<PAGE>

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

                     U.S. SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON DC 20549

                                   ----------

                                    FORM 10-Q

                                   ----------

                                   (Mark One)

                  X   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
                -----    SECURITIES EXCHANGE ACT OF 1934


                  For the quarterly period ended March 30, 2002

                 ___ TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
              For the transition period from _______ to _______.

                           Commission File No. 0-28452


                          VELOCITY EXPRESS CORPORATION
             (Exact name of registrant as specified in its charter)


           Delaware                        0-28452              87-0355929
(State or other jurisdiction of   (Commission File Number)     (IRS Employer
        incorporation)                                       Identification No.)


           7803 Glenroy Road, Suite 200, Minneapolis, Minnesota    55439
               (Address of Principal Executive Offices)          (Zip Code)


                                 (612) 492-2400
              (Registrant's telephone number, including area code)


                                   ----------


Check whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.

                             YES (X)          NO (___)

As of May 1, 2002, there were 3,662,603 shares of common stock of the registrant
issued and outstanding.

================================================================================
<PAGE>

                  VELOCITY EXPRESS CORPORATION AND SUBSIDIARIES

                               INDEX TO FORM 10-Q

                                 MARCH 30, 2002


<TABLE>
<CAPTION>
                                                                                                  Page
                                                                                                  ----
<S>                                                                                                <C>
PART I.      FINANCIAL INFORMATION
    ITEM 1.  Consolidated Financial Statements (Unaudited)
                   Balance Sheets as of March 30, 2002 and June 30, 2001.........................  3
                   Statements of Operations for the Three and Nine Months Ended
                      March 30, 2002 and March 31, 2001..........................................  4
                   Statement of Shareholders' Equity for the Nine Months Ended
                      March 30, 2002.............................................................  5
                   Statements of Cash Flows for the Nine Months Ended
                      March 30, 2002 and March 31, 2001..........................................  6
                   Notes to Consolidated Financial Statements....................................  7

    ITEM 2.  Management's Discussion and Analysis of
                   Financial Condition and Results of Operations.................................  12

    ITEM 3.  Quantitative and Qualitative Disclosures About Market Risk..........................  17


PART II.     OTHER INFORMATION
    ITEM 1.  Legal Proceedings...................................................................  17
    ITEM 2.  Changes in Securities and Use of Proceeds...........................................  18
    ITEM 3.  Defaults Upon Senior Securities.....................................................  18
    ITEM 4.  Submission of Matters to a Vote of Security Holders.................................  18
    ITEM 5.  Other Information...................................................................  19
    ITEM 6.  Exhibits and reports on Form 8-K....................................................  19

SIGNATURES.......................................................................................  19

EXHIBIT INDEX....................................................................................  20
</TABLE>

                                       2
<PAGE>

PART I.
                  VELOCITY EXPRESS CORPORATION AND SUBSIDIARIES
                           Consolidated Balance Sheets
                    (Amounts in thousands, except par value)
<TABLE>
<CAPTION>
                                                                                   March 30,    June 30,
                                                                                     2002         2001
                                                                                   ---------    ---------
                                                                                  (unaudited)
<S>                                                                                <C>          <C>
                                     ASSETS
Current assets:
     Cash                                                                          $   3,523    $   2,932
     Accounts receivable, net                                                         41,753       47,752
     Accounts receivable - other                                                       1,677        1,700
     Prepaid workers' compensation                                                    11,805       13,024
     Other prepaid expenses                                                            1,534        1,735
     Other current assets                                                                205          241
                                                                                   ---------    ---------
         Total current assets                                                         60,497       67,384

Property and equipment, net                                                            9,553        8,842

Goodwill, net                                                                         42,830       80,468
Notes receivable                                                                        --            182
Other assets                                                                           2,550        1,499
                                                                                   ---------    ---------
Total assets                                                                       $ 115,430    $ 158,375
                                                                                   =========    =========

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Trade accounts payable                                                        $  22,418    $  32,600
     Accrued insurance and claims                                                      8,101        9,601
     Accrued wages and benefits                                                        4,003        5,095
     Accrued legal and claims                                                          4,599        5,957
     Other accrued liabilities                                                         4,807       16,913
     Current portion of long-term debt                                                     7           27
                                                                                   ---------    ---------
         Total current liabilities                                                    43,935       70,193

Long-term debt, less current portion                                                  37,563       61,242
Accrued insurance and claims                                                          10,200       23,111

Redeemable preferred stock                                                              --         35,421

Shareholders' equity:
     Preferred stock, $0.004 par value, 50,000
         shares authorized at March 30, 2002
             Series B Convertible Preferred, 2,807 shares issued and outstanding      24,304         --
             Series C Convertible Preferred, 2,000 shares issued and outstanding      13,600         --
             Series C Warrants, 825 warrants outstanding                               4,100         --
             Series D Convertible Preferred, 1,893 shares issued and outstanding      11,308         --
             Series D Warrants, 217 warrants outstanding                               3,500         --
             Series F Convertible Preferred, 1,068 shares issued and outstanding      11,528         --

     Common stock, $0.004 par value, 150,000 shares authorized 3,503 and 3,429
         shares issued and outstanding at March 30, 2002 and June 30, 2001,
         respectively                                                                     14           14
     Stock subscription receivable                                                       (43)        --
     Additional paid-in-capital                                                       56,229       47,867
     Accumulated deficit                                                            (100,675)     (79,409)
     Foreign currency translation                                                       (133)         (64)
                                                                                   ---------    ---------
         Total shareholders' equity                                                   23,732      (31,592)
                                                                                   ---------    ---------
         Total liabilities and shareholders' equity                                $ 115,430    $ 158,375
                                                                                   =========    =========
</TABLE>

               The accompanying notes are an integral part of the
                       consolidated financial statements.

                                       3
<PAGE>

                  VELOCITY EXPRESS CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
                  (Amounts in thousands, except per share data)

<TABLE>
<CAPTION>
                                                Three Months Ended        Nine Months Ended
                                              ----------------------    ----------------------
                                              March 30,    March 31,    March 30,    March 31,
                                                2002         2001         2002         2001
                                              ---------    ---------    ---------    ---------
<S>                                           <C>          <C>          <C>          <C>
Revenue                                       $  81,539    $ 112,214    $ 261,742    $ 365,024

Cost of services                                 62,296       90,473      203,407      291,443
                                              ---------    ---------    ---------    ---------

        Gross profit                             19,243       21,741       58,335       73,581

Operating expenses:
        Occupancy                                 3,207        3,776       10,036       11,775
        Selling, general and administrative      15,424       23,713       48,068       79,146
        Restructuring charge                       --          4,425         --          4,425
                                              ---------    ---------    ---------    ---------

Total operating expenses                         18,631       31,914       58,104       95,346
                                              ---------    ---------    ---------    ---------

Income (loss) from operations                       612      (10,173)         231      (21,765)

Other income (expense):
        Interest expense                           (838)      (1,428)     (11,785)      (4,767)
        Common stock warrant charge                --           --         (1,020)        --
        Other                                        46           59        1,186         (147)
                                              ---------    ---------    ---------    ---------

Net loss                                      $    (180)   $ (11,542)   $ (11,388)   $ (26,679)
                                              =========    =========    =========    =========

Net loss applicable to common shareholders    $    (180)   $ (11,672)   $ (21,266)   $ (28,709)
                                              =========    =========    =========    =========

Basic and diluted net loss per share          $   (0.05)   $   (3.51)   $   (6.16)   $   (8.64)
                                              =========    =========    =========    =========

Basic and diluted weighted average number
        of common shares outstanding              3,483        3,329        3,450        3,321
                                              =========    =========    =========    =========
</TABLE>

               The accompanying notes are an integral part of the
                        consolidated financial statements

                                       4
<PAGE>

                  VELOCITY EXPRESS CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                                   (Unaudited)
                             (Amounts in thousands)

<TABLE>
<CAPTION>
                                                                 Series B                Series C                 Series D
                                                             Preferred Stock          Preferred Stock          Preferred Stock
                                                            ------------------        ----------------        -----------------
                                                            Shares      Amount        Shares    Amount        Shares    Amount
                                                            ------      ------        ------    ------        ------    ------
<S>                                                         <C>        <C>            <C>      <C>             <C>      <C>
Balance at June 30, 2001                                       --      $    --          --     $    --          --      $    --
      Beneficial conversion of Bridge Notes                    --           --          --          --          --           --
      Beneficial conversion of Subscription notes              --           --          --          --          --           --
      Value of Common Warrants issued
        in connection with sale of Series F Preferred          --           --          --          --          --           --
      Accretion of Series B Redeemable Preferred
        Stock to its redemption value                          --           --          --          --          --           --
      Accretion of Series D Redeemable Preferred
        Stock to its redemption value                          --           --          --          --          --           --
      Adjustments to Series C and D warrants to fair value     --           --          --          --          --           --
      Reclassification of Preferred instruments to
        Shareholders' Equity after redemption right waivers   2,807       24,304       2,000      13,600       1,895       11,327
      Payments against stock subscription receivable           --           --          --          --          --           --
      Common Stock warrants issued
        for services rendered                                  --           --          --          --          --           --
      Stock option exercises                                   --           --          --          --          --           --
      Warrant exercises                                        --           --          --          --          --           --
      Offering costs                                           --           --          --          --          --           --
      Conversion of Series D to Common                         --           --          --          --            (2)         (19)
      Conversion of Series F to Common                         --           --          --          --          --           --

      Net loss                                                 --           --          --          --          --           --
      Foreign currency translation                             --           --          --          --          --           --

      Comprehensive loss
                                                            -------    ---------   ---------   ---------   ---------    ---------
Balance at March 30, 2002                                     2,807    $  24,304       2,000   $  13,600       1,893    $  11,308
                                                            =======    =========   =========   =========   =========    =========

(Table continues)
<CAPTION>
                                                                 Series F               Preferred Stock
                                                              Preferred Stock               Warrants               Common Stock
                                                             ------------------         ----------------        ------------------
                                                             Shares      Amount         Shares    Amount        Shares    Amount
                                                             ------      ------         ------    ------        ------    ------
<S>                                                          <C>        <C>              <C>     <C>             <C>      <C>
Balance at June 30, 2001                                        --      $    --           --     $    --         3,429   $      14
      Beneficial conversion of Bridge Notes                     --           --           --          --          --          --
      Beneficial conversion of Subscription notes               --           --           --          --          --          --
      Value of Common Warrants issued
        in connection with sale of Series F Preferred           --           --           --          --          --          --
      Accretion of Series B Redeemable Preferred
        Stock to its redemption value                           --           --           --          --          --          --
      Accretion of Series D Redeemable Preferred
        Stock to its redemption value                           --           --           --          --          --          --
      Adjustments to Series C and D warrants to fair value      --           --           --          --          --          --
      Reclassification of Preferred instruments to
        Shareholders' Equity after redemption right waivers    1,073       11,603        1,042       7,600        --          --
      Payments against stock subscription receivable            --           --           --          --          --          --
      Common Stock warrants issued
        for services rendered                                   --           --           --          --          --          --
      Stock option exercises                                    --           --           --          --            49        --
      Warrant exercises                                         --           --           --          --             2        --
      Offering costs                                            --            (25)        --          --          --          --
      Conversion of Series D to Common                          --           --           --          --             5        --
      Conversion of Series F to Common                            (5)         (50)        --          --            18        --

      Net loss                                                  --           --           --          --          --          --
      Foreign currency translation                              --           --           --          --          --          --

      Comprehensive loss
                                                            --------    ---------    ---------   ---------   ---------   ---------
Balance at March 30, 2002                                      1,068    $  11,528        1,042   $   7,600       3,503   $      14
                                                            ========    =========    =========   =========   =========   =========

(Table continues)
<CAPTION>

                                                               Stock     Additional                 Foreign
                                                            Subscription  Paid-in    Accumulated    Currency
                                                             Receivable   Capital     Deficit     Translation    Total
                                                             ----------   -------     -------     -----------    -----
<S>                                                          <C>          <C>         <C>          <C>         <C>
Balance at June 30, 2001                                    $    --      $  47,867   $ (79,409)   $     (64)   $ (31,592)
      Beneficial conversion of Bridge Notes                      --          4,120        --           --          4,120
      Beneficial conversion of Subscription notes                --          2,700      (2,700)        --           --
      Value of Common Warrants issued
        in connection with sale of Series F Preferred            --            258        (258)        --           --
      Accretion of Series B Redeemable Preferred
        Stock to its redemption value                            --           --          (348)        --           (348)
      Accretion of Series D Redeemable Preferred
        Stock to its redemption value                            --           --          (182)        --           (182)
      Adjustments to Series C and D warrants to fair value       --           --        (6,390)        --         (6,390)
      Reclassification of Preferred instruments to
        Shareholders' Equity after redemption right waivers       (90)        --          --           --         68,344
      Payments against stock subscription receivable               47         --          --           --             47
      Common Stock warrants issued
        for services rendered                                    --          1,020        --           --          1,020
      Stock option exercises                                     --            189        --           --            189
      Warrant exercises                                          --              6        --           --              6
      Offering costs                                             --           --          --           --            (25)
      Conversion of Series D to Common                           --             19        --           --           --
      Conversion of Series F to Common                           --             50        --           --           --

      Net loss                                                   --           --       (11,388)        --        (11,388)
      Foreign currency translation                               --           --          --            (69)         (69)
                                                                                                               ---------
      Comprehensive loss                                                                                         (11,457)
                                                            ---------    ---------   ---------    ---------    ---------
Balance at March 30, 2002                                   $     (43)   $  56,229   $(100,675)   $    (133)   $  23,732
                                                            =========    =========   =========    =========    =========
</TABLE>

               The accompanying notes are an integral part of the
                        consolidated financial statements

                                        5
<PAGE>

                  VELOCITY EXPRESS CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                             (Amounts in thousands)

<TABLE>
<CAPTION>
                                                             Nine Months Ended
                                                           ---------------------
                                                           March 30,   March 31,
                                                             2002        2001
                                                           --------    --------
<S>                                                        <C>         <C>
OPERATING ACTIVITIES
        Net loss                                           $(11,388)   $(26,679)
        Adjustments to reconcile net loss to net
           cash flows used in operating activities:
            Depreciation                                      2,752       4,263
            Amortization                                        626       4,891
            Equity instruments issued in lieu of
                payment for services received                 1,170         402
            Non cash interest expense                         8,971         256
            Other                                                52       1,852
            Gain on sale of assets                           (1,064)       --
            (Gain) loss on retirement of equipment              (80)        128
        Change in operating assets and liabilities:
            Accounts receivable                               4,316       6,661
            Other current assets                                453       1,818
            Other assets                                       (223)         20
            Accounts payable                                   (997)        105
            Accrued liabilities                             (10,041)    (22,708)
                                                           --------    --------

               Cash used in operating activities             (5,453)    (28,991)

INVESTING ACTIVITIES
        Proceeds from sale of assets                          1,199         154
        Purchases of equipment                               (3,631)     (2,962)
        Other                                                   (89)        223
                                                           --------    --------

               Cash used in investing activities             (2,521)     (2,585)

FINANCING ACTIVITIES
        Borrowings under revolving credit agreement, net        589       7,184
        Payments on acquisition notes                        (2,000)     (2,561)
        Proceeds from issuance of preferred stock, net       11,235      13,867
        Proceeds from notes payable and long-term debt         --         9,500
        Debt financing costs                                 (1,454)       --
        Proceeds from issuance of common stock, net             195         498

                                                           --------    --------
               Cash provided by financing activities          8,565      28,488
                                                           --------    --------

Net increase (decrease) in cash and cash equivalents            591      (3,088)

Cash and cash equivalents, beginning of period                2,932       3,993
                                                           --------    --------

Cash and cash equivalents, end of period                   $  3,523    $    905
                                                           ========    ========
</TABLE>

               The accompanying notes are an integral part of the
                       consolidated financial statements

                                        6
<PAGE>

                  VELOCITY EXPRESS CORPORATION AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
--------------------------------------------------------------------------------

1.   SIGNIFICANT ACCOUNTING POLICIES

     Basis of Presentation - The consolidated financial statements included
herein have been prepared by Velocity Express Corporation (formerly known as
United Shipping & Technology, Inc.) which, together with its wholly-owned
subsidiaries, shall be referred to herein as the "Company," without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
In the opinion of the Company, all adjustments consisting only of normal
recurring adjustments, necessary to present fairly the financial position of the
Company as of March 30, 2002, and the results of its operations for the three
and nine months ended March 30, 2002, and its cash flows for the nine months
ended March 30, 2002 have been included. Certain information in footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles has been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not misleading. These
consolidated financial statements should be read in conjunction with the
financial statements for the year ended June 30, 2001, and the footnotes
thereto, included in the Company's Report on Form 10-KSB, filed with the
Securities and Exchange Commission.

     Reincorporation - On December 18, 2001, United Shipping & Technology, Inc.
reincorporated in Delaware through a merger with and into its wholly-owned
Delaware subsidiary, Velocity Express Corporation. The merger was effective as
of January 4, 2002 at which time United Shipping & Technology, Inc. ceased to
exist as a separate corporate entity, and all of its assets and liabilities
became the assets and liabilities of Velocity Express Corporation. The name of
the Company was changed to Velocity Express Corporation.

     Principles of Consolidation - The consolidated financial statements include
the accounts of Velocity Express Corporation and its wholly owned subsidiaries.
All inter-company balances and transactions have been eliminated in the
consolidation.

     Reverse Stock Split - On April 25, 2002, the Company effected a
one-for-five reverse stock split, which resulted in the automatic conversion of
five shares of issued, and outstanding Common Stock into one share of Common
Stock. In the case of Preferred Stock, options and warrants, the number of
shares of Common Stock that may be purchased upon the exercise of outstanding
options, warrants and other securities, including the outstanding Preferred,
convertible into shares of Common Stock, and the per share exercise or
conversion prices thereof, have been adjusted appropriately to give effect to
the reverse stock split.

     The reverse stock split affects all stockholders equally and does not
affect any stockholder's proportionate equity interest in the Company except
with respect to adjustments for fractional interests. After the reverse stock
split, each shareholder owns a reduced number of shares of Common Stock but
holds the same percentage of the outstanding shares, except for adjustments for
fractional interests that resulted from the reverse stock split. Fractional
shares of Common Stock were not issued as a result of the reverse stock split,
but instead, any fractional share interest resulting from the reverse stock
split was rounded upward to the nearest whole share. Following the reverse stock
split, each share of Common Stock resulting from the reverse stock split
entitles the holder thereof to one vote per share and is otherwise identical to
the outstanding Common Stock immediately prior to the reverse stock split.

     The reverse stock split did not affect the par value of the Common Stock
and had no impact on total shareholders' equity. All share and per share
information has been retroactively adjusted to reflect the effect of the reverse
stock split.


     Reclassifications - Certain reclassifications have been made to the prior
period consolidated financial statements to conform to the current period
presentation.

                                        7
<PAGE>

                  VELOCITY EXPRESS CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
--------------------------------------------------------------------------------

     Comprehensive loss - Comprehensive loss was $11.5 million and $26.7 million
for the nine months ended March 30, 2002 and March 31, 2001, respectively. The
difference between net loss and total comprehensive loss related to foreign
currency translation adjustments.

     Earnings per Share - Basic net loss per share excludes dilution and is
computed by dividing net loss by the weighted average number of common shares
outstanding for the period. Diluted net loss per share reflects the potential
dilution that could occur if securities or other obligations to issue common
stock were exercised or converted into common stock or resulted in the issuance
of common stock that then shared in the earnings of the Company. For all periods
presented, diluted net loss per share is equal to basic net loss per share
because the effect of including such securities or obligations would have been
antidilutive.

<TABLE>
<CAPTION>
                                                             Three Months Ended     Nine Months Ended
                                                            --------------------  ---------------------
                                                            March 30,  March 31,  March 30,   March 31,
                                                              2002       2001       2002        2001
                                                            ---------  ---------  ---------   ---------
                                                           (Amounts in thousands, except per share data)
<S>                                                          <C>       <C>        <C>         <C>
Numerator
  Net loss                                                  $ (180)   $(11,542)   $(11,388)   $(26,679)
  Beneficial conversion feature                               --          --        (2,700)       --
  Adjustment of Common Warrants issued in connection
       with sale of Series F Preferred to market value        --          --          (258)       --
  Accretion of Series B Redeemable Preferred Stock
       to its redemption value                                --          (190)       (348)       (475)
  Accretion of Series D Redeemable Preferred Stock
       to its redemption value                                --          --          (182)       --
  Adjustment of Preferred Series B Warrants to market value   --          --          --        (2,295)
  Adjustment of Preferred Series C Warrants to market value   --            60      (3,770)        740
  Adjustment of Preferred Series D Warrants to market value   --          --        (2,620)       --
                                                            ------    --------    --------    --------
  Net loss applicable to common shareholders                $ (180)   $(11,672)   $(21,266)   $(28,709)
                                                            ======    ========    ========    ========
Denominator for basic and diluted loss per share
  Weighted average shares                                    3,483       3,329       3,450       3,321
                                                            ======    ========    ========    ========
Basic and diluted loss per share                            $(0.05)   $  (3.51)   $  (6.16)   $  (8.64)
                                                            ======    ========    ========    ========
</TABLE>

2.   ACQUISITIONS

     Effective August 28, 1999, the Company acquired from CEX Holdings, Inc.
("CEX") all of the outstanding shares of common stock of Velocity Express, Inc.
("Velocity"), formerly known as Corporate Express Delivery Systems, Inc., a
provider of same-day delivery solutions. The acquisition purchase price, which
was accounted for using the purchase method of accounting, was approximately
$91.2 million, subject to adjustment as defined in the merger agreement. The
purchase price consisted of $43 million in cash provided by an institutional
debt financier and an investment firm, and $19.5 million in a combination of
short and long-term notes issued to CEX. The Company, as a result of the
acquisition, received approximately $86.6 million of Velocity's assets and
assumed approximately $115.3 million of Velocity's liabilities, which resulted
in the Company recognizing approximately $91.2 million in goodwill.

                                       8
<PAGE>

                  VELOCITY EXPRESS CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
--------------------------------------------------------------------------------

     On August 2, 2001, the Company completed certain purchase price adjustments
to the CEX merger agreement related to the acquisition of Velocity. Under the
terms of the settlement regarding the purchase price, the Company was no longer
liable for the convertible subordinated note to CEX in the amount of $3.6
million, the long-term subordinated note to CEX of $6.5 million, the short-term
subordinated note to CEX of $4.4 million and the accrued interest related to the
notes of approximately $2.8 million. Additionally, the purchase price
adjustments provide for the discharge of certain pre-acquisition insurance
liabilities totaling approximately $13.5 million as well as certain other
adjustments which had the impact of reducing specific liabilities by
approximately $12.0 million. The purchase price adjustments totaling
approximately $42.8 million were recorded as an offset to the goodwill in the
Company's first quarter of fiscal 2002. In the second quarter of fiscal 2002,
the Company finalized all purchase price adjustments associated with the
amendment to the merger agreement resulting in a reduction in the previously
reported adjustment to goodwill of approximately $3.1 million. In conjunction
with the agreement pertaining to the purchase price adjustments, the Company
issued common stock warrants for services rendered by an outside consultant, who
subsequently was appointed Chairman of the Board of the Company. The fair value
of the warrants amounted to approximately $1.0 million and is included in other
expense in the statement of operations.

     In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets,
effective for fiscal years beginning after December 15, 2001. Under the new
rules, goodwill will no longer be amortized but will be subject to annual
impairment tests in accordance with the statements. Other intangible assets will
continue to be amortized over their useful lives.

     Effective July 1, 2001, the Company adopted the new rules on accounting for
goodwill and other intangible assets. The Company performed its initial
assessment on December 29, 2001 and determined that there was no impairment of
goodwill. Amortization expense of approximately $2.7 million is not reflected in
the operating results for the nine months ended March 30, 2002 as a result of
the adoption of SFAS No. 142 and the application of the nonamortization
provisions of the statement. Over the same period in fiscal 2001, amortization
expense was approximately $4.6 million.

3.   RESTRUCTURING

     In fiscal 2001, the Company took a restructuring charge of $7.1 million
consisting of: severance costs in the amount of $2.2 million related to the
workforce reduction of 234 full-time employees, $3.3 million for rental costs
associated with the termination of building leases and location rationalization
costs, and $1.6 million for the write-off of equipment. As of March 30, 2002,
approximately $6.9 million in costs have been charged against the reserve.

                                       9
<PAGE>

                  VELOCITY EXPRESS CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
--------------------------------------------------------------------------------

4.   LONG-TERM DEBT AND CAPITAL LEASES

     Long-term debt and capital leases consisted of the following:

                                       March 30,    June 30,
                                         2002         2001
                                       ---------    --------
                                       (Amounts in thousands)
Revolving note                         $ 33,352    $ 32,763
Senior subordinated note                  4,174       3,919
Long-term subordinated note to CEX         --         6,519
Short-term subordinated note to CEX        --         4,404
Convertible subordinated note to CEX       --         3,600
18% Bridge notes                           --         5,000
Subscription notes                         --         5,000
Other                                        44          64
                                       --------    --------
                                         37,570      61,269
Less current maturities                      (7)        (27)
                                       --------    --------
Total                                  $ 37,563    $ 61,242
                                       ========    ========

     On January 25, 2002, the Company entered into a new revolving credit
facility with Fleet Capital Corporation which replaced the credit facility with
the former lender, GE Capital. Borrowings under the revolving note are limited
to the lesser of $40 million or an amount based on a defined portion of
receivables. Interest is payable monthly at a rate of prime plus 1.25% (6.0% at
March 30, 2002) or LIBOR plus 3.0% for the first year, with the ability to lower
these margins by 0.50% over the remainder of the agreement. In addition, the
Company is required to pay a commitment fee of 0.375% on unused amounts of the
total commitment, as defined in the agreement. The term of the new facility is
two years, ending January 2004, with an option to renew the facility for a third
year.

     The senior subordinated note has interest payable quarterly at 12% per
annum and is due September 30, 2004. The note is subordinate to the revolving
note. The initial carrying value of the senior subordinated note was reduced by
$1.7 million for the fair value of the common stock warrant issued to the senior
subordinated lender. The warrant is subject to anti-dilution provisions. The
unamortized discount aggregated $0.8 million at March 30, 2002, and is being
amortized over the five-year life of the note.

     On August 2, 2001, the Company completed certain purchase price adjustments
to the CEX merger agreement whereby the convertible subordinated note, the
long-term subordinated note, and the short-term subordinated note along with all
accrued interest thereon, totaling approximately $14.5 million of notes and $2.8
million of accrued interest, were terminated. For additional information
regarding the settlement with CEX, see footnote 2.

     Substantially all of the assets and operations of Velocity have been
pledged to secure borrowings under the revolving note and the senior
subordinated note. The Company is subject to certain restrictive covenants, the
more significant of which include limitations on dividends, loans and
investments, capital expenditures, new indebtedness and changes in capital
structure. The Company is also required to maintain certain financial covenant
ratios related to interest coverage and fixed charge coverage. The agreements
with the lenders also require the Company to obtain the consent of the lenders
for additional acquisitions.

                                       10
<PAGE>

                  VELOCITY EXPRESS CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
--------------------------------------------------------------------------------

     In exchange for a long-term guarantee to provide additional collateral
support under the revolving note during the second quarter of fiscal 2002, the
Company agreed to compensate its largest investor by reducing the conversion
prices of the Series B and Series C Preferred. In conjunction with the
conversion price amendment, the Company incurred a charge of $4.0 million which
was recorded as non-cash interest expense.


5.   SHAREHOLDERS' EQUITY

     Series G Convertible Preferred Stock - During April 2002, the Company
received approximately $4.5 million in purchase commitments from investors to
purchase shares of Series G Preferred. Each share of Series G Preferred is
convertible into 0.2 shares of the Company's common stock. Due to the pricing of
the Series G Preferred, the Company may be required to take a charge in its
fourth quarter and is determining what, if any, charge that may be required.

     Series F Convertible Preferred Stock - During fiscal 2002, the Company
issued 1,072,752 shares of Series F Preferred for net proceeds of approximately
$11.6 million. At the time of issuance, each share of Series F Preferred is
convertible into four shares of the Company's common stock, subject to
adjustments for dilutive issuances. The Company also issued warrants to purchase
360,128 shares of common stock in connection with these sales.

     Series D Convertible and Redeemable Preferred Stock - During fiscal 2002 at
a special shareholders' meeting, the Company's shareholders approved the
conversion of notes that the Company entered into in fiscal 2001 into shares of
Series D Preferred, resulting in the issuance of 1,642,444 shares of Series D
Preferred. At the time of issuance, each share of Series D Preferred is
convertible into two shares of the Company's common stock, subject to
adjustments for dilutive issuances. As a result of the conversion, the Company
recorded a $4.7 million non-cash interest charge.

     The Company's Series D Preferred that resulted from the conversion of the
subscription notes was deemed to have contained beneficial conversion features
that were recognized as a deemed dividend to preferred shareholders. The value
of the proceeds allocated to the beneficial conversion feature was $2.7 million
and was recognized as a return to the preferred shareholders at the date of
shareholder approval since the Series D Preferred was immediately convertible.

     Preferred Warrants - Adjustments of the Series C and Series D warrants to
their market values at December 14, 2001 were $3.6 million and $2.0 million,
respectively, resulting in carrying amounts of $4.1 million and $3.5 million,
respectively, at March 30, 2002.

     In December 2001, the Company reached agreements with the holders of each
series of its Preferred stock pursuant to which such holders waived their rights
to the cash redemption features of their respective series of Preferred stock.
These waivers allowed the Company to reclassify the Preferred stock into
shareholders' equity.

                                       11
<PAGE>

ITEM 2.      MANAGEMENT'S DISCUSSION AND ANALYSIS

                  VELOCITY EXPRESS CORPORATION AND SUBSIDIARIES

     In accordance with the "Safe Harbor" Provisions of the Private Securities
Litigation Reform Act of 1995, the Company notes that certain statements in this
Form 10-Q and elsewhere which are forward-looking and which provide other than
historical information, involve risks and uncertainties that may impact the
Company's results of operations. These forward-looking statements include, among
others, statements concerning the Company's general business strategies,
financing decisions, and expectations for funding capital expenditures and
operations in the future. When used herein, the words "believe," "plan,"
"continue," "hope," "estimate," "project," "intend," "expect," and similar
expressions are intended to identify such forward-looking statements. Although
the Company believes that the expectations reflected in such forward-looking
statements are based on reasonable assumptions, no statements contained in this
Form 10-Q should be relied upon as predictions of future events. Such statements
are necessarily dependent on assumptions, data or methods that may be incorrect
or imprecise and may be incapable of being realized. The risks and uncertainties
inherent in these forward-looking statements could cause results to differ
materially from those expressed in or implied by these statements.

     Readers are cautioned not to place undue reliance on the forward-looking
statements contained herein, which speak only as of the date hereof. The
information contained in this Form 10-Q is believed by the Company to be
accurate as of the date hereof. Changes may occur after that date, and the
Company will not update that information except as required by law in the normal
course of its public disclosure practices.

                                       12
<PAGE>

Use of EBITDA and Cash Net Income

     The Company evaluates operating performance based on several measures,
including income (loss) applicable to common shareholders plus interest,
non-cash depreciation and amortization, non-cash charges associated with the
valuation of the Company's redeemable preferred stock and preferred warrants,
and non-cash charges associated with the granting of equity as payment for
certain services ("EBITDA") and income (loss) applicable to common shareholders
plus non-cash interest, non-cash depreciation and amortization, non-cash charges
associated with the valuation of the Company's redeemable preferred stock and
preferred warrants, and non-cash charges associated with the granting of equity
as payment for certain services ("cash net income"). The Company considers
EBITDA and cash net income important indicators of the operational strength and
performance of its business; however, EBITDA and cash net income are
supplemental measures of performance and are not intended to represent measures
of performance in accordance with disclosures required by generally accepted
accounting principles ("GAAP").

     In the third quarter of fiscal 2002, the Company reported income from
operations of $0.6 million as compared to a loss from operations of $10.2
million in the third quarter of fiscal 2001, an improvement of $10.8 million.
Furthermore, the Company reported positive EBITDA of $1.7 million as compared to
negative EBITDA of $2.9 million in the third quarter of fiscal 2001, an
improvement of $4.6 million, and cash net income of $1.0 million as compared to
cash net loss of $4.2 million in the third quarter of fiscal 2001, an
improvement of $5.2 million.

     For the nine months ended March 30, 2002, the Company reported income from
operations of $0.2 million as compared to a loss from operations of $21.8
million for the same period in fiscal 2001. The Company also reported positive
EBITDA of $4.9 million as compared to negative EBITDA of $8.5 million for the
same period in fiscal 2001, and cash net income for the first nine months of
fiscal 2002 of $2.3 million as compared to cash net loss of $12.9 million in the
same period last year, an improvement of $15.2 million. These improvements are
the result of the Company's focus on cost containment, back office
consolidation, and improvements to the balance sheet which will be discussed in
detail below.


<TABLE>
<CAPTION>
                                                         Three Months Ended                     Nine Months Ended
                                                     -----------------------------         ----------------------------
                                                      March 30,          March 31,          March 30,         March 31,
                                                        2002               2001               2002               2001
                                                     ----------         ----------         ----------         ---------
                                                            (Amounts in thousands, except per share data)
<S>                                                   <C>               <C>                <C>               <C>
Revenue                                               $ 81,539          $ 112,214          $ 261,742         $ 365,024
Income (loss) from operations                              612            (10,173)               231           (21,765)
Net loss applicable to common shareholders                (180)           (11,672)           (21,266)          (28,709)
EBITDA                                                   1,720             (2,886)             4,864            (8,496)
Net income (loss) cash basis                               963             (4,229)             2,285           (12,942)

Basic and diluted net loss per share - GAAP basis      $ (0.05)           $ (3.51)           $ (6.16)          $ (8.64)

Basic net income (loss) per share - EBITDA basis          0.49              (0.87)              1.41             (2.56)
Diluted net income (loss) per share - EBITDA basis        0.08              (0.87)              0.28             (2.56)

Basic net income (loss) per share - cash basis            0.28              (1.27)              0.66             (3.90)
Diluted net income (loss) per share - cash basis          0.05              (1.27)              0.13             (3.90)
</TABLE>

                                       13
<PAGE>

Historical Results of Operations

     Revenue for the quarter ended March 30, 2002 decreased $30.7 million or
27.4% to $81.5 million from $112.2 million for the quarter ended March 31, 2001.
The decrease in revenue for the quarter ended March 30, 2002 is primarily the
result of the elimination by the Company of $26.2 million of low-margin business
and the consolidation of unprofitable locations, and $4.5 million from the
divesture of non-core air courier business operations compared to the same
period last year. Revenue during the quarter trended up as revenue grew by
$5,000 per day in March 2002 compared to February 2002, which represents a $1.5
million increase in revenue on an annualized basis.

     Revenue for the nine months ended March 30, 2002 decreased $103.3 million
or 28.3% to $261.7 million from $365.0 million for the nine months ended March
31, 2001. The decrease in revenue for the nine months ended March 30, 2002 is
primarily the result of the elimination by the Company of $75.4 million of
low-margin business and the consolidation of unprofitable locations, and $27.9
million from the divesture of non-core air courier business operations compared
to the same period last year. Revenue by service offering for the nine months
ended March 30, 2002 was as follows:

     Scheduled logistics                          53.2%
     Distribution logistics                       23.4%
     Targeted On-Demand services                  23.4%

     Cost of services for the quarter ended March 30, 2002 was $62.3 million, a
reduction of $28.2 million or 31.2% from $90.5 million for the quarter ended
March 31, 2001. Cost of services improved 4.2 percentage points as our costs as
a percentage of revenue decreased from 80.6% to 76.4% for the quarter ended
March 30, 2002. Approximately $24.9 million of the savings in cost of services
correlates to the reduced revenue described above, including $3.8 million as a
result of the divestiture of non-core air courier business operations.
Approximately $3.3 million relates to efficiencies gained as the Company
continues to move to a variable cost model using independent contractors and
employee-owner operators in greater proportion to employee drivers. This
variable cost strategy has resulted in improved insurance expense and
improvement in overall driver and vehicle-related costs. For example, at this
time last year, the Company was funding $1.3 million per month in self-insurance
risk for workers' compensation and auto liability. Today, because of
improvements, the Company funds the same risk for $0.5 million per month, a
savings in excess of $0.8 million per month. The improvement in the gross margin
percentage was due to a 2.1 percentage point improvement in insurance expense
resulting from focus on numerous safety initiatives and a 2.1 percentage point
improvement in overall driver and vehicle related costs resulting from moving
towards a variable cost structure. Cost of services as a percentage of revenue
also improved 0.8 percentage points when comparing the results of the third
quarter of 2002 to those of the second quarter of 2002.

     Cost of services for the nine months ended March 30, 2002 was $203.4
million, a reduction of $88.0 million or 30.2% from $291.4 million for the nine
months ended March 31, 2001. Cost of services improved 2.1 percentage points as
our costs as a percentage of revenue decreased from 79.8% to 77.7% for the nine
months ended March 30, 2002. Approximately $82.7 million of the savings in cost
of services relates to the reduced revenue described above, including $22.7
million as a result of divesture of non-core air courier business operations.
Approximately $5.3 million relates to the Company's continued efforts of moving
to a variable cost model using independent contractors and employee-owner
operators in greater proportion to employee drivers. This variable cost strategy
has resulted in improved insurance expense and improvement in overall driver and
vehicle-related costs. The improvement in the gross margin percentage was due to
a 0.7 percentage point improvement in insurance expense resulting from focus on
numerous safety initiatives and a 1.4 percentage point improvement in overall
driver and vehicle-related costs resulting from the Company's continued efforts
of moving to a variable cost model using independent contractors and
employee-owner operators in greater proportion to employee drivers.

                                       14
<PAGE>

     Selling, general and administrative ("SG&A") expenses for the quarter ended
March 30, 2002 were $15.4 million or 18.9% of revenue, a reduction of $8.3
million or 35.0% as compared with $23.7 million or 21.1% of revenue for the
quarter ended March 31, 2001. The decrease in SG&A for the quarter is a result
of integrating, through technology, all back office processes into one common
platform resulting in savings of approximately $6.2 million, the sale of
non-core air courier business operations of $0.6 million, and the impact of
implementing SFAS No. 142 Goodwill and Other Intangible Assets, whereby the
Company no longer amortizes its goodwill resulting in savings of $1.5 million in
amortization. This focus has enabled the Company to realize a year-over-year
improvement of 2.2 percentage points. Compared to the second quarter of fiscal
2002 however, SG&A as a percentage of revenue increased by 0.3 percentage
points. Selling costs for the third quarter of fiscal 2002 increased
approximately $0.5 million compared to the second quarter of fiscal 2002, an
increase of 0.5 percentage points. Exclusive of the increase in selling costs,
general and administrative costs improved by 0.2 percentage points over the
second quarter of fiscal 2002.

     SG&A expenses for the nine months ended March 30, 2002 were $48.1 million
or 18.4% of revenue, a reduction of $31.0 million or 39.2% as compared with
$79.1 million or 21.7% of revenue for the nine months ended March 31, 2001. The
decrease in SG&A for the first nine months is a result of integrating, through
technology, all back office processes into one common platform of approximately
$22.2 million, the sale of non-core air courier business operations of $4.3
million, and amortization savings of $4.6 million.

     As compensation for structuring and finalizing the agreement between the
Company and CEX, the Company issued common stock warrants in the first quarter
of fiscal 2002. The fair value of the warrants was approximately $1.0 million
and is included in other expense in the statement of operations.

     Occupancy charges for the quarter ended March 30, 2002 were $3.2 million, a
reduction of $0.6 million or 15.8% from $3.8 million for the quarter ended March
31, 2001. Occupancy charges for the nine months ended March 30, 2002 were $10.0
million, a reduction of $1.8 million or 15.2% from $11.8 million for the nine
months ended March 31, 2001. The improvement for the quarter and the first nine
months is due to divestitures of non-core air courier business operations, the
consolidation of operating locations, and the closure of the former corporate
headquarters in Houston, Texas.

     Interest expense for the quarter ended March 30, 2002 decreased $0.6
million to $0.8 million from $1.4 million for the quarter ended March 31, 2001
as a result of lower interest rates and lower average borrowings.

     Interest expense for the nine months ended March 30, 2002 increased $7.0
million to $11.8 million from $4.8 million for the nine months ended March 31,
2001. Included in interest expense for the period are certain non-cash charges
related to the conversion of the Series D Bridge Notes and interest thereon
amounting to approximately $4.7 million as well as a non-cash charge of $4.0
million related to a long-term guarantee the Company received from its largest
shareholder on two letters of credit supporting the Company's revolving credit
facility. Interest expense related to the Company's borrowings decreased over
the same period in the prior year as a result of lower interest rates and lower
average borrowings.

     As a result of the foregoing factors, the net loss for the quarter ended
March 30, 2002 was $0.2 million, compared with $11.5 million for the same period
in fiscal 2001, an improvement of $11.3 million or 99.1%.

     The net loss for the nine months ended March 30, 2002 was $11.4 million,
compared with $26.7 million for the same period in fiscal 2001, an improvement
of $15.3 million or 57.3%. Had the effect of one-time non-cash interest charges
of $9.7 million been excluded, net loss for the nine months ended March 30, 2002
would have been $1.7 million, compared with $26.7 million for the same period in
fiscal 2001, which would have been an improvement of $25.0 million.

     Net loss applicable to common shareholders was $21.3 million for the nine
months ended March 30, 2002 as compared with $28.7 million for the nine months
ended March 31, 2001. The difference between net loss applicable to common
shareholders and net loss was comprised of non-cash charges associated with the
Company's redeemable preferred stock. With the elimination of the redemption
features, the preferred stock is now classified as permanent equity, and the
Company is no longer required to take charges of this nature.

                                       15
<PAGE>

Liquidity and Capital Resources

     Cash flow used in operations was $5.4 million for the first nine months of
fiscal 2002. This use of funds was comprised of cash flow provided by operations
of $1.0 million and cash flow absorbed as a result of working capital changes of
$6.4 million. The execution of the Company's restructuring plan which was
implemented in fiscal 2001, the integration, through technology, of all back
office processes into one common platform, and the implementation of the
variable cost strategy were the principal drivers in the change in working
capital during the first nine months. During fiscal 2002 the Company has funded
$3.8 million of its restructuring plans via the payment of severance costs and
rental costs associated with the termination of building leases and location
rationalizations. The integration of all back office processes into one common
platform was instrumental in the Company generating $4.3 million in working
capital through the collection of accounts receivable, while the implementation
of the variable cost strategy has lowered the days required to fund accounts
payable leading to a use of working capital of $1.0 million. The remaining use
of working capital for the first nine months of $5.9 million was primarily
associated with the funding of the Company's self insurance risk associated with
workers compensation and auto liability insurance and settlement of
pre-acquisition legal lawsuits.

     Cash flow used as a result of investing activities was $2.5 million and
consisted of capital expenditures of $3.6 million used for the Company's
customer-driven technology solutions initiative and capitalized costs related to
the integration of the back office, offset by proceeds of $1.2 million,
primarily from the sale of non-core air courier business operations. The
Company's customer-driven technology solutions initiative is comprised of two
elements: (i) smart package tracking technology which will provide a single
source of aggregated delivery information to national customers, and (ii) a
customer-oriented web portal for online information access to provide package
tracking, chain-of-custody updates, electronic signature capture, and real-time
proof of delivery retrieval. Management accelerated the implementation of this
technology solutions initiative in order to meet the needs of its targeted
national customers. This solution will provide the Company's national customers
with a single source of aggregated delivery information.

     Cash flow generated from financing activities amounted to $8.6 million
during the first nine months of 2002. The primary source of cash during the
first nine months of fiscal 2002 was the private placement of Series F
Convertible Preferred Stock through which the Company raised net proceeds of
approximately $11.3 million. The Company also sold shares of its common stock,
which raised $0.2 million. Long-term debt and notes payable resulted in a use of
cash flow of $2.9 million during the nine months ended March 30, 2002, which
included a $2.0 million payment made to CEX in connection with the finalization
of all purchase price adjustments, $1.5 million paid for debt financing costs,
and $0.6 million provided by the revolving credit facility. For more information
on long-term debt or equity, please see footnotes 4 and 5, respectively.

     The Company reported operating income of approximately $0.2 million for the
nine months ended March 30, 2002 and has positive working capital of
approximately $16.6 million at March 30, 2002. In August 2001, the Company
completed certain purchase price adjustments to the CEX merger agreement related
to the acquisition of Velocity that resulted in an improvement to working
capital of approximately $14.9 million. The improvement to working capital in
the first nine months of fiscal 2002 was approximately $19.4 million.

     As of March 30, 2002, the Company had no outstanding purchase commitments
for capital improvements.

     The Company's operating plan includes the continued implementation and
consolidation activities it had initiated in fiscal 2001 to further improve the
operating performance of the Company. In fiscal 2002, the Company also
implemented additional initiatives to further reduce direct and SG&A expenses.
During April 2002, the Company completed the private placement of its Series G
Convertible Preferred Stock, through which it raised approximately $4.5 million.
Proceeds from the Series G offering will primarily be used to fund the Company's
technology initiatives. Going forward, the Company believes cash flows from
operations and the equity raised via the private placement of the Series G
offering will be sufficient to fund its operating needs. If the Company's growth
strategy requires additional funding, the Company will continue to secure, if
necessary, additional financing from its lenders or through the issuance of
additional equity; however, there can be no assurance that such funding can be
obtained.

                                       16
<PAGE>

ITEM 3.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     The Company's operations are not currently subject to material market risks
for interest rates, foreign currency rates, or other market price risks.



PART II - OTHER INFORMATION


ITEM 1.       LEGAL PROCEEDINGS.

     As of March 30, 2002, the Company was not a party to any material legal
proceedings.

     The Company is a party to litigation and has claims asserted against it
incidental to its business. Most of such claims are routine litigation that
involve workers compensation claims, claims arising out of vehicle accidents and
other claims arising out of the performance of time-critical delivery services.
The Company carries workers' compensation insurance and auto liability coverage
for the current policy year. The Company is also named as a defendant in various
employment-related lawsuits arising in the ordinary course of business. The
Company vigorously defends against all of the foregoing claims.

     The Company does not believe that the pending lawsuits, if resolved or
settled unfavorably to the Company, would have a material adverse effect upon
the Company's financial position or results of operations. A monetary settlement
paid by the Company or an award against it in any of such actions could,
however, have a material adverse effect upon the Company's cash flow in a given
period in which a settlement or award occurs.

     Cautionary Statements Regarding Pending Litigation and Claims

     The Company's statements above concerning pending litigation constitute
forward-looking statements. Investors should consider that there are many
important factors that could adversely affect the Company's assumptions and the
outcome of claims, and cause actual results to differ materially from those
projected in the forward-looking statements. These factors include:

     o    The Company has made estimates of its exposure in connection with the
          lawsuits and claims that have been made. As a result of litigation or
          settlement of cases, the actual amount of exposure in a given case
          could differ materially from that projected. In addition, in some
          instances, the Company's liability for claims may increase or decrease
          depending upon the ultimate development of those claims.

     o    In estimating the Company's exposure to claims, the Company is relying
          upon its assessment of insurance coverages and the availability of
          insurance. In some instances insurers could contest their obligation
          to indemnify the Company for certain claims, based upon insurance
          policy exclusions or limitations. In addition, from time to time, in
          connection with routine litigation incidental to the Company's
          business, plaintiffs may bring claims against the Company that may
          include undetermined amounts of punitive damages. The Company is
          currently not aware of any such punitive damages claim or claims in
          the aggregate which would exceed 10% of its current assets. Such
          punitive damages are not normally covered by insurance.

     o    Although the Company has numerous claims, few, if any, are believed to
          have the potential to have a material adverse impact on the Company on
          a consolidated basis. An award against the Company or a subsidiary, or
          a settlement paid by it, in connection with currently pending claims
          could, however, have a material adverse effect upon the Company's cash
          flow in a given period in which an award or settlement occurs.
          Further, multiple awards against, or settlements by, the Company or
          its subsidiaries in a particular period could have a material adverse
          effect upon the Company's financial condition, cash flow and results
          of operations.

                                       17
<PAGE>

ITEM 2.       CHANGES IN SECURITIES AND USE OF PROCEEDS.

     Not Applicable


ITEM 3.       DEFAULTS UPON SENIOR SECURITIES.

     Not Applicable


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

     In March 2002, the Company submitted to its shareholders four matters, all
of which were approved at a special shareholders' meeting held on March 20,
2002. The matters and voting thereon were as follows:

     1.   To approve an amendment to the Company's Certificate of Incorporation
          to effect a reverse stock split of the Company's outstanding Common
          Stock, whereby the Company will issue one new share of Common Stock in
          exchange for between two and five shares of the outstanding Common
          Stock.

          For          49,577,163       Abstain                     12,640
          Against       2,874,925       Broker non-votes           183,434

     2.   To approve an amendment to the Company's Certificate of Incorporation
          to (i) eliminate the provisions providing for cash redemption of the
          Company's Series B, Series C and Series D Preferred Stock at a
          specified date and for redemption of the Company's Preferred Stock at
          the election of the holder thereof upon a change of control of the
          Company and (ii) grant to the holders of the Company's Preferred Stock
          certain approval rights with respect to changes of control of the
          Company.

          For          44,571,579       Abstain                    100,247
          Against       1,139,587       Broker non-votes         6,846,749

     3.   To approve an amendment to the Company's Certificate of Incorporation
          to reduce the conversion price for the Company's Series B Preferred
          Stock to $6.2224 per share, the conversion price for the Company's
          Series C Preferred Stock to $4.2645 per share, and the conversion
          price for the Company's Series D Preferred Stock to $0.7912 per share
          in order to reflect adjustments required by prior dilutive events.

          For          44,168,763       Abstain                    223,787
          Against       1,418,863       Broker non-votes         6,846,749

     4.   To approve an amendment to the Company's Certificate of Incorporation
          to reduce the conversion prices for the Company's Series B Preferred
          Stock and Series C Preferred Stock pursuant to an agreement with an
          investor to $1.3988 per share and $1.3867 per share, respectively;
          provided that, for purposes of determining the voting rights of the
          Series B and Series C Preferred Stock, the number of shares of Common
          Stock into which such Preferred Stock is convertible will not include
          any Common Stock issuable as a result of such reduction in conversion
          price.

          For          43,715,699       Abstain                     57,427
          Against       2,038,287       Broker non-votes         6,846,749

                                       18
<PAGE>

ITEM 5.       OTHER INFORMATION.

     Not Applicable.


ITEM 6.       EXHIBITS AND REPORTS ON FORM 8-K.

      a.      Exhibits required by Item 601 of Regulation S-K:

              Reference is made to the Exhibit Index

      b.      Reports on Form 8-K

              The Company filed one report on Form 8-K during the fiscal
              quarter ended March 30, 2002, as follows:

              (1)  Current Report on Form 8-K filed on January 4, 2002,
                   relating that on January 4, 2002, United Shipping &
                   Technology, Inc. (the "Company") changed its state of
                   incorporation from Utah to Delaware. The reincorporation was
                   approved by holders of a majority of the Company's
                   outstanding shares, voting in person or by proxy, at its
                   annual meeting held on December 18, 2001. The
                   reincorporation was accomplished by merging the Company with
                   and into Velocity Express Corporation, a Delaware
                   corporation ("Velocity") and a wholly-owned subsidiary of
                   the Company, with the Delaware corporation surviving. In
                   connection with the merger, the Company changed its name to
                   Velocity Express Corporation. Each share of common stock of
                   the Utah corporation was converted into one share of common
                   stock, par value $0.004 per share, of the Delaware
                   corporation.





                                   SIGNATURES


     In accordance with the requirements of the Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned; thereunto
duly authorized, in the City of Minneapolis, State of Minnesota on May 2, 2002.


                          VELOCITY EXPRESS CORPORATION



                          By /s/ Jeffry J. Parell
                             ---------------------------------------
                             JEFFRY J. PARELL
                             Chief Executive Officer


                          By /s/ Mark E. Ties
                             ---------------------------------------
                             MARK E. TIES
                             Chief Financial Officer
                             (Principal Financial and Accounting Officer)


                                       19
<PAGE>

                                INDEX TO EXHIBITS


Exhibit No.         Description
-----------         -----------

     10.1           Loan and Security Agreement by and among Velocity Express,
                    Inc. and related borrowers, and Fleet Capital Corporation
                    dated as of January 25, 2002.

     10.2           Form of Incentive Stock Option Agreement between United
                    Shipping & Technology, Inc., and management, dated October
                    29, 2001.

     10.3           Form of Stock Purchase Agreement to purchase Series G
                    Convertible Preferred Stock entered into between the Company
                    and certain investors in April 2002.

                                       20
[{"type": "10-Q", "sequence": "1", "filename": "d10q.txt", "description": "FORM 10-Q", "secsgml_size_bytes": 79508}]
{"company-data": {"conformed-name": "VELOCITY EXPRESS CORP", "cik": "0001002902", "assigned-sic": "4513", "irs-number": "870355929", "state-of-incorporation": "DE", "fiscal-year-end": "0629"}, "filing-values": {"form-type": "10-Q", "act": "34", "file-number": "000-28452", "film-number": "02634080"}, "business-address": {"street1": "7803 GLENROY ROAD", "street2": "FOUR PARAMOUNT PLAZA STE 200", "city": "MINNEAPOLIS", "state": "MN", "zip": "55439", "phone": "612-492-2400"}, "mail-address": {"street1": "7803 GLENROY ROAD", "street2": "SUITE 200", "city": "MINNEAPOLIS", "state": "MN", "zip": "55439"}, "former-company": [{"former-conformed-name": "U SHIP INC", "date-changed": "19960313"}, {"former-conformed-name": "UNITED SHIPPING & TECHNOLOGY INC", "date-changed": "19990512"}]}
================================================================================

                     U.S. SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON DC 20549

                                   ----------

                                    FORM 10-Q

                                   ----------

                                   (Mark One)

                  X   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
                -----    SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended March 30, 2002

                 ___ TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
              For the transition period from _______ to _______.

                           Commission File No. 0-28452

                          VELOCITY EXPRESS CORPORATION
             (Exact name of registrant as specified in its charter)

           Delaware                        0-28452              87-0355929
(State or other jurisdiction of   (Commission File Number)     (IRS Employer
        incorporation)                                       Identification No.)

           7803 Glenroy Road, Suite 200, Minneapolis, Minnesota    55439
               (Address of Principal Executive Offices)          (Zip Code)

                                 (612) 492-2400
              (Registrant's telephone number, including area code)

                                   ----------

Check whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.

                             YES (X)          NO (___)

As of May 1, 2002, there were 3,662,603 shares of common stock of the registrant
issued and outstanding.

================================================================================
VELOCITY EXPRESS CORPORATION AND SUBSIDIARIES

                               INDEX TO FORM 10-Q

                                 MARCH 30, 2002
Page
                                                                                                  ----
PART I.      FINANCIAL INFORMATION
    ITEM 1.  Consolidated Financial Statements (Unaudited)
                   Balance Sheets as of March 30, 2002 and June 30, 2001.........................  3
                   Statements of Operations for the Three and Nine Months Ended
                      March 30, 2002 and March 31, 2001..........................................  4
                   Statement of Shareholders' Equity for the Nine Months Ended
                      March 30, 2002.............................................................  5
                   Statements of Cash Flows for the Nine Months Ended
                      March 30, 2002 and March 31, 2001..........................................  6
                   Notes to Consolidated Financial Statements....................................  7

    ITEM 2.  Management's Discussion and Analysis of
                   Financial Condition and Results of Operations.................................  12

    ITEM 3.  Quantitative and Qualitative Disclosures About Market Risk..........................  17

PART II.     OTHER INFORMATION
    ITEM 1.  Legal Proceedings...................................................................  17
    ITEM 2.  Changes in Securities and Use of Proceeds...........................................  18
    ITEM 3.  Defaults Upon Senior Securities.....................................................  18
    ITEM 4.  Submission of Matters to a Vote of Security Holders.................................  18
    ITEM 5.  Other Information...................................................................  19
    ITEM 6.  Exhibits and reports on Form 8-K....................................................  19

SIGNATURES.......................................................................................  19

EXHIBIT INDEX....................................................................................  20
2
PART I.
                  VELOCITY EXPRESS CORPORATION AND SUBSIDIARIES
                           Consolidated Balance Sheets
                    (Amounts in thousands, except par value)
March 30,    June 30,
                                                                                     2002         2001
                                                                                   ---------    ---------
                                                                                  (unaudited)
ASSETS
Current assets:
     Cash                                                                          $   3,523    $   2,932
     Accounts receivable, net                                                         41,753       47,752
     Accounts receivable - other                                                       1,677        1,700
     Prepaid workers' compensation                                                    11,805       13,024
     Other prepaid expenses                                                            1,534        1,735
     Other current assets                                                                205          241
                                                                                   ---------    ---------
         Total current assets                                                         60,497       67,384

Property and equipment, net                                                            9,553        8,842

Goodwill, net                                                                         42,830       80,468
Notes receivable                                                                        --            182
Other assets                                                                           2,550        1,499
                                                                                   ---------    ---------
Total assets                                                                       $ 115,430    $ 158,375
                                                                                   =========    =========

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Trade accounts payable                                                        $  22,418    $  32,600
     Accrued insurance and claims                                                      8,101        9,601
     Accrued wages and benefits                                                        4,003        5,095
     Accrued legal and claims                                                          4,599        5,957
     Other accrued liabilities                                                         4,807       16,913
     Current portion of long-term debt                                                     7           27
                                                                                   ---------    ---------
         Total current liabilities                                                    43,935       70,193

Long-term debt, less current portion                                                  37,563       61,242
Accrued insurance and claims                                                          10,200       23,111

Redeemable preferred stock                                                              --         35,421

Shareholders' equity:
     Preferred stock, $0.004 par value, 50,000
         shares authorized at March 30, 2002
             Series B Convertible Preferred, 2,807 shares issued and outstanding      24,304         --
             Series C Convertible Preferred, 2,000 shares issued and outstanding      13,600         --
             Series C Warrants, 825 warrants outstanding                               4,100         --
             Series D Convertible Preferred, 1,893 shares issued and outstanding      11,308         --
             Series D Warrants, 217 warrants outstanding                               3,500         --
             Series F Convertible Preferred, 1,068 shares issued and outstanding      11,528         --

     Common stock, $0.004 par value, 150,000 shares authorized 3,503 and 3,429
         shares issued and outstanding at March 30, 2002 and June 30, 2001,
         respectively                                                                     14           14
     Stock subscription receivable                                                       (43)        --
     Additional paid-in-capital                                                       56,229       47,867
     Accumulated deficit                                                            (100,675)     (79,409)
     Foreign currency translation                                                       (133)         (64)
                                                                                   ---------    ---------
         Total shareholders' equity                                                   23,732      (31,592)
                                                                                   ---------    ---------
         Total liabilities and shareholders' equity                                $ 115,430    $ 158,375
                                                                                   =========    =========
The accompanying notes are an integral part of the
                       consolidated financial statements.

                                       3
VELOCITY EXPRESS CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
                  (Amounts in thousands, except per share data)
Three Months Ended        Nine Months Ended
                                              ----------------------    ----------------------
                                              March 30,    March 31,    March 30,    March 31,
                                                2002         2001         2002         2001
                                              ---------    ---------    ---------    ---------
Revenue                                       $  81,539    $ 112,214    $ 261,742    $ 365,024

Cost of services                                 62,296       90,473      203,407      291,443
                                              ---------    ---------    ---------    ---------

        Gross profit                             19,243       21,741       58,335       73,581

Operating expenses:
        Occupancy                                 3,207        3,776       10,036       11,775
        Selling, general and administrative      15,424       23,713       48,068       79,146
        Restructuring charge                       --          4,425         --          4,425
                                              ---------    ---------    ---------    ---------

Total operating expenses                         18,631       31,914       58,104       95,346
                                              ---------    ---------    ---------    ---------

Income (loss) from operations                       612      (10,173)         231      (21,765)

Other income (expense):
        Interest expense                           (838)      (1,428)     (11,785)      (4,767)
        Common stock warrant charge                --           --         (1,020)        --
        Other                                        46           59        1,186         (147)
                                              ---------    ---------    ---------    ---------

Net loss                                      $    (180)   $ (11,542)   $ (11,388)   $ (26,679)
                                              =========    =========    =========    =========

Net loss applicable to common shareholders    $    (180)   $ (11,672)   $ (21,266)   $ (28,709)
                                              =========    =========    =========    =========

Basic and diluted net loss per share          $   (0.05)   $   (3.51)   $   (6.16)   $   (8.64)
                                              =========    =========    =========    =========

Basic and diluted weighted average number
        of common shares outstanding              3,483        3,329        3,450        3,321
                                              =========    =========    =========    =========
The accompanying notes are an integral part of the
                        consolidated financial statements

                                       4
VELOCITY EXPRESS CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                                   (Unaudited)
                             (Amounts in thousands)
Series B                Series C                 Series D
                                                             Preferred Stock          Preferred Stock          Preferred Stock
                                                            ------------------        ----------------        -----------------
                                                            Shares      Amount        Shares    Amount        Shares    Amount
                                                            ------      ------        ------    ------        ------    ------
Balance at June 30, 2001                                       --      $    --          --     $    --          --      $    --
      Beneficial conversion of Bridge Notes                    --           --          --          --          --           --
      Beneficial conversion of Subscription notes              --           --          --          --          --           --
      Value of Common Warrants issued
        in connection with sale of Series F Preferred          --           --          --          --          --           --
      Accretion of Series B Redeemable Preferred
        Stock to its redemption value                          --           --          --          --          --           --
      Accretion of Series D Redeemable Preferred
        Stock to its redemption value                          --           --          --          --          --           --
      Adjustments to Series C and D warrants to fair value     --           --          --          --          --           --
      Reclassification of Preferred instruments to
        Shareholders' Equity after redemption right waivers   2,807       24,304       2,000      13,600       1,895       11,327
      Payments against stock subscription receivable           --           --          --          --          --           --
      Common Stock warrants issued
        for services rendered                                  --           --          --          --          --           --
      Stock option exercises                                   --           --          --          --          --           --
      Warrant exercises                                        --           --          --          --          --           --
      Offering costs                                           --           --          --          --          --           --
      Conversion of Series D to Common                         --           --          --          --            (2)         (19)
      Conversion of Series F to Common                         --           --          --          --          --           --

      Net loss                                                 --           --          --          --          --           --
      Foreign currency translation                             --           --          --          --          --           --

      Comprehensive loss
                                                            -------    ---------   ---------   ---------   ---------    ---------
Balance at March 30, 2002                                     2,807    $  24,304       2,000   $  13,600       1,893    $  11,308
                                                            =======    =========   =========   =========   =========    =========

(Table continues)
Series F               Preferred Stock
                                                              Preferred Stock               Warrants               Common Stock
                                                             ------------------         ----------------        ------------------
                                                             Shares      Amount         Shares    Amount        Shares    Amount
                                                             ------      ------         ------    ------        ------    ------
Balance at June 30, 2001                                        --      $    --           --     $    --         3,429   $      14
      Beneficial conversion of Bridge Notes                     --           --           --          --          --          --
      Beneficial conversion of Subscription notes               --           --           --          --          --          --
      Value of Common Warrants issued
        in connection with sale of Series F Preferred           --           --           --          --          --          --
      Accretion of Series B Redeemable Preferred
        Stock to its redemption value                           --           --           --          --          --          --
      Accretion of Series D Redeemable Preferred
        Stock to its redemption value                           --           --           --          --          --          --
      Adjustments to Series C and D warrants to fair value      --           --           --          --          --          --
      Reclassification of Preferred instruments to
        Shareholders' Equity after redemption right waivers    1,073       11,603        1,042       7,600        --          --
      Payments against stock subscription receivable            --           --           --          --          --          --
      Common Stock warrants issued
        for services rendered                                   --           --           --          --          --          --
      Stock option exercises                                    --           --           --          --            49        --
      Warrant exercises                                         --           --           --          --             2        --
      Offering costs                                            --            (25)        --          --          --          --
      Conversion of Series D to Common                          --           --           --          --             5        --
      Conversion of Series F to Common                            (5)         (50)        --          --            18        --

      Net loss                                                  --           --           --          --          --          --
      Foreign currency translation                              --           --           --          --          --          --

      Comprehensive loss
                                                            --------    ---------    ---------   ---------   ---------   ---------
Balance at March 30, 2002                                      1,068    $  11,528        1,042   $   7,600       3,503   $      14
                                                            ========    =========    =========   =========   =========   =========

(Table continues)
Stock     Additional                 Foreign
                                                            Subscription  Paid-in    Accumulated    Currency
                                                             Receivable   Capital     Deficit     Translation    Total
                                                             ----------   -------     -------     -----------    -----
Balance at June 30, 2001                                    $    --      $  47,867   $ (79,409)   $     (64)   $ (31,592)
      Beneficial conversion of Bridge Notes                      --          4,120        --           --          4,120
      Beneficial conversion of Subscription notes                --          2,700      (2,700)        --           --
      Value of Common Warrants issued
        in connection with sale of Series F Preferred            --            258        (258)        --           --
      Accretion of Series B Redeemable Preferred
        Stock to its redemption value                            --           --          (348)        --           (348)
      Accretion of Series D Redeemable Preferred
        Stock to its redemption value                            --           --          (182)        --           (182)
      Adjustments to Series C and D warrants to fair value       --           --        (6,390)        --         (6,390)
      Reclassification of Preferred instruments to
        Shareholders' Equity after redemption right waivers       (90)        --          --           --         68,344
      Payments against stock subscription receivable               47         --          --           --             47
      Common Stock warrants issued
        for services rendered                                    --          1,020        --           --          1,020
      Stock option exercises                                     --            189        --           --            189
      Warrant exercises                                          --              6        --           --              6
      Offering costs                                             --           --          --           --            (25)
      Conversion of Series D to Common                           --             19        --           --           --
      Conversion of Series F to Common                           --             50        --           --           --

      Net loss                                                   --           --       (11,388)        --        (11,388)
      Foreign currency translation                               --           --          --            (69)         (69)
                                                                                                               ---------
      Comprehensive loss                                                                                         (11,457)
                                                            ---------    ---------   ---------    ---------    ---------
Balance at March 30, 2002                                   $     (43)   $  56,229   $(100,675)   $    (133)   $  23,732
                                                            =========    =========   =========    =========    =========
The accompanying notes are an integral part of the
                        consolidated financial statements

                                        5
VELOCITY EXPRESS CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                             (Amounts in thousands)
Nine Months Ended
                                                           ---------------------
                                                           March 30,   March 31,
                                                             2002        2001
                                                           --------    --------
OPERATING ACTIVITIES
        Net loss                                           $(11,388)   $(26,679)
        Adjustments to reconcile net loss to net
           cash flows used in operating activities:
            Depreciation                                      2,752       4,263
            Amortization                                        626       4,891
            Equity instruments issued in lieu of
                payment for services received                 1,170         402
            Non cash interest expense                         8,971         256
            Other                                                52       1,852
            Gain on sale of assets                           (1,064)       --
            (Gain) loss on retirement of equipment              (80)        128
        Change in operating assets and liabilities:
            Accounts receivable                               4,316       6,661
            Other current assets                                453       1,818
            Other assets                                       (223)         20
            Accounts payable                                   (997)        105
            Accrued liabilities                             (10,041)    (22,708)
                                                           --------    --------

               Cash used in operating activities             (5,453)    (28,991)

INVESTING ACTIVITIES
        Proceeds from sale of assets                          1,199         154
        Purchases of equipment                               (3,631)     (2,962)
        Other                                                   (89)        223
                                                           --------    --------

               Cash used in investing activities             (2,521)     (2,585)

FINANCING ACTIVITIES
        Borrowings under revolving credit agreement, net        589       7,184
        Payments on acquisition notes                        (2,000)     (2,561)
        Proceeds from issuance of preferred stock, net       11,235      13,867
        Proceeds from notes payable and long-term debt         --         9,500
        Debt financing costs                                 (1,454)       --
        Proceeds from issuance of common stock, net             195         498

                                                           --------    --------
               Cash provided by financing activities          8,565      28,488
                                                           --------    --------

Net increase (decrease) in cash and cash equivalents            591      (3,088)

Cash and cash equivalents, beginning of period                2,932       3,993
                                                           --------    --------

Cash and cash equivalents, end of period                   $  3,523    $    905
                                                           ========    ========
The accompanying notes are an integral part of the
                       consolidated financial statements

                                        6
VELOCITY EXPRESS CORPORATION AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
--------------------------------------------------------------------------------

1.   SIGNIFICANT ACCOUNTING POLICIES

     Basis of Presentation - The consolidated financial statements included
herein have been prepared by Velocity Express Corporation (formerly known as
United Shipping & Technology, Inc.) which, together with its wholly-owned
subsidiaries, shall be referred to herein as the "Company," without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
In the opinion of the Company, all adjustments consisting only of normal
recurring adjustments, necessary to present fairly the financial position of the
Company as of March 30, 2002, and the results of its operations for the three
and nine months ended March 30, 2002, and its cash flows for the nine months
ended March 30, 2002 have been included. Certain information in footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles has been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not misleading. These
consolidated financial statements should be read in conjunction with the
financial statements for the year ended June 30, 2001, and the footnotes
thereto, included in the Company's Report on Form 10-KSB, filed with the
Securities and Exchange Commission.

     Reincorporation - On December 18, 2001, United Shipping & Technology, Inc.
reincorporated in Delaware through a merger with and into its wholly-owned
Delaware subsidiary, Velocity Express Corporation. The merger was effective as
of January 4, 2002 at which time United Shipping & Technology, Inc. ceased to
exist as a separate corporate entity, and all of its assets and liabilities
became the assets and liabilities of Velocity Express Corporation. The name of
the Company was changed to Velocity Express Corporation.

     Principles of Consolidation - The consolidated financial statements include
the accounts of Velocity Express Corporation and its wholly owned subsidiaries.
All inter-company balances and transactions have been eliminated in the
consolidation.

     Reverse Stock Split - On April 25, 2002, the Company effected a
one-for-five reverse stock split, which resulted in the automatic conversion of
five shares of issued, and outstanding Common Stock into one share of Common
Stock. In the case of Preferred Stock, options and warrants, the number of
shares of Common Stock that may be purchased upon the exercise of outstanding
options, warrants and other securities, including the outstanding Preferred,
convertible into shares of Common Stock, and the per share exercise or
conversion prices thereof, have been adjusted appropriately to give effect to
the reverse stock split.

     The reverse stock split affects all stockholders equally and does not
affect any stockholder's proportionate equity interest in the Company except
with respect to adjustments for fractional interests. After the reverse stock
split, each shareholder owns a reduced number of shares of Common Stock but
holds the same percentage of the outstanding shares, except for adjustments for
fractional interests that resulted from the reverse stock split. Fractional
shares of Common Stock were not issued as a result of the reverse stock split,
but instead, any fractional share interest resulting from the reverse stock
split was rounded upward to the nearest whole share. Following the reverse stock
split, each share of Common Stock resulting from the reverse stock split
entitles the holder thereof to one vote per share and is otherwise identical to
the outstanding Common Stock immediately prior to the reverse stock split.

     The reverse stock split did not affect the par value of the Common Stock
and had no impact on total shareholders' equity. All share and per share
information has been retroactively adjusted to reflect the effect of the reverse
stock split.

     Reclassifications - Certain reclassifications have been made to the prior
period consolidated financial statements to conform to the current period
presentation.

                                        7
VELOCITY EXPRESS CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
--------------------------------------------------------------------------------

     Comprehensive loss - Comprehensive loss was $11.5 million and $26.7 million
for the nine months ended March 30, 2002 and March 31, 2001, respectively. The
difference between net loss and total comprehensive loss related to foreign
currency translation adjustments.

     Earnings per Share - Basic net loss per share excludes dilution and is
computed by dividing net loss by the weighted average number of common shares
outstanding for the period. Diluted net loss per share reflects the potential
dilution that could occur if securities or other obligations to issue common
stock were exercised or converted into common stock or resulted in the issuance
of common stock that then shared in the earnings of the Company. For all periods
presented, diluted net loss per share is equal to basic net loss per share
because the effect of including such securities or obligations would have been
antidilutive.
Three Months Ended     Nine Months Ended
                                                            --------------------  ---------------------
                                                            March 30,  March 31,  March 30,   March 31,
                                                              2002       2001       2002        2001
                                                            ---------  ---------  ---------   ---------
                                                           (Amounts in thousands, except per share data)
Numerator
  Net loss                                                  $ (180)   $(11,542)   $(11,388)   $(26,679)
  Beneficial conversion feature                               --          --        (2,700)       --
  Adjustment of Common Warrants issued in connection
       with sale of Series F Preferred to market value        --          --          (258)       --
  Accretion of Series B Redeemable Preferred Stock
       to its redemption value                                --          (190)       (348)       (475)
  Accretion of Series D Redeemable Preferred Stock
       to its redemption value                                --          --          (182)       --
  Adjustment of Preferred Series B Warrants to market value   --          --          --        (2,295)
  Adjustment of Preferred Series C Warrants to market value   --            60      (3,770)        740
  Adjustment of Preferred Series D Warrants to market value   --          --        (2,620)       --
                                                            ------    --------    --------    --------
  Net loss applicable to common shareholders                $ (180)   $(11,672)   $(21,266)   $(28,709)
                                                            ======    ========    ========    ========
Denominator for basic and diluted loss per share
  Weighted average shares                                    3,483       3,329       3,450       3,321
                                                            ======    ========    ========    ========
Basic and diluted loss per share                            $(0.05)   $  (3.51)   $  (6.16)   $  (8.64)
                                                            ======    ========    ========    ========
2.   ACQUISITIONS

     Effective August 28, 1999, the Company acquired from CEX Holdings, Inc.
("CEX") all of the outstanding shares of common stock of Velocity Express, Inc.
("Velocity"), formerly known as Corporate Express Delivery Systems, Inc., a
provider of same-day delivery solutions. The acquisition purchase price, which
was accounted for using the purchase method of accounting, was approximately
$91.2 million, subject to adjustment as defined in the merger agreement. The
purchase price consisted of $43 million in cash provided by an institutional
debt financier and an investment firm, and $19.5 million in a combination of
short and long-term notes issued to CEX. The Company, as a result of the
acquisition, received approximately $86.6 million of Velocity's assets and
assumed approximately $115.3 million of Velocity's liabilities, which resulted
in the Company recognizing approximately $91.2 million in goodwill.

                                       8
VELOCITY EXPRESS CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
--------------------------------------------------------------------------------

     On August 2, 2001, the Company completed certain purchase price adjustments
to the CEX merger agreement related to the acquisition of Velocity. Under the
terms of the settlement regarding the purchase price, the Company was no longer
liable for the convertible subordinated note to CEX in the amount of $3.6
million, the long-term subordinated note to CEX of $6.5 million, the short-term
subordinated note to CEX of $4.4 million and the accrued interest related to the
notes of approximately $2.8 million. Additionally, the purchase price
adjustments provide for the discharge of certain pre-acquisition insurance
liabilities totaling approximately $13.5 million as well as certain other
adjustments which had the impact of reducing specific liabilities by
approximately $12.0 million. The purchase price adjustments totaling
approximately $42.8 million were recorded as an offset to the goodwill in the
Company's first quarter of fiscal 2002. In the second quarter of fiscal 2002,
the Company finalized all purchase price adjustments associated with the
amendment to the merger agreement resulting in a reduction in the previously
reported adjustment to goodwill of approximately $3.1 million. In conjunction
with the agreement pertaining to the purchase price adjustments, the Company
issued common stock warrants for services rendered by an outside consultant, who
subsequently was appointed Chairman of the Board of the Company. The fair value
of the warrants amounted to approximately $1.0 million and is included in other
expense in the statement of operations.

     In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets,
effective for fiscal years beginning after December 15, 2001. Under the new
rules, goodwill will no longer be amortized but will be subject to annual
impairment tests in accordance with the statements. Other intangible assets will
continue to be amortized over their useful lives.

     Effective July 1, 2001, the Company adopted the new rules on accounting for
goodwill and other intangible assets. The Company performed its initial
assessment on December 29, 2001 and determined that there was no impairment of
goodwill. Amortization expense of approximately $2.7 million is not reflected in
the operating results for the nine months ended March 30, 2002 as a result of
the adoption of SFAS No. 142 and the application of the nonamortization
provisions of the statement. Over the same period in fiscal 2001, amortization
expense was approximately $4.6 million.

3.   RESTRUCTURING

     In fiscal 2001, the Company took a restructuring charge of $7.1 million
consisting of: severance costs in the amount of $2.2 million related to the
workforce reduction of 234 full-time employees, $3.3 million for rental costs
associated with the termination of building leases and location rationalization
costs, and $1.6 million for the write-off of equipment. As of March 30, 2002,
approximately $6.9 million in costs have been charged against the reserve.

                                       9
VELOCITY EXPRESS CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
--------------------------------------------------------------------------------

4.   LONG-TERM DEBT AND CAPITAL LEASES

     Long-term debt and capital leases consisted of the following:

                                       March 30,    June 30,
                                         2002         2001
                                       ---------    --------
                                       (Amounts in thousands)
Revolving note                         $ 33,352    $ 32,763
Senior subordinated note                  4,174       3,919
Long-term subordinated note to CEX         --         6,519
Short-term subordinated note to CEX        --         4,404
Convertible subordinated note to CEX       --         3,600
18% Bridge notes                           --         5,000
Subscription notes                         --         5,000
Other                                        44          64
                                       --------    --------
                                         37,570      61,269
Less current maturities                      (7)        (27)
                                       --------    --------
Total                                  $ 37,563    $ 61,242
                                       ========    ========

     On January 25, 2002, the Company entered into a new revolving credit
facility with Fleet Capital Corporation which replaced the credit facility with
the former lender, GE Capital. Borrowings under the revolving note are limited
to the lesser of $40 million or an amount based on a defined portion of
receivables. Interest is payable monthly at a rate of prime plus 1.25% (6.0% at
March 30, 2002) or LIBOR plus 3.0% for the first year, with the ability to lower
these margins by 0.50% over the remainder of the agreement. In addition, the
Company is required to pay a commitment fee of 0.375% on unused amounts of the
total commitment, as defined in the agreement. The term of the new facility is
two years, ending January 2004, with an option to renew the facility for a third
year.

     The senior subordinated note has interest payable quarterly at 12% per
annum and is due September 30, 2004. The note is subordinate to the revolving
note. The initial carrying value of the senior subordinated note was reduced by
$1.7 million for the fair value of the common stock warrant issued to the senior
subordinated lender. The warrant is subject to anti-dilution provisions. The
unamortized discount aggregated $0.8 million at March 30, 2002, and is being
amortized over the five-year life of the note.

     On August 2, 2001, the Company completed certain purchase price adjustments
to the CEX merger agreement whereby the convertible subordinated note, the
long-term subordinated note, and the short-term subordinated note along with all
accrued interest thereon, totaling approximately $14.5 million of notes and $2.8
million of accrued interest, were terminated. For additional information
regarding the settlement with CEX, see footnote 2.

     Substantially all of the assets and operations of Velocity have been
pledged to secure borrowings under the revolving note and the senior
subordinated note. The Company is subject to certain restrictive covenants, the
more significant of which include limitations on dividends, loans and
investments, capital expenditures, new indebtedness and changes in capital
structure. The Company is also required to maintain certain financial covenant
ratios related to interest coverage and fixed charge coverage. The agreements
with the lenders also require the Company to obtain the consent of the lenders
for additional acquisitions.

                                       10
VELOCITY EXPRESS CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
--------------------------------------------------------------------------------

     In exchange for a long-term guarantee to provide additional collateral
support under the revolving note during the second quarter of fiscal 2002, the
Company agreed to compensate its largest investor by reducing the conversion
prices of the Series B and Series C Preferred. In conjunction with the
conversion price amendment, the Company incurred a charge of $4.0 million which
was recorded as non-cash interest expense.

5.   SHAREHOLDERS' EQUITY

     Series G Convertible Preferred Stock - During April 2002, the Company
received approximately $4.5 million in purchase commitments from investors to
purchase shares of Series G Preferred. Each share of Series G Preferred is
convertible into 0.2 shares of the Company's common stock. Due to the pricing of
the Series G Preferred, the Company may be required to take a charge in its
fourth quarter and is determining what, if any, charge that may be required.

     Series F Convertible Preferred Stock - During fiscal 2002, the Company
issued 1,072,752 shares of Series F Preferred for net proceeds of approximately
$11.6 million. At the time of issuance, each share of Series F Preferred is
convertible into four shares of the Company's common stock, subject to
adjustments for dilutive issuances. The Company also issued warrants to purchase
360,128 shares of common stock in connection with these sales.

     Series D Convertible and Redeemable Preferred Stock - During fiscal 2002 at
a special shareholders' meeting, the Company's shareholders approved the
conversion of notes that the Company entered into in fiscal 2001 into shares of
Series D Preferred, resulting in the issuance of 1,642,444 shares of Series D
Preferred. At the time of issuance, each share of Series D Preferred is
convertible into two shares of the Company's common stock, subject to
adjustments for dilutive issuances. As a result of the conversion, the Company
recorded a $4.7 million non-cash interest charge.

     The Company's Series D Preferred that resulted from the conversion of the
subscription notes was deemed to have contained beneficial conversion features
that were recognized as a deemed dividend to preferred shareholders. The value
of the proceeds allocated to the beneficial conversion feature was $2.7 million
and was recognized as a return to the preferred shareholders at the date of
shareholder approval since the Series D Preferred was immediately convertible.

     Preferred Warrants - Adjustments of the Series C and Series D warrants to
their market values at December 14, 2001 were $3.6 million and $2.0 million,
respectively, resulting in carrying amounts of $4.1 million and $3.5 million,
respectively, at March 30, 2002.

     In December 2001, the Company reached agreements with the holders of each
series of its Preferred stock pursuant to which such holders waived their rights
to the cash redemption features of their respective series of Preferred stock.
These waivers allowed the Company to reclassify the Preferred stock into
shareholders' equity.

                                       11
ITEM 2.      MANAGEMENT'S DISCUSSION AND ANALYSIS

                  VELOCITY EXPRESS CORPORATION AND SUBSIDIARIES

     In accordance with the "Safe Harbor" Provisions of the Private Securities
Litigation Reform Act of 1995, the Company notes that certain statements in this
Form 10-Q and elsewhere which are forward-looking and which provide other than
historical information, involve risks and uncertainties that may impact the
Company's results of operations. These forward-looking statements include, among
others, statements concerning the Company's general business strategies,
financing decisions, and expectations for funding capital expenditures and
operations in the future. When used herein, the words "believe," "plan,"
"continue," "hope," "estimate," "project," "intend," "expect," and similar
expressions are intended to identify such forward-looking statements. Although
the Company believes that the expectations reflected in such forward-looking
statements are based on reasonable assumptions, no statements contained in this
Form 10-Q should be relied upon as predictions of future events. Such statements
are necessarily dependent on assumptions, data or methods that may be incorrect
or imprecise and may be incapable of being realized. The risks and uncertainties
inherent in these forward-looking statements could cause results to differ
materially from those expressed in or implied by these statements.

     Readers are cautioned not to place undue reliance on the forward-looking
statements contained herein, which speak only as of the date hereof. The
information contained in this Form 10-Q is believed by the Company to be
accurate as of the date hereof. Changes may occur after that date, and the
Company will not update that information except as required by law in the normal
course of its public disclosure practices.

                                       12
Use of EBITDA and Cash Net Income

     The Company evaluates operating performance based on several measures,
including income (loss) applicable to common shareholders plus interest,
non-cash depreciation and amortization, non-cash charges associated with the
valuation of the Company's redeemable preferred stock and preferred warrants,
and non-cash charges associated with the granting of equity as payment for
certain services ("EBITDA") and income (loss) applicable to common shareholders
plus non-cash interest, non-cash depreciation and amortization, non-cash charges
associated with the valuation of the Company's redeemable preferred stock and
preferred warrants, and non-cash charges associated with the granting of equity
as payment for certain services ("cash net income"). The Company considers
EBITDA and cash net income important indicators of the operational strength and
performance of its business; however, EBITDA and cash net income are
supplemental measures of performance and are not intended to represent measures
of performance in accordance with disclosures required by generally accepted
accounting principles ("GAAP").

     In the third quarter of fiscal 2002, the Company reported income from
operations of $0.6 million as compared to a loss from operations of $10.2
million in the third quarter of fiscal 2001, an improvement of $10.8 million.
Furthermore, the Company reported positive EBITDA of $1.7 million as compared to
negative EBITDA of $2.9 million in the third quarter of fiscal 2001, an
improvement of $4.6 million, and cash net income of $1.0 million as compared to
cash net loss of $4.2 million in the third quarter of fiscal 2001, an
improvement of $5.2 million.

     For the nine months ended March 30, 2002, the Company reported income from
operations of $0.2 million as compared to a loss from operations of $21.8
million for the same period in fiscal 2001. The Company also reported positive
EBITDA of $4.9 million as compared to negative EBITDA of $8.5 million for the
same period in fiscal 2001, and cash net income for the first nine months of
fiscal 2002 of $2.3 million as compared to cash net loss of $12.9 million in the
same period last year, an improvement of $15.2 million. These improvements are
the result of the Company's focus on cost containment, back office
consolidation, and improvements to the balance sheet which will be discussed in
detail below.
Three Months Ended                     Nine Months Ended
                                                     -----------------------------         ----------------------------
                                                      March 30,          March 31,          March 30,         March 31,
                                                        2002               2001               2002               2001
                                                     ----------         ----------         ----------         ---------
                                                            (Amounts in thousands, except per share data)
Revenue                                               $ 81,539          $ 112,214          $ 261,742         $ 365,024
Income (loss) from operations                              612            (10,173)               231           (21,765)
Net loss applicable to common shareholders                (180)           (11,672)           (21,266)          (28,709)
EBITDA                                                   1,720             (2,886)             4,864            (8,496)
Net income (loss) cash basis                               963             (4,229)             2,285           (12,942)

Basic and diluted net loss per share - GAAP basis      $ (0.05)           $ (3.51)           $ (6.16)          $ (8.64)

Basic net income (loss) per share - EBITDA basis          0.49              (0.87)              1.41             (2.56)
Diluted net income (loss) per share - EBITDA basis        0.08              (0.87)              0.28             (2.56)

Basic net income (loss) per share - cash basis            0.28              (1.27)              0.66             (3.90)
Diluted net income (loss) per share - cash basis          0.05              (1.27)              0.13             (3.90)
13
Historical Results of Operations

     Revenue for the quarter ended March 30, 2002 decreased $30.7 million or
27.4% to $81.5 million from $112.2 million for the quarter ended March 31, 2001.
The decrease in revenue for the quarter ended March 30, 2002 is primarily the
result of the elimination by the Company of $26.2 million of low-margin business
and the consolidation of unprofitable locations, and $4.5 million from the
divesture of non-core air courier business operations compared to the same
period last year. Revenue during the quarter trended up as revenue grew by
$5,000 per day in March 2002 compared to February 2002, which represents a $1.5
million increase in revenue on an annualized basis.

     Revenue for the nine months ended March 30, 2002 decreased $103.3 million
or 28.3% to $261.7 million from $365.0 million for the nine months ended March
31, 2001. The decrease in revenue for the nine months ended March 30, 2002 is
primarily the result of the elimination by the Company of $75.4 million of
low-margin business and the consolidation of unprofitable locations, and $27.9
million from the divesture of non-core air courier business operations compared
to the same period last year. Revenue by service offering for the nine months
ended March 30, 2002 was as follows:

     Scheduled logistics                          53.2%
     Distribution logistics                       23.4%
     Targeted On-Demand services                  23.4%

     Cost of services for the quarter ended March 30, 2002 was $62.3 million, a
reduction of $28.2 million or 31.2% from $90.5 million for the quarter ended
March 31, 2001. Cost of services improved 4.2 percentage points as our costs as
a percentage of revenue decreased from 80.6% to 76.4% for the quarter ended
March 30, 2002. Approximately $24.9 million of the savings in cost of services
correlates to the reduced revenue described above, including $3.8 million as a
result of the divestiture of non-core air courier business operations.
Approximately $3.3 million relates to efficiencies gained as the Company
continues to move to a variable cost model using independent contractors and
employee-owner operators in greater proportion to employee drivers. This
variable cost strategy has resulted in improved insurance expense and
improvement in overall driver and vehicle-related costs. For example, at this
time last year, the Company was funding $1.3 million per month in self-insurance
risk for workers' compensation and auto liability. Today, because of
improvements, the Company funds the same risk for $0.5 million per month, a
savings in excess of $0.8 million per month. The improvement in the gross margin
percentage was due to a 2.1 percentage point improvement in insurance expense
resulting from focus on numerous safety initiatives and a 2.1 percentage point
improvement in overall driver and vehicle related costs resulting from moving
towards a variable cost structure. Cost of services as a percentage of revenue
also improved 0.8 percentage points when comparing the results of the third
quarter of 2002 to those of the second quarter of 2002.

     Cost of services for the nine months ended March 30, 2002 was $203.4
million, a reduction of $88.0 million or 30.2% from $291.4 million for the nine
months ended March 31, 2001. Cost of services improved 2.1 percentage points as
our costs as a percentage of revenue decreased from 79.8% to 77.7% for the nine
months ended March 30, 2002. Approximately $82.7 million of the savings in cost
of services relates to the reduced revenue described above, including $22.7
million as a result of divesture of non-core air courier business operations.
Approximately $5.3 million relates to the Company's continued efforts of moving
to a variable cost model using independent contractors and employee-owner
operators in greater proportion to employee drivers. This variable cost strategy
has resulted in improved insurance expense and improvement in overall driver and
vehicle-related costs. The improvement in the gross margin percentage was due to
a 0.7 percentage point improvement in insurance expense resulting from focus on
numerous safety initiatives and a 1.4 percentage point improvement in overall
driver and vehicle-related costs resulting from the Company's continued efforts
of moving to a variable cost model using independent contractors and
employee-owner operators in greater proportion to employee drivers.

                                       14
Selling, general and administrative ("SG&A") expenses for the quarter ended
March 30, 2002 were $15.4 million or 18.9% of revenue, a reduction of $8.3
million or 35.0% as compared with $23.7 million or 21.1% of revenue for the
quarter ended March 31, 2001. The decrease in SG&A for the quarter is a result
of integrating, through technology, all back office processes into one common
platform resulting in savings of approximately $6.2 million, the sale of
non-core air courier business operations of $0.6 million, and the impact of
implementing SFAS No. 142 Goodwill and Other Intangible Assets, whereby the
Company no longer amortizes its goodwill resulting in savings of $1.5 million in
amortization. This focus has enabled the Company to realize a year-over-year
improvement of 2.2 percentage points. Compared to the second quarter of fiscal
2002 however, SG&A as a percentage of revenue increased by 0.3 percentage
points. Selling costs for the third quarter of fiscal 2002 increased
approximately $0.5 million compared to the second quarter of fiscal 2002, an
increase of 0.5 percentage points. Exclusive of the increase in selling costs,
general and administrative costs improved by 0.2 percentage points over the
second quarter of fiscal 2002.

     SG&A expenses for the nine months ended March 30, 2002 were $48.1 million
or 18.4% of revenue, a reduction of $31.0 million or 39.2% as compared with
$79.1 million or 21.7% of revenue for the nine months ended March 31, 2001. The
decrease in SG&A for the first nine months is a result of integrating, through
technology, all back office processes into one common platform of approximately
$22.2 million, the sale of non-core air courier business operations of $4.3
million, and amortization savings of $4.6 million.

     As compensation for structuring and finalizing the agreement between the
Company and CEX, the Company issued common stock warrants in the first quarter
of fiscal 2002. The fair value of the warrants was approximately $1.0 million
and is included in other expense in the statement of operations.

     Occupancy charges for the quarter ended March 30, 2002 were $3.2 million, a
reduction of $0.6 million or 15.8% from $3.8 million for the quarter ended March
31, 2001. Occupancy charges for the nine months ended March 30, 2002 were $10.0
million, a reduction of $1.8 million or 15.2% from $11.8 million for the nine
months ended March 31, 2001. The improvement for the quarter and the first nine
months is due to divestitures of non-core air courier business operations, the
consolidation of operating locations, and the closure of the former corporate
headquarters in Houston, Texas.

     Interest expense for the quarter ended March 30, 2002 decreased $0.6
million to $0.8 million from $1.4 million for the quarter ended March 31, 2001
as a result of lower interest rates and lower average borrowings.

     Interest expense for the nine months ended March 30, 2002 increased $7.0
million to $11.8 million from $4.8 million for the nine months ended March 31,
2001. Included in interest expense for the period are certain non-cash charges
related to the conversion of the Series D Bridge Notes and interest thereon
amounting to approximately $4.7 million as well as a non-cash charge of $4.0
million related to a long-term guarantee the Company received from its largest
shareholder on two letters of credit supporting the Company's revolving credit
facility. Interest expense related to the Company's borrowings decreased over
the same period in the prior year as a result of lower interest rates and lower
average borrowings.

     As a result of the foregoing factors, the net loss for the quarter ended
March 30, 2002 was $0.2 million, compared with $11.5 million for the same period
in fiscal 2001, an improvement of $11.3 million or 99.1%.

     The net loss for the nine months ended March 30, 2002 was $11.4 million,
compared with $26.7 million for the same period in fiscal 2001, an improvement
of $15.3 million or 57.3%. Had the effect of one-time non-cash interest charges
of $9.7 million been excluded, net loss for the nine months ended March 30, 2002
would have been $1.7 million, compared with $26.7 million for the same period in
fiscal 2001, which would have been an improvement of $25.0 million.

     Net loss applicable to common shareholders was $21.3 million for the nine
months ended March 30, 2002 as compared with $28.7 million for the nine months
ended March 31, 2001. The difference between net loss applicable to common
shareholders and net loss was comprised of non-cash charges associated with the
Company's redeemable preferred stock. With the elimination of the redemption
features, the preferred stock is now classified as permanent equity, and the
Company is no longer required to take charges of this nature.

                                       15
Liquidity and Capital Resources

     Cash flow used in operations was $5.4 million for the first nine months of
fiscal 2002. This use of funds was comprised of cash flow provided by operations
of $1.0 million and cash flow absorbed as a result of working capital changes of
$6.4 million. The execution of the Company's restructuring plan which was
implemented in fiscal 2001, the integration, through technology, of all back
office processes into one common platform, and the implementation of the
variable cost strategy were the principal drivers in the change in working
capital during the first nine months. During fiscal 2002 the Company has funded
$3.8 million of its restructuring plans via the payment of severance costs and
rental costs associated with the termination of building leases and location
rationalizations. The integration of all back office processes into one common
platform was instrumental in the Company generating $4.3 million in working
capital through the collection of accounts receivable, while the implementation
of the variable cost strategy has lowered the days required to fund accounts
payable leading to a use of working capital of $1.0 million. The remaining use
of working capital for the first nine months of $5.9 million was primarily
associated with the funding of the Company's self insurance risk associated with
workers compensation and auto liability insurance and settlement of
pre-acquisition legal lawsuits.

     Cash flow used as a result of investing activities was $2.5 million and
consisted of capital expenditures of $3.6 million used for the Company's
customer-driven technology solutions initiative and capitalized costs related to
the integration of the back office, offset by proceeds of $1.2 million,
primarily from the sale of non-core air courier business operations. The
Company's customer-driven technology solutions initiative is comprised of two
elements: (i) smart package tracking technology which will provide a single
source of aggregated delivery information to national customers, and (ii) a
customer-oriented web portal for online information access to provide package
tracking, chain-of-custody updates, electronic signature capture, and real-time
proof of delivery retrieval. Management accelerated the implementation of this
technology solutions initiative in order to meet the needs of its targeted
national customers. This solution will provide the Company's national customers
with a single source of aggregated delivery information.

     Cash flow generated from financing activities amounted to $8.6 million
during the first nine months of 2002. The primary source of cash during the
first nine months of fiscal 2002 was the private placement of Series F
Convertible Preferred Stock through which the Company raised net proceeds of
approximately $11.3 million. The Company also sold shares of its common stock,
which raised $0.2 million. Long-term debt and notes payable resulted in a use of
cash flow of $2.9 million during the nine months ended March 30, 2002, which
included a $2.0 million payment made to CEX in connection with the finalization
of all purchase price adjustments, $1.5 million paid for debt financing costs,
and $0.6 million provided by the revolving credit facility. For more information
on long-term debt or equity, please see footnotes 4 and 5, respectively.

     The Company reported operating income of approximately $0.2 million for the
nine months ended March 30, 2002 and has positive working capital of
approximately $16.6 million at March 30, 2002. In August 2001, the Company
completed certain purchase price adjustments to the CEX merger agreement related
to the acquisition of Velocity that resulted in an improvement to working
capital of approximately $14.9 million. The improvement to working capital in
the first nine months of fiscal 2002 was approximately $19.4 million.

     As of March 30, 2002, the Company had no outstanding purchase commitments
for capital improvements.

     The Company's operating plan includes the continued implementation and
consolidation activities it had initiated in fiscal 2001 to further improve the
operating performance of the Company. In fiscal 2002, the Company also
implemented additional initiatives to further reduce direct and SG&A expenses.
During April 2002, the Company completed the private placement of its Series G
Convertible Preferred Stock, through which it raised approximately $4.5 million.
Proceeds from the Series G offering will primarily be used to fund the Company's
technology initiatives. Going forward, the Company believes cash flows from
operations and the equity raised via the private placement of the Series G
offering will be sufficient to fund its operating needs. If the Company's growth
strategy requires additional funding, the Company will continue to secure, if
necessary, additional financing from its lenders or through the issuance of
additional equity; however, there can be no assurance that such funding can be
obtained.

                                       16
ITEM 3.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     The Company's operations are not currently subject to material market risks
for interest rates, foreign currency rates, or other market price risks.

PART II - OTHER INFORMATION

ITEM 1.       LEGAL PROCEEDINGS.

     As of March 30, 2002, the Company was not a party to any material legal
proceedings.

     The Company is a party to litigation and has claims asserted against it
incidental to its business. Most of such claims are routine litigation that
involve workers compensation claims, claims arising out of vehicle accidents and
other claims arising out of the performance of time-critical delivery services.
The Company carries workers' compensation insurance and auto liability coverage
for the current policy year. The Company is also named as a defendant in various
employment-related lawsuits arising in the ordinary course of business. The
Company vigorously defends against all of the foregoing claims.

     The Company does not believe that the pending lawsuits, if resolved or
settled unfavorably to the Company, would have a material adverse effect upon
the Company's financial position or results of operations. A monetary settlement
paid by the Company or an award against it in any of such actions could,
however, have a material adverse effect upon the Company's cash flow in a given
period in which a settlement or award occurs.

     Cautionary Statements Regarding Pending Litigation and Claims

     The Company's statements above concerning pending litigation constitute
forward-looking statements. Investors should consider that there are many
important factors that could adversely affect the Company's assumptions and the
outcome of claims, and cause actual results to differ materially from those
projected in the forward-looking statements. These factors include:

     o    The Company has made estimates of its exposure in connection with the
          lawsuits and claims that have been made. As a result of litigation or
          settlement of cases, the actual amount of exposure in a given case
          could differ materially from that projected. In addition, in some
          instances, the Company's liability for claims may increase or decrease
          depending upon the ultimate development of those claims.

     o    In estimating the Company's exposure to claims, the Company is relying
          upon its assessment of insurance coverages and the availability of
          insurance. In some instances insurers could contest their obligation
          to indemnify the Company for certain claims, based upon insurance
          policy exclusions or limitations. In addition, from time to time, in
          connection with routine litigation incidental to the Company's
          business, plaintiffs may bring claims against the Company that may
          include undetermined amounts of punitive damages. The Company is
          currently not aware of any such punitive damages claim or claims in
          the aggregate which would exceed 10% of its current assets. Such
          punitive damages are not normally covered by insurance.

     o    Although the Company has numerous claims, few, if any, are believed to
          have the potential to have a material adverse impact on the Company on
          a consolidated basis. An award against the Company or a subsidiary, or
          a settlement paid by it, in connection with currently pending claims
          could, however, have a material adverse effect upon the Company's cash
          flow in a given period in which an award or settlement occurs.
          Further, multiple awards against, or settlements by, the Company or
          its subsidiaries in a particular period could have a material adverse
          effect upon the Company's financial condition, cash flow and results
          of operations.

                                       17
ITEM 2.       CHANGES IN SECURITIES AND USE OF PROCEEDS.

     Not Applicable

ITEM 3.       DEFAULTS UPON SENIOR SECURITIES.

     Not Applicable

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

     In March 2002, the Company submitted to its shareholders four matters, all
of which were approved at a special shareholders' meeting held on March 20,
2002. The matters and voting thereon were as follows:

     1.   To approve an amendment to the Company's Certificate of Incorporation
          to effect a reverse stock split of the Company's outstanding Common
          Stock, whereby the Company will issue one new share of Common Stock in
          exchange for between two and five shares of the outstanding Common
          Stock.

          For          49,577,163       Abstain                     12,640
          Against       2,874,925       Broker non-votes           183,434

     2.   To approve an amendment to the Company's Certificate of Incorporation
          to (i) eliminate the provisions providing for cash redemption of the
          Company's Series B, Series C and Series D Preferred Stock at a
          specified date and for redemption of the Company's Preferred Stock at
          the election of the holder thereof upon a change of control of the
          Company and (ii) grant to the holders of the Company's Preferred Stock
          certain approval rights with respect to changes of control of the
          Company.

          For          44,571,579       Abstain                    100,247
          Against       1,139,587       Broker non-votes         6,846,749

     3.   To approve an amendment to the Company's Certificate of Incorporation
          to reduce the conversion price for the Company's Series B Preferred
          Stock to $6.2224 per share, the conversion price for the Company's
          Series C Preferred Stock to $4.2645 per share, and the conversion
          price for the Company's Series D Preferred Stock to $0.7912 per share
          in order to reflect adjustments required by prior dilutive events.

          For          44,168,763       Abstain                    223,787
          Against       1,418,863       Broker non-votes         6,846,749

     4.   To approve an amendment to the Company's Certificate of Incorporation
          to reduce the conversion prices for the Company's Series B Preferred
          Stock and Series C Preferred Stock pursuant to an agreement with an
          investor to $1.3988 per share and $1.3867 per share, respectively;
          provided that, for purposes of determining the voting rights of the
          Series B and Series C Preferred Stock, the number of shares of Common
          Stock into which such Preferred Stock is convertible will not include
          any Common Stock issuable as a result of such reduction in conversion
          price.

          For          43,715,699       Abstain                     57,427
          Against       2,038,287       Broker non-votes         6,846,749

                                       18
ITEM 5.       OTHER INFORMATION.

     Not Applicable.

ITEM 6.       EXHIBITS AND REPORTS ON FORM 8-K.

      a.      Exhibits required by Item 601 of Regulation S-K:

              Reference is made to the Exhibit Index

      b.      Reports on Form 8-K

              The Company filed one report on Form 8-K during the fiscal
              quarter ended March 30, 2002, as follows:

              (1)  Current Report on Form 8-K filed on January 4, 2002,
                   relating that on January 4, 2002, United Shipping &
                   Technology, Inc. (the "Company") changed its state of
                   incorporation from Utah to Delaware. The reincorporation was
                   approved by holders of a majority of the Company's
                   outstanding shares, voting in person or by proxy, at its
                   annual meeting held on December 18, 2001. The
                   reincorporation was accomplished by merging the Company with
                   and into Velocity Express Corporation, a Delaware
                   corporation ("Velocity") and a wholly-owned subsidiary of
                   the Company, with the Delaware corporation surviving. In
                   connection with the merger, the Company changed its name to
                   Velocity Express Corporation. Each share of common stock of
                   the Utah corporation was converted into one share of common
                   stock, par value $0.004 per share, of the Delaware
                   corporation.

                                   SIGNATURES

     In accordance with the requirements of the Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned; thereunto
duly authorized, in the City of Minneapolis, State of Minnesota on May 2, 2002.

                          VELOCITY EXPRESS CORPORATION

                          By /s/ Jeffry J. Parell
                             ---------------------------------------
                             JEFFRY J. PARELL
                             Chief Executive Officer

                          By /s/ Mark E. Ties
                             ---------------------------------------
                             MARK E. TIES
                             Chief Financial Officer
                             (Principal Financial and Accounting Officer)

                                       19
INDEX TO EXHIBITS

Exhibit No.         Description
-----------         -----------

     10.1           Loan and Security Agreement by and among Velocity Express,
                    Inc. and related borrowers, and Fleet Capital Corporation
                    dated as of January 25, 2002.

     10.2           Form of Incentive Stock Option Agreement between United
                    Shipping & Technology, Inc., and management, dated October
                    29, 2001.

     10.3           Form of Stock Purchase Agreement to purchase Series G
                    Convertible Preferred Stock entered into between the Company
                    and certain investors in April 2002.

                                       20