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                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  ----------

                                  FORM 10-KSB

                                  ----------

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

                     For the fiscal year ended June 30, 2001

                                  ----------

                           Commission File No. 0-28452

                       UNITED SHIPPING & TECHNOLOGY, INC.
                 (Name of small business issuer 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)

                    Issuer's telephone number: (952) 941-4080

                                  ----------

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act: Common Stock, par
value $.004 per share.

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 [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation SB contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]

State issuer's revenues for its most recent fiscal year.  $471,682,000.

State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the common equity was sold, or the
average bid and asked prices of such common equity, as of a specified date
within the past 60 days: $17,433,041 as of September 21, 2001.

As of September 21, 2001, there were 17,146,399 shares of Common Stock of the
registrant issued and outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

Part III: Portions of Proxy Statement for 2001 annual meeting of stockholders



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                                TABLE OF CONTENTS
                                -----------------
                                                                           PAGE
                                                                           ----
PART I.......................................................................1

       ITEM 1.  DESCRIPTION OF BUSINESS......................................1

       ITEM 2.  DESCRIPTION OF PROPERTY.....................................10

       ITEM 3.  LEGAL PROCEEDINGS...........................................11

       ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF
                  SECURITY-HOLDERS..........................................12

PART II.....................................................................13

       ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED
                  STOCKHOLDER MATTERS.......................................13

       ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS........................16

       ITEM 7.  FINANCIAL STATEMENTS........................................21

       ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH
                  ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE........45

PART III....................................................................45

       ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
                  AND CONTROL PERSONS; COMPLIANCE WITH
                  SECTION 16(a) OF THE EXCHANGE ACT.........................45

       ITEM 10. EXECUTIVE COMPENSATION......................................45

       ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                  OWNERS AND MANAGEMENT.....................................45

       ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............45

       ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8K.......................45

SIGNATURES..................................................................46

POWER OF ATTORNEY...........................................................46

EXHIBIT INDEX...............................................................47


                                       i
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                                     PART I.

item 1.  DESCRIPTION OF BUSINESS

Forward-Looking Information

     In accordance with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, United Shipping & Technology, Inc. (the
"Company") notes that certain statements in this Form 10-KSB 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. Such forward-looking statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially from historical results or from those results presently anticipated
or projected.

     Important factors that could cause actual results to differ materially from
the expectations reflected in any forward-looking statement herein include among
other things: (1) the ability of the Company to successfully and profitably
operate its same-day delivery business and to effectively consolidate the
operations of Velocity Express, Inc. ("Velocity"); (2) the ability of the
Company to remain current on the payments of its outstanding accounts payable;
(3) the ability of the Company to stem operating losses and position the Company
to achieve positive cash flow; (4) the ability of the Company to operate
profitably in a depressed economic climate; (5) the uncertainties surrounding
technological changes in the same-day delivery and transportation industries,
and the Company's dependence upon computer and communications systems and third
parties who manufacture, maintain and market the same; and (6) the ability of
the Company to access public and private equity markets.

     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-KSB 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 - Recent Significant Acquisition

     On September 24, 1999, as effective August 24, 1999, the Company acquired
the same-day delivery operations of Corporate Express Delivery Systems, Inc.
("CEDS") from CEX Holdings, Inc. ("CEX") by a merger of CEDS with the Company's
wholly-owned subsidiary, United Shipping & Technology Acquisition Corp. The
purchase price was approximately $91.2 million, subject to adjustment as defined
in the merger agreement. The purchase price consisted of $43.0 million in cash
provided by an institutional debt financier and an investment firm, and $19.5
million in a combination of short-term and long-term notes issued to CEX. The
Company, as a result of the acquisition, received approximately $86.6 million of
CEDS' assets and assumed approximately $115.3 million of CEDS' liabilities,
which resulted in the Company recognizing approximately $91.2 million in
goodwill. CEDS was the surviving corporation in the merger. CEDS changed its
name to UST Delivery Systems, Inc., and subsequently changed its name to
Velocity Express, Inc. ("Velocity"). Velocity is incorporated in Delaware.

     With the acquisition of Velocity, the Company has become the leader in
nationwide customized delivery solutions for same-day, time-critical deliveries.
The Company provides an array of delivery services, including scheduled
delivery, on-demand delivery, distribution services and air courier services.
The Company's network (not including its agent locations) consists of
approximately 200 locations in 86 of the top 100 metropolitan areas in the
United States. The Company's operations are supported by a fleet of
approximately 7,000 vehicles, including 2,500 company-leased and owned vehicles
and 4,500 vehicles utilized by independent contractors. The Company currently
has approximately 4,200 employees and it engages approximately 4,300 independent
contractors. The Company also has over 1,500 agents throughout North America.

                                       1
<PAGE>

     The purchase of Velocity was a major step for the Company in meeting its
goal of becoming the premier same-day delivery and distribution/logistics
service in the United States. With the acquisition of Velocity, the Company now
provides the following products and services to individual consumers and
businesses:

     o    same-day ground and air transportation services throughout North
          America; and

     o    distribution, logistics and supply chain management services

     The Company derives its revenues from its same-day ground and air delivery
operations. The Company's revenues for the fiscal year ended June 30, 2001 were
approximately $472 million. Velocity's results of operations have been included
in the Company's financial statements since its acquisition by the Company
effective August 24, 1999.


The Company's Same-Day Delivery Operations

Market Opportunity

     The same-day delivery market provides scheduled and non-scheduled, same-day
delivery of documents and packages in local and inter-city markets. Some
same-day delivery companies offer specialized services beyond small package
delivery, such as legal filing, process serving and dock-truck services for
large items. A few same-day delivery companies, including the Company, offer
warehousing and facilities management, and logistics solutions, as well as
supply chain management and cross-dock and package aggregation services.

     Industry sources, which the Company believes to be reliable, estimate that
the same-day delivery services industry is a $43 billion market in the United
States. Although the market is large, it is highly fragmented. There are
relatively low entry barriers in this market as the capital requirements to
start a local courier business are relatively small and the industry is not
subject to extensive regulation. The Company believes that there are currently
as many as 6,000 same-day delivery companies in the United States. Most
participants are privately held and operate only on the local level. The focus
is generally on operations, with little attention given to marketing and sales.
Accordingly, the Company believes that there is little perceived service
differentiation between competitors, and that customer loyalty is generally
short-term. There are no dominant brands in the same-day delivery industry, and
the industry has a relatively basic level of technology usage. By contrast, the
next-day package delivery industry is highly consolidated and dominated by
large, well-recognized companies such as UPS(R) and Federal Express(R), both of
which use technology extensively.

     Same-day delivery customers increasingly seek greater reliability,
convenience and speed, as well as additional services, from a package delivery
provider that they trust. The Company expects that further growth in the
same-day shipping market will be fueled by corporate America's trend toward
outsourcing and third-party logistics, as well as the rapid growth of
e-commerce, and the heightened demand for immediate response. The Company
believes that customers will be attracted to companies with the ability to offer
greater efficiency through the use of technology, such as the Company's
sophisticated dispatch and communications software, its bar code scanning
capabilities and its online ordering and tracking system. The Company plans to
use technology and the Internet to manage and coordinate dispatching, delivery,
tracking, warehousing and logistics and other "back room" functions to help it
and its customers operate more efficiently and, the Company believes, more
cost-effectively. The Company's customers will also benefit from its national
market presence because it offers them the ability to purchase an array of
services from one vendor operating in multiple markets. The Company believes
that the integration of high-tech communications software with the currently
low-tech same-day delivery business can provide a market differentiation between
its services and those of its competitors.

                                       2
<PAGE>

Same-Day Delivery Consolidation Strategy

     In late 1998, to meet potential customers' increased expectations and
needs, the Company adopted a same-day delivery services consolidation strategy
with four major objectives:

     o    develop a national market presence to serve large corporate customers;

     o    use the Company's present and developing technology to reduce costs,
          provide better service, better manage its cash;

     o    develop a national brand to differentiate the Company's service and
          foster customer loyalty; and

     o    realize economies of scale through integration of operational and
          administrative processes.

     The Company initially entered the same-day delivery business in the
Minneapolis/St. Paul metropolitan area by acquiring courier and package delivery
companies beginning in late 1998. With the purchase of Velocity on September 24,
1999, the Company became the national leader in same-day delivery services. As
the Company grows, it expects to be able to achieve substantial cost savings by
consolidating and standardizing accounting back office functions, billing,
tracking and other administrative functions.

     The Company has developed a national brand, Velocity Express(TM) and is
currently utilizing it for its same-day delivery services. The Company believes
that Velocity Express(TM) is a brand that will represent reliability and
superior customer service. The Company believes that a uniform presentation of
its same-day delivery and related services across multiple markets will provide
a business advantage by fostering customer and employee loyalty and familiarity
and will help to integrate its acquired companies.

     The Company also intends to use technology to provide better service to
customers. To meet its customers' needs for reliability, speed and efficiency,
the Company currently employs in most of its fleet, computerized communications
and dispatch systems. In order to increase the strength of its market leadership
in the same-day delivery business and obtain the maximum economies of scale from
its consolidation efforts, the Company has made a determination that it must
continue to invest in upgrading and developing computer and communications
technology. In addition, the Company has begun the testing and implementation of
a bar code scanning system. The Company's ultimate goal is to expand the
capabilities of its communications systems to further improve its same-day
delivery, supply-chain management and logistics services, and to provide an
Internet-based platform for customized delivery solutions.

Same-Day Delivery Operations

     With the acquisition of Velocity, the Company is the nation's largest
provider of customized same-day, time-critical shipping, distribution and
logistics solutions. The Company believes that no public or private competitor
currently duplicates its national presence or its full complement of same-day
delivery service offerings. The Company believes that these capabilities give it
a competitive advantage in meeting the demands of sophisticated, national
customers who depend on same-day delivery services in the execution of their
businesses. The Company's current network (not including the Company's agent
network) is comprised of approximately 200 locations, which serve 86 of the top
100 metropolitan markets in the United States and numerous secondary markets.

     The Company's Velocity subsidiary now has approximately 4,200 employees
throughout the United States. The same-day ground delivery service employs
approximately 7,000 vehicles, 2,500 of which are owned or leased by the Company
and 4,500 of which are utilized by independent contractors. Of the Company's
approximately 7,200 drivers, 2,900 are employees and 4,300 are independent
contractors. The Company also utilizes approximately 1,500 agents in North
America.

                                       3
<PAGE>

Ground Services

     The Company is the largest same-day ground delivery service provider in
North America. The Company's ground operations provide delivery services from
approximately 200 locations in the United States and operate in 86 of the 100
top metropolitan areas, as well as numerous secondary markets. The Company
groups its ground business into three main business units and it derives
approximately 85 percent of its total ground revenues from same-day delivery
services.

     The Company generally enters into customer contracts for scheduled and
routed delivery and distribution and supply chain management services that are
terminable by customers upon notice. These are long-term contracts with
short-term notice provisions, usually ranging from 30 to 60 days. Typically, the
Company does not enter into contracts with its customers for on-demand delivery
services. Prices for the Company's services are currently determined at the
local and national level based on the distance and time sensitivity of a
particular delivery, the size, weight and quantity of the delivery, and the
specific type of goods being moved. Currently, billing information is generated
and processed locally through the Company computer systems. The Company is in
the process of developing a single billing location for all of its business.

     Scheduled Delivery. Same-day scheduled delivery services are provided for
time-sensitive deliveries that are recurring in nature or scheduled by the
customer for specific time delivery. Pickup and delivery routes are pre-defined
based on the needs of the customer. A dispatcher coordinates and assigns
scheduled pickups and deliveries to the drivers and manages the delivery flow.
In many cases, certain drivers will handle a designated group of scheduled
routes on a recurring basis.

     The largest customer base for this type of service consists of financial
institutions who need a wide variety of services including the pickup and
delivery of non-negotiable instruments, primarily canceled checks and ATM
receipts, the delivery of office supplies, and the transfer of inter-office mail
and correspondence. Typical service involves the pickup of non-negotiable
instruments or other correspondence from various bank branches in a designated
geographic area at a pre-scheduled time for delivery to a central processing
center. The expeditious and reliable transportation of the instruments from the
branches to a processing center is vital in order to obtain the rapid transfer
of funds from individual accounts to the institution. Consequently, financial
institutions consider scheduled delivery to be a critical part of their
outsourcing service needs. The Company believes that it maintains a leadership
position in scheduled delivery services for financial institutions. Other users
of scheduled delivery services include film processors, pharmaceutical companies
and companies with critical parts replenishment needs.

     Distribution Services. The Company also provides same-day distribution
services for time-sensitive local and regional deliveries that require
intermediate handling or sorting prior to being delivered to multiple locations.
Typically, the Company receives bulk shipments at its warehouse from customers'
suppliers or wholesalers. These shipments are then subdivided into smaller
shipments and sorted for delivery to specific locations. Bar code scanning
technology, which ensures shipment chain of custody, is beginning to be deployed
by the Company. For example, the Company may receive a bulk shipment of retail
inventory for a pharmaceutical wholesaler, which it sorts and divides into
smaller shipments, and delivers to the customer's stores or end-user
destinations. Same-day distribution services are provided on both a local and
multi-city basis. The Company's on-demand delivery resources are available to
supplement the customers' drivers as needed. Customers utilizing distribution
services typically include air freight companies, pharmaceutical wholesalers,
retailers, manufacturers or other companies which must distribute merchandise
every day from a single point of origin to many locations within a clearly
defined geographic region. The Company provides distribution services in 83 of
the top 100 metropolitan areas.

     On-Demand Delivery. The Company provides local and inter-city same-day
on-demand delivery services, whereby its messengers or drivers respond to a
customer's request for immediate pickup and delivery. The Company typically
offers one hour, two to four hour, and over four hours delivery services
depending on the customer's time requirements. Most deliveries occur within a
metropolitan area or radius of 40 miles. On-demand delivery services are
typically available 24 hours a day, seven days a week.

                                       4
<PAGE>

     Most of the Company's on-demand operation centers are staffed by
dispatchers as well as customer service representatives and operations
personnel. Incoming calls are received by trained customer service
representatives who provide the customer with a job-specific price quote and
transmit the order to the appropriate dispatched location. A dispatcher
coordinates shipments for delivery within a specific time frame. Shipments are
routed according to the type and weight of the shipment, the geographic distance
between the origin and destination, and the time allotted for the delivery.
After proper routing for the package is determined, coordination and deployment
of delivery personnel is accomplished either through mobile data terminals
linked to the Company's dispatch computer system, through pagers, or cell
phones. In addition to its communications and dispatch systems, the Company also
uses, in a number of its facilities, an advanced, on-demand management system
which links dispatchers and drivers through a personal two-way mobile data
terminal. The system links the dispatchers real-time with the drivers over the
Internet using web-enabled mobile data terminals. The dispatcher sends a job to
the driver real-time over the Internet. The driver uses the web-enabled mobile
data terminal to acknowledge receipt of the order, delivery and proof of
delivery. The dispatchers can monitor the jobs for on-time service and
completion. The order status is available on the web for customer inquiry. The
result is an efficient operation and improved customer service. This system may
enable the Company to streamline its routing and dispatch systems and add
customer value. Typical users of on-demand services include every type of
customer ranging from organ transportation for hospitals to delivery of legal
documents for law offices.

     Supply Chain Management. The Company offers supply chain management
services whereby it assumes inventory replenishment responsibilities of repair,
production and supply items for customers. The Company's integrated supply
services include monitoring customers' inventories based on predetermined
inventory levels and reordering needed supplies through the customers'
purchasing agents. Inventory shipments are sent to the Company's site adjacent
to the customer's facility, from which the Company sorts and then distributes
items to their appropriate destinations. The Company also offers "critical parts
banking" for a customer's parts and supplies and offers related "just-in-time"
transportation of those items to support service or production activities. Parts
are stored at the Company's facilities located in a metropolitan area. A
customer's service technician lacking a needed repair part, for instance, can
order the part which is quickly delivered to the service site, adding the kind
of value which the Company believes allows purchase decisions to be based more
on capability than price. Though accounting for less than 2% of its current
total revenues, the Company views these services as a growth opportunity, and it
intends to expand its critical parts warehousing and delivery business.
Companies utilizing integrated supply services include petrochemical companies,
which use the services to centralize non-critical inventory management at their
large chemical plants and refineries.

     Other Services. The remainder of the Company's services include
inter-company delivery, fleet replacement, facilities management, logistics,
warehouse and storage services and a limited amount of long-haul services. The
Company also provides third party logistic services through Velocity Express'
logistics division.

     Several industry sectors have a need for national or regional same-day
delivery services. Typical industries that the Company serves include:

     Financial Institutions. Financial institutions, primarily commercial banks,
utilize the Company's scheduled delivery services to deliver non-negotiable
instruments, such as canceled checks and ATM receipts, supplies and inter-office
correspondence. Typical service involves the pickup of non-negotiable
instruments from various bank branches in a designated geographic area at a pre-
scheduled time for delivery to a central processing center. The expeditious and
reliable transportation of the instruments from the branches to the center is
vital. Consequently, financial institutions consider scheduled delivery to be a
crucial part of their outsourced service needs.

     Health Care. Health care customers consist primarily of pharmaceutical
wholesalers, medical supply wholesalers, hospitals, medical labs, blood banks,
and home healthcare providers.

                                       5
<PAGE>

     Pharmaceutical wholesalers utilize the Company's distribution delivery
services to transport bulk shipments from centralized locations to various
retail sites, hospitals and other care facilities. The Company typically
receives bulk shipments from a pharmaceutical or medical supply wholesaler,
sorts and divides the shipment into smaller bundles, and then delivers the
shipment to destination outlets, including retail drug stores and hospitals.
Hospitals primarily utilize the Company's on-demand services for the
transportation of samples or equipment among different areas within the
hospitals or between different hospitals or labs. Local, regional and national
medical laboratories use the Company's services to transport samples among
laboratories by either on-demand or scheduled ground or air transportation
delivery. Home healthcare providers use the Company's services to provide
patients with medications and the delivery of medical equipment.

     Retail. Retail customers, typically large national companies, use the
Company's supply chain management and distribution services. For example, the
Company services its largest retail customers by providing a national network of
scheduled and routed vehicles to deliver primarily three separate product lines:
technical parts, gas repair shop parts and retail products. Typically, the
Company receives a bulk shipment and then breaks it down into multiple
shipments. The Company then delivers the items to retail locations or
pre-specified drop sites to be picked up by the customer.

     Petrochemical. Petrochemical customers use the Company's integrated supply
services to centralize non-critical inventory management at their large chemical
plants. Typically, the Company monitors a petrochemical customer's inventory
based on predetermined inventory levels and reorders needed supplies through the
customer's purchasing agent. Inventory shipments are sent to one of the
Company's sites adjacent to the customer's facility, from which the Company
sorts and then distributes items to their appropriate destinations.
Petrochemical customers prefer to use a national provider such as the Company in
order to reduce the number of different vendors with whom they conduct business.

     Technology. Technology customers primarily use the Company's on-demand
services. The prototype service the Company aims to provide technology customers
is a critical parts management system utilizing the Internet. For example, the
Company services its largest technology customer by partnering with a
third-party logistics supplier to provide critical parts banking. This provider,
one of the largest third-party logistics providers in North America, provides a
national network whereby it centrally manages 100 regional stocking locations
ranging in size from 500 square feet to 4,500 square feet, utilizing an
Internet-based warehouse management system. Typically, the Company's customers
place orders over the telephone, which are then entered into the Company's
suppliers' databases. The database determines if the part is available and, if
available, the applicable regional stocking location. The part is then pulled
from the regional stocking location while a driver is dispatched. The driver
delivers the part to its destination and places the damaged part in a return
package to be delivered to the repair center.

Air Services

     The Company's Air Group provides primarily same-day scheduled and on-demand
delivery services. The Air Group operates under the brand name Air Courier
Dispatch ("ACD"). The Company's Air Group provides delivery services throughout
the United States. Several locations are supported by its own ground fleet and
the remainder are supported by an agent network of ground carriers. The Company
does not own any aircraft. Instead, the Company purchases its air transportation
from preferred vendors. The Air Group has negotiated contracts with most major
airlines on favorable terms that enable the Company to charge competitive rates
for its services. In order to utilize fleet assets efficiently, certain Air
Group locations perform scheduled ground and on-demand delivery services. The
Company has sold a number of its Air Group subsidiaries and does not consider
this to be part of its core business.

     Scheduled Air Delivery Services. Same-day scheduled delivery services are
provided for time-sensitive deliveries that are recurring in nature. Pickup and
delivery routes are pre-defined based on the needs of the customer. The largest
customer base for this type of service consists of financial institutions for
delivery of non-negotiable instruments, primarily canceled checks.

                                       6
<PAGE>

     A driver from the Company's Air Group picks up a typical shipment of bank
documents from the sending bank's processing center. The driver follows a
predetermined pickup schedule. Shipments are pre-sorted by city, by bank
personnel and then transported to Air Group facilities generally located in
close proximity to the local airport.

     At the Company's Air Group facilities, packages are consolidated by
destination, placed in large shipping bags and then transferred to the airport
for shipment. At the airport, the bags are verified against an internal manifest
to ensure that all of the packages are accounted for and sent to the proper
destination. Upon arrival at the destination city, the shipment is off-loaded
for the final time and delivered by an Air Group driver to the receiving bank or
Federal Reserve Branch.

     Next Available Flight Air Service. The Company's Air Group provides local
same-day, on-demand delivery services, whereby messengers or drivers respond to
a customer's request for immediate pick up and delivery. The Air Group's
on-demand service begins with a customer placing an order to a customer service
representative who provides the customer with the job-specific price quote, and
coordinates the pickup schedule, flight arrangements and delivery times. Similar
to its scheduled services, the Air Group purchases its air transportation from
certain major airlines and air charter operators. Pickup of the package is
handled by an Air Group carrier or agent, depending upon whether the Air Group
maintains ground operations at a particular pickup location. Upon receipt by the
driver, the driver notifies the dispatcher that the package has been picked up
and is en route to the airport. At the airport, the package is placed on the
plane and sent to a specific destination. Upon arrival, an Air Group carrier or
agent secures the package and notifies the Air Group of its receipt. The package
is then transported from the airport to its final destination where the customer
signs the bill and finishes the chain of custody. Typical customers of the Air
Group's on-demand services include: law firms, investment banks, advertising
agencies, hospitals, manufacturing firms to ship replacement parts for idled
equipment, blood banks, pharmaceutical companies and medical procurement
companies.


Industry Background

     The Company believes that the market for same-day delivery services is
large and growing. Based on industry studies that the Company believes to be
reliable, the same-day delivery services market in the United States is
estimated to generate revenues of approximately $43 billion per year. Although
the market is large, it is highly fragmented. There are relatively low barriers
to entry in this market because the capital requirements to start a local
same-day delivery business are relatively small and the industry is not subject
to extensive regulation. There are as many as 6,000 same-day delivery companies
in the United States. Most participants are privately held and operate only on
the local level. The focus of same-day delivery businesses is generally on
operations, with little attention given to marketing and sales. Accordingly, the
Company believes that there is little perceived service differentiation between
competitors and that customer loyalty is generally short-term. There are no
dominant brands in the same-day delivery industry, and the industry has a
relatively basic use of technology.

     The Company believes that customers are seeking to streamline their
processes, improve their customer-vendor relationships and increase their
productivity. These principles, along with several other trends are benefiting
the same-day delivery market. First, the trend toward outsourcing of non-core
functions has resulted in numerous companies turning to third-party providers
for a range of services including same-day delivery and the management of
in-house logistics. Many businesses that outsource their distribution and
logistics requirements prefer to purchase such services from one source capable
of servicing multiple cities, which not only decreases their number of vendors,
but also maximizes efficiency, improves customer service and simplifies billing.
The Company believes that it is the only national same-day delivery service with
the geographic reach to meet these evolving needs of national or e-commerce
customers.

                                       7
<PAGE>

     Trends also show that customers are increasingly seeking greater
reliability, convenience and customization from their package delivery service
provider, along with security, operating efficiency and speed. Customers are
seeking to reduce their cycle times and implement "supply chain management" and
"just-in-time" inventory management practices designed to reduce inventory
carrying costs, together with attendant logistics and customized warehousing
services. The growth of these practices has increased the demand for more
reliable delivery services. Technological developments such as e-mail and
facsimile transmission have increased the pace of business and other
transactions, thereby increasing demand for the same-day delivery of a wide
array of items, beyond voluminous documents, to include such products as
critical manufacturing parts to medical devices. Consequently, there has been
increased demand for same-day transportation of items that are not suitable for
fax or electronic transmission, but for which there is an immediate need.

     Some industry participants have recently expanded demand-delivery practices
beyond basic point-to-point delivery into more advanced applications. For
instance, some same-day delivery companies, which include the Company, provide
"critical parts banking" for a customer's parts and supplies, and offer related
just-in-time transportation of those items to support service or production
activities. Parts are stored at the Company's facilities located primarily in a
metropolitan area. A customer's service technician can order a required repair
part, which is promptly delivered to the service site within a pre-determined
time period, generally less than one hour. When such applications are provided,
the customer receives exceptional value, and the Company believes that purchase
decisions are based on capability more than price.

     To meet the customers' needs for reliability, efficiency and speed, the
Company uses a computerized fleet-wide communications and dispatch system. The
Company has begun implementation of bar code scanning that insures product
delivery chain of custody. In addition, the Company believes that its existing
and planned communications systems will provide additional benefits to its
customers, including enhancing the accuracy of package delivery estimates,
up-to-the minute status updates on all jobs, and electronic proof of delivery.

     The Company anticipates that increased pressure will be placed on delivery
performance, full-service delivery and the security of a delivery. As a result,
customers will most likely rely on fewer and better providers of package
movement and services. No dominant national brand exists within the same-day
delivery industry, and the Company believes that its development of the Velocity
Express(TM) brand will instill greater confidence in its current and prospective
customers by building a perception of a higher level of professionalism,
superior service performance and a broader scope of service capabilities.
Through the achievement of market penetration and economies of scale in the
building of a strong brand, the Company believes that it will be uniquely suited
for both customer growth and customer retention.


Regulation and Safety

     The Company's operations are subject to various state and local regulations
and, in many instances, require permits and licenses from various state
authorities. In connection with the operation of certain motor vehicles and the
handling of hazardous materials, the Company is subject to regulation by the
United States Department of Transportation and the corresponding agencies in the
states in which such same-day delivery operations occur. The Company's
relationship with its employees is subject to regulations that relate to
occupational safety, hours of work, workers' compensation and other matters. To
the extent that the Company holds licenses to operate two-way radios to
communicate with couriers, it is regulated by the Federal Communications
Commission.

Sales and Marketing

     The Company has initiated a comprehensive sales and marketing program that
emphasizes its competitive position as the leading national provider of same-day
delivery services. The Company has also realigned its national accounts and
logistics team, restructured its field sales organization to help it implement
its new marketing program.

     Sales efforts are conducted at both the local and national levels through
the Company's extensive network of local sales representatives and its business
development group. The Company employs over 50 marketing and sales
representatives who make regular calls on existing and potential customers to
identify each customer's delivery and logistics needs. Sales efforts are
coordinated with customer service representatives who regularly communicate with
customers to monitor the quality of services and to quickly respond to customer
concerns.

                                       8
<PAGE>

     The Company's sales department develops and executes marketing strategies
and programs that are supported by corporate communications and research
services. The business development and corporate communications departments also
provide ongoing communication of corporate activities and programs to employees,
the press and the general public.


Competition

     The Company competes with established local couriers and messenger services
in the same-day delivery business. Competition in this market is intense.

     Nationally, the Company competes with other large companies. There are
several companies that have same-day delivery operations in multiple markets.
These and other companies, which may compete with the Company, have substantial
resources and experience in the same-day delivery business. The Company believes
that its national presence and its wide array of service offerings, its use of
sophisticated communications and other technology, and its branding strategy,
will differentiate the Company's services and allow it to compete successfully
in any market in which it currently operates or may enter. There can be no
assurances that other, larger competitors, will not enter the market or develop
as a result of the trend toward consolidation in the same-day delivery market,
thereby eroding the Company's competitive position.

     There are also a number of national and international carriers who provide
document and package shipment solutions to individuals and business customers.
This market, which is dominated by major carriers, such as UPS(R), Federal
Express(R), Airborne(TM), DHL(TM) and the United States Postal Service, is also
extremely competitive. These companies engage primarily in the next-day and
second-day ground and air delivery businesses and operate by imposing strict
drop-off deadlines, and rigid package dimensions and weight limitations on
customers. By comparison, the Company operates in the same-day delivery
business, and handles deliveries as diverse as human organs to truckloads of
steel pipe on a same-day basis, either scheduled or on-demand. Accordingly, the
Company does not believe that it is in direct competition with these major
carriers in same-day delivery services, although there can be no assurances that
such organizations will not decide to enter into direct competition with the
Company. Such organizations may have more experience, as well as human and
financial resources than the Company has.

Trademarks

     The Company currently has applications for United States trademark
registrations for trademarks and service marks, including but not limited to
United Shipping & Technology and a related design, and i-courier(TM). There can
be no assurance that any of these registrations will be granted. These
applications for registration are for the following goods and services, among
others: automated shipping machine for packages and overnight letters which
computes charges and prints labels, receipts and other similar documents, the
provision of delivery services, and the secure transmission of documents over
the Internet. The Company has also recently applied for a trademark registration
for the name Velocity Express(TM). The Company also owns United States trademark
registrations for the trademark U-Ship(R) and a related design/logo.

     There can be no assurance that any of the Company's trademarks or service
marks, if registered, will afford the Company protection against competitors
with similar marks that may have a prior use date. In addition, no assurance can
be given that the Company's trademarks will not be infringed upon by others.
There can be no assurance that the Company's trademarks will not infringe upon
trademarks or proprietary rights of others. Furthermore, there can be no
assurance that challenges will not be instituted against the validity or
enforceability of any trademark claimed by the Company and, if instituted, that
such challenges will not be successful. The cost of litigation to uphold the
validity and prevent infringement of a trademark can be substantial, as can be
the costs of defending against such claims.

                                       9
<PAGE>

Employees

     As of September 1, 2001, the Company had approximately 4,500 employees. The
Company believes that its relations with its employees are good. Additionally,
the Company uses the services of over 4,300 independent contractor drivers in
its same-day delivery operations and over 1,500 agents in North America.



ITEM 2.  DESCRIPTION OF PROPERTY

     The Company subleases approximately 9,460 square feet of space (4,661 of
office space and 4,799 of warehouse) used for offices, assembly, storage and
packaging at 9850 51st Avenue North, Suite 110, Minneapolis, Minnesota 55442 at
a monthly rent of $9,748. The sublease term expires on November 24, 2001. The
Company has entered into lease negotiations at various locations in Minneapolis
for approximately 7,000 square feet of office space to begin upon the expiration
of the current lease. The Company anticipates gross monthly lease obligations to
be approximately $9,800 per month for the first year. The executive offices of
the Velocity Express operations are located at 11 Greenway Plaza, Suite 250,
Houston, Texas, where the Company leases 23,000 square feet of office space.
This lease expires on October 31, 2001 and the remaining executive offices will
combined into an existing facility located at 7676 Hillmont, Suite 300, Houston,
Texas. The Company's operating facilities are conducted from approximately 200
local offices. All of the Company's operating facilities are leased, generally
with terms of two to five years, although certain facilities are leased on a
monthly basis. Leasing rates generally range from $5.00 per square foot to
$22.00 per square foot. The Company operates warehouses typically ranging in
size from 1,000 to 10,000 square feet, although the Company has a number of
warehouses of over 10,000 square feet. Warehouses are typically used for
inventory storage and products in transition. The Company's field offices
generally range in size from one thousand to 20,000 square feet, although the
Company has a number of offices over 20,000 square feet. Offices typically
consist of processing support, local management and administrative space. The
Company believes that the above-described premises will meet its requirements
for its ongoing same-day delivery and other operations for the remainder of the
lease terms.

     As of September 1, 2001, the Company's fleet consisted of approximately
7,000 vehicles, including 2,500 Company owned or leased vehicles and 4,500
vehicles utilized by independent contractors. Cars, vans and pickup trucks are
typically utilized by the scheduled and on-demand business lines for
transporting small packages on a point-to-point basis. Straight trucks, tractors
and trailers are typically utilized by the distribution business, transporting
large, longer haul shipments to warehouses or customer sites.

                                       10
<PAGE>

ITEM 3.  LEGAL PROCEEDINGS

     As of June 30, 2001 neither the Company nor Velocity was a party to any
material legal proceedings.

     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 for
the current policy year. Velocity and its subsidiaries are also named as
defendants in various employment-related lawsuits arising in the ordinary course
of the business of Velocity. 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 June 30, 2001.
The Company believes that the accrual level is adequate for purposes of its
financial statements.


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.

                                       11
<PAGE>

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

     The 2000 Annual Meeting of Shareholders was held on January 19, 2001.

     Three proposals were submitted for shareholder approval, all of which
passed with voting results as follows:



     (1)  To elect eight directors for the ensuing year and until their
          successors are duly elected and qualified.

                                       For           Withhold       Non-Votes
                                       ---           --------       ---------
          Peter C. Lytle            12,934,162        75,368          0
          Timothy G. Becker         12,915,026        94,504          0
          Marshall T. Masko         12,898,773       110,757          0
          Marlin Rudebusch          12,995,916        13,614          0
          Timothy Traff             13,009,530             0          0
          Ronald G. Olson           12,995,916        13,614          0
          Peter W. Kooman           13,009,530             0          0

     (2)  To consider and vote upon amendment to the Company's 1996 Stock Option
          Plan.

          For:                   12,465,117       Against:             270,785
          Abstain:                  321,314

     (3)  To ratify the appointment of Ernst & Young LLP independent certified
          public accountants, as auditors of the Company for its fiscal year
          ending June 30, 2001.

          For:                   13,006,889       Against:              41,387
          Abstain:                    8,930

                                       12
<PAGE>

                                    PART II.

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The Company's Common Stock began trading under the symbol "USHP" on the
Nasdaq SmallCap Market in June 1996. The following table sets forth the
quarterly high and low closing prices for the Company's Common Stock, as
reported by the National Association of Securities Dealers' Bulletin Board, for
each full quarterly period within the two most recent fiscal years. These prices
represent inter-dealer prices without adjustment for mark-up, mark-down or
commission and do not necessarily reflect actual transactions.

                    Period                  High           Low
                    ------                  ----           ---

        Fiscal 2001:
                 First Quarter             $9.094       $4.000
                 Second Quarter             4.375        1.531
                 Third Quarter              2.843        0.750
                 Fourth Quarter             0.937        0.370

        Fiscal 2000:
                 First Quarter             $5.875       $2.625
                 Second Quarter             9.563        3.875
                 Third Quarter             17.688        7.250
                 Fourth Quarter            14.000        7.813

     On September 28, 2001, the number of holders of record of Common Stock was
261. The transfer agent for the Company's Common Stock is American Stock
Transfer & Trust, 40 Wall Street, New York, New York.

     The Company has not paid any cash dividends on its Common Stock and expects
that for the foreseeable future it will follow a policy of retaining earnings in
order to finance the continued operations of its business. Payment of dividends
is within the discretion of the Company's Board of Directors and will depend
upon the earnings, capital requirements and operating and financial condition of
the Company, among other factors.

                                       13
<PAGE>

Recent Sales of Unregistered Securities

     The following describes sales of the Company's securities in the last
fiscal quarter without registration under the Securities Act of 1933 (the
"Securities Act"):

     Subsequent to the year ended June 30, 2001, pursuant to Subscription Note
Purchase Agreements entered into during July 2001 (collectively, the "Series F
Note Agreements"), the Company issued subscription notes in the aggregate
principal amount of $7,106,500 (collectively, the "Series F Subscription
Notes"), to a group of institutional investors and executive management of the
Company. No interest accrued on the unpaid principal balances of the Series F
Subscription Notes. On September 5, 2001, the Company's shareholders approved
the issuance of Series F Preferred having voting power greater than 20% of the
outstanding voting securities of the Company, and all of the principal balance
of the Series F Subscription Notes was converted into a number of shares of the
Company's Series F Preferred equal to the quotient of the principal being
converted divided by $11.00. Subsequent to shareholder approval on September 5,
2001, the principal amount of the Series F Subscription Notes was converted into
646,029 shares of Series F Preferred. Each share of Series F Preferred is
convertible into twenty shares of the Company's common stock. The Company also
issued warrants to purchase 1,110,384 shares of common stock in connection with
these sales.

     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 the Company's second fiscal quarter,
resulted in a short-term working capital deficit. To meet its working capital
requirements, the Company entered into a bridge loan agreement with TH Lee
Putnam Partners ("THLi"), and related entities, dated January 4, 2001, and a
supplemental bridge loan agreement dated January 31, 2001 (collectively, the
"Bridge Loan Agreement"). Pursuant to the Bridge Loan Agreement, THLi loaned the
Company $3,500,000 on January 4, 2001 and an additional $1,500,000 on January
31, 2001. In connection with the Bridge Loan Agreement, the Company issued
bridge notes to THLi in the aggregate amount of $5,000,000, which are due and
payable on July 4, 2001. The bridge notes are subordinate to the Company's
senior indebtedness. Each bridge note carried interest on the unpaid principal
amount at an annual percentage rate of 18%. Interest on each of the bridge notes
was payable at maturity in immediately available funds or in shares of Series D
Preferred.

     Subject to shareholder approval, all or a portion of the principal and
interest of the bridge notes may be converted by THLi at any time into shares of
Series D Preferred. On September 5, 2001, the shareholders approved the bridge
notes and their conversion into Series D Preferred. The bridge notes provided
that the number of shares of Series D Preferred issuable upon conversion of the
bridge notes would equal the principal value of the bridge notes and all accrued
interest divided by the lesser of: (a) the average closing price of 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 Series D Preferred, or any
voting stock that we issued subsequent to issuance of the bridge notes, was last
sold to one or more third party investors. Accordingly, pursuant to the purchase
price of the Series D Preferred established in the Series D Preferred purchase
agreement, the conversion price of the bridge notes was $0.55 per share, and
resulted in the issuance to THLi of 1,017,538 shares of Series D Preferred, or
10,175,380 shares of common stock upon conversions.

     Pursuant to the Bridge Loan Agreement, the Company issued to THLi the
bridge warrants to purchase an aggregate 216,533 shares of Series D Preferred at
a per share purchase price of $0.01. The bridge warrants were issued on January
4, 2001, and expire on January 4, 2006.

     Pursuant to the terms of a Securities Purchase Agreement with an
institutional investor dated March 1, 2001 the Company issued 250,000 shares of
Series D Preferred to such institutional investor at a purchase price of $8.00
per share, for an aggregate consideration of $2,000,000. The Series D Preferred
shares issued to the institutional investor are convertible into 2,500,000
shares of common stock.

                                       14
<PAGE>

     Pursuant to Stock Purchase Agreements entered into during March and April
2001, the Company issued two subscription notes in the total principal amount of
$3,999,250 to two institutional investors, and two subscription notes, each in
the principal amount of $500,000 to two non-U.S. investors (collectively the
"Series D Subscription Notes"). No interest accrued on the unpaid principal
balance outstanding on the Series D Subscription Notes. The Company's
shareholders approved of the issuance of Series D Preferred having voting power
greater than 20% of the Company's outstanding voting securities at its Special
Meeting of Shareholder held on September 5, 2001 and all of the principal
balance of the Series D Subscription Notes have been converted into a number of
shares of Series D Preferred equal to the quotient of the principal being
converted divided by $8.00. Subsequent to shareholder approval on September 5,
2001, the principal amount of the Series D Subscription Notes issued to the two
institutional investors is convertible into a total of 499,906 shares of Series
D Preferred and the principal amount of each Series D Subscription Note issued
to each of the non-U.S. investors is convertible into 62,500 shares of Series D
Preferred. Each share of Series D Preferred is convertible into ten shares of
common stock.

     In connection with the sales of the Series D Preferred, the Company engaged
BB&T Capital Markets as its exclusive agent and has agreed to pay BB&T Capital
Markets approximately $200,000 as commissions on these sales. On March 3, 2001,
the Company's board of directors approved the issuance of warrants to purchase
up to 500,000 shares of the Company's common stock at $0.01 per share to
entities affiliated with TH Li Funds. Except with respect to its private
placement of Series D Preferred Shares, no underwriter or placement agent was
used in connection with any of 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 each transaction were sold to a
limited group of accredited investors within the meaning of Rule 501(a) of
Regulation D under the Securities Act of 1933 (the "Securities Act") in a
private placement transactions, exempt from registration under Section 4(2) of
the Securities Act and Rule 506 of Regulation D thereunder.

                                       15
<PAGE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS

     This Management's Discussion and Analysis of Financial Condition and
Results of Operations and other parts of this Annual Report on Form 10-KSB
contain forward-looking statements that involve risks and uncertainties. The
Company's actual results may differ significantly from the results discussed in
the forward-looking statements and such differences may be material.

Historical Results of Operations

Quarter and Year ended June 30, 2001 Compared to Quarter and Year Ended July 1,
2000

     In comparing the results of fiscal 2001 to fiscal 2000, there are several
factors to consider. Although fiscal 2001 contained two additional months of
Velocity results compared with fiscal 2000, many consolidation and post-merger
integration initiatives that were started in fiscal 2000 continued to be
implemented throughout fiscal 2001. These initiatives included divestiture of
specific non-core business operations at the end of fiscal 2000 and early in
fiscal 2001, the closing of unprofitable locations, and the consolidation of
other strategic locations. Additionally, beginning in the third quarter of
fiscal 2001, a Company-wide restructuring program that included continued
location and business rationalization as well as significant general and
administrative cost savings measures was implemented.

     Revenue for the year ended June 30, 2001 increased $0.6 million or 0.1% to
$471.7 million from $471.1 million for the year ended July 1, 2000. Results of
fiscal 2000 include the results of Velocity as of the August 1999 acquisition
date and are inclusive of ten months rather than twelve months of activity as in
fiscal 2001. Revenues year over year remained relatively flat despite the
additional two months of activity in fiscal 2001 principally due to the
Company's ongoing efforts to rationalize its business going forward and to exit
unprofitable markets. Furthermore, the Company realized lower revenues in fiscal
2001 as a result of certain operations that were sold at the end of fiscal 2000
and during the current year.

     Revenue for the quarter ended June 30, 2001, decreased $32.9 million or
23.6% to $106.7 million from $139.6 million for the quarter ended July 1, 2000.
The decrease in revenue for the quarter ended June 30, 2001 is primarily the
result of the following: (1) the loss of revenues from divesture of non-core
business operations of approximately $19.5 million over the same quarter last
year, (2) the closing or consolidation of unprofitable locations of
approximately $8.0 million; and (3) adverse economic conditions resulting in
lost revenue of approximately $5.5 million.

     Cost of services for the year ended June 30, 2001 increased $12.6 million
or 3.5% to $377.5 million from $364.9 million for the year ended July 1, 2000,
and as a percentage of revenue, increased from 77.4% to 80.0%. The increase in
cost of services resulted from increased costs associated with having twelve
months of activity in fiscal 2001 compared to ten months in fiscal 2000 as well
as from increased insurance costs compared to the prior year. The increase was
offset by decreased costs resulting from the revenue decrease described above as
certain of these costs are variable and follow the revenue level, as well as
from decreased costs associated with operations that were sold as describe
above.

     Cost of services for the quarter ended June 30, 2001 decreased $22.3
million or 20.6% to $86.1 million from $108.4 million for the quarter ended July
1, 2000, and as a percentage of revenue, increased from 77.6% to 80.7%. The
overall dollar decrease is consistent with the revenue trend discussed above,
while the increase in cost of services as a percentage of revenue is principally
the result of increased insurance costs associated with the Company's
self-insurance program and an overall hardening in the insurance market.

     Selling, general and administrative ("SG&A") expenses for the year ended
June 30, 2001 were $116.4 million or 24.7% of revenue as compared with $129.6
million or 27.5 % of revenue for the year ended July 1, 2000, a decrease of
$13.2 million or 10.2%. The decrease in SG&A, despite the additional two months
of activity for Velocity in fiscal 2001, is the result of the Company's
cost-cutting initiatives in fiscal 2000 as well as the result of the
restructuring programs initiated in the third quarter of fiscal 2001.

                                       16
<PAGE>

     SG&A expenses for the quarter ended June 30, 2001 were $25.5 million or
23.9% of revenue as compared with $36.6 million or 26.2 % of revenue for the
quarter ended July 1, 2000, a decrease of $11.1 million or 30.2%. The decrease
in SG&A for the quarter is a result of the sale of various operations of $4.1
million, and the continued efforts by the Company to integrate the
administrative functions of the Company of approximately $7.0 million.

     The Company began implementing a multi-faceted restructuring program in
March 2001 to allow it to achieve a cost structure to better position itself to
achieve profitability in the ever-changing logistics and transportation
marketplace. The Company has streamlined and downsized its operations by
reducing its workforce and consolidating various locations. As of June 30, 2001,
the Company has taken 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 June 30, 2001, approximately $4.8
million in costs have been charged against the reserve.

     Interest expense for the year ended June 30, 2001 increased $1.1 million to
$6.3 million from $5.3 million for the year ended July 1, 2000. The increase for
the fiscal year is primarily due to twelve months of borrowings under the
revolving note in fiscal 2001 compared to ten months of borrowings in fiscal
2000.

     Interest expense for the quarter ended June 30, 2001 decreased $0.5 million
to $1.6 million from $2.1 million for the quarter ended July 1, 2000. The
decrease for the quarter is principally attributable to lower interest rates and
lower average borrowings under the Company's revolving note.

     As a result of the foregoing factors, the net loss for the year and quarter
ended June 30, 2001, including one-time restructuring charges of $7.1 million
and $2.6 million, respectively, was $35.3 million and $8.6 million,
respectively, compared with $28.2 million and $7.5 million, respectively, for
the same periods in 2000.


Year ended July 1, 2000 Compared to Year Ended June 30, 1999

      Revenue for the fiscal year ended July 1, 2000, increased $469.7 million
or 31,670% to $471.2 million from $1.5 million for the fiscal year ended June
30, 1999. This increase in revenues is principally a result of the Velocity
Express acquisition.

      Cost of services increased by $378.1 million or 50,685% to $378.9 million
from $0.7 million in fiscal year 1999. The increase is primarily due to the
Velocity Express acquisition.

      Selling, general and administrative expenses for the fiscal year ended
July 1, 2000, increased $126.0 million or 3,471% to $129.6 million from $3.6
million in fiscal year 1999. The increase is principally due to the Velocity
Express acquisition.

      Interest expense increased to $5.3 million for the fiscal year ended July
1, 2000, compared to $4,000 for the fiscal year ended June 30, 1999. The
increase in interest expense is the result of the debt taken on to complete the
Velocity Express acquisition.

      Net loss for the fiscal year ended July 1, 2000 increased by $25.3 million
to $28.2 million from $2,895,000 for the comparable period in the prior year.
Net loss applicable to common shareholders for the fiscal year ended July 1,
2000 included a single charge for the beneficial conversion feature of the
Series B Convertible Preferred Stock of $3.5 million.

                                       17
<PAGE>

Liquidity and Capital Resources

     Historically, the Company has operated at a loss and has funded its
operations through a credit facility with a commercial lender, various private
placements of equity and debt, including sales of common stock and preferred
stock, the issuance of warrants, and various bridge loan agreements.

     Series D Convertible and Redeemable Preferred - The Company entered into a
bridge loan agreement dated January 4, 2001, and a supplemental bridge loan
agreement dated January 31, 2001 (collectively, the "Bridge Loan Agreement"),
pursuant to which the Company received $3.5 million on January 4, 2001, and an
additional $1.5 million on January 31, 2001. This indebtedness is represented by
promissory notes bearing interest at a rate of 18% per annum (the "Bridge
Notes").

     The Bridge Notes are convertible at the option of the note holder into
909,090 shares of the Company's Series D Preferred at an exercise price of $5.50
per share upon shareholder approval of the conversion. Each share of Series D
Preferred is convertible into ten shares of the Company's common stock. The
Series D shares have a mandatory redemption feature that requires the Company to
redeem each outstanding share on the redemption date, March 1, 2007, at a price
equal to the liquidation value per such share. In connection with the Bridge
Loan Agreement, the Company issued warrants, subject to shareholder approval, to
purchase an aggregate 216,533 shares of Series D Preferred at a purchase price
of $0.01 per share (the "Bridge Warrants").

     The Company entered into securities purchase agreements in connection with
the sale of Series D Preferred. The Company sold 252,429 shares (2,429 shares to
one of the Company's directors) of Series D Preferred at $8.00 per share for
$2.0 million.

     The Company entered into note purchase agreements in connection with the
issuance of promissory notes convertible into shares of Series D Preferred (the
"Subscription Notes"). During March and April 2001, the Company sold
Subscription Notes convertible into 624,906 shares of Series D Preferred to
accredited investors for an aggregate $5.0 million.

     The Subscription Notes are convertible at the option of the note holder
into 624,906 shares of the Company's Series D Preferred at an exercise price of
$8.00 per share upon shareholder approval of the conversion.

     Subsequent to year end, in September 2001 at a special shareholders'
meeting, the Company's shareholders approved proposals which accomplished the
following: (1) conversion of $5.0 million principal amount of the Bridge Notes
into Series D Preferred; and (2) issuance of shares of Series D Preferred to
subscribers for such securities and holders of subscription notes which were
convertible into Series D Preferred. The Company expects to incur a non cash
charge in the first quarter in conjunction with the conversion.

     Series C Convertible and Redeemable Preferred - 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 $12.0 million and
the cancellation of two warrants issued in connection with the Series B
Preferred. 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 was determined to
be approximately $3.5 million and was allocated from the value received from the
Series C Preferred Stock. Adjustment of the Series C warrants to their market
value for the year ended June 30, 2001 was $3.2 million resulting in a carrying
amount of $330,000 at June 30, 2001. The $2.7 million remaining fair value
received for the Series C Preferred in excess of the Series C Preferred
redemption value and the Series C Warrants was recorded as additional paid-in
capital.

                                       18
<PAGE>

     The principal financing agreements consist of a revolving note, senior
subordinated note, long-term subordinated note, short-term subordinated note and
convertible subordinated note. The Company's subsidiary is the borrower on the
notes with the Company, and its other subsidiaries, acting as guarantors.

     Borrowings under the revolving note are limited to the lesser of $55
million or an amount based on a defined portion of receivables ($33.2 million at
June 30, 2001). Interest is payable monthly at a rate of prime plus 2.75% (9.5%
at June 30, 2001). The Company may elect the rate of LIBOR plus 6% at its
discretion from time to time. All amounts advanced are due September 30, 2002.
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 warrant is subject to anti-dilution provisions. The
unamortized discount aggregated $1.1 million at June 30, 2001, and is being
amortized over the five-year life of the note.

     Subsequent to the year ended June 30, 2001, as disclosed in note 3 to the
financial statements, the Company and CEX agreed to certain purchase price
adjustments 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.

     Substantially all of the assets and operations of the Company 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 a financial covenant related
to minimum EBITDA. The agreements with the lenders also require the Company to
obtain the consent of the lenders for additional acquisitions.

     The Company incurred an operating loss of approximately $29.3 million for
the year ended June 30, 2001 and has negative working capital of approximately
$1.4 million at June 30, 2001. Subsequent to the year ended June 30, 2001, the
Company and CEX agreed to certain purchase price adjustments related to the
acquisition of Velocity that resulted in an improvement to working capital of
$12.0 million. Had the effect of this transaction been realized in the year
ended June 30, 2001, the Company would have shown positive working capital of
$10.6 million.

     As of June 30, 2001, the Company had no outstanding purchase commitments
for capital improvements.

     The Company's financial condition during the past year was impacted
substantially by the acquisition of Velocity in August 1999. Cash flow used in
operations was $32.9 million, driven principally by a net loss before
depreciation, amortization and other non-cash items of $14.0 million. Accounts
receivable and accounts payable generated positive increases in working capital
of $9.9 million and $1.8 million, respectively, while other assets and
miscellaneous accruals generated negative cash flow of $23.4 million.

     Cash flow used as a result of investing activities was primarily for
capital expenditures that amounted to $29,000.

     Cash flow generated through financing activities amounted to $31.9 million
during fiscal 2001. Net proceeds from the issuance of debt instruments and
proceeds from the private placement of Common Stock and Preferred Stock were the
primary sources of cash during fiscal 2001. Long-term debt and notes payable
generated $17.9 million during fiscal 2001, with approximately 61 percent of
those proceeds coming from the Company's revolving credit facility. The Company
also sold 2,252,429 shares of its Preferred Stock in fiscal 2001. Net proceeds
from these private placements amounted to $13.5 million.

                                       19
<PAGE>

     The Company's operating plans include the continued implementation of
integration and consolidation activities it had initiated in fiscal 2000 to
further improve the operating performance of the Velocity Express acquisition as
well as specific initiatives to reduce specific cash expenditures related to
general and administrative expenses.

     The Company is dependent upon achieving certain revenue and expense targets
in its financial plan for fiscal 2002. The Company expects to meet its financial
projections for the next fiscal year and to continue to secure additional
financing from its lenders or through the issuance of additional Company equity
securities; however, there can be no assurance that such funding can be
obtained.

     Subsequent to year-end, the Company has raised an additional $7.1 million
in connection with the issuance of its Series F Preferred (see Recent Sales of
Unregistered Securities). The Company believes that the additional proceeds it
received from the sale of its Series F Preferred, as well as the continued
implementation of the efforts it has initiated and expects to continue to reduce
cash expenditures, will allow it to meet its fiscal 2002 financial plan. The
Company further believes that the reduction in costs will not have a material
adverse impact on its revenue growth.

                                       20
<PAGE>

ITEM 7.   FINANCIAL STATEMENTS

               UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES

                        Consolidated Financial Statements



                         CONTENTS                                           PAGE
                         --------                                           ----

Report of Independent Auditors                                               22
Independent Auditor's Report                                                 23
Consolidated Financial Statements
     Consolidated Balance Sheets                                             24
     Consolidated Statements of Operations                                   25
     Consolidated Statements of Shareholders' (Deficit) Equity               26
     Consolidated Statements of Cash Flow                                    27
Notes to Consolidated Financial Statements                                   28

                                       21
<PAGE>

                         Report of Independent Auditors


The Board of Directors and Shareholders
United Shipping & Technology, Inc.

We have audited the accompanying consolidated balance sheets of United Shipping
& Technology, Inc. and Subsidiaries (the "Company") as of June 30, 2001 and July
1, 2000, and the related consolidated statements of operations, cash flows and
shareholders' deficit for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company at June 30, 2001 and July 1, 2000, and the consolidated results of its
operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.


                                       /s/ Ernst & Young LLP
                                       Ernst & Young LLP

Minneapolis, Minnesota
October 9, 2001

                                       22
<PAGE>

                          Independent Auditor's Report



Board of Directors
United Shipping and Technology, Inc.
Plymouth, Minnesota

We have audited the accompanying consolidated statements of operations,
shareholders' (deficit) equity and cash flows of United Shipping and Technology,
Inc. & Subsidiaries for the year ended June 30, 1999. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements referred to above are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
United Shipping and Technology, Inc. & Subsidiaries for the year ended June 30,
1999, in conformity with accounting principles generally accepted in the United
States.


                                       /s/ LURIE, BESIKOF, LAPIDUS & CO., LLP
                                       LURIE, BESIKOF, LAPIDUS & CO., LLP

Minneapolis, Minnesota
August 13, 1999

                                       23
<PAGE>

               UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES
                           Consolidated Balance Sheets
                    (Amounts in thousands, except par value)

<TABLE>
<CAPTION>
                                                                  June 30,         July 1,
                                                                    2001             2000
                                                                  ---------       ---------
<S>                                                               <C>             <C>
                                     ASSETS
Current assets:
     Cash                                                         $   2,932       $   3,993
     Accounts receivable, net                                        47,752          57,698
     Accounts receivable - other                                      1,700           3,960
     Prepaid workers' compensation                                   13,024           7,771
     Other prepaid expenses                                           1,735           1,442
     Other current assets                                               241           1,272
                                                                  ---------       ---------

         Total current assets                                        67,384          76,136

Property and equipment, net                                           8,842          12,796

Goodwill                                                             80,468          89,220
Notes receivable from related party                                     182           1,354
Other assets                                                          1,499           2,217
                                                                  ---------       ---------

Total assets                                                      $ 158,375       $ 181,723
                                                                  =========       =========

                      LIABILITIES AND SHAREHOLDERS' DEFICIT

Current liabilities:
     Trade accounts payable                                       $  32,600       $  30,792
     Accrued insurance and claims                                     9,601          18,903
     Accrued wages and benefits                                       5,095           9,020
     Accrued legal and claims                                         2,296          16,192
     Other accrued liabilities                                       16,913          12,669
     Current portion of long-term debt and capital leases             2,321           7,167
                                                                  ---------       ---------

         Total current liabilities                                   68,826          94,743

Long-term debt and capital leases                                    62,609          39,495
Accrued insurance and claims                                         23,111          23,347

Series B redeemable preferred stock                                  21,556          25,261
Series C redeemable preferred stock                                  12,000            --
Preferred stock Series C warrants                                       330            --
Series D redeemable preferred stock                                   1,535            --

Shareholders' deficit:
     Common stock, $0.004 par value, 75,000 shares authorized,
         17,146 and 16,400 shares issued and outstanding at
         June 30, 2001 and July 1, 2000, respectively                    69              65
     Additional paid-in-capital                                      47,812          43,240
     Accumulated deficit                                            (79,409)        (44,387)
     Foreign currency translation                                       (64)            (41)
                                                                  ---------       ---------

         Total shareholders' deficit                                (31,592)         (1,123)
                                                                  ---------       ---------

         Total liabilities and shareholders' deficit              $ 158,375       $ 181,723
                                                                  =========       =========
</TABLE>

                             SEE ACCOMPANYING NOTES.

                                       24
<PAGE>

               UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  (Amounts in thousands, except per share data)

<TABLE>
<CAPTION>
                                                 June 30,         July 1,         June 30,
                                                   2001            2000            1999
                                                 ---------       ---------       ---------
<S>                                              <C>             <C>             <C>
Revenue                                          $ 471,682       $ 471,152       $   1,483

Cost of services                                   377,498         364,881             746
                                                 ---------       ---------       ---------

        Gross profit                                94,184         106,271             737

Operating expenses:
        Selling, general and administrative        116,425         129,584           3,628
        Restructuring charge                         7,060            --              --
                                                 ---------       ---------       ---------

Total operating expenses                           123,485         129,584           3,628
                                                 ---------       ---------       ---------

Loss from operations                               (29,301)        (23,313)         (2,891)

Other income (expense):
        Interest expense                            (6,334)         (5,272)             (4)
        Other                                          364             373            --
                                                 ---------       ---------       ---------

Net loss                                         $ (35,271)      $ (28,212)      $  (2,895)
                                                 =========       =========       =========

Net loss applicable to common shareholders       $ (35,022)      $ (31,720)      $  (2,895)
                                                 =========       =========       =========

Basic and diluted net loss per share             $   (2.10)      $   (2.27)      $   (0.42)
                                                 =========       =========       =========

Basic and diluted weighted average number
        of common shares outstanding                16,666          13,954           6,882
                                                 =========       =========       =========
</TABLE>

                             SEE ACCOMPANYING NOTES.

                                       25
<PAGE>

               UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES
            CONSOLIDATED STATEMENT OF SHAREHOLDERS' (DEFICIT) EQUITY
                             (Amounts in thousands)

<TABLE>
<CAPTION>
                                             Series A
                                        Cumulative Convertible
                                           Preferred Stock        Common Stock
                                        ----------------------  -------------------  Additional               Foreign
                                                                                      Paid-in    Accumulated  Currency
                                         Shares       Amount     Shares     Amount    Capital      Deficit   Translation  Total
                                        --------    ---------   --------   --------   --------   ----------- ----------- --------
<S>                                     <C>         <C>          <C>       <C>        <C>        <C>         <C>         <C>
Balance at June 30, 1998                   4,455    $     18       4,980   $     20   $ 12,935   $ (9,772)   $   --      $  3,201

      Acquisition of JEL Trucking, Inc.     --          --           100       --           60       --          --            60
      Acquisition of Twin City
        Transportation, Inc.                --          --           423          2        908       --          --           910
      Conversion of preferred stock       (4,455)        (18)      4,456         18       --         --          --          --
      Common Stock warrant                  --          --          --         --          135       --          --           135
      Stock options exercised               --          --           121       --          166       --          --           166
      Warrants exercised                    --          --            20       --           58       --          --            58
      Conversion of note payable
           and accrued interest             --          --           275          1        762       --          --           763
      Private placement of common stock     --          --           236          1        547       --          --           548

      Net loss and comprehensive loss       --          --          --         --         --       (2,895)       --        (2,895)
                                        --------    --------    --------   --------   --------   --------    --------    --------
Balance at June 30, 1999                    --          --        10,611         42     15,571    (12,667)       --         2,946
      Private placement of common stock     --          --         2,901         12     15,764       --          --        15,776
      Warrants related to senior
        subordinated note                   --          --          --         --        1,708       --          --         1,708
      Value of preferred stock
        conversion feature                  --          --          --         --        3,508     (3,508)       --          --
      Stock options exercised               --          --           366          1      1,633       --          --         1,634
      Warrants exercised                    --          --         2,351          9      4,344       --          --         4,353
      Conversion of note payable
        and accrued interest                --          --           135          1        616       --          --           617
      Other                                 --          --            36       --           96       --          --            96

      Net loss                              --          --          --         --         --      (28,212)       --       (28,212)
      Foreign currency translation          --          --          --         --         --         --           (41)        (41)
                                                                                                                         --------
      Comprehensive loss                                                                                                  (28,253)
                                        --------    --------    --------   --------   --------   --------    --------    --------
Balance at July 1, 2000                     --          --        16,400         65     43,240    (44,387)        (41)     (1,123)
      Value of preferred stock
        conversion feature                  --          --          --         --        2,670       --          --         2,670
      Accretion of Series B Redeemable
        Preferred Stock to its
        redemption value                    --          --          --         --         --         (665)       --          (665)
      Adjustments to Series B redeemable
        preferred stock and Series B
        and C warrants                      --          --          --         --         --          914        --           914
      Stock options exercised               --          --            36          1        161       --          --           162
      Warrants exercised                    --          --           110          1        336       --          --           337
      Common Stock warrant                  --          --          --         --          455       --          --           455
      Common Stock warrants issued
           for services rendered            --          --          --         --          402       --          --           402
      Issuance of common stock as
           litigation settlement            --          --           600          2        548       --          --           550

      Net loss                              --          --          --         --         --      (35,271)       --       (35,271)
      Foreign currency translation          --          --          --         --         --         --           (23)        (23)
                                                                                                                         --------
      Comprehensive loss                                                                                                  (35,294)
                                        --------    --------    --------   --------   --------   --------    --------    --------
Balance at June 30, 2001                    --      $   --        17,146   $     69   $ 47,812   $(79,409)   $    (64)   $(31,592)
                                        ========    ========    ========   ========   ========   ========    ========    ========
</TABLE>

                             SEE ACCOMPANYING NOTES.

                                       26
<PAGE>

               UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Amounts in thousands)
<TABLE>
<CAPTION>
                                                                              Year ended
                                                                  --------------------------------
                                                                  June 30,    July 1,     June 30,
                                                                    2001       2000         1999
                                                                  --------    --------    --------
<S>                                                               <C>         <C>         <C>
OPERATING ACTIVITIES
        Net loss                                                  $(35,271)   $(28,212)   $ (2,895)
        Adjustments to reconcile net loss to net
           cash flows used in operating activities:
            Depreciation                                             4,751       4,696         348
            Amortization                                             6,383       3,742          80
            Equity instruments issued in lieu of
                payment for services received                          402        --          --
            Other                                                      719       1,219        --
            Loss (gain) on retirement of equipment                     (70)         52        --
            Non-cash portion of merger and restructuring charge      1,812          71        --
        Change in operating assets and liabilities:
            Accounts receivable                                      9,946      (4,365)         74
            Other current assets                                    (3,205)     (5,850)       (168)
            Other assets                                               (19)      1,794          55
            Accounts payable                                         1,808      13,184         392
            Accrued liabilities                                    (20,165)     (5,224)         77
                                                                  --------    --------    --------

               Cash used in operating activities                   (32,909)    (18,893)     (2,037)

INVESTING ACTIVITIES
        Proceeds from sale of equipment                              1,458         498        --
        Purchases of property and equipment                         (2,636)     (4,223)       (557)
        Acquisition of business, net of cash acquired                 --       (58,513)       (810)
        Notes receivable                                             1,172      (1,354)       (122)
        Redemption of short-term investments                          --          --         1,700
        Other                                                          (23)       (162)        (42)
                                                                  --------    --------    --------

               Cash (used in) provided by investing activities         (29)    (63,754)        169

FINANCING ACTIVITIES
        Borrowings under revolving credit agreement, net            10,860      21,903        --
        Payments on notes payable and long-term debt                (2,934)     (4,388)        (58)
        Proceeds from notes payable and long-term debt              10,000      22,513       1,350
        Proceeds from stock subscription receivable                   --           250          18
        Debt financing costs                                           (83)       --          --
        Proceeds from issuance of common stock, net                    499      20,849         656
        Proceeds from issuance of preferred stock, net              13,535      25,261        --

                                                                  --------    --------    --------
               Cash provided by financing activities                31,877      86,388       1,966
                                                                  --------    --------    --------

Net (decrease) increase in cash and cash equivalents                (1,061)      3,741          98
                                                                  --------    --------    --------

Cash and cash equivalents, beginning of year                         3,993         252         154
                                                                  --------    --------    --------

Cash and cash equivalents, end of year                            $  2,932    $  3,993    $    252
                                                                  ========    ========    ========


Supplemental Disclosures of Cash Flow Information:
        Cash paid during period for interest                      $  4,565    $  5,023    $     24

Noncash investing and financing activities:
        Issuance of common stock through the conversion of debt   $   --      $    617    $    763
        Property and equipment returned to inventory                  --          --           406
</TABLE>

                             SEE ACCOMPANYING NOTES.

                                       27
<PAGE>

               UNITED SHIPPING & TECHNOLOGY, INC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

--------------------------------------------------------------------------------

1.       DESCRIPTION OF BUSINESS

     United Shipping & Technology, Inc. and its subsidiaries, (collectively, the
"Company") are engaged in the business of providing same-day delivery and
distribution/logistics services to individual consumers and businesses. The
Company operates primarily in the United States with limited operations in
Canada. The Company currently operates in a single-business segment and thus
additional disclosures under Statement of Financial Accounting Standards
("SFAS") No. 131, Disclosures About Segments of an Enterprise and Related
Information, are not required.


2.       SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

     Effective fiscal year 2000, the Company adopted a change in its fiscal year
from a June 30th year end to a 52-53 week fiscal year ending on the Saturday
closest to June 30th, whereby each quarter consists of a 13-week period ending
on a Saturday. In fiscal years consisting of 53 weeks, the final quarter will
consist of 14 weeks.

Revenue Recognition

     Revenue from the same-day delivery and distribution/logistics services is
recognized when services are rendered to customers.

Net Loss Per Share

     Basic net loss per share excludes dilution and is computed by dividing net
loss applicable to common shareholders 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>
                                                                                        Year Ended
                                                                              --------------------------------
                                                                              June 30,     July 1,    June 30,
                                                                                2001        2000        1999
                                                                              --------    --------    --------
                                                                                   (Amounts in thousands,
                                                                                   except per share data)
          <S>                                                                 <C>         <C>         <C>
          Numerator
                  Net loss                                                    $(35,271)   $(28,212)   $ (2,895)
                  Beneficial conversion feature                                   --        (3,508)       --
                  Accretion of Series B Redeemable Preferred Stock
                       to its redemption value                                    (665)       --          --
                  Adjustment of Preferred Series B Warrants to market value     (2,296)       --          --
                  Adjustment of Preferred Series C Warrants to market value      3,210        --          --
                                                                              --------    --------    --------

                  Net loss applicable to common shareholders                  $(35,022)   $(31,720)   $ (2,895)
                                                                              ========    ========    ========


          Denominator for basic and diluted loss per share
                  Weighted average shares                                       16,666      13,954       6,882
                                                                              ========    ========    ========

          Basic and Diluted Loss Per Share                                    $  (2.10)   $  (2.27)   $  (0.42)
                                                                              ========    ========    ========
</TABLE>

                                       28
<PAGE>

               UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)

--------------------------------------------------------------------------------

Use of Estimates

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

Cash Equivalents

     All highly liquid investments with maturities of three months or less at
the date of purchase are considered to be cash equivalents, consisting primarily
of money market accounts, and are carried at cost that approximates market.

Property and Equipment

     Property and equipment are recorded at cost and are depreciated over their
estimated useful lives using the straight-line method. The estimated useful
lives of buildings and leasehold improvements are 40 years or the life of the
lease and are three to seven years for furniture, equipment and vehicles.

Income Taxes

     The Company accounts for income taxes following the provisions of SFAS No.
109, Accounting for Income Taxes. SFAS No. 109 requires that deferred income
taxes be recognized for the tax consequences in future years of differences
between the tax bases of assets and liabilities and their financial reporting
amounts at each year end, based on enacted tax laws and statutory tax rates
applicable to the periods in which the differences are expected to affect
taxable earnings. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount more likely than not to be realized. The
effect of changes in tax rates is recognized in the period in which the rate
change occurs.

Stock Plans and Awards

     The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees ("APB 25"), in accounting for its
employee stock options. Under APB 25, since the exercise price of employee and
director stock options equals the market price of the underlying common stock on
the date of grant, no compensation expense is recognized.

Comprehensive Income

     The Company follows the provisions of SFAS No. 130, Reporting Comprehensive
Income, which establishes standards for reporting and display of comprehensive
income and its components. Comprehensive income reflects the change in equity of
a business enterprise during a period from transactions and other events and
circumstances from non-owner sources. For the Company, comprehensive income
represents net income adjusted for foreign currency translation adjustments. In
accordance with SFAS No. 130, the Company has chosen to disclose comprehensive
income in the consolidated statement of shareholders' deficit.


Foreign Currency Translation and Transactions

     Foreign assets and liabilities are translated using the year-end exchange
rate. Results of operations are translated using the average exchange rates
throughout the year. Translation gains or losses, net of applicable deferred
taxes, are accumulated as a separate component of stockholders' equity.

                                       29
<PAGE>

               UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)

--------------------------------------------------------------------------------

Goodwill

     Goodwill represents the excess of the purchase price over the estimated
fair value of the net tangible assets acquired in business combinations and is
amortized on a straight-line basis over 15 years. Accumulated amortization at
June 30, 2001 and July 1, 2000 was $9.4 million and $3.3 million, respectively.

Long-Lived Assets

     The Company follows SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of. SFAS No. 121
requires that long-lived assets, including goodwill, be reviewed for impairment
whenever events or circumstances indicate the carrying amount of an asset may
not be recoverable. The Company evaluates potential impairment by comparing the
carrying amount of the assets with the estimated undiscounted cash flows
associated with them. If an impairment exists, the Company measures the
impairment utilizing discounted cash flows.

Concentrations of Credit Risk

     The Company places its cash with federally insured financial institutions.
At times, such cash balances may be in excess of the federally insured limit.
Concentrations of credit risk with respect to accounts receivable is limited due
to the wide variety of customers to which the Company's services are sold and
the dispersion of those services across many industries and geographic areas. An
allowance for doubtful accounts is reviewed periodically based on management's
evaluation of collectibility, historical experiences, and other economic
factors.

New Accounting Pronouncements

     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 will early-adopt the new rules on
accounting for goodwill and other intangible assets. Application of the
nonamortization provisions of the Statement is expected to result in a reduction
in net loss of approximately $6.1 million per year. During fiscal 2002, the
Company will perform the first of the required impairment tests of goodwill as
of July 1, 2001 and has not yet determined what the effect of these tests will
be on the earnings and financial position of the Company. Separable intangible
assets that have finite lives will continue to be amortized over their useful
lives.

Reclassifications

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

                                       30
<PAGE>

               UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)

--------------------------------------------------------------------------------

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

     In connection with the acquisition of Velocity, management implemented a
plan to involuntarily 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. As of June 30, 2001,
approximately $3.1 million in costs (primarily related to severance payments and
lease terminations) has been charged against the reserve and no amounts related
to such plan have been included in the determination of net loss for the year.

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

         Balance at June 30,  1999               $  --
            Additions                              3,929
            Payments                              (1,451)
                                                 --------

         Balance at July 1, 2000                   2,478
            Payments                              (1,613)
                                                 --------

         Balance at June 30, 2001                $   865
                                                 =======

     Subsequent to the year ended June 30, 2001, the Company and CEX agreed to
certain purchase price adjustments 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 will be recorded as an offset to the goodwill in the
Company's first quarter of fiscal 2002.

     On January 13, 1999, the Company acquired Twin City Transportation, Inc.
("TCT"). TCT was an established courier service operating in the Minneapolis-St.
Paul metropolitan area. Under the terms of the merger agreement, the common
stock of TCT was exchanged for 423,300 shares of the Company's common stock
valued at $0.9 million, a warrant for the purchase of 1,000 shares of common
stock exercisable at $1.063 per share, cash of $0.4 million, payment by the
Company of $0.3 million for TCT liabilities, and acquisition expenses.

                                       31
<PAGE>

               UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)

--------------------------------------------------------------------------------

     The following unaudited pro forma financial information gives effect to the
Velocity and TCT acquisitions as if they had occurred at the beginning of fiscal
years 2000 and 1999. The pro forma results were prepared for comparative
purposes only and do not purport to be indicative of the results of operations
which actually would result had the acquisitions occurred on the dates
indicated, or which may result in the future.

                                                 July 1,      June 30,
                                                  2000          1999
                                                --------      --------
                                                (Amounts in thousands,
                                                except per share data)

         Revenue                                $558,428      $607,612
         Loss from operations                    (28,344)      (36,337)
         Net loss                                (37,553)      (42,357)
         Basic and diluted loss per share       $  (2.69)     $  (6.15)

     All acquisitions were accounted for using the purchase method of
accounting. Accordingly, the purchase prices were allocated to the net assets
acquired based upon their estimated fair values.


4.       RESTRUCTURING

     The Company began implementing a multi-faceted restructuring program in
March 2001 to allow it to achieve a cost structure to better position itself to
achieve profitability in the ever-changing logistics and transportation
marketplace. The Company as a result has streamlined and downsized its
operations by reducing its workforce and consolidating various locations. As of
June 30, 2001, the Company has taken 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 June 30, 2001,
approximately $4.8 million in costs have been charged against the reserve.

5.       ACCOUNTS RECEIVABLE

     Accounts receivable include the following:

                                               June 30,        July 1,
                                                 2001           2000
                                               ---------      --------
                                               (Amounts in thousands)

         Trade accounts receivable             $ 48,912       $ 60,273

         Allowance for doubtful accounts         (1,160)        (2,575)
                                               --------       --------

         Total                                 $ 47,752       $ 57,698
                                               ========       ========

                                       32
<PAGE>

               UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)

--------------------------------------------------------------------------------

6.       PROPERTY AND EQUIPMENT

     Property and equipment consist of the following:

                                                  June 30,      July 1,
                                                    2001          2000
                                                  ---------     --------
                                                  (Amounts in thousands)

         Land                                     $    194     $    488

         Buildings and leasehold improvements          805        1,863

         Furniture, equipment and vehicles          17,896       15,340
                                                  --------     --------

                                                    18,895       17,691
         Less accumulated depreciation             (10,053)      (4,895)
                                                  --------     --------

         Total                                    $  8,842     $ 12,796
                                                  ========     ========


7.       LONG-TERM DEBT AND CAPITAL LEASES

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


                                                  June 30,      July 1,
                                                    2001          2000
                                                  ---------     --------
                                                  (Amounts in thousands)

         Revolving note                           $ 32,763      $ 21,903
         Senior subordinated note                    3,919         3,577
         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                -           951
         18% Bridge notes                            5,000             -
         Subscription notes                          5,000             -
         Other                                       3,725         5,708
                                                  --------      --------

                                                    64,930        46,662
         Less current maturities                    (2,321)       (7,167)
                                                  --------      --------

         Total                                    $ 62,609      $ 39,495
                                                  ========      ========

                                       33
<PAGE>

              UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)

--------------------------------------------------------------------------------

     The future maturities on long-term debt, excluding the $10.0 million of 18%
Bridge Notes and Subscription Notes which were converted to Series D Preferred
in September 2001, consist of the following (amounts in thousands):

         Fiscal year:
              2002                               $ 2,321
              2003                                38,558
              2004                                    13
              2005                                14,038
                                                 -------
                                                 $54,930
                                                 =======

     Borrowings under the revolving note are limited to the lesser of $55
million or an amount based on a defined portion of receivables ($33.2 million at
June 30, 2001). Interest is payable monthly at a rate of prime plus 2.75% (9.5%
at June 30, 2001). The Company may elect the rate of LIBOR plus 6% at its
discretion from time to time. All amounts advanced are due September 30, 2002.
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 warrant is subject to anti-dilution provisions. The
unamortized discount aggregated $1.1 million at June 30, 2001, and is being
amortized over the five-year life of the note.

     Subsequent to the year ended June 30, 2001, as disclosed in note 3, the
Company and CEX agreed to certain purchase price adjustments 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.

     As a result of the acquisition of Velocity, the Company was also liable on
a 6% convertible subordinated note that was due January 31, 2000. In April 2000,
the Company restructured the terms of the original agreement into a 9%
convertible subordinated note in the amount of approximately $1.7 million. In
connection with the restructured note, 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. The note was paid in full
during fiscal 2001.

     In January 2001, the Company entered into several financing arrangements to
meet its working capital requirements. The Company entered into a bridge loan
agreement dated January 4, 2001, and a supplemental bridge loan agreement dated
January 31, 2001 (collectively, the "Bridge Loan Agreement"), pursuant to which
the Company received $3.5 million on January 4, 2001, and an additional $1.5
million on January 31, 2001. The indebtedness is represented by promissory
notes, payable on July 4, 2001, bearing interest at a rate of 18% per annum (the
"Bridge Notes"), which are convertible at the option of the lender into 909,090
shares of the Company's Series D Preferred at an exercise price of $5.50 per
share upon shareholder approval of the conversion.

     The Company entered into note purchase agreements in connection with the
issuance of promissory notes convertible into shares of Series D Preferred (the
"Subscription Notes"). During March and April 2001, the Company sold
Subscription Notes convertible into 624,906 shares of Series D Preferred to
accredited investors for an aggregate $5.0 million. Each Subscription Note is
convertible into shares of Series D Preferred at an effective purchase price of
$8.00 per share of Series D Preferred upon shareholder approval of the
conversion.

                                       34
<PAGE>

               UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)

--------------------------------------------------------------------------------

     Substantially all of the assets and operations of the Company have been
pledged to secure borrowings under the revolving 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 a
financial covenant related to minimum EBITDA. The agreements with the lenders
also require the Company to obtain the consent of the lenders for additional
acquisitions.


8.       PREFERRED AND COMMON STOCK

     At June 30, 2001, the following shares of the Company's $0.004 par value
stock were authorized, issued and outstanding:

<TABLE>
<CAPTION>
                                                                                   Issued and
                                                                  Authorized       Outstanding
                                                                    Shares      at June 30, 2001
                                                                -------------   ----------------
           <S>                                                  <C>             <C>
           Series F Convertible Preferred Stock                         --               --
           Series E Convertible and Redeemable Preferred Stock       100,000             --
           Series D Convertible and Redeemable Preferred Stock     3,000,000          252,429
           Series C Convertible and Redeemable Preferred Stock     5,000,000        2,000,000
           Series B Convertible and Redeemable Preferred Stock    10,000,000        2,806,797
           Series A Cumulative Convertible Preferred Stock         4,500,000             --
           Preferred stock - undesignated                          2,400,000             --
           Common Stock                                           75,000,000       17,146,399
</TABLE>

Series F Convertible Preferred Stock

     Subsequent to the Company's fiscal year end, in July 2001, the Company
entered into Subscription Note Purchase Agreements whereby the Company issued
subscription notes payable February 2, 2002 in the aggregate principal amount of
approximately $7.1 million (collectively, the "Series F Subscription Notes"), to
a group of institutional investors and executive management of the Company. In
September 2001, the Company's shareholders approved the issuance of Series F
Preferred, and all of the principal balance of the Series F Subscription Notes
was converted into 646,029 shares of Series F Preferred. Each share of Series F
Preferred is immediately convertible into twenty shares of the Company's common
stock. The Company also issued warrants to purchase 1,110,384 shares of common
stock in connection with these sales.

Series D Convertible and Redeemable Preferred Stock

     The Bridge Notes (see note 7) are convertible at the option of the note
holder into 909,090 shares of the Company's Series D Preferred at an exercise
price of $5.50 per share upon shareholder approval of the conversion. Each share
of Series D Preferred is convertible into ten shares of the Company's common
stock. The Series D shares have a mandatory redemption feature that requires the
Company to redeem each outstanding share on the redemption date, March 1, 2007,
at a price equal to the liquidation value per such share. In connection with the
Bridge Loan Agreement, the Company issued warrants, subject to shareholder
approval, to purchase an aggregate 216,533 shares of Series D Preferred at a
purchase price of $0.01 per share (the "Bridge Warrants").

                                       35
<PAGE>

               UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)

--------------------------------------------------------------------------------

     The Company entered into securities purchase agreements in connection with
the sale of Series D Preferred. The Company sold 252,429 shares (2,429 shares to
one of the Company's directors) of Series D Preferred at $8.00 per share for
approximately $2.0 million.

     The Subscription Notes (see note 7) are convertible at the option of
the note holder into 624,906 shares of the Company's Series D Preferred at an
exercise price of $8.00 per share upon shareholder approval of the conversion.

     Subsequent to year end, in September 2001 at a special shareholders'
meeting, the Company's shareholders approved proposals which accomplished the
following: (1) conversion of $5.0 million principal amount of the Bridge Notes
into Series D Preferred; and (2) issuance of shares of Series D Preferred to
subscribers for such securities and holders of subscription notes which were
convertible into Series D Preferred. The Company expects to incur a non cash
charge in the first quarter in conjunction with the conversion.

Series C Convertible and Redeemable Preferred Stock

     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 $12.0 million and the cancellation of two warrants issued in
connection with the Series B Preferred. 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 was determined to be approximately $3.5 million and was allocated from
the value received from the Series C Preferred Stock. Adjustment of the Series C
warrants to their market value for the year ended June 30, 2001 was $3.2 million
resulting in a carrying amount of $330,000 at June 30, 2001. The $2.7 million
remaining fair value received for the Series C Preferred in excess of the Series
C Preferred redemption value and the Series C Warrants was recorded as
additional paid-in capital.

Series B Convertible and Redeemable Preferred Stock

     In May 2000, the Company entered into an agreement to sell 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. Three separate warrants
were issued to the Series B Preferred shareholders subject to approval at a
special meeting of shareholders in August 2000. The fair value of the warrants
issued with the Series B Preferred was allocated from the carrying amount of the
Series B Preferred to the respective warrants at the August 2000 measurement
date. The shares of the Series B Preferred are convertible into shares of the
Company's common stock at a rate of 1:1 subject to adjustment to prevent
dilution. The Series B Preferred will be accreted up to its redemption amount of
$25.3 million. Accretion for year ended June 30, 2001 was $665,000.

     In September 2000, two of the warrants issued to the Series B Preferred
shareholders were exchanged as partial consideration for the Series C Preferred.
The remaining outstanding warrant issued with the Series B Preferred provides
for the purchase of an aggregate of 425,000 shares of the Company's common
stock. The warrant becomes exercisable on a pro rata basis in the event and to
the extent that any of the 3,000,000 options granted under the Company's 2000
Stock Option Plan ("2000 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 warrant expires on May 31, 2004.

                                       36
<PAGE>

               UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)

--------------------------------------------------------------------------------

     The Company's Series B Preferred was deemed to have contained beneficial
conversion features that were recognized as a declared dividend to preferred
shareholders. The value of the proceeds allocated to the beneficial conversion
feature was approximately $3.5 million and was recognized in fiscal 2000 as a
return to the preferred shareholders at the date of issuance since the Series B
Preferred is immediately convertible.

Series A Cumulative Convertible Preferred Stock

     In April 1998, the Company designated 4,500,000 shares of authorized but
unissued preferred stock as Series A Cumulative Convertible Preferred Stock. The
Series A preferred shares were convertible into common stock and were entitled
to a cumulative annual dividend of $0.03 per share. The stock was convertible
beginning November 1, 1998, at an initial conversion rate of one share of common
stock for each preferred share, to be adjusted if additional common stock was
issued for less than $0.60 per share.

     The Company sold 4,455,498 shares of its Series A Cumulative Convertible
Preferred Stock in private placements in May and June 1998, raising
approximately $2,421,000, net of expenses of approximately $252,000. The shares
were sold in units at a purchase price of $1.20 per unit, each unit consisting
of two preferred shares and one warrant to purchase one share of common stock at
a price of $1.75 per share. The warrants were exercisable any time before May 1,
2001. In connection with the private placement in June 1998, the placement agent
received warrants to purchase up to 288,381 shares of common stock at $0.60 per
share. These warrants were exercisable for three years beginning one year from
date of issuance.

     In February 1999, the Company converted all Series A Cumulative Convertible
Preferred Stock to an equal number of shares of common stock.

     All the Company's convertible preferred stock and the related warrants are
subject to anti-dilution provisions.

Common stock

     In May 2001 pursuant to a settlement agreement dated June 20, 2000 between
the Company and a former employee, the Company issued 500,000 shares of its
common stock in connection with the settlement of certain litigation.
Previously, in August 2000, the Company initially issued 100,000 shares of its
common stock in connection with this settlement. All shares were placed in
escrow pending the registration of the shares or the earlier termination of the
agreement upon cash payment, at the option of the Company.

     In January 2000, an accredited investor purchased 666,667 shares of the
Company's common stock at $7.50 per share for a total purchase price of
$5,000,000.

     In December 1999, the Company issued to a director 22,083 shares of common
stock in payment for consulting fees performed on behalf of the Company. Also in
January 2000, the Company sold to five accredited investors an aggregate of
25,000 shares of common stock at a purchase price of $5.025 per share, together
with warrants to purchase an aggregate of 2,500 shares of common stock at an
exercise price of $12.50 per share for a period of five years.

     In December 1999, the Company sold to an accredited investor 50,000 shares
of common stock at a purchase price of $6.375 per share, together with a warrant
to purchase 5,000 shares of common stock at an exercise price of $6.375 per
share for a period of five years. In December 1999, the Company also sold to
seven institutional investors an aggregate of 1,791,044 shares of common stock
at a purchase price of $5.025 per share, together with warrants to purchase an
aggregate of 179,104 shares of common stock at an exercise price of $12.50 per
share for a period of five years.

                                       37
<PAGE>

               UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)

--------------------------------------------------------------------------------

     In September 1999, the Company sold to five accredited investors 124,000
shares of common stock at a purchase price of $4.50 per share, together with
warrants to purchase an aggregate of 41,333 shares of common stock at an
exercise price of $4.50 per share for a period of one year.

     Between July 26, 1999 and August 12, 1999 the Company sold to four
accredited investors an aggregate of 237,000 shares of common stock at prices
ranging from $2.87 to $3.50 per share, for an aggregate of $750,000. In
connection with the sales, the Company issued to two of the purchasers one-year
warrants to purchase an aggregate of 16,668 shares of common stock at an
exercise price of $2.25 per share.

     In July 1999, the Company sold to certain of its employees an aggregate of
7,612 shares of its common stock at a purchase price of $3.00 per share.

Stock Options and Warrants

     The Company currently sponsors the 1995 Stock Option Plan, the 2000 Stock
Option Plan and the 1996 Director Stock Option Plan. These plans provide for the
issuance of up to 5,160,000 shares. Options may be granted to employees,
directors and consultants at option prices not less than the fair market value
of the Company's common stock on the date of grant. The majority of the options
vest annually in equal amounts over a four-year period. The 2000 Stock Option
Plan also allows for the issuance of performance shares or restricted stock. No
performance shares or restricted stock are outstanding at June 30, 2001 or July
1, 2000.

     The Company has 924,657 shares reserved for grants under the option plans
at June 30, 2001.

     A summary of the status of the Company's stock option plans as of June 30,
2001 and activity during the three fiscal years then ended is presented below:

<TABLE>
<CAPTION>

                                             Options Outstanding          Weighted
                                                Under the Plan            Average
                                          -------------------------       Exercise
                                              ISO          Non-ISO          Price
                                          -----------     ---------       --------
             <S>                          <C>             <C>             <C>
             Balance at June 30, 1998        130,250        637,500        $ 1.10
                    Granted                  450,500            --           1.91
                    Exercised                (11,000)      (110,000)         1.38
                    Forfeited                (90,500)           --           3.77
                                          ----------      ---------

             Balance at June 30, 1999        479,250        527,500          1.11
                    Granted                2,962,105        760,900          9.37
                    Exercised                (16,000)      (350,000)         4.47
                                          ----------      ---------

             Balance at July 1, 2000       3,425,355        938,400          7.96
                    Granted                  757,489         75,000          2.14
                    Exercised                (35,918)           --           4.41
                    Forfeited             (1,447,901)           --           9.26
                                          ----------      ---------

             Balance at June 30, 2001      2,699,025      1,013,400        $ 6.02
                                          ==========      =========
</TABLE>

                                       38
<PAGE>

               UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                    Options Outstanding                         Options Exercisable
             ---------------------------------------------------------------  ------------------------

                                                Weighted-
                                                 Average        Weighted-                    Weighted-
                  Range of                      Remaining        Average                      Average
                  Exercise                     Contractual      Exercise                     Exercise
                   Prices       Number       Life (in years)      Price         Number        Price
             ---------------------------------------------------------------  ----------    ----------
               <S>             <C>           <C>                  <C>            <C>         <C>
               $ 0.38 -  0.67     800,500        7.2              $ 0.43         560,000     $ 0.40
                 1.03 -  1.97     360,390        7.7                1.36         233,462       1.24
                 2.00 -  3.96     415,250        7.6                2.57         111,700       3.20
                 4.50 -  6.88     502,023        8.22               5.07         461,574       4.91
                10.75 - 14.86   1,634,262        8.69              10.95       1,203,003      10.98
                                ---------                                     ----------

                                3,712,425        8.09               6.02       2,569,739       6.36
                                =========                                     ==========
</TABLE>

     A summary of the common stock warrants outstanding at June 30, 2001 is as
follows:

                           Common Stock Warrants Outstanding
          -----------------------------------------------------------------

                                                Weighted-
                                                 Average          Weighted-
                Range of                        Remaining          Average
                Exercise                       Contractual         Exercise
                 Prices        Number        Life (in years)        Price
          -----------------------------------------------------------------

            $ 0.600 - 1.063     426,160          2.01              $0.65
             1.750 - 2.930    2,362,230          6.62               2.42
             3.000 - 3.875      128,188          3.25               3.47
             4.500 - 7.500      558,265          2.91               6.63
            10.150 - 12.925     460,523          5.49              11.56
                              ---------

                              3,935,366          5.35               4.35
                              =========

     In fiscal 2001, the Company issued three non-qualified stock options
outside of the Company's 2000 Stock Option Plan to three employees for the
purchase of 475,000 shares of common stock at purchase prices ranging from
$3.531 to $3.955 per share

     In fiscal 2000, the Company issued two non-qualified stock options outside
of the Company's 2000 Stock Option Plan to an employee for the purchase of
325,000 shares of common stock at purchase prices ranging from $4.95 to $10.875
per share.

                                       39
<PAGE>

               UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)

--------------------------------------------------------------------------------

     In accordance with SFAS No. 123, Accounting for Stock-Based Compensation,
the Company continues to elect to utilize APB Opinion No. 25 and related
interpretations in accounting for its stock option plans. If the Company had
elected to recognize compensation cost based on the fair value of the options
granted and shares sold pursuant to the purchase plan as prescribed by SFAS No.
123, net income and earnings per share would have been reduced to the pro forma
amounts indicated in the table below for fiscal years 2001, 2000 and 1999:

                                      2001          2000        1999
                                    ---------    ----------   ---------
                                         (In thousands, except per
                                               share amounts)

         Net loss applicable to
           common shareholders:
               As reported          $ (35,022)   $ (31,720)   $ (2,895)
                                    =========    =========    ========
               Pro forma            $ (43,248)   $ (36,799)   $ (3,063)
                                    =========    =========    ========

         Basic and diluted loss
           per common share:
               As reported            $ (2.10)     $ (2.27)    $ (0.42)
                                    =========    =========    ========
               Pro forma              $ (2.59)     $ (2.64)    $ (0.45)
                                    =========    =========    ========



     The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option-pricing model with the following assumptions for
the fiscal years shown:

                                          2001          2000           1999
                                        --------      --------        -------
         Expected dividend yield             -              -             -
         Expected stock volatility        121%           134%          167%
         Risk-free interest rate          4.0%          6.17%         5.10%
         Expected life of options         5.00           5.00          5.00

     The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options, which have no vesting restrictions and are
fully transferable. In addition, option-pricing models require the input of
highly subjective assumptions. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models may not
necessarily provide a reliable single measure of the fair value of its employee
stock options. Under the forgoing assumptions, the weighted-average fair value
of each option granted during fiscal year 2001, 2000 and 1999 was $1.59, $8.27
and $1.81, respectively.

                                       40
<PAGE>

               UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)

--------------------------------------------------------------------------------

9.       INCOME TAXES

     The significant components of deferred income tax assets and liabilities,
primarily long-term, were as follows:

                                                    June 30,       July 1,
                                                      2001          2000
                                                    ---------     --------
                                                    (Amounts in thousands)
         Deferred tax assets:
                 Net operating loss carry forwards  $ 26,953      $ 17,331
                 Reserves, allowances and accruals     8,204         1,180
                                                    --------      --------
                                                      35,157        18,511
         Deferred tax liabilities:                      (539)       (1,690)
                                                    --------      --------
                                                      34,618        16,821
         Valuation allowance                         (34,618)      (16,821)
                                                    --------      --------

                                                    $    --       $    --
                                                    ========      ========

     At June 30, 2001, the Company had net operating loss carry forwards for
income tax purposes of approximately $70.9 million, which expire 2005 through
2021. A portion of the losses may be limited pursuant to Internal Revenue Code
Section 382.

     The change in the valuation allowance was an increase of $17.8 million,
$12.4 million and $0.9 million in fiscal years 2001, 2000 and 1999,
respectively, and resulted principally from net operating loss carry forwards.

10.      COMMITMENTS AND CONTINGENCIES

Lease Commitments

     The Company leases equipment, vehicles, and buildings under non-cancelable
leases. Future minimum lease commitments under non-cancelable leases as of June
30, 2001 were as follows (amounts in thousands):

         Fiscal year:
                 2002                   $ 19,720
                 2003                      5,972
                 2004                      4,436
                 2005                      2,904
                 2006                      1,067
                 Thereafter                  731
                                        --------
                                        $ 34,830
                                        ========

     Rent expense was $23.1 million, $29.4 million and $0.1 million during the
years ended June 30, 2001, July 1, 2000 and June 30, 1999, respectively.

                                       41
<PAGE>

               UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)

--------------------------------------------------------------------------------

Automobile and Workers' Compensation Liabilities

     The Company is partially self-insured for automobile, workers' compensation
and cargo claims. The Company has elected to retain a portion of expected losses
through the use of deductibles. Provisions for losses expected under these
programs are recorded based upon the Company's estimates of the aggregate
liability for claims incurred. These estimates include the Company's actual
experience based on information received from the Company's insurance carriers
and historical assumptions of development of unpaid liabilities over time. The
Company pre-funds this estimated liability on a monthly basis based upon
actuarial loss projections. As of June 30, 2001 and July 1, 2000, the Company
has deposits recorded of $13.0 million and $7.8 million, respectively.

Litigation

     The Company is subject to legal proceedings and claims that arise in the
ordinary course of their business. The Company determined the size of its legal
reserve with respect to these matters in accordance with generally accepted
accounting principles based on management's estimate of the most likely
liability. In the opinion of management, none of these legal proceedings or
claims is expected to have a material effect upon the Company's financial
position or results of operations. However, the impact on cash flows might be
material in the periods such claims are settled and paid.


11.      EMPLOYEE BENEFIT PLANS

     The Company has defined contribution retirement plans (the "Plans") in
accordance with Section 401(k) of the Internal Revenue Code. All full-time
employees of the Company and its subsidiaries are eligible to participate in the
Plans. Company contributions to these plans are discretionary. The Company's
matching contribution expense was $1.2 million and $1.6 million for the fiscal
years ended June 30, 2001 and July 1, 2000, respectively. The Company made no
matching contributions for the fiscal year ended June 30, 1999.

12.      RELATED PARTY TRANSACTONS

     One of the Company's board members is a partner in the senior subordinated
note lender. During fiscal 2000, in addition to the lender providing debt
financing of $5.0 million for the Velocity acquisition, the board member and
other partners in the senior subordinated note lender collectively purchased
23,648 shares of the Company's common stock and received 2,365 warrants at an
exercise price of $12.50 per share. Proceeds from the sale of common stock were
approximately $0.1 million. These transactions were valued at the fair value of
the Company's warrants and stock at the time of the transactions.

     During fiscal 2000, the Company sold its Midnite Express operations to an
employee of the Company. The employee resigned from the Company at the time of
the sale. The Company received proceeds from the sale of approximately $1.6
million, which consisted of approximately $1.4 million in notes receivable and
$0.2 million in cash, the fair value allocated as a result of purchase
accounting for the Velocity acquisition.

                                       42
<PAGE>

               UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)

--------------------------------------------------------------------------------

13.      CASH REQUIREMENTS

     The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. The Company incurred an operating loss of approximately $29 million
for the year ended June 30, 2001 which the Company is addressing as it continues
to integrate and improve the operating results of the Velocity acquisition.
Although the operating loss for fiscal 2001 was not unexpected, the Company's
ability to continue to fund these operating losses and its ability to grow the
business depends on its ability to obtain additional sources of funds for
working capital for fiscal 2002.

     In conjunction with institutional debt financing for the Velocity
acquisition, the Company is subject to certain financial covenants for which it
was not in compliance at various times in fiscal 2001. The Company was
successful in obtaining waivers for the violations; however, there is no
assurance that such waivers, if needed, will be available from the Company's
lenders in the future.

     The Company's operating plans include the continued implementation of its
restructuring program initiated in March 2001 to further improve the operating
performance of Velocity as well as specific initiatives to reduce specific cash
expenditures related to general and administrative expenses.

     The Company is dependent upon achieving certain revenue and expense targets
in their financial plan for fiscal 2002. The Company expects to meet its
financial projections for the next fiscal year and to continue to secure
additional financing from its lenders or through the issuance of additional
Company equity securities; however, there can be no assurance that such funding
can be obtained.

     Subsequent to year end, management has negotiated more favorable debt
covenants with its primary lender to facilitate access to financing. In
addition, certain equity securities have been issued in a private placement (see
note 8). Management believes that with the additional borrowing capacity it
should have available as a result of working with its lender in establishing
revised debt covenants, the additional proceeds it received from the sale of
equity securities subsequent to its year end, as well as the continued
implementation of its efforts it has initiated and expects to continue to reduce
cash expenditures, it will meet its fiscal 2002 financial plan. Management
further believes that the reduction in costs will not have a material adverse
impact on its revenue growth.

                                       43
<PAGE>

               UNITED SHIPPING & TECHNOLOGY, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (continued)

--------------------------------------------------------------------------------

14.      QUARTERLY FINANCIAL INFORMATION (unaudited)

         Unaudited summarized financial data by quarter for fiscal years 2001
and 2000 is as follows (in thousands, except per share data):

<TABLE>
<CAPTION>

                                                                       Three Months Ended
                                               -------------------------------------------------------------------
                                               September 30,      December 30,         March 31,         June 30,
                                                   2000              2000               2001               2001
                                               -------------      ------------        ----------         ---------
         <S>                                   <C>                <C>                 <C>                <C>
         Revenue                                 $133,091          $ 119,719          $112,214           $ 106,658
         Gross profit                              28,291             23,549            21,741              20,603
         Loss from operations                      (5,535)            (6,057)          (10,173)             (7,536)
         Net loss applicable to
                common shareholders                (9,575)            (7,461)          (11,672) 1           (6,314) 1

         Basic and diluted net loss
                per share                        $  (0.58)         $   (0.45)         $  (0.70)          $   (0.37)
                                                 ========          =========          ========           =========
</TABLE>
         ---------------
         1. The net loss applicable to common shareholders in the third and
         fourth quarters includes $4.4 million and $2.7 million, respectively,
         for restructuring charges (see note 4).
<TABLE>
<CAPTION>
                                                                       Three Months Ended
                                                ------------------------------------------------------------------
                                                October 2,         January 1,          April 1,           July 1,
                                                  1999               2000               2000               2000
                                                ----------         ----------         ---------          ---------
         <S>                                   <C>                <C>                 <C>                <C>
         Revenue                                 $ 53,724          $ 138,908          $138,900           $ 139,620
         Gross profit                              12,774             30,431            31,823              31,243
         Loss from operations                      (1,479)           (10,092)           (6,423)             (5,319)
         Net loss applicable to
                common shareholders                (1,616)           (11,230)           (7,847)            (11,027) 2

         Basic and diluted net loss
                per share                        $  (0.15)         $   (0.86)         $  (0.50)          $   (0.76)
                                                 ========          =========          ========           =========
</TABLE>
         ---------------
         2. The net loss applicable to common shareholders in the fourth quarter
         includes $3,508 for the impact of the beneficial conversion feature of
         the Company's Series B Preferred issued in May 2000.

                                       44
<PAGE>

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         Not applicable.


                                    PART III.

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

         Incorporated by reference from the Company's 2001 Proxy Statement.

ITEM 10. EXECUTIVE COMPENSATION

         Incorporated by reference from the Company's 2001 Proxy Statement.


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Incorporated by reference from the Company's 2001 Proxy Statement.


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Incorporated by reference from the Company's 2001 Proxy Statement.


ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8K

         (a)      Exhibits.

                  Reference is made to the Exhibit Index.

         (b)      Reports on form 8K.

                  The Company filed one report on Form 8-K during the fiscal
                  quarter ended June 30, 2001, as follows:

                  (i) Current Report on Form 8-K filed on May 21, 2001, relating
                  to the sale of Series D Preferred Stock and Subscription
                  Notes.

                                       45
<PAGE>

                                   SIGNATURES

         In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, in the city of Minneapolis, state
of Minnesota on October 9, 2001.

                                        UNITED SHIPPING & TECHNOLOGY, INC.

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

                                        By    /s/ Mark E. Ties
                                          -------------------------------------

                                              Mark E. Ties
                                              Chief Financial Officer
                                              (Principal Accounting and
                                              Financial Officer)


                                POWER OF ATTORNEY

         KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Wesley C. Fredenburg and Mark E. Ties, or
either of them, his attorneys-in-fact, each with the power of substitution, for
him in any and all capacities, to sign any amendments to this Report on Form
10-KSB, and to file the same, with exhibits thereto and other documents in
connection therewith with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or substitute
or substitutes may do or cause to be done by virtue hereof.

         In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.

         Signature                      Title             Date
         ---------                      -----             ----

   /s/ Vincent A. Wasik        Chairman                   October 9, 2001
---------------------------
Vincent A. Wasik

   /s/ Jeffry J. Parell        Chief Executive Officer    October 9, 2001
---------------------------    and Director
Jeffry J. Parell

   /s/ Alex Paluch             Director                   October 9, 2001
---------------------------
Alex Paluch

   /s/ Timothy Becker          Director                   October 9, 2001
---------------------------
Timothy Becker

   /s/ James Brown             Director                   October 9, 2001
---------------------------
James Brown

   /s/ Marlin Rudebusch        Director                   October 9, 2001
---------------------------
Marlin Rudebusch

   /s/ Douglas Hsieh           Director                   October 9, 2001
---------------------------
Douglas Hsieh

   /s/ Peter W. Kooman         Director                   October 9, 2001
---------------------------
Peter W. Kooman

                                       46
<PAGE>

EXHIBIT INDEX

Exhibit
Number    Description
-------   -----------

1.1       Agency Agreement dated April 20, 1998 between the Company and R.J.
          Steichen & Co. (incorporated by reference to the Company's Annual
          Report on Form 10-KSB for the year ended June 30, 1998).

1.2       Private Placement Agency Agreement between BB&T Capital Markets and
          the Company dated January 17, 2001.

2.1       Merger Agreement by and among CEX Holdings, Inc., Corporate Express
          Delivery Systems, Inc., United Shipping & Technology, Inc. and United
          Shipping & Technology Acquisition Corp., dated as of September 8, 1999
          (incorporated by reference to the Company's Form 8-K, filed October 8,
          1999).

2.2       Amendment No. 1 to Merger Agreement by and among CEX Holdings, Inc.,
          Corporate Express Delivery Systems, Inc., United Shipping &
          Technology, Inc. and United Shipping & Technology Acquisition Corp.,
          dated as of September 22, 1999 (incorporated by reference to the
          Company's 8-K, filed October 8, 1999).

2.3       Securities Purchase Agreement among United Shipping & Technology,
          Inc., TH Lee.Putnam Internet Partners, L.P. and TH Lee. Putnam
          Internet Parallel Partners, L.P., dated as of May 15, 2000
          (incorporated by reference to the Company's Form 8-K, filed June 2,
          2000).

2.4       Securities Purchase Agreement among United Shipping & Technology,
          Inc., TH Lee.Putnam Internet Partners, L.P., TH Lee.Putnam Internet
          Parallel Partners, L.P., THLi Coinvestment Partners LLC and Blue Star
          I, LLC, dated as of September 1, 2000 (incorporated by reference to
          the Company's Form 8-K, filed September 8, 2000).

3.1       Articles of Incorporation of United Shipping & Technology, Inc., as
          amended (incorporated by reference to the Company's Form 8-K, filed
          June 2, 2000).

3.2       Certificate of Designation of Preferences and Rights of Series C
          Convertible Preferred Stock and Articles of Amendment to the Restated
          Articles of Incorporation (incorporated by reference to the Company's
          Form 8-K, filed September 8, 2000).

3.3       Certificate of Designation of Preferences and Rights of Series D
          Convertible Preferred Stock and Articles of Amendment to the Restated
          Articles of Incorporation (incorporated by reference to the Company's
          Form 8-K, filed May 21, 2001).

3.4       Certificate of Designation of Preferences and Rights of Series F
          Convertible Preferred Stock and Articles of Amendment to the Restated
          Articles of Incorporation (incorporated by reference to the Company's
          Form 8-K, filed July 20, 2001).

3.5       The Company's Bylaws, as amended (incorporated by reference to the
          Company's Registration Statement on Form SB-2, File No. 333-01652C).

4.1       Specimen form of the Company's Common Stock certificate (incorporated
          by reference to the Company's Statement on Form SB-2, File No.
          333-01652C).

4.2       The Company's Articles of Incorporation, as amended and restated (see
          Exhibit 3.1, Exhibit 3.2, Exhibit 3.3 and Exhibit 3.4).

4.3       The Company's Bylaws, as amended (see Exhibit 3.3).

10.1      Form of warrant issued pursuant to bridge loan financing completed by
          the Company in December 1995 (incorporated by reference to the
          Company's Statement on Form SB-2, File No. 333-01652C).

                                       47
<PAGE>

Exhibit
Number    Description
-------   -----------

10.2      1996 Director Stock Option Plan, as amended (incorporated by reference
          to the Company's Form 10-QSB for the fiscal quarter ended January 1,
          2000).

10.3      2000 Stock Option Plan (incorporated by reference to the Company's
          Definitive Schedule 14A filed on May 8, 2000).

10.4      Warrant dated June 3, 1998 between Company and Manchester Financial
          Group, Inc. for the purchase of 100,000 shares of Common Stock
          (incorporated by reference to the Company's Statement on Form 10-KSB
          for the year ended June 30, 1998).

10.5      Form of Warrant between Company and investors in 1998 private
          placement (incorporated by reference to the Company's Statement on
          Form 10-KSB for the year ended June 30, 1998).

10.6      Form of Subscription Agreement and Letter of Investment Intent between
          Company and investors in private placement of May and June 1998
          (incorporated by reference to the Company's Statement on Form 10-KSB
          for the year ended June 30, 1998).

10.7      Warrant dated June 8, 1998 between Company and R.J. Steichen & Co. for
          the purchase of 288,381 shares of Common Stock (incorporated by
          reference to the Company's Statement on Form 10-KSB for the year ended
          June 30, 1998).

10.8      Sublease Agreement dated March 15, 1999, between the Company and NM
          Holdings, Inc. for property located at 9850 51st Avenue North, Suite
          110, Plymouth, Minnesota 55442 (incorporated by reference to the
          Company's Statement on Form 10-KSB for the fiscal year ended June 30,
          1999).

10.9      Form of Promissory Note used in connection with the Company's sale of
          its Medium Term 12% Unsecured Notes in December of 1998 (incorporated
          by reference to the Company's Statement on Form 10-QSB for the quarter
          ended December 31, 1998).

10.10     Form of Warrant used in connection with the Company's sale of its 12%
          Medium Term Unsecured Notes in December of 1998 (incorporated by
          reference to the Company's Statement on Form 10-QSB for the quarter
          ended December 31, 1998).

10.11     Form of Promissory Note used in connection with the Company's sale of
          its Short Term 12% Unsecured Note in February of 1999 (incorporated by
          reference to the Company's Statement on Form 10-QSB for the quarter
          ended March 31, 1999).

10.12     Form of Warrant used in connection with the Company's sale of its 12%
          Short Term Unsecured Note in February of 1999 (incorporated by
          reference to the Company's Statement on Form 10-QSB for the quarter
          ended March 31, 1999).

10.13     Form of Note Conversion Agreement used in connection with the
          Company's conversion of its 12% Medium Term Unsecured Notes to Common
          Stock in March of 1999 (incorporated by reference to the Company's
          Statement on Form 10-KSB for the fiscal year ended June 30, 1999).

10.14     Form of Warrant used in connection with the Company's conversion of
          its 12% Medium Term Unsecured Notes to Common Stock in March of 1999
          (incorporated by reference to the Company's Statement on Form 10-KSB
          for the fiscal year ended June 30, 1999).

10.15     Form of Note Conversion Agreement used in connection with the
          Company's conversion of its 12% Short Term Unsecured Note to Common
          Stock in May of 1999 (incorporated by reference to the Company's
          Statement on Form 10-KSB for the fiscal year ended June 30, 1999).

                                       48
<PAGE>

Exhibit
Number    Description
-------   -----------

10.16     Form of Warrant between Company and investors in private placement of
          Common Stock on March 16, 1999 (incorporated by reference to the
          Company's Statement on Form 10-QSB for fiscal quarter ended March 31,
          1999).

10.17     Form of Warrant between Company and investors in private placements of
          warrants on April 12, 1999 and April 14, 1999 (incorporated by
          reference to the Company's Statement on Form 10-QSB for fiscal quarter
          ended March 31, 1999).

10.18     Form of Warrant between Company and investor in private placement of
          warrants on June 7, 1999 (incorporated by reference to the Company's
          Statement on Form 10-KSB for the fiscal year ended June 30, 1999).

10.19     Form of Warrant between Company and investors in private placements of
          Common Stock on May 13, 1999 and May 18, 1999 (incorporated by
          reference to the Company's Statement on Form 10-KSB for the fiscal
          year ended June 30, 1999).

10.20     Form of Warrant between Company and investors in private placements of
          Common Stock on June 30, 1999 and July 26, 1999 (incorporated by
          reference to the Company's Statement on Form 10-KSB for the fiscal
          year ended June 30, 1999).

10.21     Form of Subscription Agreement and Letter of Investment Intent between
          Company and employee investors in private placement of Common Stock in
          July of 1999 (incorporated by reference to the Company's Statement on
          Form 10-KSB for the fiscal year ended June 30, 1999).

10.22     Form of Subscription Agreement and Investment Letter between Company
          and investors in private placements of Common Stock and warrants in
          October 1999 (incorporated by reference to the Company's Form 10-QSB
          for the fiscal quarter ended October 2, 1999).

10.23     Form of Warrant issued to purchasers in October 1999 sales of Common
          Stock and Warrants (incorporated by reference to the Company's Form
          10-QSB for the fiscal quarter ended October 2, 1999).

10.24     Long-Term Subordinated Promissory Note by and among UST Delivery
          Systems, Inc. and CEX Holdings, Inc., dated September 24, 1999
          (incorporated by reference to the Company's Form 8-K, filed October 8,
          1999).

10.25     Short-Term Subordinated Promissory Note by and among UST Delivery
          Systems, Inc. and CEX Holdings, Inc., dated September 24, 1999
          (incorporated by reference to the Company's Form 8-K, filed October 8,
          1999).

10.26     Exchange Agreement by and among United Shipping & Technology, Inc.,
          UST Delivery Systems, Inc. and CEX Holdings, Inc., dated as of
          September 24, 1999 (incorporated by reference to the Company's Form
          8-K, filed October 8, 1999).

10.27     Credit Agreement by and among UST Delivery Systems, Inc. and General
          Electric Capital Corporation, dated as of September 24, 1999
          (incorporated by reference to the Company's Form 8-K, filed October 8,
          1999).

10.28     Revolving Note by and among UST Delivery Systems, Inc. and General
          Electric Capital Corporation, dated September 24, 1999 (incorporated
          by reference to the Company's Form 8-K, filed October 8, 1999).

10.29     Swing Line Note by and among UST Delivery Systems, Inc. and General
          Electric Capital Corporation, dated September 24, 1999 (incorporated
          by reference to the Company's Form 8-K, filed October 8, 1999).

                                       49
<PAGE>

Exhibit
Number    Description
-------   -----------

10.30     Note and Warrant Purchase Agreement by and among United Shipping &
          Technology, Inc., UST Delivery Systems, Inc. and Bayview Capital
          Partners LP, dated as of September 24, 1999 (incorporated by reference
          to the Company's Form 8-K, filed October 8, 1999).

10.31     Senior Subordinated Note by and among United Shipping & Technology,
          Inc., UST Delivery Systems, Inc. and Bayview Capital Partners LP,
          dated September 24, 1999 (incorporated by reference to the Company's
          Form 8-K, filed October 8, 1999).

10.32     Warrant to Purchase Common Stock of United Shipping & Technology, Inc.
          issued to Bayview Capital Partners LP, dated September 24, 1999
          (incorporated by reference to the Company's Form 8-K, filed October 8,
          1999).

10.33     Intercreditor and Subordination Agreement by and among Bayview Capital
          Partners LP, UST Delivery Systems, Inc., United Shipping & Technology,
          Inc. and General Electric Capital Corporation, dated as of September
          24, 1999 (incorporated by reference to the Company's Form 8-K, filed
          October 8, 1999).

10.34     Guaranty by and between United Shipping & Technology, Inc. and General
          Electric Capital Corporation, dated as of September 24, 1999
          (incorporated by reference to the Company's Form 10-QSB for the fiscal
          quarter ended October 2, 1999).

10.35     Subscription Agreement and Letter of Investment Intent between the
          Company and an investor in private placement of Common Stock and
          warrants on December 17, 1999 (incorporated by reference to the
          Company's Form 10-QSB for the fiscal quarter ended January 1, 2000).

10.36     Warrant issued to an investor in connection with December 17, 1999
          private placement of Common Stock and warrants (incorporated by
          reference to the Company's Form 10-QSB for the fiscal quarter ended
          January 1, 2000).

10.37     Form of Subscription Agreement and Letter of Investment Intent between
          the Company and investors in private placement of Common Stock and
          warrants on December 31, 1999 (incorporated by reference to the
          Company's Form 10-QSB for the fiscal quarter ended January 1, 2000).

10.38     Form of warrant issued to investors in connection with December 31,
          1999 private placement of Common Stock and warrants (incorporated by
          reference to the Company's Form 10-QSB for the fiscal quarter ended
          January 1, 2000).

10.39     Form of Subscription Agreement and Letter of Investment Intent between
          the Company and investors in private placement of Common Stock and
          warrants on January 18, 2000 (incorporated by reference to the
          Company's Form 10-QSB for the fiscal quarter ended January 1, 2000).

10.40     Form of Subscription Agreement and Letter of Investment Intent between
          the Company and investors in a private placement of the Company's
          Common Stock in January 2000 (incorporated by reference to the
          Company's Form 10-QSB for the fiscal quarter ended April 1, 2000).

10.41     Form of Option issued to employees on May 11, 2000 (incorporated by
          reference to the Company's Form 10-QSB for the fiscal quarter ended
          April 1, 2000).

10.42     Warrant to purchase up to 15,000 shares of Common Stock at a price of
          $12.925 per share issued by the Company to J. Iver & Company dated
          April 25, 2000 (incorporated by reference to the Company's Form 10-QSB
          for the fiscal quarter ended April 1, 2000).

                                       50
<PAGE>

Exhibit
Number    Description
-------   -----------

10.43     Stock Purchase Warrant to Acquire Series B Preferred Stock, issued May
          31, 2000, granted by United Shipping & Technology, Inc. to TH Lee.
          Putnam Internet Partners, L.P. for up to a number of shares of Series
          B Preferred Stock equal to $16,127,220, divided by the exercise price
          (incorporated by reference to the Company's Form 8-K, filed June 2,
          2000).

10.44     Stock Purchase Warrant to Acquire Series B Preferred Stock, issued May
          31, 2000, granted by United Shipping & Technology, Inc. to TH
          Lee.Putnam Internet Parallel Partners, L.P. for up to a number of
          shares of Series B Preferred Stock equal to $13,872,780, divided by
          the exercise price (incorporated by reference to the Company's Form
          8-K, filed June 2, 2000).

10.45     Stock Purchase Warrant to Acquire Common Stock, issued May 31, 2000,
          granted by United Shipping & Technology, Inc. to TH Lee.Putnam
          Internet Partners, L.P. for up to 228,469 shares of Common Stock
          (incorporated by reference to the Company's Form 8-K, filed June 2,
          2000).

10.46     Stock Purchase Warrant to Acquire Common Stock, issued May 31, 2000,
          granted by United Shipping & Technology, Inc. to TH Lee.Putnam
          Internet Parallel Partners, L.P. for up to 196,531 shares of Common
          Stock (incorporated by reference to the Company's Form 8-K, filed June
          2, 2000).

10.47     Stock Purchase Warrant to Acquire Series B Preferred Stock, issued May
          31, 2000, granted by United Shipping & Technology, Inc. to TH
          Lee.Putnam Internet Partners, L.P. for up to 243,468 shares of Series
          B Preferred Stock (incorporated by reference to the Company's Form
          8-K, filed June 2, 2000).

10.48     Stock Purchase Warrant to Acquire Series B Preferred Stock, issued May
          31, 2000, granted by United Shipping & Technology, Inc. to TH Lee
          Putnam Internet Parallel Partners, L.P. for up to 209,433 shares of
          Series B Preferred Stock (incorporated by reference to the Company's
          Form 8-K, filed June 2, 2000).

10.49     Stock Purchase Warrant to Acquire Series C Preferred Stock, issued
          September 1, 2000 by United Shipping & Technology, Inc. to TH
          Lee.Putnam Internet Partners, L.P. for 187,290 shares of Series C
          Preferred Stock at a price per share equal to $0.01 (incorporated by
          reference to the Company's Form 8-K, filed September 8, 2000).

10.50     Stock Purchase Warrant to Acquire Series C Preferred Stock, issued
          September 1, 2000 by United Shipping & Technology, Inc. to TH
          Lee.Putnam Internet Partners, L.P. for 142,042 shares of Series C
          Preferred Stock at a price per share equal to $0.01 (incorporated by
          reference to the Company's Form 8-K, filed September 8, 2000).

10.51     Stock Purchase Warrant to Acquire Series C Preferred Stock, issued
          September 1, 2000 by United Shipping & Technology, Inc. to THLi
          Coinvestment Partners, LLC for 10,598 shares of Series C Preferred
          Stock at a price per share equal to $0.01 (incorporated by reference
          to the Company's Form 8-K, filed September 8, 2000).

10.52     Stock Purchase Warrant to Acquire Series C Preferred Stock, issued
          September 1, 2000 by United Shipping & Technology, Inc. to Blue Star
          I, LLC for 4,024 shares of Series C Preferred Stock at a price per
          share equal to $0.01 (incorporated by reference to the Company's Form
          8-K, filed September 8, 2000).

10.53     Stock Purchase Warrant to Acquire Series C Preferred Stock, to be
          issued at the time of the Second Closing by United Shipping &
          Technology, Inc. to TH Lee.Putnam Internet Partners, L.P. for 262,204
          shares of Series C Preferred Stock at a price per share equal to $0.01
          (incorporated by reference to the Company's Form 8-K, filed September
          8, 2000).

                                       51
<PAGE>

Exhibit
Number    Description
-------   -----------

10.54     Stock Purchase Warrant to Acquire Series C Preferred Stock, to be
          issued at the time of the Second Closing by United Shipping &
          Technology, Inc. to TH Lee.Putnam Internet Parallel Partners, L.P. for
          198,855 shares of Series C Preferred Stock at a price per share equal
          to $0.01 (incorporated by reference to the Company's Form 8-K, filed
          September 8, 2000).

10.55     Stock Purchase Warrant to Acquire Series C Preferred Stock, to be
          issued at the time of the Second Closing by United Shipping &
          Technology, Inc. to THLi Coinvestment Partners LLC for 14,837 shares
          of Series C Preferred Stock at a price per share equal to $0.01
          (incorporated by reference to the Company's Form 8-K, filed September
          8, 2000).

10.56     Stock Purchase Warrant to Acquire Series C Preferred Stock, to be
          issued at the time of the Second Closing by United Shipping &
          Technology, Inc. to Blue Star I, LLC for 5,634 shares of Series C
          Preferred Stock at a price per share equal to $0.01 (incorporated by
          reference to the Company's Form 8-K, filed September 8, 2000).

10.57     Form of Stock Restriction Agreement, entered into as of September 1,
          2000 between TH Lee.Putnam Internet Partners, L.P. and each of Peter
          Lytle, Tim Becker and Michael Harris (incorporated by reference to the
          Company's Form 8-K, filed September 8, 2000).

10.58     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, whereby Mr.
          Ashabranner and his counsel, London & Schaeffer, L.L.P. were issued
          100,000 shares of the Company's Common Stock in connection with the
          settlement of certain litigation against Velocity Express, Inc.
          (incorporated by reference to the Company's Form 10-KSB for the fiscal
          year ended July 1, 2001).

10.59     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 (incorporated by reference to the Company's
          Form 10-QSB for the fiscal quarter ended December 30, 2000).

10.60     Form of Warrant issued to Bayview Capital Partners LP as of May 2000
          (incorporated by reference to the Company's Statement on Form 10-KSB
          for the fiscal year ended July 1, 2001).

10.61     Form of Warrant issued to Bayview Capital Partners LP as of July 2000
          (incorporated by reference to the Company's Statement on Form 10-KSB
          for the fiscal year ended July 1, 2001).

10.62     Form of non-qualified stock option issued to employees as of June 2000
          (incorporated by reference to the Company's Statement on Form 10-KSB
          for the fiscal year ended July 1, 2001).

10.63     Employment Agreement between United Shipping & Technology, Inc. and
          Peter C. Lytle, Chairman of the Board of Directors and Chief Executive
          Officer, dated November 5, 1999 (incorporated by reference to the
          Company's Statement on Form 10-KSB/A for the year ended July 1, 2001).

10.64     Amendment to the Employment Agreement between United Shipping &
          Technology, Inc. and Peter C. Lytle (incorporated by reference to the
          Company's Statement on Form 10-KSB/A for the year ended July 1, 2001).

10.65     Employment Agreement between United Shipping & Technology, Inc. and
          Timothy Becker, dated November 5, 1999 (incorporated by reference to
          the Company's Statement on Form 10-KSB/A for the year ended July 1,
          2001).

                                       52
<PAGE>

Exhibit
Number    Description
-------   -----------

10.66     Amendment to the Employment Agreement between United Shipping &
          Technology and Timothy Becker (incorporated by reference to the
          Company's Statement on Form 10-KSB/A for the year ended July 1, 2001).

10.67     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, filed January 9, 2001).

10.68     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, filed January 9, 2001).

10.69     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, filed January
          9, 2001).

10.70     Warrant issued to Michael Harris dated November 2, 2000 for the
          purchase of 24,930 shares of common stock (incorporated by reference
          to the Company's Form 10-QSB for the fiscal quarter ended December 30,
          2000).

10.71     Warrant issued to Craig-Hallum Capital Group dated November 6, 2000
          for the purchase of 50,000 shares of common stock (incorporated by
          reference to the Company's Form 10-QSB for the quarter ended December
          30, 2000).

10.72     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 (incorporated by reference to the
          Company's Form 10-QSB for the fiscal quarter ended December 30, 2000).

10.73     Securities Purchase Agreement dated as of March 1, 2001 among the
          Company and RS Investment Management, Inc. (incorporated by reference
          to the Company's Form 8-K, filed May 21, 2001).

10.74     Form of Stock Purchase Agreement to acquire Subscription Notes
          presently convertible into an aggregate 624,906 shares of Series D
          Preferred entered into during March 2001 between the Company and TenX
          Venture Partners, LLC, HomePoint Corporation, Salah Al-Qahtani and
          AL-MAL Islamic Company (incorporated by reference to the Company's
          Form 8-K, filed May 21, 2001).

10.75     Form of Subscription Notes presently convertible into an aggregate
          624,906 shares of Series D Preferred issued to TenX Venture Partners,
          LLC, HomePoint Corporation, Salah Al-Qahtani and AL-MAL Islamic
          Company pursuant to Stock Purchase Agreements entered into during
          March 2001 (incorporated by reference to the Company's Form 8-K, filed
          May 21, 2001).

10.76     Form of Warrant to purchase shares of Series D. Preferred issued to
          entities affiliated with TH Lee.Putnam Internet Parallel Partners,
          L.P. on January 4, 2001 (incorporated by reference to the Company's
          Form 8-K, filed May 21, 2001).

10.77     Form of Subscription Note Purchase Agreement to purchase Series F
          Convertible Preferred Stock entered into between the Company and
          certain investors in July of 2001.

                                       53
<PAGE>

Exhibit
Number    Description
-------   -----------

10.78     Form of Subscription Note issued in connection with the Company's
          Series F Convertible Preferred Stock financing in July of 2001.

10.79     Form of Warrant to purchase shares of Common Stock used in connection
          with the Company's Series F Convertible Preferred Stock financing in
          July of 2001.

10.80     Third Amended and Restated Registration Rights Agreement dated as of
          July 2001, among the Company, TH Lee.Putnam Internet Partners, L.P.,
          TH Lee.Putnam Internet Parallel Partners, L.P., THLi Coinvestment
          Partners LLC, Blue Star I, LLC, RS Investment Management, Inc.,
          Marshall T. Masko, Home Point Corporation, TenX Venture Partners, LLC,
          Al-Mal Islamic Company, Sheikh Salah A.H. Al-Qahtani and each Series F
          Convertible Preferred Stock purchaser.

21        Subsidiaries.

23.1      Consent of Ernst & Young LLP.

23.2      Consent of Lurie, Besikof, Lapidus & Co., LLP.

                                       54