AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 14, 2006
Registration No. 333-___________

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM SB-2

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933


POWER2SHIP, INC.
(Name of small business issuer in its charter)
 
Nevada
7900
87-0449667
(State or jurisdiction of
(Primary Standard Industrial
(I.R.S. Employer Identification No.)
incorporation or organization)
Classification Code Number)
 

903 Clint Moore Road
Boca Raton, Florida 33487
(561) 998-7557
(Address and telephone number of principal executive offices)

same as above
(Address of principal place of business or intended principal place of business)

Mr. Richard Hersh
Chief Executive Officer
Power2Ship, Inc.
903 Clint Moore Road
Boca Raton, Florida 33487
Telephone: (561) 998-7557
(Name, address and telephone number of agent for service)
______________________________
Copies of all communications to:

James M. Schneider, Esq.
Schneider Weinberger & Beilly LLP
2200 Corporate Boulevard, N.W., Suite 210
Boca Raton, Florida 33431
Telephone: (561) 362-9595
Facsimile No. (561) 362-9612

Approximate date of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ྥ

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering.  

If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. ྥ

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CALCULATION OF REGISTRATION FEE
   
Proposed
Proposed
 
Title of each
 
maximum
maximum
 
class of securities
Amount to be
offering price
aggregate
Amount of
to be registered
registered
per unit
offering price
registration fee
         
Common stock, par
       
value $.001 per share 1 2
71,953,154
$0.145
$10,433,207
$1,116

1
Estimated solely for purposes of calculating the registration fee pursuant to Rule 457 under the Securities Act of 1933 (the "Securities Act") based upon the average of the high and low sales prices of the common stock as reported on the OTC Bulletin Board on February 9, 2006.

2
For purposes of estimating the number of shares of the registrant’s common stock to be included in this registration statement, the registrant has included 10,012,204 shares of common stock which are presently outstanding, 5,974,560 shares of common stock which are issuable upon the conversion of $1,597,000 principal amount 14.25% secured convertible debentures, 10,000,000 shares of common stock are issuable upon the conversion of $2,000,000 principal amount 5% secured convertible debentures, 3,950,000 shares of common stock are issuable upon the conversion of Series C 10% unsecured convertible debentures, 700,000 shares of common stock issuable upon the conversion of $175,000 principal amount convertible promissory notes and 41,316,390 shares of common stock issuable upon the exercise of outstanding stock options or common stock purchase warrants with exercise prices ranging from $0.07 to $1.29 per share. To the extent permitted by Rule 416, this registration statement also covers such additional number of shares of common stock as may be issuable as a result of the anti-dilution provisions of the Series C 10% unsecured convertible debentures.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.


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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED FEBRUARY 14, 2006

PROSPECTUS
 
POWER2SHIP, INC.
 
71,953,154 Shares of Common Stock

This prospectus covers the resale of 71,953,154 shares being offered by the selling security holder, including:

 
10,012,204 shares of common stock which are presently outstanding,
 
5,974,560 shares issuable upon the conversion of $1,597,000 principal amount 14.25% secured convertible debentures,
 
10,000,000 shares issuable upon the conversion of $2,000,000 principal amount Series B 5% secured convertible debentures,
 
3,950,000 shares issuable upon the conversion of $395,000 principal amount Series C 10% unsecured convertible debentures,
 
700,000 shares issuable upon the conversion of outstanding notes in the principal amount of $175,000, and
 
41,316,390 shares issuable upon the exercise of outstanding options and warrants with exercise prices ranging from $0.07 to $1.29 per share.

We will not receive any proceeds from the sale of the shares by the selling security holders.

For a description of the plan of distribution of these shares, please see page 54 of this prospectus.

Our common stock is quoted on the OTC Bulletin Board under the symbol "PWRI." On February 13, 2006 the last reported sale price for our common stock was $.17 per share.
____________________

Investing in our common stock involves a high degree of risk. See "Risk Factors" beginning on page 5 of this prospectus to read about the risks of investing in our common stock.
____________________

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
____________________

The date of this Prospectus is          , 2006.


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PROSPECTUS SUMMARY

We provide transportation services to the freight industry. Our shipper and carrier customers currently have free access to our proprietary P2S MobileMarket™, an Internet-based software program that delivers supply chain, tracking and logistics information. We provide logistics information and services to our shipper customers that need to have truckloads of goods transported to or from their facilities. In certain instances, we provide consulting services to enable our shipper customers to integrate their systems with our P2S MobileMarket™. We also provide logistics information and services to trucking companies, referred to as our carrier customers, which enable these companies to better manage the utilization of their transportation assets and personnel. Our mission is to provide our shipper and carrier customers with easily accessible and useful information that allows them to be more profitable by improving the utilization of transportation assets and optimizing the efficiency of the supply chain.

We are seeking to broaden our revenue based by offering access to the P2S MobileMarket™ to other transportation service companies, shippers and carriers on a monthly subscription basis and through fees generated from providing logistics optimization and other services to these third party companies. We are also seeking to leverage the P2S MobileMarket™ to develop solutions that address global transportation security issues. We believe that our secure, wireless, Internet-based system, which uses a combination of global positioning satellite technologies, can become a key component in the security solutions being developed by other companies. Our system is capable of capturing and processing data transmitted wirelessly from other technologies that could be part of any comprehensive security system.

For the three months ended September 30, 2005, we reported total revenue of $8,205,266 and a net loss of $1,157,711. For the fiscal years ended June 30, 2005 and 2004 we reported total revenues of $9,247,633 and $2,091,965, respectively, and net losses of $6,561,220 and $3,892,729, respectively. The report of our independent registered public accounting firm on our financial statements for fiscal year 2005 contains an explanatory paragraph regarding our ability to continue as a going concern as a result of our net losses and cash used in operations. We estimate that our current funds on hand and available under our lines of credit will only be sufficient to fund our operations through April 2006. We are constantly evaluating our cash needs and have a plan whereby certain non-essential personnel and administrative costs would be reduced or eliminated so that we may continue to meet operating obligations until such time as we can raise additional working capital. As described elsewhere herein, we will need to raise additional working capital. We do not presently have any sources for this additional capital and if we are unable to secure this funding by April 30, 2006 we may be forced to curtail some or all of our operations.

We were incorporated in Nevada in October 1987. Our corporate offices are located at 903 Clint Moore Road, Boca Raton, Florida 33487. Our telephone number is (561) 998-7557. Our fiscal year end is June 30. When used in this prospectus, the terms "Power2Ship," "P2S", "we," "our," and "us" refers to Power2Ship, Inc., a Nevada corporation, and our subsidiaries. We maintain a web site at www.power2ship.com. The information which appears on this web site is not part of this prospectus.

Selected Consolidated Financial Data

The following summary financial information has been derived from the financial statements that are included elsewhere in this prospectus. In February 2004 we changed our fiscal year end from May 31 to June 30 in order to align our quarterly reporting obligations with calendar quarters. As a result, the consolidated financial statements appearing elsewhere in this prospectus include consolidated financial statements for the years ended June 30, 2005 and 2004.


Income Statement Data:

   
Three Months Ended
         
   
September 30, (unaudited)
 
Fiscal Years Ended June 30,
 
   
2005
 
2004
 
2005
 
2004
 
 
Total revenue
 
$
8,205,266
 
$
730,726
 
$
9,247,633
 
$
2,091,965
 
 
Total operating expense
   
8,895,717
   
1,687,051
   
14,552,910
   
5,522,496
 
 
Loss from operations
   
(690,451
)
 
(956,325
)
 
(5,305,277
)
 
(3,430,504
)
 
Total other expenses
   
(467,260
)
 
(197,123
)
 
(1,255,943
)
 
(462,225
)
Net loss
   
(1,157,711
)
 
(1,153,448
)
 
(6,561,220
)
 
(3,892,729
)
Less preferred stock dividend 1
   
-
   
-
   
(84,100
)
 
(1,347,044
)
 
Net loss to common stockholders
 
$
(1,157,711
)
$
(1,153,448
)
$
(6,645,320
)
$
(5,239,773
)
 
Loss per share, basic and diluted
 
 
$
(0.02
)
$
(0.03
)
$
(0.14
)
$
(0.16
)
Weighted average shares outstanding
   
69,327,258
   
38,668,813
   
46,698,677
   
32,947,559
 
 
(1)
In addition to the 10% preferred stock dividend paid to holders of our Series B convertible preferred stock in fiscal years 2005 and 2004, the preferred stock dividend in fiscal year 2004 included a beneficial conversion feature valued at $941,840 attributable to our Series B convertible preferred stock and a beneficial conversion feature valued at $317,472 attributable to our Series C convertible preferred stock. For additional information on how these beneficial conversion features were calculated, please see “Management’s Discussion and Analysis or Plan of Operations” and Note 8 of our consolidated financial statements for the fiscal year ended June 30, 2005 appearing elsewhere in this prospectus.

Balance Sheet Data
         
   
September 30, 2005
 
June 30, 2005
 
   
(unaudited)
     
           
Cash and cash equivalents
 
$
929,569
 
$
837,753
 
Working capital (deficit)
 
$
(2,191,533
)
$
(38,477
)
Total current assets
 
$
2,546,858
 
$
2,108,775
 
Total assets
 
$
4,987,439
 
$
4,610,342
 
Total current liabilities
 
$
4,738,391
 
$
2,147,252
 
Total liabilities
 
$
6,361,713
 
$
5,943,561
 
Total stockholders’ deficit
 
$
(1,374,274
)
$
(1,333,219
)
 
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this prospectus contain or may contain forward-looking statements that are subject to known and unknown risks, uncertainties and other factors which may cause actual results,

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performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in the forward-looking statements. These factors include, but are not limited to, our ability to implement our business model, economic, political and market conditions and fluctuations, government and industry regulation, interest rate risk, competition, and other factors. Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements and readers should carefully review this prospectus in its entirety, including the risks described in "Risk Factors." Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this prospectus, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.

RISK FACTORS

Before you invest in our common stock, you should be aware that there are various risks. You should consider carefully these risk factors, together with all of the other information included in this prospectus before you decide to purchase our securities. If any of the following risks and uncertainties develops into actual events, our business, financial condition or results of operations could be materially adversely affected and you could lose all of your investment in our company.
 
We will require additional capital to fund our ongoing operations and satisfy our debt obligations. If we are unable to raise additional capital, then we will not be able to continue operations.

While we have been successful in increasing our revenues during fiscal 2005 and the first quarter of fiscal 2006, our revenue growth has not been significant enough to generate sufficient gross profits to fund our daily operations. We do not presently have sufficient financial resources to fund our ongoing operations beyond April 2006. While we believe that our revenues will continue to increase during the balance of fiscal 2006 as a result of acquisitions we made in fiscal 2005, because those acquisitions also increased our operating expenses we cannot accurately predict when or if our revenues and gross profits will increase to the level necessary to sustain our operations. At September 30, 2005 we had a working capital deficit of $2,191,533. We have $2,000,000 principal amount Series B 5% secured convertible debentures due between June 2006 and September 2006 and $1,597,000 principal amount 14.25% secured convertible debentures due on December 31, 2006. In order to provide sufficient working capital to fund our ongoing operations, pay our obligations as they become due and provide additional working capital for the future development of our business model, we will need to raise additional capital. We do not presently have any additional sources of working capital other than our $3 million revolving lines of credit secured by our accounts receivable. While we are seeking additional source of working capital, there are no assurances we will be successful in raising additional capital as needed. If we are unable to obtain additional working capital before April 30, 2006, we will defer certain employees’ compensation and reduce or eliminate certain non-essential personnel and administrative costs so that we may continue to meet operating obligations until such time as we can raise additional working capital. If we are unable to raise additional working capital as needed, we may be required to curtail or discontinue some or all of our business and operations.

We have a history of losses and an accumulated deficit. We expect losses to continue for the foreseeable future and we may be unable to continue as a going concern.

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For fiscal years 2005 and 2004 we reported total revenue of $9,247,633 and $2,091,965, respectively, and a loss to common stockholders of $6,645,320 and $5,239,773, respectively. For the three months ended September 30, 2005, we reported total revenue of $8,205,266 and a net loss of $1,157,711. At September 30, 2005 we had an accumulated deficit of $20,213,804. Further, during fiscal years 2005 and 2004 and during the three months ended September 30, 2005, we reported net cash used in operating activities of $3,200,848, $2,258,017 and $716,360, respectively. Our revenue has not been sufficient to sustain our operations and we do not expect significant revenue or profitable operations for the foreseeable future. The independent auditor’s report for the fiscal year ended June 30, 2005 on our financial statements includes an explanatory paragraph to their audit opinion stating that our recurring losses from operations and negative operating cash flows raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. As described below, we will need to raise additional working capital in order to implement our business model and sustain our operations. Because we are subject to all of the business risks inherent in a new company with an unproven market, we cannot guarantee you that we will ever report profitable operations or generate sufficient revenue to sustain our company as a going concern.

Our primary assets serve as collateral under our outstanding debentures and revolving line of credit. If we should default on these obligations, the holders could foreclose on our assets and we would be unable to continue our business and operations.

We have granted the holders of our 14.25% secured convertible debentures and our Series B 5% secured convertible debentures a blanket security interest in all of our assets and properties. As set forth above, these obligations, which total an aggregate remaining principal amount of $3,597,000, become due between June 2006 and December 31, 2006 and we do not presently have sufficient funds to satisfy these obligations. We have also granted a first position lien on certain of our accounts receivable to two lenders as security for our revolving lines of credit. If we should default under the repayment provisions of these obligations, the holders could seek to foreclose on our primary assets in an effort to seek repayment under the obligations. If the holders were successful, we would be unable to conduct our business as it is presently conducted and our ability to generate revenues and fund our ongoing operations would be materially adversely affected.

Our Series B 5% secured convertible debentures contain certain covenants prohibiting us from raising capital at less than the market price. These limitations may hamper our ability to raise working capital in future periods which could result in our ability to continue as a going concern.

The purchase agreement for our Series B 5% secured convertible debentures contains covenants that restrict us from raising capital from the sale of stock or other securities convertible into stock at a price less than the market price of our common stock on the date of issuance. The existence of these covenants may severely limit our ability to raise capital from the sale of stock or convertible securities because any potential purchasers of our stock or convertible securities may want to pay a discount to the market price of our stock.

If the holders of the outstanding debentures should assert one or more events of default, we could be forced to discontinue our operations.

We may be in default under certain covenants contained in our agreements with the holders of our Series B 5% secured convertible debentures and our 14.25% secured convertible debentures. If we receive notice of noncompliance and potential default, we would have an obligation to rectify these defaults or otherwise obtain a waiver from these holders under the terms of those agreements. While we

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have not received any such notice to date, it is possible that notice could be provided in the future, which would likely cause our company to be in default under our agreements and obligations to the holders. Any default would permit the holder of the Series B 5% secured convertible debentures, in their sole discretion, to accelerate full repayment of the $2,000,000 in principal and accrued interest thereon, claim an indeterminate amount of penalties and perhaps result in acceleration of other obligations owed to other parties. Any default would accelerate our obligations to the 14.25% secured convertible debenture holders in the remaining principal amount of $1,597,000 together with all accrued and unpaid interest thereon and perhaps other obligations owed to other parties. We cannot assure you that we would be in a position to arrange alternative financing to satisfy these obligations in the event of a default. The debentures are collateralized by a blanket security interest in our assets. In the event of a default under either of the series of debentures, the holders could seek to foreclose on our primary assets. If the holders were successful, we would be unable to conduct our business as it is presently conducted and our ability to generate revenues and fund our ongoing operations would be materially adversely affected.

Historically we have been dependent on revenue from a limited number of customers. If we were to be deprived of revenue from one or more these key customers, our future revenue and business operations could be materially and adversely effected.
 
For fiscal year 2005, revenue from our largest two customers, Amcor PET Packaging and Tire Kingdom, accounted for approximately 40% and 14%, respectively, of our gross revenue and no other customer accounted for more than 10% of our total revenue. For the three months ended September 30, 2005, our largest customers represented 53% of our total revenue and no other customer accounted for more than 10% of our total revenue. We do not have an agreement with Tire Kingdom and our agreement with Amcor PET Packaging may be cancelled upon 30 days notice. We are seeking to expand our customer base in fiscal year 2006 in order to eliminate our dependence upon revenues from a limited number of customers. Because of the significant nature of the revenue from Amcor PET Packaging and Tire Kingdom to our results of operations, however, the loss of these customers, prior to our obtaining additional customers, could have a material adverse effect on our business operations and prospects.

W e are dependent on short term contracts with our customers. If these contracts were terminated, our results of operations would be materially adversely affected.
 
We have entered into agreements to provide transportation services with some of our shipper customers. These agreements, however, do not commit them to using us for any specific volume of transportation services and the agreements can be terminated on 30 days notice. The termination of any of these contracts could have a material adverse effect on our business operations and prospects.

We rely on third party providers to provide support for our products and services. Failure by our third party providers to deliver services could adversely impact our services to our customers.

We rely on several third party providers for support for our P2S MobileMarket™. IBM provides us with dedicated hosting and support for our web site as well as network services. In addition, we purchase GPS locator devices, which are included in wireless access packages we offer to carriers, from a single source. Although we do not presently have alternative providers for these products or services, we believe that we could engage other companies to provide these products or services upon substantially the same terms and conditions as our existing third party provides. In the event any of these third party providers are unable to deliver the services or products which we have contracted for, our ability to provide our products and services to our customers would be adversely impacted until such time as we were able to engage alternate sources.

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We face risks related to rapidly evolving technologies. If we do not respond to these evolving technologies, we may have difficulty in retaining our customers or expanding our customer base.

Our markets are subject to rapid technological change, changing customer needs, frequent new product introductions and evolving industry standards that may render existing products and services obsolete. Our growth and future operating results will depend, in part, upon our ability to enhance existing applications and develop and introduce new applications or capabilities that:

  meet or exceed technological advances in the marketplace;
  meet changing customer requirements;
  comply with changing industry standards;
  achieve market acceptance;
  integrate third party software effectively; and
  respond to competitive offerings.

We may not possess sufficient resources to continue to make the necessary investments in technology. In addition, we may not successfully identify new software opportunities or develop and bring new software to market in a timely and efficient manner. If we are unable, for technological or other reasons, to develop and introduce new and enhanced software in a timely manner, we may lose existing customers and fail to attract new customers, which may adversely affect our ability to generate revenues sufficient to provide for our ongoing operations.

There is a limited ability to safeguard our proprietary information and we may be unable to prevent a third party from the unauthorized use of our propriety information.

Our success and ability to compete are substantially dependent on our internally developed technologies and trademarks. We seek to protect such intellectual property through a combination of confidentiality procedures, contractual provisions, copyright and trade secret laws and intend to apply for patents. Despite our efforts to protect our proprietary rights, unauthorized parties may copy aspects of our software or obtain and use information that it regards as proprietary. Policing unauthorized use of our software is difficult, and software piracy could be a problem. Furthermore, potential competitors may independently develop technology similar to ours. While we have applied for a patent for our propriety software with the United States Patent and Trademark Office, we cannot provide any assurance that we will be granted a patent or, if granted, that third parties will not violate these protections. Any such violation of our intellectual property rights could prove costly to defend and funds devoted to these possible efforts would reduce the amount of working capital available to fund our ongoing operations.

Our Chairman and CEO is the sole holder of our Series Y Convertible Preferred Stock which may give him voting control of our company and the ability to solely influence its business and direction.

Our voting securities consist of shares of our common stock and our Series Y Convertible Preferred Stock. Holders of shares of our common stock are entitled to one vote per share and holders of shares of our Series Y Convertible Preferred Stock are entitled to 200 votes per share on all matters submitted to a vote of our stockholders, and these classes of our voting securities vote together on all matters submitted to a vote of our stockholders. Mr. Hersh, our Chairman and CEO, is the sole holder of our Series Y Convertible Preferred Stock which, together with his common stock holdings, gives him voting rights at January 31, 2006 of approximately 19% of our voting securities. As a result of these voting rights, notwithstanding that our common stockholders are entitled to vote on matters submitted to our stockholders, Mr. Hersh may have the power to strongly influence the election of all of our directors and strongly influence the business and direction of our company.

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The exercise of outstanding options and warrants, the conversion of shares of our Series B, C, And Y Convertible Preferred Stock and the conversion of our 14.25% secured convertible debentures and our Series B 5% convertible secured debentures will be dilutive to our existing stockholders.

As of January 31, 2006 we had the following securities which are convertible or exercisable into shares of our common stock outstanding:

 
options to purchase a total of 15,389,052 shares of our common stock at prices ranging between $0.25 and $1.01 per share;

 
warrants to purchase a total of 45,345,881 shares of our common stock at prices ranging between $0.07 and $2.00 per share;

 
158,200 shares of our Series B Convertible Preferred Stock which is convertible into 3,164,000 shares of our common stock;

 
832 shares of our Series C Convertible Preferred Stock which is convertible into 83,200 shares of our common stock;

 
87,000 shares of our Series Y Convertible Preferred Stock which is convertible into 230,405 shares of our common stock;
 
 
$1,597,000 of our 14.25% secured convertible debentures which are convertible into 5,974,560 shares of our common stock;

 
$395,000 of our Series C unsecured convertible debentures which are convertible into 3,950,000 shares of our common stock; and

 
26,086,957 shares of our common stock underlying our Series B 5% secured convertible debentures assuming that the $2,000,000 of debentures were converted on January 31, 2006 at a conversion price of $0.070666 per share or 100% of the average of the three lowest closing bid prices during the 30 trading days immediately preceding January 31, 2006.

The exercise of these warrants and options and the conversion of the debentures and shares of our preferred stock may materially adversely affect the market price of our common stock and will have a dilutive effect on our existing stockholders.

We have not voluntarily implemented various corporate governance measures, in the absence of which, shareholders may have more limited protections against interested director transactions, conflicts of interest and similar matters .

Recent Federal legislation, including the Sarbanes-Oxley Act of 2002, has resulted in the adoption of various corporate governance measures designed to promote the integrity of the corporate management and the securities markets. Some of these measures have been adopted in response to legal requirements. Others have been adopted by companies in response to the requirements of national securities exchanges, such as the NYSE, or the Nasdaq Stock Market, on which their securities are listed. Among the corporate governance measures that are required under the rules of national securities exchanges and Nasdaq are those that address board of directors' independence, audit committee oversight, and the adoption of a code of ethics. Although we have adopted a Code of Ethics, we have not yet adopted any of these other corporate governance measures and, since our securities are not yet listed on a national securities exchange or Nasdaq, we are not required to do so. We have not adopted corporate

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governance measures such as an audit or other independent committees of our board of directors as we presently only have one independent director. If we expand our board membership in future periods to include additional independent directors, we may seek to establish an audit and other committees of our board of directors. It is possible that if we were to adopt some or all of these corporate governance measures, shareholders would benefit from somewhat greater assurances that internal corporate decisions were being made by disinterested directors and that policies had been implemented to define responsible conduct. For example, in the absence of audit, nominating and compensation committees comprised of at least a majority of independent directors, decisions concerning matters such as compensation packages to our senior officers and recommendations for director nominees may be made by a majority of directors who have an interest in the outcome of the matters being decided. Prospective investors should bear in mind our current lack of corporate governance measures in formulating their investment decisions.

We may be exposed to potential risks relating to our internal controls over financial reporting and our ability to have those controls attested to by our independent auditors.

As directed by Section 404 of the Sarbanes-Oxley Act of 2002 (“SOX 404”), the Securities and Exchange Commission adopted rules requiring public companies to include a report of management on the company’s internal controls over financial reporting in their annual reports, including Form 10-KSB. We currently are evaluating the effect that the adoption of Section 404 will have on our consolidated operating results and financial condition and cash flow necessary to implement SOX 404 in order to allow our management to report on, and our independent auditors attest to, our internal controls, as a required part of our annual report on Form 10-KSB beginning with our report for the fiscal year ending June 30, 2008.

We expect to expend significant resources in developing the necessary documentation and testing procedures required by SOX 404. We are unable at this time to quantify the amount we will spend to develop the necessary documentation and testing required by SOX 404, but such amount is likely to exceed the $47,500 we spent on audit fees for fiscal 2005. We do not presently have sufficient resources to fund the documentation and testing required by SOX 404, and we do not have available funds to engage qualified staff or consultants to assist us with compliance issues as required in connection with our audit for the fiscal year ending June 30, 2008.

We are not currently aware of any significant deficiencies or material weaknesses in our internal controls that we cannot remediate in a timely manner. However, if we or our auditors identify any significant deficiency or material weakness, our auditors may be unable to attest to our internal controls and investors and others may lose confidence in the reliability of our financial statements and our ability to obtain equity or debt financing could suffer.

Provisions of our articles of incorporation and bylaws may delay or prevent a takeover which may not be in the best interests of our stockholders.

Provisions of our articles of incorporation and bylaws may be deemed to have anti-takeover effects, which include when and by whom special meetings of our stockholders may be called, and may delay, defer or prevent a takeover attempt. In addition, certain provisions of Nevada law also may be deemed to have certain anti-takeover effects which include that control of shares acquired in excess of certain specified thresholds will not possess any voting rights unless these voting rights are approved by a majority of a corporation’s disinterested stockholders.

In addition, our articles of incorporation authorize the issuance of up to 1,000,000 shares of preferred stock with such rights and preferences as may be determined by our board of directors. Our board of directors may, without stockholder approval, issue preferred stock with dividends, liquidation,

- 10 -

conversion or voting rights that could adversely affect the voting power or other rights of our common stockholders.

Our common stock is currently quoted on the OTCBB, but trading in our stock is limited. Because our stock currently trades below $5.00 per share, and is quoted on the OTC Bulletin Board, our stock is considered a "penny stock" which can adversely affect its liquidity.

The market for our common stock is extremely limited and there are no assurances an active market for our common stock will ever develop. Accordingly, purchasers of our common stock cannot be assured any liquidity in their investment. In addition, the trading price of our common stock is currently below $5.00 per share and we do not anticipate that it will be above $5.00 per share in the foreseeable future. Because the trading price of our common stock is less than $5.00 per share, our common stock is considered a "penny stock," and trading in our common stock is subject to the requirements of Rule 15g-9 under the Securities Exchange Act of 1934, as amended. Under this rule, broker/dealers who recommend low-priced securities to persons other than established customers and accredited investors must satisfy special sales practice requirements. SEC regulations also require additional disclosure in connection with any trades involving a "penny stock," including the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and its associated risks. These requirements severely limit the liquidity of our securities in the secondary market because few broker or dealers are likely to undertake these compliance activities.  

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock is quoted on the OTC Bulletin Board under the symbol PWRI. The following table sets forth the reported high and low sale prices for our common stock as reported on the OTC Bulletin Board for the periods indicated. The quotations represent inter-dealer prices without retail mark-ups, mark-downs or commissions, and may not necessarily represent actual transactions. The quotations may be rounded for presentation.

   
High
 
Low
 
Fiscal 2006
         
           
October 1 to December 31, 2005
 
$
0.17
 
$
0.0615
 
July 1 to September 30, 2005
 
$
0.161
 
$
0.35
 
               
Fiscal 2005
             
               
April 1 to June 30, 2005
 
$
0.39
 
$
0.22
 
January 1 to March 31, 2005
 
$
0.35
 
$
0.20
 
October 1 to December 31, 2004
 
$
0.47
 
$
0.30
 
July 1 to September 30, 2004
 
$
0.45
 
$
0.30
 
               
Fiscal 2004
             
               
April 1 to June 30, 2004
 
$
0.45
 
$
0.30
 
January 1 to March 31, 2004
 
$
0.50
 
$
0.27
 
October 1 to December 31, 2003
 
$
0.63
 
$
0.39
 
July 1 to September 30, 2003
 
$
0.50
 
$
0.27
 

On February 10, 2006 the last reported sale price of our common stock as reported on the OTC Bulletin Board was $0.15 per share. As of January 31, 2006, we had approximately 600 shareholders of

- 11 -

record. In addition, certain of the shares of our common stock are held in "street" name and may be held by numerous beneficial owners.

Dividend Policy

We have never paid cash dividends on our common stock. We intend to keep future earnings, if any, to finance the expansion of our business. We do not anticipate that any cash dividends will be paid in the foreseeable future. Under Nevada law, we are prohibited from paying dividends if the distribution would result in our company not be able to pay its debts as they become due in the usual course of business or if our total assets would be less than the sum of our total liabilities plus the amount that would be needed, we were to be dissolved at the time of distribution, to satisfy the preferential rights upon dissolution of stockholders whose preferential rights are superior to those receiving the distribution.

Securities Authorized for Issuance under Equity Compensation Plans
 

     
Number of securities
Weighted average
Number of securities
     
to be issued upon
exercise price of
remaining for future
     
exercise of
outstanding
issuance (excluding
     
outstanding options
options, warrants
securities reflected in
     
warrants, and rights
and rights  
column (a))   .
           
Plan Category
     
           
2001 Employee Stock
     
Compensation Plan
0
n/a
319,000
 
CAPITALIZATION

The following table sets forth our capitalization as of September 30, 2005. This table should be read in conjunction with the financial statements and related notes thereto appearing elsewhere in this prospectus.
       
   
September 30, 2005
 
   
(unaudited)
 
       
Long-term liabilities, net of discount of $180,345
 
$
1,623,322
 
         
Stockholders’ deficit:
       
Series B Convertible Preferred Stock,
       
$0.01 par value, 200,000 shares authorized,
       
161,200 shares issued and outstanding
   
1,612
 
Series C Convertible Preferred Stock,
       
$0.01 par value, 20,000 share authorized,
       
832 shares issued and outstanding
   
8
 
Series Y Convertible Preferred Stock,
       
$0.01 par value, 87,000 shares authorized,
       
87,000 shares issued and outstanding
   
870
 
Common stock, $0.001 par value,
       
250,000,000 shares authorized,
       
74,511,471 shares issued and outstanding
   
74,511
 
Deferred compensation
   
(430,220
)
Additional paid-in capital
   
19,192,749
 
Accumulated deficit
   
(20,213,804
)
Total stockholders’ deficit
   
(1,374,274
)
         
Total capitalization
 
$
249,048
 


- 12 -

USE OF PROCEEDS

We will not receive any proceeds from the sale of any of the shares by the selling security holders. Any proceeds that we receive from the exercise of outstanding warrants or options will be used by us for general working capital. The actual allocation of proceeds realized from the exercise or sale of these securities will depend upon the amount and timing of such exercises, our operating revenue and cash position at such time and our working capital requirements. There can be no assurances that any of the outstanding warrants or options will be exercised. Pending utilization of the proceeds as described above, the net proceeds of the offering will be deposited in interest bearing accounts or invested in money market instruments, government obligations, certificates of deposits or similar short-term investment grade interest bearing investments.

MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION  

The following discussion and analysis of financial condition and results of our operations should be read in conjunction with the consolidated financial statements and the notes to those statements included elsewhere in this prospectus.

Overview

In March 2005 we acquired certain assets and liabilities of Commodity Express Transportation, Inc., a South Carolina company, and GFC, Inc., a South Carolina company. The consolidated financial statements and accompanying notes thereto included elsewhere in this prospectus reflect the assets, liabilities and results of operations of these two acquisitions from their respective dates of acquisition. These two transactions have substantially increased both our revenues and operating expenses.

For each of the fiscal year ended June 30, 2005 and the three months ended September 30, 2005, virtually all of our total revenue was generated by providing freight transportation services. Freight transportation services represented approximately 85% of our total revenues for the fiscal year ended June 30, 2004. Revenue from freight transportation services includes the total dollar value of services purchased from us by our customers. We provide freight transportation for our shipper customers using our own transportation equipment (asset based), on transportation equipment of owner-operators which are affiliated with our subsidiary CXT as well as numerous unaffiliated independent carriers located throughout the United States (non-asset based). We are a principal in the transaction to transport the freight. By accepting our customer's order, we accept certain responsibilities for transportation of the load from its origin to its destination. In instances when we arrange for transportation of the load by an unaffiliated independent carrier, the carrier's contract is with our company, not our shipper customer, and we are responsible for prompt payment of carrier charges. We are also generally responsible to our shipper customer for any claims for damage to freight while in transit. The price we charge for these freight transportation services depends largely upon the prices charged by our competitors as well as upon several factors, including the distance the freight is being transported, the type of transportation equipment required to move the freight, the distance that equipment is from the origin of the freight and whether or not that equipment is available in our fleet, the value of the freight and the availability of loads near the locations where the freight is to be delivered.

To a lesser extent, we have historically generated revenues from access services and implementation services. For the fiscal year ended June 30, 2004, we also generated revenue from access

- 13 -

services and implementation services, which represented approximately 14% and approximately 1%, respectively, of our total revenue for that year. For the fiscal year ended June 30, 2005 less than 1% of our total revenue was attributable to revenue from access services and we reported no revenue during that period from implementation services. For the three months ended September 30, 2005 we reported no revenue from access services and less than 1% of our total revenue was attributable to revenue from implementation services. Access services revenue represents revenue generated from the unlimited use of the information available through the P2S MobileMarket™ for a fixed monthly fee. Implementation services include design, programming and testing of custom developed interfaces that permit the P2S MobileMarket™ to communicate and share data with a customer’s existing computer software. While we market these services to our existing and potential customer base, we cannot predict if we will report significant revenue from either access services or implementation services in any future periods.

Approximately 40% and 53%, respectively, of our freight transportation revenues for the fiscal year ended June 30, 2005 and the three months ended September 30, 2005 were generated from one customer. Because our agreement with that customer can be terminated upon a 30 days notice to us, our dependence on revenues from this customer puts us at risk until such time, if ever, that we can diversify our revenue base. In order to lessen the risks to us from this dependence on a single customer, we are marketing our services to potential shipper customer and companies involved in freight security to the maximum extent permitted by our limited sales and marketing budget.

Our revenue growth during fiscal 2005 and into fiscal 2006 is substantially related to revenue from acquisitions of the assets of two freight transportation companies which now comprise the operations of our CXT and Power2Ship Intermodal subsidiaries. CXT is a freight transportation services provider serving customers located in the southeastern United States. Its freight transportation services are provided by independent truck owner-operators under contract with CXT or by independent drivers that utilize tractors and trailers provided by CXT, as well as by other trucking companies, including Power2Ship, arranged by CXT’s freight transportation brokerage. Power2Ship Intermodal is a freight transportation services company serving customers with containers coming in to or out of the ports of Newark, New Jersey and Charleston, South Carolina, as well as to and from the railroad terminal in Charlotte, North Carolina.

In addition to providing revenue for our company, one of the prime drivers to these acquisitions was the ability to integrate our P2S MobileMarket™ into the operations of these subsidiaries. We originally developed the P2S MobileMarket™ with the goal of obtaining fee based subscribers to the Internet-based software. We designed our P2S MobileMarket™ to help smaller motor carriers compete more effectively with large carriers, while also providing valuable logistics services to both small and large shippers. This information, accessed through a password-protected portion of our website, helps improve the efficiency of the supply chain by enabling carriers to minimize excess transportation capacity, permitting the execution of freight transactions online and letting all participants easily track the movement of loads and/or trucking assets online. We use the P2S MobileMarket™ in connection with logistics services for our freight transportation customers.

During fiscal 2003 and fiscal 2004, we also generated access services revenue and implementation services revenue under an agreement with The Great Atlantic and Pacific Tea Company, one of the nation's first supermarket chains which operates 417 stores in 10 states under the trade names A&P, Waldbaum's, The Food Emporium, Super Foodmart, SuperFresh, Farmer Jack, Sav-A-Center and Food Basics. Under this agreement we provided The Great Atlantic and Pacific Tea Company with u nlimited use of the P2S MobileMarket™ for a fixed monthly fee, as well as a virtual private network (VPN) fee which provided our customer with data encryption and other extra security measures for their data together with software development in the form of the design, programming and testing of a custom developed interface to our P2S MobileMarket . This agreement was terminated in January 2005.   In

- 14 -

fiscal year 2006 we completed a pilot program with one of International Paper’s core carriers that we believe demonstrated the ability of the P2S MobileMarket™ to permit carriers to become e-commerce compliant.

A key component of our business model is developing a significant number of third-party fee-based subscribers to our MobileMarket™. This part of our business model is dependent upon building our customer base of shippers and carriers who regularly utilize our P2S MobileMarket™ system so that when a shipper customer wants to move a load of freight we can offer one or more carriers with available trucks and trailers that meet their criteria. While as of September 30, 2005, approximately 2,095 carriers had registered as members on our website and approximately 1,907 of these have entered into carrier agreements with us, we have used only approximately 496 of these carriers to transport freight for our shipper customers. We presently provide free access to the MobileMarket™ to these shipper and carrier customers. We have been able to increase the number of shipper customers from whom we generated revenue from eight at September 30, 2004 to 27 at September 30, 2005. We have entered into agreements to provide transportation services with some of our shipper customers including International Paper, Nestle Waters, Tyco International, Ltd., Tofutti Brands, Luckey Logistics, Gold Coast Freightways, Associated Grocers, Caruso Foods, Compass Roadmaster, Paper Pak and Valmont Industries.

We are presently able to identify available capacity among our carrier customers to move only a very small percentage of our shipper’s loads. Given the tens of thousand of transportation routes in the U.S., in order to have the P2S MobileMarket™ be successful as a standalone revenue base, we must substantially increase the number of our carrier customers in order to capture a greater percentage of our shipper customer’s inbound and outbound transportation business. We spent $25,167 in the three months ended September 30, 2005 compared to $63,035 in the three months ended September 30, 2004 in advertising and marketing our services to potential carriers and shippers utilizing trade publications, transportation industry websites and direct mail as well as company participation in industry trade shows and trade organizations. As a result of our limited financial resources, we intend to curtail most of our marketing expenditures for the remainder of fiscal year 2006 unless we raise sufficient capital. Our ability to begin charging for access to the P2S MobileMarket™ is limited until such time as we have developed a sufficient base of carrier customers. We believe, however, that the use of our P2S MobileMarket™ in providing freight transportation services to our customers also helps us market the product to other transportation service companies.

We also want to leverage our P2S MobileMarket™ software to expand our revenue base to include other applications. We believe that our secure, wireless, Internet-based system which uses global positioning satellite technology can become a key component in the security solutions being developed by other companies to counteract the threat of terrorism. Our system is capable of capturing and processing data transmitted wirelessly from other hardware that could be part of any comprehensive security system. Examples of these technologies may include radio-frequency identification (RFID) tags fastened to containers and/or trailers, smart tags affixed to the goods inside shipping containers and electronic seals applied at the time the container is loaded. In addition, the system could have other security capabilities such as geo-fencing which alerts a truck’s owner or authorities if a vehicle deviates from its designated route. In August 2005 we announced our collaboration with L-3 Communications on an end-to-end solution for secure and efficient container transportation worldwide. We are also in discussions with other technology and defense companies that, in response to the Homeland Security Act and Operation Safe Commerce, are in the process of developing solutions that address global transportation security issues. There can be no assurances, however, that we will ever enter into any agreement with L-3 Communications or any of the other companies we are in discussions with or, if we do, that we will ever generate any significant revenues or profits from such agreements.

- 15 -

During the balance of fiscal 2006 our greatest challenge is raising sufficient additional capital to fund our ongoing operations, pay our obligations as they become due and continue to implement our business model. As described later in this section, we have approximately $3,597,000 of secured debt and $710,000 of unsecured debt which becomes due by December 31, 2006. While we have developed plans to defer certain employees' compensation and reduce or eliminate certain non-essential personnel and administrative costs until such time as we can raise sufficient additional capital, if we are unable to secure additional capital as needed we may be unable to satisfy this secured and unsecured debt as it becomes due which could adversely affect our ability to continue our operations as presently conducted, as well as severely limiting our ability to diversify our revenue sources.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2005 compared to Three Months Ended September 30, 2004

   
Three Months Ended September 30
 
Increase/
 
Increase/
 
   
2005
 
2004
 
(Decrease)
 
(Decrease)
 
   
(unaudited)
 
  (unaudited)
 
$ 2005 vs 2004
 
% 2005 vs 2004
 
                   
Revenue
 
$
8,205,266
 
$
730,726
 
$
7,474,540
   
1,023
%
                           
Operating expenses:
                         
Freight transportation
   
7,320,256
   
651,772
   
6,668,484
   
1,023
%
Salaries, benefits and consulting
   
1,000,828
   
614,814
   
386,014
   
63
%
Other selling, general and administrative
   
574,633
   
420,465
   
154,168
   
37
%
                           
Total operating expenses
   
8,895,717
   
1,687,051
   
7,208,666
   
427
%
                           
Loss from operations
   
(690,451
)
 
(956,325
)
 
(265,874
)
 
(28
)%
                           
Other income (expense)
                   
Gain on asset disposal
   
1,415
   
0
   
1,415
   
100
%
Interest expense, net
   
(471,581
)
 
(197,123
)
 
(274,458
)
 
139
%
Other income
   
2,906
   
0
   
2,906
   
100
%
Total other expenses
   
(467,260
)
 
(197,123
)
 
(270,137
)
 
137
%
                           
Net loss
 
$
(1,157,711
)
$
(1,153,448
)
$
4,263
   
*
 
                           
* less than 1%
                         

Key Indicators:
             
   
Three Months Ended September 30,
     
   
2005
 
2004
     
   
(unaudited)
 
% of Change
 
               
Freight transportation expense as
             
a percentage of freight transportation revenue
   
89.3
%
 
89.2
%
 
+ 0.1
%
                     
Salaries, benefits and consulting fees
                   
as a percentage of total revenue
   
12.2
%
 
84.1
%
 
-71.9
%
                     
Other selling, general and administrative
                   
expenses as a percentage of total revenue
   
7.0
%
 
57.5
%
 
-50.5
%
                     
Total operating expenses as a
                   
percentage of total revenue
   
108
%
 
231
%
 
-123
%
                     
Interest expense, net as a
                   
percentage of total revenue
   
5.7
%
 
27.0
%
 
-21.3
%
 

- 16 -

Revenue
Total revenue generated during the three months ended September 30, 2005 increased by $7,474,540 or approximately 1,023% as compared with total revenue generated during the three months ended September 30, 2004. Included in our total revenue for the three months ended September 30, 2005 was freight transportation revenue of $8,199,598, an increase of $7,468,872, or approximately 1,022%, from the comparable period in fiscal 2005. This increase in freight transportation revenue is primarily the result of revenue from acquisitions made in March 2005, including $6,111,121 attributable to CXT's operations and $1,183,887 attributable to Power2Ship Intermodal's operations, for which there was no comparable revenue in the three months ended September 30, 2004. The balance of the increase in freight transportation revenue was attributable to the growth of revenue from existing customers, such as Tire Kingdom and Carroll Tire, and additional revenue from several new shipper customers.

We also reported $5,668 in implementation services revenue during the three months ended September 30, 2005, which was attributable to revenue from one shipper customer, for which there was no comparable revenue in the three months ended September 30, 2004.

We anticipate that our total revenue will continue increasing during the balance of fiscal 2006, though at a more moderate pace than achieved in fiscal year 2005. Most of this revenue growth is expected to be freight transportation revenue attributed to consolidating a full year of operating results from our subsidiaries CXT and Power2Ship Intermodal as compared with revenues from only three and one-third months of operating results during fiscal year 2005. In addition, in October 2005 CXT entered into an agreement with a freight transportation company to introduce CXT to certain of its key customers and to encourage its North Carolina drivers and independent owner-operators to contract with CXT. Some additional growth in freight transportation revenue is expected to be generated from the efforts of our corporate sales and marketing personnel and from existing and new transportation agents of our subsidiaries.

We are also seeking to expand our revenue sources during the balance of fiscal 2006 by bringing to fruition a number of projects which we have been developing over the past year. Included in these additional revenue sources is revenue from providing logistics consulting and implementation services to large shipper customers which we anticipate will be on a fixed fee contract basis. In fiscal 2006 we also expect to enter into one or more research and development or similar agreements related to global transportation security with one or more technology and/or defense companies that would generate additional revenue during fiscal year 2006. In addition, in December 2005 we formed a partnership with Best Transport, a provider of advanced network solutions for matching the needs of shippers and carriers, with a goal of cross-marketing each company's logistics services to current and future clients. We are unable to predict the timing or amount of any additional revenues from these potential sources, and, it is possible that we never generate any additional revenues from these sources during fiscal 2006 and beyond.

Operating Expenses

Total operating expenses incurred during the three months ended September 30, 2005 increased by $7,208,666 or approximately 427% compared to the three months ended September 30, 2004. The increase was attributed to the following:

  Freight transportation expenses, consisting of direct costs associated with transporting freight either with our own trucks or through non-affiliated trucking companies we hired to move loads for our shipper customers, increased by $6,668,484 or approximately 1,023% in the three months ended September 30, 2005 as compared with the same quarter during 2004. We expect freight transportation expenses in the balance of fiscal 2006 to increase proportionately with our anticipated increase in freight

- 17 -


transportation revenue during the balance of fiscal year 2006, which will leave our gross profit margin relatively constant; and

  Selling, general and administrative expenses increased by $540,182 or approximately 52% during the three months ended September 30, 2005 compared to the three months ended September 30, 2004. The increase in fiscal 2006 was primarily attributable to an increase in salaries, benefits and consulting fees of $386,014, or approximately 63%. This included an increase of $266,290, or approximately 62%, in salaries and benefits and an increase of $119,723, or approximately 65%, in consulting fees. The increase in salaries and benefits is primarily attributable to $261,181 in salaries and benefits paid to employees of our subsidiaries CXT and Power2Ship Intermodal, for which no comparable expenses were incurred during the three months ended September 30, 2004. The increase in salaries and benefits was partially offset to a decrease in the number of employees in our Boca Raton, Florida operation. The increase in consulting fees, which primarily represented the value of common stock and warrants issued as compensation to consultants, resulted from an increase in the number of outside consulting services used by management.

We expect salaries, benefits and consulting expenses during the balance of fiscal year 2006 to remain relatively constant with fiscal year 2005. We anticipate that increases in salaries and fringe benefits associated with the additional employees in our subsidiaries who will be paid for the entire fiscal year as compared with the period from the acquisition date in March 2005 until June 30, 2005 being offset in part by a comparable decline in outside consulting expenses.
 
Other selling, general and administrative expenses increased by $154,168 or approximately 37% during the three months ended September 30, 2005 as compared to the three months ended September 30, 2004. Included in this change were $230,742 of other selling, general and administrative expenses attributable to CXT and Power2Ship Intermodal for which there were no comparable expenses during the three months ended September 30, 2005, offset by a decrease of $76,574 which includes:

  Advertising and marketing expenses, including convention and trade show expenses, decreased by $53,696 or approximately 85%. Although we reduced current spending on advertising and marketing expenses to approximately $2,000 per month during fiscal 2005, we budgeted approximately $500,000 for fiscal year 2006. However, as a result of a lack of sufficient working capital we have been forced to decrease the amount of funds we are allocating to advertising and marketing. During the three months ended September 30, 2005, we did not renew our contractual arrangement with an outside public relations firm, and temporarily curtailed advertising our products and services to shippers and carriers in trade publications, transportation industry websites and other media and to reduce our attendance at regional and national trade shows. At such time as we have sufficient working capital we intend to resume our advertising and marketing expenses; and

  Legal fees and expenses decreased by $54,262 or approximately 71%. During the three months ended September 30, 2004 we were incurring additional legal expenses related to our capital raising efforts and the preparation and filing of a registration statement with the SEC; we did not have comparable legal expenses during the three months ended September 30, 2005.

These decreases in other selling, general and administrative expenses were partially offset by increases in accounting expenses of $16,010 related to an acquisition audit and of $11,783 in bank service charges related to transaction fees paid to our vendor that electronically pays our carriers. The increase in bank service charges was commensurate with our increase in freight transportation revenue.

We anticipate that our other selling, general and administrative expenses for the balance of fiscal 2006 will remain relatively constant with fiscal year 2005 with increases in legal and accounting expenses

- 18 -


associated with the preparation of our registration statement and other required SEC filings being offset by a decrease in our advertising and marketing expenses.

Other Income (Expenses)

Total other expenses increased by $270,137 or approximately 137% during the three months ended September 30, 2005 as compared with the same quarter of 2004. This increase primarily resulted from an increase in interest expense of $274,458 or approximately 139%. The higher interest expense during the three months ended September 30, 2005 was associated with:

 
interest expense attributable to our $1,000,000 of 5% Series B secured convertible debentures issued in September 2004, $110,000 of 5% unsecured short term promissory notes issued in October and November 2004 and $482,500 of 10% unsecured short term promissory notes issued in January and February 2005,

 
interest expense associated with the $1,000,000 revolving line of credit which began in December 2004, and

 
Amortization of deferred financing costs and discounts on notes payable of $235,618 and $62,278, respectively compared with $91,081 and $22,737 during the same quarter of 2005.

We anticipate that interest expense for the balance of fiscal 2006 will be approximately 50% greater than in fiscal year 2005. Most of this increase in fiscal 2006 will be associated with our having a higher average balance on our revolving lines of credit due to our higher revenue and to the increase in non-cash interest expense from the amortization of deferred financing costs and discounts on notes payable.

Fiscal Year 2005 Compared to Fiscal Year 2004

   
Fiscal Year
 
Fiscal Year
 
Increase/
 
Increase/
 
 
 
Ended
 
Ended
 
(Decrease)
 
(Decrease)
 
      June 30, 2005     June 30, 2004  
$ 2005 vs 2004
 
% 2005 vs 2004
 
                   
Revenues
 
$
9,247,633
 
$
2,091,965
 
$
7,155,668
   
342
%
                           
Operating expenses:
                         
Freight transportation
   
8,272,985
   
1,581,119
   
6,691,866
   
423
%
Salaries, benefits and consulting
   
4,466,360
   
2,788,192
   
1,678,168
   
62
%
Other selling, general and
administrative
   
1,813,565
   
1,153,158
   
660,407
   
57
%
                           
Total operating expenses
   
14,552,910
   
5,522,469
   
9,030,441
   
164
%
                           
Loss from operations
   
(5,305,277
)
 
(3,430,504
)
 
(1,874,773
)
 
55
%
                           
Other income (expense)
                   
Forgiveness of debt
   
18,111
   
0
   
18,111
   
100
%
Interest expense, net
   
(1,275,809
)
 
(462,225
)
 
813,584
   
176
%
Other income
   
1,755
   
0
   
1,755
   
100
%
Total other expenses
   
(1,255,943
)
 
(462,225
)
 
793,718
   
172
%
                           
Net loss
 
$
(6,561,220
)
$
(3,892,729
)
$
2,668,491
   
69
%
                           
Less: preferred stock dividend
   
(84,100
)
 
(1,347,044
)
 
(1,262,944
)
 
(94
%)
Loss available to common
shareholders
 
$
(6,645,320
)
$
(5,239,773
)
$
1,405,547
   
27
%


- 19 -


Key Indicators:
   
Fiscal Year Ended June 30,
     
   
2005
 
2004
 
% Change
 
               
Freight transportation expense as
             
a percentage of freight transportation revenue
   
89.5
%
 
88.9
%
 
+ 0.6
%
                     
Salaries, benefits and consulting fees
                   
as a percentage of total revenue
   
48.3
%
 
133
%
 
-84.7
%
                     
Other selling, general and administrative
                   
expenses as a percentage of total revenues
   
19.6
%
 
55.1
%
 
-35.5
%
                     
Total operating expenses as a
                   
percentage to total revenue
   
157
%
 
264
%
 
-107
%
                     
Interest expense, net as a
                   
percentage of total revenues
   
13.8
%
 
22.1
%
 
-8.3
%

Revenue

Total revenue generated during the year ended June 30, 2005 increased by $7,155,668 or approximately 342% as compared with total revenue generated during the year ended June 30, 2004. Included in our total revenue for the year ended June 30, 2005 was freight transportation revenue of $9,247,453, an increase of $7,469,426, or approximately 420%, from fiscal 2004. This increase in freight transportation revenue is primarily the result of revenue from acquisitions made in March 2005, including $5,442,409 attributable to CXT's operations and $975,552 attributable to Power2Ship Intermodal's operations for which there was no comparable revenue in fiscal 2004. The balance of the increase in freight transportation revenue was attributable to the growth of revenue from existing customers, such as Tire Kingdom and Carroll Tire, and additional revenue from several new shipper customers.

Included in our total revenue for fiscal 2005 was $180 attributable to revenue from access services which represents a decrease of $289,833 or approximately 99% from fiscal year 2004. We reported no revenue from implementation services in fiscal 2005 as compared to $23,925 in fiscal 2004. In fiscal 2004 the revenue from access services and the revenue from implementation services resulted from a contract with The Great Atlantic and Pacific Tea Company, Inc., which was substantially completed in fiscal 2004.

Operating Expenses

Total operating expenses during fiscal year 2005 increased by $9,030,441 or approximately 164% as compared with fiscal year 2004. Freight transportation expenses in fiscal year 2005 increased by $6,691,865 or approximately 423% compared with fiscal year 2004, and reflect the increase in our freight transportation revenue in fiscal 2005. As a percentage of expense to revenue, freight transportation expense remained relatively constant from fiscal 2004 to fiscal 2005. Most freight transportation expenses are variable costs associated with moving freight that increase by relatively the same percentage as freight transportation revenue when gross margins are constant as was the case during fiscal year 2005.

Selling, general and administrative expenses increased by $2,338,575 or approximately 59% in fiscal year 2005 from fiscal year 2004. Approximately 72% of this increase was attributable to increases in salaries, benefits and consulting fees and the remainder of the increase was attributable to increases in advertising and marketing, depreciation and amortization, legal and accounting, rent and Web hosting expenses.

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Salaries, benefits and consulting expenses increased by $1,678,168 or approximately 60% in fiscal year 2005 from fiscal year 2004. Included in this increase was an increase in salaries and benefits of $477,051 or approximately 32%. The increase in salaries and benefits was associated with the addition of the employees in CXT and Power2Ship Intermodal which had expenses of $153,610 and $19,189, respectively, compared with none in the prior fiscal year which was prior to their March 2005 acquisitions as well as to salary increases for other employees. Consulting fees increased by $1,201,117 or approximately 93% in fiscal year 2005 from fiscal year 2004 which was attributed to the larger number of consultants that we engaged in fiscal year 2005 to provide financial, legal, government, public relations, technology and other services as compared with fiscal year 2004.

Other selling, general and administrative expenses increased by $660,407 or approximately 57% in fiscal year 2005 from fiscal year 2004. The most significant expenses contributing to this increase included:

  Advertising and marketing expenses, including convention and trade show expenses, increased by $151,007 or approximately 168% to $241,141 in fiscal year 2005 from $90,134 in fiscal year 2004. This increase primarily consisted of costs associated with hiring a marketing firm to prepare advertisements and other collateral materials, printing collateral materials for our carrier customers and placing advertising in trade periodicals. Partially offsetting these increases was a modest decrease in expenses associated with attending and participating in national and regional transportation industry conventions and trade shows,

  Depreciation and amortization of intangible assets increased by $152,921 or approximately 195% to $231,197 in fiscal year 2005 from $78,276 in fiscal year 2004. This increase primarily resulted from significantly higher amortization of our intangible assets including software development costs, intellectual property acquired during fiscal year 2005 from three of our executives and the customer lists acquired in our two acquisitions consummated in March 2005. We expect depreciation and amortization of intangible assets to increase to approximately $400,000 during fiscal year 2006 as the customer lists acquired in our two acquisitions are amortized for the entire fiscal year as compared with the period from the acquisition date in March 2005 until June 30, 2005,

  Legal and accounting fees increased by $52,469 or approximately 19% to $330,089 during fiscal year 2005 from $277,620 in fiscal year 2004. This increase resulted from higher legal and accounting fees related to public reporting requirements, litigation and other legal matters incurred in the ordinary course of business in fiscal year 2005 compared with fiscal year 2004. We expect legal and accounting expenses to be approximately $150,000 to $250,000 during fiscal year 2006 depending on the number and complexity of capital raising transactions, business combination transactions, if any, and non-standard customer agreements,

  Rent expense increased by $81,038 or approximately 67% to $202,624 in fiscal year 2005 from $121,586 in fiscal year 2004. This increase consisted of a $62,420 increase in rent for our facility in Boca Raton, Florida as the one-year period during which we paid discounted rent ended in June 2004 and $18,619 in rent paid for the Columbia, South Carolina facility occupied by the personnel from our CXT subsidiary since it began operations in March 2005. We expect rent and maintenance expense for these two facilities in fiscal year 2006 to be approximately $250,000,

  Web hosting expenses, including software license fees, increased by $86,682 or approximately 133% to $151,724 in fiscal year 2005 from $65,042 in fiscal year 2004. This increase was attributed to our receiving approximately $75,000 in credits from our Web hosting vendors during fiscal year 2004 and for an additional $12,000 in software license fees during fiscal year 2005. We expect Web

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hosting expenses, including software license fees, to be approximately $164,000 during fiscal year 2006, and

  Other selling, general and administrative expenses also increased by approximately $155,000 during fiscal 2005 which includes expenses primarily related to travel and entertainment, recruiting and office supplies and equipment of our CXT subsidiary for which we did not have comparable expenses during fiscal year 2004.

Other Income (Expense)

Total other expense increased by $793,718 or approximately 172%, in fiscal year 2005 as compared with fiscal year 2004. This increase consisted of an increase of $814,290 or approximately 176% in interest expense offset by a gain of $18,111 from forgiveness of debt. The increase in interest expense for fiscal year 2005, which includes the amortization of deferred financing costs associated with the debt, was associated primarily with the following:

  the $1,697,000 principal amount 14.25% secured convertible debentures we issued in March and April 2004 which had a full year of interest expense in fiscal year 2005 versus approximately three months of interest expense during fiscal year 2004;

  the $2,000,000 principal amount 5% secured convertible debentures we issued in June and September 2004 which had a full year of interest expense in fiscal year 2005 versus none during fiscal year 2004;

  interest expense of $76,464 for accounts receivables financing for CXT and Power2Ship Intermodal for which no there was no comparable expense in fiscal 2004; and

  shares of common stock issued to pay certain vendors having a value that was $114,075 greater than the amount owed.

We expect interest expense to be approximately $750,000 in fiscal year 2006 assuming no further conversions or redemptions of our convertible debentures and our revolving credit facility from Mercantile Capital averaging approximately $550,000.

We paid preferred stock dividends having a market value of $84,100 during fiscal year 2005, a decrease of $1,262,944, or approximately 94%, from fiscal year 2004. This decrease was related to our Series B and Series C convertible preferred stock which have conversion provisions that entitled the preferred shareholders to convert their preferred stock into common stock at less than the market price of the common stock on the date the preferred stock was issued. These conversion provisions represented beneficial conversion features that were recognized as $1,259,312 of preferred dividends during fiscal year 2004.

We reported a loss available to common stockholders of $6,645,320 for fiscal 2005 as compared to a loss available to common stockholders of $5,239,773 for fiscal 2004.

LIQUIDITY AND CAPITAL RESOURCES

We have experienced losses and negative cash flows from operations since our inception. For the three months ended September 30, 2005 and the fiscal years ended June 30, 2005 and 2004, our cash flows have been as follows:

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Three Months Ended
September 30,
 
Fiscal Years Ended June 30,
 
   
2005
 
2005
 
2004
 
   
  (unaudited)
         
Net cash used in operating activities
 
$
716,360
 
$
3,200,848
 
$
2,258,017
 
Net cash used in investing activities
 
$
124,495
 
$
647,401
 
$
419,945
 
Net cash provided by financing activities
 
$
932,671
 
$
3,853,872
 
$
3,446,774
 

As of September 30, 2005, we had an accumulated deficit of $20,213,804, a stockholders' deficit of $1,374,274. Our independent auditors’ report on our financial statements for fiscal year 2005 contained an explanatory paragraph regarding our ability to continue as a going concern based upon our auditor’s concluding that we did not having enough capital or commitments for capital that would be sufficient to fund our operations through June 30, 2006. Our ability to continue as a going concern is dependent upon our ability to obtain the necessary financing to meet our obligations and repay our liabilities when they become due until such time, if ever, that we are able to increase our revenues and generate profitable operations. While we have been successful in increasing our revenues, we are not profitable and will be required to raise additional working capital. Because we have no firm commitments from any third party to provide this financing, we cannot assure you we will be successful in raising working capital as needed. There are no assurances that we will have sufficient funds to execute our business plan, pay our obligations as they become due or generate positive operating results. If we are unable to raise additional capital, we may be required to reduce or eliminate certain of our operations.

At September 30, 2005, we had a working capital deficit of $2,191,533 as compared with a working capital deficit of $38,477 at June 30, 2005. This $2,230,010 decrease in working capital during this quarter was attributed to a $438,083 increase in current assets that was more than offset by a $2,591,139 increase in current liabilities. The change in current assets consisted of increases in cash of $91,816, accounts receivable of $337,477 and prepaid insurance of $8,790. The change in current liabilities consisted of increases in the current portion of convertible notes payable of $2,135,265, accounts payable and accrued expenses of $328,384, accrued salaries of $32,319 and an increase in the outstanding balance of our line of credit of $125,171 that partially were offset by a decrease in short term notes payable of $30,000.

During the three months ended September 30, 2005, our cash balance increased by $91,816. This increase was the result of $932,671 provided by financing activities that partially was offset by $716,360 used in operating activities and $124,495 used in investing activities. This compared with a decrease in our cash balance of $303,374 during the three months ended September 30, 2004 as a result of $1,091,375 used in operating activities and $96,999 used in investing activities that partially were offset by $885,000 provided by financing activities.

During the three months ended September 30, 2005, we used $716,360 in operating activities which was made up of our net loss of $1,157,711, changes in operating assets and liabilities of $98,823 and a decrease in allowance for doubtful accounts of $17,997 that partially were offset by depreciation and amortization of $424,890 and issuances of our common stock, options and warrants as payment for services, interest and compensation of $133,281. This compared with $1,091,375 used in operating activities during the three months ended September 30, 2004 which consisted of our net loss of $1,153,448 and changes in operating assets and liabilities of $228,297 that partially were offset by depreciation and amortization of $158,730 and issuances of our common stock, options and warrants as payment for services, interest and compensation of $131,640.

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         The $124,995 cash used in investing activities during the three months ended September 30, 2005 consisted of $93,328 for development of our internal use software and $31,167 for purchases of property and equipment. This compared with $96,999 used in investing activities during the three months ended September 30, 2004 which consisted of $87,187 for development of our internal use software and $9,812 for purchases of property and equipment.

During the three months ended September 30, 2005, we generated net cash from financing activities of $932,671 which consisted of net proceeds of $807,500 from the issuance of units consisting of common stock and warrants and $125,171 from our revolving line of credit. This compared with net cash provided by financing activities of $885,000 during the three months ended September 30, 2004 which consisted of net proceeds of $900,000 from the issuance of convertible promissory notes less $15,000 from the repayment of promissory notes.

We have two revolving lines of credit secured by our accounts receivable. We have a $1,000,000 credit facility with Mercantile Capital, L.P. secured with the accounts receivable of Power2Ship, Inc., excluding its subsidiaries CXT and Power2Ship Intermodal, Inc., and a $2,000,000 credit facility with BB&T Corporation secured with the accounts receivable of CXT and Power2Ship Intermodal, Inc. The Mercantile Capital facility is effective until December 2006 and the BB&T facility is in effect until February 2007.

We estimate that the $929,569 we had on hand at September 30, 2005 and, since October 1, 2005, our receipt of $772,500 in net proceeds pursuant to our unit offerings, the exchange of a $100,000 short-term note payable for four units of our offering, an expected decrease in cash used in operations as a result of our increasing transportation and MobileMarket™ revenue and additional borrowings from our revolving credit facilities, will be sufficient to fund our operating activities until approximately April 2006. Our future capital requirements depend primarily on the rate at which we can decrease our use of cash to fund operations. Cash used for operations will be affected by numerous known and unknown risks and uncertainties including, but not limited to, our ability to successfully market our products and services, the degree to which competitive products and services are introduced to the market, and our ability to attract key personnel as we grow. As long as our cash flow from operations remains insufficient to completely fund operations, we will continue depleting our financial resources and seeking additional capital through equity and/or debt financing. If we raise additional capital through the issuance of debt, this will result in increased interest expense. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of Power2Ship held by existing stockholders will be reduced and those stockholders may experience significant dilution. In addition, new securities may contain certain rights, preferences or privileges that are senior to those of our common stock. There can be no assurance that acceptable financing to fund our ongoing operations and for future acquisitions or for the integration and expansion of existing operations can be obtained on suitable terms, if at all. Our ability to continue our existing operations and to continue to implement our growth and acquisition strategy could suffer if we are unable to raise the additional funds on acceptable terms which will have the effect of adversely affecting our ongoing operations and limiting our ability to increase our revenues or possibly attain profitable operations in the future. We are constantly evaluating our cash needs and current burn rate, and we have a strategy whereby certain non-essential personnel and administrative costs will be reduced or eliminated so that we may continue to meet operating obligations until such time as we can raise additional working capital. If we are unable, however, to secure the necessary additional working capital as needed, we may be forced to curtail some or all of our operations.

CRITICAL ACCOUNTING POLICIES

Financial Reporting Release No. 60, which was released by the SEC, requires all companies to include a discussion of critical accounting policies or methods used in the preparation of financial

- 24 -


statements. Note 1 to our consolidated financial statements appearing elsewhere herein includes a summary of the significant accounting policies and methods used in the preparation of our consolidated financial statements. The following is a brief discussion of the more significant accounting policies and methods used by us:

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Actual results could differ from those estimates.

We follow the guidance of the Securities and Exchange Commission's Staff Accounting Bulletin 104 for revenue recognition. In general, we record revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured. The following policies reflect specific criteria for the reported revenue streams of our company:

Freight transportation revenue consists of the total dollar value of services purchased from us by our customers. We recognize 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 is provided to customers. When we provide equipment to customers, in conjunction with providing access services to them, on any basis in which ownership is retained by our company, then we account 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 in the contract. Revenue from implementation services is expected to be insignificant as a percentage of total revenue in the foreseeable future.

We use SFAS No. 123, "Accounting for Stock-Based Compensation," which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also 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. We have 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. As of January 1, 2006, we have adopted SFAS 123R.

BUSINESS

We provide transportation services to the freight industry. We provide these services utilizing transportation assets that we lease or own, that we have under contract with the owner-operators of the transportation equipment, and that we arrange for on a non-asset basis, meaning we rent the transportation equipment with drivers that are required by our customers. As an integral part of our transportation

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services, our customers currently have free access to our proprietary P2S MobileMarket™, an Internet-based software program that delivers supply chain, tracking and logistics information. Our mission is to provide our customers with easily accessible and useful information that allows them to be more profitable by improving the utilization of transportation assets and optimizing the efficiency of the supply chain.

We are also seeking to leverage the P2S MobileMarket™, which presently is being utilized predominantly by us on an internal basis, to broaden our revenue base by offering access to the MobileMarket™ to other transportation service companies on a monthly subscription basis and through fees generated from providing logistics optimization and other services to these third party companies, as well as through the development of solutions that address global transportation security issues. We believe that our secure, wireless, Internet-based system, which uses global positioning satellite technology, can become a key component in the security solutions being developed by other companies. Our P2S MobileMarket™ system is capable of capturing and processing data transmitted wirelessly from other technologies that could be part of any comprehensive security system.

Our Business

We are an information technology company that has developed the P2S MobileMarket™, an Internet-based, patent-pending software application that captures, processes and displays transportation information, forecasts the availability of transportation assets, and matches that future capacity with freight that needs to be transported throughout the United States. In addition, the freight and transportation assets can be tracked while in transit if their location is provided to the P2S MobileMarket™ either by electronic transmissions communicated by wireless devices which may be installed in the transportation assets or by manual input through the P2S MobileMarket™ Website. We believe that this matching, tracking and other logistics information provided by the P2S MobileMarket™ enables our member shippers and carriers to make better informed transportation decisions and improves the efficiency of their supply chain.

As an application service provider (ASP), we provide our shipper and carrier members with user names and passwords to gain secure access to the P2S MobileMarket™ through the Internet. Membership is granted once users have completed a registration form on our Website and supplied the required supporting documentation. We currently provide members with free access to the P2S MobileMarket™ as a member benefit. We only generate transactional revenue when we match our member carriers’ transportation assets to our member shippers’ transportation needs and arrange to move their loads. In order to be a principal in these types of transportation transactions, we were required to apply for, and obtained, a license from the United States Department of Transportation, Federal Motor Carrier Safety Administration as a broker arranging for transportation of freight by motor vehicle. This license initially was issued in August 2002 and remains current.

Also in fiscal year 2003, we began providing some of our large shipper customers with software development and customization services to interface their existing software with the P2S MobileMarket™. Power2Ship offers a wide range of other logistics services that reduce or eliminate supply chain inefficiencies and regularly identify opportunities for providing such services to our current and prospective shipper customers. We specify the services to be provided in consulting agreements customized for each customer.

In March 2005, in order to accelerate the volume of activity in the P2S MobileMarket™, we acquired the assets of Commodity Express Transportation, a South Carolina-based third party logistics (3PL) company serving the Southeastern United States which now comprises our CXT subsidiary. This acquisition resulted in an increase in the number of member shippers and member carriers using, and

- 26 -


being matched through, the P2S MobileMarket™. CXT is licensed by the United States Department of Transportation, Federal Motor Carrier Safety Administration as both a freight carrier and a freight broker. It operates a fleet of approximately 85 tractors, including 45 owned units and 40 from owner-operators with whom it has independent contractor’s lease agreements, and 285 trailers, as well as a freight brokerage and a warehouse operation.

In the first quarter of fiscal year 2006, CXT entered into an agreement with LTS, a freight transportation company in North Carolina, to provide transportation services for some of its customers and to encourage its 18 North Carolina drivers and independent owner-operators to enter into independent contractor’s lease agreements with CXT. We agreed to pay LTS up to $135,000 over five years and three months on a monthly basis depending on the percentage of their former drivers and independent owner-operators that continued their lease agreements with CXT and the amount of their customers’ business retained by CXT during this time period.

CXT is seeking to acquire additional non-asset based trucking and third party logistics companies. In particular, it is seeking third party logistics companies with networks of agents and/or salespeople located throughout the country who can feed the information about their existing shippers and carriers into the P2S MobileMarket™. The loads currently processed by these companies then can be processed automatically through the P2S MobileMarket™ resulting in greater efficiency. Our ability to consummate any additional acquisitions will be subject to our raising sufficient capital.
 
During fiscal year 2005, we handled a substantial portion of the freight transportation requirements to or from particular manufacturing facilities and distribution centers for Amcor PET Packaging and TBC Corporation. Collectively, these customers represented approximately 40% and 14%, respectively, of our gross revenue. Amcor PET Packaging is a leading global packaging company providing PET (polyethylene terephthalate) packaging solutions to the consumer products industry. CXT provides freight transportation services for several of Amcor’s 14 United States manufacturing plants and warehousing services for one of Amcor’s plants. Our Amcor transportation business is derived from our agreement with TPS Logistics, an independent freight brokerage company. TPS has an annual logistics agreement with Amcor that may be terminated under certain conditions with thirty days advance notification. TBC Corporation, a subsidiary of Sumitomo Corporation of America, is one of the largest wholesalers and retailers of tires in North America. We have no agreements with TBC Corporation.

We are seeking to incorporate the P2S MobileMarket™ into solutions that address global transportation security issues. We are collaborating with L-3 Communications, a diversified provider of secure communication systems and specialized communication products. L-3 plans to have the P2S MobileMarket™ receive all the data transmitted wirelessly from the communication devices that it and other hardware companies provide for the global transportation security system. Since global transportation typically involves freight moving in containers aboard ocean-going vessels, in March 2005 we acquired a non-asset based drayage company that transports freight containers arriving at various ports and rail terminals. We plan to use this operation to test or validate certain aspects of the global transportation security system.

The Matching Process

Shipper customers served by our non-asset based Florida operation communicate the details pertaining to their freight transportation needs, to us by electronic data interchange (EDI), telephone, facsimile, email, or manual data entry. All this data is incorporated into the P2S MobileMarket™ which automatically seeks to match the shippers’ requirements with transportation assets operated by our member carriers.

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In the event that a match is not made with an existing member carrier, we will contact additional “for hire” carriers to determine if they have available equipment and, if so, will negotiate a price to move the load. New carriers must provide a copy of their motor carrier license and certificate of insurance with the proper level of coverage, sign our motor carrier transportation agreement and become a registered member of the P2S MobileMarket™ prior to moving any loads for us. Once a carrier is selected, we book the load in the P2S MobileMarket™ which generates a load tender sheet confirming the rate and the load pick up and delivery locations. When the load is picked up, the carrier receives a bill of lading, signed by the shipper, listing all the items being shipped.

The shipment can be tracked at any time from its pick up location to its destination through the P2S MobileMarket™ if the location information is input either automatically, from a global position system on board the truck that can wirelessly transmit the location, or manually by the carrier or Power2Ship. When the load arrives at its destination, the receiver accepts the load, noting any items damaged or missing on the bill of lading. We are responsible to our customers for any claims for damage to freight while in transit or performance and, in turn, our carrier is responsible to us. The carrier sends us their invoice and the signed bill of lading as proof of delivery at which time we submit an invoice to our shipper customer.

Our CXT subsidiary processes shipments somewhat differently than our Florida-based operation. Since it operates its own transportation equipment and has contracts with owner-operators, it seeks to maximize utilization of these assets. Then, it utilizes the resources of our Florida-based operation to identify available transportation equipment before turning to its own freight brokerage operation and then to third party freight brokers to find a carrier to move the freight.

Our P2SI subsidiary operates somewhat differently than either of our other operations. It receives its freight transportation requirements from independent transportation agents which have contracts with P2SI rather than directly from shipper customers. P2SI matches these shippers’ requirements with the transportation assets of 20 owner-operators with whom it has independent contractor’s lease agreements.

The Trucking Industry

Trucks dominate freight movement in North America. Generally, there are between four and seven separate truck movements required to make a typical finished good. For example, raw materials are transported to component manufacturers, components are shipped to assemblers, assemblers send goods to distributors and distributors transport goods to retailers. Even for imported products, a truck typically is involved at the dock or airport, and for final delivery to the customer.

The trucking industry has been forced to offer specialized services in an effort to accommodate the demands of different products. For example, some products require refrigeration, others require certain delivery guarantees, others are only shipped in small loads, and yet others require a combination of different freight services.

We believe that our P2S MobileMarket™ benefits the following segments of the trucking industry:

 
Truckload carriers who use their trucking assets to pick-up and deliver goods only for shippers needing the full capacity of a given truck are the largest and most diverse for-hire segment. These carriers are typically non-union operators that can operate as one driver in the vehicle or they can use driving teams to increase vehicle productivity;

- 28 -


 
Owner-operators, often called independent truckers, that own or lease a single truck or very small fleets. These independents play a vital role in the growth of many carriers who use them to expand operations without adding the fixed costs associated with equipment and drivers; and

 
Less-Than-Truckload (LTL) carriers which, as the name implies, use their trucking assets to pick-up and deliver goods for several shippers on the same trip. Many of these companies are characterized by networks of consolidation centers and satellite terminals. The average haul for national LTL carriers is about 650 miles and for regional LTL carrier approximately is approximately 250 miles.

Additional carrier segments that could benefit primarily from the real-time tracking feature of our P2S MobileMarket™ include:

 
Private fleets operated by medium and large shippers who account for more than 50% of all truck movements and 35% of truckload volume, predominately medium to short haul. The visibility of the moving inventory is of substantial value for this type of movement. These carriers are prime targets for our global positioning system (GPS) solution with the modified asset tracking tool.

 
Dedicated contract carriers that are set up and run according to a specific shipper’s needs. In addition, they offer other services such as warehousing and logistics planning. The visibility of the moving inventory is also of substantial value for this type of movement. These carriers are also prime targets for our GPS solution with our modified asset tracking tool.

 
Van lines that move household goods, office equipment, trade show and museum displays.

Freight rates increase as shipping requirements become more specialized. Shipping rates are extremely inconsistent across the different market segments based on supply and demand of transportation assets availability. These price variances, as well as operational inefficiencies, contribute to higher transportation costs and lower profit margins for shippers and shippers have been forced to look for alternatives to remain competitive. We believe that the trucking industry can respond to this need to lower rates through the implementation of a more efficient shipping and communication system.

To compete effectively today, we believe that small and medium sized trucking companies must use computer and wireless communication systems to enhance customer service and productivity and attract as well as to enhance their abilities to retain quality drivers and other personnel by providing competitive compensation, fringe benefits and other incentives. We believe that our MobileMarket™ will cost-effectively enable carriers to meet these challenges.

The P2S MobileMarket™

We designed our P2S MobileMarket™ to help smaller motor carriers compete more effectively with large carriers, while also providing valuable logistics services to both small and large shippers. This information, accessed through a password-protected portion of our Web site at www.power2ship.com, helps shippers and carriers by enabling them to minimize excess transportation capacity of carriers, execute freight transactions online and easily track the movement of loads and/or trucking assets online.

The P2S MobileMarket™ is a complex data exchange formulated to identify in real-time the current locations of drivers, with tractors and trailers, and their destinations. Rather than just knowing which driver and truck are connected with each shipment, the MobileMarket™ determines when and

- 29 -


where available capacity will exist. This current and future capacity is captured in our programs and our shipper customers are able to sort capacity data and identify the closest available carrier at the best price. This sorted capacity data is displayed online to the shipper for its selection.

For this software to function, certain information must be collected and maintained in our MobileMarket™. We have built a tool for carriers to use, without charge, which extracts the information required to execute the transactions electronically. This tool, which we refer to as our Asset Management Tool, maintains:

  descriptions of carriers’ terminal locations and facilities;
  drivers’ names, qualification, work schedule, licenses and permits;
  tractor manufacturer, model, type and year;
  trailer manufacturer, model, type and year;
  rates for transportation services; and
  lanes of transportation services.

We believe that this information enables carriers’ dispatchers to manage their trucking assets more effectively by tracking these assets, and it also helps them to determine which trucking asset combination is recommended for a given shipment. At the same time, the unused capacity, or future unused capacity, is displayed in the P2S MobileMarket™ for our shipper customers to view and select as shipments are input.

In order to complete the marketplace concept for the shipper side of the transaction, we built a shipping tracking and load input screen into the MobileMarket™ which provides shippers with a single place to view the location and status of each load booked, en-route and delivered. This screen also consolidates information collected from all carriers currently being used by our shipper customer and, on posted shipments, displays the names and prices of any carriers with available capacity to move the shipment. We believe our product enables our shipper customers to easily track all of their shipments no matter how many carriers they use, as well as being able to identify those carriers with available capacity closest to their pick-up locations for the lowest prices. Some of the information collected to create the shipment tracking and load input screen includes:

 
shippers’ distribution or pick-up locations, including hours of operation, number of docks, and shipping and receiving hours;
 
shippers’ preferences/requirements for carriers, such as types of equipment, amount of insurance and historical performance; and
 
shipper’s payment methods and terms.

Once this information has been collected from shippers and carriers, our MobileMarket™ facilitates the execution of transportation transactions by creating:

 
scheduled and actual pick-up and delivery times;
 
electronic bills of lading;
 
alerts upon exception generation which are delays in scheduled pick-ups or deliveries;
 
real-time asset/shipment locations; and
 
electronic versions of receiver’s signatures upon shipment delivery.

We charge the shippers who use our P2S MobileMarket™ primarily based upon their actual usage of the system without requiring them to purchase any software or hardware. Carriers who use our system have unlimited access and use of the system for free, although they may choose to purchase

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vehicle locator and communication devices offered by us to enhance the benefits they derive from the system.

Some of the benefits that we believe shippers may derive from using the P2S MobileMarket™ include:

 
a single, consolidated online page listing any carriers meeting their pre-defined load, performance and pricing requirements having excess capacity (equipment) to move their loads;

 
online access to carriers' profiles and historical performance information prior to selecting the desired carriers;

 
reduces the time spent searching for carriers thus enabling logistics personnel to concentrate on other transportation tasks;

 
frequently updated location information of inbound loads and, if the shippers have a captive fleet, outbound loads thus enabling shippers to more accurately schedule advertising campaigns, warehouse personnel, etc.;

 
receive automatic notification and alerts of probable delivery delays providing more time to develop and implement contingent plans;

 
electronic bill of lading and exception management tools permit exact settlements, significantly improving relations with vendors and carriers;

 
customized management reporting utilizing historical data is available for an additional charge;

 
custom development of interfaces to legacy systems of large shippers; and

 
access to logistics experts that will use third-party software to analyze historical data and recommend supply chain optimization strategies.

Some of the benefits that we believe carriers may derive from using the P2S MobileMarket™ include:

 
free use of an online asset management tool to set-up, store, update and track their trucking assets, such as tractors, trailers and drivers, and provide trucking asset utilization reports;

 
frequently updated location information available to constantly track trucking assets;

 
receive automatic notification and alerts to pro-actively address possible delays and problems;

 
loads offered to qualified carriers with excess capacity without freight brokerage fee or sales commission;

 
we pay carriers and assume responsibility for collecting payment from shippers;

 
accelerated payment options;

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damaged or improper quantities of goods reported to all parties resulting in faster resolution; and

 
access to historical transaction data for reporting and performance metrics.

During fiscal year 2005 we spent approximately $361,784 on developing our internal use software and Web site as compared to approximately $340,172 spent during fiscal year 2004. The expenses we incurred related to developing and enhancing our internal use software and Web site are primarily salaries and other personnel-related expenses.

Future revenue sources

In the future, as we continue to expand our operations and introduce new services, we may also generate revenue from new service offerings including:

 
monthly subscription fees of $99 charged to shippers for unlimited access to the P2S MobileMarket™. We do not presently charge subscription fees to any of our shipper customers since a free introductory period is being offered in order to attract more customers to this service. We plan to charge monthly subscription fees during 2005.

 
logistics optimization fees charged to shippers seeking to identify and implement strategies to improve the efficiency of their supply chain. In order to support this service we will use sophisticated logistics optimization software to analyze the historical information collected for a particular shipper, identify embedded trends of activity, and recommend methods of improving complete supply chain strategies for them. This service will become available to all shippers once they have sufficient historical information collected in the P2S MobileMarket™.

 
monthly access services fees for carrier customers that want to receive a higher level of service, in which their transportation equipment is tracked on a “real time” basis and wireless communication is able to take place between the Company’s web site and the truck. These customers will need to install vehicle locator and communication devices provided by the Company . Our present business model envisions offering this service to our carrier customers pursuant to three year contracts, with a monthly fee of $79 per truck. Our mobile device consists of a vehicle locator device (GPS) and a handheld personal digital assistant (PDA). The GPS is easily installed in the truck’s cab and connected to the truck's battery for power. It uses global positioning system technology to determine specific latitude and longitude coordinates. Next, an internal modem in the GPS wirelessly transmits the location data to the nearest cellular tower. This data is then sent over a terrestrial network to reach the Internet and transmitted to the P2S MobileMarket™. The PDA contains our proprietary software that enables communication of location and other transportation-related information between drivers and the P2S MobileMarket™ when connected to the GPS. We have negotiated agreements to provide wireless connectivity to carriers at very competitive rates with T-Mobile. We have provided a total of 16 of our vehicle locator and communication devices to six carriers on a no-charge trial basis while we were finalizing this product offering. We recently began offering these devices to our carrier customers at the $79 per truck monthly fee; however, we have generated an immaterial amount of revenue from this product offering.

We also are collaborating with several technology and defense companies that, in response to the Homeland Security Act and Operation Safe Commerce, are working to develop solutions that address

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global transportation security issues. We believe that our secure, wireless, Internet-based system which uses a combination of global positioning satellite technologies can become a key component in the security solutions being developed by other companies to counteract the threat of terrorism. Our system is capable of capturing and processing data transmitted wirelessly from other technologies that may be part of any comprehensive security system. Examples of these technologies include radio-frequency identification (RFID) tags fastened to the outside of containers and/or trailers, smart tags affixed to the goods inside shipping containers, electronic seals applied at the time the container is loaded and the ability to alert a truck’s owner or authorities if a vehicle deviates from its designated route. As described later in this section under "Recent Developments," in November 2004 we formed a new division to focus on these efforts.

In August 2005 we announced that we were collaborating with L-3 Communications Security and Detection Systems, Inc. on a comprehensive, end-to-end solution for secure and efficient container transportation worldwide. The collaboration is subject to the execution of a definitive agreement with L-3 Communications. While we are engaged in negotiations with L-3 regarding the details of a definitive agreement, there can be no assurances, however, that we will enter into any definitive agreements with L-3 Communication or any of the other companies we are in discussions with or that we will ever generate any significant revenue or profits from such agreements.

Support for our P2S MobileMarket™

In the second quarter of 2003, we entered into a non-exclusive distributor agreement with Wireless Links, Inc., a developer and marketer of GPS locator devices. Under the terms of this agreement we have the right to license and distribute these products to our customers located in North America. This company has agreed to a special pricing arrangement that is based upon quantities ordered, a monthly license fee of $15.00 per device and 10% of any activation commission we receive as a result of activation of the devices on wireless networks. These costs are factored into the 36-month access/service contracts which we enter into with carriers described above. We are obligated to make these monthly licensing fees per device to the company even if our customer is not paying our monthly fees. The agreement provides for termination by either party under certain circumstances, and upon the expiration of the initial three-year term is renewable for successive one-year terms upon the consent of the parties.

In September 2002, we entered into a three-year agreement with BellSouth Corporation to provide a comprehensive communications solution for the P2S MobileMarket™ at BellSouth’s highly secure-business center in Miami, Florida. In August 2003, International Business Machines Corp. (IBM) assumed BellSouth’s obligations under this agreement to provide us with dedicated hosting and support services to us at this facility. Upon the expiration of the agreement we maintained our production Web server, house all of our front-end Web pages or application interfaces, and our production database server, house our back-end database, in our corporate offices. We back-up these servers daily and maintain two months of backup tapes in a secure location. We have recently entered into an agreement with MCI to provide us with dedicated hosting and support services which we believe will provide better service at a reduced cost to us.

Key customers

CXT had one major customer that generated revenue of $3,658,580 or approximately 40% of our total revenue during fiscal year 2005. One other major customer accounted for $1,291,626 or approximately 14% of our total revenue during fiscal 2004. For the three months ended September 30, 2005, our largest customer represented approximately 53% of our total revenue and no other customer accounted for more than 10% of our total revenue.

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Sales and Marketing Relationships

We market our products and services to both shippers and carriers. Our sales and marketing efforts to expand our carrier base are focused on small to mid-sized carriers while we target shippers of all sizes. We use a combination of direct sales calls and trade show appearances to market our products and services. Our in-house P2S MobileMarket™ sales organization based in Florida and New Jersey is comprised of three salespeople who are supported by an implementation manager, two customer service reps and four freight brokers. We anticipate expanding this organization as our business increases, and we do not anticipate that we will have any difficulty in locating experienced personnel to fill any new sales and marketing positions we may create in the future.

Sales by CXT are the sole responsibility of the President of CXT. The sales to CXT’s largest customer are supported by an in-house freight brokerage organization.

Our Power2Ship Intermodal sales organization generates its sales primarily through two independent transportation agents, one located in Newark, New Jersey and the other in Charlotte, North Carolina, and our Director of Agent Relations who is responsible for recruiting and monitoring the performance of additional transportation agents throughout the country.

Strategic Relationships

In June 2005, we entered into an agreement with Welley Shipping Company (China) Limited, Beijing Branch, a logistics and freight forwarding division for China Ocean Shipping (Group) Company ("COSCO") to cooperate in providing logistics services for freight being transported aboard COSCO’s ocean-going vessels between the People's Republic of China ("PRC") and the United States and other ports outside the PRC. COSCO is a diversified service company focusing mainly on shipping and modern logistics businesses with 2004 revenue of approximately $17 billion including revenue from transporting over 2 million containers to the U.S. alone. In addition, Welley has agreed to act as the handling agent for all of our customers' cargo coming into PRC ports and Welley has agreed to use us as the handling agent for their customers’ cargo coming in to United States ports. We have not obtained any new customers as a result of this agreement and we cannot assure you that we will do so in the future.

In October 2003, we entered into an agreement with Comdata Corporation® which allows us to access the Comdata Express Cash system to settle rapidly and efficiently with our carrier customers. This arrangement allows our carrier customers to access funds we pay them for freight transactions processed through the P2S MobileMarket™ using a private labeled Power2Ship Comdata card. They are able to withdraw funds we transfer to them at no additional cost with a Comchek® convenience card at all locations that support the Comdata Network or have funds direct deposited to their bank accounts. Our carrier customers can also access their funds from over 400,000 Cirrus® ATM locations and through the Maestro® network.

Competition

The transportation services industry is highly competitive and fragmented. We compete against a large number of other asset based and non-asset based transportation companies, as well as non-asset based logistics companies, third party freight brokers, carriers offering logistics services and freight forwarders. We believe that our P2S MobileMarket™ software provides us with a competitive advantage since it offers both shippers and carriers with an easily accessible logistics information tool that enables them to track their loads and transportation assets at all times and allows them to be more profitable by optimizing the efficiency of the supply chain. We also believe that our established relationships and past performance with many of our shipper customers provides us with a competitive advantage. However, as

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a result of our limited resources we cannot assure you that we will ever effectively compete in our market segments.

Our History

Power2Ship, formerly known as Jaguar Investments, Inc., was formed in Nevada on October 28, 1987. The company was initially a shell company with no business or operations. In December 2001, we acquired 100% of the issued and outstanding shares of common stock of Premier Sports Media and Entertainment Group, Inc. in exchange for 1,000,000 shares of our common stock in a private transaction exempt from registration under the Securities Act of 1933. The shares of common stock issued by us to the Premier Sports Media and Entertainment Group shareholders in this transaction represented approximately 8% of our issued and outstanding common stock immediately after the transaction. Before this transaction we did not engage in any material business operations.

On March 11, 2003, we consummated a merger with Freight Rate, Inc. d/b/a Power2Ship, under which Freight Rate became our wholly owned subsidiary. At the effective time of the merger, the holders of Freight Rate’s common and preferred stock, warrants and options exchanged those securities for the following of our securities:

 
11,907,157 shares of our common stock,
 
options to acquire an aggregate of 13,986,679 shares of common stock at exercise prices of $.38 to $.75 per share,
 
common stock purchase warrants to acquire 3,913,204 shares of our common stock at exercise prices of $.75 to $1.75 per share,
 
100,000 shares of our Series X Preferred Stock which are convertible on March 11, 2004 into shares of common stock based upon the degree to which a one-year funding schedule of up to $2.5 million is met. If the entire $2.5 million of funding is concluded, the Series X Preferred Stock will be cancelled, and
 
87,000 shares of our Series Y Preferred Stock issued to our CEO in exchange for an equal number of Freight Rate’s Series C Convertible Preferred Stock owned by him at the time of the merger.

For accounting purposes, the transaction was treated as a recapitalization of Freight Rate and accounted for as a reverse acquisition.

In connection with the merger, R&M Capital Partners, Inc., a principal stockholder of our company prior to the merger with Freight Rate, agreed to cancel 2,650,000 shares of our common stock they owned for no consideration. Prior to the merger, R&M Capital Partners, Inc. owned an aggregate of 6,500,000 shares of our common stock, which represented approximately 52% of our outstanding common stock immediately prior to the merger. A term of the merger agreement as negotiated by Freight Rate provided that the Freight Rate shareholders would own 70% of our securities on a fully diluted basis following the closing of the merger. R&M Capital Partners, Inc., whose sole shareholder had been a shareholder of Premier Sports Media and Entertainment Group, Inc., agreed to the cancellation at our request in order to facilitate the merger. We believe R&M Capital Partners, Inc. agreed to the cancellation in order to facilitate our merger with Freight Rate based upon its business judgment and since Freight Rate was not prepared to complete the merger and allow R&M Capital Partners, Inc. to retain as significant as a concentration of stock in our company. Following the cancellation of these shares, R&M Capital Partners, Inc. owned 3,850,000 shares of our common stock. For accounting purposes, the cancellation of the 2,650,000 shares was treated as part of the recapitalization.

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        Under the terms of the merger agreement, we issued an aggregate of 100,000 shares of our Series X Convertible Preferred Stock to holders of Freight Rate’s common stock and Series C Convertible Preferred Stock prior to the transaction, including to Mr. Gass, a former member of our board of directors and Mr. Richard Hersh, our Chairman and CEO.

Simultaneous with closing the merger we entered into a stock purchase agreement under which we sold 95% of the issued and outstanding common stock of Premier Sports Media and Entertainment Group to The DAR Group, Inc., an unaffiliated third party, in consideration for the forgiveness by The DAR Group of all of our indebtedness to The DAR Group of approximately $2.0 million and the assumption by The DAR Group of all of our liabilities as of the closing date of the stock purchase agreement.

On February 25, 2005, we formed P2S Holdings, Inc., a Florida corporation, as a wholly owned subsidiary. Then, on March 21, 2005, 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 company engaged in the business of motor carriage specializing in full truckload transportation services primarily using dry vans.

Under the terms of the mutual agreement we acquired the assets for a purchase price of $100,000 in cash and the assumption of liabilities in the amount of $193,655, of which $100,000 is described in greater detail below. At the closing we also assumed certain leases related to the operation of the seller's business, including tractor and trailer leases, owner/operator leases and a warehouse lease. We also entered into leases with the seller to lease certain commercial property and certain trailers described in greater detail below. At closing, we replaced certain deposits and letters 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 replaced additional letters of credit totaling approximately $20,000 after closing. The mutual agreement contained customary representations and warranties and cross-indemnification provisions.

At closing we entered into an equipment lease agreement with Commodity Express Transportation to lease commercial trailers used to haul dry commodities. The monthly lease charges range from $170 to $240 per trailer and the lease expiration dates range from March 2006 to March 2010. The agreement contains customary default provisions, requires Commodity Express Transportation to pay for any damage to an individual trailer in excess of $250 and requires lessee to maintain and repair the trailers and tires as needed.

CXT also entered into an agreement with TPS Logistics, Inc. wherein TPS engaged CXT as its exclusive carrier to perform all of TPS' transportation needs for its customers. The agreement will terminate the earlier of March 20, 2010 or when the agreement between TPS and its current largest customer is no longer effective. As compensation TPS will receive a percentage of all revenue derived from its current largest customer for freight hauled to and from Blythewood, S.C. Mr. W. A. Stokes is vice president and his wife is principal of TPS.

We deposited the shares of CXT owned by P2S Holdings our wholly owned subsidiary and sole shareholder of CXT, into an escrow account for a period of two years following the closing of the transaction. During this period we retain voting rights over these securities. In the event of a default under the escrow agreement, the seller has the right to assume control of CXT during the period of default. Once the period of default has been cured, control of CXT reverts to us. A default under the escrow agreement would occur if CXT's net worth drops below certain level or if we are delinquent in our payments to Commodity Express Transportation, Stokes Logistics Consulting, LLC or TPS Logistics, Inc. under the respective agreements.

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On March 21, 2005, Power2Ship Intermodal acquired certain assets and liabilities representing the business of GFC, Inc., a company in the business of motor carriage specializing in intermodal drayage transportation services. Under the terms of the asset purchase agreement with GFC, Inc., we purchased certain of their assets including trucking and brokerage authority permits, contracts with shipping customers, agents, and truck owner-operators and escrow deposits for a purchase price of $300,000. The purchase price consisted of a $100,000 secured promissory note from the seller that we forgave and $200,000 to be paid $8,333.33 per month on the 24 consecutive monthly anniversaries of the closing date beginning on the first monthly anniversary of the closing date. As of September 30, 2005, we had paid $8,333 and recorded the remainder of these payments as $191,667 of notes payable. The last 12 monthly payments are subject to partial or full acceleration depending upon the amount of the gross freight revenue of Power2Ship Intermodal in the 13th month after the closing date. At the closing we also assumed the obligations corresponding to the escrow deposits. In addition, we issued the seller a warrant to purchase 200,000 shares of our common stock for $.27 per share for the three year period commencing on the closing date. The asset purchase agreement contained customary representations and warranties and cross-indemnification provisions.

Government regulation

We are subject to licensing and regulation as a transportation broker and are licensed by the U.S. Department of Transportation (“DOT”). Power2Ship and CXT each has a DOT license to engage in operations, in interstate or foreign commerce, arranging or brokering transportation of freight (except household goods) by motor vehicle. CXT and Power2Ship Intermodal have DOT certificates and permits that authorizing them to engage in transportation as a common carrier of property by motor vehicle in interstate or foreign commerce. These DOT licenses remain in effect so long as we maintain adequate insurance coverage for the protection of the public as well as designation of our agents for service of process.

The transportation industry has been subject to legislative and regulatory changes that have affected the economics of the industry by requiring changes in operating practices or influencing the demand for, and cost of providing, transportation services. We cannot predict the effect, if any, that future legislative and regulatory changes may have on the transportation industry.

Intellectual property

To protect our proprietary rights, we generally rely on copyright, trademark and trade secret laws, confidentiality agreements with employees and third parties, and agreements with consultants, vendors and customers, although we have not signed such agreements in every case. Despite such protections, a third party could, without authorization, copy or otherwise obtain and use some or all of intellectual property. In general, there can be no assurance that our efforts to protect our intellectual property rights will be effective or that these protections will be sufficient so as to prevent misappropriation of our intellectual property. Our failure or inability to protect our proprietary rights could materially adversely affect our business, financial condition and results of operations.

In June 2005 we filed a patent application with the United States Patent and Trademark Office entitled “Dynamic and Predictive Information System and Method for Shipping Assets and Transport” which was based upon, and claims the benefit of, our provisional patent application no. 60/579,594 entitled “System and Method for Managing Logistics and Revenue Logistics for the Transportation of Freight” filed in June 2004. The patent application remains pending and we cannot be assured if or when it will be granted.

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In July 2005, we received Certificates of Registration from the United States Patent and Trademark Office officially registering the service marks “P2S” and “POWER2SHIP” and, in October 2005, we received the Certificate of Registration officially registering the service mark “MOBILEMARKET”.

Employees

As of January 31, 2006, we had 29 full-time employees and one part-time employee. None of our employees are subject to collective bargaining agreements, and we believe that we have satisfactory relationships with our employees. In addition, our subsidiary CXT uses approximately 60 people that are employees of a personnel leasing firm.
 
MANAGEMENT

The following table sets forth information on our executive officers and directors. All directors are elected at each annual meeting and serve for one year and until their successors are elected and qualify. Our officers serve at the pleasure of our board of directors.

Name
 
 
Age
 
 
Positions
 
Richard Hersh
 
 
63
 
 
Chief Executive Officer, Chairman of the Board of Directors
 
Michael J. Darden
 
 
36
 
 
President and Director
 
 
Richard Hersh . Mr. Hersh has been Chairman and Chief Executive Officer of our company since March 2003 and served in the same capacities with Freight Rate, Inc. from August 2001 until March 2003. Mr. Hersh served as Chief Operating Officer of Freight Rate, Inc. from 1998 until being elected CEO and Chairman in April 2001. Prior to joining Freight Rate, Inc., he held several management positions including Operations Manager of Express Web, Inc., Chief Executive Officer of TRW, Inc. a start-up recycling company, Vice President of Operations for Book Warehouse, a discount bookstore chain, and Director of Operations for Dollar Time. Also, Mr. Hersh founded and was Chief Executive Officer of Helyn Brown’s, a retailer of women’s apparel with stores in Florida and Louisiana, which he sold after approximately 16 years.
 
Michael J. Darden . Mr. Darden has served as our president since April 2003 and a member of our board of directors since June 2003. From June 2002 until April 2003, Mr. Darden provided us with various consulting services in the areas of strategic planning, operations and logistics. From 1997 until June 2002, he was president of Darden Distribution & Warehouse Consulting, Inc., a company he founded which designed, developed, implemented and managed warehouse management systems, fulfillment and distribution systems, automated order entry systems and shipping manifest systems for several clients, as well as establishing and managing its own warehousing, manufacturing and distribution operations.
 
All directors are elected at each annual meeting and serve until their successors are elected and qualified. Our officers serve at the pleasure of our board of directors.
 
Key Employees
 
William A. Stokes . Mr. Stokes has served as President of Commodity Express Transportation, Inc. since March 2005. From 1982 until joining our subsidiary in 2005, he founded and was President of the South Carolina company from which we purchased certain assets and liabilities in March 2005.
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     John Urbanowicz. Mr. Urbanowicz, 48, has served as our Vice President of Information Technology since January 2003. From June 2002 until January 2003, he provided us with various consulting services in the areas of technology, logistics and operations. During the approximately 20 years prior to joining our company, Mr. Urbanowicz was involved predominantly in the logistics and distribution fields as a distribution manager, general manager, information technology manager and, most recently, as a software and business consultant. From January 2002 until April 2002 Mr. Urbanowicz was Director Application Development for Independent Read360Network, Inc. where he was responsible for application design and development for content delivery to Palm and wireless devices through radio frequency (RF) and infrared radiation (IR) connectivity. From August 2000 until December 2001 he served as Vice President of Information Technology at Healthtrac Corporation where he was responsible for product definition and development of an online health portal and a health risk assessment tool including content management capability, and from April 1999 until June 2000 Mr. Urbanowicz was Vice President of Information Technology for Furkon, Inc. where he was responsible for overseeing day to day business operations along with overseeing in excess of 40 developers in design, testing and implementation of multi-tier browser based application using Java and Oracle.
 
Arnold J. Werther . Mr. Werther, 49, has been employed by us since March 2004, serving as Director of Sales until August 2004 when he was appointed Vice President of Sales and Operations. From June 2003 until January 2004 Mr. Werther was Vice President Supply & Logistics Transportation for The Great Atlantic & Pacific Teach Company, Inc. (NYSE: GAP) where he was responsible for all logistics and transportation for the U.S. operations of that company. From July 2001 until March 2003 he was an Account Executive, America, for MARC Global, a Virginia-based company that is a provider of supply chain execution software and services, where he was responsible for new sales with U.S. third party logistics providers. From April 2000 to July 2001 Mr. Werther was a Strategic Account Executive with EXE Technologies, Inc., a Texas-based provider of fulfillment, warehousing and distribution software for e-commerce and traditional distribution channels. At EXE Technologies Mr. Werther was responsible for both new and existing business development. From 1999 until April 2000 Mr. Werther was Director of Distribution Operations for AEP Industries, Inc., a New Jersey-based worldwide manufacturer of plastic packaging films where he was responsible for directing all logistics functions, including customer service and inventory control operations at all seven domestic manufacturing plan locations and outside distribution centers. From 1997 to 1999 Mr. Werther was General Manger, Northeast Region, for National Distribution Centers, a New Jersey-based nationwide provider of third party logistics services where he was responsible for all aspects of regional sales and operations for 10 sites in the northeastern U.S.
 
Committees of the Board of Directors
 
Our Board of Directors has not established any committees, including an Audit Committee or a Nominating Committee. The functions of those committees are being undertaken by the entire board as a whole. No member of our board is a financial expert. As we expand our board in the future we will seek to add one or more members who independent directors and financial experts.
 
Code of Ethics
 
We have adopted a Code of Ethics and Business Conduct to provide guiding principles to our principal executive officer, principal financial officer, and principal accounting officer or controller of our company in the performance of their duties. Our Code of Ethics and Business Conduct also strongly recommends that all directors and employees of our company comply with the code in the performance of their duties. Our Code of Ethics and Business Conduct provides that the basic principle that governs all of our officers, directors and employees is that our business should be carried on with loyalty to the interest of our stockholders, customers, suppliers, fellow employees, strategic partners and other business
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associates. We believe that the philosophy and operating style of our management are essential to the establishment of a proper corporate environment for the conduct of our business.
 
Generally, our Code of Ethics and Business Conduct provides guidelines regarding:
 
  conflicts of interest,
 
  financial reporting responsibilities,
 
  insider trading,
 
  inappropriate and irregular conduct,
 
  political contributions, and
 
  compliance with laws.
 
EXECUTIVE COMPENSATION
 
The table below sets forth all cash compensation paid to our executive officers for services they rendered to us in all capacities during the fiscal years presented.
 
                                                Summary Compensation Table
 
         
Long-Term
Compensation
 
Name and Principal
Position
Fiscal
Year
Annual
Salary
Compensation
Bonus
Other Annual
Compensation
Restricted
Stock Awards
Securities Underlying
Options SAR (# )
All Other
Compensation
Richard Hersh,
2005
$205,200 (1)
$0
$0
$0
2,060,881
$0
Chief Executive
2004
$171,913 (1)
$0
$0
$0
0
$0
Officer
2003
$ 62,947 (1)
$0
$0
$0
0
$0
               
Michael J. Darden,
2005
$194,395 (2)
$9,304
$0
$0
1,043,812
$0
President
2004
$148,319
$1,083
$19,200
$0
0
$0
 
2003
$ 14,450
$7,500
$50,725
$0
1,888,999
$0

 
(1)
Includes accrued salary that remains unpaid as of the end of fiscal years 2005, 2004 and 2003, of $85,200, $51,913 and $3,600, respectively. On March 10, 2003, we issued Mr. Hersh a convertible promissory note in the amount of $135,000 in exchange for his forgiveness of $147,520 of accrued salary. The interest rate of the note is 8% per annum and it has a maturity date of June 30, 2006. The outstanding principal balance of the note may be converted at any time into shares of our common stock at a conversion price equal to the lesser of (a) $1.51 per share, or (b) 50% of the average of the closing bid price of the common stock for the five trading days immediately preceding the date of conversion, but not less than $0.75 per share
 
(2)
Includes accrued salary that remains unpaid as of the date of this annual report of $2,292 at the end of fiscal year 2005.
 
Option Grants in Year Ended June 30, 2005
(individual grants)
 
 
NO. OF SECURITIES
% OF TOTAL OPTIONS/SARs
   
 
UNDERLYING OPTIONS
GRANTED TO EMPLOYEES
EXERCISE
EXPIRATION
NAME
SARs GRANTED
IN FISCAL YEAR
PRICE
DATE
         
Richard Hersh
2,068,881
37.0%
$0.25
May 2, 2008
Michael J. Darden
977,604
17.5%
$0.25
May 2, 2008

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The foregoing excludes three year options granted in April 2005 to Messrs. Hersh and Darden providing each with the right to purchase 10% of the shares of common stock of CXT for an exercise price of $60,000.
 
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values

     
NO. OF SECURITIES
   
     
UNDERLYING UNEXERCISED
VALUE OF UNEXERCISED
 
 
SHARES
 
OPTIONS AT
 
IN-THE-MONEY OPTIONS AT
 
 
ACQUIRED
 
JUNE 30, 2005
 
JUNE 30, 2005(1)
 
 
ON
VALUE
       
NAME
EXERCISE
REALIZED
EXERCISABLE
UNEXERCISABLE
EXERCISABLE
UNEXERCISABLE
             
Richard Hersh
0
n/a
6,182,642
0
0
0
Michael J. Darden
0
n/a
2,932,811
0
0
0
 
(1)   Based upon the closing bid price of our common stock as reported on the OTC Bulletin Board on June 30, 2005 of $0.23.
 
Director’s Compensation
 
We do not have any standard arrangements with members of our board of directors which provide them with compensation for any services provided as a director. In August 2003, at the sole discretion of the board of directors, we issued Douglas Gass, who was then a member of our board of directors, 50,000 shares of our common stock which were valued at $31,500, as compensation for services rendered by him. In May 2005, at the sole discretion of the board of directors, we issued Brett Kublin, who was then a member of our board of directors, a three-year option to purchase 132,417 shares of our common stock for $0.25 per share, as compensation for services rendered by him. In May 2005, at the sole discretion of the board of directors, we issued Richard Hersh, our chairman and chief executive officer, three-year options to purchase 2,060,881 shares of our common stock for $0.25 per share, as compensation for services rendered by him as an officer and member of the board. In May 2005, at the sole discretion of the board of directors, we issued Michael Darden, our president and board member, three-year options to purchase 977,604 shares of our common stock for $0.25 per share, as compensation for services rendered by him as an officer and member of the board. In the future, our board of directors, in its sole discretion, may determine to provide compensation to our independent, non-employee directors for their services on our board. We are unable at this time to estimate the amount of such compensation.
 
Employment Agreements
 
Richard Hersh. Effective January 1, 2003, we entered into a five-year employment agreement with Richard Hersh to serve as our CEO. Under the terms of this agreement, at such time as we have received funding of at least $2 million or are reporting cash flow of at least $250,000 per month, Mr. Hersh will receive a base salary of not less than $150,000 for the first year of the agreement, with annual increases of at least 20% per year to be negotiated on each anniversary of the commencement date of the agreement. Until such time as we had received the funding Mr. Hersh was to receive a minimum of 75% of his base salary. He began receiving his minimum salary in 2003. He had accrued salary of $140,713 as of the end of fiscal year 2005.
 
Mr. Hersh is eligible to receive a performance-based bonus based on 1% of our earnings before interest, taxes, depreciation and amortization (EBITDA) during each fiscal year but has not earned any performance-based bonuses.   Mr. Hersh is also entitled to participate in all benefits we offer our senior executives as well as a monthly car allowance of $600. Under the terms of the agreement we granted Mr. Hersh options to purchase 750,000 shares of our common stock under our Stock Incentive Plan, with an exercise price of $0.50 per
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share, of which 250,000 shares have vested and the remaining 500,000 shares vest one-half on January 1, 2005 and the balance on January 1, 2006. The term of employment is automatically renewed for successive one year terms beginning on the five-year anniversary of the agreement, unless previously the agreement has been terminated according to its termination provisions or if either we or Mr. Hersh elect to terminate the agreement by written notice at least 90 days prior to the expiration of the then-current term of employment.
 
Mr. Hersh is subject to customary non-competition and non-disclosure restrictions. The agreement terminates upon his death or disability, or it may be terminated by us with or without cause, or by Mr. Hersh with good reason. In the event of a termination upon Mr. Hersh’s death or disability, termination for cause as defined in the employment agreement or resignation without reason, we are obligated to pay his salary and benefits through the date of termination. In the event we should terminate Mr. Hersh without cause, we must pay him all compensation that he would have been otherwise entitled to through the end of the term of the agreement in a lump sum within 10 days of the date of termination. If we should terminate Mr. Hersh within one year of a “change of control” of our company as defined in the employment agreement, we are obligated to pay him his base salary through the date of termination, including all benefits and any performance bonus which he may have earned through the date of termination together with severance equal to two times his then current base salary and the vesting of all then unvested stock options will accelerate.
 
Michael J. Darden. Effective April 15, 2003, we entered into a four-year employment agreement with Michael J. Darden to serve as our President. Under the terms of this agreement, at such time as we have received funding of at least $2 million or are reporting cash flow of at least $250,000 per month, Mr. Darden will receive a base salary of not less than $150,000 for the first year of the agreement, with annual increases of at least 15% per year to be negotiated on each anniversary of the commencement date of the agreement. Until such time as we had received the funding Mr. Darden was to receive a minimum of 75% of his base salary. He began receiving his minimum salary in April 2003. He had accrued salary of $4,391 as of the end of fiscal year 2005.
 
Mr. Darden is eligible to receive a performance-based bonus based on 1% of our earnings before EBITDA during each fiscal year but has not earned any performance-based bonuses. Mr. Darden is also entitled to participate in all benefits we offer our senior executives as well as a monthly car allowance of $600. Under the terms of the agreement we granted Mr. Darden options to purchase 300,000 shares of our common stock under our Stock Incentive Plan, with an exercise price of $1.01 per share, of which 150,000 shares have vested and the remaining 150,000 shares vest on April 15, 2005. The term of employment is automatically renewed for successive one year terms beginning on the five-year anniversary of the agreement, unless previously the agreement has been terminated according to its termination provisions or if either we or Mr. Darden elect to terminate the agreement by written notice at least 90 days prior to the expiration of the then-current term of employment.
 
Mr. Darden is subject to customary non-competition and non-disclosure restrictions. The agreement terminates upon his death or disability, or it may be terminated by us with or without cause, or by Mr. Darden with good reason. In the event of a termination upon Mr. Darden’s death or disability, termination for cause as defined in the employment agreement or resignation without reason, we are obligated to pay his salary and benefits through the date of termination. In the event we should terminate Mr. Darden without cause, we must pay him all compensation that he would have been otherwise entitled to through the end of the term of the agreement in a lump sum within 10 days of the date of termination. If we should terminate Mr. Darden within one year of a “change of control” of our company as defined in the employment agreement, we are obligated to pay him his base salary through the date of termination, including all benefits and any performance bonus which he may have earned through the date of termination together with severance equal to two times his then current base salary and the vesting of all then unvested stock options will accelerate.
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John Urbanowitz. Effective January 1, 2003, we entered into a four-year employment agreement with John Urbanowicz to serve as our Vice President of Technology and Information. Under the terms of this agreement, at such time as we have received funding of at least $2 million or are reporting cash flow of at least $250,000 per month, Mr. Urbanowicz will receive a base salary of not less than $125,000 for the first year of the agreement, with annual increases of at least 10% per year to be negotiated on each anniversary of the commencement date of the agreement. Until such time as we had received the funding Mr. Urbanowicz was to receive a minimum of 70% of his base salary. He began receiving his minimum salary in January 2003. He had accrued salary of $2,292 as of the end of fiscal year 2005
 
Mr. Urbanowicz is eligible to receive a performance-based bonus as determined by our board of directors but has not earned any performance-based bonuses. Mr. Urbanowicz is also entitled to participate in all benefits we offer our senior executives. Under the terms of the agreement we granted Mr. Urbanowicz options to purchase 993,124 shares of our common stock under our Stock Incentive Plan, with an exercise price of $.38 per share, which have vested. The term of employment is automatically renewed for successive one year terms beginning on the four-year anniversary of the agreement, unless previously the agreement has been terminated according to its termination provisions or if either we or Mr. Urbanowicz elect to terminate the agreement by written notice at least 90 days prior to the expiration of the then-current term of employment.
 
Mr. Urbanowicz is subject to customary non-competition and non-disclosure restrictions. The agreement terminates upon his death or disability, or it may be terminated by us with or without cause, or by Mr. Urbanowicz with good reason. In the event of a termination upon Mr. Urbanowicz’s death or disability, termination for cause as defined in the employment agreement or resignation without reason, we are obligated to pay his salary and benefits through the date of termination. In the event we should terminate Mr. Urbanowicz without cause, we must pay him all compensation that he would have been otherwise entitled to through the end of the term of the agreement in a lump sum within 10 days of the date of termination. If we should terminate Mr. Urbanowicz within one year of a “change of control” of our company as defined in the employment agreement, we are obligated to pay him his base salary through the date of termination, including all benefits and any performance bonus which he may have earned through the date of termination together with severance equal to two times his then current base salary and the vesting of all then unvested stock options will accelerate.
 
W.A. Stokes . In March 2005 our subsidiary CXT entered into a one year employment agreement with Mr. W.A. Stokes to serve as its President. Mr. Stokes is entitled to an annual base salary of $150,000, and a quarterly bonus based on the gross revenue that he is responsible for acquiring for CXT derived from its current largest customer for certain freight. Mr. Stokes is also entitled to participate in all benefit plans CXT may offer its employees, reimbursement for business expenses, and an automobile allowance. The initial term of the agreement can be extended for two additional one year terms unless otherwise terminated by either party. The employment agreement can be terminated by CXT for "cause" as defined in the agreement, in the event of Mr. Stokes' death or disability or if CXT discontinues operating its business. Mr. Stokes may terminate the agreement with "good cause" if CXT breaches the compensation or benefit section of the agreement. If CXT terminates the agreement without cause, or if Mr. Stokes terminates the agreement with good cause, Mr. Stokes is entitled to payment of his base salary for the remaining term of the agreement. If the agreement is terminated by CXT for cause or by Mr. Stokes for any reason other than with good cause, he is only entitled to compensation through the date of termination. The agreement contains non-compete and confidential provisions.
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Key Consulting Agreements
 
Stokes Logistics Consulting, LLC. In March 2005 CXT entered into a five year consulting agreement with Stokes Logistics Consulting, LLC which provides that Stokes Logistics, through Mr. W.A. Stokes, the principal of Commodity Express Transportation, to provide certain specified services to CXT including maintaining and building the business relationship with both its current largest customer and TPS Logistics, Inc. As compensation CXT will pay Stokes Consulting a fee based upon its gross revenue, payable monthly, with the minimum and maximum payable in any one year of $100,000 and $200,000, respectively. As additional compensation, CXT also agreed to pay Stokes Logistics an amount equal to what it is obligated to pay TPS Logistics if for any reason CXT is not paying TPS Logistics the amounts due it under the commission agreement described above. The agreement contains customary confidentiality and non-circumvention provisions and can be terminated under certain circumstances including fraud by Stokes Consulting, a breach of the confidential provisions of the agreement or a material breach under the mutual agreement. The agreement may be extended for two successive one year terms upon the consent of both parties.
 
2001 Employee Stock Compensation Plan
 
In January 2001 we adopted our 2001 Employee Stock Compensation Plan. The plan is intended to further the growth and advance the best interests of our company, by supporting and increasing our ability to attract, retain and compensate persons of experience and ability and whose services are considered valuable, to encourage the sense of proprietorship in such persons, and to stimulate the active interest of such persons in the development and success of Power2Ship. The plan provides for stock compensation through the award of shares of our common stock.
 
The board of directors may appoint a Compensation Committee of the board of directors to administer the plan. In the absence of such appointment, our board of directors is responsible for the administration of this plan. To date, our board has not appointed a Compensation Committee to administer the plan. The board of directors has the sole power to award shares of common stock under the plan, as well as determining those eligible to receive an award of plan shares. Awards of shares under the plan may be made as compensation for services rendered, directly or in lieu of other compensation payable, as a bonus in recognition of past service or performance or may be sold to an employee.
 
The maximum number of shares which may be awarded under the plan is 5,000,000. At the date of this annual report 4,681,000 shares had been granted under the plan. Awards may generally be granted to:
 
 
executive officers, officers and directors (including advisory and other special directors) of Power2Ship;
 
 
full-time and part-time employees of our company;
 
 
natural persons engaged by us as a consultant, advisor or agent; and
 
 
a lawyer, law firm, accountant or accounting firm, or other professional or professional firm engaged by us.
 
Grants to employees may be made for cash, property, services rendered or other form of payment constituting lawful consideration under applicable law. Shares awarded other than for services rendered may not be sold at less than the fair value of our common stock on the date of grant.
 
The plan will terminate on the tenth anniversary of its effective date, unless terminated earlier by the board of directors or unless extended by the board of directors, after which time no incentive award grants can be authorized under the plan. The board of directors has absolute discretion to amend the plan with the exception that the board has no authority to extend the term of the plan, to increase the number of shares subject to award under the plan or to amend the definition of "Employee" under the plan.
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Limitation on liability and indemnification matters
 
As authorized by the Nevada Revised Statutes, our articles of incorporation provide that none of our directors shall be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director, except liability for:
 
 
any breach of the director's duty of loyalty to our company or its stockholders;
 
 
acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
 
 
unlawful payments of dividends or unlawful stock redemptions or repurchases; and
 
 
any transaction from which the director derived an improper personal benefit.
 
This provision limits our rights and the rights of our stockholders to recover monetary damages against a director for breach of the fiduciary duty of care except in the situations described above. This provision does not limit our rights or the rights of any stockholder to seek injunctive relief or rescission if a director breaches his duty of care. These provisions will not alter the liability of directors under federal securities laws. Our by-laws require us to indemnify directors and officers against, to the fullest extent permitted by law, liabilities which they may incur under the circumstances described above.
 
Our articles of incorporation further provide for the indemnification of any and all persons who serve as our director, officer, employee or agent to the fullest extent permitted under Nevada law.
 
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers and controlling persons according to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.
 
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS  
 
In April 2005, Richard Hersh, our Chief Executive Officer and Michael J. Darden, our President, were granted options providing each with the right to purchase 10% of the shares of common stock of CXT for an exercise price of $60,000 expiring three years from the date these options were granted.

In February 2005, we engaged Carmelo Luppino, a principal shareholder of our company, as a consultant to provide us with various business advisory services for one year. Mr. Luppino’s compensation for providing these consulting services included 700,000 shares of common stock valued at $203,000, a three-year warrant to purchase 700,000 shares of common stock for $0.15 per share valued at $156,870 and, upon an amendment made to the consulting agreement in May 2005, a three-year warrant to purchase 350,000 shares of common stock for $0.15 per share valued at $93,590. This agreement was amended in November 2005 to extend its term for an additional year, for which Mr. Luppino received a three-year warrant to purchase 1,500,000 shares of common stock for $0.15 per share valued at $177,150. Also, in July 2004 we issued Mr. Luppino a warrant to purchase 221,755 shares for $0.38 per share that expire on March 6, 2006 valued at $22,841 for providing management with consulting services.

In January 2005 we borrowed $150,000 from Michael Garnick, a principal shareholder of our company, under an unsecured promissory note bearing interest at 10% per annum. We used the proceeds for general working capital. The principal and accrued but unpaid interest is due on or before April 5, 2005. Mr. Garnick agreed to forgive repayment of the note
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and accrued interest thereon in consideration for $150,000 of our unit offering that gave him 1,000,000 shares of common stock and a warrant to purchase 1,000,000 shares of common stock for $0.15 per share until July 31, 2008.
 
In October 2004, we engaged Mr. Garnick 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 we acquired the 30% interest in all of our intellectual property, including certain service marks and patent rights to our ASP software that collectively had been owned by Messrs. Hersh, Darden and Urbanowicz in consideration for an aggregate of 600,000 shares of our common stock pursuant to the terms of Intellectual Property Assignment Agreements. The agreements with Messrs. Hersh, Urbanowicz and Darden were executed on July 19, July 21 and August 26, 2004. We valued the shares issued to Messrs. Hersh, Urbanowicz and Darden at $226,000 using the closing prices of our common stock on those dates as reported on the OTCBB of $0.38, $0.37 and $0.38 per share, respectively. This $226,000 intangible asset is being amortized over its estimated useful life of two years from the effective dates of the Intellectual Property Assignment Agreements. We recorded amortization expense of $103,587 for fiscal year 2005.
 
At the time of the transaction, Messrs. Hersh and Darden were two of the three members of our board of directors. In our discussions with Messrs. Hersh, Darden and Urbanowicz leading up to the signing of the agreement, we analyzed our business in an attempt to reach a fair value of the intellectual property rights we wished to acquire. As a result of this analysis, we believe that the value of our business is based primarily on our unique intellectual property, including but not limited to our trade marks, service marks and ASP software. Our board of directors determined that the value of our company, based upon our market capitalization as calculated using the average closing price of our common stock for the 30 trading days preceding the agreement to acquire the intellectual property rights, was $15 million. In determining the ultimate purchase price of the intellectual property rights, we established an arbitrary amount of $226,000, which represented approximately 1.5% of our market capitalization. We believe that this amount is fair to our stockholders and reasonable consideration to be paid to Messrs. Hersh, Darden and Urbanowicz for the rights we acquired.
 
Before deciding to use a market capitalization valuation method, alternative valuation methods were considered by our board of directors, but upon analysis were deemed to be inappropriate. Our board of directors considered a valuation based on book value, but determined that book value was not meaningful since we have a negative book value. Our board of directors considered a valuation based on discounted cash flow, but deemed this basis to be unreliable since it requires numerous assumptions, including our projected cash flows, which are difficult to make with any degree of confidence at our current stage of development. Finally, our board of directors considered a valuation based on comparable company analysis, but determined it would not be possible since we are unaware of any comparable companies.

In April 2004, we issued 25,000 shares of our common stock to Mr. Urbanowicz, our Vice President of Information Technology, as compensation for services rendered by him that were valued at $9,500.

In January 2004, we issued 25,000 shares of our common stock to Mr. Gass, a former member of our board of directors, as compensation for services rendered by him that were valued at $10,625.
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On March 10, 2003, we issued a convertible promissory note in the principal amount of $125,000 to Mr. Garnick which bore interest at the rate of 5% per annum and it had a maturity date of April 10, 2004. We had used the funds for working capital. The holder of the note had the right to convert the outstanding principal balance of the note and interest accrued thereon into shares of our common stock at a conversion price of $0.40 per share. On June 5, 2003, we borrowed an additional $100,000 from Mr. Garnick, and we issued him a new convertible promissory note in the principal amount of $225,000. The new note bore interest of 5% per annum, had a maturity date of December 5, 2003 and had the same conversion provision as provided for in the original note. Subsequent to its issuance, the conversion provision in the new note was amended to change the conversion price to $0.79 per share which equaled the closing market price of our common stock on the issue date. We used these additional funds for working capital. We also granted Mr. Garnick 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. Further, the new note had a prepayment provision requiring certain amounts of principal and interest accrued thereon to be repaid upon our receipt of capital in excess of specified amounts during each month of the term of the note. On July 22, 2003 we repaid $100,000 of the principal amount of note. On August 9, 2003, Mr. Garnick agreed to cancel the prepayment provision of the note in consideration for 125,000 shares of our common stock valued at $72,500. On September 18, 2003, Mr. Garnick purchased 25,800 shares of our Series B preferred stock valued at $129,000 and paid for it by forgiving the $125,000 outstanding balance on the convertible note and accrued interest thereon.
 
 
PRINCIPAL STOCKHOLDERS
 
At January 31, 2006 there were 76,883,014 shares of our common stock and 87,000 shares of our Series Y Convertible Preferred Stock issued and outstanding. These are the only classes of our voting securities. The following table sets forth information known to us relating to the beneficial ownership of these shares as of January 31, 2006 by:
 
 
each person who is the beneficial owner of more than 5% of the outstanding shares of the class of stock;
 
 
each director;
 
 
each executive officer; and
 
 
all executive officers and directors as a group.
 
Unless otherwise indicated, the business address of each person listed is in care of 903 Clint Moore Road, Boca Raton, Florida 33487. We believe that all persons named in the table have sole voting and investment power with respect to all shares beneficially owned by them. Under securities laws, a person is considered to be the beneficial owner of securities he owns and that can be acquired by him within 60 days from January 31, 2006 upon the exercise of options, warrants, convertible securities or other understandings. We determine a beneficial owner's percentage ownership by assuming that options, warrants or convertible securities that are held by him, but not those held by any other person and which are exercisable within 60 days of January 31, 2006, have been exercised or converted.
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Amount and Nature
 
 
 
 
 
Name of
Beneficial Owner
 
of Beneficial Ownership
 
Percentage
of Class
 
Percentage
  Voting Control 1
 
               
Common Stock:
             
               
Richard Hersh 2
 
   
6,725,503
   
8.1
%
 
24.0
%
Michael J. Darden 3
 
   
2,404,520
   
3.0
%
 
2.32
%
All officers and directors
 
                   
as a group (two persons) 2, 3
 
   
9,602,577
   
10.7
%
 
25.8
%
Michael Garnick 4
 
   
5,144,440
   
6.6
%
 
5.4
%
Carmelo Luppino 5
 
   
7,298,218
   
8.9
%
 
7.4
%
                     
Series Y Convertible Preferred Stock:
 
           
                     
Richard Hersh 2
 
   
87,000
   
100
%
 
24.0
%
Michael J. Darden 3
 
   
0
   
*
   
2.3
%
All officers and directors as a
 
                   
group (two persons) 2, 3
 
   
87,000
   
100
%
 
25.8
%
                     
*   represents less than 1%
 
           

1   Percentage of Voting Control is based upon the number of issued and outstanding shares of our common stock and our Series Y Convertible Preferred Stock on January 31, 2006. On that date we had 76,883,014 outstanding shares of common stock with one vote per share and 87,000 shares of Series Y Convertible Preferred Stock with 200 votes per share for an aggregate of 94,283,014 votes.
 
2   Includes 4,121,761 shares of common stock underlying options exercisable at $.38 per share which expire on January 31, 2008, 2,060,881 shares of common stock underlying an option exercisable at $.25 per share which expires on May 2, 2008 and 153,333 shares issuable upon the conversion of a $115,000 principal amount convertible note based on a conversion price of $.75 per share.
 
3   Includes 66,208 shares of common stock underlying an option exercisable at $.38 per share which expires on June 17, 2007, 66,208 shares of common stock underlying an option exercisable at $.38 per share which expires on June 17, 2006, 794,500 shares of common stock underlying an option exercisable at $.38 per share which expires on January 1, 2007, 150,000 shares of common stock underlying an option exercisable at $1.01 per share which expires on April 15, 2007, 150,000 shares of common stock underlying an option exercisable at $1.01 per share which expires on April 15, 2008 and 977,604 shares underlying an option exercisable at $.25 per share which expires on May 2, 2008.
 
4   Mr. Garnick’s address is 1590 Stockton Road, Meadowbrook, Pennsylvania 19046. Includes 1,000,000 shares of common stock underlying a warrant exercisable at $0.15 per share which expires on February 28, 2008.
 
5   Mr. Luppino’s address is 77 Sheather Road, Mt. Kisko, New York 10549. Includes 700,000 shares of our common stock underlying a warrant exercisable at $0.15 per share expiring on February 2, 2008, 350,000 shares underlying a warrant exercisable at $0.15 per share expiring on May 10, 2008, 1,500,000 shares underlying a warrant exercisable at $.15 per share expiring on November 10, 2008, 1,333,333 shares underlying a warrant exercisable at $.15 per share expiring on November 15, 2008 and 1,000,000 shares underlying $100,000 of our Series C 10% unsecured convertible debentures based on a conversion price of $.10 per share.
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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 January 31, 2006, there are 76,883,014 shares of common stock, 158,200 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:
 
 
it has a stated value of $5.00 per share;

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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;
 
 
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;
 
 
the shares have no voting rights, other than as provided under the laws of the State of Nevada;
 
 
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;
 
 
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
 
  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:
 
 
it has a stated value of $30.00 per share;
 
 
it does not pay any dividends;
 
 
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;
 
 
the shares have no voting rights, other than as provided under the laws of the State of Nevada;
 
 
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;

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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
 
  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:
 
 
it has a stated value of $0.01 per share;
 
 
it does not pay any dividends;
 
 
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;
 
 
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;
 
 
each share is convertible into 2.66065 share of common stock, subject to adjustment in the event of stock splits or recapitalizations; and
 
  the shares are not redeemable by us.
 
Options
 
At January 31, 2006, we had outstanding options which have been granted outside our 2001 Employee Stock Compensation Plan entitling the holders thereof to purchase 15,389,052 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 January 31, 2006, we had outstanding warrants to purchase 45,345,881 shares of common stock at prices ranging from $0.07 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.
- 51 -

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 S ecurities Act in reliance on exemptions provided by Section 4(2) and Rule 506 of Regulation D. At January 31, 2005 $1,597,000 principal amount of these debentures remains 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 has been funded with one six-month interest payment or approximately $125,000.
 
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. 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:
 
 
$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
 
 
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.
- 52 -

         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 S ecurities 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.
 
Series C 10% unsecured convertible debentures
 
Between October 2005 and February 2006 we sold an aggregate of $420,000 principal amount Series C 10% unsecured convertible debentures in a private transaction exempt from registration under the S ecurities Act in reliance on an exemption provided by Section 4(2) of that act. 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.
 
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.
 
Transfer agent
 
Our transfer agent is Madison Stock Transfer, Inc., 1688 East 16 th Street, Brooklyn, New York 11229, and its telephone number is (718) 627-6341.
 
SELLING SECURITY HOLDERS
 
This prospectus relates to periodic offers and sales of up to 71,953,154 shares of common stock by the selling security holders listed below and their pledgees, donees and other successors in interest, which includes:
 
        10,012,204 shares of our common stock presently issued,
 
 
5,974,560 shares of our common stock issuable upon the conversion of $1,597,000 principal amount 14.25% secured convertible debentures based upon a conversion price of $0.2673 per share ,
 
 
3,950,000 shares of our common stock issuable upon the conversion of $395,000 principal amount Series C 10% unsecured convertible debentures based upon a conversion price of $0.10 per share ,
 
 
10,000,000 shares of our common stock issuable upon the conversion of $2,000,000 principal amount Series B 5% secured convertible debentures based upon a conversion price of $0.07067 per share which was 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 February 3, 2006 ,
 
 
41,316,390 shares of our common stock underlying outstanding options and warrants, and
 
 
700,000 shares of our common stock issuable upon the conversion of outstanding notes in the principal amount of $175,000.
 
The following table sets forth            
 
‚  
the name of each selling security holder,
 
‚ 
the number of shares owned, and
 
‚  
the number of shares being registered for resale by each selling security holder.
 
We may amend or supplement this prospectus from time to time to update the disclosure set forth in this prospectus. All of the shares owned by the selling security holders may be offered hereby. Because the selling security holders may sell some or all of the shares owned by them, and because there are currently no agreements, arrangements or understandings with respect to the sale of any of the shares, no estimate can be given as to the number of shares that will be held by the selling security holders upon termination of any offering made hereby. If all the shares offered hereby are sold, the selling security holders will not own any shares after the offering.
 
   
Number
Percentage
Shares
Shares to
Percentage
Name(s) of Selling
 
of shares
owned before
to be
be owned
owned after
Security Holders
 
owned
offering
offered
after offering
offering
             
Cornell Capital Partners, L.P. (1)
 
3,836,462
4.99%
10,689,538
1,346,890
1.73%
Mary Ellen Misiak-Viola (2)
 
647,417
*
75,000
572,417
*
Joseph E. Herndon, Sr. and Penny S. Herndon (3)
 
107,903
*
12,500
95,403
*
Jefferson C. Henn (4)
 
580,424
*
62,500
517,924
*
Garden State Cardiology Pension Plan (5)
 
194,225
*
22,500
171,725
*
David Wunder (6)
 
107,903
*
12,500
95,403
*
William A. and Mary C. Ballay (7)
 
107,903
*
12,500
95,403
*
John E. Andromidas (8)
 
86,322
*
10,000
76,322
*
James Cleavinger (9)
 
280,547
*
32,500
248,047
*
Norman Hoffberg (10)
 
107,903
*
12,500
95,403
*
The Humphrey Family Revocable Trust (11)
 
229,442
*
25,000
204,442
*
Rosemarie Mangione (12)
 
51,793
*
6,000
45,793
*
Luca Minna (13)
 
458,885
*
50,000
408,885
*
Craig Schulze (14)
 
129,483
*
15,000
114,483
*
Andrew Smith (15)
 
43,161
*
5,000
38,161
*
Tower Roofing Co., Inc. (16)
 
43,161
*
5,000
38,161
*
David A. Fisher (17)
 
86,322
*
10,000
76,322
*
Mitchell Domin (18)
 
215,806
*
25,000
190,806
*
H. Eugene & Barbara D. Agerton (19)
 
86,322
*
10,000
76,322
*
Andreas P. & Lana J. Kaupert (20)
 
43,161
*
5,000
38,161
*
William Hoops (21)
 
46,084
*
5,000
41,084
*
Les and Stacy Steinger (22)
 
215,806
*
25,000
190,806
*
Latif Thomas (23)
 
107,903
*
12,500
95,403
*
Wexford Clearing C/F Constance Fitzgerald (24)
 
107,903
*
12,500
95,403
*
Wexford Clearing C/F David Wunder (25)
 
86,321
*
10,000
76,321
*
Wexford Clearing C/F Thomas P. Basille (26)
 
86,321
*
10,000
76,321
*
Robert Zann (27)
 
43,161
*
5,000
38,161
*
Frank Giglio (28)
 
43,161
*
5,000
38,161
*
Kovpak II, LLC (29)
 
431,611
*
50,000
381,611
*
Laura Daniels (30)
 
43,161
*
5,000
38,161
*
George MacLauchlan (31)
 
215,806
*
25,000
190,806
*
Whitney Wykoff & Jeffrey Schumer (32)
 
129,483
*
15,000
114,483
*
Rebecca Paul (33)
 
43,161
*
5,000
38,161
*
Steven Paul (34)
 
43,161
*
5,000
38,161
*
Brian and Susan McNamara (35)
 
215,806
*
25,000
190,806
*
Newbridge Securities Corporation (36)
 
881,007
1.14%
881,007
-
*
Carmine Luppino (37)
 
7,298,218
8.93%
2,333,333
4,964,885
6.25%
Luppino Landscaping & Masonary, LLC (38)
 
1,395,833
1.80%
666,667
729,167
*
Triple L Concrete, LLC (39)
 
1,333,333
1.72%
666,667
666,667
*
Carmelo Gioffre (40)
 
400,000
*
200,000
200,000
*
Walter Whitt (41)
 
550,000
*
300,000
250,000
*
Dwight Power (42)
 
1,200,000
1.55%
1,000,000
200,000
*
Peter Cartmell (43)
 
1,140,095
1.47%
500,000
640,095
*
Salvatore Gioffre (44)
 
100,000
*
50,000
50,000
*
Giuseppe Gioffre (45)
 
200,000
*
100,000
100,000
*
Stephen D. Cirks (46)
 
673,333
*
466,667
206,667
*
The Amber Capital Fund Ltd. (47)
 
4,150,000
5.26%
2,000,000
2,150,000
2.80%
Howard & Myra Rubinstein (48)
 
530,000
*
425,000
105,000
*
Dennis Driscoll (49)
 
1,491,666
1.91%
1,166,667
324,999
*
Anthony Sillo, Jr. (50)
 
53,333
*
26,667
26,667
*
Gerald A. & Jennette K. Mahan (51)
 
240,000
*
100,000
140,000
*
Jerry Davis & Lorna Davis (52)
 
343,003
*
166,667
176,336
*
Donald Goldstein (53)
 
400,000
*
200,000
200,000
*
Salvatore Cascino (54)
 
442,660
*
200,000
242,660
*
Mac Lutz (55)
 
172,419
*
66,667
105,752
*
Robin Kimel (56)
 
141,634
*
33,333
108,301
*
Derek Hebner (57)
 
405,646
*
133,333
272,313
*
Edward Mule (58)
 
800,000
1.04%
400,000
400,000
*
Jeffery & Dorothy Pollens (59)
 
400,000
*
200,000
200,000
*
Salvatore & Rosemary Mule (60)
 
400,000
*
200,000
200,000
*
John Geuting (61)
 
2,766,667
3.51%
1,966,667
800,000
1.04%
Juliette Sasvari and Joan Maurice (62)
 
400,000
*
200,000
200,000
*
Elliott Jacoby (63)
 
158,309
*
50,000
108,309
*
Cecelia F. & Alan L.Garber (64)
 
266,666
*
133,333
133,333
*
Charles Mayer (65)
 
666,666
*
333,333
333,333
*
Paul S. & Marte V. Singerman (66)
 
400,000
*
200,000
200,000
*
Barbara P. & I. Buddy Levine (67)
 
800,000
1.04%
400,000
400,000
*
Lawrence C. & Carole T. Epstein (68)
 
266,666
*
133,333
133,333
*
Morris I. Berger (69)
 
800,000
1.04%
400,000
400,000
*
Abbey L. Kaplan (70)
 
82,320
*
33,333
48,987
*
Eliot C. Abbott (71)
 
100,000
*
50,000
50,000
*
Steve I. & Rachel Silverman (72)
 
289,909
*
133,333
156,576
*
Alan J. Kluger (73)
 
746,863
*
333,333
413,530
*
Howard J. & Gina L. Berlin (74)
 
1,159,891
1.50%
400,000
759,891
*
Deborah B. Talenfeld (75)
 
66,666
*
33,333
33,333
*
Mitchell D. Talenfeld (76)
 
66,666
*
33,333
33,333
*
Jena R. & Robert R. Atlass (77)
 
100,000
*
50,000
50,000
*
Jason S. Oletsky (78)
 
66,666
*
33,333
33,333
*
Steven I. Peretz (79)
 
400,000
*
200,000
200,000
*
Jo A. Hall (80)
 
454,234
*
200,000
254,234
*
Dale S. & Marlene F. Bergman (81)
 
66,666
*
33,333
33,333
*
Michael S. Perse (82)
 
66,666
*
33,333
33,333
*
Bruce A. & Diane W. Katzen (83)
 
74,471
*
33,333
41,138
*
Michael L. Landa (84)
 
400,000
*
200,000