options and warrants granted:

                                                                   Year Ended       Year Ended
                                                                  June 30, 2005   June 30, 2004
                                                                  -------------   -------------
Loss available to common shareholders, as reported                $  (6,645,320)  $ (5,289,773)

Add: Stock-based employee compensation expense
       included in reported net loss, net of related tax
       effects                                                                          82,500

Deduct: Total stock-based compensation expense determined under
          fair value based method for all awards, net of
          related tax effects                                          (988,876)      (326,052)

Pro forma loss available to common shareholders                   $  (7,634,196)  $ (5,533,325)

Loss per share:
    Basic and diluted - as reported                               $       (0.14)  $      (0.16)

    Basic and diluted - pro forma                                 $       (0.16)  $      (0.18)

The Company has adopted the provisions of AICPA Statement of Position ("SOP") 98-1, Accounting for the Costs of Software Developed or Obtained for Internal Use, and Emerging Issues Task Force ("EITF") Consensus #00-2, Accounting for Web Site Development Costs. The type of costs incurred by the Company in developing

its internal use software and Web site include, but are not limited to, payroll and payroll-related costs (e.g. fringe benefits) for employees who devote time to the internal use computer software or Web site project, consulting fees, the price of computer software purchased from third parties and travel expenses incurred by employees or consultants in their duties directly associated with developing the software. These costs are either expensed or capitalized depending on the type of cost and the stage of development of the software and Web site. The Company amortizes its capitalized computer software and website development costs over five years. This amortization period was based on management's assessment that its computer software and website were designed and written to enable them be customized relatively easily for numerous customer applications. SOP 98-1 and EITF #00-2 define three stages of development:

- the preliminary or planning stage includes all activities related to conceptualizing, evaluating and selecting the alternatives for implementing the project including, but not limited to, developing a project plan, determining desired functionalities and content, identifying required hardware and software tools and selecting external vendors and consultants. All internal and external costs during the preliminary project stage are expensed as incurred.

- the application and infrastructure development stage begins immediately upon conclusion of the preliminary or planning stage and includes, but is not limited to, all activities related to designing the software configuration and software interfaces, acquiring or customizing the software necessary to build the application, coding, hardware installation and testing, including parallel processing. Generally, any internal and external costs incurred during the application and infrastructure development stage are capitalized and amortized on a straight-line basis over the estimated economic life of the software of five years. General and administrative costs and overhead costs are not capitalized. Amortization for each module or component of software begins after all substantial testing is completed and it is deemed to be ready for its intended use. The only exception to beginning amortization at that time would be if the functionality of that module or component is entirely dependent on the completion of other modules or component in which case the amortization would begin when both the module and the other modules upon which it is functionally dependent are ready for their intended use.

- the post-implementation/operation stage includes, but is not limited to, activities related to training, user administration, application maintenance, system backups, routine security reviews, the costs of which are expensed as incurred. Also, upgrades and enhancements that result in additional functionality may occur during this stage, the costs of which are amortized on a straight-line basis over the estimated economic life of the upgrade or enhancement of three to five years.

In March and December 2003, the Company completed its preliminary or planning stage and moved into the application and infrastructure development stage with respect to certain components of its software and website and, upon completing all substantial testing and deciding that they were ready for their intended uses, began amortizing over five years $90,665 and $179,799, respectively, in capitalized costs related to the development of these components. Since then, the Company has continued capitalizing internal and external development costs related to various other components of its computer software and website but has not begun amortizing these additional capitalized costs as it has not yet completed the development and testing of these components.

At June 30, 2005 and 2004, the net book value of capitalized software was $725,156 and $462,618, respectively. Amortization expense for the years ended

June 30, 2005 and 2004 was $54,093 and $40,621, respectively. Management anticipates that it will commence amortizing over five years a substantial portion of the Company's capitalized software costs during fiscal year 2007 upon completing development of the components of its software and website, performing all substantial testing and deciding that the components are ready for their intended uses.

The Company makes ongoing evaluations of the recoverability of its capitalized internal use software and Web site by comparing the amount capitalized for each module or component of software to their estimated net realizable values. If such evaluations indicate that the unamortized costs exceed the net realizable values, the Company writes off the amount by which the unamortized costs exceed the net realizable values.

The Company maintains its cash balances at financial institutions that are insured by the Federal Deposit Insurance Corporation or the Securities Investor Protection Corporation up to $100,000 per institution. At June 30, 2005, the Company's cash balances exceeded the insured limits by approximately $500,000. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash on deposit.

The Company performs on-going credit evaluations of its customer base including those that represent its accounts receivable at June 30, 2005. The Company maintains reserves for potential credit losses and such losses historically have been within management's expectations.

NOTE 3 - GOING CONCERN

The accompanying consolidated financial statements are prepared assuming the Company will continue as a going concern. During the years ended June 30, 2005 and 2004, the Company incurred losses from operations of $5,305,277 and

$3,430,504, respectively and, for the same periods, had negative cash flows from operations of $3,200,848 and $2,258,017, respectively. While the Company is attempting to increase sales, the growth has not been significant enough to support the Company's daily operations. Management intends to continue raising additional funds with private placements of its debt and equity securities to accredited investors. While the Company believes in the viability of its strategy to improve sales volume and in its ability to raise additional funds, there can be no assurances to that effect. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.

NOTE 4 - CONCENTRATIONS

During fiscal year 2005, the Company's two largest customers represented approximately 40% and 14% of our total revenue. No other customer accounted for more than 10% of total revenue. For fiscal year 2004, the Company's two largest customers represented approximately 64% and 15% of total revenue. As of June 30, 2005, one customer represented 28% of total account receivable and another customer accounted for 17% of accounts receivable.

2006            $    82,395
2007                 82,395
2008                 82,395
2009                 82,395
2010                 59,530
                -----------
                $   389,110
                ===========

In July and August, 2004, the Company entered into Intellectual Property Assignment Agreements with three of its executives pursuant to which each of them assigned to the Company all of their right, title and interest in and to all the intellectual property which they had contributed to the Company in the past in consideration for an aggregate of 600,000 shares of the Company's common stock issued in January 2005. The Company believes that there are no other parties with any claims to any right, title and interest in and to any of the Company's intellectual property. The shares issued in this transaction were valued at their fair market value of $226,000 and recorded as an intangible asset which is being amortized over its estimated useful life of 24 months from the effective dates of the Intellectual Property Assignment Agreements. The Company recorded amortization expense for the year ended June 30, 2005 of $103,587.

NOTE 6 - RELATED PARTY TRANSACTIONS

In April 2005, Richard Hersh, our Chief Executive Officer and Michael J. Darden, our President, were granted options providing each of them with the right to purchase ten percent of the shares of common stock of Commodity Express Transportation, Inc., our wholly owned subsidiary, for an exercise price of $60,000 expiring three years from the date these options were granted. These options were valued at $0 since the volatility of this security, one of the key

variables required to use the Black-Scholes option pricing model, cannot be determined since this security has never traded. Further, the exercise price of $60,000 for 10% of the shares of this company, or $600,000 for 100% of the company, was more than double the actual purchase price of $269,208.

In February 2005, we engaged Carmelo Luppino, a principal shareholder of the Company, as a consultant to provide us with various business advisory services for one year. During fiscal year 2005, we issued Mr. Luppino 700,000 shares of common stock valued at $203,000, warrants to purchase 1,050,000 shares of common stock for $0.15 per share and 221,755 shares for $0.38 per share valued at $273,301.

In January 2005, Richard Hersh loaned the Company $25,000 which was repaid in February 2005.

In November 2004, an employee received $6,000 from the Company in the form of a short-term demand note. As of June 30, 2005 the balance of the note was $250.

In October 2004, we engaged Michael Garnick, a principal shareholder of the Company, as a consultant to provide us with various business advisory services, particularly related to legal matters, for one year. During fiscal year 2005, we issued Mr. Garnick 450,000 shares of common stock valued at $151,500.

In July and August, 2004, the Company entered into Intellectual Property Assignment Agreements with three of its executives pursuant to which each of them assigned to the Company all of their right, title and interest in and to all the intellectual property which they had contributed to the Company in the past in consideration for an aggregate of 600,000 shares of the Company's common stock issued in January 2005. See Note 5 - "Intangible Assets" for a further description of these transactions.

In March 2003, the Company issued its former Chairman 221,755 options (83,733 pre-merger equivalent) exercisable at $.38 per share with an expiration date of March 6, 2006 which were valued at $4,429 (approximately $.02 per option) using the Black-Scholes option pricing model. The options were issued in consideration for his forgiveness of $83,733 relating to accrued salary and services performed under a consulting agreement resulting in a gain of $79,304.

From March 2003 through October 2004, the Company issued several convertible promissory notes to Michael Garnick, a principal shareholder of the Company. (See Note 8 - Notes Payable and Convertible Notes Payable).

In November, 2002, the Chief Executive Officer received $20,000 from the Company in the form of a short-term demand note bearing interest at the rate of 6% per annum. As of May 31, 2003 the balance of the note and accrued interest was $20,985. This transaction occurred prior to the reverse merger when Freight Rate was a private company. In September, 2003, the note was paid in full.

                                                         Estimated Useful
                                                         Lives (in years)
                                                         ----------------

Computer hardware and software                 $ 167,221         5
Vehicles                                          25,000         5
Machinery and equipment                          274,058       3 to 5
Furniture and fixtures                            61,201         7
Leasehold improvements                             3,028         4
                                               ---------
Less: Accumulated Depreciation                  (136,579)
                                               ---------
                                               $ 393,929
                                               =========

Depreciation expense was $63,779 and $37,656 for the years ended June 30, 2005 and 2004, respectively.

NOTE 8 - NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE

In March 2005, pursuant to its asset purchase agreement with GFC, Inc., the Company agreed to pay GFC a total of $200,000 in twenty-four equal payments of $8,333 per month without interest commencing on April 21, 2005 and continuing for the next twenty-three consecutive months subject to partial or full acceleration based on the gross freight revenue of Power2Ship Intermodal generated during the one month period commencing on March 21, 2006. The Company has recorded $100,000 of this obligation as current, and $100,000 as long term, notes payable.

In the year ended June 30, 2005, the Company issued $492,500 of unsecured, short-term, promissory notes to seven private investors consisting of $352,500 of 10% notes to four private lenders and $140,000 of 5% notes to three other private lenders. As of June 30, 2005, all but two lenders, one holding $100,000 of the 10% note and one holding $30,000 of the 5% note had forgiven the repayment of their notes in exchange for an aggregate of 2,350,000 shares of common stock and warrants to purchase 2,350,000 shares of common stock being offered by the Company under Rule 506 of Regulation D of the Securities Act of 1933. The two private lenders with the remaining $130,000 of notes waived their right to repayment of principal and accrued interest and consented to the extension of the maturity dates of their notes. Since June 30, 2005, one of the lenders has forgiven the repayment of his $30,000 note in exchange for 200,000 shares of common stock and warrants to purchase 200,000 shares of common stock being offered by the Company under Rule 506 of Regulation D of the Securities Act of 1933. The Company recorded interest expense of $14,569 related to these notes for the year ended June 30, 2005.

In June, 2004, the Company issued a $1,000,000 Series B 5% convertible debenture to one accredited investor. The Company paid commissions and expenses of $135,500 that were accounted for as deferred financing costs that are being amortized as interest expense over the two-year term of the debenture. In addition, the Company issued an aggregate of 816,260 shares of its common stock valued at $348,179 to the investor and placement agent that were accounted for as deferred financing costs that are being amortized over the two-year term of the debenture. Any portion of the outstanding balance of the debenture may be converted by the holder at any time into common stock at a conversion price per share equal to the lesser of $0.456 or 100% of the average of the three lowest closing bid prices of the common stock for the thirty trading days immediately

preceding the conversion date. The Company may redeem the debenture at any time by providing three days notice and paying a premium of up to 20% of the amount being redeemed in a combination of cash and common stock. The Company has provided the debenture holder with a security interest in its tangible and intangible assets, subject to automatic subordination to most traditional asset-based loans, to secure the prompt payment of principal. For the years ended June 30, 2005 and 2004, the Company recorded interest expense of $117,750 and $0, respectively, which is being accrued until the debenture is repaid, converted or redeemed.

In September 2004, the Company issued another $1,000,000 Series B 5% secured convertible debenture to one accredited investor. The Company paid commissions and expenses of $100,000 that were accounted for as deferred financing costs and are being amortized as interest expense over the two-year term of the debentures. The conversion and redemption provisions and security interest for these debentures are the same as for the Series B debenture issued in June 2004. For the years ended June 30, 2005 and 2004, the Company recorded interest expense of $80,558 and $0, respectively, which is being accrued until the debenture is repaid, converted or redeemed.

In March and April, 2004, the Company issued $1,747,000 of its Series A 14.25% convertible debentures to 35 accredited investors and paid commissions and expenses of $227,110 accounted for as deferred financing costs that are being amortized as interest expense over the terms of the debentures. In addition, the Company issued 873,500 warrants valued at $108,160 and 131,025 common shares valued at $55,031 to the lenders accounted for as interest expense. The debentures mature on December 31, 2006, and earn interest of 14.25% per annum payable semi-annually in arrears on June 30 and December 31. The debentures may be converted by the holders at any time into common stock at a conversion price per share defined as the lesser of $0.80 or ninety percent of the market price of the common stock which was calculated to be $0.2673. This discounted conversion price resulted in the recognition of a beneficial conversion provision of $194,111 recorded as a discount on notes payable that is being amortized as interest expense over the remaining term of the debentures. As of June 30, 2005, one holder had converted $50,000 of their debentures resulting in additional amortization expense of $1,719 during the year ended June 30, 2005. The Company may redeem the debentures with fifteen days notice at any time, by paying a premium of up to 15% of their original purchase price in a combination of cash and common stock. For the years ended June 30, 2005 and 2004, the accrued interest on the debentures was $35,269 and $66,867, respectively, and the amortization of deferred financing costs was $130,368 and $39,642, respectively. The Company has provided the debenture holders with a security interest in its tangible and intangible assets, subject to automatic subordination to most traditional asset-based loans, to secure the prompt payment of principal. In addition, the Company is required to set aside the equivalent of six months interest on the debentures in a separate account in the event of a default. At June 30, 2005, the Company had restricted cash of $37,576 in a money market account established for this purpose.

In December 2003 and January 2004, the Company issued a total of $340,000 of 18% short-term promissory notes to six individuals, paid commissions associated with the placement of such notes of $34,000 and issued the lenders a total of 185,458 shares of the Company's restricted common stock valued at $81,383. Interest expense for the twelve months ended June 30, 2004 on the notes was $14,790. The total of commissions, value of the common stock and interest of $130,173 was recorded as interest expense for the twelve months ended June 30, 2004. In March, 2004, the Company repaid $190,000 of these notes and converted $150,000 into Series A Convertible Debentures discussed above.

On July 15, 2003, the Company issued a promissory note in the amount of $170,000 for licenses to use certain logistics software. The note replaced a prior note

for the licenses which was the subject of a lawsuit and other disputed claims by various parties. The lawsuit was initiated by the software vendor to enforce payment of the prior promissory note in the amount of $143,000 which had expired in May 2002. This prior note had been issued to the software vendor in September 2001 to reflect the balance owed on software licenses purchased in March 2000. The Company did not make the required payments on the prior note and asserted counterclaims against the software vendor in the lawsuit for breach of contract, fraudulent inducement and declaratory relief. The new note was the result of a settlement agreement for all claims by all parties. The note bears no interest and required the Company to pay $30,000 upon issuing the note followed by 22 consecutive payments of $5,000 on the first of each month beginning on August 1, 2003 for a total of $140,000. The new note payable was recorded at the face value of $170,000 and the old note of $140,000 and accrued interest of $15,111 was written off. Prepaid interest in the amount of $11,889 was recorded. As of June 30, 2005, all the aforementioned payments were made when due and the $30,000 remaining balance of the note was waived resulting in a write-off of $30,000 against prepaid interest and a gain of $18,111.

In March 2003, the Company issued a $125,000 convertible promissory note to Michael Garnick, a private investor that also was a non-affiliated Company shareholder. In June 2003, the Company and the shareholder cancelled the old note and issued a new promissory note for $225,000 as the Company received an additional $100,000. The new note had an interest rate of 5% per annum, had a maturity date of December 5, 2003 and had a conversion price of $.40 per share. Subsequent to its issuance, the conversion provision in the new note was amended to change the conversion price to $.79 per share which equaled the closing market price of our common stock on the issue date of the note. We also granted the note holder, in connection with the loan, warrants to purchase 75,000 shares of common stock at a price of $0.79 per share which expired on June 5, 2004. These warrants were valued at $16,650 and recorded as interest expense. In July 2003, the Company made a $100,000 principal payment on the $225,000 note and, in September 2003, repaid the $125,000 outstanding balance of the note, plus accrued interest of $4,000, with 25,800 shares of its Series B preferred stock convertible at $0.25 per share. This conversion provision represents a beneficial conversion feature, the value of which is calculated by subtracting the conversion price of $0.25 from the market price of the common stock on the date the preferred shares were issued. In this case, since the beneficial conversion feature is valued at more than the conversion price, the total value of the shares or $129,000 was recorded as preferred dividends during the year ended June 30, 2004. In October 2004, the holder converted all of their Series B preferred stock into 516,000 shares of common stock. (See Note 7 - Related Party Transactions)

On March 10, 2003, the Company issued an 8% convertible promissory note due June 30, 2006 in the amount of $135,000 to its Chief Executive Officer in exchange for his forgiveness of $147,520 of accrued salary. The outstanding principal balance of the note may be converted at any time into common stock at a conversion price equal to the lesser of $1.51 per share or 50% of the average closing bid prices of the Company's common stock for the five trading days immediately preceding the date of such conversion but no less than $0.75 per share.

On March 6, 2003, the Company issued a convertible promissory note in the amount of $175,000 to an unaffiliated Company shareholder. The interest rate of the note is 8% per annum and it has a maturity date of June 30, 2006. The holder of the note has the right to convert the outstanding principal balance of the note into the Company's common stock at any time prior to its maturity date at a conversion price equal to the lesser of 1) $1.51 per share or 2) 50% of the average of the closing bid prices of the common stock for the five trading days immediately preceding the date of conversion but no less than $0.25 per share. This discounted conversion price required the recognition of a beneficial

conversion provision of $175,000 recorded as a discount on notes payable which is being amortized as interest expense over the term of the note. As of June 30, 2005, the Company had accrued interest in the amount of $32,411 and had amortized $122,020 of the discount as interest expense.

2006               $  739,878
2007                  715,980
2008                  530,852
2009                  507,840
2010 and beyond       651,265
                   ----------
                   $3,145,815
                   ==========

The Company leases office space under an operating lease commencing May 15, 2003. The lease terminates on May 31, 2007.

At June 30, 2005, minimum future rental commitments were as follows:

2006               $  125,213
2007                   52,813
                   ----------
                   $  178,026
                   ==========

Also required was an additional security deposit of $9,312 by June 1, 2004. This amount was secured by 50,000 shares of the Company's common stock valued at $39,500 which were deposited with the landlord in June, 2003 and returned in May 2004 when the payment of the additional deposit was made.

For the years ended June 30, 2005 and 2004, rent expense was $198,528 and $121,586, respectively.

In addition, the Company leases a phone system and a copier with minimum future rental commitments through March 31, 2007 as follows:

2006               $   10,780
2007                    2,852
                   ----------
                   $   13,632
                   ==========

Total amounts expensed for the years ended June 30, 2005 and 2004, were $11,162 and $9,576, respectively.

The Company regularly assesses the potential impact of pending litigation on its financial statements. As of June 30, 2005, the Company's pending litigation is expected to have a negligible, if any, impact on its financial statements.

NOTE 10 - EMPLOYMENT AGREEMENTS

Effective January 1, 2003, the Company commenced a five-year employment agreement with its Chief Executive Officer, Richard Hersh. The term of employment may be automatically renewed for successive one year terms beginning on the five-year anniversary of the agreement unless previously terminated according to the termination provisions in the agreement or if the Company or Hersh elects to terminate the agreement by written notice at least ninety days prior to the expiration of the then-current term of employment. Under the terms of this agreement, Hersh will receive a base salary and became eligible to receive a bonus based on the financial performance of the Company.

Effective January 1, 2003, the Company commenced a four-year employment agreement with its Vice President of Technology, John Urbanowicz. The term of employment may be automatically renewed for successive one year terms beginning on the four-year anniversary of the agreement unless previously terminated according to the termination provisions in the agreement or if the Company or Urbanowicz elects to terminate the agreement by written notice at least ninety days prior to the expiration of the then-current term of employment. Under the terms of this agreement, Urbanowicz will receive a base salary and became eligible to receive a discretionary bonus based on performance.

Effective April 15, 2003, the Company commenced a four-year employment agreement with its President, Michael J. Darden. The term of employment may be automatically renewed for successive one year terms beginning on the four-year anniversary of the agreement unless previously terminated according to the termination provisions in the agreement or if the Company or Darden elects to terminate the agreement by written notice at least ninety days prior to the expiration of the then-current term of employment. Under the terms of this agreement, Darden will receive a base salary, be granted a certain number of stock options subject to a specified vesting period and became eligible to receive a bonus based on the financial performance of the Company.

At June 30, 2005, the aggregate commitments pursuant to the employment agreements with our executive officers are as follows:

2006         $   600,987
2007             513,111
2008             155,520
             -----------
             $ 1,269,618
             ===========
                              F-21

NOTE 11 - INCOME TAXES

The Company had available at June 30, 2005, operating loss carryforwards for federal and state taxes of approximately $14,800,000, which could be applied against taxable income in subsequent years through 2025. Such amounts would be subject to the limitations contained under Section 382 of the Internal Revenue Code relating to changes in ownership. However, given that the realization of this tax effect is uncertain, a full valuation allowance was recorded.

Reconciliation of the differences between income taxes computed at the federal statutory tax rates and the provision for income taxes is as follows:

                                                    2005                     2004
                                           ----------------------    ----------------------
Income tax benefit computed at
Federal statutory tax rate                 $   2,231,000    34.0 %   $  1,488,000     34.0 %
State tax, net of
Federal benefits                                 230,000     3.5 %        145,000      3.5 %
Non-deductible non-cash expenses                (374,000)  (16.8)%       (457,000)   (10.5)%
Reinstatement/change in deferred
  tax asset valuation allowance               (2,087,000)  (20.7)%     (1,176,000)   (27.0)%

Provision for income taxes                 $          --      -- %   $         --       -- %

Temporary differences that give rise to significant deferred tax assets are as follows:

                                                       2005          2004
                                                   ------------  ------------
Net operating loss carryforward                    $  5,353,000  $  3,266,000

Valuation allowance                                  (5,353,000)   (3,226,000)

Net deferred tax asset                             $         --  $         --

NOTE 12 - STOCKHOLDERS' DEFICIT

During the year ended June 30, 2004, the Company issued 189,000 share of its Series B convertible preferred stock including 163,200 shares that were sold for $816,000 and 25,800 shares that were issued as repayment of a promissory note and accrued interest thereon (see Note 8). The shares are convertible into the Company's common stock at a price of $0.25 per share and are entitled to receive annual dividends of 10% and have preferred registration rights. This conversion provision represents a beneficial conversion feature, the value of which is calculated by subtracting the conversion price of $0.25 from the market price of the common stock on the date the preferred shares were issued. The value of this beneficial conversion feature was $812,840 that was recognized as preferred dividends during the year ended June 30, 2004. On June 30, 2004, the Company

issued 233,336 shares of common stock as a 10% dividend to the holders of the preferred stock as of that date which were recorded at their fair market values of $87,732. This offering, effected under Rule 506 of Regulation D of the Securities Act of 1933, was completed in the quarter ended December 31, 2003.

During the year ended June 30, 2004, the Company sold 10,832 shares of its Series C convertible preferred stock for $324,960 less commissions of $30,000. These shares are convertible into 1,083,200 shares of the Company's common stock at $0.30 per share. This conversion provision represented a beneficial conversion feature of $317,472 that was recognized as preferred dividends for the year ended June 30, 2004. In addition, the holders of the Series C preferred stock received warrants to purchase 541,600 shares of common stock exercisable at $1.00 per share for a period of three years and preferred registration rights. No expense was recognized for these warrants as both the charge and the credit were to additional paid in capital. This transaction, effected under Rule 506 of Regulation D of the Securities Act of 1933, was completed in the quarter ended March 31, 2004.

Sold approximately 83.1 units, consisting of 16,629,000 shares of common stock and warrants to purchase 16,629,000 shares of common stock for $0.15 per share, to 65 investors for $2,494,350, less commissions of $106,250 to one placement agent related to these sales;

Sold approximately 12.1 units, consisting of 2,416,668 shares of common stock and warrants to purchase 2,416,668 shares of common stock for $0.15

per share, to seven investors in consideration for their forgiving $362,500 of promissory notes from the Company;

Issued 5,380,396 shares of common stock to 15 individuals and entities pursuant to various consulting and other types of agreements that were recorded during the year as consulting expense of $1,520,509, the fair market value of the shares at the date of issuance;

Issued 1,050,000 shares pursuant to consulting agreements with three consultants valued at $338,000 that were recorded as deferred compensation and are being expensed over the respective terms of the consulting agreements;

Issued 174,155 shares of common stock upon the conversion of $50,000 of the Company's 14.25% secured convertible debentures by one lender and recorded interest expense of $1,714 to account for the unamortized portion of deferred financing costs associated with the converted debentures;

Issued an aggregate of 600,000 shares of common stock valued at $226,000, the fair market value of the shares at the date of issuance to three of the Company's executives in consideration for their assigning to the Company all of their right, title and interest in and to all the intellectual property which they had contributed to the Company in the past;

Issued 596,000 shares of common stock to four shareholders upon the conversion of 29,600 shares of their Series B preferred stock;

Issued 1,000,000 shares of common stock to one shareholder upon the conversion of 10,000 shares of their Series C preferred stock;

Issued 339,661 shares of common stock valued at $84,100 as preferred dividends to the holders of the Company's Series B preferred stock and

Cancelled 300,000 shares of common stock valued at $150,000 upon cancellation of a consulting agreement with one consulting company and eliminated the deferred compensation recorded upon the original issuance of these shares.

During the year ended June 30, 2004, the Company:

Issued 600,000 shares of common stock valued at $300,000 pursuant to a consulting agreement entered into in March 2004, of which one-half of these shares, valued at $150,000, were earned and expensed upon issuance and the other half was recorded as $150,000 of deferred compensation to be earned on September 1, 2004 unless the agreement was terminated by either party prior to that date and, in August, 2004, terminated the consulting agreement, cancelled 300,000 shares and reduced deferred compensation by $150,000;

Issued 5,700,000 shares of common stock, recorded at par value of $5,700, in exchange for all 100,000 shares of its Series X convertible preferred stock;

Issued 1,085,208 shares of common stock to vendors, employees and consultants and recorded the shares at their fair market value of $300,642 in salaries, benefits and consulting fees;

Sold 1,128,400 shares of common stock to individual investors residing outside of the United States for $714,745 less offering costs and discounts of $428,847 netting $285,898;

Issued 948,275 shares of common stock, recorded at par value of $948, pursuant to anti-dilution agreements with respect to the issuance of common stock to the holders of the Company's Series X convertible preferred stock which restates the 2,143,000 common shares reported as being issued related to anti-dilution provisions in the Company's 10-QSB for the period ended November 30, 2003;

Issued 441,483 shares of common stock to various lenders and recorded interest expense of $209,170;

Issued 233,336 shares of common stock, recorded at par value of $233, as a dividend to holders of its Series B convertible preferred stock;

Cancelled 50,000 shares issued to its landlord as an additional security deposit upon paying the required additional security deposit of $9,312 in May 2004; and

Issued 816,260 shares valued at $310,179 to one accredited investor and a placement agent upon entering into a Standby Equity Distribution Agreement with the investor and recorded the value of these shares as deferred financing costs to be amortized over the life of the agreement.

Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and related Interpretations. Accordingly, compensation cost for stock options and warrants is measured as the excess, if any, of the estimated fair value of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock. The Company has adopted the "disclosure only" alternative described in SFAS 123 and SFAS 148, which require pro forma disclosures of net income and earnings per share as if the fair value method of accounting had been applied. For purposes of the pro forma calculations, the fair value of each option was estimated on the date of the grant using the Black-Scholes option-pricing model with the following assumptions used:

                                           2005       2004
                                           ----       -----
Dividend yield                             None       None
Expected volatility factor                  94%        55%
Approximate risk free interest rates      4.75%         3%
Expected lives, in years                      3          3

The determination of fair values for all stock options and warrants is based on the assumptions described in the preceding paragraph, and because additional option grants are expected to be made each year, the above pro forma disclosures are not representative of pro forma effects on reported net income or loss for future years.

Granted three-year stock options to purchase 5,585,505 shares of common stock to the Company's employees for prices ranging from $0.25 to $0.38 per share, which were equal to or above the fair values of the common stock at the respective grant dates, and accordingly, under APB 25, no compensation was recognized; and

Cancelled stock options to purchase 221,755 shares of common stock owned by the Company's former Chief Executive Officer.

Also, stock options to purchase 2,409,982 shares of common stock expired during the year ended June 30, 2005.

During the year ended June 30, 2004, the Company granted stock options to:

A securities advisor to purchase 500,000 shares of common stock at a price of $.01 per share in connection with a one year Business Advisory Agreement that were exercised in June 2004 upon the termination of the Business Advisory Agreement. Using the Black-Scholes option-pricing model, $270,000 was expensed as consulting fees;

Employees and directors of the Company to purchase 321,500 shares of common stock that expire three to five years from their respective grant dates at prices ranging from $.31 to $.52 per share which, under APB 25, required no compensation to be recognized as the exercise prices were equal to or above the fair values of the common stock at the respective grant dates; and

Consultants to purchase 320,334 shares of common stock and charged $85,683 to consulting fees for the fair value of the instruments granted using the Black-Scholes option-pricing model.

Also, during the year ended June 30, 2004, the Company cancelled 100,000 stock options for one consultant.

A summary of the stock option activity is as follows:

                                        Weighted Average     Number of       Exercise Price
                                        Exercise Price        Options          Per Option
                                        --------------        -------          ----------
Outstanding options at June 30, 2003    $           0.40     14,486,679       $0.38 - 1.01

    Granted                             $           0.19      1,141,834       $0.01 - 0.52
    Cancelled                           $           0.56       (100,000)      $0.56
    Exercised                           $           0.01       (500,000)      $0.01
    Expired                             $           0.42       (274,764)      $0.38 - 0.75

Outstanding options at June 30, 2004    $           0.40     14,753,749       $0.31 - 1.01

    Granted                             $           0.29      5,585,505       $0.25 - 0.38
    Cancelled                           $           0.38       (221,755)      $0.38
    Exercised                                                        --
    Expired                             $           0.38     (2,409,982)      $0.38

Outstanding options at June 30, 2005    $           0.32     17,707,517       $0.25 - 1.01

Exercisable options at June 30, 2005    $           0.37     17,439,083       $0.25 - 1.01

                              Number of Options     Remaining    Weighted Average
Range of Exercise Price          Outstanding      Life in Years   Exercise Price
-----------------------       -----------------   -------------  ----------------
      $0.25-0.40                   16,299,741          2.01            $ 0.35
      $0.50-0.56                    1,107,776          0.29            $ 0.55

      $1.01                           300,000          2.29            $ 1.01
                                  -----------
                                   17,707,517
                                  ===========

The following table summarizes information concerning stock options exercisable at June 30, 2005:

                                               Weighted Average
Range of Exercise Price   Number of Options     Exercise Price
-----------------------   -----------------    ----------------
      $0.25 -0.40              16,056,307            $ 0.34
      $0.50 -0.56               1,082,776            $ 0.55
      $1.01                       300,000            $ 1.01
                               ----------
                               17,439,083
                               ==========

For the fiscal years ended June 30, 2005 and 2004, the following tables show the weighted average exercise prices and corresponding weighted average grant-date fair values of options granted classified separately for options whose exercise price is less than, equals or exceeds the price of the stock on the grant date.

                                                          Weighted
                                                           Average    Weighted
                                                          Exercise     Average
                                                            Price    Fair Value
                                                          --------   ----------
For the fiscal year ended June 30, 2005

Exercise price is less than price on grant date                N/A         N/A
Exercise price equals price on grant date                    $0.26       $0.26
Exercise price exceeds price on grant date                   $0.38       $0.29

For the fiscal year ended June 30, 2004


Exercise price is less than price on grant date              $0.01       $0.54
Exercise price equals price on grant date                    $0.34       $0.34
Exercise price exceeds price on grant date                     N/A         N/A

During the year ended June 30, 2005, the Company granted:

19,045,667 warrants to purchase shares of common stock at $0.15 per share which expire on February 28, 2008 to 65 individual investors and seven individual lenders. There is no value attributed to these warrants since;

5,988,737 warrants to purchase shares of common stock at prices ranging from $0.15 to $0.50 per share which expire three years from their respective grant dates to vendors and consultants. The warrants were valued at $759,738 and expensed as consulting and legal fees; and

200,000 three-year warrants to purchase shares of the Company's common stock at $0.27 per share to GFC, Inc. upon the closing of purchase of certain assets from GFC, Inc. that were valued at $34,600.

During the year ended June 30, 2005, the Company cancelled 300,000 warrants to purchase shares of common stock at $0.75 per share which expire on March 31, 2007, granted to a consulting company for providing the Company with financial services for a period of one year, upon early termination of the consulting agreement. The previously recorded deferred compensation was eliminated. Also, in consideration for additional consulting services provided by a consultant during fiscal year 2005, the Company cancelled a warrant granted to the consultant to purchase 198,625 shares of common stock at $0.75 per share with an expiration date of January 31, 2006 and granted the same consultant another warrant to purchase the same number of shares as the cancelled warrant for $0.38 per share having the same expiration date as the cancelled warrant.

Also, during the year ended June 30, 2005, 2,523,608 warrants expired.

During the year ended June 30, 2004, the Company granted:

541,600 warrants to purchase shares of common stock at $1.00 per share, of which 500,000 expire on July 14, 2006 and 41,600 expire on December 8, 2006, to the investors in the Company's Series C convertible preferred stock and 100,000 warrants at $2.00 per share that expire on July 14, 2006 to the sales agent responsible for the private placement. No expense was recognized on the transaction as both the charge and the credit were to additional paid in capital.

395,200 warrants to purchase shares of common stock at prices ranging from $0.53 to $0.78 per share and expire three years from their respective grant dates to various employees. Under APB 25, no compensation was recognized as the exercise prices were equal to or above the fair values of the common stock on the respective grant dates.

1,144,049 three-year warrants to purchase shares of common stock at prices ranging from $0.38 to $1.29 per share to various vendors and consultants. The warrants were valued at $213,805 and expensed as consulting and legal fees.

600,000 warrants to purchase shares of common stock at $0.75 per share which expire on March 31, 2007 to a consultant for providing the Company with financial services for a period of one year. Pursuant to the consulting agreement, 300,000 warrants, valued at $58,410, were earned and expensed as consulting fees upon issuance and the other 300,000 warrants were recorded as $58,410 of deferred compensation to be earned if the consulting agreement remained in effect for more than six months.

1,091,875 warrants to purchase shares of common stock at prices ranging from $0.45 to $0.80 per share which expire between March 9, 2007 and April 30, 2007 to the placement agent for the Series A Convertible Debentures.

The warrants were valued at $133,462 and treated as deferred financing costs.

873,500 warrants to purchase shares of common stock at $0.45 per share which expire between March 9, 2007 and April 30, 2007 to the holders of the Company's Series A Convertible Debentures (see Note 7). The warrants were valued at $108,160 and treated as discount on notes payable to be amortized over the life of the debentures as additional interest expense. At June 30, 2004, the remaining balance of the discount was $94,920.

Also, during the year ended June 30, 2004, warrants to purchase 75,000 shares of common stock, granted to one lender in connection with an unsecured, short term loan, expired.

                                                                               Exercise
                                          Weighted Average     Number of       Price Per
                                           Exercise Price       Warrants       Warrant
                                          ----------------     ---------      -----------
Outstanding warrants at June 30, 2003           $0.82           4,053,904   $ 0.75 - 2.00
Granted                                         $0.67           4,746,224   $ 0.38 - 2.00
Expired                                         $0.85            (529,089)  $ 0.75 - 1.51

Outstanding warrants at June 30, 2004           $0.73           8,271,039   $ 0.38 - 2.00
Granted                                         $0.19          25,234,400   $ 0.15 - 0.38
Expired                                         $0.79          (2,523,608)  $ 0.75 - 1.13
Cancelled                                       $0.75             498,625   $ 0.75

Outstanding warrants at June 30, 2005           $0.28          30,483,206   $ 0.15 - 2.00

Exercisable warrants at June 30, 2005           $0.27          29,403,206   $ 0.15 - 2.00

The following table summarizes information concerning warrants outstanding at June 30, 2005:

                                                              Remaining Life   Weighted Average
Range of Exercise Price             Number of Warrants          (in years)      Exercise Price
-----------------------             ------------------          ----------     ----------------
     $0.15 - $0.20                      21,182,335                 2.67             $ 0.15
     $0.25 - $0.74                       6,858,314                 2.47             $ 0.44
     $0.75 - $2.00                       2,442,557                 1.35             $ 0.97

                                        30,483,206

The following table summarizes information concerning warrants exercisable at June 30, 2005:

                                                  Weighted Average
 Range of Exercise Price    Number of Warrants     Exercise Price
------------------------    ------------------     --------------
      $0.15 - $0.20                21,182,335           $ 0.15
      $0.25 - $0.74                 5,778,314           $ 0.43
      $0.75 - $2.00                 2,442,557           $ 0.97

                                   29,403,206

NOTE 13 - ACQUISITIONS

In March 2005, a wholly owned subsidiary of the Company, Commodity Express Transportation, Inc., purchased certain assets, including customer lists, maintenance equipment, office equipment, telecommunications equipment, certain contracts, five vehicles/trucks, and assumed certain liabilities of Commodity Express Transportation, Inc., a South Carolina company, for a purchase price of $269,208 consisting of $100,000 in cash, the issuance at closing of 370,000 shares of common stock having a fair market value of $100,000 to a business broker in satisfaction of the broker commission owed by the Seller and the assumption of liabilities in the amount of $69,208. The purchase price was allocated as follows:

Assets                                      Liabilities
------                                      -----------
Prepaid expenses           $105,042         Accounts payable and accrued expenses       $69,208
Property and equipment      156,000
Intangible assets            77,374
                           --------                                                     -------
Total assets               $338,416         Total liabilities                           $69,208
                           ========                                                     =======

In addition, upon closing this transaction, the Company replaced certain deposits and a letter of credit previously made or issued on the seller's behalf with third parties in the aggregate amount of approximately $145,000 related to the operation of the seller's business and, after closing, replaced approximately $20,000 of additional letters of credit. The Company also assumed certain leases related to the operation of the seller's business, including tractor leases, owner/operator leases and a warehouse lease. At the closing of this transaction, the Company entered into a(n):

- equipment lease agreement whereby the Company agreed to lease from the seller certain trailers for terms ranging from twelve to sixty months;

- commercial lease pursuant to which the Company agreed to rent from the seller the commercial property used as the corporate offices for Commodity Express Transportation for a term of five years for $4,200 per month with a one-year renewal option for $5,040 per month;

- agreement with TPS Logistics, Inc., a company in the transportation brokerage business in which the president of Commodity Express Transportation is an officer, to be the exclusive carrier for TPS' largest customer in consideration for one percent of the gross receipts from such customer for a term that will terminate on the earlier of March 20, 2010 or when the agreement between TPS and its largest customer is no longer effective;

- consulting agreement with Stokes Logistics Consulting, LLC, a company in which the president of Commodity Express Transportation is a principal, having a term of five years which may be extended for two successive one year terms upon consent of both parties, pursuant to which he will be paid a monthly consulting fee based upon gross revenue of Commodity Express Transportation, with the minimum and maximum payable in any one year of $100,000 and $200,000, respectively;

- employment agreement with W.A. Stokes, president of Commodity Express Transportation, having a term of one year which may be extended for two additional one year terms, pursuant to which he will be paid an annual base

salary of $150,000 and a quarterly bonus based on the gross revenue that Mr. Stokes is responsible for generating from facilities operated by its current largest customer other than its South Carolina facility;

- escrow agreement pursuant to which the Company deposited all the shares of its wholly owned subsidiary that acquired the assets of Commodity Express Transportation into an escrow account until March 21, 2007 during which period the Company retains voting rights over these securities expect in the event of a default under the escrow agreement, which would occur if the net worth of Commodity Express Transportation dropped below certain levels or if the Company was delinquent in its payments under the equipment or commercial lease agreements, consulting agreement or agreement with TPS Logistics, Inc. described above, in which case(s) the seller would have the right to assume control of Commodity Express Transportation until such default(s) had been cured; and

- fee assumption agreement pursuant to which the Company agreed to assume the seller's liability to pay the business broker involved with this transaction $100,000 which we paid at the closing with the issuance of 370,370 shares of our common stock.

In March 2005, a wholly owned subsidiary of the Company, Power2Ship Intermodal, Inc., purchased certain assets, including trucking and brokerage authority permits, contracts with shipping customers, contracts with agents, lease contracts with owner-operators and escrow deposits from owner-operators and agents from GFC, Inc., a South Carolina company, for a purchase price of $334,600 consisting of i) $100,000 paid by canceling the $100,000 secured promissory note made by the seller to the Company, ii) $200,000 to be paid in twenty-four equal monthly payments of $8,333 subject to partial or full acceleration based on the gross freight revenue of Power2Ship Intermodal generated during the one month period commencing on March 21, 2006 and iii) the issuance to the seller of a three-year warrant to purchase 200,000 shares of the Company's common stock for $.30 per share, which vests 50% on the closing date and 50% on the one year anniversary of the closing date which was valued at $34,600 using the fair value estimated on the date of the grant using the Black-Scholes option-pricing model. The entire purchase price was allocated to intangible assets attributable to the customer list of this business which is being amortized over its estimated useful lives of 5 years.

Also, in conjunction with this transaction, the Company entered into a consulting agreement with Michael Allora, the former president of GFC, with a term of five years and automatic one-year extensions unless terminated prior thereto. The agreement provides for Mr. Allora to earn a commission based on the annual increases, if any, in the gross revenue of the acquired business with such commission to be paid in five equal annual installments as well as a three-year stock option at the end of each yearly period during which the annual gross revenue of the acquired business has increased from the prior year and is in excess of $10,000,000.

NOTE 14 - PROFORMA FINANCIAL STATEMENTS (UNAUDITED)

The following Pro Forma Combined Financial Statements of Power2Ship, Inc. and its wholly owned subsidiaries Commodity Express Transportation, Inc. and Power2Ship Intermodal, Inc., give effect to the acquisitions of certain assets of Commodity Express Transportation, Inc., a South Carolina company and GFC, Inc., a South Carolina company, under the purchase method of accounting prescribed by SFAS 141, Business Combinations, as if such acquisitions had occurred on July 1, 2003. These pro forma statements are presented for illustrative purposes only. The pro forma adjustments are based upon available information and assumptions that management believes are reasonable.

                                                          Commodity                  Pro Forma
                                            Power2Ship     Express        GFC       Adjustments   Pro Forma
                                           ------------ ------------- -----------   -----------  ------------
Revenue:
    Freight transportation                 $  9,247,453   $11,245,098  $4,117,692   $       -     $24,610,243
    Access services                                 180             -           -           -             180
    Implementation services                           -             -           -           -               -
                                           ------------   -----------  ----------   ---------     -----------
Total revenue                                 9,247,633    11,245,098   4,117,692           -      24,610,423

Operating expenses:
    Freight transportation                    8,272,985     6,949,303   3,441,909           -      18,664,197
    Selling, general and administrative:
        Salaries, benefits and
          consulting fees                     4,466,360     1,656,301     201,705           -       6,324,366
        Other selling, general and
          administrative                      1,813,565     2,490,441     403,501      61,803       4,769,310
                                           ------------   -----------  ----------   ---------     -----------

Total operating expenses                     14,552,910    11,096,045   4,047,115      61,803      29,757,873
                                           ------------   -----------  ----------   ---------     -----------

Loss from operations                         (5,305,277)      149,053      70,577     (61,803)     (5,147,450)
                                                                                    ---------     -----------

Other income (expense):
    Forgiveness of debt                          18,111             -           -           -          18,111
    Interest income                               1,560             -           -           -           1,560
    Interest expense                         (1,277,369)     (182,550)    (73,805)          -      (1,533,724)
    Other income                                  1,755             -           -           -           1,755
                                           ------------   -----------  ----------   ---------     -----------

Total other expense                          (1,255,943)     (182,550)    (73,805)          -      (1,512,298)
                                           ------------   -----------  ----------   ---------     -----------

Loss available to common shareholders      $ (6,561,220)  $   (33,497) $   (3,228)  $ (61,803)    $(6,659,748)
                                           ============   ===========  ==========   =========     ===========

                                                         Commodity               Pro Forma
                                           Power2Ship     Express       GFC     Adjustments  Pro Forma
                                          ------------  ----------- ----------- ----------- -----------
Revenue:
    Freight transportation                 $ 1,778,027  $15,914,189  $3,943,549  $      -   $21,635,765
    Access services                            290,013            -           -         -       290,013
    Implementation services                     23,925            -           -         -        23,925
                                           -----------  -----------  ----------  --------   -----------

Total revenue                                2,091,965   15,914,189   3,943,549         -    21,949,703

Operating expenses:
    Freight transportation                   1,581,119   10,144,750   3,130,570         -    14,856,439
    Selling, general and administrative:
        Salaries, benefits and
          consulting fees                    2,788,192    1,994,895     386,700         -     5,169,787
        Other selling, general and
          administrative                     1,153,158    3,460,936     345,246    82,404     5,041,744
                                           -----------  -----------  ----------  --------   -----------

Total operating expenses                     5,522,469   15,600,581   3,862,516    82,404    25,067,970
                                           -----------  -----------  ----------  --------   -----------

Loss from operations                        (3,430,504)     313,608      81,033   (82,404)   (3,118,267)
                                           -----------  -----------  ----------  --------   -----------

Other income (expense):
    Interest income                                854            -           -         -           854
    Interest expense                          (463,079)    (286,773)    (65,196)        -      (815,048)
                                           -----------  -----------  ----------  --------   -----------

Total other expense                           (462,225)    (286,773)    (65,196)        -      (814,194)
                                           -----------  -----------  ----------  --------   -----------

Loss available to common shareholders      $(3,892,729) $    26,835  $   15,837  $(82,404)  $(3,932,461)
                                           ===========  ===========  ==========  ========   ===========

NOTE 15 - SUBSEQUENT EVENTS

In October 2005, the $50,000 short term note receivable from an unaffiliated company was repaid together with interest thereon of $1,753 that will be recorded as interest income in the Company's second fiscal quarter.

During the quarterly period ended September 30, 2005:

One holder of the Company's 14.25% secured convertible debentures converted an aggregate of $100,000 into a total of 374,112 shares of common stock. The Company has recorded interest expense of $3,400 to account for the unamortized portion of deferred financing costs associated with the converted debentures.

Four shareholders converted an aggregate of 7,000 shares of the Company's Series B preferred stock into 140,000 shares of common stock.

The Company issued 2,280,000 shares of common stock to two consultants and will record $437,200 in consulting expense for the quarter ended September 30, 2005. Also, the Company cancelled a three-year warrant to purchase 1,250,000 shares of common stock for $0.50 per share previously granted to the same consultant.

The Company sold approximately 26.9 units consisting of 5,583,333 shares of common stock and warrants to purchase 5,583,333 shares of common stock for $0.15 per share expiring in 2008 to 21 individual investors for $807,500 and the forgiveness of one unsecured short term promissory note for $30,000. The Company paid commissions of $39,000 to two placement agents related to these sales.

In July 2005, we terminated our Standby Equity Distribution Agreement dated June 28, 2004 and all agreements related to it. Unamortized deferred financing costs of $155,090, incurred upon entering into these agreements, will be recorded as interest expense during the quarter ended September 30, 2005.

NOTE 16 - SUBSEQUENT EVENTS (UNAUDITED)

In February 2006, the Company entered into an agreement with Averitt Express, one of the nation's leading freight transportation and supply chain management providers, to provide it with customization and software solution implementation services. Under the terms of the agreement, the Company is to develop a central repository of transportation information within a single, web-based, dynamic display to assist Averitt Express optimize the utilization of its transportation assets across its four divisions. This central repository also is expected to collect location information to enable Averitt Express to have visibility of available trucks operated by its core carriers. Finally, the Company is to develop an Averitt Express branded load board where Averitt's approved carriers can view and select available loads from Averitt's shipper customers. Available loads also may be displayed and tendered to the Company's member carriers through the P2S MoibleMarket(TM). The Company is to receive a flat fee for the customization, setup, consulting and training services. Once fully implemented, the Company will receive a monthly hosting fee as well as a transaction fee for each load matched either through the Averitt Express branded load board or the P2S MobileMarket(TM).

but in no event less than $0.02 per share or greater than $0.10 per share. Given that the discount on notes payable associated with the warrants provided with these debentures exceeded the principal amount of the debentures, the discount associated with this beneficial conversion feature was not recorded. The debenture holders received three-year warrants to purchase an aggregate of 6,400,000 shares of common stock for $0.05 per share. The fair value of these warrants was estimated using the Black-Scholes option-pricing model to be $432,740 and was recorded as discounts on notes payable to be amortized as interest expense over the term of the debentures. The key assumptions used in this estimate were the market price of our common stock on the grant date of each warrant, no dividend yield, an expected volatility factor of 192.56%, an approximate risk-free interest rate of 7.25% and a three year expected life. In addition, the Company modified the exercise prices of warrants to purchase an aggregate of 9,816,667 shares of common stock at prices ranging from $0.10 to $0.15 per share, previously granted to the five debenture holders, to an exercise price of $0.05 per share. The increase in value associated with the modified warrants of $59,516 was determined in accordance with FAS 123R and recorded as discounts on notes payable to be amortized as interest expense over the term of the debentures.

In March 2006, the Company entered into a settlement agreement and mutual release with the parties that sold it certain assets of GFC, Inc. in which the Company agreed to issue the seller 300,000 shares of its common stock valued at $38,700 and to pay the seller a total of $36,000 over two years in full settlement of the $191,667 outstanding balance of the purchase price. In the quarter ended March 31, 2006, the Company will record a gain on debt forgiveness of $116,967.

In December 2005, the Company borrowed $400,000 from one accredited investor and issued the investor a $400,000 unsecured debenture having a maturity date of May 15, 2006 at which date a $40,000 transaction fee is due and payable. The lender received a five-year warrant to purchase 1,000,000 shares of common stock for $.07 per share that expires on December 30, 2010. The fair value of this warrant was estimated on its grant date using the Black-Scholes option-pricing model when the market price was $.07 per share and assuming no dividend yield, an expected volatility factor of 193%, an approximate risk-free interest rate of 7.25% and a five year expected life. The warrant was valued at $68,200 which was recorded as a discount on notes payable and is being amortized as interest expense over the term of the debenture. In April 2005, the Company repaid the investor in full.

In January 2006, the holder of $2,000,000 principal amount of the Company's Series B secured convertible debentures converted $50,000 into 707,214 shares of common stock.

In October and November 2005, the Company issued $420,000 of its Series C 10% unsecured, convertible debentures to eight accredited investors in consideration for $320,000 and the forgiveness of a $100,000 unsecured promissory note. The maturity dates of the debentures are the earlier to occur of the one-year anniversary of the debentures or the date the Company receives at least $5,000,000 in aggregate proceeds from subsequent financings. In addition, the lenders received three-year warrants to purchase an aggregate of 5,600,000 shares of common stock for $0.15 per share. The fair value of these warrants was estimated on their grant dates using the Black-Scholes option-pricing model when the market prices ranged from $.13 to $.15 per share and assuming no dividend yield, an expected volatility factor of 193%, an approximate risk-free interest rate of 7.25% and a three year expected life. Since these warrants were valued at $700,133, which exceeded the principal amount of the debentures, the discount on notes payable was limited to $420,000 and is being amortized as interest expense over the term of the debentures. The conversion price per share is the

greater of i) $0.15 or ii) 50% of the average closing price of the common stock for the ten trading days immediately preceding the conversion date. However, in the event the Company sells unregistered shares of its common stock, excluding shares underlying employee options or shares issued in connection with a merger or acquisition, for less than $0.15 per share, then the conversion price for any outstanding debentures automatically changes to the greater of i) 50% of the average closing price of the Common Stock on the Over-the-Counter Bulletin Board or such other quotation system as the Common Stock may be principally quoted for the ten (10) trading days immediately preceding the date that Holder provides written notice to Company of their intent to exercise the conversion provision or ii) the lowest price per share paid by any investor for the Company's unregistered shares of common stock at any time between the date of issue of the Debenture and the conversion date. Since the Company sold shares of its common stock for $.10 per share in December 2005, a beneficial conversion feature was realized which, in this case, is not recorded since the discount on notes payable associated with the warrants already equaled the principal amount of the debentures.

- 4,525,000 shares issued upon the sales of 18.1 units to 18 investors and received net proceeds of $452,500;

- 1,667,000 shares valued at $146,340 issued to five consultants to provide various management consulting services that were recorded as consulting expenses or deferred compensation and amortized over the terms of the respective consulting agreements;

- 707,214 shares issued upon conversion of $50,000 principal amount Series B secured convertible debenture to the one holder of this debenture;

- 418,960 shares valued at $55,005 issued to two law firms for providing legal services;

- 300,000 shares valued at $38,700 issued as part of a settlement agreement to the entity that sold the Company certain assets of GFC, Inc.

- 254,316 shares issued to one shareholder upon conversion of their $25,000 Series C convertible debentures and accrued interest thereon; and

- 112,000 shares issued to three shareholders upon their conversion of 5,600 shares of Series B preferred stock.

                                                                        Weighted
                                                                        Average
                                                                        Exercise     Number     Exercise Price
                                                                         Price     of Options     Per Option
                                                                         -----     ----------     ----------
Outstanding options at June 30, 2005                                     $0.37      17,707,517  $0.25 - $1.01
Granted                                                                  $0.15          54,000  $0.15
Expired                                                                  $0.51      (1,246,923) $0.38 - $0.50
Cancelled                                                                   --              --             --
Outstanding options at December 31, 2005                                 $0.36      16,514,594  $0.15 - $1.01

Exercisable options at December 31, 2005                                 $0.36      16,377,094  $0.15 - $1.01

The following table summarizes information concerning stock options outstanding at December 31, 2005.

                                                                  Weighted                 Weighted
                                                                  Average                  Average
                                   Number of Options             Remaining                 Exercise
Range of Exercise Price               Outstanding              Life in Years                Price
-----------------------               -----------              -------------                -----
        $ 0.15                            54,000                    1.98                    $0.15
        $ 0.25 - $0.40                15,935,594                    1.53                    $0.34
        $ 0.50 - $0.52                   225,000                    0.72                    $0.55
        $ 1.01                           300,000                    1.79                    $1.01
                                      ----------
                                      16,514,594
                                      ==========

The following table summarizes information concerning stock options exercisable at December 31, 2005.

                                                             Weighted
                                                              Average
                                                             Exercise
Range of Exercise Price          Number of Options             Price
-----------------------          -----------------             -----
         $ 0.15                          54,000                $0.15
         $ 0.25 - $0.40              15,798,094                $0.34
         $ 0.50 - $0.52                 225,000                $0.50
         $1.01                          300,000                $1.01
                                     ----------
                                     16,377,094
                                     ==========

o 2,700,000 shares of common stock to three consultants, of which 1,000,000 are exercisable at $0.08 per share and 1,700,000 are exercisable at $0.10 per share; and

o 6,400,000 shares of common stock exercisable at $0.05 per share issued upon the sales of Series D unsecured convertible debentures to five investors;

During the quarter ended March 31, 2006, the Company granted three-year warrants to purchase:

o 750,000 shares of common stock to six consultants, of which 250,000 are exercisable at $0.15 per share, 500,000 are exercisable at $0.10 per share and 200,000;

o 393,960 shares of common stock to a law firm exercisable at $0.15 per share; and

o 4,275,000 shares of common stock exercisable at $0.10 per share issued upon the sales of 17.1 units to 18 investors;

A summary of the warrant activity through December 31, 2005 is as follows:

                                                      Weighted
                                                      Average
                                                      Exercise    Number of   Exercise Price
                                                       Price      Warrants      Per Warrant
                                                       -----      --------      -----------
Outstanding warrants at June 30, 2005                  $0.28      30,483,206    $0.15 - $2.00
Granted                                                $0.14      14,383,333    $0.07 - $0.15
Cancelled                                              $0.50      (1,250,000)   $0.50
Expired                                                $0.75        (145,658)   $0.75

Outstanding warrants at December 31, 2005              $0.23      43,470,881    $0.07 - $2.00

Exercisable warrants at December 31, 2005              $0.22      42,450,881    $0.07 - $2.00

The following table summarizes information concerning warrants outstanding at December 31, 2005:

                                                             Weighted               Weighted
                                                             Average                Average
                                                            Remaining               Exercise
Range of Exercise Price       Number of Warrants          Life in Years              Price
-----------------------       ------------------          -------------              -----
     $ 0.07 - $0.15               35,265,668                   2.46                 $  0.15
     $ 0.20 - $0.74                5,908,314                   1.89                 $  0.42
     $ 0.75 - $2.00                2,296,899                   0.90                 $  0.99
                                 -----------
                                  43,470,881
                                 ===========

The following table summarizes information concerning warrants exercisable at December 31, 2005:

                                                             Weighted
                                                             Average
                                                             Exercise
Range of Exercise Price       Number of Warrants              Price
-----------------------       ------------------              -----
     $ 0.07 - 0.15                35,265,668                  $0.15
     $ 0.20 - $0.74                4,888,314                  $0.40
     $ 0.75 - $2.00                2,296,899                  $0.99
                                 -----------
                                  42,450,881
                                 ===========

No dealer, sales representative or any other person has been authorized to give any information or to make any representations other than those contained in this prospectus and, if given or made, such information or representation must not be relied upon as having been authorized by the company or any of the underwriters. This prospectus does not constitute an offer of any securities other than those to which it relates or an offer to sell, or a solicitation of any offer to buy, to any person in any jurisdiction where such an offer or solicitation would be unlawful. Neither the delivery of this prospectus nor any sale made hereunder shall, under any circumstances, create an implication that the information set forth herein is correct as of any time subsequent to the date hereof.

TABLE OF CONTENTS

POWER2SHIP, INC.

May 5, 2006

70,453,154 SHARES