DRAFT 5: MONDAY 2/12, 1:00PM



                     U.S. SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON DC 20549

                                   FORM 10-QSB

                                   (Mark One)

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

                For the quarterly period ended December 30, 2000

       _____  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


                       UNITED SHIPPING & TECHNOLOGY, INC.
             (Exact name of registrant as specified in its charter)


           UTAH                                           87-0355929
---------------------------------              ---------------------------------
(State or Other Jurisdiction of                (IRS Employer Identification No.)
Incorporation or Organization)


            9850 51ST AVENUE NORTH, SUITE 110, MINNEAPOLIS, MN 55442
--------------------------------------------------------------------------------
               (Address of Principal Executive Offices) (Zip Code)


       Registrant's Telephone Number, Including Area Code: (952) 941-4080


Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 February 12, 2001, there were 16,646,399 shares of common stock of the
registrant issued and outstanding.


Transitional Small Business Disclosure.

                                 YES _____        NO (_X_)






<PAGE>


                       UNITED SHIPPING & TECHNOLOGY, INC.

                                   FORM 10-QSB

                     FOR THE QUARTER ENDED DECEMBER 30, 2000

                                      INDEX

<TABLE>
<CAPTION>
                                                                                   Page
                                                                                   ----
<S>                                                                                 <C>
      PART I. FINANCIAL INFORMATION ............................................    3
       ITEM 1.
            a)  Consolidated Balance Sheets - December 30, 2000 and July 1, 2000    3
            b)  Consolidated Statements of Operations -
                Three and six months ended December 30, 2000 and January 1, 2000    4
            c)  Consolidated Statement of Shareholders' Deficit ................    5
            d)  Consolidated Statements of Cash Flows
                Six months ended December 30, 2000 and January 1, 2000  ........    6
            e)  Notes to Consolidated Financial Statements .....................    7

       ITEM 2.  Management's Discussion and Analysis of
                Financial Condition and Results of Operations ..................   10

      PART II.  OTHER INFORMATION ..............................................   14
       ITEM 1.  Legal Proceedings ..............................................   14
       ITEM 2.  Changes in Securities and Use of Proceeds ......................   15
       ITEM 3.  Defaults upon Senior Securities ................................   16
       ITEM 4.  Submission of Matters to a Vote of Securities Holders ..........   16
       ITEM 5.  Other Information ..............................................   16
       ITEM 6.  Exhibits .......................................................   16
      SIGNATURES ...............................................................   16
      EXHIBIT INDEX ............................................................   17

</TABLE>


                                       2
<PAGE>


PART I.
               UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES
                           Consolidated Balance Sheets
                             (Amounts in thousands)
<TABLE>
<CAPTION>
                                                             December 30, 2000      July 1, 2000
                                                             -----------------      ------------
                                                               (UNAUDITED)
                             ASSETS
<S>                                                              <C>                <C>
Current assets:
   Cash                                                          $   2,426          $   3,993
   Accounts receivable, net of allowance for doubtful accounts      52,696             57,698
   Accounts receivable - other                                       1,996              3,960
   Prepaid expense                                                   8,850              9,213
   Inventories                                                       1,045              1,109
   Other current assets                                                301                163
                                                                 ---------          ---------
     Total current assets                                           67,314             76,136
Property and equipment:
   Land                                                                488                488
   Buildings and leasehold improvements                              1,924              1,863
   Furniture, equipment and vehicles                                16,248             15,340
                                                                 ---------          ---------
                                                                    18,660             17,691
   Less: accumulated depreciation                                   (7,260)            (4,895)
                                                                 ---------          ---------
                                                                    11,400             12,796
Goodwill                                                            86,272             89,220
Notes receivable from related party                                  1,147              1,354
Other assets, net                                                    2,058              2,217
                                                                 ---------          ---------
Total assets                                                     $ 168,191          $ 181,723
                                                                 =========          =========

              LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
   Trade accounts payable                                        $  29,234          $  30,792
   Accrued insurance and claims                                     16,379             18,903
   Accrued wages and benefits                                        5,775              9,020
   Accrued legal and claims                                          4,055             16,192
   Other accrued liabilities                                        12,985             12,669
   Current portion of long-term debt and capital leases              5,239              7,167
                                                                 ---------          ---------
     Total current liabilities                                      73,667             94,743
Long-term debt and capital leases                                   52,019             39,495
Accrued insurance and claims                                        20,469             23,347

Series B redeemable preferred stock                                 21,176             25,261
Series C redeemable preferred stock                                 12,000                 --
Preferred stock Series C warrants                                    2,860                 --

Shareholders' deficit:
   Common stock, $0.004 par value, 16,646 and 16,400
   shares issued and outstanding on December 30, 2000 and
   July 1, 2000 respectively                                            66                 65
   Common stock warrant                                                455                 --
   Additional paid-in capital                                       46,957             43,240
   Accumulated deficit                                             (61,423)           (44,387)
   Foreign currency translation                                        (55)               (41)
                                                                 ---------          ---------
     Total shareholders' deficit                                   (14,000)            (1,123)
                                                                 ---------          ---------
     Total liabilities and shareholders' deficit                 $ 168,191          $ 181,723
                                                                 =========          =========

</TABLE>


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



                                       3

<PAGE>




               UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES
                      Consolidated Statements of Operations
                                   (UNAUDITED)
                  (Amounts in thousands, except per share data)


<TABLE>
<CAPTION>
                                          Quarter Ended           Six Months Ended
                                    ------------------------  ------------------------
                                    December 30,  January 1,  December 30,  January 1,
                                        2000         2000        2000          2000
                                     ---------    ---------    ---------    ---------
<S>                                  <C>          <C>          <C>          <C>
Revenue                              $ 119,719    $ 138,908    $ 252,810    $ 192,632
Cost of services                        96,170      108,477      200,970      149,427
                                     ---------    ---------    ---------    ---------
    Gross profit                        23,549       30,431       51,840       43,205
Operating expenses:
    General and administrative          26,051       35,661       55,707       47,859
    Sales and marketing                  3,555        4,862        7,725        6,917
                                     ---------    ---------    ---------    ---------
Loss from operations                    (6,057)     (10,092)     (11,592)     (11,571)

Other income (expense):
    Net interest expense                (1,722)      (1,546)      (3,339)      (1,684)
    Other                                 (173)         408         (206)         408
                                     ---------    ---------    ---------    ---------
Net loss                             $  (7,952)   $ (11,230)   $ (15,137)   $ (12,847)
                                     =========    =========    =========    =========
Net loss applicable to
    common shareholders              $  (7,461)   $ (11,230)   $ (17,036)   $ (12,847)
                                     =========    =========    =========    =========
Basic and diluted net
    loss per share                   $   (0.45)   $   (0.86)   $   (1.03)   $   (1.08)
                                     =========    =========    =========    =========
Basic and diluted weighted average
    number of common shares
    outstanding                         16,635       13,111       16,582       11,933
                                     =========    =========    =========    =========

</TABLE>


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


                                       4
<PAGE>




               UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES
                Consolidated Statements of Shareholders' Deficit
                                   (UNAUDITED)
                             (Amounts in thousands)



<TABLE>
<CAPTION>
                                           Common Stock
                                           ------------      Paid-in    Accumulated  Comprehensive
                                        Shares      Amount   Capital      Deficit          Loss     Total
-----------------------------------------------------------------------------------------------------------
<S>                                     <C>         <C>     <C>          <C>              <C>     <C>
Balance at July 1, 2000                 16,400      $ 65    $ 43,240     $ (44,387)       $ (41)  $ (1,123)
    Value of preferred stock
        conversion feature                   -         -       2,670        (1,899)           -        771
    Stock options exercised                 36         -         161             -            -        161
    Common stock warrant                     -         -         455             -            -        455
    Warrants exercised                     110         1         336             -            -        337
    Issuance of stock in lieu of
        litigation settlement              100         -         550             -            -        550
    Net loss                                 -         -           -       (15,137)           -    (15,137)
    Foreign currency translation             -         -           -             -          (14)       (14)
                                                                                                   --------
    Comprehensive loss                                                                             (15,151)
                                      ----------------------------------------------------------------------
Balance at December 30, 2000            16,646      $ 66    $ 47,412     $ (61,423)       $ (55) $ (14,000)
                                      =====================================================================


</TABLE>










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


                                       5


<PAGE>

               UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES
                      Consolidated Statement of Cash Flows
                                   (UNAUDITED)
                             (Amounts in thousands)
<TABLE>
<CAPTION>
                                                                          Six Months Ended
                                                                          ----------------
                                                                December 30, 2000     January 1, 2000
                                                                -----------------     ---------------
<S>                                                                <C>                 <C>
OPERATING ACTIVITIES
     Net Loss                                                      $    (15,137)       $    (12,847)
     Adjustments to reconcile net loss to net cash flows used in
     operating
         activities:
             Depreciation and amortization                                6,073               3,275
             Other                                                          314               4,307
             Loss/(Gain) on retirement of equipment                          55                 (68)
     Change in operating assets and liabilities:
             Accounts receivable                                          5,004              (5,051)
             Other current assets                                         2,317               1,735
             Other assets                                                   326                (693)
             Accounts payable                                            (1,560)              4,924
             Accrued liabilities and deferred revenue                   (20,411)                259
                                                                   ------------        ------------
           Cash used in operating activities                            (23,019)             (4,159)
                                                                   ------------        ------------
INVESTING ACTIVITIES
     Proceeds from sale of equipment                                         (2)                187
     Purchases of property and equipment                                 (1,645)               (799)
     Acquisition of business, net of cash received                         --               (55,572)
     Other, net                                                              95                 138
                                                                   ------------        ------------
           Cash used in investing activities                             (1,552)            (56,046)
                                                                   ------------        ------------
FINANCING ACTIVITIES
     Payments on notes payable and long-term debt                       (46,993)             (3,168)
     Proceeds from notes payable and long-term debt                      57,513              61,827
     Proceeds from the sale of preferred stock                           12,000                --
     Proceeds from stock subscription                                      --                   250
     Proceeds from sale of common stock                                     498               7,282
                                                                   ------------        ------------
           Cash provided by financing activities                         23,018              66,191
                                                                   ------------        ------------
Effect of currency exchange rate changes on cash                            (14)                 20
                                                                   ------------        ------------
Net (decrease) increase in cash and cash equivalents                     (1,567)              6,006
Cash and cash equivalents, beginning of period                            3,993                 252
                                                                   ------------        ------------
Cash and cash equivalents, end of period                           $      2,426        $      6,258
                                                                   ============        ============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
     Cash paid for interest                                        $      1,452        $      1,107
                                                                   ============        ============


</TABLE>





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



                                       6

<PAGE>

                       UNITED SHIPPING & TECHNOLOGY, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


      The consolidated financial statements included herein have been prepared
by 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 December 30, 2000, and the results of its operations for the three
months ended December 30, 2000, and its cash flows for the six months ended
December 30, 2000 have been included. Certain information in footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have 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 July 1, 2000, and the footnotes thereto,
included in the Company's Report on Form 10-KSB, filed with the Securities and
Exchange Commission.

      Principles of Consolidation - The consolidated financial statements
include the accounts of United Shipping & Technology, Inc. and its wholly-owned
subsidiaries. All inter-company balances and transactions have been eliminated
in the consolidation.

      Certain reclassifications have been made to prior years' consolidated
financial statements to conform to the current year presentation.

      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 anti-dilutive. Total
options and warrants outstanding as of December 30, 2000 and January 1, 2000
were 9,151,580 and 5,328,571, respectively.

<TABLE>
<CAPTION>
                                                                      Three Months Ended            Six Months Ended
                                                                    December      January 1,      December     January 1,
                                                                    ---------     -----------    ---------     ----------
                                                                    30, 2000        2000          30, 2000        2000
                                                                    --------        ----          --------        ----
                                                                          (AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
<S>                                                               <C>            <C>            <C>            <C>
Numerator:
     Net Loss                                                     $    (7,952)   $   (11,230)   $   (15,137)   $   (12,847)
     Accretion of series B redeemable preferred stock to its             (189)            --           (284)            --
     redemption value
     Adjustment to the market value of preferred stock series B            --             --         (2,295)            --
     warrants
     Adjustment to the market value of preferred stock series C           680             --            680             --
     warrants
                                                                  -----------    -----------    -----------    -----------
     Adjusted net loss applicable to common shareholders          $    (7,461)   $   (11,230)   $   (17,036)   $   (12,847)
                                                                  ===========    ===========    ===========    ===========

     Denominator for basic and diluted loss per share-
         weighted average shares                                       16,635         13,111         16,582         11,933
                                                                  ===========    ===========    ===========    ===========

     BASIC AND DILUTED LOSS PER SHARE                             $     (0.45)   $     (0.86)   $     (1.03)   $     (1.08)
                                                                  ===========    ===========    ===========    ===========
</TABLE>

      Comprehensive loss was $8.0 million and $11.2 million for the three months
ended December 30, 2000 and January 1, 2000, respectively. The difference
between net loss and total comprehensive loss related to foreign currency
translation adjustments.

      Effective July 2, 2000, the Company adopted Statement of Financial
Accounting Standards No. 133 (SFAS 133), ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES. SFAS 133 establishes standards for


                                       7

<PAGE>

recognition and measurement of derivatives and hedging activities. The Statement
requires all derivatives to be recorded on the balance sheet at fair value. As a
result of the adoption, the Company did not incur any transition adjustment to
earnings. The adoption of this Statement is not expected to have a significant
impact on the Company.


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 purchase price 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. The results
of Velocity's operations have been included in the Company's consolidated
financial statements since August 28, 1999.

      In connection with the August 28, 1999 acquisition of Velocity, management
implemented a plan to terminate approximately 100 employees and to consolidate
certain facilities. Approximately $3.9 million in anticipated costs relating to
such items was included in the acquisition cost allocation. During the fourth
quarter of fiscal 2000, the plan was finalized and final adjustments of
approximately $1.5 million were made to the acquisition cost allocation. As of
December 30, 2000 approximately $1.1 million in costs (primarily related to
severance payments and lease terminations) were charged against the reserve and
no amounts related to such plan have been included in the determination of net
loss for the period.

      The following represents the activity within these accruals (in
thousands):

      Balance at July 1, 2000                              $        2,478
           Additions                                                   --
           Payments                                                (1,128)
                                                           --------------
      Balance at December 30, 2000                         $        1,350
                                                           ==============


      The following unaudited pro forma financial information gives effect to
the Velocity acquisition as if it had occurred at the beginning of fiscal year
2000. The pro forma results were prepared for comparative purposes only and are
not indicative of the results of operations which actually would result had the
acquisition occurred on the date indicated, or which may result in the future.


<TABLE>
<CAPTION>
                                               Three months ended           Six months ended
                                               ------------------           ----------------
                                                  January 1, 2000            January 1, 2000
                                                  ---------------            ---------------
                                                 (AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)

<S>                                                      <C>                        <C>
             Revenue                                    $138,908                   $279,227
             Loss from operations                        (10,092)                   (18,170)
             Net loss                                    (11,230)                   (20,455)
             Basic and diluted loss per share              (0.86)                     (1.76)
</TABLE>



3.   Long-term Debt and Capital Leases:

      Long-term debt and capital leases consisted of the following (amounts in
thousands):

<TABLE>
<CAPTION>
                                                                December 30, 2000              July 1, 2000
                                                              ---------------------           ---------------
<S>                                                                     <C>                       <C>
           Revolving note                                               $    34,044               $    21,903
           Senior subordinated note                                           3,748                     3,577





                                       8
<PAGE>


           Long-term subordinated note to CEX                                 6,519                     6,519
           Short-term subordinated note to CEX                                4,404                     4,404
           Convertible subordinated note to CEX                               3,600                     3,600
           9% convertible subordinated note                                     212                       951
           Equipment financing debt                                           4,515                     5,471
           Various other notes and leases                                       216                       237
                                                            ------------------------    ----------------------
                                                                             57,258                    46,662
           Less current maturities                                           (5,239)                   (7,167)
                                                            ------------------------    ----------------------
           Total                                                        $    52,109     $              39,495
                                                            ========================    ======================
</TABLE>

      Borrowings under the revolving note are limited to the lesser of $55
million or an amount based on a defined portion of receivables less the amount
outstanding on the $5 million Swing Line Note issued to the institutional
financier. Interest is payable monthly at a rate of Prime plus 1.1% (9.5% at
December 30, 2000) which increases to Prime plus 1.6% effective April 1, 2001.
The Company may elect the rate of LIBOR plus 3% at its discretion from time to
time. All amounts advanced are due September 23, 2004. 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 senior subordinated note has interest payable quarterly at 12% 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 unamortized discount aggregated $1.25 million at
December 30, 2000. The discount is amortized over the life of the note. The
warrant has an exercise price of $3.005 per share and entitles the holder to
acquire, in whole or in part, 1,505,959 shares of the Company's common stock,
subject to adjustment for certain anti-dilution rights as defined in the warrant
purchase agreement.

      As a result of the acquisition of Velocity, the Company was also liable on
a 6% convertible subordinated note, which was due January 31, 2000. In March
2000, the Company made a principal payment in the amount of $.5 million plus
accrued interest and in April 2000, restructured the terms of the original
agreement into a 9% convertible subordinated note in the amount of $1.7 million.
Under the new agreement, the Company is required to pay principal and accrued
interest in an amount equal to $.2 million (or such lesser amount if less than
$.2 million of the unpaid principal and accrued interest outstanding) commencing
May 1, 2000 and continuing until all principal and interest is paid or otherwise
provided for. In connection with the new agreement, the Company also issued a
warrant to purchase 15,000 shares of common stock at an exercise price of
$12.925 per share. The Company recorded the fair value associated with this
warrant as a discount against the carrying value of the note. Under the new
agreement, the Holder has the option of converting all or a portion of the
outstanding principal and accrued interest thereon into common stock of the
Company. The number of shares receivable by the Holder upon each conversion is
equal to the outstanding principal and accrued interest being converted divided
by the average closing sale price of the Company's common stock for the 20
trading days preceding the date of the Notice to Set Conversion Price delivered
by the Holder to the Company from time to time. Under the new agreement, the
Holder also has anti-dilution protection and registration rights with respect to
the shares receivable upon conversion. In the event the registrable shares are
not registered in the time frame set forth in the new Agreement, the outstanding
principal balance on the Note is subject to increase as set forth therein.

      Substantially all of the assets and operations of Velocity have been
pledged to secure borrowings under the revolving note, the senior subordinated
note and the CEX subordinated notes. 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 covenants related to minimum EBITDA. The agreements with the lenders
also require the Company to obtain the consent of the lenders for additional
acquisitions.


4.  Equity:

      In May 2000, the Company sold to investors 2,806,797
shares of the Company's Series B Convertible Preferred Stock (the "Series B
Preferred") at a price of $9.00 per share for a total of approximately $25.3
million. The Series B Preferred requires the Company to redeem each outstanding
share at $9.00 per share, subject to adjustment, on May 31, 2006. The Company
agreed to issue with the Series B Preferred warrants to purchase common stock
and warrants to purchase Series B Preferred,


                                       9
<PAGE>


pending the approval of the Company's shareholders. On August 14, 2000 at a
special meeting of shareholders the warrant issuance and exercise was approved.
Two of the warrants were cancelled on September 1, 2000. At the date of
cancellation, the difference between the fair value of the Series B Warrants and
the fair value of the Series C Warrants was $2,670,000 and was recorded as
additional paid in capital. The terms of the remaining warrants to purchase
common stock entitle the investors to purchase an aggregate of 425,000 shares of
the Company's common stock in the event and to the extent that any of the
3,000,000 options granted under the Company's 2000 Stock Option Plan are
exercised. The exercise price is equal to the lowest exercise price of the
initially approved 2000 Plan options, subject to adjustment to prevent dilution.
The fair value of the warrant was determined to be approximately $.5 million at
the date of shareholder approval. The warrant expires on May 31, 2004.

      In September 2000, the Company issued 2,000,000 shares of its Series C
Convertible Preferred Stock (the "Series C Preferred") at $6.00 per share for
total proceeds of approximately $12 million. The Series C Preferred is
convertible at any time at a price of $6.00, subject to adjustment in order to
prevent dilution. The Series C Preferred requires the Company to redeem each
outstanding share at $6.00 per share, subject to adjustment, on August 31, 2006.
In connection with the issuance of the Series C Preferred the Company issued
warrants to purchase 825,484 shares of Series C Preferred at an exercise price
of $.01 per share (the "Series C Warrants"). The fair value of the Series C
Warrants is approximately $2.9 million and has been allocated from the amount of
the Series C Preferred Stock.

       In August 2000, pursuant to a settlement agreement dated June 20, 2000,
between the Company and a former employee, the Company issued 100,000 shares of
the Company's common stock in connection with the settlement of certain
litigation. These shares were placed in escrow pending the registration of the
shares or the earlier termination of the agreement. On January 18, 2001, the
Company agreed to place an additional 500,000 shares in the escrow to secure
payment of the settlement.


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS

               UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES
                    (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

      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-QSB 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-QSB SHOULD BE RELIED UPON AS PREDICTIONS OF FUTURE EVENTS. SUCH
STATEMENTS ARE


                                       10
<PAGE>


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-QSB 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.


OVERVIEW-SIGNIFICANT ACQUISITION


      With the acquisition of Velocity in September of 1999, the Company has
become the leader in nationwide customized delivery solutions for same-day,
time-critical shipping and distribution. The Company provides an array of
same-day ground and air delivery services, including scheduled delivery,
on-demand delivery, distribution services and air courier services. The
Company's network consists of approximately 210 locations in 86 of the top
metropolitan areas in the United States. The Company's operations are supported
by a fleet of approximately 8,000 vehicles, including 3,700 company leased or
owned vehicles and 4,300 vehicles utilized by independent contractors. The
Company currently has approximately 9,500 employees and independent contractors.

      The purchase of Velocity was a key step in the Company meeting its goal of
becoming the premier same-day express delivery and e-commerce fulfillment
service in the United States. With the acquisition of Velocity, the Company now
provides the following products and services to individual consumers and
businesses:

*     same-day ground and air transportation services throughout the United
      States;

*     distribution, logistics and supply chain management services; and

*     secure transfer of information over the Internet.

      As part of its strategy to focus on core business units, on October 28,
2000, the Company sold its interest in Tricor Air, Inc., a second tier
subsidiary of the Company, for $2.158 million. The purchaser assumed certain
liabilities in connection with the transaction.


RESULTS OF OPERATIONS:

Comparison of Quarters Ended December 30, 2000 and January 1, 2000

         Revenue for the quarter ended December 30, 2000 decreased $19,189, or
13.8%, to $119,719 from $138,908 for the quarter ended January 1, 2000. The
decrease was primarily due to the sale of two operating units, one of which was
sold in the fourth quarter of fiscal 2000 and the other which was sold in the
second quarter of fiscal 2001. The revenue associated with these units was
$19,138 for the quarter ended January 1, 2000 compared to $4,514 for the same
period this year. Excluding the units sold, revenue per day dropped 5.4% for the
quarter ended December 30, 2000 compared to the same period last year. This
decrease was associated with the loss of a major customer in our financial
service sector and the revenue loss associated with the December storms that
were not incurred in the same period last year.

         Cost of services for the quarter ended December 30, 2000 decreased
$12,307, or 11.3%, to $96,170 from $108,477 for the quarter ended January 1,
2000. The expense associated with the units noted above was $14,698 for the
quarter ended January 1, 2000 compared to $3,575 for the same period this year.
Excluding the units sold,



                                       11
<PAGE>

cost of services for the quarter ended December 30, 2000 increased to 80.4% from
78.3% for the same period last year. This increase was the result of increased
payments to drivers, higher insurance costs and higher fuel costs than were
incurred in the same period last year.

         General and administrative expenses decreased $9,610, or 26.9%, to
$26,051 from $35,661 for the quarter ended January 1, 2000. The expense
associated with the units noted above was $3,594 for the quarter ended January
1, 2000 compared to $756 for the same period this year. Excluding the units
sold, general and administrative expenses for the quarter ended December 30,
2000 decreased to 22.0% from 26.8% for the same period last year. The remaining
decrease of $6,772 is the result of the following: (i) one-time acquisition
related costs of $3,000 being incurred in the quarter ended January 1, 2000 that
were not incurred in the same period this year, (ii) increased amortization
expense in the quarter ended December 30, 2000 of $844 that were not incurred in
the same period last year, and (iii) decreases in wages, travel and other
administrative costs of $4,616 in the quarter ended December 30, 2000 that were
incurred in the same period last year.

         Sales and marketing expenses for the quarter ended December 30, 2000
decreased $1,307, or 26.9%, to $3,555 from $4,862 for the quarter ended January
1, 2000. The expense associated with the units noted above was $1,024 for the
quarter ended January 1, 2000 compared to $40 for the same period this year.
Expressed as a percentage of revenue, sales and marketing expenses for the
quarter ended December 30, 2000 decreased to 2.3% from 3.2% for the same period
last year. The remaining decrease of $323 is the result of lower wages, travel
and other selling costs in the quarter ended December 30, 2000 that were
incurred in the same period last year.

         Net interest expense for the quarter ended December 30, 2000 increased
$176, or 11.4%, to $1,722 from $1,546 for the quarter ended January 1, 2000.
Expressed as a percentage of revenue, interest expense for the quarter ended
December 30, 2000 increased to 1.4% from 1.1% for the same period last year.
This increase is associated with the increase in the amount outstanding under
the Senior Credit facility as of December 30, 2000 compared to the same period
last year.


Comparison of Six Months Ended December 30, 2000 and January 1, 2000
--------------------------------------------------------------------


         Revenue for the six months ended December 30, 2000 increased $60,178,
or 31.2%, to $252,810 from $192,632 for the six months ended January 1, 2000.
The increase is primarily due to the Velocity acquisition which occurred in the
quarter ended October 2, 1999.

         Cost of services for the six months ended December 30, 2000 increased
$51,543, or 34.5%, to $200,970 from $149,427 for the six months ended January 1,
2000. The increase is primarily due to the Velocity Express acquisition.

         General and administrative expenses for the six months ended December
30, 2000 increased $7,848, or 16.4%, to $55,707 from $47,859 for the six months
ended January 1, 2000. The increase is primarily due to the Velocity Express
acquisition.

         Sales and marketing expenses for the six months ended December 30, 2000
increased $808, or 11.7%, to $7,725 from $6,917 for the six months ended January
1, 2000. The increase is primarily due to the Velocity Express acquisition.

         Net interest expense for the six months ended December 30, 2000
increased $1,655, or 98.3%, to $3,339 from $1,684 for the six months ended
January 1, 2000. The increase is primarily due to the Velocity Express
acquisition.


LIQUIDITY AND CAPITAL RESOURCES:

         Historically, the Company has operated at a loss and has funded its
operations from the proceeds of public and private equity offerings. Throughout
fiscal 2000 and the first quarter of 2001 and continuing through the second


                                       12
<PAGE>


quarter of fiscal 2001, the Company has financed the implementation of its
revised business strategy through various private placements of equity and debt,
including sales of common stock and preferred stock and the sale of warrants.

         Due to severe weather conditions in December 2000, the Company's
revenue, the timing of billings to customers and collections fell below amounts
projected in its operating plan. Lower receivables and collections, together
with other operating conditions, including projected negative cash flows in its
second fiscal quarter, resulted in a short-term working capital deficit. To meet
its working capital requirements, the Company and its largest shareholder group,
TH Lee.Putnam Internet Partners, L.P., TH Lee.Putnam Internet Parallel Partners,
L.P., THLi Coinvestment Partners LLC and Blue Star I, LLC (collectively "THLi")
entered into a Bridge Loan Agreement on January 4, 2001 (the "Agreement").
Pursuant to the terms of the Agreement, THLi has loaned $5,000,000 to the
Company. In connection with the bridge loan, the Company issued a Convertible
Bridge Note to THLi in the original principal amount of $3,500,000 on January 4,
2001, and an additional Convertible Bridge Note in the original principal amount
of $1,500,000 (collectively the "Notes") which are due and payable on July 4,
2001. The Notes are subordinate to the Company's senior indebtedness and bear
interest on the unpaid principal amount at an annual percentage rate of 18%.
Interest on the Notes is payable at maturity in immediately available funds, or,
subject to the Company's shareholder approval, at the option of THLi, in shares
of the Company's Series D Convertible Preferred Stock (the "Series D
Preferred").

         The Notes may be converted into shares of the Company's Series D
Preferred (the "Conversion Shares"). The Conversion Price of the Notes is the
lesser of: (a) the average market price of the Company's stock as determined by
the average closing price of the Company's common stock as reported by NASDAQ
for the five days prior to the conversion, or (b) a price 25% lower than the
price per share at which the Company's Series D Preferred, or any voting stock
of the Company issued subsequent to the date of issuance of the Notes, was last
sold to one or more third party investors (the "Conversion Price"). THLi may at
any time, require conversion of all or a portion of the Notes at the Conversion
Price plus all accrued interest. Prior to conversion of the Notes by THLi, the
Company's shareholders must have ratified the conversion of the Notes by THLi.

         In connection with the bridge loan, the Company issued to THLi warrants
(the "Warrants") to purchase in the aggregate 2,165,349 shares of the Company's
Series D Preferred (the "Warrant Shares") at a per share purchase price of $.01.
The Warrants were issued on January 4, 2001 and expire on January 4, 2006. Value
will be allocated between the loan and the warrants issued based on the current
market value at the time of issuance.

         To meet its working capital needs and to execute its growth strategy,
the Company will continue to require financing. There can be no assurance that
the Company will be able to obtain required financing, or if obtained, that the
terms thereof would be favorable to the Company. If the Company is unable to
obtain additional financing sufficient to meet its needs it may not be able to
continue its strategies or continue operations.

         On September 22, 2000, the Company completed a sale of shares of its
Series C Convertible Preferred Stock (the "Series C Preferred") and warrants to
purchase additional shares of Series C Preferred to TH Lee.Putnam Internet
Partners, L.P., TH Lee.Putnam Internet Parallel Partners, L.P., THLi
Coinvestment Partners LLC, and Blue Star I, LLC (collectively the "THLi Funds")
under the terms of a Securities Purchase Agreement (the "Series C Agreement")
that the Company entered into with the THLi Funds as of September 1, 2000.

         Pursuant to the Series C Agreement, the Company sold 2,000,000 shares
of its Series C Preferred to the THLi Funds, at a price of $6.00 per share, for
a total purchase price of $12,000. The Company also agreed to issue the THLi
Funds warrants to purchase a total of 825,484 additional shares of its Series C
Preferred for a period of five years at an exercise price of $0.01 per share
(the "Series C Warrants"). This investment was




                                       13
<PAGE>

structured into two tranches. The first, in the amount of $5,000,000 was made on
September 1, 2000 and the second, in the amount of $7,000,000 was completed on
September 22, 2000.

         In exchange for the Series C Warrants, the THLi Funds canceled the
Series B Warrants issued in connection with a previous purchase on May 31, 2000
by members of the TH Li Funds of Series B Preferred.

         The shares of Series C Preferred are convertible into shares of the
Company's Common Stock (or shares or units of any security into which the Common
Stock is changed) at a conversion rate of 1:1, subject to adjustment to prevent
dilution. The shares of Series C Preferred require the Company to redeem each
outstanding share at $6.00 per share, subject to adjustment, on August 31, 2006
or earlier upon the happening of certain events delineated in the Certificate of
Designation creating the Series C Preferred. The shares of Series C Preferred
purchased pursuant to the Series C Agreement were convertible into 2,000,000
shares of Company Common Stock.

         In fiscal 2001, the Company plans to focus on integrating its
operations, seeking acquisitions in the same-day delivery market and supporting
technology, and the building of a nationally recognized brand name to be used in
conjunction with such services. The Company believes that these efforts will
require the Company to expend significant capital. While the Company intends to
seek to acquire companies that have profits or positive cash flow, or that have
the potential to generate positive cash flow in the future, it is likely that
any positive cash flow that would otherwise result will be utilized in
connection with the Company's ongoing consolidation strategy. The Company
believes that these strategies, while initially requiring additional cash
outlays, may result in greater revenues from same-day delivery operations,
although no assurance can be given that such revenues will increase appreciably
as a result of these initiatives in the near future, if at all.


PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

         As of December 30, 2000, and prior to its acquisition of Velocity in
September 1999, the Company was not a party to any material legal proceedings.
Velocity and certain related parties are parties to lawsuits arising out of the
business of Velocity.

         Velocity 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 same-day delivery services.
Velocity carries workers compensation insurance and auto liability coverage,
both subject to a deductible for the current policy year in the amount $250,000.
Velocity and its subsidiaries are also named as defendants in various
employment-related lawsuits arising in the ordinary course of the 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. The Company has established an
accrual for losses it may sustain in the pending actions as of December 30, 2000
in the amount of $24.5 million. The Company believes that such an accrual level
is adequate to meet its potential obligations.


       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 which 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:



                                       14
<PAGE>

      *     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.

      *     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, which 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.

      *     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.


ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

         In October 2000 the Company issued a non-qualified stock option outside
of the Company's 2000 Stock Option Plan to an employee of Velocity for
the purchase of 250,000 shares of common stock at a purchase price of $3.531 per
share.

         On November 2, 2000 the Company issued to Michael Harris, an officer of
the Company at the date of grant, a warrant to purchase 24,930 shares of the
Company's common stock. This warrant has an exercise price of $7.50 per share
and expires on November 2, 2005.

         On November 6, 2000 the Company issued to Craig-Hallum Capital Group, a
warrant to purchase 50,000 shares of the Company's common stock. This warrant
has an exercise price of $11.00 per share and expires on June 16, 2005.

         In August 2000, pursuant to a settlement agreement dated June 20, 2000,
between the Company and a former employee, Jack D. Ashabranner III, the Company
issued 100,000 shares of the Company's common stock to secure the settlement of
certain litigation. On January 18, 2001, the Company placed an additional
500,000 shares of common stock in escrow in connection with the settlement.
These shares were placed in escrow pending the registration of the shares or the
earlier termination of the agreement. The Company has the option of paying the
settlement in cash or with registered shares. Once registration of the shares
has occurred, the Company may issue the equivalent of $550,000 of stock. Any
excess shares at the time of registration shall be cancelled, while any deficit
will be made up in cash.

         No underwriters or placement agents were used in connection with the
above-referenced securities transactions, and no underwriting commissions were
paid. No means of general solicitation was used in offering the securities. The
securities in the transaction were sold to a limited group of accredited
investors in a private placement transaction, exempt from registration under
Section 4(2) of the Securities Act. All purchasers of the Company's securities
were sophisticated investors who qualified as accredited investors within the
meaning of Rule 501(a) of Regulation D under the Securities Act.


                                       15
<PAGE>


ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

        Not Applicable.

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

        Not Applicable.

ITEM 5. OTHER INFORMATION.

         Pursuant to the Bridge Loan Agreement between the Company and THLi
dated January 4, 2001, THLi loaned the Company an additional $1,500,000 on
January 31, 2001. In connection with the additional bridge loan, the Company
issued a second Convertible Bridge Note to THLi in the original principal amount
of $1,500,000, which is due and payable on July 4, 2001. The $1,500,000
Convertible Bridge Note is subordinate to the Company's senior indebtedness and
the note bears interest on the unpaid principal amount from January 31, 2001 at
an annual percentage rate of 18%. Interest is payable at maturity in immediately
available funds, or, subject to the Company's shareholder's approval, at the
option of THLi, in shares of the Company's Series D Preferred.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

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

              Reference is made to the Exhibit Index.

        b.    Reports on Form 8-K


              The Company filed no current reports on Form 8-K during the fiscal
              quarter ended December 30, 2000, as follows:






                                   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 Plymouth, State of Minnesota on February 13, 2001.


                                  UNITED SHIPPING & TECHNOLOGY, INC.




                                  By  /s/ Jeffry Parell
                                      ---------------------------------------
                                      Jeffry Parell
                                      Chief Executive Officer


                                  By  /s/ Mark Ties
                                      ---------------------------------------
                                      Mark Ties
                                      Chief Financial Officer


                                       16
<PAGE>


                                  EXHIBIT INDEX

EXHIBIT NUMBER        DESCRIPTION

Exhibit 10.1          Bridge Loan Agreement dated as of January 4, 2001, by and
                      between the Company, TH Lee.Putnam Internet Partners,
                      L.P., TH Lee.Putnam Internet Parallel Partners, L.P.,
                      THLi Coinvestment Partners LLC and Blue Star I, LLC
                      (incorporated by reference to the Company's Current Report
                      on Form 8-K, File Number 1504691, filed January 9, 2001).

Exhibit 10.2          Convertible Bridge Note for $3,500,000 dated January 4,
                      2001, issued by the Company to TH Lee.Putnam Internet
                      Partners, L.P., TH Lee.Putnam Internet Parallel Partners,
                      L.P., THLi Coinvestment Partners LLC and Blue Star I, LLC
                      (incorporated by reference to the Company's Current Report
                      on Form 8-K, File Number 1504691, filed January 9, 2001).

Exhibit 10.3          Form of Stock Purchase Warrant to Acquire Preferred Stock
                      dated January 4, 2001, issued by the Company to TH Lee.
                      Putnam Internet Partners, L.P., TH Lee.Putnam Internet
                      Parallel Partners, L.P., THLi Coinvestment Partners LLC
                      and Blue Star I, LLC (incorporated by reference to the
                      Company's Current Report on Form 8-K, File Number 1504691,
                      filed January 9, 2001).

Exhibit 10.4          Amendment dated January 18, 2001, to Mutual Release and
                      Contract of Settlement, dated June 20, 2000, between Jack
                      D. Ashabranner II, UST Delivery Systems, Inc. and United
                      Shipping & Technology, Inc., as amended on July 31, 2000.

Exhibit 10.5          Warrant issued to Michael Harris dated November 2, 2000
                      for the purchase of 24,930 shares of common stock.

Exhibit 10.6          Warrant issued to Craig-Hallum Capital Group dated
                      November 6, 2000 for the purchase of 50,000 shares of
                      common stock.

Exhibit 10.7          Supplemental Bridge Loan Agreement dated as of January 31,
                      2001, by and between the Company, TH Lee.Putnam Internet
                      Partners, L.P., TH Lee.Putnam Internet Parallel Partners,
                      L.P., THLi Coinvestment Partners LLC and Blue Star I, LLC.


                                       17